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GE 2010 second quarter
performance
July 16, 2010
– Financial results & company highlights
"Results are preliminary and unaudited. This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking
statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual
results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange
rates, commodity and equity prices and the value of financial assets; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital
Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial
and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flow
and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level; the level of demand and financial performance of the major industries we
serve, including, without limitation, air and rail transportation, energy generation, network television, real estate and healthcare; the impact of regulation and regulatory, investigative and
legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions and dispositions and our success in integrating
acquired businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may
cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.”
“This document may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes that this information may be informative
to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of non-GAAP
measures presented in this document, see the accompanying supplemental information posted to the investor relations section of our website at www.ge.com.”
“Effective January 1, 2010, we reorganized our segments. We have reclassified prior-period amounts to conform to the current-period’s presentation.”
“In this document, “GE” refers to the Industrial businesses of the Company including GECS on an equity basis. “GE (ex. GECS)” and/or “Industrial” refer to GE excluding Financial Services.”
Overview
Our environment continues to improve
+ Media buying
+ Losses decline
+ Rail loadings
+ Credit demand + RPMs + Equipment orders Still cautious in a few areas
CRE working through cycle
Demand for electricity rebounding after declines
Pace of recovery
Earnings growth resumes … EPS +15%
+ GE Capital losses have peaked … earnings are rebounding
+ Strong performance at NBCU, Healthcare, Consumer & Energy
Execution is very strong
+ Increased margins
+ On track for $13-15B full year CFOA
+ $74B of cash
Multiple positive capital allocation options are ahead
Preliminary 2010 second quarter results/2
Safe & secure
($ in billions)
Long-term debt funding
$84–a)
$70–b)
Leverage–c)
GECS commercial paper
Target
$20-25B ’11
pre-funding
$72
$47
$46
$11
'09
4Q'08
'10 YTD
(a- Includes $13B ’09 pre-funding
(b- Includes $38B ’10 pre-funding
4Q'09
7.8%
8.1%
6.6
6.8
7.1
4Q'09
1Q'10
2Q'10
$71
$69
$67
GECC
GECS
equity–d)
(d- Before non-controlling interest
5.5:1
5.2:1
5.5:1
5.3:1
4Q'09
1Q'10
2Q'10
(c- Net of cash & equivalents with hybrid
debt as equity ex-non-controlling interests
GECC ending net investment–f)
Tier 1 common ratio
GECS
2Q'10
Cash & backup bank lines ~2.5X CP
7.6%
5.8:1
GECS
GECC
'08
5.5:1
~$(2.6B)
Equity impact
due to FX
$538
$516–e) $(16)
1/1/10 1Q’10
Business
reduction
$(13)
FX
$487
2Q’10
(e- Includes FX ($6) from 1/1
(f- Ex. cash & equivalents
Strong liquidity and capital positions
Preliminary 2010 second quarter results/3
2Q orders +8%
Backlog
flat ex. FX
($ in billions)
Strong backlog ($B)
2Q orders $19.2/8%
Equipment
$
Energy
O&G
Aviation
Healthcare
Transportation
Total
$3.7
1.3
1.6
2.8
0.7
$10.0
Services
V%
19%
20
(8)
9
F
17%
$158
$
V%
$4.3
0.8
2.3
1.5
0.5
$9.2
-%
(3)
(5)
2
(1)
(1)%
$125
31
49
129
129
128
93
121
87
109
'05
'06
'07
'08
'09
1Q
2Q
$110
Equip. 23
CSA
2010
Orders profile
Equipment
$11.4
$9.9
1Q
$8.6 $9.1
2Q
3Q
2009
4Q
$172 $175 $174 $172
46
45
44
51
Highlights
Services
$10.0
$8.9
1Q
2Q
2010
$8.7
$9.3 $9.1
Energy Infra. equipment +20%
$10.6
$8.2
$9.2
Tech. Infra. equipment +14% … Healthcare
improving, Transportation $0.4B N. America order
Energy Infra. services flat … adjacency strength,
1Q 2Q 3Q 4Q 1Q 2Q
Nuclear fuels down
2009
2010
Orders improving
Preliminary 2010 second quarter results/4
Expanding margins
Segment op. profit rate (%)
16.4%
2Q'09
Invest in R&D
∆
17.1%
Energy
Tech.
