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2: EX-10.1 Exhibit 10.1 - Fourth Amended & Restated LLC HTML 636K
Agreement of Gm Cruise Holdings LLC
3: EX-10.2 Exhibit 10.2 - Form of Time Sharing Agreement HTML 56K
4: EX-31.1 Exhibit 31.1 - Section 302 Certification of CEO HTML 32K
5: EX-31.2 Exhibit 31.2 - Section 302 Certification of CFO HTML 32K
6: EX-32 Exhibit 32 - Section 1350 Certification HTML 29K
58: R1 Cover Page HTML 79K
28: R2 Condensed Consolidated Income Statements HTML 133K
38: R3 Condensed Consolidated Statements of Comprehensive HTML 55K
Income
90: R4 Condensed Consolidated Balance Sheets HTML 147K
57: R5 Condensed Consolidated Balance Sheets HTML 28K
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27: R6 Condensed Consolidated Statements Of Cash Flows HTML 116K
36: R7 Condensed Consolidated Statements Of Equity HTML 92K
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Narrative (Details)
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Noncancelable Operating Leases (Details)
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Summary of Finance Receivables (Details)
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Allowance for Loan Losses (Details)
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Finance Receivables Delinquencies and TDRs
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(Exact name of registrant as specified in its charter)
iDelaware
i27-0756180
(State
or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
i300 Renaissance Center,
iDetroit,
iMichigan
i48265
-3000
(Address
of principal executive offices)
(Zip Code)
(i313) i667-1500
(Registrant’s telephone number, including area code)
Not
applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, $0.01 par value
iGM
iNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer☑ Accelerated filer ☐Non-accelerated filer ☐ Smaller reporting
company i☐ Emerging growth company i☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☑
As of October 15,
2019 there were i1,428,784,056 shares of common stock outstanding.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.iNature
of Operations and Basis of Presentation
General Motors Company (sometimes referred to in this Quarterly Report on Form 10-Q as we, our, us, ourselves, the Company, General Motors or GM) designs, builds and sells trucks, crossovers, cars and automobile parts worldwide and is investing in and growing an autonomous vehicle business. We also provide automotive financing services through General Motors Financial Company, Inc. (GM Financial). We analyze the results of our continuing operations through the following operating segments: GM North America (GMNA), GM International Operations (GMIO), GM South America (GMSA), Cruise, and GM Financial. Our GMSA and GMIO operating segments are reported as one, combined international segment, GM International (GMI). Cruise, formerly GM Cruise, is our global segment responsible
for the development and commercialization of autonomous vehicle technology. Nonsegment operations and Maven, our ride- and car-sharing business, are classified as Corporate. Corporate includes certain centrally recorded income and costs such as interest, income taxes, corporate expenditures and certain nonsegment-specific revenues and expenses.
iThe accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information.
Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2018 Form 10-K. Except for per share amounts or as otherwise specified, dollar amounts presented within tables are stated in millions. In the three months ended March 31, 2019
we changed the presentation of our condensed consolidated balance sheets to reclassify the current portion of Equipment on operating leases, net to Other current assets and our condensed consolidated statements of cash flows to reclassify Payments to purchase common stock to Other financing activities. We have made corresponding reclassifications to the comparable information for all periods presented.
i
Principles of Consolidation We consolidate entities that we control due to ownership of a majority voting interest and we consolidate variable interest entities
(VIEs) when we are the primary beneficiary. Our share of earnings or losses of nonconsolidated affiliates is included in our consolidated operating results using the equity method of accounting when we are able to exercise significant influence over the operating and financial decisions of the affiliate.
i
Recently Adopted Accounting Standards Effective January 1, 2019, we adopted Accounting Standards
Update (ASU) 2016-02, "Leases" (ASU 2016-02) using the modified retrospective method, resulting in a cumulative-effect adjustment to the opening balance of Retained earnings for an insignificant amount. We recognized $i1.0 billion of right of use assets
and lease obligations included in Other assets, Accrued liabilities and Other liabilities on our condensed consolidated balance sheet for our existing operating lease portfolio at January 1, 2019. We elected to apply the practical expedient related to land easements, as well as the package of practical expedients permitted under the transition guidance in the new standard, which allowed us to carry forward our historical lease classification. The accounting for our finance leases and leases where we are the lessor remained substantially unchanged. The application of ASU 2016-02 had no impact on our condensed consolidated income statement or condensed consolidated statement of cash flows.
i
The
following table summarizes our minimum commitments under noncancelable operating leases having initial terms in excess of one year, primarily for property, at December 31, 2018 as disclosed in our 2018 Form 10-K:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Accounting Standards Not Yet Adopted In June 2016 the Financial Accounting Standards Board issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which requires entities to use a new impairment model based on Current Expected Credit Losses (CECL) rather than incurred losses. We plan to adopt ASU 2016-13 on January 1, 2020 on a modified retrospective basis. Estimated credit losses under CECL will consider relevant information about past events, current conditions and reasonable and supportable forecasts that
affect the collectibility of the reported amount, resulting in recognition of lifetime expected credit losses upon loan origination. We are currently validating and refining our process for our implementation of ASU 2016-13. Upon adoption, we expect to record an adjustment that will increase our allowance for credit losses between $i700
million and $i900 million, with an after-tax reduction to Retained earnings between $i500
million and $i700 million. The amount of the adjustment is heavily dependent on the volume, credit mix and seasoning of
our loan portfolio.
Note 2.iRevenue
i
The
following table disaggregates our revenue by major source for revenue generating segments:
Revenue
is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Adjustments to sales incentives for previously recognized sales increased revenue by $i560 million and were insignificant in the three months ended September 30, 2019 and 2018.
Contract
liabilities in our Automotive segments primarily consist of maintenance, extended warranty and other service contracts. We recognized revenue of $i434 million and $i1.3
billion related to contract liabilities in the three and nine months ended September 30, 2019 and $i426 million and $i1.2
billion in the three and nine months ended September 30, 2018. We expect to recognize revenue of $i464 million in the three months ending December 31, 2019 and $i806
million, $i465 million and $i580
million in the years ending December 31, 2020, 2021 and thereafter related to contract liabilities at September 30, 2019.
Total
available-for-sale debt securities – cash equivalents
i9,204
i10,423
Money
market funds
1
i2,459
i3,167
Total
cash and cash equivalents(b)
$
i20,051
$
i20,844
Marketable
debt securities
U.S. government and agencies
2
$
i1,770
$
i1,230
Corporate
debt
2
i3,716
i3,478
Mortgage
and asset-backed
2
i807
i695
Sovereign
debt
2
i432
i563
Total
available-for-sale debt securities – marketable securities(c)
$
i6,725
$
i5,966
Restricted
cash
Cash and cash equivalents
$
i282
$
i260
Money
market funds
1
i2,566
i2,392
Total
restricted cash
$
i2,848
$
i2,652
Available-for-sale
debt securities included above with contractual maturities(d)
Due in one year or less
$
i10,708
Due
between one and five years
i4,414
Total
available-for-sale debt securities with contractual maturities
$
i15,122
__________
(a)
Includes
$i481 million and $i616 million
that is designated exclusively to fund capital expenditures in GM Korea Company (GM Korea) at September 30, 2019 and December 31, 2018.
Proceeds from the sale of available-for-sale debt investments sold prior to maturity were $i535 million and $i1.7
billion in the three months ended September 30, 2019 and 2018 and $i1.6 billion and $i3.6
billion in the nine months ended September 30, 2019 and 2018. Net unrealized gains and losses on available-for-sale debt securities were insignificant in the three and nine months ended September 30, 2019 and 2018. Cumulative unrealized gains and losses on available-for-sale debt securities were insignificant at September 30, 2019 and December 31, 2018.
Our
remaining investment in Lyft, Inc. (Lyft) was measured at fair value at September 30, 2019 using Lyft’s quoted market price, a Level 1 input. The restrictions on selling or transferring the investment expired on August 19, 2019 and the fair value measurement no longer reflects a discount for the lack of marketability, a Level 3 input. The fair value of this investment was $i679
million, included in Other current assets, and $i884 million, included in Other assets, at September 30, 2019 and December 31, 2018. We recorded an unrealized loss
of $i291 million and $i71
million in Interest income and other non-operating income, net in the three and nine months ended September 30, 2019 and an unrealized gain of $i142 million
in the nine months ended September 30, 2018. Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk for exposure to equity price market risk.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
i
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet to the total shown in the condensed consolidated statement of cash flows:
Finance
receivables, collectively evaluated for impairment, net of fees
$
i39,507
$
i12,756
$
i52,263
$
i38,220
$
i12,235
$
i50,455
Finance
receivables, individually evaluated for impairment, net of fees(b)
i2,390
i40
i2,430
i2,348
i41
i2,389
GM
Financial receivables
i41,897
i12,796
i54,693
i40,568
i12,276
i52,844
Less:
allowance for loan losses(b)
(i856
)
(i77
)
(i933
)
(i844
)
(i67
)
(i911
)
GM
Financial receivables, net
$
i41,041
$
i12,719
$
i53,760
$
i39,724
$
i12,209
$
i51,933
Fair
value of GM Financial receivables utilizing Level 2 inputs
$
i12,719
$
i12,209
Fair
value of GM Financial receivables utilizing Level 3 inputs
$
i41,557
$
i39,430
//
__________
(a)
Net
of dealer cash management balances of $i1.2 billion and $i922
million at September 30, 2019 and December 31, 2018. Under the cash management program, subject to certain conditions, a dealer may choose to reduce the amount of interest on its floorplan line by making principal payments to GM Financial in advance.
(b)
Retail finance receivables individually evaluated for impairment, net of fees are classified as troubled debt restructurings. The allowance for loan losses included $i337
million and $i321 million of specific allowances on these receivables at September 30, 2019 and December 31, 2018.
The
allowance for loan losses on retail and commercial finance receivables included a collective allowance of $i585 million and $i586
million and a specific allowance of $i348 million and $i325
million at September 30, 2019 and December 31, 2018. Refer to Note 1 for expected impact of adoption of ASU 2016-13.
Retail Finance Receivables We use proprietary scoring systems in the underwriting process that measure the credit quality of retail finance receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g., FICO score or its equivalent) and contract characteristics. We also consider other factors such as employment history, financial stability and capacity to pay. Subsequent to origination
we review the credit quality of retail finance receivables based on customer payment activity. At September 30, 2019 and December 31, 2018, i24% and i25%
of retail finance receivables were from consumers with sub-prime credit scores, which are defined as a FICO score or its equivalent of less than i620 at the time of loan origination.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date the payment was contractually due. The accrual of finance charge income had been suspended on delinquent retail finance receivables with contractual amounts due of $i853
million and $i888 million at September 30, 2019 and December 31, 2018. iThe
following table summarizes the contractual amount of delinquent retail finance receivables, which is not significantly different than the recorded investment of the retail finance receivables:
Total
finance receivables more than 30 days delinquent
i1,766
i4.2
%
i1,800
i4.8
%
In
repossession
i48
i0.1
%
i53
i0.1
%
Total
finance receivables more than 30 days delinquent or in repossession
$
i1,814
i4.3
%
$
i1,853
i4.9
%
Commercial
Finance Receivables Our commercial finance receivables consist of dealer financings, primarily for inventory purchases. Proprietary models are used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust the dealership's risk rating, if necessary. Dealers in Group VI are subject to additional restrictions on funding, including suspension of lines of credit and liquidation of assets. The commercial finance receivables on non-accrual status were insignificant at September 30, 2019 and December 31, 2018. iThe
following table summarizes the credit risk profile by dealer risk rating of the commercial finance receivables:
– Dealers warranting special mention due to elevated risks
i332
i422
Group
VI
– Dealers with loans classified as substandard, doubtful or impaired
i74
i83
$
i12,796
$
i12,276
Transactions
with GM Financial iThe following table shows transactions between our Automotive segments and GM Financial. These amounts are presented in GM Financial's condensed consolidated balance sheets and statements of income.
All balance sheet amounts are eliminated upon consolidation.
(b)
Cash paid by Automotive segments to GM Financial for subvention was $i1.0
billion and $i1.1 billion for the three months ended September 30, 2019 and 2018 and $i3.1
billion and $i2.8 billion for the nine months ended September 30, 2019 and 2018.
Total productive material, supplies and work in process
$
i5,313
$
i4,274
Finished
product, including service parts
i6,484
i5,542
Total
inventories
$
i11,797
$
i9,816
/
Note
6.iEquipment on Operating Leases
Equipment on operating leases primarily consists of leases to retail customers of GM Financial. The current portion of net equipment on operating leases is included in Other current assets.
Depreciation expense related to Equipment on operating leases, net was $i1.8 billion and $i1.9
billion in the three months ended September 30, 2019 and 2018 and $i5.6 billion in the nine months ended September 30, 2019 and 2018.
i
The following table summarizes lease payments due to GM Financial on leases to retail customers:
Dividends
declared but not paid from our nonconsolidated affiliates were $i580 million and an insignificant amount at September 30, 2019 and December 31, 2018. Dividends received from our nonconsolidated affiliates were $i303
million and insignificant in the three months ended September 30, 2019 and 2018 and $i1.2 billion and $i2.0
billion in the nine months ended September 30, 2019 and 2018. Undistributed earnings from our nonconsolidated affiliates were $i2.1 billion and $i2.3
billion at September 30, 2019 and December 31, 2018.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Note 8.iVariable Interest Entities
GM Financial uses special purpose entities (SPEs) that are considered VIEs to issue variable funding notes to third party bank-sponsored warehouse facilities or asset-backed securities to investors in securitization transactions. The debt issued by these VIEs is backed by finance receivables and leasing related
assets transferred to the VIEs (Securitized Assets). GM Financial determined that it is the primary beneficiary of the SPEs because the servicing responsibilities for the Securitized Assets give GM Financial the power to direct the activities that most significantly impact the performance of the VIEs and the variable interests in the VIEs give GM Financial the obligation to absorb losses and the right to receive residual returns that could potentially be significant. The assets serve as the sole source of repayment for the debt issued by these entities. Investors in the notes issued by the VIEs do not have recourse to GM Financial or its other assets, with the exception of customary representation and warranty repurchase provisions and indemnities that GM Financial provides as the servicer. GM Financial is not required and does not currently intend to provide additional financial support to these SPEs. While these subsidiaries
are included in GM Financial's condensed consolidated financial statements, they are separate legal entities and their assets are legally owned by them and are not available to GM Financial's creditors.
i
The following table summarizes the assets and liabilities related to GM Financial's consolidated VIEs:
GM
Financial receivables, net of fees – non-current
$
i13,036
$
i14,008
GM
Financial equipment on operating leases, net
$
i17,603
$
i21,781
GM
Financial short-term debt and current portion of long-term debt
$
i21,116
$
i21,087
GM
Financial long-term debt
$
i17,786
$
i21,417
/
GM
Financial recognizes finance charge, leased vehicle and fee income on the Securitized Assets and interest expense on the secured debt issued in a securitization transaction and records a provision for loan losses to recognize probable loan losses inherent in the finance receivables.
