General Motors Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; figures are unaudited. Amounts are U.S. dollars unless stated otherwise.
Business context and financial performance
GM designs, manufactures and sells vehicles and parts worldwide 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. China joint ventures are accounted for using the equity method, rather than consolidated into revenue.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total net sales and revenue | $35.712 billion | $37.408 billion |
| Operating income (loss), GAAP | $753 million | $(535) million |
| Net income attributable to stockholders | $945 million | $213 million |
| Diluted earnings per common share | $0.56 | $0.06 |
| Net cash provided by operating activities, consolidated | $375 million | $1.976 billion |
| Automotive adjusted free cash flow | $(1.7) billion | $0.2 billion |
Revenue declined 4.5% year over year, while GAAP operating results and earnings improved substantially. Automotive EBIT-adjusted was $1.871 billion, versus $246 million a year earlier; GM Financial income before income taxes-adjusted was $214 million, compared with $221 million. These are non-GAAP measures defined by GM and should not be treated as substitutes for GAAP results. GM’s share of China JV earnings was $519 million, down from $595 million.
Automotive cost of sales fell to $30.674 billion from $34.127 billion, primarily reflecting lower recall-related charges and favorable foreign exchange effects, partly offset by Russia exit costs. The 2014 quarter included approximately $1.3 billion of charges for recalls affecting about 7 million vehicles. Q1 2015 included a $150 million increase to the ignition-switch compensation-program accrual.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $15.776 billion, down from $18.954 billion at December 31, 2014; marketable securities were $8.409 billion, down from $9.222 billion.
- Total assets were $179.918 billion and total liabilities were $143.095 billion at March 31, 2015.
- Automotive debt was $9.133 billion; GM Financial debt was $39.125 billion. GM Financial debt primarily funds its finance receivables and lease assets.
- Automotive available liquidity was $34.2 billion, including $22.1 billion of cash and marketable securities and $12.1 billion available under credit facilities. GM Financial available liquidity was $9.9 billion.
- Automotive operating cash flow was approximately zero, compared with $2.0 billion in Q1 2014. Automotive capital expenditures were $1.7 billion. Consolidated cash declined by $3.178 billion during the quarter.
Material changes versus the prior period
- Automotive EBIT-adjusted increased significantly, led by GMNA, where it reached $2.182 billion versus $557 million, principally due to lower recall charges, stronger full-size SUV mix and higher wholesale volumes.
- Automotive revenue fell 5.4%. GME revenue declined 20.8% and GMSA revenue declined 30.8%, with foreign exchange and weaker volumes among the principal factors. GM Financial revenue rose 23.4% to $1.354 billion, primarily due to a larger lease portfolio.
- GM announced a change in its Russia business model: it plans to cease manufacturing, end Opel distribution and substantially reduce Chevrolet distribution by the end of 2015. Related Q1 pre-tax charges were $428 million; additional exit costs of up to $100 million may be incurred through 2016.
- GM Financial acquired Ally Financial’s 40% interest in SAIC-GMAC for $1.0 billion and sold a 5% interest for $125 million. GM Financial now owns 35%; GM indirectly owns 45%.
- GM repurchased 10 million shares for $375 million during the quarter, of which $300 million was cash-settled in the quarter. The company declared a $0.30 quarterly dividend per share.
Outlook, management commentary and risks
- For 2015, GM expected EBIT-adjusted and margins to improve in all automotive segments, citing anticipated industry growth, stronger full-size truck and SUV mix and lower restructuring costs; higher marketing and engineering spending and unfavorable currency effects were expected offsets. Adjusted automotive free cash flow was expected to be flat to higher than in 2014.
- Longer-term targets included consolidated EBIT-adjusted margins of 9%–10% by the 2020s and ROIC above 20%. GM expected GMNA to reach a 10% EBIT-adjusted margin in 2016 and GME to return to positive EBIT-adjusted results in 2016, assuming Europe did not enter another recession.
- GM Financial expected 2015 adjusted pre-tax income to remain consistent with 2014 as portfolio growth brings higher loan-loss provisions and interest expense. Management’s capital-allocation plan targeted $20 billion in combined cash and marketable securities and authorized up to $5 billion of share repurchases through 2016. In April, GM announced a quarterly dividend increase to $0.36 per share, effective Q2 2015.
- Recall litigation and investigations remain material uncertainties. GM could not estimate a reasonably possible loss range for ignition-switch-related lawsuits and investigations. The compensation-program accrual was $350 million at quarter-end; GM stated the liability could exceed the recorded amount by $50 million. Through April 17, 2015, 244 claims had been deemed eligible and $208 million had been paid.
- Other exposures include Korean wage claims, GM Financial sub-prime lending and securitization investigations, product-liability claims, and potential litigation or tax losses. GM reported $512 million of reasonably possible excess loss for GM Korea hourly wage cases and $152 million for salaried-employee cases. South American indirect-tax matters may require $400–$600 million in escrow deposits.
- Venezuelan currency controls and economic conditions could disrupt production; GM said production could cease in July 2015 absent access to U.S. dollars. Loss of control of its Venezuelan subsidiaries could result in a charge of up to $0.8 billion.
- Other risks include European weakness, emerging-market volatility, foreign exchange, vehicle quality and recalls, pension assumptions, labor negotiations and restructuring execution. GM stated there were no material changes to the risk factors in its 2014 Form 10-K.
Important facts for investors to verify
- Whether GM’s stronger GAAP and adjusted automotive results persist after excluding the prior-year recall-charge comparison and considering the current-period Russia exit and ignition-switch costs.
- How automotive cash generation and available liquidity develop alongside planned capital spending, dividends and the authorized share repurchase program.
- Whether recall-program payments, vehicle repairs, lawsuits and government investigations result in costs materially above recorded accruals.
- Progress and final costs of the Russia exit and other regional restructurings, and the effect of currency and demand conditions in Europe, South America and Venezuela.
- GM Financial’s loan-loss trends, sub-prime portfolio performance, debt funding and the outcomes of government inquiries into loan origination and securitization.