GE 2011 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2011; unaudited. Unless stated otherwise, dollar amounts are U.S. dollars in millions. GE reports industrial operations separately from GE Capital (GECS); consolidated amounts eliminate intercompany activity.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Consolidated revenue | $38,448 | $36,204 | Up 6% |
| Earnings from continuing operations attributable to GE | $3,414 | $2,311 | Up 48% |
| Net earnings attributable to GE common shareowners | $3,358 | $1,870 | Up 80% |
| Diluted EPS from continuing operations | $0.31 | $0.21 | Up 48% |
| Net diluted EPS | $0.31 | $0.17 | Up 82% |
| Cash from operating activities | $7,696 | $7,094 | Up $602 |
| GE industrial cash from operating activities | $1,684 | $2,551 | Down $867 |
- Management’s non-GAAP operating earnings, excluding non-operating pension costs, were $3,577 million, up 58%; operating EPS was $0.33 versus $0.20. These are non-GAAP measures.
- Consolidated income tax expense was $3,927 million and the effective tax rate was 52.8%, versus $443 million and 15.8%. The NBC Universal (NBCU) transaction was the principal reason for the higher rate.
- GE declared common dividends of $0.14 per share, versus $0.10 a year earlier.
- No consolidated profit-margin figure is clearly stated in the filing. Segment profit was $4,826 million versus $3,546 million; segment definitions and allocations differ, including the treatment of GE Capital profit as net earnings.
Segments and changes versus the prior period
- Industrial sales fell 6% to $22.1 billion, while product-services sales rose 9% to $9.4 billion. Financial-services revenue increased 3% to $13.2 billion.
- Energy Infrastructure revenue rose 9% to $9.4 billion, but segment profit fell 7% to $1.4 billion, reflecting lower productivity and prices. Aviation, Healthcare, Transportation and Home & Business Solutions each reported higher segment profit.
- GE Capital segment profit increased to $1,842 million from $583 million. Management attributed the improvement primarily to lower financing-receivable loss provisions, a $690 million pre-tax gain on the Garanti Bank stake sale, and lower impairments.
- GE Capital Real Estate remained loss-making, with segment loss of $358 million versus $403 million. Energy Financial Services segment profit declined to $112 million from $153 million; GECAS profit was $306 million versus $317 million.
- Consolidated revenue growth included higher other income, largely associated with NBCU. The filing says industrial sales declined primarily due to the net effects of acquisitions and dispositions, partly offset by organic growth and currency effects.
- GE reorganized Technology Infrastructure into Aviation, Healthcare and Transportation from January 1, 2011; comparative segment figures were reclassified. The new pension-cost allocation method did not significantly affect reported segment results.
Cash, debt and liquidity
- Consolidated cash and equivalents were $82.2 billion at March 31, 2011, up from $78.9 billion at year-end. GE held $15.5 billion and GE Capital $67.3 billion. GE industrial operating cash flow declined, which management attributed mainly to working-capital needs and the NBCU disposition.
- Total assets were $727.8 billion, down $23.4 billion from December 31, 2010. Total liabilities were $602.0 billion, down $25.0 billion.
- GE Capital financing receivables, net, were $308.4 billion, down from $317.7 billion. Collections exceeded originations, consistent with the stated plan to reduce GE Capital’s asset base. Its ending net investment, excluding cash, fell to $461 billion from $476 billion.
- GE Capital borrowings and bank deposits totaled $458.1 billion, down from $470.6 billion. This comprised $110.6 billion of short-term borrowings, $278.8 billion of long-term borrowings, $29.3 billion of non-recourse securitization borrowings and $39.4 billion of bank deposits.
- GE reported $53.0 billion of committed unused credit lines and a $2.9 billion high-quality liquidity portfolio. Management stated that cash and committed credit lines together exceeded twice GE Capital’s commercial-paper borrowings.
- GE Capital’s financing-receivable loss provision was $1,163 million, down from $2,187 million. Its allowance for losses was $7.6 billion, or 2.4% of receivables, versus $8.1 billion, or 2.5%, at year-end. Nonearning receivables were $11.1 billion, 3.5% of the portfolio, unchanged as a percentage from year-end.
Transactions, outlook and risks
- NBCU: GE completed the transaction with Comcast on January 28, 2011, receiving $6.176 billion cash and a 49% interest in NBCUniversal LLC; Comcast owns 51%. GE deconsolidated NBCU and now accounts for its interest under the equity method. GE recorded a $3.557 billion pre-tax gain but $3.157 billion of related tax expense, leaving a $400 million after-tax gain. The NBCU investment was preliminarily valued at $17.020 billion at quarter-end.
- Other notable items: GE recognized a $690 million pre-tax gain from selling an 18.6% interest in Garanti Bank. Acquisitions included Dresser and Wellstream; goodwill rose $3.5 billion, primarily due to acquisitions and currency translation.
- Japan claims exposure: The reserve for excess-interest refund claims related to the former GE Money Japan business was $1.268 billion. Claim activity had been higher than assumed before declining in March; GE said the effect of the earthquake and tsunami was unclear. Management estimated a 1 percentage point change in the assumed monthly claims decline rate could change the liability by about $250 million.
- Credit and real estate: Management cited continued uncertainty in credit markets and the economic outlook. Commercial real estate conditions showed signs of stabilization but varied by market; further declines in property values or prolonged illiquidity could lead to additional losses. GE recorded $0.5 billion of first-quarter pre-tax impairments on real estate held for investment.
- Funding and other exposures: GE identified access to GE Capital funding, credit ratings and funding costs, credit defaults, market volatility, regulation, litigation, and its ability to maintain planned dividends as uncertainties. FDIC-guaranteed GE Capital debt had $10 billion maturing in 2011 and $35 billion in 2012. Environmental remediation exposure could exceed accrued amounts, but the filing says the excess is not reasonably estimable.
- Outlook: GE expected further signs of global economic improvement in 2011, while cautioning that credit and real estate conditions remained uncertain. The filing provides no clear numerical consolidated earnings or revenue guidance.
- GE reported no significant change in market risk since year-end. Management concluded disclosure controls were effective at March 31, 2011 and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus NBCU, Garanti Bank, lower credit provisions and other gains.
- Whether GE Capital continues to reduce assets and borrowings while maintaining reliable funding access, credit ratings and adequate liquidity.
- Developments in Japan excess-interest claims, including whether the $1.268 billion reserve remains sufficient as claims evolve.
- GE Capital real estate valuations, impaired and restructured loans, and the potential for additional impairments or credit-loss provisions.
- The final valuation and cash flows from GE’s 49% NBCUniversal LLC interest, including tax effects, redemption rights and related guarantees.
- GE industrial operating cash flow and working-capital requirements, given the year-over-year decline in first-quarter GE cash from operating activities.