GM has finalised its Q1 results to reflect the recently approved retiree health-care settlement agreement and has now reported net income of US$445m, compared to a preliminary loss of US$323m.
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GM said the difference between the preliminary and final results primarily reflects a change in the way it will account for the health-care settlement agreement between GM and the United Auto Workers union.
As part of the agreement, GM will make contributions to a new independent Voluntary Employees’ Beneficiary Association trust (VEBA) of $1billion in each of 2006, 2007, and 2011. GM will also make supplemental contributions to this VEBA related to events like profit-sharing payments, wage deferrals from active employees, and increases in the value of GM stock.
After discussions with the US Securities and Exchange Commission on the proper accounting treatment for the settlement agreement, GM has determined that it will recognise the impact of the contributions over approximately seven years, beginning in the third quarter of 2006 when the health-care changes are scheduled to take effect.
The results also include a gain of $372m from the sale of most of GM’s stake in Suzuki. This gain was increased by $55m to reflect finalisation of the foreign exchange treatment for the transaction. The gain was partially offset by restructuring charges totaling $111m, at GM North America, GM Europe and GM Latin America/Africa/Middle East.
GM is also revising its first-quarter financial results for General Motors Acceptance Corporation (GMAC) to reflect finalisation of the tax effect of the sale of GMAC Commercial Mortgage, which closed late in March. As a result, GMAC earned $637m in the first quarter of 2006, compared to the previously reported preliminary first-quarter net income of $605m. GMAC earned $728m a year ago.
GM said it remains committed to reducing structural costs in North America by $7bn on a running rate basis by the end of 2006. Running rate basis refers to the average annualised cost savings into the foreseeable future anticipated to result from cost savings actions when fully implemented.
Due to the change in the accounting treatment of the UAW health-care settlement, GM now expects approximately $4.5bn of structural cost reductions to be realised during calendar year 2006, compared with the $4bn previously estimated.
