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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number001-00035
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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(Mark One) |
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þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2017
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OR |
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¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to ____ |
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Commission file number001-00035
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GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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| New York | | 14-0689340 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 41 Farnsworth Street, | Boston | MA | | 02210 |
| (Address of principal executive offices) | | (Zip Code) |
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(Registrant’s telephone number, including area code)(617) 443-3000
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(Registrant’s telephone number, including area code)(617) 443-3000
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: |
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.06 per share | GE | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesþNo ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesþNo ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): |
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Large accelerated filerþ | ☑ | Accelerated filer ¨ | ☐ |
Non-accelerated filer ¨ | ☐ | Smaller reporting company ¨ | ☐ |
Emerging growth company ¨ | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
There were 8,672,085,0008,727,072,000 shares of common stock with a par value of $0.06 per share outstanding at SeptemberJune 30, 2017.2019.
TABLE OF CONTENTS
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| About General Electric | |
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| Non-GAAP Financial Measures | |
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| Risk Factors | |
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| Glossary | |
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FORWARD LOOKING STATEMENTS | | |
FORWARD LOOKING STATEMENTS
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," "will," "would," “estimate,” “forecast,” "target," "preliminary," or "range."
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the completion of our announced plan to reduce the size of our financial services businesses, including earnings per share of GE Capital Global Holdings, LLC’s (GE Capital) retained businesses (Verticals); expected income and Industrial operating profit; earnings per share, including the impact of the new revenue recognition standard; revenues; organic growth; growth and productivity associated with our Digital and Additive businesses; margins; cost structure and plans to reduce costs; restructuring, impairment or other financial charges; tax rates; transaction-related synergies, proceeds and gains; cash flows, including the impact of working capital, contract assets and pension funding contributions; returns on capital and investment; capital expenditures; capital allocation, including dividends, share repurchases, acquisitions and liquidity; or capital structure, including leverage.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
the strategy, capital allocation and portfolio review being undertaken by our new chief executive officer;
our ability to convert Industrial earnings into cash and the amount and timing of our cash flows and earnings, which may be impacted by long-term services agreement dynamics, the amount and timing of dividends from GE Capital and other conditions, all of which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels;
our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so;
changes in law, economic and financial conditions, including interest and exchange rate volatility; 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 GE Capital funding, and GE Capital's exposure to counterparties;
pending and future mortgage loan repurchase claims, other litigation claims and the U.S. Department of Justice's investigation under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and other investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates;
GE Capital’s ability to pay dividends to GE at the planned level, which may be affected by GE Capital’s cash flows and earnings, claims and investigations relating to WMC, charges that may be required in connection with GE Capital’s run-off insurance operations, credit ratings and other factors;
our ability to launch new products in a cost-effective manner;
our ability to increase margins through restructuring and other cost reduction measures;
our ability to convert pre-order commitments/wins into orders/bookings;
the price we realize on orders/bookings since commitments/wins are stated at list prices;
customer actions or market developments such as early aircraft retirements, reduced demand for equipment and services in the energy markets in which we operate or shifts in the competitive landscape for our products and services, changes in economic conditions, including oil prices, and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom investigative and legal proceedings;
our capital allocation plans, as such plans may change including with respect to the timing and size of dividends, share repurchases, acquisitions, joint ventures, dispositions and other strategic actions;
our success in completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced transactions, such as our announced plan to sell our Industrial Solutions business or other dispositions that we may pursue;
our success in integrating acquired businesses and operating joint ventures, including Baker Hughes, a GE company;
our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and Baker Hughes;
the impact of potential information technology or data security breaches;
the other factors that are described in "Forward-Looking Statements" in Baker Hughes, a GE company's most recent earnings release or Securities and Exchange Commission filing; and
the other factors that are described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.
These or other 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 includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
ABOUT GENERAL ELECTRIC
General Electric Company operates worldwide as a high-tech industrial company through its five industrial segments, Power, Renewable Energy, Aviation, Healthcare, Oil & Gas, and through its financial services segment, Capital. The Power segment offers technologies, solutions, and services related to energy production, including gas and steam turbines, generators, and power generation services. The Renewable Energy segment provides wind turbine platforms, hardware and software, offshore wind turbines, solutions, products and services to hydropower industry, blades for onshore and offshore wind turbines, and high voltage equipment. The Aviation segment provides jet engines and turboprops for commercial airframes, maintenance, component repair, and overhaul services, as well as replacement parts, additive machines and materials, and engineering services. The Healthcare segment provides healthcare technologies in medical imaging, digital solutions, patient monitoring, and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance enhancement solutions. The Oil & Gas segment offers oilfield services and equipment, turbomachinery and process solutions. The Capital segment leases and finances aircraft, aircraft engines and helicopters, provides financial and underwriting solutions, and manages our run-off insurance operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
PRESENTATION
The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE)GE with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital or Financial Services)Services and its predecessor, General Electric Capital Corporation.are prepared in conformity with U.S. generally accepted accounting principles (GAAP).
