General Motors Company — 2013 Form 10-K
Business context and reporting period. GM designs, manufactures and sells vehicles and parts worldwide and provides vehicle financing through GM Financial. This annual filing covers the year ended December 31, 2013; it also includes unaudited fourth-quarter results. Its five reportable segments are GM North America (GMNA), GM Europe (GME), GM International Operations (GMIO), GM South America (GMSA) and GM Financial.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Total net sales and revenue | $155.4 billion | $152.3 billion |
| Net income attributable to stockholders | $5.35 billion | $6.19 billion |
| Net income attributable to common stockholders | $3.77 billion | $4.86 billion |
| Diluted earnings per common share | $2.38 | $2.92 |
| Operating cash flow | $12.63 billion | $10.61 billion |
| Capital expenditures | $7.57 billion | $8.07 billion |
| Automotive free cash flow | $3.47 billion | $1.58 billion |
| Automotive EBIT-adjusted | $7.68 billion | $7.12 billion |
| Automotive gross margin | $17.17 billion (about 11.3% of automotive revenue) | $10.06 billion (about 6.7%) |
| Cash and cash equivalents at year-end | $20.02 billion | $18.42 billion |
| Automotive debt | $7.14 billion | $5.17 billion |
| GM Financial debt | $29.05 billion | $10.88 billion |
Automotive available liquidity, including marketable securities and undrawn credit facilities, was $38.3 billion, up from $37.2 billion. Automotive operating cash flow was $11.0 billion; automotive free cash flow is a non-GAAP measure. GM Financial reported $883 million of income before taxes, compared with $744 million in 2012. Pension plans were underfunded by $19.9 billion, down from $27.8 billion; other postretirement benefit plans were unfunded by $6.3 billion.
In fourth-quarter 2013, revenue was $40.5 billion, net income attributable to stockholders was $1.04 billion, automotive gross margin was $4.07 billion, and diluted EPS was $0.57. Fourth-quarter 2012 revenue was $39.3 billion, stockholder-attributable net income was $1.19 billion, and diluted EPS was $0.54.
Material changes versus the prior comparable period
- Revenue rose 2.1% year over year. Automotive pricing and mix improved, while lower wholesale volume and foreign-currency effects partly offset gains. Worldwide retail vehicle sales increased to 9.7 million from 9.3 million; wholesale sales were 6.4 million, slightly below 2012.
- Stockholder-attributable net income declined, while automotive EBIT-adjusted increased. The 2012 comparison was materially affected by a $36.3 billion U.S. and Canadian deferred-tax valuation-allowance release and substantial goodwill, asset impairment and pension settlement charges. The 2013 result included a $2.1 billion income-tax expense and does not include a comparable valuation-allowance release.
- GM Financial revenue grew sharply following its acquisition of Ally Financial’s European and Latin American finance operations; debt, receivables, loan-loss provisions and expenses also increased. The acquisition of Ally’s interest in GMAC-SAIC in China remained pending, with closing expected in 2014.
- North America remained the main automotive earnings contributor: GMNA EBIT-adjusted rose to $7.46 billion from $6.47 billion. GME continued to lose money, though its adjusted loss narrowed to $844 million from $1.94 billion. GMIO EBIT-adjusted fell to $1.23 billion from $2.53 billion; GMSA declined to $327 million from $457 million.
Outlook, management commentary, risks and unusual items
- Management expected the 2014 global vehicle industry to grow about 2%, to approximately 85 million vehicles. It forecast 2014 adjusted EBIT margins comparable to 2013 and continued to target mid- to high-single-digit margins by mid-decade. Management expected up to $1.1 billion of global restructuring charges in 2014, partly offset by pricing and strength in North America and China.
- GM expected continued near-term losses in Europe but targeted GME break-even by mid-decade. It agreed to end vehicle and transmission production at Bochum, Germany, by the end of 2014; cease mainstream Chevrolet distribution in Western and Central Europe in 2015; and end vehicle and engine manufacturing at Holden, Australia, by the end of 2017.
- Fourth-quarter 2013 items included impairment charges for Holden and GM India, Chevrolet Europe exit costs, and goodwill impairment; a benefit from reversing GM Korea wage-litigation accruals; gains on sales of Ally Financial and PSA investments; and a tax benefit from remeasuring an uncertain tax position. The filing reports these items in multiple lines and on differing pre-tax and noncontrolling-interest bases.
- GM issued $4.5 billion of senior unsecured notes and used proceeds in part to prepay Canadian Health Care Trust notes and buy back Series A preferred shares. Series B preferred stock converted into 137 million common shares. In January 2014 the board declared a $0.30-per-share common dividend, payable in March; future dividends remain subject to board discretion and financing restrictions.
- Key risks include cyclical vehicle demand, competitive pricing and incentives, successful launches and cost control, supplier disruptions, foreign exchange and commodity volatility, pension assumptions, regulatory compliance, recalls, and GM Financial’s credit, funding and residual-value risks. Venezuela’s currency controls and vehicle price controls create uncertainty; $0.6 billion of amounts were awaiting approval for settlement in U.S. dollars at year-end.
- Contingencies include GM Korea wage litigation involving more than 10,000 employees: GM reversed its accrual after a favorable Supreme Court decision in a separate case, but disclosed a reasonably possible loss estimate of about $599 million for the hourly cases and an additional $156 million for salaried claims above its accrual. Other proceedings include a Canadian former-dealer class action and an appeal in the Saab litigation, which sought at least $3.0 billion and had been dismissed by the trial court.
- Maximum potential obligations under guarantees were $16.9 billion, including substantial Ally Financial repurchase-related guarantees; actual losses may be lower and depend on triggering events. GM reported a $77 million foreign-subsidiary loan covenant issue and was evaluating a cure. The filing also disclosed an India Tavera emissions compliance issue whose impact was not yet determinable.
- Deloitte issued an unqualified opinion on the consolidated financial statements and concluded internal control over financial reporting was effective as of December 31, 2013.
Important facts for investors to verify
- Reconcile GAAP earnings and EPS to adjusted segment results, particularly the impact of preferred dividends, preferred-stock repurchases and the unusually large 2012 tax benefit and impairments.
- Assess whether North America and China can offset continuing European losses, weaker GMIO results, South American currency pressure and planned restructuring costs.
- Review GM Financial’s expanded credit portfolio: debt rose to $29.0 billion, the loan-loss provision to $475 million, and 88% of its North American consumer receivables had borrower FICO scores below 620.
- Monitor liquidity and debt maturities alongside planned investment, restructuring payments, the expected GMAC-SAIC purchase and the remaining Series A preferred stock redemption exposure.
- Track the outcomes and cash implications of wage litigation, dealer and product-related claims, guarantees, Venezuela currency restrictions, and the India emissions issue.
- Evaluate pension funding and valuation sensitivity: year-end underfunding improved substantially, but remains material and depends on discount rates, returns and future assumptions.