Deferred Tax Valuation Allowance / Goodwill Impairment
- As a result of 3 full years of profitability and the completion of our near and medium term plans forecasting continuing profits, we reversed the majority of the valuation allowance in the U.S. and Canada, recording a $34.9 billion non-cash benefit.
- This triggered a non-cash goodwill impairment charge of $26.2 billion in Q4
GME Impairment of Long Lived and Intangible Assets
- In Q3 we indicated we may impair GME assets if conditions deteriorated
- Industry outlook and other factors have deteriorated since Q3 so we are now impairing long-lived assets in Europe, recording a $5.2 billion non-cash charge
What you need to know is that these are all non-cash events. The reserve for valuation allowance was put on the books in case they could use their operating loss carryforwards in the future. Because of their profitability they will now get to use those so the reserve is no longer needed so they reverse the earnings hit they took previously and now take it into earnings. It was non-cash when it was a hit and it is non-cash now. In my opinion it is perfectly justifiable for them to adjust these out when they report non-GAAP financials. My company is doing the exact same thing.
Understood. Again, it’s the amounts that raise questions. Backing up to goodwill, GM would have had negative equity without the huge $30 billion of goodwill on the balance sheet. This would have been a kiss of death for the IPO.
Both goodwill and valuation allowance releases are subject to abuse and hard to quantify. Given GM’s history of accounting abuses, the actions throw up a red flag in my opinion. Same holds true for inventory build-up. As noted, US inventory up over 20% since last year. Revenue only up 5%. Do the math and actual results not pretty.