Oooh, look, the General's finally decided to tell us whether they made any money last year, dropping their restated earnings out in the wee light of this March morning. Let's find out if they...hmm...ok...looks like they made $2.2 billion in 2006 on revenues of $207 billion. Good for them. It's not what I'd call the best return on revenue — but whatevs, who are we to argue, we're not stockholders. But oh wait, that's net income excluding special items, and although that's the number the traders are going to be happy to see, what about the real number — the number that includes the "special items?" Special items are of course the one-time costs like employee buyouts, restructuring costs, etc. That number's not as good — in fact, when you drop the "special items" into the equation, the General ends up showing a $2.0 billion loss. Well, at least they've still got a year-end cash balance of $26.4 billion. At this rate they can have 12 years of "special items." Full details in the press release below the jump.
GM Reports 2006 Financial Results
* 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 - General Motors Corp. (NYSE: GM) 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 (GM LAAM) 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 fullsize 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, GM LAAM 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.
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.
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.
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. (NYSE: GM), 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.
In this press release and in related comments by General Motors' management, we will use words like "expect," "anticipate," "estimate," "forecast," "initiative," "objective," "plan," "goal," "project," "outlook," "priorities," "target," "intend," "evaluate," "pursue," "seek," "may," "would," "could," "should," "believe," "potential," "continue," "designed," or "impact" to identify forward-looking statements that represent our current judgments about possible future events. We believe these judgments are reasonable, but GM's actual results may differ materially due to a variety of important factors. Among other items, such factors include: the ability of GM to realize production efficiencies, to achieve reductions in costs as a result of the turnaround restructuring and health care cost reductions and to implement capital expenditures at levels and times planned by management; the pace of product introductions; market acceptance of the Corporation's new products; significant changes in the competitive environment and the effect of competition in the Corporation's markets, including on the Corporation's pricing policies; our ability to maintain adequate liquidity and financing sources and an appropriate level of debt; changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates; costs and risks associated with litigation; the final results of investigations and inquiries by the SEC and other governmental agencies; changes in our accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, including the range of estimates for the Delphi pension benefit guarantees, which could result in an impact on earnings; changes in relations with unions and employees/retirees and the legal interpretations of the agreements with those unions with regard to employees/retirees and the successful completion of a collective bargaining agreement; negotiations and bankruptcy court actions with respect to Delphi's obligations to GM, negotiations with respect to GM's obligations under the pension benefit guarantees to Delphi employees, and GM's ability to recover any indemnity claims against Delphi; labor strikes or work stoppages at GM or its key suppliers such as Delphi or financial difficulties at GM's key suppliers such as Delphi; additional credit rating downgrades and the effects thereof; factors affecting GMAC's results of operations and financial condition such as credit ratings, interest rates, the housing market(including the downturn in residential mortgages, particularly in the nonprime sector), adequate access to the capital, changes in the residual value of off-lease vehicles, changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate, and changes in GMAC's contractual servicing rights; shortages of and price increases for fuel; changes in economic conditions, commodity prices, such as steel and other raw materials, currency exchange rates or political stability in the markets in which we operate; the effects of transactions or alliances entered into by one or more of our competitors; currency exchange rates or political instability in the markets in which we operate; and general economic conditions, in particular stability of consumer confidence. The most recent annual reports on Form 10-K and quarterly reports on Form 10-Q filed by GM and GMAC provide information about these factors, which may be revised or supplemented in future reports to the SEC on those forms.