General Motors Co. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Financial statements are unaudited. Unless noted otherwise, amounts are U.S. dollars.
Business context
GM designs, manufactures and sells vehicles and parts globally, and provides automotive financing through GM Financial. Its reporting segments are GM North America (GMNA), GM Europe (GME), GM International Operations (GMIO), GM South America (GMSA) and GM Financial. GM changed its segment reporting basis in 2013 to the geography where vehicles are sold; comparative segment figures were retrospectively revised.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $39.1 billion | $37.6 billion | $76.0 billion | $75.4 billion |
| Operating income | $1.75 billion | $1.82 billion | $2.71 billion | $2.82 billion |
| Net income attributable to stockholders | $1.41 billion | $1.85 billion | $2.59 billion | $3.16 billion |
| EPS attributable to common stockholders, diluted | $0.75 | $0.90 | $1.37 | $1.49 |
| Operating cash flow, consolidated | Not separately presented | Not separately presented | $5.71 billion | $6.44 billion |
Revenue rose 3.9% in Q2 and 0.8% for the first half. Operating income was lower in both comparisons; reported stockholder-attributable net income fell 23% in Q2 and 18% for the first half. Q2 operating margin was approximately 4.5%, versus 4.8% a year earlier. Automotive gross margin was $4.42 billion in Q2 and $8.14 billion for the first half, down from $4.45 billion and $8.87 billion, respectively.
- Segment performance: Q2 adjusted EBIT was $1.98 billion at GMNA, a $110 million loss at GME, $228 million at GMIO and $54 million at GMSA. First-half adjusted EBIT was $3.39 billion, a $285 million loss, $723 million and $16 million, respectively. GM Financial pretax income was $254 million in Q2 and $434 million in the first half.
- Cash flow and investment: Consolidated investing cash use was $5.80 billion in the first half, including substantial GM Financial receivables funding and the international finance acquisitions. Automotive operating cash flow was $5.00 billion; automotive free cash flow was $1.17 billion, or $1.24 billion adjusted, versus $1.98 billion in the prior-year period. Automotive capital expenditures were approximately $3.83 billion.
- Liquidity: Automotive available liquidity was $34.8 billion at June 30, including $17.94 billion cash and cash equivalents, $6.26 billion marketable securities and $10.61 billion available under credit facilities. It was down $2.4 billion from year-end 2012. GM Financial reported $3.48 billion available liquidity.
- Debt and balance sheet: June 30 total debt was approximately $26.75 billion: $3.96 billion automotive and $22.79 billion GM Financial, compared with $16.05 billion combined at year-end 2012. The increase largely reflects GM Financial’s acquisition-related and portfolio funding. Total assets were $163.1 billion and total equity $39.0 billion. Pension liabilities were $26.7 billion; other postretirement benefit liabilities were $7.2 billion.
Material changes and notable items
- GM Financial completed acquisitions of Ally Financial’s European and Latin American finance operations, except Brazil, and its France and Portugal operations. Consideration was $2.6 billion; acquired receivables were approximately $11.0 billion, with $8.9 billion of acquired debt. Brazil and GMAC-SAIC China transactions remained subject to approvals; GM expected to pay approximately $1.5 billion for those remaining acquisitions.
- Revenue gains reflected higher North American volume and pricing and increased GM Financial revenue, partly offset by foreign-exchange headwinds and weakness in Europe and some GMIO markets. First-half worldwide wholesale volume declined 0.6%.
- China joint-venture equity income increased to $966 million for the first half from $750 million. These ventures’ sales and revenue are not consolidated.
- Income tax expense increased to $742 million in Q2 and $1.15 billion for the first half. Management attributed much of the increase versus 2012 to U.S. and Canadian entities being included in the tax expense calculation after valuation allowances were released in 2012.
- A $240 million Q2 loss on extinguishment of debt followed GM Korea’s $708 million purchase of mandatorily redeemable preferred shares. First-half results also included a $162 million Venezuela currency-devaluation charge; 2012 included $617 million of goodwill impairment charges that did not recur.
Outlook, risks and contingencies
GM expected annual capital expenditures of approximately $8 billion and identified remaining finance acquisitions, debt service, $0.6 billion in annual Series A preferred dividends, and potential litigation and tax-related payments or escrow deposits as material cash demands. Management said current liquidity and operating cash flows should meet liquidity needs, while noting exposure to macroeconomic and other risks. No consolidated earnings or revenue guidance is stated in the provided filing text.
- Management expected continued losses in Europe and did not expect adverse regional economic conditions to improve significantly in the foreseeable future. European industry sales fell 5.3% in the first half, and GM’s European market share was 8.4%, versus 8.5% in 2012.
- GM cited risks including product quality and recalls, restructuring execution, customer and dealer financing availability, supplier continuity, competition, foreign exchange and commodity volatility, pensions, and economic and political conditions—particularly in Europe, China and Venezuela.
- GM Korea hourly wage litigation involved more than 10,000 employees; GM had accrued $710 million and reported no reasonably possible loss above that accrual for those cases. Separate salary-employee cases had $135 million of reasonably possible loss above amounts accrued.
- Other matters included a dealer class action in Canada with uncertain liability and no accrual, a UAW claim seeking $450 million with no accrual, and the Nova Scotia claims proceedings, for which GM estimated a maximum reasonably possible loss of approximately $887 million. Environmental remediation losses were estimated at $120 million to $240 million.
- GM reported $18.3 billion maximum potential obligations under guarantees and commitments. The filing also noted an India Tavera emissions-compliance issue whose impact could not yet be determined, and foreign-exchange approval delays in Venezuela.
Most important facts for investors to verify
- Whether the remaining Ally Financial acquisitions close on expected terms and how they affect GM Financial’s earnings, funding needs, credit performance and debt.
- Whether European restructuring and product plans reduce losses, given continuing market weakness and GM’s stated expectation of further losses.
- How vehicle mix, manufacturing costs, taxes and currency movements affect margins and earnings, particularly in North America, South America and Venezuela.
- Whether automotive liquidity remains adequate after planned capital spending, preferred dividends, acquisition payments and potential litigation or tax-related cash requirements.
- Developments in the GM Korea wage cases, Canadian dealer action, UAW claim, Nova Scotia proceedings, product liability and environmental matters.