GM Reports 2006 Financial Results
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- Record revenue of $207 billion in 2006
- 2006 adjusted net income of $2.2 billion - improvement of $5.4 billion
- 2006 reported net loss of $2.0 billion - improvement of $8.4 billion
- Positive fourth quarter net income and operating cash flow
- Year-end cash balance of $26.4 billion
DETROIT, March 14 -- General Motors Corp. today posted net income for 2006, excluding special items, of $2.2 billion, or $3.88 per share fully diluted, compared with a net loss of $3.2 billion, or $5.67 per share, in 2005, marking a $5.4 billion improvement. Including special items, GM had a net loss of $2.0 billion, or $3.50 per share for 2006, compared with a net loss of $10.4 billion, or $18.42 per share in the year-ago period. GM earned record revenue of $207 billion in 2006, compared with $195 billion in 2005.
"We needed 2006 to be a big year, and it was," GM Chairman and CEO Rick Wagoner said. "Our performance last year reflects the significant progress we've made toward transforming GM into a more competitive, global business focused on long-term, sustainable success. The improvement is a credit to our employees, union partners, dealers and suppliers worldwide. It's also validation that our strategy is working, and faster than many people thought possible.
"But nobody at GM is declaring victory, because we all know there is still a lot more work to do to achieve our goals of steady growth, solid profitability and positive cash flow generation. We're confident that the momentum we generated in 2006 will continue to build through this year and beyond," Wagoner added.
GM's net income in the fourth quarter 2006 was $180 million, or $.32 per diluted share, excluding special items. These results compare to a net loss of $936 million, or $1.66 per share in the year ago period. Including the net favorable effect of all special items, GM's net income was $950 million, or $1.68 per diluted share in the fourth quarter of 2006, compared with a loss of $6.6 billion, or $11.63 per share in the fourth quarter of 2005. GM had revenue of $51.2 billion in the fourth quarter 2006, compared with $51.7 billion in the same period a year ago, with the decline more than accounted for by the exclusion of GMAC revenue starting December 1, 2006, which is explained in greater detail in the "GMAC" section of the press release.
The reported results for the fourth quarter 2006 include special items totaling $770 million after-tax, or $1.36 per diluted share. These are primarily attributable to gains related to GMAC transaction-related items and the sale of the GM desert proving ground property, partially offset by costs related to previously announced GM restructuring items. Additional details on these special items are included in the "Highlights" section of the press release.
GM Automotive Operations
Net income from global automotive operations for 2006 improved by more than $5.7 billion, totaling $422 million on an adjusted basis, excluding special items (reported net loss of $3.2 billion). Adjusted net income for GM's automotive operations in the fourth quarter 2006 was $228 million (reported net income of $194 million), compared with an adjusted loss of $1.2 billion in the year-ago period.
GM sold 9.1 million vehicles worldwide in 2006. For the second consecutive year, unit sales outside of the U.S. surpassed domestic sales with almost 5 million units, or 55 percent of global volume. GM Europe (GME), GM Asia Pacific (GMAP), and GM Latin America, Africa and the Middle East (GMLAAM) all set regional sales records, with GME exceeding 2 million units, GMAP topping 1.25 million units, and LAAM surpassing 1 million units for the first time.
GM North America (GMNA) posted a $5 billion earnings improvement in 2006, with an adjusted net loss of $779 million (reported net loss of $4.6 billion). In the fourth quarter of 2006, GMNA recorded its fourth consecutive quarter of more than $1 billion improvement in adjusted earnings. GMNA had an adjusted net loss of $14 million in the fourth quarter 2006 (reported net income of $50 million), versus an adjusted loss of $1.4 billion in the same quarter 2005. The calendar year improvement was realized despite a 207,000 unit reduction in GMNA production to balance inventory with deliveries, and reflects continued significant reductions in structural costs related to health care, manufacturing and workforce attrition, as well as positive sales mix and the impact of the company's product and value focused sales and marketing strategy.