H&BS
NBCU
2Q'10
Drivers
Positive value gap
Positive price
2% deflation
Restructuring benefits
2.2 pts.
(0.9)
2.3
1.1
+14%
Target 30% more products
Fund adjacencies
Grow global position
1H’10 vs. 1H’09
Deep pipeline of leadership products
GEnX
7FA GT
9F Growth GT
Tier 4 Evo
LED A19
Tech-X/Leap-X
Qualibria/EMR
Head Only 3T
Power Haul Loco
Smart Appliances
Strong results while reinvesting for organic growth
Preliminary 2010 second quarter results/5
Generating cash
Consolidated
cash $74B
($ in billions)
2Q YTD CFOA
GE cash balance walk
Total
V%
$7.0
$6.3
(10)%
Industrial
2009
2010
CFOA 1.1X net income & depreciation
Progress balance $1.5B down offset by
$1.3B working capital improvements
Beginning balance 1/1/10
$8.7
CFOA
6.3
Dividends
(2.3)
P&E
(0.9)
Dispositions
1.9
Prefunding of NBCU debt
2.3
Change in debt/FX/other
(3.1)
June 2010
$12.9
Continuing to build cash balance
On track for $13-15B full-year CFOA
Preliminary 2010 second quarter results/6
2Q’10 performance
Second quarter consolidated results
($ in billions – except EPS)
($ in millions)
Continuing operations
2Q’10
Revenues
– Industrial sales
– Financial Svcs. rev.
Earnings–a)
EPS–b)
YTD CFOA
– YTD Industrial CFOA
$37.4
24.4
13.1
(4)%
(6)
(2)
3.3
0.30
14
15
6.3
6.3
(10)
(10)
2Q’10
Tax rate
– GE (ex. GECS)
– GECS
Revenues
V%
$
Energy Infra.
$9,540
V%
(9)%
Segment
profit
$
$1,910
V%
3%
Technology Infra.
9,061
(6)
1,554
H&BS
2,250
4
143
59
20,851
(6)
3,607
(2)
3,750
5
607
13
12,297
(3)
830
93
Industrial
(ex. Media)
(11)
V pts.
21%
13 pts.
28
1
Lower benefit
NBC Universal
GE Capital
(a- Attributable to GE
(b- Earnings attributable to common shareowners
$5,044
8%
Earnings growth resumes
Preliminary 2010 second quarter results/8
2Q items
(Earnings per-share)
Impact
Corporate restructuring
& other charges
Gains
Comments
$(.01)
Cost-structure improvements
.01
Aviation, insurance settlement
(.02)
Grey Zone reserve increase
Discontinued operations
GE Money Japan
Preliminary 2009 fourth quarter results/ 9
Japan consumer run-off
Financial overview
$0.5B
$0.2B
~$0.7B
remaining
Claims update
790
708
$2.9B
$2.2B
~85% claims
settle
561
Avg. daily claims
510
441
$9.5K
$9.1K
Exposure/claim
Initial
indemnity
at sale
GE 1Q’10
reserve
to date
GE 2Q’10
reserve
addition
Total
indemnity/
reserve
to date
GE acquired Lake in 1998
Japanese Supreme Court changed laws
facilitating borrowers reclaiming historical
interest above ~18% in 2006
Sold Lake to Shinsei in 2008
GE responsible for claims > indemnity
$8.9K
$9.1K
$9.1K
Jan. ’09
Apr. ’09
Aug. ’09
Dec. ’09
May ’10
Average daily claims ~(35)% vs. prior year
… expected to continue to decelerate
– Book in run-off
– Loss mitigation efforts progressing
June average daily claims ~(14)% vs. May
… largest monthly since deal closed
Trends improving but slower than expected … manageable
Preliminary 2009 fourth quarter results/ 10
GE Capital highlights
($ in millions)
2Q dynamics
2Q’10
Revenue
Pretax earnings
Net income
ENI (ex. cash)
Assets
$
V%
$12,297
$741
$830
$487B
$588B
(3)%
F
93%
(6)%
(6)%
$830 net income 93% vs. ’09 … higher core
income and lower losses offset by lower gains
$487B ENI (ex. cash) down $29B VPQ driven by
