GENERAL ELECTRIC CO annual report, FY2010

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General Electric Company — 2010 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2010; filed February 25, 2011. The filing is an annual report, not a standalone fourth-quarter filing. GE operated across industrial, technology, media and financial services businesses, with approximately 287,000 employees and customers in more than 100 countries.

Financial performance and position

  • Revenue: $150.2 billion, down 3% from $155.3 billion in 2009. Approximately 53% came from outside the United States.
  • Earnings: Earnings from continuing operations attributable to GE were $12.6 billion, up 15% from $10.9 billion. Net earnings attributable to GE were $11.6 billion, versus $11.0 billion in 2009; discontinued operations contributed a $979 million loss. Diluted EPS was $1.06, compared with $1.01.
  • Fourth quarter: Earnings from continuing operations were $4.159 billion; net earnings attributable to GE were $4.535 billion and diluted net EPS was $0.42. Discontinued operations contributed $605 million in the quarter.
  • Segment results: Energy Infrastructure revenue was $37.5 billion and segment profit $7.3 billion; Technology Infrastructure $37.9 billion and $6.3 billion; NBC Universal $16.9 billion and $2.3 billion; GE Capital $47.0 billion and $3.3 billion; Home & Business Solutions $8.6 billion and $457 million. Segment profit is a management measure and is not directly equivalent to consolidated operating income.
  • Cash flow: Consolidated cash from operating activities was $36.1 billion, up from $24.4 billion. Investing activities provided $32.4 billion, primarily reflecting GE Capital portfolio reduction; financing activities used $61.6 billion. GE industrial cash from operating activities was $14.7 billion, down from $16.4 billion.
  • Liquidity and debt: Cash and equivalents were $79.0 billion, up from $70.5 billion. GE reported $19.2 billion of cash and GE Capital $60.3 billion. Committed unused credit lines totaled $51.8 billion. Consolidated long-term borrowings were $293.3 billion; GE Capital borrowings and bank deposits totaled $470.6 billion. GE Capital reduced ending net investment, excluding cash, to $477 billion from $526 billion at the start of 2010.
  • Other measures: Return on average GE shareowners’ equity was 11.4%, up from 10.5%; return on average total capital invested was 11.2%, up from 9.8%. GE declared $5.2 billion of dividends; annual dividends per share were $0.46, down from $0.61.

Changes versus 2009

  • Revenue declined as GE Capital continued to shrink its asset base and industrial demand remained weak in several markets. Continuing-operations earnings recovered, chiefly as GE Capital’s segment profit rose to $3.3 billion from $1.5 billion, reflecting lower credit-loss provisions and costs.
  • Industrial performance varied: Energy Infrastructure revenue fell 8% while profit increased 2%; Technology Infrastructure revenue fell 2% and profit fell 7%. Healthcare improved, while Aviation and Transportation weakened. NBC Universal revenue increased 9%, with profit approximately flat. Home & Business Solutions revenue increased 2% and profit increased 24%.
  • GE Capital financing receivables before allowances declined to $327.3 billion from $376.7 billion at January 1, 2010. Nonearning receivables fell to $11.6 billion from $14.2 billion at that comparison date, and the allowance for losses declined to $8.1 billion from $9.6 billion. Comparisons reflect adoption of new consolidation accounting on January 1, 2010.
  • GE completed the sale of BAC in December 2010, recording an after-tax gain of $780 million, and agreed to sell its Consumer RV Marine and Consumer Mexico businesses. Those gains and planned disposals were offset in discontinued operations by substantial Japanese excess-interest refund claims and estimated disposal losses.

Outlook, risks and unusual items

  • Management reported a strong backlog entering 2011 and expected global economic conditions to continue improving through 2012. Year-end firm unfilled orders were $66.7 billion, down 1%; total backlog including longer-term product-service orders was approximately $175.4 billion. Orders may be cancelled or deferred.
  • On January 28, 2011, GE transferred NBC Universal’s assets into a venture with Comcast, receiving $6.2 billion in cash and a 49% interest; Comcast owns 51%. GE expected a small after-tax gain in the first quarter of 2011. NBCU results were classified as held for sale at year-end.
  • GE increased its Hudson River PCB-dredging reserve by approximately $845 million in the fourth quarter after agreeing to EPA’s Phase 2 performance standards. GE estimated environmental remediation spending of about $0.4 billion annually for the next two years.
  • Japanese excess-interest refund claims related to the 2008 GE Money Japan sale remained uncertain. The year-end reserve was $1.465 billion; management said a one-percentage-point change in the assumed monthly claims decline would change the liability estimate by about $250 million.
  • Commercial real estate remained a significant exposure: GE Capital recorded $2.3 billion of real estate investment impairments in 2010, versus $0.8 billion in 2009. Management warned of possible further impairments if property values or market liquidity deteriorated.
  • Other material risks included GE Capital funding-market access and refinancing needs, credit losses, ratings downgrades, pension assumptions, global economic and currency volatility, regulatory changes, litigation, product quality, cybersecurity and supplier disruption. GE and GECC held long-term ratings of AA+ from S&P and Aa2 from Moody’s, each with stable outlooks at year-end.
  • Management expected postretirement benefit costs to increase by approximately $1.1 billion in 2011. It also expected the consolidated effective tax rate to rise in 2011, partly due to the NBCU transaction; expiration after 2011 of a U.S. tax provision could raise GE’s effective rate significantly after 2012. Beginning in 2011, GE planned to report a non-GAAP operating earnings and EPS measure alongside GAAP results.
  • The filing states that management considered internal control over financial reporting effective at December 31, 2010, and the independent auditor gave an unqualified opinion on the financial statements and controls.

Most important facts for investors to verify

  • Whether continuing-earnings growth and GE Capital’s lower credit-loss provisions persisted, and how much earnings depended on nonrecurring gains, tax benefits or reserve changes.
  • GE Capital’s funding and refinancing capacity, progress in reducing ending net investment, credit quality, and exposure to commercial real estate and consumer borrowers.
  • The adequacy and subsequent development of reserves for Japanese excess-interest claims, Hudson River remediation, real estate impairments and other legal contingencies.
  • The completed NBCU venture’s accounting, cash proceeds, retained-interest value, guarantees and restrictions on distributions to GE.
  • Whether industrial backlog converted into revenue and cash as scheduled, given customer cancellation rights and ongoing demand uncertainty.
  • The assumptions behind pension and healthcare obligations, deferred-tax assets and indefinitely reinvested foreign earnings, and the effect of any changes on future cash flows and earnings.