GM reduced structural costs in North America by $6.8 billion in 2006, exceeding its target of $6 billion, and remains on-track to deliver the previously announced $9 billion of annual structural cost savings in 2007(versus 2005 structural cost levels). GM's progress in globalizing its product development, powertrain and manufacturing operations, combined with aggressive GMNA turnaround actions, are driving these significant structural cost reductions. GM reduced its global automotive structural cost from over 34 percent of revenue in 2005 to 30 percent of revenue in 2006, an impressive first step toward GM's goal of cutting structural cost to 25 percent of revenue by 2010.
"We made very significant progress in 2006 toward our 25 percent structural cost goal," Wagoner said. "At the same time, we continue to invest heavily in future products, technology and growth markets. GM plans to increase its global capital spending from $7.5 billion in 2006, to between $8.5 and $9 billion in 2007 and 2008."
GM's commitment to quality and design leadership was reinforced in 2006 with strong consumer and media reception to GM's newest cars and trucks, including the Chevrolet Tahoe, GMC Yukon, and Cadillac Escalade full-size utilities; GMC Sierra and Chevrolet Silverado full-size pickups; the Saturn Aura midsize sedan; Opel Corsa small car; and the Holden Commodore full-size sedan. In addition, early public reaction to the Saturn Outlook and GMC Acadia midsize crossovers, introduced late in 2006, has been positive.
GME posted its first full-year of profitability since 1999 with adjusted earnings of $227 million for 2006 (reported net loss of $225 million). GME had an adjusted loss of $8 million in the fourth quarter 2006 (reported net loss of $119 million), compared to net income of $5 million in the year-ago quarter. GME revenue in the fourth quarter 2006 was $9 billion, up from $8.1 billion in the same quarter 2005. Contributing to GME's improved performance during the year was strong revenue growth due to record volume of over 2 million units, and continued structural cost reductions.
"The actions we've taken in Europe to reduce structural cost and re- energize our product lineup is making a big impact on the business," Wagoner noted. "And our multi-brand approach in Europe is really getting traction. The Opel/Vauxhall brands are strengthening, led by products like the all-new Corsa and segment-leading Meriva and Zafira. And, the Chevrolet brand again achieved record sales, while Saab and Cadillac also demonstrated strong growth. And we're especially pleased with our progress in Russia, where GM sales grew 73 percent in 2006."
GMAP delivered adjusted earnings of $441 million in 2006 (reported net income of $1.2 billion), compared with $557 million in 2005, with the decline totally attributable to the loss of Suzuki equity income in 2006, as a result of the divestiture of most of GM's holdings in Suzuki Motor Corp. For the fourth quarter of 2006, GMAP's adjusted earnings were $122 million (reported net income of $135 million), consistent with the same quarter 2005 earnings of $124 million. Record 2006 sales of GM Daewoo products contributed to GM's continued strong performance in the region, headlined by sales gains of 32 percent in China and 19 percent in Korea.
"The AP region remains the core of GM's global growth strategy. In 2006, GM advanced its leading position in China, again improving its market share to almost 12 percent. We also announced plans to add a new assembly plant in India to take advantage of opportunities in that important market, and we continue to grow in Korea," Wagoner said.
GM's LAAM region delivered its best financial performance in 10 years with adjusted earnings of $533 million in 2006 (reported net income of $490 million), an improvement of $381 million over 2005. GMLAAM also recorded adjusted and reported fourth quarter earnings of $128 million, up from adjusted earnings of $63 million in the same quarter of 2005. These improvements were driven by record revenue and volume for the region, and significant gains at GM do Brasil.
"By cost-effectively leveraging GM's products and resources from around the world, GMLAAM has been able to take advantage of growth opportunities throughout the region, achieving milestone sales of over 1 million units and impressive revenue and profit results," Wagoner said.