Note 9.iDebt
Automotive iThe
following table presents debt in our automotive operations:
Finance
lease assets in Property, net were $i370 million at September 30, 2019. Finance lease costs were insignificant and $i128
million in the three and nine months ended September 30, 2019. Finance lease right of use assets obtained in exchange for lease obligations were $i140 million in the nine months ended September 30, 2019. Undiscounted future lease obligations related to
finance leases are $i108 million in the three months ending December 31, 2019, $i196
million in aggregate for the years 2020 to 2023 and $i372 million thereafter, with imputed interest of $i331
million at September 30, 2019. The weighted-average discount rate on finance leases was i10.5% and the weighted-average remaining lease term was i12.0
years at September 30, 2019.
In January 2019 we executed a new three-year committed unsecured revolving credit facility with an initial borrowing capacity of $i3.0
billion, reducing to $i2.0 billion in July 2020. The facility is being used to fund costs related to transformation activities announced in November 2018 and to provide additional financial flexibility. In the nine months
ended September 30, 2019 we borrowed $i700 million against this facility to support transformation-related disbursements. In April 2019 we renewed our i364-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
day $i2.0
billion credit facility for an additional i364-day term. This facility has been allocated for exclusive use by GM Financial since April 2018.
GM Financial iThe
following table presents debt of GM Financial:
Secured
debt consists of revolving credit facilities and securitization notes payable. Most of the secured debt was issued by VIEs and is repayable only from proceeds related to the underlying pledged assets. Refer to Note 8 for additional information on GM Financial's involvement with VIEs. In the nine months ended September 30, 2019, GM Financial entered into new or renewed credit facilities with a total net additional borrowing capacity of $i225
million, which had substantially the same terms as existing debt, and GM Financial issued $i14.2 billion in aggregate principal amount of securitization notes payable with an initial weighted average interest rate of i2.83%
and maturity dates ranging from 2022 to 2026.
Unsecured debt consists of senior notes, credit facilities and other unsecured debt. In the nine months ended September 30, 2019, GM Financial issued $i6.5
billion in aggregate principal amount of senior notes with an initial weighted average interest rate of i3.65% and maturity dates ranging from 2021 to 2029.
The principal amount outstanding
of GM Financial's commercial paper in the U.S. was $i1.0 billion and $i1.2
billion at September 30, 2019 and December 31, 2018.
Each of the revolving credit facilities and the indentures governing GM Financial's notes contain terms and covenants, including limitations on GM Financial's ability to incur certain liens.
Note 10.iDerivative
Financial Instruments
AutomotiveiThe following table presents the notional amounts of derivative financial instruments in our automotive operations:
The
fair value of these derivative instruments at September 30, 2019 and December 31, 2018 and the gains/losses included in our condensed consolidated income statements for the three and nine months endedSeptember 30, 2019 and 2018 were insignificant, unless otherwise noted.
(b)
The fair value of the warrants issued
by Peugeot, S.A. (PSA Group), included in Other assets was $i1.0 billion and $i827
million at September 30, 2019 and December 31, 2018. We recorded gains in Interest income and other non-operating income, net of $i51
million and $i171 million in the three months ended September 30, 2019 and 2018
and $i222 million and $i324
million in the nine months endedSeptember 30, 2019 and 2018.
We estimate the fair value of the PSA warrants using a Black-Scholes formula. The significant inputs to the model include the PSA stock price and the estimated dividend yield. We are entitled to receive any dividends declared by PSA through the conversion date upon exercise of the warrants.
The
fair value of these derivative instruments at September 30, 2019 and December 31, 2018 and the gains/losses included in our condensed consolidated income statements and statements of comprehensive income for the three and nine months endedSeptember 30, 2019 and 2018 were insignificant, unless otherwise noted. Amounts accrued for interest payments in a net receivable position are included in Other assets. Amounts accrued for interest payments in a net payable position are included in Other liabilities.
(b)
The
fair value of these derivative instruments located in Other assets was $i384 million and insignificant
at September 30, 2019 and December 31, 2018. The fair value of these derivative instruments located in Other liabilities was insignificant and $i291
million at September 30, 2019 and December 31, 2018.
(c)
The fair value of these derivative instruments located in Other liabilities was $i241
million and insignificant at September 30, 2019 and December 31, 2018.
(d)
The fair value of these derivative instruments located in Other assets was $i302
million and $i372 million at September 30, 2019 and December 31,
2018. The fair value of these derivative instruments located in Other liabilities was $i384 million and $i520
million at September 30, 2019 and December 31, 2018.
(e)
GM Financial held $i258
million and insignificant amounts of collateral from counterparties available for netting against GM Financial's asset positions, and posted insignificant amounts and $i451 million of collateral to counterparties available for netting against GM Financial's liability positions at September 30, 2019 and December 31,
2018.
The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similar instruments and foreign exchange and interest rate forward curves.
i
The
following amounts were recorded in the condensed consolidated balance sheets related to items designated and qualifying as hedged items in fair value hedging relationships:
Cumulative Amount of Fair Value Hedging Adjustments(a)
Carrying Amount of Hedged Items
Cumulative Amount of Fair Value Hedging Adjustments(a)
GM Financial long-term debt
$
i20,453
$
(i135
)
$
i17,923
$
i459
__________
/
(a)
Includes
$i131 million and $i247
million of amortization remaining on hedged items for which hedge accounting has been discontinued at September 30, 2019 and December 31, 2018.
Warranties
issued and assumed in period – recall campaigns
i357
i101
i609
i515
Warranties
issued and assumed in period – product warranty
i500
i542
i1,556
i1,599
Payments
(i754
)
(i723
)
(i2,214
)
(i2,175
)
Adjustments
to pre-existing warranties
i101
(i209
)
i79
(i426
)
Effect
of foreign currency and other
(i34
)
(i8
)
(i11
)
(i152
)
Warranty
balance at end of period
$
i7,609
$
i7,693
$
i7,609
$
i7,693
//
We
estimate our reasonably possible loss in excess of amounts accrued for recall campaigns to be insignificant at September 30, 2019. Refer to Note 13 for reasonably possible losses on Takata Corporation (Takata) matters.
Note 12.iPensions
and Other Postretirement Benefits
The
curtailment and other charges recorded were primarily due to remeasurement of the General Motors Canada Company hourly pension plan as a result of transformation activities in the three and nine months ended September 30, 2019. Refer to Note 15 for additional information on transformation-related charges.
The non-service cost components of net periodic pension and other postretirement benefits (OPEB) income of $i125
million and $i401 million in the three months ended September 30, 2019 and 2018 and $i587
million and $i1.2 billion in the nine months ended September 30, 2019 and 2018 are presented in Interest income and other non-operating income, net.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Note 13.iCommitments and Contingencies
Litigation-Related Liability and Tax Administrative Matters In
the normal course of our business, we are named from time to time as a defendant in various legal actions, including arbitrations, class actions and other litigation. We identify below the material individual proceedings and investigations where we believe a material loss is reasonably possible or probable. We accrue for matters when we believe that losses are probable and can be reasonably estimated. At September 30, 2019 and December 31, 2018, we had accruals of $i1.4
billion and $i1.3 billion in Accrued liabilities and Other liabilities. In many matters, it is inherently difficult to determine whether loss is probable or reasonably possible or to estimate the size or range of the possible loss. Accordingly, adverse outcomes from such proceedings could exceed the amounts accrued by an amount that could be material to our results of operations or cash flows in any particular reporting period.
Proceedings
Related to Ignition Switch Recall and Other Recalls In 2014 we announced various recalls relating to safety and other matters. Those recalls included recalls to repair ignition switches that could, under certain circumstances, unintentionally move from the “run” position to the “accessory” or “off” position with a corresponding loss of power, which could in turn prevent airbags from deploying in the event of a crash.
Economic-Loss Claims We are aware of over i100
putative class actions pending against GM in U.S. and Canadian courts alleging that consumers who purchased or leased vehicles manufactured by GM or Motors Liquidation Company (MLC), formerly known as General Motors Corporation, had been economically harmed by one or more of the 2014 recalls and/or the underlying vehicle conditions associated with those recalls (economic-loss cases). In general, these economic-loss cases seek recovery for purported compensatory damages, such as alleged benefit-of-the-bargain damages or damages related to alleged diminution in value of the vehicles, as well as punitive damages, injunctive relief and other relief.
Many of the pending U.S. economic-loss claims have been transferred to, and consolidated in, a single federal court, the U.S. District Court for the Southern District of New York (Southern District). These plaintiffs have asserted economic-loss
claims under federal and state laws, including claims relating to recalled vehicles manufactured by GM and claims asserting successor liability relating to certain recalled vehicles manufactured by MLC.
In August 2017, the Southern District granted our motion to dismiss the successor liability claims of plaintiffs in iseven
of the isixteen states at issue on the motion and called for additional briefing to decide whether plaintiffs' claims can proceed in the other inine
states. In December 2017, the Southern District granted GM's motion and dismissed the plaintiffs' successor liability claims in an additional state, but found that there are genuine issues of material fact that prevent summary judgment for GM in ieight other states. In January 2018, GM moved for reconsideration of certain portions of the Southern District's December 2017 summary judgment ruling. That motion
was granted in April 2018, dismissing plaintiffs' successor liability claims in any state where New York law applies.
In September 2018, the Southern District granted our motion to dismiss claims for lost personal time (in i41 out of i47
jurisdictions) and certain unjust enrichment claims, but denied our motion to dismiss plaintiffs’ economic loss claims in i27 jurisdictions under the "manifest defect" rule. Significant summary judgment, class certification, and expert evidentiary motions remain at issue.
In August 2019,
the Southern District granted our motion for summary judgment on plaintiffs’ economic loss “benefit of the bargain” damage claims (Southern District’s August 2019 Opinion). The Southern District held that plaintiffs’ conjoint analysis-based damages model failed to establish that plaintiffs suffered difference-in-value damages and without such evidence, plaintiffs’ difference-in-value damage claims fail under the laws of all three bellwether states: California, Missouri and Texas. As a result, the Southern District adjourned the January 2020 bellwether trial date. Later in August 2019, the bellwether plaintiffs filed a motion requesting that the Southern District reconsider its summary judgment decision or allow an interlocutory appeal if reconsideration is denied. GM filed its opposition to plaintiffs’ motion in October 2019.
In September 2019, GM filed an updated motion
for summary judgment on plaintiffs’ remaining economic loss claims that were not addressed in the Southern District’s August 2019 Opinion and renewed its evidentiary motion seeking to strike the opinions of plaintiff’s expert on plaintiffs’ alleged “lost time” damages associated with having the recall repairs performed.
Personal Injury Claims We also are aware of several hundred actions pending in various courts in the U.S. and Canada alleging injury or death as a result of defects that may be the subject of the 2014 recalls (personal injury cases). In general, these cases seek recovery for purported compensatory damages, punitive damages and/or other relief. Since 2016, several bellwether trials of personal injury cases have taken place in the Southern District and in a Texas state court, which is administering a Texas
state multi-district litigation. None of these trials resulted in a finding of liability against GM.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Appellate Litigation Regarding Successor Liability Ignition Switch ClaimsIn 2016, the United States Court of Appeals for the Second Circuit held that the
2009 order of the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court) approving the sale of substantially all of the assets of MLC to GM free and clear of, among other things, claims asserting successor liability for obligations owed by MLC could not be enforced to bar claims against GM asserted by either plaintiffs who purchased used vehicles after the sale or against purchasers who asserted claims relating to the ignition switch defect, including pre-sale personal injury claims and economic-loss claims.
Contingently Issuable Shares Under the Amended and Restated Master Sale and Purchase Agreement between GM and MLC, GM may be obligated to issue additional shares (Adjustment Shares) of our common stock if allowed general unsecured claims against the MLC GUC Trust (GUC Trust), as estimated by the Bankruptcy Court, exceed
$i35.0 billion. The maximum number of Adjustment Shares issuable is i30
million shares (subject to adjustment to take into account stock dividends, stock splits and other transactions), which amounts to approximately $i1.1
billion based on the GM share price as of October 15, 2019. The GUC Trust stated in public filings that allowed general unsecured claims were approximately $i31.9
billion at June 30, 2019. In 2016 and 2017, certain personal injury and economic-loss plaintiffs filed motions in the Bankruptcy Court seeking authority to file late claims against the GUC Trust. In May 2018, the GUC Trust filed motions seeking the Bankruptcy Court’s approval of a proposed settlement with certain personal injury and economic-loss plaintiffs, approval of a notice relating to that proposed settlement and estimation of alleged personal injury and economic-loss late claims for the purpose of obtaining an order requiring GM to issue the maximum number of Adjustment Shares. GM vigorously contested each of these motions.
