General Motors Company — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed February 7, 2017. This is an annual report, not a standalone fourth-quarter filing. Unless otherwise noted, financial amounts are U.S. dollars.
Business context and results
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.
| Metric | 2016 | 2015 |
|---|---|---|
| Total net sales and revenue | $166.4 billion | $152.4 billion |
| Net income attributable to stockholders | $9.4 billion | $9.7 billion |
| Diluted EPS, GAAP | $6.00 | $5.91 |
| Diluted EPS, adjusted | $6.12 | $5.02 |
| EBIT-adjusted | $12.5 billion | $10.8 billion |
| EBIT-adjusted margin | 7.5% | 7.1% |
| Net cash provided by operating activities, consolidated | $16.5 billion | $11.7 billion |
| Capital expenditures | $9.5 billion | $7.9 billion |
| Adjusted automotive free cash flow | $6.9 billion | $2.2 billion |
2016 fourth-quarter revenue was $43.9 billion and net income was $1.8 billion, versus $39.6 billion and $6.2 billion, respectively, in fourth-quarter 2015. The prior-year quarter included a $3.9 billion tax benefit from reversing European deferred-tax valuation allowances, making the earnings comparison unusual.
Financial position, segments and capital allocation
- Total assets were $221.7 billion and total equity was $44.1 billion at year-end 2016. Automotive notes and loans payable were $10.8 billion; GM Financial notes and loans payable were $73.9 billion.
- Automotive available liquidity was $35.6 billion, including $21.6 billion of cash and marketable securities and $14.0 billion available under credit facilities. GM Financial reported $13.2 billion of available liquidity. GM said it had no borrowings under its primary revolving facilities; $0.6 billion of letters of credit was outstanding.
- GMNA generated $12.0 billion of adjusted EBIT, with a 10.1% margin. GME’s adjusted EBIT loss narrowed to $257 million from $813 million. GMIO adjusted EBIT was $1.1 billion, while GMSA recorded an adjusted EBIT loss of $374 million.
- Automotive China joint ventures contributed $2.0 billion of equity income. GM Financial revenue rose 48% to $9.6 billion, primarily reflecting growth in its leased-vehicle portfolio; adjusted pre-tax earnings were $913 million.
- GM returned $4.8 billion to shareholders in 2016 through dividends and repurchases. Dividends declared were $1.52 per common share. The board authorized an additional $5 billion repurchase program in January 2017.
Material changes and management outlook
- Revenue increased 9.2%, led by GMNA and GM Financial. Worldwide wholesale vehicle sales rose to 6.25 million from 5.88 million; U.S. market share declined to 17.0% from 17.3%, in part because GM reduced rental deliveries. China market share fell to 13.8% from 14.9% despite higher sales.
- GAAP net income attributable to stockholders declined from $9.7 billion to $9.4 billion, while adjusted EBIT and adjusted EPS improved. 2015 results included the $3.9 billion European tax valuation-allowance reversal and $1.8 billion of ignition-switch-related adjustments; 2016 included $300 million of ignition-switch-related adjustments.
- GM’s 2017 outlook called for revenue, adjusted EBIT and adjusted EBIT margin to equal or exceed 2016; adjusted ROIC above 25%; automotive operating cash flow of approximately $15 billion; adjusted automotive free cash flow of approximately $6 billion; and diluted EPS of $6.00–$6.50. It expected a tax rate similar to 2016 and GMNA adjusted EBIT margin of about 10%.
- Management targeted $6.5 billion in annual operational and functional cost savings through 2018 versus 2014; about $4 billion had been achieved by year-end 2016. Its longer-term goal was 9%–10% adjusted EBIT margins by early next decade.
- Management cited continued investment in new products, engineering and technology, including electrification, autonomous vehicles, and car- and ride-sharing. The company began selling the Chevrolet Bolt EV in 2016 and acquired Cruise Automation.
Risks, contingencies and unusual items
- Recalls and litigation: Ignition-switch matters remain subject to lawsuits, investigations and a deferred prosecution agreement. GM paid a $900 million federal penalty in 2015; prosecution could follow if the company breaches the agreement. The filing says additional ignition-switch-related liabilities are probable in at least some matters but cannot be estimated in aggregate.
- Takata inflators: GM had not accrued for possible repairs to affected GMT900 vehicles, asserting that testing supported its position that repairs would not be needed. It estimated a reasonably possible cost of up to $880 million if repairs were ultimately required across 6.9 million vehicles subject to current or future Takata filings.
- Other legal exposures: GM reported $1.3 billion in litigation-related accruals. It estimated reasonably possible losses above accruals of up to $1.1 billion for indirect-tax matters, and identified potential excess losses in GM Korea wage cases of $506 million for hourly claims and $154 million for salaried claims.
- Pensions: U.S. pension plans were underfunded by $7.2 billion at year-end, although that deficit improved by $3.2 billion during 2016. Pension funding, discount rates and investment returns remain significant sensitivities.
- Markets and regulation: Risks include vehicle-market cyclicality, competition and pricing pressure, particularly in China; foreign-exchange and political uncertainty; Brexit-related effects; emissions and fuel-economy compliance; supplier interruptions; and potential restructuring or asset impairments. GM’s German subsidiary participated in emissions inquiries; the filing cautions that further testing or regulatory action could bring costs, penalties, recalls or reputational harm.
- Other exposures: GM Financial’s expanding lease portfolio carries residual-value risk; the company also cited cybersecurity, joint-venture governance, and global trade and regulatory risks. GM stated that it maintained effective internal controls over financial reporting; the independent auditor gave an unqualified opinion.
Key facts for investors to verify
- Whether GM meets its 2017 EPS, adjusted EBIT, cash-flow and ROIC targets, and how much depends on favorable product mix and market conditions.
- Developments in ignition-switch litigation and the deferred prosecution agreement, including any material change to the unquantified potential exposure.
- NHTSA’s decision on the Takata-related petitions and whether any GMT900 inflator repairs become necessary, potentially exposing GM to costs estimated up to $880 million.
- GM Financial credit quality, lease residual values, funding access and liquidity as its receivables and lease portfolio grow.
- Pension funding requirements and sensitivities to interest rates and asset returns, along with the company’s progress toward its cost-savings and capital-allocation commitments.