General Electric Company — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 24, 2012. This is a full-year 10-K, not a standalone fourth-quarter filing. GE is a diversified industrial and financial-services company operating in more than 100 countries. In January 2011, GE deconsolidated NBC Universal and retained a 49% equity-method interest in NBCUniversal LLC.
Key financial results
| Metric | 2011 | 2010 |
|---|---|---|
| Consolidated revenue | $147.3 billion | $149.6 billion |
| Earnings from continuing operations attributable to GE | $14.1 billion | $12.5 billion |
| Net earnings attributable to GE | $14.2 billion | $11.6 billion |
| Diluted EPS from continuing operations / net earnings | $1.23 / $1.23 | $1.14 / $1.06 |
| Operating earnings (non-GAAP) | $14.8 billion | $12.3 billion |
| GE cash from operating activities | $12.1 billion | $14.7 billion |
| Consolidated cash and equivalents at year-end | $84.5 billion | $78.9 billion |
| Consolidated total assets | $717.2 billion | $747.8 billion |
| Consolidated long-term borrowings | $243.5 billion | $293.3 billion |
| GE Capital borrowings and bank deposits | $443.1 billion | $470.5 billion |
GE Capital’s 2011 net earnings rose to $6.5 billion from $3.2 billion, while revenue declined to $45.7 billion from $46.4 billion. Consolidated provision for financing-receivable losses fell to $4.1 billion from $7.2 billion. Industrial segment profit was $14.0 billion, approximately level with 2010’s $14.1 billion.
GE Capital financing receivables before allowance declined to $295.7 billion from $320.3 billion. Nonearning receivables were $9.3 billion, or 3.1% of the portfolio, versus $11.5 billion, or 3.6%; the allowance was $6.4 billion, or 2.1% of receivables, versus $8.0 billion, or 2.5%.
Material changes and unusual items
- Revenue decreased about 1.5%, while earnings from continuing operations attributable to GE increased 12% and net earnings increased 22%. The improvement in net earnings also reflected lower discontinued-operations losses.
- The NBCU transaction generated a $3.7 billion pre-tax gain, but $3.2 billion of related tax expense left a $526 million after-tax gain. GE reported its retained 49% NBCUniversal LLC investment at $18.0 billion at year-end.
- GE Capital’s earnings recovery reflected lower credit-loss provisions, the gain on sale of part of its Garanti Bank investment, and lower impairments. GE Capital reduced ending net investment, excluding cash, to $444.6 billion from $526.3 billion at the start of 2010.
- GE’s 2011 common dividend declared was $0.61 per share, up 33% from 2010. GE redeemed Berkshire Hathaway’s preferred shares for $3.3 billion; the redemption resulted in an $806 million preferred dividend charge to common shareholders’ earnings.
- GE reported $200.2 billion of infrastructure backlog at year-end, up 14%; equipment orders rose 24% to $50.1 billion. Backlog may be cancelled or deferred, sometimes subject to penalties.
Liquidity, outlook, risks and contingencies
- GE reported $84.5 billion of consolidated cash and equivalents and $52.4 billion of committed unused credit lines. GE Capital’s 2012 funding plan contemplated refinancing or repaying short-term maturities, including $82.7 billion of current borrowings and current long-term debt, using debt issuance, commercial paper, cash, collections, dispositions, deposits and other funding. The filing identifies $35.0 billion of FDIC-guaranteed GECC debt with remaining maturities in 2012.
- Management said it entered 2012 with record backlog and expected continued revenue and earnings growth; it did not provide quantified 2012 guidance in the supplied filing text. GE Capital’s stated strategy is to reduce its balance sheet and focus on selected financial-services businesses.
- Pension exposure increased materially: the GE Pension Plan was underfunded by $13.2 billion under U.S. GAAP at year-end, compared with $2.8 billion in 2010. GE expected about $1.0 billion of contributions to that plan in 2012. Management cited historically low discount rates as a key driver.
- Key risks include global economic and European sovereign-debt stress; GE Capital funding-market access, credit quality and real-estate values; maintaining credit ratings; regulatory and tax changes; pension and healthcare costs; product quality, cybersecurity, and legal and environmental matters. GE and GECC had long-term ratings of AA+ from S&P and Aa2 from Moody’s, both with stable outlooks, at year-end.
- Environmental remediation spending was about $0.3 billion in 2011; GE expected average annual spending of about $0.4 billion for each of the next two years. GE said its Hudson River dredging reserve remained its best estimate, following the first year of Phase 2 work.
- Notable contingent exposures include a $692 million reserve for Japanese excess-interest refund claims and $143 million of reserves for WMC mortgage representation-and-warranty claims, against $705 million of pending WMC claims. GE FCMS agreed to pay $70.4 million to resolve government investigations into guaranteed investment contract practices. Outcomes of other legal matters and environmental proceedings remain uncertain.
Most important facts for investors to verify
- Whether reported earnings growth is sustainable after separating the NBCU gain, preferred-stock redemption charge, tax effects, and other nonrecurring items.
- GE Capital’s funding and refinancing capacity, particularly the 2012 maturity schedule, and progress toward reducing ending net investment without weakening earnings or credit quality.
- The sensitivity of pension funding requirements and earnings to discount rates, asset returns, and the plan’s substantial underfunding.
- Whether financing-receivable loss reserves adequately reflect continued economic stress, European exposures, consumer mortgage performance, and commercial real-estate collateral values.
- Developments in Japanese excess-interest claims, WMC repurchase litigation, the Hudson River remediation, and other unresolved legal or regulatory proceedings.
- Whether backlog converts to revenue and cash as expected, given possible customer cancellations or deferrals, and how industrial cash generation compares with reported earnings.