In September 2018, the Bankruptcy Court denied without prejudice the GUC Trust’s motions described above, finding that the
settling parties first need to obtain class certification with respect to the economic loss late claims. In February 2019, the GUC Trust and certain plaintiffs filed a motion with the Bankruptcy Court requesting approval of a new settlement to obtain the maximum number of Adjustment Shares. In March 2019, we asserted several legal objections to this new settlement. In September 2019, the GUC Trust advised the Bankruptcy Court that it was formally terminating the February 2019 proposed class settlement with plaintiffs because it was no longer viable given the Southern District’s August 2019 Opinion and further briefing was moot.
Government Matters In connection with the 2014 recalls, we have from time to time received subpoenas and other requests for information related to investigations by agencies or other representatives of U.S. federal, state and
the Canadian governments. GM is cooperating with all reasonable pending requests for information. Any existing governmental matters or investigations could in the future result in the imposition of damages, fines, civil consent orders, civil and criminal penalties or other remedies.
The total amount accrued for the 2014 recalls at September 30, 2019 reflects amounts for a combination of settled but unpaid matters, and for the remaining unsettled investigations, claims and/or lawsuits relating to the ignition switch recalls and other related recalls to the extent that such matters are probable and can be reasonably estimated. The amounts accrued for those unsettled investigations, claims, and/or lawsuits represent a combination of our best single point estimates where determinable
and, where no such single point estimate is determinable, our estimate of the low end of the range of probable loss with regard to such matters, if that is determinable. We will continue to consider resolution of pending matters involving ignition switch recalls and other recalls where it makes sense to do so.
GM Korea Wage Litigation GM Korea is party to litigation with current and former hourly employees in the appellate court and Incheon District Court in Incheon, Korea. The group actions, which in the aggregate involve more than i10,000 employees,
allege that GM Korea failed to include bonuses and certain allowances in its calculation of Ordinary Wages due under Korean regulations. In 2012, the Seoul High Court (an intermediate-level appellate court) affirmed a decision in one of these group actions involving ifive GM Korea employees which was contrary to GM Korea's position. GM Korea appealed to the Supreme Court of the Republic of Korea (Korean Supreme Court). In 2014, the Korean Supreme Court largely agreed with GM’s legal arguments and remanded
the case to the Seoul High Court for consideration consistent with earlier Korean Supreme Court precedent holding that while fixed bonuses should be included in the calculation of Ordinary Wages, claims for retroactive application of this rule would be barred under certain circumstances. In 2015, on reconsideration, the Seoul High Court held in GM Korea’s favor, after which the plaintiffs appealed to the Korean Supreme Court. The Korean Supreme Court has not yet rendered a decision. We estimate our reasonably possible loss in excess of amounts accrued to be approximately $i570
million at September 30, 2019. Both the scope of claims asserted and GM Korea's assessment of any or all of the individual claim elements may change if new information becomes available or the legal or regulatory frameworks change.
GM Korea is also party to litigation with current and former salaried employees over allegations relating to Ordinary Wages regulation and whether to include fixed bonuses in the calculation of Ordinary Wages. In 2017, the Seoul High Court held that certain workers are not barred from filing retroactive wage claims. GM Korea appealed this ruling to the Korean Supreme Court. The Korean Supreme Court has not yet rendered a decision. We estimate our reasonably possible loss in excess of amounts accrued
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
to be approximately $i160
million at September 30, 2019. Both the scope of claims asserted and GM Korea's assessment of any or all of the individual claim elements may change if new information becomes available or the legal or regulatory frameworks change.
GM Korea is also party to litigation with current and former subcontract workers over allegations that they are entitled to the same wages and benefits provided to full-time employees, and to be hired as full-time employees. In May 2018, the Korean labor authorities issued an adverse administrative order finding that GM Korea must hire certain current subcontract workers as full-time employees. GM Korea appealed that order. At September 30, 2019,
our accrual covering certain asserted claims and claims that we believe are probable of assertion and for which liability is probable was approximately $i170 million, which was substantially consistent with prior period amounts. We estimate the reasonably possible loss in excess of amounts accrued for other current subcontract workers who may assert similar claims to be approximately $i130
million at September 30, 2019. We are currently unable to estimate any possible loss or range of loss that may result from additional claims that may be asserted by former subcontract workers.
GM Brazil Indirect Tax Claim In February and April 2019, the Superior Judicial Court of Brazil rendered favorable decisions on a case brought by GM Brazil challenging whether a certain state value-added tax should be included in the calculation of federal gross receipts taxes. The decisions will allow the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government from August 2001 to December 2014. As a
result of the favorable decisions, we recorded pre-tax recoveries of $i857 million and $i380
million in Automotive and other cost of sales in the three months ended March 31, 2019 and June 30, 2019. In August 2019, the Superior Judicial Court of Brazil rendered a favorable decision on another GM Brazil case, granting GM Brazil the right to recover tax amounts collected by the government from January 2015 to February 2017. We recorded pre-tax recoveries of $i123
million in Automotive and other cost of sales in the three months ended September 30, 2019. Timing on realization of these recoveries is dependent upon the timing of administrative approvals and generation of federal tax liabilities eligible for offset. The Brazilian IRS request for a Motion of Clarification on this matter has been scheduled to be determined by the Brazilian Supreme Court as early as December 2019. In addition, we expect third parties to make claims on some or all of the pre-tax recoveries, which GM intends to defend against.
Other Litigation-Related Liability and Tax Administrative Matters Various other legal actions, including class actions, governmental investigations, claims and proceedings are pending against us or our related companies or joint ventures,
including matters arising out of alleged product defects; employment-related matters; product and workplace safety, vehicle emissions and fuel economy regulations; product warranties; financial services; dealer, supplier and other contractual relationships; government regulations relating to competition issues; tax-related matters not subject to the provision of Accounting Standards Codification 740, Income Taxes (indirect tax-related matters); product design, manufacture and performance; consumer protection laws; and environmental protection laws, including laws regulating air emissions, water discharges, waste management and environmental remediation from stationary sources.
There are several putative class actions pending against GM in federal courts in the U.S., the Provincial Courts in Canada and Israel alleging that various vehicles sold, including model year 2011-2016
Duramax Diesel Chevrolet Silverado and GMC Sierra vehicles, violate federal, state and foreign emission standards. GM has also faced a series of additional lawsuits based primarily on allegations in the Duramax suit, including putative shareholder class actions claiming violations of federal securities law and a shareholder demand lawsuit. The securities lawsuits have been voluntarily dismissed by the plaintiffs in those actions. At this stage of these proceedings, we are unable to provide an evaluation of the likelihood that a loss will be incurred or an estimate of the amounts or range of possible loss.
We believe that appropriate accruals have been established for losses that are probable and can be reasonably estimated. It is possible that the resolution of one or more of these matters could exceed the amounts accrued in an amount that could be material to our results of
operations. We also from time to time receive subpoenas and other inquiries or requests for information from agencies or other representatives of U.S. federal, state and foreign governments on a variety of issues.
Indirect tax-related matters are being litigated globally pertaining to value added taxes, customs, duties, sales, property taxes and other non-income tax related tax exposures. The various non-U.S. labor-related matters include claims from current and former employees related to alleged unpaid wage, benefit, severance and other compensation matters. Certain administrative proceedings are indirect tax-related and may require that we deposit funds in escrow or provide an alternative form of security which may range from $i200
million to $i500 million at September 30, 2019. Some of the matters may involve compensatory, punitive or other treble damage claims, environmental remediation programs or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that could not be reasonably estimated at September 30,
2019. We believe that appropriate accruals have
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
been established for losses that are probable and can be reasonably estimated. For indirect tax-related matters we estimate our reasonably possible loss in excess of amounts accrued to be up to approximately $i900
million at September 30, 2019.
Takata Matters In May 2016, the National Highway Traffic Safety Administration (NHTSA) issued an amended consent order requiring Takata to file defect information reports (DIRs) for previously unrecalled front airbag inflators that contain phased-stabilized ammonium nitrate-based propellant without a moisture absorbing desiccant on a multi-year, risk-based schedule through 2019 impacting tens of millions of vehicles produced by numerous automotive manufacturers. NHTSA concluded that the likely root cause of the rupturing of the airbag inflators is a function of time, temperature cycling and environmental moisture.
Although
we do not believe there is a safety defect at this time in any unrecalled GM vehicles within scope of the Takata DIRs, in cooperation with NHTSA we have filed Preliminary DIRs covering certain of our GMT900 vehicles, which are full-size pickup trucks and sport utility vehicles (SUVs). We have also filed petitions for inconsequentiality with respect to the vehicles subject to those Preliminary DIRs. NHTSA has consolidated our petitions and will rule on them at the same time.
While these petitions have been pending, we have provided NHTSA with the results of our long-term studies and the studies performed by third-party experts, all of which form the basis for our determination that the inflators in these vehicles do not present an unreasonable risk to safety and that no repair should ultimately be required.
We
believe these vehicles are currently performing as designed and our inflator aging studies and field data support the belief that the vehicles' unique design and integration mitigates against inflator propellant degradation and rupture risk. For example, the airbag inflators used in the vehicles are a variant engineered specifically for our vehicles, and include features such as greater venting, unique propellant wafer configurations, and machined steel end caps. The inflators are packaged in the instrument panel in such a way as to minimize exposure to moisture from the climate control system. Also, these vehicles have features that minimizethe maximum temperature to which the inflator will be exposed, such as larger interior volumes and standard solar absorbing windshields and side glass.
Accordingly, ino
warranty provision has been made for any repair associated with our vehicles subject to the Preliminary DIRs and amended consent order. However, in the event we are ultimately obligated to repair the vehicles subject to current or future Takata DIRs under the amended consent order in the U.S., we estimate a reasonably possible impact to GM of approximately $i1.2 billion.
GM has recalled certain vehicles sold outside
of the U.S. to replace Takata inflators in those vehicles. There are significant differences in vehicle and inflator design between the relevant vehicles sold internationally and those sold in the U.S. We continue to gather and analyze evidence about these inflators and to share our findings with regulators. Additional recalls, if any, could be material to our results of operations and cash flows. We continue to monitor the international situation.
Through October 15, 2019 we are aware of ifive
putative class actions filed against GM in federal court in the U.S., ione putative class action in Mexico, ione
putative class action in Israel and ithree putative class actions pending in various Provincial Courts in Canada arising out of allegations that airbag inflators manufactured by Takata are defective. At this early stage of these proceedings, we are unable to provide an evaluation of the likelihood that a loss will be incurred or an estimate of the amounts
or range of possible loss.
Product Liability We recorded liabilities of $i547 million and $i531
million in Accrued liabilities and Other liabilities at September 30, 2019 and December 31, 2018 for the expected cost of all known product liability claims, plus an estimate of the expected cost for product liability claims that have already been incurred and are expected to be filed in the future for which we are self-insured. It is reasonably possible that our accruals for product liability claims may increase in future periods in material amounts, although we cannot estimate a reasonable range of incremental loss based on currently available information. Other than claims relating to the ignition switch recalls discussed above, we believe that any judgment against us involving our and MLC products for actual damages will be adequately covered by
our recorded accruals and, where applicable, excess liability insurance coverage.
Guarantees We enter into indemnification agreements for liability claims involving products manufactured primarily by certain joint ventures. These guarantees terminate in years ranging from 2019 to 2024 or upon the occurrence of specific events or are ongoing. We believe that the related potential costs incurred are adequately covered by our recorded accruals, which are insignificant. The maximum future undiscounted payments mainly based on vehicles sold to date were $i2.7
billion and $i2.4 billion for these guarantees at September 30, 2019 and December 31, 2018, the majority of which relates to the indemnification agreements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
We provide payment guarantees on commercial loans outstanding with third parties such as dealers. In some instances, certain assets of the party or our payables to the party whose debt or performance we have guaranteed may offset, to some degree, the amount of any potential future payments. We are also exposed to residual value guarantees associated with certain sales to rental car companies.
We periodically enter into agreements that incorporate indemnification provisions in the normal course of business. It is
not possible to estimate our maximum exposure under these indemnifications or guarantees due to the conditional nature of these obligations. Insignificant amounts have been recorded for such obligations as the majority of them are not probable or estimable at this time and the fair value of the guarantees at issuance was insignificant. Refer to Note 18 for additional information on our indemnification obligations to PSA Group under the Master Agreement (the Agreement) between GM and PSA Group.
Operating Leases Our portfolio of leases primarily consists of real estate office space, manufacturing and warehousing facilities, land and equipment. Certain leases contain escalation clauses and renewal or purchase options, and generally our leases have no residual value guarantees or material covenants. We exclude
leases with a term of one year or less from our balance sheet, and do not separate non-lease components from our real estate leases.
Rent expense under operating leases was $i84 million and $i266
million in the three and nine months ended September 30, 2019. Variable lease costs were insignificant in the three and nine months ended September 30, 2019. At September 30, 2019 operating lease right of use assets in Other assets were $i1.2
billion, operating lease liabilities in Accrued liabilities were $i243 million and non-current operating lease liabilities in Other liabilities were $i1.0
billion. Operating lease right of use assets obtained in exchange for lease obligations were $i470 million in the nine months ended September 30, 2019. Our undiscounted future lease obligations related to operating leases having initial terms in excess of one year are $i67
million for the three months ending December 31, 2019 and $i270 million, $i246
million, $i178 million, $i166
million and $i582 million for the years 2020, 2021, 2022, 2023 and thereafter, with imputed interest of $i217
million at September 30, 2019. The weighted average discount rate was i4.2% and the weighted-average remaining lease term was i7.3
years at September 30, 2019. Payments for operating leases included in Net cash provided by (used in) operating activities were $i271 million in the nine months ended September 30, 2019. Lease agreements that have not yet commenced were insignificant at September 30, 2019.
Note
14.iIncome Taxes
For interim income tax reporting we estimate our annual effective tax rate and apply it to our year to date ordinary income (loss). Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. We have open tax
years from 2009 to 2018 with various significant tax jurisdictions.