We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. Because of the diversity in our businesses, we present our financial statements in a three-column format, which allows investors to see our industrialGE Industrial operations separately from our Financial Services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use the terms to mean the following:
General Electric or the Company – the parent company, General Electric Company.
GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated statements of earnings, financial position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).
General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
GE Capital Global Holdings, LLC or GECGH – successor of GECC.
GE Capital or Financial Services – refers to GECGH, or its predecessor GECC, and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated statements of earnings, financial position and cash flows.
GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated statements of earnings, financial position and cash flows.
Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of an Industrial metric is Industrial CFOA (Non-GAAP), which is GE CFOA excluding the effects of dividends from GE Capital.
Industrial segment – the sum of our seven industrial reporting segments, without giving effect to the elimination of transactions among such segments and between these segments and our Financial Services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth.
Baker Hughes, a GE company or BHGE - following the combination of our Oil & Gas business with Baker Hughes Incorporated, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the new company formed in the transaction, Baker Hughes, a GE Company (BHGE). We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment operating profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders. References to "Baker Hughes" represent legacy Baker Hughes Incorporated operating activities which, in certain cases, have been excluded from our results for comparative purposes.
Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.
Verticals or GE Capital Verticals – the adding together of GE Capital businesses that we expect to retain, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Industrial Finance (which includes Healthcare Equipment Finance, Working Capital Solutions and Industrial Financing Solutions)—that relate to the Company’s core industrial domain and other operations, including our run-off insurance activities, and allocated corporate costs.
We integrate acquisitions as quickly as possible. Revenues and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses.
Discussion of GE Capital’s total assets includes deferred income tax liabilities, which are presented within assets for purposes of our consolidated Statement of Financial Position presentations for this filing.
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MD&A• | | General Electric or the Company – the parent company, General Electric Company. |
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| • | GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. |
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| • | GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. |
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| • | GE Capital or Financial Services – the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. |
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| • | GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial Free Cash Flows (Non-GAAP). |
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| • | Industrial segment – the sum of our five industrial reportable segments, without giving effect to the elimination of transactions among such segments and between these segments and our financial services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth. |
Refer to the Glossary for a list of key terms used in our MD&A and financial statements. Operational and financial overviews for our operating segments are provided in the Segment Operations section.
This document contains “forward-looking statements” - that is, statements related to future events that by their nature address matters that are, to different degrees, uncertain. For details about the uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements, see the Risk Factors and Forward-Looking Statements sections, as well as our Annual Report on Form 10-K for the year ended December 31, 2018 and our other Quarterly Reports on Form 10-Q.
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
Amounts reported in billions in graphstables within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Discussions throughout this MD&A are based on continuing operations unless otherwise noted.
The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.
OTHER TERMS USED BY GE
Backlog – unfilled customer orders for products and product services (expected life of contract sales for product services).
Continuing earnings – unless otherwise indicated, we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings or simply as earnings.
Continuing earnings per share (EPS) – unless otherwise indicated, when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners”.
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• | Digital revenues – revenues related to internally developed software and associated hardware, including PredixTM and software solutions that improve our customers’ asset performance. In 2016, we reassessed the span of our digital product offerings, which now excludes software-enabled product upgrades. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.
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Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.
GE Capital Exit Plan – our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by Industrial revenues.
Industrial operating profit margin (Non-GAAP) – Industrial segment profit plus corporate items and eliminations (excluding gains, restructuring, and non-operating pension cost) divided by industrial segment revenues plus corporate items and eliminations (excluding gains and GE-GE Capital eliminations).
Industrial segment gross margin - industrial segment sales less industrial segment cost of sales divided by sales.
Net earnings – unless otherwise indicated, we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.
Net earnings per share (EPS) – unless otherwise indicated, when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners”.
Non-operating pension cost (Non-GAAP) – comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial gain (loss) amortization for our principal pension plans.
Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension costs.
Operating earnings per share (Non-GAAP) – unless otherwise indicated, when we refer to operating earnings per share, it is the diluted per-share amount of “operating earnings”.
Operating pension cost (Non-GAAP) – comprises the service cost of benefits earned, prior service cost amortization and curtailment gain (loss) for our principal pension plans.
Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
Product services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings, “goods” is required by SEC regulations to include all sales of tangible products, and “services” must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “product services,” which is an important part of our operations. We refer to “product services” simply as “services” within the MD&A.
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Oil & Gas, Aviation and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant.
Revenues – unless otherwise indicated, we refer to captions such as “revenues and other income” simply as revenues.
