General Motors Co quarterly report, Q1 FY2012

General Motors Co. — Q1 2012 Form 10-Q

Reporting period: Three months ended March 31, 2012; unaudited. GM designs, manufactures and sells vehicles and parts globally and provides financing through GM Financial. Results are reported across GM North America, GM Europe, GM International Operations, GM South America and GM Financial.

Key financial metrics

Metric	Q1 2012	Q1 2011
Total net sales and revenue	$37.759 billion	$36.194 billion
Operating income	$996 million	$949 million
Net income attributable to stockholders	$1.315 billion	$3.366 billion
Net income attributable to common stockholders	$1.004 billion	$3.151 billion
Basic / diluted EPS	$0.64 / $0.60	$2.09 / $1.77
Operating cash flow	$2.499 billion	$(377) million
Automotive free cash flow	$282 million	$(1.918) billion

Revenue increased 4.3%. Automotive gross margin was $4.418 billion, approximately 11.8% of automotive revenue; consolidated operating margin was approximately 2.6% of revenue (calculated). Cash and cash equivalents were $17.378 billion and marketable securities were $14.686 billion at quarter-end. GM reported automotive available liquidity of $31.455 billion, plus $5.885 billion available under credit facilities; GM Financial reported available liquidity of $1.631 billion.

At March 31, 2012, automotive debt was $5.385 billion and GM Financial debt was $8.839 billion. Total liabilities were $110.054 billion; pension liabilities were $25.017 billion. Total equity was $40.140 billion.

Material changes versus the prior comparable period

• Revenue rose 4.3%, supported mainly by higher wholesale volumes and favorable pricing and mix, partly offset by currency effects and lower powertrain and parts sales.
• Net income attributable to stockholders fell to $1.315 billion from $3.366 billion. The prior-year period included gains related to the sale of New Delphi and Ally Financial preferred stock; Q1 2012 also included $617 million of goodwill impairment charges.
• Operating cash flow improved substantially, primarily due to working-capital movements, including the prior-year impact of terminating advance wholesale agreements. Automotive free cash flow improved to $282 million.
• GMNA revenue and adjusted EBIT increased to $24.176 billion and $1.691 billion. GME revenue declined 19.8% and adjusted EBIT was a $256 million loss. GMIO revenue rose 16.4%, while adjusted EBIT declined to $529 million. GM Financial revenue increased 46.1% and pre-tax income rose to $181 million.
• Global vehicle sales increased to 2.278 million from 2.218 million, while worldwide market share edged down to 11.3% from 11.4%. China JV sales and market share increased.

Outlook, management commentary, risks and unusual items

• Management said current cash, securities and credit availability should meet liquidity needs, while noting substantial expected uses for investment, pensions and OPEB, debt reduction, preferred dividends and potential tax-related escrow deposits.
• GM expected scheduled factory downtime producing full-size trucks to affect GMNA results in Q2 and Q3 2012. No full-year numerical earnings or revenue guidance is provided in the supplied filing text.
• GM entered a strategic alliance agreement with Peugeot S.A. and acquired a 7% stake for $0.4 billion; implementation remained subject to definitive agreements. GM also acquired GMAC South America for $29 million and recorded a $50 million bargain purchase gain.
• Goodwill impairment totaled $617 million: $590 million in Europe and $27 million in GMIO, primarily related to GM Korea. Management warned that further material impairment could occur if economic or business conditions weaken or valuation assumptions change.
• Venezuelan exchange controls restricted conversion of local currency and settlement of certain obligations. Amounts pending government approval totaled the equivalent of $633 million at quarter-end.
• Contingencies include environmental remediation estimates of $140 million to $330 million; an estimated reasonably possible GM Korea wage-claim exposure of $533 million above its $146 million accrual; and South American tax proceedings that could require escrow deposits of $556 million to $772 million. GM also disclosed a $450 million UAW claim for which it recorded no accrual, and a Canadian dealer class action with uncertain liability and no estimated loss range.
• Other notable items: GM amended its U.S. salaried pension plan to stop benefit accruals after September 30, 2012; the filing says disclosure controls were effective and that there were no material changes to previously disclosed risk factors.

Important facts for investors to verify

• Whether GM Europe can improve operating performance and whether further goodwill impairments are likely.
• Cash generation and working-capital trends, including whether Q1’s operating cash flow improvement is sustainable.
• GMNA performance after the disclosed truck-factory downtime, and continued vehicle demand, pricing and market-share trends by region.
• GM Financial portfolio credit quality, funding access, debt growth and exposure to securitization and covenant requirements.
• Updates on Venezuelan currency restrictions, tax escrows, the GM Korea wage litigation and other material contingencies.
• Progress and financial commitments under the Peugeot alliance, pension de-risking plans and future capital spending.