In the three months ended September 30, 2019 Income tax expense of $i271 million was primarily due to tax expense attributable to entities included in our effective tax rate calculation, partially offset by U.S. tax benefits from foreign activity. In the three months ended September
30, 2018 Income tax expense of $i100 million was primarily due to tax expense attributable to entities included in our effective tax rate calculation, partially offset by a $i157
million tax change related to U.S. tax reform.
In the nine months ended September 30, 2019 Income tax expense of $i932 million was primarily due to tax expense attributable to entities included in our effective tax rate calculation, partially offset by U.S. tax benefits from foreign activity, tax settlements, and a release of valuation
allowance. In the nine months ended September 30, 2018 Income tax expense of $i1.1 billion was primarily due to tax expense attributable to entities included in our effective tax rate calculation, partially offset by a $i157
million tax change related to U.S. tax reform.
At September 30, 2019 we had $i23.1 billion of net deferred tax assets consisting of net operating losses and income tax credits, capitalized research expenditures and other timing differences that are available to offset future income tax liabilities, partially offset by valuation
allowances.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Note 15.iRestructuring
and Other Initiatives
We have executed various restructuring and other initiatives and we may execute additional initiatives in the future, if necessary, to streamline manufacturing capacity and reduce other costs to improve the utilization of remaining facilities. To the extent these programs involve voluntary separations, a liability is generally recorded at the time offers to employees are accepted. To the extent these programs provide separation benefits in accordance with pre-existing agreements, a liability is recorded once the amount is probable and reasonably estimable. If employees are involuntarily terminated, a liability is generally recorded at the communication date. Related charges are recorded in Automotive and other cost of sales and Automotive and other selling, general and administrative expense. iThe
following table summarizes the reserves and charges related to restructuring and other initiatives, including postemployment benefit reserves and charges:
Revisions
to estimates and effect of foreign currency
(i30
)
(i3
)
(i38
)
(i53
)
Balance
at end of period
$
i938
$
i207
$
i938
$
i207
In
the three and nine months ended September 30, 2019 restructuring and other initiatives primarily included actions related to our announced transformation activities, which includes the unallocation of products to certain manufacturing facilities and other employee separation programs. We recorded charges of $i390
million, primarily in GMNA, in the three months ended September 30, 2019 consisting of $i209 million, primarily in pension curtailment and other charges, which are not reflected in the table above, and $i181
million, primarily in supplier-related charges, reflected in the table above. We recorded charges of $i1.5 billion, primarily in GMNA, in the nine months ended September 30, 2019 consisting of $i1.1
billion primarily in non-cash accelerated depreciation and pension curtailment and other charges, not reflected in the table above, and $i421 million primarily in supplier-related charges, which are reflected in the table above. These programs have a total cost since inception of $i2.9
billion and we expect to incur additional restructuring and other charges in the three months ending December 31, 2019 that range from $i100 million to $i300
million, primarily related to employee-related separation charges and accelerated depreciation. We incurred $i645 million in cash outflows resulting from these restructuring actions, primarily for employee separation payments and supplier-related payments, in the nine months ended September 30, 2019.
We expect additional cash outflows related to these activities of approximately $i900 million to be substantially complete by the end of 2020.
In the nine months ended September 30, 2018
restructuring and other initiatives primarily included the closure of a facility and other restructuring actions in Korea. We recorded charges of $i1.0 billion related to Korea in GMI, net of noncontrolling interests in the nine months ended September 30, 2018. These charges consisted of $i537
million in non-cash asset impairments and other charges, not reflected in the table above, and $i495 million in employee separation charges, which are reflected in the table above, in the nine months ended September 30, 2018.
We incurred $i748 million in cash outflows in the nine months ended September 30, 2018 and $i775
million in cash outflows in the year ended December 31, 2018resulting from these Korea restructuring actions primarily for employee separations and statutory pension payments. These programs were substantially complete at December 31, 2018.
Note 16.iStockholders'
Equity and Noncontrolling Interests
We had i2.0 billion shares of preferred stock and i5.0
billion shares of common stock authorized for issuance, and ino shares of preferred stock and i1.4 billion
shares of common stock issued and outstanding at September 30, 2019 and December 31, 2018.
WarrantsAt December 31, 2018 we had i15 million warrants
outstanding that we issued in July 2009. The warrants were exercisable at any time prior to July 10, 2019 at an exercise price of $i18.33 per share. Outstanding warrants expired on July 10, 2019.
In September 2018 GM Financial issued $i500
million of Fixed-to-Floating Rate Cumulative Perpetual Stock, Series B, $i0.01 par value, with liquidation preference of $i1,000
per share. The preferred stock is classified as noncontrolling interests on our condensed consolidated financial statements. Dividends are paid semi-annually and began March 30, 2019 at a fixed rate of i6.50%.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
Cruise Preferred Shares In May 2019, GM Cruise Holdings LLC (Cruise Holdings), our subsidiary, entered into a Purchase Agreement with SoftBank Vision Fund (AIV M2), L.P. (The Vision Fund), General Motors Holdings LLC, Honda Motor Co., Ltd. (Honda), and certain other investors pursuant to which Cruise Holdings received $i1.1
billion in exchange for issuing Class F Preferred Shares (Cruise Class F Preferred Shares), including $i687 million from General Motors Holdings LLC. In July 2019, regulatory approval was received resulting in an additional insignificant amount received from, and Cruise Class F Preferred Shares issued
to, The Vision Fund in August 2019. Total proceeds from the issuance of Cruise Class F Preferred Shares were $i1.2 billion, representing approximately i6.6%
of the fully diluted equity of Cruise Holdings. All proceeds related to the Cruise Class F Preferred Shares are designated exclusively for working capital and general corporate purposes of Cruise. The Cruise Class F Preferred Shares participate pari passu with holders of Cruise Holdings common stock in any dividends declared. The Cruise Class F Preferred Shares have the right to vote on the election of one director, who is elected by the vote of a majority of the Cruise Holdings common stock and the Cruise Class F Preferred Shares. Prior to an initial public offering, the holders of Cruise Class F Preferred Shares are restricted from transferring the Cruise Class F Preferred Shares until May 7, 2023. The Cruise Class F Preferred Shares only convert into common stock of Cruise Holdings at specified exchange ratios upon occurrence of an initial public offering. No covenants or other events of default that can trigger redemption
of the Class F Preferred Shares exist. The Cruise Class F Preferred Shares are entitled to receive the greater of their carrying value or a pro-rata share of any proceeds or distributions upon the occurrence of a merger, sale, liquidation or dissolution of Cruise Holdings. The Cruise Class F Preferred Shares are classified as noncontrolling interests in our condensed consolidated financial statements. At September 30, 2019, external investors held i17.3%
of the fully diluted equity in Cruise Holdings.
In June 2018, Cruise Holdings issued $i900 million of convertible preferred shares (Cruise Preferred Shares) to an affiliate of The Vision Fund, which subsequently assigned such shares to The
Vision Fund. Immediately prior to the issuance of the Cruise Preferred Shares, we invested $i1.1 billion in Cruise Holdings. When Cruise's autonomous vehicles are ready for commercial deployment, The Vision Fund is obligated to purchase additional Cruise Preferred Shares for $i1.35
billion. All proceeds are designated exclusively for working capital and general corporate purposes of Cruise. Dividends are cumulative and accrue at an annual rate of i7% and are payable quarterly in cash or in-kind, at Cruise's discretion. The Cruise Preferred Shares are also entitled to participate in Cruise dividends above
a defined threshold. Prior to an initial public offering, The Vision Fund is restricted from transferring the Cruise Preferred Shares until June 28, 2025. The Cruise Preferred Shares are classified as noncontrolling interests in our condensed consolidated financial statements.
GM Korea Preferred Shares In May 2018, the Korea Development Bank (KDB) agreed to purchase approximately $i750
million of GM Korea’s Class B Preferred Shares from GM Korea (GM Korea Preferred Shares), $i361 million of which was received in June 2018 with the remainder received in the three months ended December 31, 2018. Dividends
on the GM Korea Preferred Shares are cumulative and accrue at an annual rate of i1%. GM Korea can call the preferred shares at their original issue price six years from the date of issuance and once called, the preferred shares can be converted into common shares of GM Korea at the option of the holder. The KDB investment can
only be used for purposes of funding capital expenditures in GM Korea. The GM Korea Preferred Shares are classified as noncontrolling interests in our condensed consolidated financial statements. In conjunction with the GM Korea Preferred Share issuance we agreed to provide GM Korea future funding, if needed, not to exceed $i2.8 billion through December
31, 2027, inclusive of $i2.0 billion of planned capital expenditures through 2027.
Other
comprehensive loss and noncontrolling interests, net of reclassification adjustment, tax and impact of adoption of accounting standards(a)(b)(c)
(i341
)
(i215
)
(i169
)
(i435
)
Balance
at end of period
$
(i2,419
)
$
(i2,041
)
$
(i2,419
)
$
(i2,041
)
Defined
Benefit Plans
Balance at beginning of period
$
(i6,695
)
$
(i6,290
)
$
(i6,737
)
$
(i6,398
)
Other
comprehensive income (loss) before reclassification adjustment, net of tax and impact of adoption of accounting standards(b)(c)
i80
(i4
)
i51
i16
Reclassification
adjustment, net of tax(b)
i40
i63
i111
i151
Other
comprehensive income, net of tax and impact of adoption of accounting standards(b)(c)
i120
i59
i162
i167
Balance
at end of period(d)
$
(i6,575
)
$
(i6,231
)
$
(i6,575
)
$
(i6,231
)
__________
(a)
The
noncontrolling interests and reclassification adjustment were insignificant in the three and nine months ended September 30, 2019 and 2018.
(b)
The income tax effect was insignificant in the three and nine months ended September 30, 2019 and 2018.
(c)
Refer
to our 2018 Form 10-K for additional information on adoption of accounting standards in 2018.
/
(d)
Primarily consists of unamortized actuarial loss on our defined benefit plans. Refer to the critical accounting estimates section of our 2018 Form 10-K for additional information.
Less:
cumulative dividends on subsidiary preferred stock
(i38
)
(i31
)
(i113
)
(i60
)
Income
from continuing operations attributable to common stockholders
i2,313
i2,503
i6,813
i5,980
Loss
from discontinued operations, net of tax
i—
i—
i—
i70
Net
income attributable to common stockholders
$
i2,313
$
i2,503
$
i6,813
$
i5,910
Weighted-average
common shares outstanding
i1,428
i1,412
i1,422
i1,410
Basic
earnings per common share – continuing operations
$
i1.62
$
i1.77
$
i4.79
$
i4.24
Basic
loss per common share – discontinued operations
$
i—
$
i—
$
i—
$
i0.05
Basic
earnings per common share
$
i1.62
$
i1.77
$
i4.79
$
i4.19
Diluted
earnings per share
Income from continuing operations attributable to common stockholders – diluted(a)
$
i2,313
$
i2,503
$
i6,813
$
i5,980
Loss
from discontinued operations, net of tax – diluted
$
i—
$
i—
$
i—
$
i70
Net
income attributable to common stockholders – diluted
$
i2,313
$
i2,503
$
i6,813
$
i5,910
Weighted-average
common shares outstanding – basic
i1,428
i1,412
i1,422
i1,410
Dilutive
effect of warrants and awards under stock incentive plans
i14
i19
i17
i21
Weighted-average
common shares outstanding – diluted
i1,442
i1,431
i1,439
i1,431
Diluted
earnings per common share – continuing operations
$
i1.60
$
i1.75
$
i4.74
$
i4.18
Diluted
loss per common share – discontinued operations
$
i—
$
i—
$
i—
$
i0.05
Diluted
earnings per common share
$
i1.60
$
i1.75
$
i4.74
$
i4.13
Potentially
dilutive securities(b)
i7
i4
i7
i4
//
__________
(a)
Net
of Net loss attributable to noncontrolling interests.
(b)
Potentially dilutive securities attributable to outstanding stock options and Restricted Stock Units (RSUs) were excluded from the computation of diluted earnings per share (EPS) because the securities would have had an antidilutive effect.
Note 18.iDiscontinued
Operations
On July 31, 2017 we closed the sale of the Opel and Vauxhall businesses and certain other assets in Europe (the Opel/Vauxhall Business) to PSA Group. On October 31, 2017 we closed the sale of the European financing subsidiaries and branches (the Fincos, and together with the Opel/Vauxhall Business, the European Business) to Banque PSA Finance S.A. and BNP Paribas Personal Finance S.A. Our wholly owned subsidiary (the Seller) agreed to indemnify PSA Group for certain losses resulting from any inaccuracy of the representations and warranties or breaches of our covenants included in the Agreement and for certain other liabilities, including certain emissions and product liabilities. The
Company entered into a guarantee for the benefit of PSA Group and pursuant to which the Company agreed to guarantee the Seller's obligation to indemnify PSA Group. Certain of these indemnification obligations are subject to time limitations, thresholds and/or caps as to the amount of required payments.
Although the sale reduced our new vehicle presence in Europe, we may still be impacted by actions taken by regulators related to vehicles sold before the sale. In Germany, the Kraftfahrt-Bundesamt (KBA) issued an order in October 2018, which would convert Opel’s existing voluntary recall of certain vehicles into a mandatory recall for allegedly failing to comply with certain emissions regulations. In addition, at the KBA's request, the German authorities re-opened a separate criminal investigation
that had previously been closed with no action. Opel is challenging the mandatory recall order of the KBA in court on the grounds that the emission control systems contained in the subject vehicles have at all times complied with the regulations in place when the vehicles were manufactured, tested, approved and sold.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)
In
2017 and 2018, Opel initiated a voluntarily recall/service campaign for many of these vehicles and such voluntary actions remain ongoing while Opel’s challenge of the mandatory recall remains pending. Opel’s voluntary recall and service actions have been undertaken at its own expense, and this expense should not be transferred to the Seller because it was accounted for at the time of the sale. However, the Seller may be obligated to indemnify PSA Group for certain additional expenses resulting from any mandatory recall that might be ordered to be implemented, as well as related potential litigation costs, settlements, judgments and potential fines. We are unable to estimate any reasonably possible loss or range of loss that may result from this matter.
i
We
continue to purchase from and supply to PSA Group certain vehicles, parts and engineering services for a period of time following closing. The following table summarizes transactions with the Opel/Vauxhall Business:
Included in Net cash provided by operating activities.