GMAC
On a standalone basis, GMAC Financial Services reported 2006 net income of $2.1 billion, compared with net income of $2.3 billion in 2005. GMAC's operating earnings for 2006, excluding two significant items, amounted to $2.0 billion, compared to $2.7 billion of operating earnings in 2005.
For the fourth quarter of 2006, GMAC had net income of $1.0 billion, up from $112 million in the fourth quarter of 2005. The 2006 fourth quarter results include a $791 million after-tax benefit related to deferred tax liabilities that GMAC transferred to GM when GMAC converted to a Limited Liability Company (LLC). Conversely, fourth quarter 2005 results included the impact of goodwill impairment charges of $439 million after-tax. Excluding the LLC benefit, GMAC operating earnings for the fourth quarter 2006 were $225 million, compared to $551 million in the year-ago period.
On November 30, 2006, GM closed the previously-announced transaction to sell 51 percent controlling interest in GMAC to an investor consortium led by Cerberus Capital. As a result of the closing of the GMAC transaction, GMAC results through November were fully consolidated in GM's reporting, and December results were reflected on an equity income basis for GM's remaining 49 percent interest.
After adjusting GMAC results for equity income in December, dividends to GM on preferred stock and various transaction-related items, GM reported an adjusted net loss of $284 million associated with GMAC for the fourth quarter 2006, and net income of $1.5 billion for the calendar year. Going forward, GM will record GMAC results on an equity income basis.
Based on GMAC's results, GM will refund approximately $1 billion to GMAC, in the form of a capital contribution, to restore its adjusted tangible equity balance as of November 30, 2006 to the $14.4 billion level that was agreed upon in conjunction with the 51 percent sale of GMAC. The amount of the refund reflects reduced tangible book value at November 30, 2006, principally caused by a deterioration in GMAC's Residential Capital, LLC (ResCap) earnings, changes in GMAC deferred tax balances and the restatement of prior financial results.
For additional details on GMAC 2006 fourth quarter and calendar-year financial results, see the company's earnings release dated March 13, 2007 on the company web site at www.gmacfs.com.
Cash and Liquidity
GM achieved positive adjusted operating cash flow for the fourth quarter 2006 of approximately $300 million, an improvement of $1.4 billion compared to the fourth quarter 2005.
Cash, marketable securities, and readily-available assets of the Voluntary Employees' Beneficiary Association (VEBA) Trust totaled $26.4 billion at December 31, 2006, up from $20.4 billion on September 30, 2006. In addition to the impact of favorable operating cash flow in fourth quarter, this reflects the impact of distributions received from the closing of the sale of the 51 percent interest in GMAC.
Financial Restatements
GM previously disclosed that it had understated its stockholders' equity as of December 31, 2001 and subsequent periods by approximately $500 million related to deferred tax liabilities and taxation of foreign currency translation. GM today confirmed a final adjustment to stockholders' equity as of January 1, 2002 of $245 million.
GM also previously disclosed it would be restating its financial statements for 2002 through the third quarter of 2006 largely due to hedge accounting. The following chart provides a summary of the impact of the restatements on reported net income for the 2002-2006 periods.
($Ms) GM Reported Net Income (after-tax GAAP)
Q1-Q3 2006 2005 2004 2003 2002
Previously reported (3,025) (10,567) 2,804 3,859 1,574
Adjustments 97 150 (103) (334) 161
Restated results (2,928) (10,417) 2,701 3,525 1,735
These results had no impact on cash flow for any of the restated periods. Details on all of the restatements for the periods 2002 through the third quarter 2006 can be found in the "Highlights" section of this press release.
GM plans to file its annual report on Form 10-K with the Securities and Exchange Commission on March 15, 2007. Once filed, it will be available in the "SEC Filings" section of GM's investor website at www.gm.com/company/investor_information/sec/.
