General Motors Company — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results; it is an annual 10-K, not a standalone quarterly filing. GM designs, manufactures and sells vehicles and parts globally and provides automotive financing through GM Financial.
Financial performance and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales and revenue | $155.9 billion | $155.4 billion |
| Net income | $4.0 billion | $5.3 billion |
| Net income attributable to common stockholders | $2.8 billion | $3.8 billion |
| Diluted earnings per share | $1.65 | $2.38 |
| Operating income | $1.5 billion | $5.1 billion |
| Automotive adjusted free cash flow | $3.1 billion | $3.7 billion |
| Automotive available liquidity | $37.2 billion | $38.3 billion |
| Automotive debt | $9.4 billion | $7.1 billion |
| GM Financial debt | $37.4 billion | $29.0 billion |
- Revenue was nearly flat, up 0.3%; net income declined about 25%. The filing attributes the earnings pressure principally to recall costs and other operating items. Diluted EPS also reflects preferred-stock-related charges and a higher weighted-average basic share count.
- Automotive sales and revenue were $151.1 billion, down 0.7%. Automotive cost of sales rose 2.3% to $138.1 billion. Using these reported figures, automotive gross profit was approximately $13.0 billion, or 8.6% of automotive revenue.
- Adjusted EBIT was $6.5 billion, equivalent to approximately 4.2% of consolidated revenue. Segment adjusted EBIT: GMNA $6.6 billion; GMIO $1.2 billion; GME loss $1.4 billion; GMSA loss $0.2 billion. These are non-GAAP measures.
- Consolidated cash from operating activities was $10.1 billion, versus $12.6 billion. Capital expenditures were $7.1 billion. Automotive operating cash flow was $10.1 billion; automotive adjusted free cash flow subtracts capital expenditures and includes management-defined adjustments.
- At year-end, cash and cash equivalents were $19.0 billion and marketable securities were $9.2 billion. Total automotive available liquidity included $25.2 billion of cash and marketable securities and $12.0 billion available under credit facilities. The facilities were undrawn, apart from $0.5 billion of letters of credit in use.
- Total assets were $177.7 billion and total equity $36.0 billion. Pension liabilities were $23.8 billion on the balance sheet; U.S. pension plans were underfunded by $10.9 billion and non-U.S. plans by $13.2 billion. The company expected $1.1 billion of non-U.S. pension contributions and $70 million to U.S. non-qualified plans in 2015.
- GM Financial revenue increased 45% to $4.9 billion, but adjusted pretax income declined 11% to $803 million as debt costs, operating expenses, lease expenses and loan-loss provisions rose.
Material changes versus 2013
- Automotive revenue increased in GMNA by 6.4%, but fell 21.8% in GMIO and 20.4% in GMSA; GME increased 1.2%. GMNA adjusted EBIT fell 11.5%, while GME’s adjusted loss widened. GMIO adjusted EBIT was slightly lower and GMSA moved from adjusted profit to loss.
- Worldwide retail vehicle sales rose to 9.9 million from 9.7 million, but GM’s estimated worldwide market share slipped from 11.5% to 11.4%. U.S. share fell 0.1 percentage point to 17.4%; Europe share declined to 6.7% from 7.6%.
- Automotive recall and courtesy-transportation charges were approximately $2.9 billion. GM also recorded a $0.4 billion ignition-switch compensation-program charge. A $0.9 billion catch-up adjustment followed a change to actuarial-based recall accruals for GMNA vehicles.
- GM redeemed its remaining Series A preferred stock for $3.9 billion, funded with cash and proceeds from $2.5 billion of senior notes. The redemption reduced net income attributable to common stockholders by $0.8 billion. GM began paying common dividends in 2014 at $0.30 quarterly per share.
- GM Financial debt increased with portfolio growth and the 2013 acquisition of Ally Financial’s international operations. Its available liquidity increased to $8.3 billion from $3.3 billion.
Outlook, commentary and risks
- Management expected adjusted EBIT and margins to improve in all automotive segments in 2015, citing approximately 3% global industry sales growth, better full-size truck and SUV mix, and lower restructuring costs. Higher marketing and engineering costs and unfavorable foreign exchange were expected offsets. Adjusted automotive free cash flow was expected to be relatively flat.
- Targets included 9%–10% consolidated adjusted EBIT margins by the 2020s, 10% GMNA adjusted EBIT margin in 2016, and a return to GME profitability in 2016, conditional on Europe avoiding another recession. GM planned approximately $14 billion of investment in China through 2018 and targeted nearly 40% higher vehicle sales there by 2018.
- Recall-related legal proceedings and government investigations remained unresolved, and GM said it could not estimate a reasonably possible loss range. At January 30, 2015, the ignition-switch compensation program had received 3,810 claims; 128 had been determined eligible. The recorded program liability was $315 million, with a reasonably possible additional $200 million.
- Other significant risks include vehicle safety and recall costs, intense competition and pricing pressure, European restructuring, economic and currency volatility in South America and other markets, pension funding exposure, supplier interruptions, regulatory costs, and GM Financial credit, funding and residual-value risks. GM Financial was also subject to government subpoenas and investigations concerning subprime loan origination and securitization.
- Venezuelan currency controls and operating restrictions created uncertainty; GM disclosed that loss of control of its Venezuelan subsidiaries could result in a charge of up to $0.9 billion. The filing also identifies possible additional Korean wage-litigation losses and environmental remediation exposure.
- GM reported effective disclosure controls and internal control over financial reporting. The independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How recall repair costs, customer take-up and future safety actions compare with GM’s accruals, including the change to GMNA’s actuarial recall methodology.
- The scope and potential financial consequences of ignition-switch litigation, government investigations and the compensation program; the filing reports differing approximate recall totals in different sections.
- Whether regional recovery targets are achieved, particularly GME’s planned 2016 return to profitability and GMSA’s exposure to Venezuela, Brazil and Argentina.
- GM Financial’s loan-loss trends, subprime portfolio quality, funding costs, lease residual values and the outcome of its subprime-related investigations.
- Effects of pension assumptions and funding status, and whether GM sustains liquidity and cash generation while meeting capital, recall, restructuring, debt and dividend needs.