General Electric Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; filed May 4, 2015. GE moved to calendar-quarter reporting in 2015. The filing combines GE’s industrial businesses and GE Capital (GECC), while also presenting them separately.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 or prior period |
|---|---|---|
| Consolidated revenue | $29.4 billion | $33.5 billion; down 12% |
| Revenue excluding GE Capital exit impacts* | Down 3% | Comparable-period basis |
| Continuing-operations loss attributable to GE | $11.4 billion; diluted EPS $(1.13) | Earnings of $2.7 billion; diluted EPS $0.27 |
| Net loss attributable to GE | $13.6 billion; diluted EPS $(1.35) | Net earnings of $3.0 billion; diluted EPS $0.30 |
| Operating earnings excluding GE Capital exit impacts* | $3.1 billion; operating EPS* $0.31 | Comparable adjusted figure not stated in the supplied text |
| Industrial segment revenue | $24.4 billion; down 1% | Industrial organic revenue* up 3% |
| Industrial segment profit | $3.56 billion; up 9% | Industrial segment margin increased 120 basis points |
| Cash from operating activities | Consolidated: $6.09 billion; GE: $1.34 billion | Consolidated: $4.96 billion; GE: $1.75 billion |
| Cash and equivalents | $87.1 billion | $90.0 billion at December 31, 2014 |
| Total borrowings and bank deposits | $351.4 billion | $364.5 billion at December 31, 2014 |
| Total assets / total equity | $617.6 billion / $117.3 billion | $647.0 billion / $136.8 billion at December 31, 2014 |
Liquidity: GE reported $87.1 billion of cash and equivalents, $45.9 billion of committed unused credit lines and $2.7 billion of high-quality liquid investments. Some cash was subject to currency-control or regulatory restrictions. GE paid a $0.23-per-share dividend; the company said it returned $2.4 billion to shareholders through dividends and buybacks during the quarter.
Material changes and unusual items
- GE Capital Exit Plan: Announced April 10, 2015, after quarter-end, with aspects approved on March 31 and April 2. GE plans to sell most GECC assets over roughly 24 months, concentrating future investment on industrial businesses. It expects to retain selected financing operations; GECC ending net investment excluding liquidity was $303 billion at quarter-end, with retained businesses expected to account for about $90 billion.
- Exit-related charges: GE recorded $16.1 billion of after-tax charges in Q1: $13.8 billion in continuing operations and $2.4 billion in discontinued operations. Continuing-operations charges included $6.0 billion of tax expense related to expected repatriation of foreign earnings and deferred-tax-asset write-offs, $5.0 billion of asset impairments and $2.8 billion on businesses held for sale. GE estimates about $23 billion of after-tax charges through 2016, of which about $6 billion is expected to require future net cash expenditure.
- GE Capital revenue and credit provisions: Financial Services revenue fell 39%, mainly due to the exit plan; excluding its impacts, it fell 7%. The consolidated provision for financing-receivable losses rose to $4.9 billion from $1.0 billion, principally reflecting held-for-sale remeasurement and exit-related provisions. GE transferred $93.1 billion of receivables to held-for-sale and $30.0 billion to assets of businesses held for sale.
- Discontinued operations: The net loss was $2.2 billion, versus earnings of $0.3 billion a year earlier, primarily reflecting a $2.4 billion after-tax estimated disposal loss on Real Estate. GE expected to complete the Real Estate disposal by year-end 2015.
- Currency and segment trends: A stronger U.S. dollar reduced consolidated revenue by $1.2 billion. Industrial segment profit growth was led by Aviation, up 18%; Oil & Gas revenue declined 8%, with management citing currency effects and lower other income. Management noted that low oil prices could pressure some Oil & Gas orders, project timing and pricing, while supporting lower costs and some other businesses.
- Funding and ratings: GECC had $303 billion of ending net investment excluding liquidity. GE said it did not intend to issue incremental GECC unsecured term debt for five years and targeted GECC commercial paper of about $5 billion by year-end 2015. On April 10, Moody’s lowered GE’s senior unsecured rating to A1 from Aa3; GECC’s A1/P-1 ratings were affirmed. S&P affirmed AA+/A-1+ ratings for both.
Outlook, risks and contingencies
- GE estimated approximately $23 billion of after-tax GE Capital exit charges through 2016. Asset-sale values, timing, regulatory approvals, tax outcomes and fair-value estimates may differ from assumptions; the filing notes that held-for-sale valuations involve significant judgment.
- GE guaranteed principal and interest on specified GECC tradable long-term debt and commercial paper under an agreement entered into April 10, 2015. The guarantee covered approximately $210 billion of GECC debt as of that date.
- GE’s proposed Alstom acquisition and related joint ventures remained subject to regulatory approval and were targeted to close in 2015. Other announced sales, including Appliances and consumer-finance businesses, also remained subject to closing conditions or approvals.
- WMC had 15 mortgage-related lawsuits. Reported claims totaled $12.7 billion based on loan purchase prices or unpaid principal balances, not estimated losses; reserves were $814 million. GE estimated reasonably possible losses of up to $500 million above the reserve, while noting that certain legal outcomes could not be meaningfully estimated.
- Other disclosed risks included European credit and economic uncertainty, Venezuelan exchange-rate uncertainty, oil-market weakness, financial-market funding conditions, GECC regulatory oversight and the possibility of further WMC claims. GE said disclosure controls and procedures were effective as of March 31, 2015; controls would be monitored as GECC dispositions proceed.
- The filing does not provide a clear numerical full-year earnings or revenue guidance figure in the supplied text.
Most important facts for investors to verify
- Whether planned GECC asset sales close on schedule and near assumed prices, and whether regulatory processes permit the intended restructuring.
- How actual exit-related charges and cash expenditures compare with the estimated $23 billion after-tax total and $6 billion future cash component.
- Whether industrial revenue, margins and cash generation offset the planned reduction in GE Capital earnings, and how the changed business mix affects taxes.
- GECC and parent liquidity, debt maturities, commercial-paper reduction, the effect of GE’s guarantee of approximately $210 billion of GECC debt, and any consequences of rating changes.
- Developments in WMC litigation and reserves, including the potential for losses above the recorded $814 million reserve.
*Non-GAAP measures as identified by GE; refer to the filing’s reconciliation for comparison with GAAP measures.