GENERAL ELECTRIC CO annual report, FY2009

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General Electric Company — 2009 Form 10-K Summary

Business context and reporting period

GE’s fiscal year ended December 31, 2009; this annual filing also provides unaudited fourth-quarter results. GE combines industrial, technology, media and financial-services businesses, with GE Capital (GECS) a substantial part of the consolidated company. Results for 2009 use the segment structure in place during that year; a reorganization took effect January 1, 2010.

Financial performance and position

  • Revenue: Consolidated revenue was $156.8 billion, down 14% from $182.5 billion in 2008. GE’s separately described global revenue was $84.3 billion, down from $97.2 billion.
  • Earnings: Net earnings attributable to GE were $11.0 billion, down 37%; diluted EPS was $1.01 versus $1.72. Earnings from continuing operations attributable to GE were $11.2 billion, versus $18.1 billion. Fourth-quarter net earnings attributable to GE were $3.0 billion and diluted EPS was $0.28.
  • Profit and margins: Total operating-segment profit was $19.3 billion, down from $26.4 billion. The filing does not provide a single comparable consolidated operating-margin measure in the supplied text. Financing-receivable loss provisions rose to $10.9 billion from $7.5 billion.
  • Cash flow: Consolidated cash from operating activities was $24.6 billion, down from $48.6 billion. GE industrial cash from operating activities (a company-defined supplemental measure) was $16.6 billion, versus $19.1 billion. GECS cash from operating activities was $7.6 billion, versus $32.0 billion. Cash and equivalents rose to $72.3 billion from $48.2 billion; the increase included substantial cash from financing-receivable collections and other balance-sheet actions.
  • Liquidity and debt: GE reported $72.3 billion of consolidated cash and $51.7 billion of committed credit lines. Consolidated short-term borrowings were $133.1 billion, long-term borrowings $338.2 billion and bank deposits $38.9 billion. GECS borrowings and bank deposits totaled $500.3 billion. GE Capital’s debt-to-equity ratio was 6.74:1 on the reported measure, or 5.22:1 after the company’s cash and hybrid-debt adjustments.
  • Credit and capital: GECS financing receivables declined to $345.0 billion before allowances from $377.8 billion. Nonearning receivables increased to $13.3 billion (3.8% of the portfolio) from $8.0 billion (2.1%); the allowance rose to $8.1 billion from $5.3 billion. GE Capital’s ending net investment, excluding currency effects, fell to $472.2 billion from $525.2 billion.
  • Other indicators: Firm unfilled orders backlog was $67.3 billion, down 4%; total backlog including longer-term product-service orders was approximately $175 billion. GE’s principal pension plans were underfunded by $6.0 billion at year-end.

Material changes versus 2008

  • Capital Finance revenue fell 24% to $50.6 billion and segment profit fell 73% to $2.3 billion, primarily reflecting lower assets and higher credit-loss provisions; Real Estate recorded a $1.5 billion segment loss.
  • Technology Infrastructure revenue and profit each fell 8%. Transportation revenue fell 24% and profit fell 51%, including an update to estimated long-term service costs. Energy Infrastructure revenue declined 4%, while profit rose 13% on pricing and lower costs.
  • NBC Universal revenue declined 9% and segment profit 28%; the prior year included Olympics-related revenue. Consumer & Industrial revenue fell 17%, though segment profit rose 10% on pricing and lower material costs.
  • GE reduced its quarterly common dividend by 68%, from $0.31 to $0.10 per share, beginning in 2009. Full-year declared dividends were $0.61 per share, down 51%. GECS suspended its dividend to GE.
  • GE’s long-term ratings were downgraded in March 2009: S&P to AA+ and Moody’s to Aa2, both with stable outlooks; short-term ratings were affirmed.

Outlook, management commentary, risks and unusual items

  • Management said the global economy showed signs of stabilization, cited a strong backlog entering 2010 and described GE as positioned for growth in 2011 and 2012. No specific consolidated earnings or revenue guidance is provided in the supplied filing text.
  • GE expected consumer credit losses in 2010 to be about the same as in 2009, but expected Real Estate losses to increase. It also expected postretirement-benefit costs to rise by about $1.0 billion in 2010, excluding 2009 restructuring effects.
  • GE agreed to combine NBCU assets with Comcast assets in a new entity; GE expected to receive cash and retain a 49% interest. The transaction required regulatory approvals and was expected to close within a year. NBCU was classified as held for sale at year-end.
  • GE reported an effective consolidated tax benefit rate of 10.5%, reflecting lower-taxed global earnings and the decision to indefinitely reinvest prior-year foreign earnings. Management warned that failure to extend an expired U.S. tax provision for certain foreign financial-services income could significantly increase the effective tax rate after 2010.
  • GE Capital remained exposed to funding-market access, refinancing costs, credit deterioration, unemployment, real-estate values and rating-related collateral or liquidity triggers. GE had prefunded its planned 2010 long-term debt requirements, but continued to rely on commercial-paper and unsecured-debt markets.
  • Environmental remediation spending was about $0.3 billion in 2009; GE expected average annual spending of about $0.4 billion over the following two years. Hudson River PCB dredging Phase I was completed; Phase II scope and costs remained subject to review and an EPA decision. Recorded liabilities covered probable and estimable costs.
  • Effective January 1, 2010, new consolidation rules were expected to increase assets by about $32 billion and liabilities by about $34 billion, with an approximately $2 billion reduction in equity, principally from reversal of prior securitization gains.
  • Other notable items included $0.7 billion of tax benefit from the 2009 foreign-earnings reinvestment decision, a $0.3 billion gain associated with the PTL partial sale and remeasurement, and $0.8 billion of Real Estate investment impairments. GE reported effective internal control over financial reporting, and its auditor gave an unqualified opinion.

Investor verification priorities

  • Reconcile reported earnings, EPS and fourth-quarter figures to the audited statements, including the distinction between GE-attributable earnings and consolidated net earnings.
  • Assess GE Capital’s credit quality, especially rising nonearning and impaired loans, commercial real-estate exposure, reserve adequacy and reported versus managed delinquency trends.
  • Verify GE Capital’s funding and refinancing capacity, including commercial-paper dependence, debt maturities, TLGP-guaranteed debt, credit-rating triggers and the Income Maintenance Agreement.
  • Track the Comcast/NBCU transaction’s approvals, consideration, closing terms and effect on GE’s continuing earnings and cash flows.
  • Review the assumptions and sensitivity of pension, retiree-health and commercial-real-estate valuations, alongside remediation, litigation and tax contingencies.