Note 19.iSegment
Reporting
We analyze the results of our business through the following reportable segments: GMNA, GMI, Cruise and GM Financial. The chief operating decision maker evaluates the operating results and performance of our automotive segments and Cruise through earnings before interest and taxes (EBIT)-adjusted, which is presented net of noncontrolling interests. The chief operating decision maker evaluates GM Financial through earnings before income taxes (EBT)-adjusted because interest income and interest expense are part of operating results when assessing and measuring the operational and financial performance of the segment. Each segment has a manager responsible for executing our strategic initiatives. While not all vehicles within a segment are individually profitable on a fully allocated cost basis, those vehicles attract customers to dealer
showrooms and help maintain sales volumes for other, more profitable vehicles and contribute towards meeting required fuel efficiency standards. As a result of these and other factors, we do not manage our business on an individual brand or vehicle basis.
Substantially all of the trucks, crossovers, cars and automobile parts produced are marketed through retail dealers in North America and through distributors and dealers outside of North America, the substantial majority of which are independently owned. In addition to the products sold to dealers for consumer retail sales, trucks, crossovers and cars are also sold to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies and governments. Fleet sales are completed through the dealer network and in some cases directly with fleet customers. Retail and fleet customers can obtain a
wide range of after-sale vehicle services and products through the dealer network, such as maintenance, light repairs, collision repairs, vehicle accessories and extended service warranties.
GMNA meets the demands of customers in North America with vehicles developed, manufactured and/or marketed under the Buick, Cadillac, Chevrolet and GMC brands. GMI primarily meets the demands of customers outside North America with vehicles developed, manufactured and/or marketed under the Buick, Cadillac, Chevrolet, GMC, and Holden brands. We also have equity ownership stakes in entities that meet the demands of customers in other countries, primarily China, with vehicles developed, manufactured and/or marketed under the Baojun, Buick, Cadillac, Chevrolet, Jiefang and Wuling brands. Cruise, formerly GM Cruise, is our global segment responsible for the development and commercialization
of autonomous vehicle technology, and includes autonomous vehicle-related engineering and other costs.
Our automotive interest income and interest expense, Maven, legacy costs from the Opel/Vauxhall Business (primarily pension costs), corporate expenditures and certain nonsegment-specific revenues and expenses are recorded centrally in Corporate. Corporate assets primarily consist of cash and cash equivalents, marketable debt securities, our investment in Lyft, PSA warrants, Maven vehicles and intercompany balances. Retained net underfunded pension liabilities related to the European Business are also recorded in Corporate. All intersegment balances and transactions have been eliminated in consolidation.
Earnings
(loss) before interest and taxes-adjusted
$
i3,023
$
(i65
)
$
(i451
)
$
i2,507
$
(i251
)
$
i711
$
(i1
)
$
i2,966
Adjustments(a)
$
(i359
)
$
i92
$
i—
$
(i267
)
$
i—
$
i—
$
i—
(i267
)
Automotive
interest income
i129
Automotive
interest expense
(i206
)
Net
(loss) attributable to noncontrolling interests
(i40
)
Income
before income taxes
i2,582
Income
tax expense
(i271
)
Income
from continuing operations
i2,311
Loss
from discontinued operations, net of tax
i—
Net
loss attributable to noncontrolling interests
i40
Net
income attributable to stockholders
$
i2,351
Equity
in net assets of nonconsolidated affiliates
$
i85
$
i7,024
$
i6
$
i—
$
i7,115
$
i—
$
i1,381
$
i—
$
i8,496
Goodwill
and intangibles
$
i2,488
$
i896
$
i1
$
i—
$
i3,385
$
i670
$
i1,353
$
i—
$
i5,408
Total
assets
$
i115,995
$
i25,562
$
i34,309
$
(i56,381
)
$
i119,485
$
i4,406
$
i109,099
$
(i1,461
)
$
i231,529
Depreciation
and amortization
$
i1,325
$
i133
$
i11
$
i—
$
i1,469
$
i7
$
i1,832
$
i—
$
i3,308
Impairment
charges
$
i—
$
i1
$
i—
$
i—
$
i1
$
i—
$
i—
$
i—
$
i1
Equity
income (loss)
$
i3
$
i279
$
(i6
)
$
i—
$
i276
$
i—
$
i39
$
i—
$
i315
__________
(a)
Consists of restructuring and other charges related to transformation activities of $i390 million, primarily in GMNA and a benefit of $i123
million related to the retrospective recoveries of indirect taxes in Brazil in GMI.
Earnings
(loss) before interest and taxes-adjusted
$
i7,941
$
(i82
)
$
(i461
)
$
i7,398
$
(i699
)
$
i1,606
$
(i17
)
$
i8,288
Adjustments(a)
$
(i1,478
)
$
i1,299
$
(i2
)
$
(i181
)
$
i—
$
i—
$
i—
(i181
)
Automotive
interest income
i333
Automotive
interest expense
(i582
)
Net
(loss) attributable to noncontrolling interests
(i67
)
Income
before income taxes
i7,791
Income
tax expense
(i932
)
Income
from continuing operations
i6,859
Loss
from discontinued operations, net of tax
i—
Net
loss attributable to noncontrolling interests
i67
Net
income attributable to stockholders
$
i6,926
Depreciation
and amortization
$
i4,803
$
i379
$
i36
$
i—
$
i5,218
$
i16
$
i5,579
$
i—
$
i10,813
Impairment
charges
$
i15
$
i4
$
i—
$
i—
$
i19
$
i—
$
i—
$
i—
$
i19
Equity
income (loss)
$
i7
$
i886
$
(i19
)
$
i—
$
i874
$
i—
$
i126
$
i—
$
i1,000
__________
(a)
Consists of restructuring and other charges related to transformation activities of $i1.5 billion, primarily in GMNA and a benefit of $i1.4
billion related to the retrospective recoveries of indirect taxes in Brazil in GMI.
Earnings
(loss) before interest and taxes-adjusted
$
i7,728
$
i471
$
(i187
)
$
i8,012
$
(i534
)
$
i1,477
$
i—
$
i8,955
Adjustments(a)
$
i—
$
(i1,138
)
$
(i440
)
$
(i1,578
)
$
i—
$
i—
$
i—
(i1,578
)
Automotive
interest income
i218
Automotive
interest expense
(i470
)
Net
(loss) attributable to noncontrolling interests
(i34
)
Income
before income taxes
i7,091
Income
tax expense
(i1,085
)
Income
from continuing operations
i6,006
Loss
from discontinued operations, net of tax
(i70
)
Net
loss attributable to noncontrolling interests
i34
Net
income attributable to stockholders
$
i5,970
Depreciation
and amortization
$
i3,474
$
i426
$
i36
$
i—
$
i3,936
$
i5
$
i5,560
$
i—
$
i9,501
Impairment
charges
$
i53
$
i463
$
i6
$
i—
$
i522
$
i—
$
i—
$
i—
$
i522
Equity
income
$
i7
$
i1,667
$
i—
$
i—
$
i1,674
$
i—
$
i141
$
i—
$
i1,815
__________
(a)
Consists of charges of $i1.1 billion related to restructuring actions in Korea in GMI, which is net of noncontrolling interest, and charges of $i440
million for ignition switch-related legal matters in Corporate.
Note 20.iSubsequent Event
On October 25, 2019 we entered into a new collectively
bargained labor agreement (Labor Agreement) with the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (UAW). The Labor Agreement, which has a term of ifour years, covers the wages, hours, benefits and other terms and conditions of employment for our UAW-represented employees. Among other provisions, the key terms of the Labor Agreement include lump sum payments to eligible employees and wage increases for eligible employees. Severance incentive programs will be offered to qualified employees
based on employee interest, eligibility and management approval. We will make additional manufacturing investments of approximately $i7.7 billion to create or retain more than i9,000
UAW jobs during the period of the Labor Agreement.
Item 2.Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Basis of Presentation This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements and the audited consolidated financial statements and notes thereto included in our 2018 Form 10-K.
Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the
"Forward-Looking Statements" section of this MD&A and the "Risk Factors" section of our 2018 Form 10-K for a discussion of these risks and uncertainties. Except for per share amounts or as otherwise specified, dollar amounts presented within tables are stated in millions.
Non-GAAP Measures Unless otherwise indicated, our non-GAAP measures discussed in this MD&A are related to our continuing operations and not our discontinued operations. Our non-GAAP measures include: EBIT-adjusted, presented net of noncontrolling interests; EBT-adjusted
for our GM Financial segment; EPS-diluted-adjusted; effective tax rate-adjusted (ETR-adjusted); return on invested capital-adjusted (ROIC-adjusted) and adjusted automotive free cash flow. Our calculation of these non-GAAP measures may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of these non-GAAP measures has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures.
These non-GAAP measures allow management and investors to view operating trends, perform analytical comparisons and benchmark performance between periods and among geographic regions to understand operating performance
without regard to items we do not consider a component of our core operating performance. Furthermore, these non-GAAP measures allow investors the opportunity to measure and monitor our performance against our externally communicated targets and evaluate the investment decisions being made by management to improve ROIC-adjusted. Management uses these measures in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. Further, our Board of Directors uses certain of these and other measures as key metrics to determine management performance under our performance-based compensation plans. For these reasons we believe these non-GAAP measures are useful for our investors.
EBIT-adjusted EBIT-adjusted is presented net of noncontrolling interests and is
used by management and can be used by investors to review our consolidated operating results because it excludes automotive interest income, automotive interest expense and income taxes as well as certain additional adjustments that are not considered part of our core operations. Examples of adjustments to EBIT include but are not limited to impairment charges on long-lived assets and other exit costs resulting from strategic shifts in our operations or discrete market and business conditions; costs arising from the ignition switch recall and related legal matters; and certain currency devaluations associated with hyperinflationary economies. For EBIT-adjusted and our other non-GAAP measures, once we have made an adjustment in the current period for an item, we will also adjust the related non-GAAP measure in any future periods in which there is an impact from the item. Our corresponding measure for our GM Financial segment is EBT-adjusted.
EPS-diluted-adjusted EPS-diluted-adjusted
is used by management and can be used by investors to review our consolidated diluted EPS results on a consistent basis. EPS-diluted-adjusted is calculated as net income attributable to common stockholders-diluted less income (loss) from discontinued operations on an after-tax basis, adjustments noted above for EBIT-adjusted and certain income tax adjustments divided by weighted-average common shares outstanding-diluted. Examples of income tax adjustments include the establishment or reversal of significant deferred tax asset valuation allowances.
ETR-adjusted ETR-adjusted is used by management and can be used by investors to review the consolidated effective tax rate for our core operations on a consistent basis. ETR-adjusted is calculated as Income tax expense less the income tax related to the adjustments noted above for EBIT-adjusted
and the income tax adjustments noted above for EPS-diluted-adjusted divided by Income before income taxes less adjustments. When we provide an expected adjusted effective tax rate, we do not provide an expected effective tax rate because the U.S. GAAP measure may include significant adjustments that are difficult to predict.
ROIC-adjusted ROIC-adjusted is used by management and can be used by investors to review our investment and capital allocation decisions. We define ROIC-adjusted as EBIT-adjusted for the trailing four quarters divided by ROIC-adjusted average net assets, which is considered to be the average equity balances adjusted for average automotive debt and interest liabilities, exclusive of finance leases; average automotive net pension and OPEB liabilities; and average automotive net
income tax assets during the same period.
Adjusted automotive free cash flow Adjusted automotive free cash flow is used by management and can be used by investors to review the liquidity of our automotive operations and to measure and monitor our performance against our capital allocation
program
and evaluate our automotive liquidity against the substantial cash requirements of our automotive operations. We measure adjusted automotive free cash flow as automotive operating cash flow from continuing operations less capital expenditures adjusted for management actions. Management actions can include voluntary events such as discretionary contributions to employee benefit plans or nonrecurring specific events such as a closure of a facility that are considered special for EBIT-adjusted purposes. Refer to the "Liquidity and Capital Resources" section of this MD&A for additional information.
The following table reconciles Net income (loss) attributable to stockholders under U.S. GAAP to EBIT-adjusted:
Ignition
switch recall and related legal matters(d)
—
440
—
—
—
—
—
—
Total
adjustments
267
440
(19
)
196
(67
)
942
1,327
—
EBIT-adjusted
$
2,966
$
3,153
$
3,012
$
3,192
$
2,310
$
2,610
$
2,828
$
3,085
_________
(a)
These
adjustments were excluded because of a strategic decision to accelerate our transformation for the future to strengthen our core business, capitalize on the future of personal mobility and drive significant cost efficiencies. The adjustments primarily consist of supplier-related charges and pension curtailment and other charges in the three months ended September 30, 2019, supplier-related charges and accelerated depreciation in the three months ended June 30, 2019, accelerated depreciation in the three months ended March 31, 2019and employee separation charges and accelerated depreciation in the three months ended December 31, 2018.
(b)
These adjustments were excluded because of the unique events associated with decisions rendered by the Superior Judicial Court of Brazil resulting in retrospective recoveries of indirect taxes.
(c)
These adjustments were excluded because of a strategic decision to rationalize our core operations by exiting or significantly reducing our presence in various international markets to focus resources on opportunities expected to deliver higher returns. The adjustments primarily consist of
employee separation charges and asset impairments in Korea.
(d)
This adjustment was excluded because of the unique events associated with the ignition switch recall, which included various investigations, inquiries and complaints from constituents.