General Motors Corp. , the world's largest automaker, has been the global industry sales leader for 76 years. Founded in 1908, GM today employs about 280,000 people around the world. With global headquarters in Detroit, GM manufactures its cars and trucks in 33 countries. In 2006, nearly 9.1 million GM cars and trucks were sold globally under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn and Vauxhall. GM's OnStar subsidiary is the industry leader in vehicle safety, security and information services. More information on GM can be found at www.gm.com.
General Motors Corporation
Use of Non-GAAP Financial Measures
This press release and the accompanying tables include the following non- GAAP financial measures: (a) adjusted net income, (b) managerial cash flow, and (c) GM North America vehicle revenue per unit. Each of these financial measures excludes the impact of certain items and therefore has not been calculated in accordance with U.S. generally accepted accounting principles, or GAAP.
Adjusted Net Income
Adjusted net income excludes a charge for the special attrition program agreement, restructuring and impairments charges, gains and losses on the sale of businesses and business interests, and charges associated with the Delphi bankruptcy. Each of the adjustments is described in more detail below. This press release also contains a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.
Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results because they exclude amounts that GM management does not consider part of operating results when assessing the performance of the organization and measuring the results of GM's performance. In addition, GM has historically reported similar non-GAAP financial measures. GM believes that inclusion of these non-GAAP financial measures provides consistency and comparability with past earnings releases. GM management uses these non-GAAP financial measures to evaluate GM's performance and believes these measures allow GM management to readily view operating trends, perform analytical comparisons, benchmark performance among geographic regions and assess whether the GM North American structural cost turnaround plan is on target. Also, GM management uses adjusted net income for forecasting purposes, and in determining its future capital investment allocations. Also, adjusted net income is a key variable in determining management incentive compensation. Accordingly, GM believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making.
While GM believes that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Items such as special attrition program agreement and restructuring charges that are excluded from GM's non-GAAP financial measures can have a material impact on net earnings. As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, net earnings, cash flow from operations or other measures of performance prepared in accordance with GAAP. GM compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are included elsewhere in this press release.
The following is a discussion of the adjustments to the comparable GAAP financial measure that produces our non-GAAP financial measures:
* Special attrition program charges. Our non-GAAP financial measures exclude the estimated charge associated with the special attrition program agreement among the UAW, GM and Delphi. Management believes it is useful in evaluating the performance of GM and its management teams and business units during a particular time period to exclude charges associated with the special attrition program, because the charge occurs irregularly and is generally associated with one-time structural changes to GM's North America business. Accordingly, management does not consider these costs as part of its core earnings for purposes of evaluating the performance of the business, and excludes such costs when evaluating the performance of the Corporation, its business units and its management teams and when making decisions to allocate resources among GM's business units.
* Restructuring and impairment charges. Our non-GAAP financial measures exclude exit costs and related charges, primarily consisting of severance costs and lease abandonment costs, and any subsequent changes in estimates related to exit activities as they relate to GM's significant restructurings, which involved significant layoffs. Management believes the exclusion of restructuring and impairment charges from adjusted net income is useful because management does not consider these costs part of GM's core earnings in evaluating GM's operational managers and the exclusion permits investors to evaluate the performance of our management the same way management does. Additionally, management excludes restructuring and impairment charges in its determinations regarding the allocation of resources, such as capital investment, among the Corporation's business units and as part of its forecasting and budgeting.
General Motors Corporation
Use of Non-GAAP Financial Measures
* Gains and losses on the sale of business units and business interests. The gains or losses on the sale of business units and business interests are excluded from adjusted net income. While GM is involved in sales of its business units and business interests from time to time and the Corporation may have significant gains or losses from such sales in the future, such events have historically occurred sporadically. Management excludes the charges associated with these events when it evaluates the Corporation's operations and for internal reporting, forecasting purposes and allocation of additional resources.
