01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
General Electric's 2011 Form 10-K (filed February 24, 2012) shows a company in a recovery year: consolidated revenues of $147.3 billiona (down 2% from $149.6 billion), earnings from continuing operations attributable to the Company up 12% to $14.1 billion, and GAAP net earnings attributable to the Company of $14.2 billion.
Operating EPS (non-GAAP, excluding non-operating pension costs) rose 15% to $1.29b, or $1.37 excluding the $0.08 effect of the preferred stock redemption. Management points to a record industrial backlog of roughly $200 billion and expects continued revenue and earnings growth into 2012. Industrial segments were the main driver: Energy Infrastructure revenue rose 16% (largely from acquisitions such as Dresser, Converteam and Wellstream), while segment profit fell 9% on lower productivity tied to the wind turbine business.
Aviation, Healthcare and Transportation all improved. GE Capital's net earnings rose to $6.5 billionc from $3.2 billion, driven by lower loan-loss provisions and a gain on the Garanti Bank sale. The segment continued shrinking, with ending net investment down from $526 billion to $445 billion over two years.
The financial services balance sheet is still large and reliant on debt markets, with GECS borrowings of $443 billiond. Key risks flagged include the European sovereign debt situation, the expiration at end-2011 of the U.S. tax provision deferring tax on active financial services income (which management expects to raise the effective tax rate significantly after 2012), a $13.2 billion underfunded GE Pension Plan, and the sensitivity of GE Capital's real estate and funding costs to market conditions. Shareholder returns were also a focus: the quarterly dividend was raised to $0.17 per share and about $7.9 billion remained under the $15 billion repurchase program.
On balance, the filing describes an improving but still uneven picture. Industrial earnings growth and a stabilizing GE Capital are offset by a higher expected tax burden, large pension obligations and continued dependence on external funding. Investors should weigh the strength of the backlog and cash generation against these structural and macroeconomic risks.
02—Key points
Key Highlights
- Consolidated revenues of $147.3B (-2% YoY); earnings from continuing operations attributable to GE up 12% to $14.1B, with diluted EPS from continuing operations of $1.23.
- Operating EPS (non-GAAP) up 15% to $1.29; excluding the preferred stock redemption charge, $1.37 (+22%).
- Record backlog of about $200B at year-end 2011 (GE Infrastructure backlog up 14%), supporting management's expectation of continued revenue and earnings growth into 2012.
- GE Capital net earnings nearly doubled to $6.5B, aided by lower loan-loss provisions and the Garanti Bank gain; ending net investment reduced from $526B to $445B since January 2010.
- Energy Infrastructure revenue up 16% to $43.7B on acquisitions (Dresser, Converteam, Wellstream), though segment profit fell 9% on lower wind turbine productivity.
- Expiration at end-2011 of the U.S. deferral provision for active financial services income is expected to raise GE's effective tax rate significantly after 2012.
- GE Pension Plan underfunded by $13.2B at year-end 2011 (vs. $2.8B in 2010) due to a lower 4.21% discount rate; dividend raised to $0.17 per quarter with about $7.9B left on the buyback authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, General Electric Co kept $0.13.
- Revenue$110.06B100.0%
- Cost of revenue−$51.45B46.8%
- Gross profit$58.61B53.2%
- Operating costs−$37.95B34.5%
- Operating income$20.65B18.8%
- Interest, other & tax−$6.50B5.9%
- Net income$14.15B12.9%
Where FY2011 revenue went
$110.06B- Cost of revenue: $51.45B, 47% of revenue
- Other operating costs: $33.35B, 30% of revenue
- Net income: $14.15B, 13% of revenue
- R&D: $4.60B, 4.2% of revenue
- Interest, other & tax: $6.50B, 5.9% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $110.06B$148.88B | −26.1% |
| Cost of Revenue | $51.45B$46.00B | +11.9% |
| Gross Profit | $58.61B$102.88B | −43.0% |
| R&D Expenses | $4.60B$3.94B | +16.8% |
| Operating Expenses | $126.38B$135.38B | −6.6% |
| Operating Income | $20.65B$17.25B | +19.7% |
| Interest Expense | $14.53B$15.54B | −6.5% |
| Net Income | $14.15B$11.64B | +21.5% |
| EPS (Basic) | $9.92$8.48 | +17.0% |
| EPS (Diluted) | $9.84$8.48 | +16.0% |
| Shares Outstanding (Basic) | 1.32B— | — |
05—Questions
Frequently Asked Questions
How did GE's core industrial businesses perform in 2011?
Industrial segment revenues rose about 12% to $94.0B, and total industrial segment profit was roughly flat at $14.0B. Energy Infrastructure and Aviation drove growth through acquisitions, higher volume and services, while Transportation's earnings more than doubled. Home & Business Solutions profit fell 34% on weaker appliance volume and inflation.
Is GE Capital still a major risk to the consolidated company?
GE Capital remains large, with about $552.5B of segment assets and $243B-plus of consolidated long-term borrowings, but it is shrinking and earning more. Its profit recovery came from lower credit losses, and management is reducing ending net investment toward a smaller footprint. Funding costs, real estate exposure, European sovereign risk and possible ratings changes remain the main sensitivities.
Why does the 2012 tax outlook matter for investors?
GE's effective tax rate is held low by indefinitely reinvested non-U.S. earnings and a U.S. provision deferring tax on active financial services income. That provision expired at the end of 2011, and if it is not extended, management expects the effective tax rate to increase significantly after 2012, which would reduce net earnings unless offset elsewhere.
What is the status of the pension and retiree healthcare obligations?
The GE Pension Plan was underfunded by $13.2B at year-end 2011, and the principal pension plans' discount rate fell to 4.21%. Management expects postretirement benefit costs to rise by about $1.3B in 2012, mainly from amortization of 2008 investment losses, and plans to contribute about $1.0B to the GE Pension Plan in 2012 and about $2.1B in 2013.
06—Continue