Diluted
loss per common share – discontinued operations
—
—
—
—
—
—
70
0.05
Adjustments(a)
267
0.18
440
0.31
181
0.12
1,578
1.10
Tax
effect on adjustment(b)
(93
)
(0.06
)
(109
)
(0.08
)
(134
)
(0.09
)
(89
)
(0.06
)
Tax
adjustment(c)
—
—
(157
)
(0.11
)
—
—
(157
)
(0.11
)
EPS-diluted-adjusted
$
2,487
$
1.72
$
2,677
$
1.87
$
6,860
$
4.77
$
7,312
$
5.11
________
(a)
Refer to the reconciliation of Net income (loss) attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A for the details of each individual adjustment.
(b)
The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates.
(c)
This
adjustment consists of a tax change related to U.S. tax reform in the three and nine months ended September 30, 2018.
The following table reconciles our effective tax rate under U.S. GAAP to ETR-adjusted:
Refer
to the reconciliation of Net income (loss) attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A for adjustment details. Net income attributable to noncontrolling interests included for these adjustments is insignificant in the three and nine months ended September 30, 2019 and $41 million in the nine months ended September 30, 2018. The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates.
(b)
Refer to the reconciliation of diluted earnings per common share
under U.S. GAAP to EPS-diluted-adjusted within this section of the MD&A for adjustment details.
We define return on equity (ROE) as Net income (loss) attributable to stockholders for the trailing four quarters divided by average equity for the same period. Management uses average equity to provide comparable amounts in the calculation of ROE. The following table summarizes the calculation of ROE (dollars in billions):
(a)
Includes equity of noncontrolling interests where the corresponding earnings (loss) are included in Net income (loss) attributable to stockholders.
Add: Average automotive debt and interest liabilities (excluding finance leases)
14.8
14.2
Add:
Average automotive net pension & OPEB liability
16.5
19.1
Less: Average automotive and other net income tax asset
(23.3
)
(22.5
)
ROIC-adjusted
average net assets
$
50.8
$
47.1
ROIC-adjusted
21.9
%
25.6
%
__________
(a)
Refer
to the reconciliation of Net income (loss) attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A.
(b)
Includes equity of noncontrolling interests where the corresponding earnings (loss) are included in EBIT-adjusted.
Overview Our management team has adopted a strategic plan to transform GM into the world's most valued automotive company. Our plan includes several major initiatives that we anticipate will redefine the future
of personal mobility and advance our vision of zero crashes, zero emissions, zero congestion while also strengthening the core of our business: earning customers for life by delivering winning vehicles, leading the industry in quality and safety and improving the customer ownership experience; leading in technology and innovation, including electrification, autonomous vehicles and data connectivity; growing our brands; making tough, strategic decisions about which markets and products in which we will invest and compete; building profitable adjacent businesses and targeting 10% core margins on an EBIT-adjusted basis.
Our collective bargaining agreement with the UAW, which was ratified in November 2015, expired on September 14, 2019. The UAW went on strike on September 16, 2019,
causing subsequent stoppages to most vehicle production and parts distribution across our North America facilities. On October 25, 2019, the UAW ratified a new Labor Agreement. The Labor Agreement, which has a term of four years, covers the wages, hours, benefits and other terms and conditions of employment for our UAW-represented employees. The key terms and provisions of the Labor Agreement are:
•
Lump sum ratification bonus payments to eligible employees of $11,000 and eligible temporary employees of $4,500 in November 2019 totaling $0.5 billion;
•
Lump
sum payments, equivalent to 4% of qualified earnings, to eligible employees in November 2019 and October 2021;
•
Lump sum payments of $1,000 to be made annually to eligible employees in June 2020 through June 2023;
•
Gross wage increases of 3% in 2020 and 2022 for eligible employees;
•
Detroit
Hamtramck Assembly facility will remain open and receive a new product allocation. Lordstown Assembly, Baltimore Transmission and Warren Transmission facilities will close;
•
Cash severance incentive programs to qualified employees based on employee interest, eligibility and management approval; and
•
Additional manufacturing investments of approximately $7.7 billion to create or retain more than 9,000 UAW jobs during the period of the Labor Agreement.
Lump
sum payments will be amortized over the term of the Labor Agreement. Restructuring charges for cash severance incentive programs will be recorded in the three months ending December 31, 2019 upon receipt of both employee acceptance and management approval.
We estimate that the lost vehicle production volumes and parts sales due to the UAW strike had an unfavorable impact of approximately $1.3 billion on our GMNA EBIT-adjusted in the three months ended September 30, 2019, which was partially offset by certain timing items of approximately $0.3 billion. In addition, we estimate an unfavorable impact to Net cash provided by operating activities in our condensed consolidated statement of cash flows of approximately $0.4 billion in the three months ended September 30, 2019. The UAW
strike will also have a material impact on our results of operations for the three months ending December 31, 2019.
For the year ending December 31,
2019 we expect EPS-diluted of between $4.28 and $4.69 and EPS-diluted-adjusted of between $4.50 and $4.80, which includes management's estimate of the impact of the UAW strike on this period. The following table reconciles expected EPS-diluted under U.S. GAAP to expected EPS-diluted-adjusted and includes the future impact of any currently expected adjustments:
The tax effect of each adjustment is
determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates.
We face continuing market, operating and regulatory challenges in a number of countries across the globe due to, among other factors, weak economic conditions, competitive pressures, our product portfolio offerings, heightened emissions standards, labor disruptions, foreign exchange volatility, rising material prices, trade policy and political uncertainty. As a result of these conditions, we continue to strategically assess our performance and ability to achieve acceptable returns on our invested capital, as well as our cost structure in order to maintain a low breakeven point. Refer to Item 1A. Risk Factors of our 2018 Form 10-K for a discussion on these challenges.
In
November 2018 we announced plans to accelerate steps to improve our overall business performance, including the reorganization of global product development staffs, the realignment of manufacturing capacity in response to market-related volume declines in passenger cars and a reduction of our salaried workforce. We expect these transformation activities to drive between $5.5 billion and $6.0 billion of annual cash savings by the end of 2020, resulting from reductions in Automotive and other cost of sales in our condensed consolidated financial statements, as well as reduced capital expenditures. We expect to meet our revised cost savings target of between $4.0 billion and $4.5 billion, to be achieved through staffing, manufacturing and product initiatives. As we continue to assess our performance and the needs of our evolving business, additional restructuring and rationalization actions could be required. These additional actions could give rise to future asset impairments
or other charges, which may have a material impact on our results of operations. We have recorded cumulative charges of $2.9 billion related to these plans, including $1.5 billion in the nine months ended September 30, 2019, and expect to record additional charges of $0.1 billion to $0.3 billion in the three months ending December 31, 2019. These charges are primarily considered special for EBIT-adjusted, EPS diluted-adjusted, and adjusted automotive free cash flow purposes.
GMNA Industry sales in North America were 15.9 million units in the nine months ended September 30, 2019, representing a decrease of 1.6%
compared to the corresponding period in 2018. U.S. industry sales were 13.1 million units in the nine months ended September 30, 2019, representing a decrease of 0.7% compared to the corresponding period in 2018. We expect industry unit sales in the U.S. to exceed 17 million for the full year.
Our total vehicle sales in the U.S., our largest market in North America, totaled 2.2 million units for market share of 16.4% in the nine months ended September
30, 2019, which was relatively flat compared to the corresponding period in 2018. We continue to lead the U.S. industry in market share.
GMI Industry sales in China were 18.3 million units in the nine months ended September 30, 2019, representing a 4.6% decrease compared to the corresponding period in 2018. Our total vehicle sales in China were 2.3 million units for a market share of 12.3% in the nine months ended September
30, 2019, representing a decrease of 1.6 percentage points compared to the corresponding period in 2018. Cadillac achieved 8.3% growth in vehicle sales in the nine months ended September 30, 2019 compared to the corresponding period in 2018. Buick, Chevrolet, Baojun and Wuling sales were softer amid a continued weak automotive industry since the second half of 2018. Additionally, Baojun and Wuling sales were impacted by unfavorable market shifts in vehicle segments. Our Automotive China JVs generated equity income of $0.9 billion in the nine months ended September 30, 2019. We expect China JV equity income in the six months ending December 31, 2019 to be generally in line with the
six months ended June 30, 2019. We expect full-year 2019 industry sales to be down versus the prior year with a continuation of pricing pressures, a more challenging regulatory environment related to emissions, fuel consumption and new energy vehicles, and a weaker Chinese Yuan against the U.S. Dollar, which will continue to put pressure on our operations in China. We will continue to build upon our strong brands, network, and partnerships in China as well as continue to drive improvements in vehicle mix and cost.
Outside of China, industry sales were 19.4 million units in the nine months ended September 30, 2019, representing a decrease of 3.1% compared to the corresponding period in 2018, primarily due to decreased sales in India and Argentina. Our total vehicle sales outside of China were 0.9 million units for a market share of 4.7% in the nine months
ended September 30, 2019, representing an increase of 0.3 percentage points compared to the corresponding period in 2018.
Cruise We are actively testing our autonomous vehicles in the U.S. Gated by safety and regulation, we continue to make significant progress towards commercialization of a network of on-demand autonomous vehicles in the U.S.
In 2019 Cruise Holdings entered into a purchase agreement with existing shareholders, including GM, and new third-party investors pursuant to which Cruise Holdings received $1.2 billion in exchange for issuing Cruise Class F Preferred Shares, including $0.7
billion from General Motors Holdings LLC. All proceeds are designated exclusively for working capital and general corporate purposes of Cruise. Refer to Note 16 to our condensed consolidated financial statements for further details.
CorporateThe ignition switch recall has led to various inquiries, investigations, subpoenas, requests for information and complaints from agencies or other representatives of U.S. federal, state and Canadian governments. In addition, these and other recalls have resulted in a number of claims and lawsuits. Such lawsuits and investigations could result in the imposition of material damages, fines, civil consent orders, civil and criminal penalties or other remedies. Refer to Note 13 to our condensed consolidated
financial statements for additional information.
Contingently Issuable Shares Under the Amended and Restated Master Sale and Purchase Agreement between GM and MLC, GM may be obligated to issue Adjustment Shares of our common stock if allowed general unsecured claims against the GUC Trust, as estimated by the Bankruptcy Court, exceed $35.0 billion. Refer to Note 13 to our condensed consolidated financial statements for a description of the contingently issuable Adjustment Shares.
Vehicle Sales The principal factors that determine consumer vehicle preferences in the markets
in which we operate include overall vehicle design, price, quality, available options, safety, reliability, fuel economy and functionality. Market leadership in individual countries in which we compete varies widely.
We present both wholesale and total vehicle sales data to assist in the analysis of our revenue and our market share.Wholesale vehicle sales data consists of sales to GM's dealers and distributors as well as sales to the U.S. Government and excludes vehicles sold by our joint ventures. Wholesale vehicle sales data correlates to our revenue recognized from the sale of vehicles, which is the largest component of Automotive net sales and revenue. In the nine months ended September
30, 2019, 33.5% of our wholesale vehicle sales volume was generated outside the U.S. The following table summarizes wholesale vehicle sales by automotive segment (vehicles in thousands):
Total
vehicle sales data represents: (1) retail sales (i.e., sales to consumers who purchase new vehicles from dealers or distributors); (2) fleet sales, such as sales to large and small businesses, governments, and daily rental car companies; and (3) vehicles used by dealers in their businesses, including courtesy transportation vehicles. Total vehicle sales data includes all sales by joint ventures on a total vehicle basis, not based on our percentage ownership interest in the joint venture. Certain joint venture agreements in China allow for the contractual right to report vehicle sales of non-GM trademarked vehicles by those joint ventures, which are included in the total vehicle sales we report for China. While total vehicle sales data does not correlate directly to the revenue we recognize during a particular period, we believe it is indicative of the underlying demand for our vehicles.
Total vehicle sales data represents management's good faith estimate based on sales reported by GM's dealers, distributors, and joint ventures, commercially available data sources such as registration and insurance data, and internal estimates and forecasts when other data is not available.
Includes sales by the Automotive China JVs SAIC General Motors Sales Co., Ltd. (SGMS), SAIC GM Wuling Automobile Co., Ltd. (SGMW) and FAW-GM Light Duty Commercial Vehicle Co., Ltd. (FAW-GM).
(b)
Cuba, Iran, North Korea, Sudan and Syria are subject to broad economic sanctions. Accordingly these countries are excluded from industry sales data andcorresponding calculation ofmarket share.
(c)
Certain
industry vehicles have been reclassified between these vehicle segments. GM vehicles were not impacted by this change. The prior period has been recast to reflect the changes.
In the nine months ended September 30, 2019 we estimate we had the number one market share in each of North America and South America, and the number four market share in the Asia/Pacific, Middle East and Africa region, which included the number two market share in China.
As discussed above, total vehicle sales and market share data provided in the table above includes fleet vehicles. Certain fleet transactions, particularly sales to daily rental car companies, are generally
less profitable than retail sales to end customers. The following table summarizes estimated fleet sales and those sales as a percentage of total vehicle sales (vehicles in thousands):
GM Financial We believe that offering a comprehensive suite of financing products will generate incremental sales of our vehicles, drive incremental GM Financial earnings and help support our sales throughout various economic cycles. GM Financial's leasing program is exposed to residual values, which are heavily dependent on used vehicle prices. Used vehicle prices for the nine months ended September
30, 2019 decreased slightly compared to the same period in 2018. We expect used vehicle prices to decrease approximately 3% for the full year 2019 compared to 2018, primarily due to increases in the industry supply of used vehicles as well as increases in GM Financial's volume of lease terminations.The following table summarizes the estimated residual value and the number of units included in GM Financial Equipment on operating leases, net by vehicle type (units in thousands):
GM
Financial's retail penetration in the U.S. decreased to 45% in the nine months ended September 30, 2019 from 47% in the corresponding period in 2018. Penetration levels vary depending on incentive financing programs available and competing third-party financing products in the market. GM Financial's prime loan originations as a percentage of total loan originations in North America was 70% in the nine months ended September 30, 2019 and 2018. In the nine months ended September 30, 2019 GM Financial's
revenue consisted of leased vehicle income of 69%, retail finance charge income of 23% and commercial finance charge income of 5%.