* Charges associated with the Delphi bankruptcy. Our non-GAAP financial measures exclude charges associated with the Delphi bankruptcy, the estimated contingent liability reserve established by management. Management believes it is useful in evaluating the performance of GM and its management teams and business units during a particular time period to exclude charges associated with the Delphi bankruptcy, because this charge is not in the ordinary course of GM's business. Accordingly, management does not consider these costs part of its core earnings for purposes of evaluating the performance of GM's business and excludes such costs when evaluating the performance of GM, its business units and its management teams and when making decisions to allocate resources among GM's business units.
* Tax-related items. The income tax expense that arose as a result of the conversion of GMAC to a limited liability company (LLC) in connection with the sale of a controlling interest in GMAC and is offset by the reversal of State/Local tax contingencies and income related to the portfolio of automotive leases transferred to GM as part of the GMAC transaction, is excluded from adjusted net income. GM is involved in sales of its business units and business interests from time to time, which may result in unusual tax events. Management excludes the charges and gains associated with these unusual events when it evaluates the Corporation's operations and for internal reporting, forecasting purposes and allocation of additional resources.
General Motors Corporation
Use of Non-GAAP Financial Measures
Managerial Cash Flow
GM also reports non-GAAP managerial automotive operating cash flow in its earnings releases and charts for securities analysts. Management believes that providing managerial automotive operating cash flow furnishes it and investors with useful information by representing the cash flow generated or consumed by its automotive operations, including cash consumed by automotive capital expenditures and equity investments in companies related to our core business and cash generated by sales of automotive operating assets and equity investments in companies related to GM's core business, before funding non- operating-related obligations including debt maturities, dividends and other non-operating items. Management uses this non-GAAP financial measure to assess its automotive cash flow when evaluating the performance of GM, its business units and its management teams and when making decisions to allocate resources among GM's business units.
GM North America Vehicle Revenue per Unit
GM's earnings releases and charts for securities analysts also include the use of non-GAAP measures of revenue per vehicle. Management uses revenue per vehicle to track operating efficiency and to facilitate comparisons between periods and between manufacturers, and believes that it would provide valuable information to investors who are interested in identifying trends and comparing different companies. Revenue per vehicle includes certain vehicles sales to other GM regions that are excluded from GAAP reporting, and excludes non-vehicle sales such as service parts and operations and OnStar service, and other income that GM does not derive from the sale of vehicles, such as interest on the GM credit card. Management also includes sales to daily car rental companies in revenue per vehicle, although they are not treated as sales under GAAP reporting because of GM's repurchase obligations.
Structural Cost Reduction Target
GM structural cost reduction target in North America excludes the cost of the three $1 billion contributions to an independent VEBA Trust in 2006, 2007, and 2011, in connection with the UAW health care settlement agreement. Management uses this measure to track the structural cost reduction target on a running rate basis since a significant portion of the benefit of the health-care settlement agreement related to hourly employees is anticipated to extend well beyond the periods in which the expense related to the contributions will be incurred. Management believes that this measure is useful to investors as it allows them to evaluate the ongoing effects of GM's structural cost reduction initiatives.
General Motors Corporation
Explanatory Note
On November 30, 2006, GM completed the sale of a 51% controlling interest in GMAC, LLC. For the eleven months ended November 30, 2006, GMAC's earnings and cash flows are fully consolidated in GM's Consolidated Statements of Operations and Statements of Cash Flows. After November 30, 2006, GM's remaining 49% interest in GMAC's common membership interests is reflected as an equity method investment. Also, GM's interest in GMAC's preferred membership interest of 1,555,000 units which was purchased for $1.4 billion at the time of the closing is reflected as a cost method investment.
GM has restated its financial statements and financial information for 2002 through the third quarter of 2006. These restatements primarily relate to the following: (1) accounting for derivative contracts in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended; (2) accounting for deferred income taxes in accordance with SFAS No. 109, Accounting for Income Taxes; and (3) other various accounting adjustments.
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