General Electric Company — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010. Financial statements are unaudited. GE reports industrial businesses separately from GE Capital (GECS); consolidated results eliminate intercompany transactions. Segment presentation was reorganized effective January 1, 2010, with prior periods reclassified.
Financial results and position
| Metric | Q1 2010 | Q1 2009 / comparison |
|---|---|---|
| Consolidated revenue | $36.6 billion | $38.4 billion; down 5% |
| Earnings from continuing operations attributable to GE | $2.335 billion; diluted EPS $0.21 | $2.850 billion; diluted EPS $0.26 |
| Net earnings attributable to GE common shareowners | $1.870 billion; diluted EPS $0.17 | $2.754 billion; diluted EPS $0.26 |
| Discontinued operations | $390 million after-tax loss | $21 million after-tax loss |
| Cash from operating activities | $7.094 billion consolidated | $201 million used |
| Cash from investing activities | $19.009 billion consolidated | $16.043 billion |
| Cash used for financing activities | $28.039 billion consolidated | $17.008 billion |
| Cash and equivalents | $69.6 billion at March 31 | $72.3 billion at December 31, 2009 |
| Total assets / liabilities | $777.4 billion / $654.4 billion | $781.8 billion / $656.7 billion at December 31, 2009 |
| GECS borrowings and bank deposits | $506.6 billion | $500.3 billion at December 31, 2009 |
| Common dividend declared | $0.10 per share | $0.31 per share |
The filing does not provide a single consolidated margin measure. Total costs and expenses were $33.8 billion versus $35.8 billion. GE’s industrial cash from operating activities was $2.6 billion, down from $3.1 billion; GECS generated $4.1 billion from operating activities versus $3.5 billion used in the prior-year quarter. Consolidated cash declined $2.7 billion during the quarter.
Segments and material changes
| Segment | Revenue, 2010 vs. 2009 | Segment profit, 2010 vs. 2009 |
|---|---|---|
| Energy Infrastructure | $8.7 billion vs. $9.1 billion | $1.5 billion vs. $1.3 billion |
| Technology Infrastructure | $8.7 billion vs. $9.5 billion | $1.4 billion vs. $1.7 billion |
| NBC Universal | $4.3 billion vs. $3.5 billion | $199 million vs. $391 million |
| GE Capital | $12.3 billion vs. $13.8 billion | $607 million vs. $1.029 billion |
| Home & Business Solutions | $1.9 billion vs. $1.9 billion | $71 million vs. $45 million |
- GE Capital revenue fell 10% and segment profit fell 41%. Management cited a smaller asset base, lower interest rates, and the absence of prior-year tax and transaction gains; lower credit-loss provisions and costs partly offset declines.
- Energy Infrastructure profit rose 12% despite lower revenue, helped by pricing and lower material costs. Technology Infrastructure profit fell 18%, largely due to lower transaction gains and volume. NBC Universal revenue benefited from Olympics broadcasts, but Olympics-related losses reduced profit.
- Consolidated revenue and earnings were also affected by acquisitions and dispositions, foreign exchange, and prior-year comparison items. The 2009 period included a $700 million tax benefit from indefinitely reinvesting certain foreign earnings and a gain related to the PTL transaction.
Liquidity, credit quality, and significant items
- GE reported $69.6 billion cash and $51.6 billion of committed, unused credit lines. Management said cash and credit lines together exceeded twice GECS commercial paper borrowings. About $10 billion of cash was in regulated entities and subject to restrictions.
- GECS reduced borrowings by $25.2 billion during the quarter; collections exceeded financing-receivable originations by $11.3 billion. Its financing receivables, net of allowance, were $356.2 billion at March 31.
- GECS allowance for financing-receivable losses was $9.5 billion; provision expense was $2.3 billion. Nonearning receivables were $13.6 billion, or 3.7% of receivables. Impaired loans rose to $14.3 billion from $13.5 billion at January 1, primarily from Real Estate. The filing identifies continuing pressure in commercial real estate, including higher delinquencies in U.S. apartment and hotel portfolios.
- GE Capital Real Estate reported a $403 million segment loss versus a $173 million loss in Q1 2009. GE recognized $0.6 billion of pre-tax impairments on real estate investments in the quarter. Management noted that its latest 2009 estimate of commercial real estate portfolio value was about $7 billion below carrying value; this estimate does not mean all of the difference will be recognized as an impairment.
- On adopting new consolidation rules for securitization entities, GE recognized, as of January 1, increases of approximately $31.1 billion in assets and $33.0 billion in liabilities and a $1.9 billion reduction in total equity. The change also affected reported financing receivables, borrowings, revenues, and period-to-period comparability.
- GE recorded a $380 million incremental reserve related to claims following the 2008 sale of GE Money Japan, contributing to the discontinued-operations loss. Management said claim severity and legislative and regulatory uncertainty make total exposure difficult to estimate.
- GE had agreed to transfer NBC Universal assets to a Comcast venture for expected cash proceeds of $6.5 billion and a 49% interest, subject to regulatory approvals. The filing anticipated closing within the following year and described additional financing and Vivendi buyout arrangements.
Outlook, risks, and contingencies
The filing does not provide a clear numerical full-year earnings or revenue guidance target. Management described plans to reduce GE Capital’s asset base and indicated an expectation of continued operating cash generation. It anticipated a GE payment to GECC of less than $2 billion in 2011 under the Income Maintenance Agreement.
- Key stated risks include financial-market and economic conditions, credit defaults, GECC funding availability and cost, planned asset reductions, maintaining GE’s credit rating, demand in major served industries, regulatory changes, and legal proceedings. Management also noted uncertainty around the ability to maintain the quarterly dividend.
- GE’s funding plan anticipated $38 billion of senior unsecured long-term debt issuance in 2010, which it said had been fully pre-funded during 2009. GECS faced substantial scheduled maturities, including FDIC-guaranteed debt maturing in 2010–2012, and planned to use debt issuance, collections, alternative funding, and cash.
- Legal matters included government investigations concerning municipal financial products, a pending SEC Wells process involving a GECC subsidiary, and shareholder litigation concerning GE’s dividend and GE Capital disclosures, as well as a derivative action relating to an SEC matter resolved in 2009.
- GE stated its disclosure controls were effective as of March 31, 2010, and that no material change in internal control over financial reporting occurred during the quarter.
Investor verification priorities
- Confirm the causes and durability of the 18% decline in continuing-operations earnings and the $390 million discontinued-operations charge, especially the GE Money Japan reserve.
- Assess GE Capital’s credit performance, reserve adequacy, Real Estate exposures and impairments, and the trajectory of nonearning and impaired loans.
- Reconcile GECS debt, cash, maturities, funding access, and securitization-related obligations, including the effects of the new consolidation accounting.
- Track NBC Universal transaction approvals, closing terms, cash proceeds, retained ownership, and related financing.
- Verify dividend policy and the risks, potential outcomes, and financial effects of the disclosed investigations and litigation.