Consolidated Results We review changes in our results of operations under five categories: volume, mix, price, cost and other. Volume measures the impact of changes in wholesale vehicle volumes driven by industry volume, market share and changes in dealer stock levels. Mix measures the impact of changes to the regional portfolio due to product, model, trim, country and option penetration in current year wholesale vehicle volumes. Price measures the impact of changes related to Manufacturer’s Suggested Retail Price and various sales allowances. Cost primarily includes: (1) material and freight; (2) manufacturing,
engineering, advertising, administrative and selling and warranty expense; and (3) non-vehicle related activity. Other primarily includes foreign exchange and non-vehicle related automotive revenues as well as equity income or loss from our nonconsolidated affiliates. Refer to the regional sections of this MD&A for additional information.
In
the three months ended September 30, 2019 unfavorable Cost was primarily due to: (1) an increase in large campaigns and other warranty-related costs of $0.8 billion; (2) charges of $0.3 billion primarily in supplier-related charges resulting from transformation activities; and (3) increased material cost of $0.3 billion related to vehicles launched within the last twelve months incorporating significant exterior and/or interior changes (Majors); partially offset by (4) decreased engineering and other costs of $0.4 billion, primarily related to cost savings associated with transformation activities; and (5) favorable material performance of $0.2 billion related to carryover vehicles. In the three months ended September 30, 2019 favorable Other was due to the foreign currency effect resulting from the weakening of other currencies
against the U.S. Dollar.
In the nine months ended September 30, 2019favorable Cost was primarily due to: (1) a benefit of
$1.4 billion related to the retrospective recoveries of indirect taxes in Brazil; (2) decreased engineering and other costs of $1.3 billion, primarily related to cost savings associated with transformation activities; (3) charges of $1.1 billion primarily in employee separation charges and asset impairments in Korea in 2018; and (4) favorable material performance of $0.6 billion related to carryover vehicles; partially offset by (5) charges of $1.4 billion primarily in accelerated depreciation and supplier-related charges resulting from transformation activities; (6) increased material cost of $1.0 billion related to Majors; (7) an increase in large campaigns and other warranty-related costs of $0.7 billion; and (8) increased raw material and freight costs related to carryover vehicles of $0.5 billion. In the nine months ended September 30, 2019 favorable Other was due to the foreign currency effect resulting from the
weakening of the Brazilian Real and other currencies against the U.S. Dollar.
Automotive and other selling, general and administrative expense
Automotive
and other selling, general and administrative expense
$
2,008
$
2,584
$
576
22.3
%
$
6,209
$
7,172
$
963
13.4
%
In
the three months ended September 30, 2019 Automotive and other selling, general and administrative expense decreased primarily due to charges of $0.4 billion for ignition switch-related legal matters in 2018.
In the nine months ended September 30, 2019 Automotive and other selling, general and administrative expense decreased primarily due to charges of $0.4 billion for ignition switch-related legal matters in 2018 and decreased other costs of $0.4 billion primarily related to cost savings associated with transformation activities.
Interest
Income and Other Non-operating Income, net
Interest
income and other non-operating income, net
$
169
$
651
$
(482
)
(74.0
)%
$
1,338
$
2,130
$
(792
)
(37.2
)%
In
the three months ended September 30, 2019 Interest income and other non-operating income, net decreased primarily due to losses related to our investment in Lyft of $0.3 billion and decreased non-service pension income of $0.3 billion.
In the nine months ended September 30, 2019 Interest income and other non-operating income, net decreased primarily due to decreased non-service pension income of $0.7 billion and losses related to our investment in Lyft of $0.3 billion.
The
following table summarizes gains (losses) related to our investment in Lyft and PSA warrants:
In the three months ended September 30, 2019 Income tax expense increased primarily due to an increase in tax expense
attributable to entities included in our effective tax rate calculation and the absence of the 2018 changes resulting from U.S. tax reform, partially offset by U.S. tax benefits from foreign activity.
In the nine months ended September 30, 2019 Income tax expense decreased primarily due to U.S. tax benefits from foreign activity and tax benefits related to a release of valuation allowance.
We revised our expected ETR-adjusted to be between 12% and 14% for the year ending December 31, 2019.
GMNA
Total Net Sales and Revenue In the three months ended September 30, 2019 Total net sales and revenue increased primarily due to: (1) favorable mix associated with a decrease in sales of passenger cars, primarily discontinued models, and increased sales of full-size pickup trucks; and (2) favorable pricing for Majors of $0.4 billion associated with the launch of our new full-size pickup trucks and favorable pricing on carryover vehicles; partially offset by (3) decreased net wholesale volumes due to lost production resulting from the UAW strike and passenger car models, partially offset by higher planned downtime in 2018 in preparation for the launch of full-size pickup trucks.
In the nine months ended September
30, 2019 Total net sales and revenue decreased primarily due to: (1) decreased net wholesale volumes due to lost production resulting from the UAW strike, a decrease in sales of passenger cars, fleet vehicles and full-size SUVs due to planned downtime, partially offset by an increase in sales of crossover vehicles and higher planned downtime in 2018 in preparation for the launch of full-size pickup trucks; and (2) unfavorable Other primarily due to the foreign currency effect resulting from the weakening of the Canadian Dollar against the U.S. Dollar; partially offset by (3) favorable mix associated with a decrease in sales of passenger cars and an increase in sales of full-size pickup trucks, partially offset by a decrease in sales of full-size SUVs; and (4) favorable pricing for Majors of $1.1 billion associated with the launch of our new full-size pickup trucks.
GMNA
EBIT-Adjusted In the three months ended September 30, 2019 EBIT-adjusted increased primarily due to: (1) favorable pricing; and (2) favorable mix associated with a decrease in sales of passenger cars; partially offset by (3) unfavorable Cost due to an increase in large campaigns and other warranty-related costs of $0.7 billion, increased vehicle content for Majors of $0.3 billion and decreased non-service pension income of $0.2 billion, partially offset by engineering, administrative and other cost savings primarily related to transformation activities and favorable materials performance related to carryover vehicles of $0.2 billion; and (4) decreased net wholesale volumes.
In the nine months ended September
30, 2019 EBIT-adjusted increased primarily due to: (1) favorable pricing; and (2) favorable mix associated with a decrease in sales of passenger cars and an increase in sales of full-size pickup trucks, partially offset by a decrease in sales of full-size SUVs due to planned downtime; partially offset by (3) decreased net wholesale volumes; and (4)
unfavorable
Cost due to increased vehicle content for Majors of $1.0 billion, an increase in large campaigns and other warranty-related cost of $0.8 billion, decreased non-service pension income of $0.5 billion, increased raw material and freight costs of $0.4 billion related to carryover vehicles; partially offset by engineering, administrative and other cost savings primarily related to transformation activities and favorable materials performance of $0.5 billion related to carryover vehicles.
The vehicle sales of our Automotive China JVs are not recorded in Total net sales and revenue. The results of our joint ventures are recorded in Equity income, which is included in EBIT (loss)-adjusted above.
GMI Total Net Sales and Revenue In the three months ended September 30, 2019 Total net sales and revenue decreased primarily due to decreased wholesale volumes in Asia/Pacific and in Brazil primarily due to phase out of the Chevrolet Cobalt and the Chevrolet Onix and unfavorable Other primarily due to the foreign currency effect resulting from the weakening of the Argentine Peso against the U.S. Dollar.
In
the nine months ended September 30, 2019 Total net sales and revenue decreased primarily due to: (1) decreased wholesale volumes in Asia/Pacific, Argentina, primarily driven by lower industry volumes, and the Middle East, partially offset by increased volumes in Brazil primarily due to increased sales of the Chevrolet Onix; (2) unfavorable mix primarily due to increased sales of the Chevrolet Onix in Brazil and in Asia/Pacific; and (3) unfavorable Other primarily due to the foreign currency effect resulting from the weakening of the Argentine Peso and Brazilian Real against the U.S. Dollar; partially offset by (4) favorable pricing related to carryover vehicles in Argentina and Brazil.
GMI EBIT (Loss)-Adjusted In the three months ended September 30,
2019 EBIT (loss)-adjusted increased primarily due to unfavorable Other primarily due to decreased equity income and the foreign currency effect resulting from the weakening of the Argentine Peso against the U.S. Dollar.
In the nine
months ended September 30, 2019 EBIT (loss)-adjusted increased primarily due to: (1) unfavorable mix in Asia/Pacific and the Middle East; and (2) unfavorable Other primarily due to decreased equity income and the foreign currency effect resulting from the weakening of the Argentine Peso against the U.S. Dollar; partially offset by (3) favorable fixed cost in Australia, Korea and Argentina; and (4) favorable pricing.
We view the Chinese market as important to our global growth strategy and are employing a multi-brand strategy led by our Buick, Chevrolet and Cadillac brands. In the coming years we plan to leverage our global architectures to increase the number of product offerings under the Buick, Chevrolet and Cadillac brands in China and continue to grow our business under the local Baojun and Wuling brands,
with Baojun focusing its expansion in less developed cities and markets. We operate in the Chinese market through a number of joint ventures and maintaining strong relationships with our joint venture partners is an important part of our China growth strategy.
The following table summarizes certain key operational and financial data for the Automotive China JVs (vehicles in thousands):
Reclassified to Interest income and other non-operating income, net in our condensed consolidated income statements in the three and nine months ended September 30, 2019.
Cruise EBIT (Loss)-Adjusted In the three and nine months ended September 30, 2019 EBIT (loss)-adjusted increased primarily due to increased engineering costs as we progress towards the commercialization of autonomous vehicles.
GM
Financial Revenue In the three months ended September 30, 2019 total revenue increased primarily due to increased finance charge income of $0.1 billion due to growth in the retail and commercial finance receivables portfolios.
In
the nine months ended September 30, 2019 total revenue increased primarily due to increased finance charge income of $0.4 billion due to growth in the retail and commercial finance receivables portfolios and increased leased vehicle income of $0.1 billion.
GM Financial EBT-Adjusted In the three months ended September 30, 2019 EBT-adjusted increased primarily due to increased finance charge income of $0.1 billion due to growth in the retail and commercial finance receivables portfolios.
In the nine months ended September
30, 2019 EBT-adjusted increased primarily due to increased finance charge income of $0.4 billion due to growth in the retail and commercial finance receivables portfolios and increased leased vehicle income net of leased vehicle expenses of $0.2 billion primarily due to a higher volume of lease terminations, partially offset by increased interest expense of $0.4 billion due to an increase in the average debt outstanding resulting from growth in earning assets and an increase in the effective rate of interest on debt.
Liquidity and Capital Resources We believe that our current level of cash and cash equivalents, marketable debt securities and availability under our revolving credit facilities will be sufficient
to meet our liquidity needs. We expect to have substantial cash requirements going forward, which we plan to fund through total available liquidity and cash flows generated from operations and future debt issuances. We also maintain access to the capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity. Our future uses of cash, which may vary from time to time based on market conditions and other factors, are focused on the three objectives of our capital allocation program: (1) reinvest in our business at an average target ROIC-adjusted rate of 20% or greater; (2) maintain a strong investment-grade balance sheet, including a target average automotive cash balance of $18 billion; and (3) return available cash to shareholders. Our senior management evaluates our capital allocation program on an ongoing basis and recommends any modifications to the program to our Board of Directors not less than once
annually.
Our known current and future material uses of cash include, among other possible demands: (1) capital expenditures of approximately $7.5 billion in 2019 in addition to payments for engineering and product development activities; (2) payments associated with previously announced vehicle recalls, the settlements of the multi-district litigation and any other recall-related contingencies; (3) payments to service debt and other long-term obligations, including discretionary and mandatory contributions to our pension plans; (4) dividend payments on our common stock that are declared by our Board of Directors; and (5) payments to purchase shares of our common stock authorized by our Board of Directors.
Our liquidity plans are subject to a number of risks and uncertainties, including
those described in the "Forward-Looking Statements" section of this MD&A and the "Risk Factors" section of our 2018 Form 10-K, some of which are outside of our control.
We continue to monitor and evaluate opportunities to strengthen our competitive position over the long term while maintaining a strong investment-grade balance sheet. These actions may include opportunistic payments to reduce our long-term obligations as well as the possibility of acquisitions, dispositions, investments with joint venture partners and strategic alliances that we believe would generate significant advantages and substantially strengthen our business.
In January 2017 we announced that our Board of Directors had authorized the purchase of up to $5.0 billion of our common stock with no
expiration date as part of our common stock repurchase program. We have completed $1.6 billion of the $5.0 billion program through September 30, 2019.
Cash flows occur amongst our Automotive, Cruise and GM Financial operations that are eliminated when we consolidate our cash flows. Such eliminations include, among other things, collections by Automotive on wholesale accounts receivables financed by dealers through GM Financial, payments between Automotive and GM Financial for accounts receivables transferred by Automotive to GM Financial, dividends issued by GM Financial to Automotive and Automotive cash injections in Cruise. The presentation of Automotive liquidity, Cruise liquidity and GM Financial liquidity presented below includes the impact of cash transactions amongst the sectors
that are ultimately eliminated in consolidation.
Automotive Liquidity Total available liquidity includes cash, cash equivalents, marketable debt securities and funds available under credit facilities. The amount of available liquidity is subject to seasonal fluctuations and includes balances held by various business units and subsidiaries worldwide that are needed to fund their operations. We have not significantly changed the management of our liquidity, including our allocation of available liquidity, our portfolio composition and our investment guidelines since December 31,
2018. Refer to the "Liquidity and Capital Resources" section of MD&A in our 2018 Form 10-K.
We use credit facilities as a mechanism to provide additional flexibility in managing our global liquidity. Our credit facilities totaled $19.5 billion and $16.5 billion at September 30, 2019 and December 31, 2018. GM Financial has exclusive use of our 364–
day $2.0 billion credit facility. Total automotive credit under the facilities was $17.5 billion and $14.5 billion at September 30, 2019 and December 31, 2018. In January 2019 we executed a new three-year unsecured revolving credit facility with an initial borrowing capacity of $3.0 billion, reducing to $2.0 billion in July 2020. The facility is being used to fund costs related to transformation activities announced in November 2018 and to provide additional financial flexibility.