business reductions $16B & FX $13B
$40B volume, up $7.1B VPQ
‒ CLL Americas up $2.4B, underwriting at ~2.6% ROI
Key 2Q business results
Assets
($B)
$
V%
Consumer
Real Estate
CLL
Aviation
EFS
$162
77
202
49
20
‒ Consumer up $3.5B, mainly NA retail
Segment
profit ($MM)
$
V%
(9)% $735
(9)
(524)
(10)
312
3
288
(11)
126
F
U
28
1
94
$2.8B losses & impairments, $0.5B vs. 1Q
‒ Consumer losses down $0.4B, Real Estate
unrealized loss estimate down to ~$6.3B
Reserve coverage up 5 bps. to 2.66%
~$250 cost out ex. FX/acq. vs. ’09
Announced BAC disposition; planned ENI
reduction of $8B
IMA funding seems unlikely
$830 NI … losses have peaked; earnings are rebounding
Preliminary 2010 second quarter results/11
Financial Reform Bill
1 GE business model remains intact
2 Capital requirements should be within GE Capital earnings
growth & asset reduction plans
3 Supervision will change … preparing for Fed oversight
4 Believe impact of Volcker rule will be limited
5 Impact from new late fee rules included in outlook … no
impact from interchange cap
6 Expect limited impact from new rules on derivatives &
securitization
Outcome as expected & manageable
Expect final rules to be determined over next 15 months
Preliminary 2010 second quarter results/12
GE Capital portfolio quality
Equipment
Consumer
30+ delinquencies–a)
13.25%
Delinquencies–a)
3.01%
2.78%
2.98%
2.86%
Non-earning
2.45%
2.86%
2.81%
2.71%
Non-earning
8.23% 8.72%
13.38% 13.26% 13.49% 14.20% 7.82% 7.79%
7.74%
Mortgage
Mortgage
3.07%
8.77% 8.82% 8.85% 8.72% 8.66%
4.75% 4.81%
Total
2.50%
5.94% 5.96% 6.20% 5.94%
3Q'09
4Q'09
Drivers
1Q'10
2Q'10
2Q'09 3Q'09
5.52%
4Q'09 1Q'10 2Q'10
4.79%
Total
Non-mortgage 2.24% 2.35%
2Q'09
4.94% 4.75%
2Q'09
3Q'09
2.72% 2.72% 2.56%
Non-mortgage
4Q'09
1Q'10
2Q'10
Drivers
Delinquencies improving, total CLL non North America Retail delinquencies down 87 bps. to 6.29%
earning lower, equipment non-earning – Low entry rates & better late-stage collections
Restructured accounts removed from
delinquency; included in non-earning until
Mortgage delinquency $ , rate impacted by portfolio run-off
account resolved
– ANZ mortgage 107 bps., U.K. home lending 47 bps. from 1Q
Real Estate delinquencies +43 bps. to
5.40%, non-earning $’s down
Global banking delinquencies stable at 4.55%
(a- Managed assets
Improvement in most portfolios … continuing to monitor
Preliminary 2010 second quarter results/13
GE Capital reserve coverage
Reserve walk
($ in billions)
Allowance
for losses
Comm’l.
$(2.2)B Write-offs
2.0 Provisions
(0.2 ) FX
$(0.4)B Change
$9.5
$9.1
3.7
3.9
$8.1
$6.6
2.5
3.6
Reserve
coverage
Non-earning
coverage
Reserves up $0.2 in 2Q driven by Real Estate …
coverage rate up 18 bps. at 1.87%
– $1.8B of CRE reserves … 73% of impaired
loans are current
– Non-earning down $(0.5)B vs. 1Q
– Strong collateral should lead to ultimate loss
significantly below non-earning
Consumer
5.8
Consumer
Commercial
4.1
4.5
2Q'09
4Q'09
1Q'10
1.81%
2.35%
2.61%
51%
61%
70%
Coverage at 3.89%, down 14 bps. vs. 1Q
– Non-earning down $(0.5)B vs. 1Q
North America Retail
– Coverage rate at 6.27%
Mortgage
– Coverage at 1.86% up 13 bps.,
reserve/non-earning at 21% … net
2Q'10
annual write-offs at 50 bps.
