GE 2016 First-Quarter 10-Q Summary
Reporting period: Three months ended March 31, 2016. GE combines industrial operations with GE Capital; the filing presents results for continuing and discontinued operations separately. Amounts below are U.S. dollars.
Financial performance
| Metric | Q1 2016 | Q1 2015 / change |
|---|---|---|
| Consolidated revenue | $27.8 billion | $26.2 billion; up 6% |
| Industrial segment revenue | $25.9 billion | $24.4 billion; up 6% (organic revenue down 1%) |
| Industrial segment profit | $3.3 billion | $3.6 billion; down 7% |
| Industrial segment margin | 12.8% | Down 180 basis points; excluding Alstom, 14.5% versus 14.6% |
| Continuing earnings attributable to GE common shareowners | $210 million; diluted EPS $0.02 | Loss of $4.5 billion; diluted EPS loss of $0.45 |
| Net earnings attributable to GE common shareowners | Loss of $98 million; diluted EPS loss of $0.01 | Loss of $13.6 billion; diluted EPS loss of $1.35 |
| Discontinued operations | After-tax loss of $308 million | After-tax loss of $8.9 billion |
| Consolidated cash from operating activities | $599 million | $6.1 billion |
| GE cash from operating activities | $7.9 billion, including $7.5 billion of GE Capital dividends | $1.3 billion |
| Total borrowings | $186.0 billion | $197.6 billion at December 31, 2015 |
The prior-year earnings comparison is heavily affected by GE Capital Exit Plan charges, including a $6.0 billion tax expense in Q1 2015. Q1 2016 consolidated earnings also included $289 million of preferred-stock dividends. The share count used for EPS was about 8% lower year over year.
Liquidity, capital allocation and material changes
- At March 31, GE reported $9.3 billion of cash; GE Capital reported $65.8 billion of cash and equivalents. GE Capital’s broader stated liquidity sources totaled $105.8 billion, including cash, liquid investments and cash classified with discontinued operations or businesses held for sale. GE also had $41.8 billion of committed unused credit lines.
- GE Capital assets declined to $281 billion from $501 billion at December 31, 2014 as the exit plan progressed. It had signed asset-sale agreements representing $166 billion of ENI, excluding liquidity, with $146 billion closed as of quarter-end. The March Wells Fargo transaction closed for approximately $28 billion of ENI; further related sales were expected later in 2016.
- Asset dispositions generated $36.5 billion of cash proceeds in the quarter. GE Capital’s borrowings declined, while its cash increased. GE Capital paid GE $7.5 billion in common dividends, compared with $0.5 billion a year earlier.
- GE returned $8.3 billion to shareholders: $6.1 billion in share repurchases and $2.2 billion in dividends. The quarterly common dividend was $0.23 per share.
- Alstom contributed $2.8 billion of revenue and an operating loss of $0.2 billion, including purchase-accounting and acquisition-related effects. Its purchase-price allocation remains preliminary.
Outlook, risks and unusual items
- GE expected to largely complete the GE Capital Exit Plan by year-end 2016 and expected approximately $35 billion of dividends from GE Capital, subject to regulatory approval. GE filed with FSOC on March 31 seeking rescission of GE Capital’s nonbank SIFI designation; approval was not assured.
- Management reported a $0.3 billion adverse Q1 industrial operating-profit impact from transactional foreign exchange, including remeasurement and mark-to-market charges on open hedges. GE expected the hedge and underlying transaction effects to be insignificant over the contracts’ lives.
- For Oil & Gas, management cited the difficult lower-oil-price market, weaker activity and delayed customer investment. It expected 2016 operating profit to decline approximately 30%; restructuring investment was expected to increase from $350 million to approximately $500 million toward an $800 million cost target.
- The Appliances sale to Haier for approximately $5.4 billion was targeted to close in Q2 2016, subject to customary conditions and regulatory approvals. GE Asset Management was also under agreement to be sold for up to $485 million, subject to adjustments and approvals.
- GE Capital recorded $0.6 billion of after-tax exit-plan charges in Q1. Cumulative after-tax charges under the plan were $22.6 billion, near the company’s $23 billion estimate. Debt repurchases and tenders also produced a $414 million loss in Q1, which GE said should be offset by lower future interest costs.
- WMC mortgage repurchase claims totaled $9.95 billion on stated loan balances, with an $833 million reserve. GE estimated reasonably possible losses of up to $500 million above the reserve, but said that estimate excludes potential adverse outcomes concerning statutes of limitation and a U.S. Justice Department FIRREA investigation. The DOJ investigation was at an early stage.
- GE provided $1.5 billion of indemnifications to buyers and recorded $135 million of related liabilities; it also provided $434 million of credit support, with an insignificant recorded liability.
- Management identified foreign exchange, oil and gas market conditions, execution and pricing of asset sales, regulatory approvals, funding costs, litigation, and the ability to maintain credit ratings and planned shareholder distributions as uncertainties. The filing cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Progress, final proceeds and remaining charges for GE Capital asset sales, including the timing and regulatory status of planned transactions.
- How much of reported GE cash generation depends on GE Capital dividends and asset-sale proceeds, and the ongoing funding and interest costs as assets are sold.
- Underlying industrial performance excluding Alstom, foreign exchange effects and restructuring or acquisition-related charges; particularly Oil & Gas orders and profit.
- Final Alstom purchase accounting, acquired contract assumptions, and potential obligations under the joint ventures’ redemption rights.
- Changes in WMC reserves, litigation outcomes and the DOJ investigation, including exposures not included in the company’s estimated loss range.
- Whether the Haier sale, GE Asset Management sale and requested SIFI rescission receive required approvals and close on expected terms and timing.