In the nine months ended September 30, 2019 we borrowed $0.7 billion against this facility to support transformation-related disbursements. We did not have any borrowings against our other facilities at September 30, 2019 and December 31, 2018. In April 2019 we renewed our 364–day $2.0 billion credit facility for an additional 364-day term.
We had letters of credit outstanding under our sub-facility of $0.3 billion at September 30, 2019 and December 31,
2018. GM Financial had access to our revolving credit facilities, except for the $3.0 billion facility executed in January 2019, but did not have borrowings outstanding against them at September 30, 2019 and December 31, 2018. We had intercompany loans from GM Financial of $0.6 billion at September 30, 2019 and December 31, 2018, which primarily consisted of commercial loans to dealers we consolidate, and we had no intercompany loans to GM Financial. Refer to Note 4 of our condensed consolidated financial statements for
additional information.
GM Financial's Board of Directors declared a $0.4 billion dividend on its common stock on October 24, 2019, which we received on October 25, 2019. Future dividends from GM Financial will depend on a number of factors including business and economic conditions, its financial condition, earnings, liquidity requirements and leverage ratio.
The following table summarizes our available liquidity (dollars in billions):
Automotive
cash, cash equivalents and marketable debt securities(a)(b)
20.7
19.6
Cruise cash and cash equivalents(c)
2.2
2.3
Cruise marketable
debt securities(c)(d)
0.6
—
Available liquidity
23.5
21.9
Available under credit facilities
16.5
14.2
Total
available liquidity(a)(e)
$
40.0
$
36.1
__________
(a)
Amounts do not sum due to rounding.
(b)
Includes
$0.5 billion and $0.6 billion that is designated exclusively to fund capital expenditures in GM Korea at September 30, 2019 and December 31, 2018.
(c)
Amounts are designated exclusively for the use of Cruise.
Net
automotive cash provided by operating activities
$
6.6
$
5.4
$
1.2
In the nine months
ended September 30, 2019 the increase in Net automotive cash provided by operating activities was primarily due to: (1) favorable pre-tax earnings of $0.8 billion; (2) favorable pension contributions of $1.0 billion primarily made to our U.K., Canada, and Korea pension plans in 2018; and (3) several other insignificant items; partially offset by (4) unfavorable dividends received from our nonconsolidated affiliates of $0.8 billion, primarily due to payment timing.
In the three months ended September 30, 2019 we estimate that lost production volumes and parts sales due to the UAW strike had an unfavorable impact to Net cash provided by operating activities of approximately $0.4 billion.
This includes lower earnings, partially offset by favorable working capital timing not experienced in the corresponding period in 2018, which is expected to impact working capital in future periods.
Acquisitions
and liquidations of marketable securities, net(a)
—
2.3
(2.3
)
GM investment in Cruise
(0.7
)
(1.1
)
0.4
Other
0.2
(0.2
)
0.4
Net
automotive cash used in investing activities
$
(5.3
)
$
(5.5
)
$
0.2
__________
(a)
Amount
includes $0.1 billion of proceeds from the sale of a portion of our Lyft shares.
In the nine months ended September 30, 2019 capital expenditures decreased primarily due to the 2018 investment related to the launch of full-size trucks.
Dividends
paid and payments to purchase common stock
(1.7
)
(1.7
)
—
Proceeds from KDB investment in GM Korea
—
0.4
(0.4
)
Other
(0.1
)
(0.5
)
0.4
Net
automotive cash provided by (used in) financing activities
$
(0.3
)
$
1.0
$
(1.3
)
Adjusted Automotive Free Cash Flow We measure
adjusted automotive free cash flow as automotive operating cash flow from continuing operations less capital expenditures adjusted for management actions. For the nine months ended September 30, 2019, net automotive cash provided by operating activities under U.S. GAAP was $6.6 billion, capital expenditures were $4.8 billion, and adjustments for management actions primarily related to transformation activities were $0.6 billion.
For the nine months ended September 30, 2018, net automotive cash provided by operating activities under U.S. GAAP was $5.4 billion, capital expenditures were $6.5 billion, and an adjustment for management actions related to restructuring in Korea was $0.7 billion.
Status of Credit Ratings We
receive ratings from four independent credit rating agencies: DBRS Limited, Fitch Ratings, Moody's Investor Service and Standard & Poor's. In April 2019 DBRS Limited upgraded our corporate rating and revolving credit facilities rating to BBB (high) from BBB and revised their outlook to Stable from Positive. All other credit ratings remained unchanged since December 31, 2018.
Cruise Liquidity
The following table summarizes the changes in our Cruise available liquidity (dollars in billions):
When Cruise's autonomous vehicles are ready for commercial deployment, The Vision Fund is obligated to purchase additional Cruise Preferred Shares for $1.35 billion.
Automotive
Financing – GM Financial Liquidity GM Financial's primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, net distributions from credit facilities, including securitizations, secured and unsecured borrowings and collections and recoveries on finance receivables. GM Financial's primary uses of cash are purchases of retail finance receivables and leased vehicles, the funding of commercial finance receivables, repayment of secured and unsecured debt, funding credit enhancement requirements in connection with securitizations and secured debt facilities, operating expenses and interest costs. GM Financial continues to monitor and evaluate opportunities to optimize its liquidity position and the mix of its debt between secured and unsecured debt. The following table summarizes GM Financial's available liquidity (dollars in billions):
Borrowing
capacity on committed unsecured lines of credit
0.3
0.3
Borrowing capacity on revolving credit facility, exclusive to GM Financial
2.0
2.0
Total
GM Financial available liquidity
$
26.2
$
25.2
In the nine months ended September 30, 2019 available liquidity increased primarily due to an increase in borrowing capacity on new and renewed secured revolving credit facilities, resulting from the issuance of securitizations and unsecured debt.
GM
Financial did not have any borrowings outstanding against our credit facility designated for their exclusive use or the remainder of our revolving credit facilities at September 30, 2019. Refer to the Automotive Liquidity section of this MD&A for additional details.
Net cash provided by (used in) financing activities
$
(2.5
)
$
6.8
$
(9.3
)
In
the nine months ended September 30, 2019 Net cash provided by operating activities increased primarily due to a decrease in net collateral posted for derivative positions of $1.0 billion as a result of favorable changes in interest rates on GM Financial’s collateralized derivative portfolio.
In the nine months ended September 30, 2019 Net cash used in investing activities decreased primarily due to: (1) increased collections and recoveries on retail finance receivables of $5.7 billion; (2) increased proceeds from the termination of leased vehicles of $1.9 billion; (3) decreased purchases of leased
vehicles of $0.6 billion; partially offset by (4) increased purchases of finance receivables of $1.8 billion.
In the nine months ended September 30, 2019 Net cash used in financing activities increased primarily due to an increase in debt payments, net of new borrowings of $8.8 billion and a decrease in proceeds from issuance of preferred stock of $0.5 billion.
Critical Accounting Estimates The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use
of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the periods presented. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the MD&A in our 2018 Form 10-K.
Forward-Looking
Statements This report and the other reports filed by us with the SEC from time to time, as well as statements incorporated by reference herein and related comments by our management, may constitute "forward-looking statements" within the meaning of the U.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements are often identified by words like "aim,"“anticipate,”“appears,”“approximately,”“believe,”“continue,”“could,”“designed,”“effect,”“estimate,”“evaluate,”“expect,”“forecast,”“goal,”“initiative,”“intend,”“may,”“objective,”“outlook,”“plan,”“potential,”“priorities,”“project,”“pursue,”“seek,”“should,”“target,”“when,”“will,”“would,” or the negative of any of those words or similar expressions to identify forward-looking statements that represent our current judgment about possible future events. In making these statements we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are reasonable, but these statements are not guarantees of any events or financial results, and our actual results may differ materially due to a variety of important factors, both positive and negative. These factors, which may be revised or supplemented in subsequent reports we file with the SEC, include, among others, the following: (1) our ability to deliver new products, services and customer experiences in response to increased competition in the automotive industry;
(2) our ability to timely fund and introduce new and improved vehicle models that are able to attract a sufficient number of consumers; (3) the success of our crossovers, SUVs and full-size pickup trucks; (4) our ability to successfully and cost-effectively restructure our operations in the U.S. and various other countries and initiate additional cost reduction actions with minimal disruption; (5) our ability to reduce the costs associated with the manufacture and sale of electric vehicles and drive increased consumer adoption; (6) unique technological, operational, regulatory, and competitive risks related to the timing and actual commercialization of autonomous vehicles; (7) global automobile market sales volume, which can be volatile; (8) our significant business in China, which is subject to unique operational, competitive and regulatory risks as well as economic conditions in China; (9) our joint ventures, which we cannot operate solely for our benefit and over
which we may have limited control; (10) the international scale and footprint of our operations, which exposes us to a variety of political, economic and regulatory risks, including the risk of changes in government leadership and laws (including labor, tax and other laws), political instability and economic tensions between governments and changes in international trade policies, new barriers to entry and changes to or withdrawals from free trade agreements, changes in foreign exchange rates and interest rates, economic downturns in foreign countries, differing local product preferences and product requirements, compliance with U.S. and foreign countries' export controls and economic sanctions, differing labor regulations, requirements and union relationships, differing dealer and franchise regulations and relationships, and difficulties in obtaining financing in foreign countries; (11) any significant disruption, including any work
stoppages, at any of our manufacturing facilities; (12) the ability of our suppliers to deliver parts, systems and components without disruption and at such times to allow us to meet production schedules; (13) prices of raw materials used by us and our suppliers; (14) our highly competitive industry, which is characterized by excess manufacturing capacity and the use of incentives
and the introduction of new and improved vehicle models by our competitors; (15) the possibility that competitors may independently develop products and services similar to ours or that our intellectual property rights are not sufficient to prevent competitors from developing or selling those products or services; (16) our ability to manage risks related to security breaches and other disruptions to our vehicles, information technology networks and systems; (17) our ability to comply with increasingly complex, restrictive, and punitive regulations relating to our enterprise data practices, including the collection, use, sharing and security of the Personal Identifiable Information of our customers, employees, or suppliers; (18) our ability to comply with extensive laws and regulations applicable to our industry, including those regarding fuel economy and emissions and autonomous vehicles; (19) costs and risks associated with litigation and government investigations;
(20) the cost and effect on our reputation of product safety recalls and alleged defects in products and services; (21) any additional tax expense or exposure; (22) our continued ability to develop captive financing capability through GM Financial; and (23) significant increases in our pension expense or projected pension contributions resulting from changes in the value of plan assets or the discount rate applied to value the pension liabilities or mortality or other assumption changes. A further list and description of these risks, uncertainties and other factors can be found in our 2018 Form 10-K and our subsequent filings with the SEC.
We caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other
factors that affect the subject of these statements, except where we are expressly required to do so by law.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Equity Price Risk We are subject to equity price risk due to market price volatility related to our investment in Lyft and PSA warrants. The fair value of investments with exposure to equity price risk was $1.8 billion at September 30, 2019.
In March 2019 Lyft filed for an initial public offering, which significantly increased the volatility in the fair value of our investment in Lyft. Our investment in Lyft is valued based on the quoted market price and our investment in PSA warrants is valued based on a Black-Scholes formula. We estimate that a 10% adverse change in quoted security prices in Lyft and PSA Group would impact our investment in Lyft by $0.1 billion and our PSA warrants by $0.1 billion.
Other than as described above, market risks have not changed significantly from those described in Item 7A of our 2018 Form 10-K.
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Item 4.Controls and Procedures
Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under
the Exchange Act) at September 30, 2019. Based on this evaluation required by paragraph (b) of Rules 13a-15 or 15d-15, our CEO and CFO concluded that our disclosure controls and procedures were effective at September 30, 2019.
Changes in Internal Control over Financial Reporting There have not been any changes in our internal control over financial reporting during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Earlier this year, we initiated actions to enhance our close, consolidation, planning
and reporting processes through the implementation of a suite of new systems and system architectures. On January 1, 2019, we updated our forecast and planning processes, inclusive of our year-over-year operating result changes discussed in the MD&A. On May 1, 2019, we updated our close, consolidation and financial reporting systems, processes and related internal controls. For additional information refer to the "Risk Factors" section of our 2018 Form 10-K.
The discussion under "Litigation-Related Liability and Tax Administrative Matters" in Note 13 to our condensed consolidated financial statements is incorporated by reference
into this Part II – Item 1.
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Item 1A.Risk Factors
We face a number of significant risks and uncertainties in connection with our operations. Our business and the results of our operations and financial condition could be materially adversely affected by these risk factors. There have been no material changes to the Risk Factors disclosed in our 2018 Form 10-K.
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Item
2.Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities The following table summarizes our purchases of common stock in the three months ended September 30, 2019:
Shares
purchased consist of shares retained by us for the payment of the exercise price upon the exercise of warrants and shares delivered by employees or directors to us for the payment of taxes resulting from the issuance of common stock upon the vesting of RSUs, Performance Stock Units and Restricted Stock Awards relating to compensation plans. Outstanding warrants expired on July 10, 2019. Refer to our 2018 Form 10-K for additional details on employee stock incentive plans and Note 16 for additional details on warrants.
(b)
In January 2017 we announced that our Board of Directors had authorized the purchase of up to $5.0 billion of our common stock with no expiration date.
The
following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) the Condensed Consolidated Income Statements, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity and (vi) Notes to the Condensed Consolidated Financial Statements
The
cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted as Inline XBRL and contained in Exhibit 101
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