– UKHL: 6 consecutive quarters of
2.66%
positive recoveries … 117% of carrying
value in 2Q‘10
72%
5.2
Reserves down mainly due to lower assets & FX
Overall reserve coverage up
Preliminary 2010 second quarter results/14
GE Capital strength
($ in billions)
Originations improving
Total on-book
volume
$32
1Q
Outlook
CLL pipeline
$40
2Q
$33
1Q
$37
2Q
Drivers
• Strong performance in CLL Americas
… 2Q volume up $2.4 (+75%)
• Retail Finance volume +$3.2/+19%
• New business ROIs at ~3%
Revenue
–
Margins
+/=
Ahead on ENI New business ROI ~3%
Losses
Improving
Expenses
Continued execution
Pretax
+
Better
Earnings
+
Earnings (’10 vs. ’09)
CLL
++
NA Retail
++
Global Banking +
U.K. Mortgage
Verticals
CRE
+
+
–
Preliminary 2010 second quarter results/15
NBCU highlights
($ in millions)
2Q’10
Revenues
Segment profit
$
V%
$3,750
$607
5%
13%
2nd quarter dynamics
1 Cable
+ Cable performance continues
+ Strength at USA, Bravo & Oxygen
+ CNBC +9% profit … continued lead in biz
news
3 Film & Parks
+/- Box-office performance improving … Get Him to
the Greek & Despicable Me (3Q)
+ Parks attendance and per caps trending
better… successful openings of Potter and Kong
2 Broadcast
+ Local ad market continues recovery …
strong double digit sales growth
+/- NBC ratings down VPY, but summer off to
strong start, led by America’s Got Talent
+ ’10/’11 development well received
+ Upfront results better than expected
+ Leno continues as #1 in Late Night
4 Digital & Other
= Regulatory reviews for new NBCU joint venture
well underway … EU approval received
+ NBCU completed $4B debt offering
+ Solid growth in digital ad revenues
+ hulu growth continues
Preliminary 2010 second quarter results/16
Technology Infrastructure highlights
($ in millions)
2Q dynamics
2Q’10
$
V%
Revenues
$9,061
(6)%
Segment profit
$1,554
(11)%
Aviation
• $3.9B orders, (6)% … equipment backlog $19B, CSA
backlog $59B
• Revenues (8)% … equipment (4)%, commercial &
military service (11)%
• Segment profit (5)% volume pressure offset by solid
operations execution & transaction gain
Key 2Q business results
Revenues
$
V%
Aviation
Healthcare
Transportation
$4,259
4,102
(8)%
Healthcare
• $4.3B orders, +6% … equipment +9%, service +2%
Segment
… equipment backlog +19% VPY to $3.8B
profit
• Revenues +3% … equipment 6%, services (1)%,
$
V%
electronics supply constraints
• Segment profit +12% … Life Sciences & HCS
$879
(5)%
strength … segment profit % +1.2 pts. vs. PY
3
661
12
709 (34)
26
(89)
Transportation
• $1.2B orders, +84% … driven by N.A. locomotives
• Lower volume & higher service costs; should begin
to improve in 2H
Business performing as expected
Preliminary 2010 second quarter results/17
Energy Infrastructure highlights
($ in millions)
2Q’10
$
Revenues
Segment profit
V%
$9,540
$1,910
(9)%
3%
Key 2Q business results
Revenues
$
V%
Energy
$8,027
Oil & Gas
1,774
(8)%
(9)
Segment
profit
$
V%
$1,661
292
3%
3
2Q dynamics
Energy
• $8B orders, +8% … equipment backlog $11.6B,
CSA commitments $43.9B, +4%
• Revenue (8)% on lower Gas & Wind shipments
• Segment profit +3% … $0.3B value gap and
productivity offsetting volume decline
Oil & Gas
• $2B orders, +10% … equipment backlog $6.5B,
CSA backlog $3.7B, +2%
• Revenues (9)% … equipment (7)%, service (11)%
• Segment profit +3% … driven by positive value
gap
Delivered strong financial results in lower volume environment
Preliminary 2010 second quarter results/18
Home & Business Solutions highlights
($ in millions)
