How much did GE's revenue and earnings grow in 2004?

Consolidated revenues increased to $152.4 billion from $134.2 billion (about 14%), and net earnings increased to $16.6 billion from $15.0 billion (about 11%). Diluted EPS before accounting changes was $1.59, up from $1.55. Acquisitions contributed $12.3 billion of 2004 revenue, so organic growth was lower than the headline figure.

Why did Insurance earnings fall sharply in 2004?

Net earnings in Insurance declined 73%, primarily from the full-year effect of the Genworth IPO and 2003 dispositions, $0.3 billion of U.S. hurricane losses, and reserve increases at GE Insurance Solutions for adverse development on 1997-2001 liability underwriting years. Management says it does not expect further provisions for this risk, but notes the associated losses have not fully matured.

How much debt does GE carry, and is it a risk?

Consolidated borrowings were $370.9 billion, but about $361 billion sits in GE Capital, which relies heavily on short-term commercial paper (about $97 billion) and funds its operations through debt issuance, with a 6.61:1 debt-to-equity ratio. GE's industrial debt is modest at $11.0 billion, or 9.1% of total capital. Investors should monitor GE Capital's leverage and funding conditions, since its AAA/Aaa ratings are central to its cost of funds.

Will the lower 2004 tax rate continue?

Probably not in full. The 17.5% consolidated rate benefited from IRS settlements covering 1985-1999 issues, the NBC Universal transaction, aircraft leasing reorganization, and the Gecis sale. The filing states that the 2003 benefits were less than 2002, and that the American Jobs Creation Act's repatriation provisions could provide a one-time benefit only if GE chooses to repatriate earnings.

What are the capital return plans for shareowners?

GE declared $8.6 billion in dividends in 2004, with a quarterly dividend of $0.22 after a 10% increase in December 2004, and has paid dividends for over 100 years. The board also authorized a new three-year, $15 billion share repurchase program covering 2005-2007, funded by a mix of borrowings and free cash flow, and GE stated it will not make contributions to the GE Pension Plan in 2005.

GE 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 1, 2005. Cited figures are marked; the original filing is the authoritative source.

General Electric's 2004 Form 10-K (filed March 1, 2005) reports consolidated revenues of $152.4 billion^a, up 14% from $134.2 billion in 2003, and consolidated net earnings of $16.6 billion, up 11% from $15.0 billion.

Diluted EPS was $1.59^b versus $1.49 (after accounting changes), and the dividend was raised 10% to $0.22 per quarter. Growth was heavily acquisition-driven: Amersham (Healthcare), the NBC/Vivendi Universal Entertainment combination (NBC Universal), IKON's U.S. leasing business, Transamerica Finance's commercial lending unit, and AFIG and WMC in Consumer Finance. Acquisitions contributed $12.3 billion to 2004 revenues, and organic revenue growth excluding acquisitions, dispositions, currency effects, Insurance and Energy was about 6%.

The quality of earnings is mixed. Energy profit fell 31% as large gas turbine sales dropped to 122 units from 175, and Insurance net earnings fell 73% on $5.5 billion^c of cumulative adverse loss development at GE Insurance Solutions, with a 120% combined ratio in 2004. Consolidated borrowings reached $370.9 billion, almost all at GE Capital, which is funded by roughly $155 billion of short-term debt.

GE's own industrial debt was only $11.0 billion^d, and its consolidated effective tax rate dropped to 17.5% from 21.7%, aided by IRS settlements and tax benefits from the NBC Universal transaction. Investors should weigh the strong earnings and dividend growth against reliance on GE Capital's leverage, a lower tax rate that may not repeat, and insurance reserve risk.

GE also announced a new three-year, $15 billion share repurchase program (2005-2007), and expects to issue $50-60 billion of long-term debt in 2005. Management reports that GE and GE Capital hold AAA/Aaa long-term ratings, and that GE Capital's earnings-to-fixed-charges ratio was 1.87:1 at year-end 2004.

02—Key points

Key Highlights

Consolidated revenues rose 14% to $152.4 billion, and net earnings rose 11% to $16.6 billion, with diluted EPS of $1.59 versus $1.49 in 2003.
Acquisitions were a major growth driver, contributing $12.3 billion to 2004 revenues, including Amersham, the NBC/VUE combination, and several GE Capital purchases.
Insurance net earnings fell 73% on $5.5 billion of cumulative adverse loss development since 2002, mainly on 1997-2001 underwriting years; GE Insurance Solutions' 2004 combined ratio was 120%.
Energy segment profit fell 31% to $2.8 billion as heavy-duty gas turbine shipments dropped to 122 units from 175, reflecting the end of the U.S. power investment cycle.
The consolidated effective tax rate fell to 17.5% from 21.7%, helped by IRS settlements and NBC Universal-related benefits, so part of the earnings improvement may not recur.
Consolidated borrowings reached $370.9 billion, mostly at GE Capital (GECS debt-to-equity 6.61:1), while GE's industrial borrowings were just $11.0 billion; the company maintains AAA/Aaa ratings.
The board raised the quarterly dividend 10% to $0.22 and approved a new three-year, $15 billion share repurchase program covering 2005-2007.

03—Questions

Frequently Asked Questions

How much did GE's revenue and earnings grow in 2004?
Consolidated revenues increased to $152.4 billion from $134.2 billion (about 14%), and net earnings increased to $16.6 billion from $15.0 billion (about 11%). Diluted EPS before accounting changes was $1.59, up from $1.55. Acquisitions contributed $12.3 billion of 2004 revenue, so organic growth was lower than the headline figure.
Why did Insurance earnings fall sharply in 2004?
Net earnings in Insurance declined 73%, primarily from the full-year effect of the Genworth IPO and 2003 dispositions, $0.3 billion of U.S. hurricane losses, and reserve increases at GE Insurance Solutions for adverse development on 1997-2001 liability underwriting years. Management says it does not expect further provisions for this risk, but notes the associated losses have not fully matured.
How much debt does GE carry, and is it a risk?
Consolidated borrowings were $370.9 billion, but about $361 billion sits in GE Capital, which relies heavily on short-term commercial paper (about $97 billion) and funds its operations through debt issuance, with a 6.61:1 debt-to-equity ratio. GE's industrial debt is modest at $11.0 billion, or 9.1% of total capital. Investors should monitor GE Capital's leverage and funding conditions, since its AAA/Aaa ratings are central to its cost of funds.
Will the lower 2004 tax rate continue?
Probably not in full. The 17.5% consolidated rate benefited from IRS settlements covering 1985-1999 issues, the NBC Universal transaction, aircraft leasing reorganization, and the Gecis sale. The filing states that the 2003 benefits were less than 2002, and that the American Jobs Creation Act's repatriation provisions could provide a one-time benefit only if GE chooses to repatriate earnings.
What are the capital return plans for shareowners?
GE declared $8.6 billion in dividends in 2004, with a quarterly dividend of $0.22 after a 10% increase in December 2004, and has paid dividends for over 100 years. The board also authorized a new three-year, $15 billion share repurchase program covering 2005-2007, funded by a mix of borrowings and free cash flow, and GE stated it will not make contributions to the GE Pension Plan in 2005.

04—Continue

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