Why did GE's reported net earnings decline in 1993 even though operations improved?

Reported net earnings were $4.315 billion versus $4.725 billion in 1992. The decline came from an $862 million after-tax cumulative effect of adopting SFAS No. 112 (postemployment benefits) and $678 million of after-tax restructuring provisions. These were partly offset by a $678 million after-tax gain from transferring the Aerospace businesses. Excluding these items, earnings were $5.102 billion, up 16%.

How much of GE's consolidated risk comes from GE Capital Services versus the industrial businesses?

GECS dominates the balance sheet. Consolidated total assets were $251.5 billion, of which GECS accounted for $211.7 billion, while GE-only assets were $51.1 billion. Consolidated borrowings of $90.4 billion are mostly GECS debt ($85.9 billion), while GE borrowings were only $4.8 billion. Investors should evaluate GE and GECS separately, since the filing itself stresses that they have different risk profiles.

What are the main risks to the Aircraft Engines business outlook?

Aircraft Engines revenues fell 11% and operating profit fell 37% to $798 million. Military procurement is declining and commercial airline demand is weak. The firm order backlog dropped to $7.7 billion from $9.5 billion. Management said revenues and profit were unlikely to return to early-1990s levels until 1996 to 1997 at the earliest. GE also has $1.2 billion of airline financing guarantees outstanding and $1.4 billion of commitments for future engine sales.

Are there material legal or environmental liabilities that could affect shareholders?

The filing lists several proceedings, including the Perry nuclear plant settlement (January 1994), derivative suits over the PAC and government contract fraud, an antitrust indictment in the industrial diamonds business (February 1994), and multiple EPA and state PCB and Clean Air Act penalty actions. Management believes none will have a material effect on earnings, liquidity, or competitive position. Environmental capital spending is expected at $100 to $150 million per year, and remediation at $80 to $110 million per year.

How secure is the dividend and what capital returns did GE provide in 1993?

Dividends declared rose 13% to $2.61 per share, totaling $2.229 billion, marking 18 consecutive years of growth. Dividends paid in cash were $2.153 billion. GE repurchased $770 million of stock, and its major $5.0 billion buyback program was completed. GE's parent-level debt-to-capital ratio fell to 15.5% from 22.4%, which gives the dividend a stronger foundation. Management stated its intent to keep growing dividends in line with earnings.

GE 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 11, 1994. Cited figures are marked; the original filing is the authoritative source.

General Electric's 1993 Form 10-K (filed March 11, 1994) shows a company in transition: consolidated revenues rose 6% to $60.6 billion, but reported net earnings fell to $4.315 billion^a from $4.725 billion.

The decline reflects three non-recurring items: $678 million^b after-tax restructuring provisions, an $862 million after-tax charge for the SFAS No. 112 postemployment benefits accounting change, and a $678 million after-tax gain on the transfer of the Aerospace businesses to a Martin Marietta-controlled company, which was recorded within discontinued operations. Management states that earnings before these items would have been $5.102 billion, up 16%. Earnings from continuing operations before accounting changes rose 3% to $4.424 billion, and EPS before accounting changes was $6.06, up from $5.51.

The filing highlights the growing weight of GE Capital Services (GECS). GECS earnings rose 21% to $1.807 billion^c and its revenues reached $22.1 billion, while GE's own manufacturing revenues were roughly flat at $40.4 billion. Aircraft Engines was the clear weak spot, with revenues down 11% and operating profit down 37% amid military and commercial aircraft weakness; management does not expect a rebound until 1996 to 1997.

Investors should note that consolidated balance sheet figures are dominated by GECS, with total assets of $251.5 billion^d (up from $192.9 billion, largely from acquisitions and securities growth) and consolidated borrowings of $90.4 billion, against GE-only borrowings of just $4.8 billion. The company remained well capitalized on a parent-only basis, paying dividends of $2.61 per share (up 13%, the 18th consecutive annual increase) and repurchasing $5.0 billion of stock under a completed program. Legal and regulatory matters, including the Perry plant settlement, Stern and McNeil shareholder suits, the Benfield derivative settlement, an industrial diamonds antitrust indictment, and numerous EPA penalty proceedings, were disclosed, but management considered none to be material to earnings, liquidity, or competitive position.

02—Key points

Key Highlights

Consolidated revenues rose 6% to $60.6 billion; GE (ex-GECS) revenues were about flat at $40.4 billion.
Reported net earnings fell to $4.315 billion ($5.05/share) from $4.725 billion, due to a $862M SFAS 112 accounting charge and $678M restructuring provisions; earnings before accounting changes were $5.177 billion ($6.06/share).
Management's adjusted earnings excluding one-time items were $5.102 billion, up 16% from 1992.
GECS earnings grew 21% to $1.807 billion on higher Financing and Securities Broker-Dealer results; GECS assets reached $211.7 billion.
Aircraft Engines was the weakest segment: revenues down 11%, operating profit down 37% to $798 million, backlog down to $7.7 billion.
Dividends declared rose 13% to $2.61/share, the 18th consecutive annual increase, and GE repurchased and completed a $5.0 billion share program.
Return on average share owners' equity fell to 17.5% from 20.9%, reflecting the noncash charges.

03—Questions

Frequently Asked Questions

Why did GE's reported net earnings decline in 1993 even though operations improved?
Reported net earnings were $4.315 billion versus $4.725 billion in 1992. The decline came from an $862 million after-tax cumulative effect of adopting SFAS No. 112 (postemployment benefits) and $678 million of after-tax restructuring provisions. These were partly offset by a $678 million after-tax gain from transferring the Aerospace businesses. Excluding these items, earnings were $5.102 billion, up 16%.
How much of GE's consolidated risk comes from GE Capital Services versus the industrial businesses?
GECS dominates the balance sheet. Consolidated total assets were $251.5 billion, of which GECS accounted for $211.7 billion, while GE-only assets were $51.1 billion. Consolidated borrowings of $90.4 billion are mostly GECS debt ($85.9 billion), while GE borrowings were only $4.8 billion. Investors should evaluate GE and GECS separately, since the filing itself stresses that they have different risk profiles.
What are the main risks to the Aircraft Engines business outlook?
Aircraft Engines revenues fell 11% and operating profit fell 37% to $798 million. Military procurement is declining and commercial airline demand is weak. The firm order backlog dropped to $7.7 billion from $9.5 billion. Management said revenues and profit were unlikely to return to early-1990s levels until 1996 to 1997 at the earliest. GE also has $1.2 billion of airline financing guarantees outstanding and $1.4 billion of commitments for future engine sales.
Are there material legal or environmental liabilities that could affect shareholders?
The filing lists several proceedings, including the Perry nuclear plant settlement (January 1994), derivative suits over the PAC and government contract fraud, an antitrust indictment in the industrial diamonds business (February 1994), and multiple EPA and state PCB and Clean Air Act penalty actions. Management believes none will have a material effect on earnings, liquidity, or competitive position. Environmental capital spending is expected at $100 to $150 million per year, and remediation at $80 to $110 million per year.
How secure is the dividend and what capital returns did GE provide in 1993?
Dividends declared rose 13% to $2.61 per share, totaling $2.229 billion, marking 18 consecutive years of growth. Dividends paid in cash were $2.153 billion. GE repurchased $770 million of stock, and its major $5.0 billion buyback program was completed. GE's parent-level debt-to-capital ratio fell to 15.5% from 22.4%, which gives the dividend a stronger foundation. Management stated its intent to keep growing dividends in line with earnings.

04—Continue

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