2Q’10
Revenues
Segment profit
$
V%
$2,250
$143
4%
59%
2nd quarter dynamics
1 Growth
+ Core U.S. appliance industry up
+ Continuing to see strength globally
in Lighting
+ $48MM E*Star tax credits for energy
efficient appliances
+ R&D +76% YTD
2 Operating drivers
+ Strong deflation and VCP
offsetting price reduction for
accretive CM rate
+ Base cost below ’09 levels
+ Executing Lighting restructuring
plans
Driving profitability & positioning for the future
Preliminary 2010 second quarter results/19
Thoughts on Europe
Investor questions
GE update
1 Will GE Capital losses increase?
• $134B of European assets, NI $183MM up 79% VPQ
• ~80% of assets secured, losses down 56% VPY
• <$300MM sovereign debt held–a)
2 Will currency translation
negatively impact earnings?
• GE has several manufacturing operations in Europe
providing a natural hedge
• Currency movements historically < $0.01/quarter
• GE Capital equity impacted by Euro, but capital
ratios still improved
3 Could austerity programs slow
growth in Europe?
• Potentially, but only 14% of Industrial revenues are
in Western Europe
4 Does a lower Euro help European
competitors?
• Potentially, but many competitors have USD-based
manufacturing operations
(a- Portugal, Italy, Ireland, Greece, Spain
Based on what we see today, European volatility
should not materially impact GE earnings profile
Preliminary 2010 second quarter results/20
2010 earnings “framework”
2010E
Drivers
~Flat
+ NPI, service growth, lower cost, global
– Excess capacity remains in certain sectors
Media
–
+ Cable, improved ad markets
– Film remains challenged
+ Olympics in 1Q … growth remainder of year
GE Capital
+
+ GE Capital well positioned for upside … CRE
challenged but valuation declines moderating
Corporate
Flat/–
– Pension costs higher
– Expect more restructuring in 2H
$13-15B
+ Strong execution
+ Working capital improvements
– Lower progress payments
Industrial
(ex. Media)
CFOA
Versus original 2010 framework:
GE Capital better
Healthcare continuing to improve
FX … affects revenue, negligible on earnings
Expect more restructuring in 2H
Preliminary 2010 second quarter results/21
The GE mosaic
2011-2012
Headwinds
Tailwinds
GE Capital
Increased regulation
Higher tax rate
Losses have peaked
New business margins
Competitive position
CRE will extend cycle
Energy
High wind share, but U.S.
uncertainty/cycle
Services & global growth
Policy actions
NPI
Gas strength
Oil & Gas
Potential project delays
LNG growth
Services & global growth
O&G safeguards
Aviation
Multiple platform launches/mix
Services & global growth
Industry position/NPI
Healthcare
Customer profitability/
government budgets
Transportation
Excess capacity – U.S.
Adjacencies & emerging markets
NPI/Tier IV
Home & Business
Solutions
Unemployment
Housing starts
Restructuring benefits
NPI
Energy tax credits, if extended
Corporate
Pension
Capital allocation
Restructuring
Reform better understood
Older installed base/NPI
Procedure growth
Emerging markets
Positioned for attractive earnings growth
Preliminary 2010 second quarter results/22
Future
Attractive financial profile
(EPS $/share)
+++
++
+
$1.03
'09
'10E
'11F
'12F
+
Financial flexibility
(Parent cash $B)
++
~$25
$10
Value creation
1 Repositioned GE Capital will have
significant profit growth & competitive
advantage
2 Achieve superior growth & returns in
Infrastructure over long term …
growth as a process embedded in GE
3 Building enterprise value around
process excellence
4 Capital allocation will create long-
1Q'10
4Q'10E
'12F
term shareholder value
Preliminary 2010 second quarter results/23
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