GE 2011 Q2 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2011. GE reports industrial operations separately from GE Capital (GECS), with intercompany transactions eliminated in consolidated results. Amounts below are U.S. dollars.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Consolidated revenue | $35.6B | $36.9B | $74.0B | $73.0B |
| Earnings from continuing operations attributable to GE | $3.55B | $3.21B | $6.92B | $5.51B |
| Continuing-operations diluted EPS | $0.33 | $0.29 | $0.64 | $0.50 |
| Net earnings attributable to GE common shareowners | $3.69B | $3.03B | $7.05B | $4.90B |
| GE industrial cash from operating activities | Not stated by quarter | $4.38B | $6.31B | |
| Consolidated cash from operating activities | Not stated by quarter | $15.14B | $16.53B |
- Q2 revenue fell about 4% year over year; management attributed the decline chiefly to acquisitions and dispositions, particularly the NBC Universal (NBCU) transaction. Revenue excluding NBCU was up 7%. Six-month revenue rose about 1%.
- Q2 continuing-operations earnings increased 10%; six-month continuing earnings increased 26%. Management’s non-GAAP operating earnings, excluding non-operating pension costs, rose 18% in Q2 and 35% for the six-month period.
- Q2 common-shareowner net earnings included $217 million from discontinued operations, versus a $101 million loss a year earlier. The six-month comparison was $273 million of earnings versus a $454 million loss.
- Dividends declared were $0.15 per common share in Q2, versus $0.10 a year earlier; six-month dividends were $0.29 versus $0.20.
Segments and material period changes
- Q2 segment profit was $5.16B versus $4.36B. GE Capital profit rose to $1.66B from $743M, mainly on lower financing-receivable loss provisions and lower impairments. Energy Infrastructure profit fell 19% to $1.55B, with lower productivity and prices; Aviation and Healthcare profit increased, while Home & Business Solutions profit declined.
- GE Capital’s six-month profit was $3.46B versus $1.31B. Its financing-receivable allowance provision fell to $1.97B from $4.19B for the six-month period.
- GE completed the January 2011 NBCU transaction, receiving $6.18B cash and a 49% interest in NBCUniversal LLC; it now accounts for that stake using the equity method. GE recorded a $3.56B pretax sale gain but also $3.16B of related income tax expense.
- GE acquired Dresser, Wellstream, the Well Support division of John Wood Group, and Lineage Power, with $7.8B of net cash consideration for acquisitions during the first six months. It also sold or agreed to sell multiple GE Capital businesses, including Consumer Singapore and Australian Home Lending.
- Industrial sales were down 6% for the six-month period, while product-services sales increased 14%. GE Capital revenue rose 1% for the period, with gains and foreign exchange partly offset by lower asset balances and dispositions.
Financial position, debt and liquidity
- At June 30, consolidated assets were $739.1B, liabilities $608.7B and equity $130.4B. Assets declined $12.1B from year-end 2010.
- Consolidated cash and equivalents were $91.1B, including $13.6B at GE and $78.0B at GECS. About $10B was in regulated or restricted entities and about $12B was held outside the U.S.; repatriating offshore funds could incur additional taxes.
- GECS financing receivables, net, were $300.7B, down from $312.2B at year-end. GECS borrowings and bank deposits totaled $463.2B, down from $470.5B. GE reported its borrowings-to-total-capital-invested ratio at 7.8%, versus 7.6% at year-end.
- GE reported $53.7B of committed unused credit lines and a $2.9B liquid-investment portfolio. GE stated that cash and committed credit lines together exceeded twice GECS commercial paper borrowings.
- GECS cash from investing activities was $25.2B for the six months, primarily reflecting collections exceeding financing originations and asset-sale proceeds. GE industrial cash from operating activities fell to $4.4B, which management linked mainly to higher working capital supporting expected equipment sales and the NBCU disposition.
Outlook, risks and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management expected further signs of global economic improvement in 2011 but emphasized continued uncertainty in credit markets, unemployment, real estate liquidity and loan-loss trends.
- GE identified risks including financial-market volatility and sovereign-debt developments, GECS funding availability and planned asset reductions, credit defaults, maintaining GE’s credit rating, demand in key industries, regulation and legal proceedings, and the ability to sustain planned dividends.
- GE Money Japan excess-interest refund claims remained uncertain. The reserve was $1.04B at June 30; management said a one-percentage-point change in the assumed claims-decline rate would change the estimate by about $250M. The effect of the Japan earthquake and tsunami on claims was unclear.
- Commercial real estate remained exposed to valuation and liquidity risk. GE reported $26.6B of real-estate equity investments, with carrying value exceeding its estimated value by about $4.1B; it recorded $0.8B of pretax real-estate impairments in the first six months. Further deterioration could lead to additional impairments.
- Other notable exposures include $6.22B of unrecognized tax benefits; $469M of pending WMC loan-representation claims against a $101M reserve; and $3.26B of conditional sports-programming guarantees related to NBCU, plus a recorded $446M liability for a separate debt indemnity.
- GE planned to notify holders in September 2011 of a preferred-share redemption expected in October. The filing estimated an approximately $0.08 EPS charge when notice is issued; the redemption would eliminate annual preferred dividends of about $0.3B beginning in 2012.
Most important facts for investors to verify
- How much earnings growth is recurring, versus driven by lower credit-loss provisions, investment gains, acquisitions, dispositions and discontinued-operation gains.
- Whether GE industrial cash generation improves as working capital normalizes, and how GE Capital’s asset-reduction and debt-maturity plans progress.
- Whether GE Capital credit quality continues to improve, particularly in consumer, real estate and Japanese refund-claim exposures, and whether reserves remain adequate.
- Whether NBCU-related tax and partnership arrangements, GE’s real-estate valuation assumptions, and WMC and other contingencies produce additional cash costs or losses.
- The timing and actual EPS and cash effects of the planned preferred-share redemption, and whether liquidity and credit ratings remain adequate under stressed funding conditions.