Segment profit – refers to the operating profit of the industrial segments and the net earnings of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
2017 3Q2019 2Q FORM 10-Q 53
NON-GAAP FINANCIAL MEASURES
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. Specifically, we have referred, in various sections of this report, to:
Industrial segment organic revenues and Industrial segment organic revenues excluding Power and Oil & Gas
Operating and non-operating pension cost
Adjusted corporate costs (operating)
GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates
Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS
Industrial operating + Verticals earnings and EPS
Industrial operating profit and operating profit margin (excluding certain items)
Industrial operating profit excluding Power and Oil & Gas
Industrial cash flows from operating activities (Industrial CFOA) and Industrial CFOA excluding deal taxes and GE Pension Plan funding
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the Supplemental Information section within the MD&A. Non-GAAP financial measures referred to in this report are either labeled as “non-GAAP” or designated as such with an asterisk (*).
OUR OPERATING SEGMENTS
We are a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive, with products and services ranging from aircraft engines, locomotives, power generation and oil and gas production equipment to medical imaging, financing and industrial products. Operational and financial overviews for our operating segments are provided in the “Segment Operations” section within this MD&A.
OUR INDUSTRIAL OPERATING SEGMENTS
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| Power(a)
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| Renewable Energy | | Healthcare | | |
| Oil & Gas(b)
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OUR FINANCIAL SERVICES OPERATING SEGMENT
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(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
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(b) | Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in BHGE. We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment operating profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders. |
CORPORATE INFORMATION
GE’s Internet address at www.ge.com,, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com,, as well as GE’s Facebook page and Twitter accounts and other social media, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
CONSOLIDATED RESULTS
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORSOn February 25, 2019, we completed the spin-off and subsequent merger of our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. In the transaction, participating GE shareholders received shares of Wabtec common stock representing an approximate 24.3% ownership interest in Wabtec common stock. GE received approximately $2.8 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent an approximate 24.9% ownership interest in Wabtec. GE is also entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction. As a result, we reclassified our Transportation segment to discontinued operations in the first quarter of 2019 and recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. On May 6, 2019, we sold 25.3 million shares of Wabtec common stock resulting in proceeds of $1.8 billion. After the sale, our ownership of Wabtec reduced to approximately 11.8% which we intend to monetize over time. See Notes 2 and 3 to the consolidated financial statements for further information.
(Dollars
Also on February 25, 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion subject to certain adjustments. At March 31, 2019, we classified BioPharma as a business held for sale. The transaction is expected to close in billions; per-share amountsthe fourth quarter of 2019, subject to regulatory approvals and customary closing conditions, and provides us flexibility and optionality with respect to our remaining Healthcare business.
We recognized a non-cash pre-tax impairment charge of $0.7 billion related to goodwill at our Grid Solutions equipment and services reporting unit within our Renewable Energy segment. This charge was recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
SECOND QUARTER 2019 RESULTS.Consolidated revenues were $28.8 billion, down $0.3 billion, or 1%, for the quarter. The decrease in dollars)revenues was largely attributable to the sales of Industrial Solutions, Value-Based Care and Distributed Power businesses in June 2018, July 2018 and November 2018, respectively. Industrial segment organic revenues* increased $1.9 billion, or 7%, driven by our Renewable Energy, Oil & Gas, Aviation and Healthcare segments, partially offset by our Power segment.
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| Industrial Segment | 10% | 3% |
| Industrial Segment Organic* | (1)% | 2% |
| Capital | (8)% | (9)% |
For the three months ended June 30, 2019, GE Industrial profit was $(0.4) billion and GE Industrial profit margins were (1.3)%, down $1.6 billion or 590 basis points, driven by a non-cash goodwill impairment charge of $0.7 billion in the second quarter of 2019, increased net losses from disposed or held for sale businesses of $0.4 billion, increased unrealized losses on investments of $0.3 billion and increased adjusted Corporate operating costs* of $0.1 billion, partially offset by decreased restructuring and other costs of $0.1 billion. Industrial segment profit decreased $0.6 billion, or 21%, primarily due to lower results within our Power, Renewable Energy and Aviation segments, partially offset by the performance of our Healthcare and Oil & Gas segments. Industrial segment organic profit* decreased $0.5 billion, or 17%. 
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■ ■ Industrial CFOA(a)* ■■ GE Capital Dividend
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(a) 2016 included deal taxes of $(1.1) billion related to the sale of our Appliances business and in 2017 included deal taxes of $(0.1) billion related to the Baker Hughes transaction and GE Pension Plan funding of $(1.4) billion. |
(b) Included $(0.2) billion related to Baker Hughes and a $0.5 billion correction to operating cash flows for the settlement of certain derivative instruments during the six months ended June 30, 2017. |
GE cash flows from operating activities (CFOA) from continuing operations was $(0.8) billion for both the six months ended June 30, 2019 and 2018. GE CFOA remained flat primarily due to no GE Pension Plan contributions in 2019 compared to $0.9 billion in 2018 and lower net disbursements for equipment project costs, offset by lower net income and higher cash used for working capital and employee benefit liabilities compared to 2018. Adjusted GE Industrial Free Cash Flows (FCF)* were $(2.2) billion and $(1.4) billion for the six months ended June 30, 2019 and 2018, respectively. The increase in cash used was primarily due to lower net income and higher cash used for working capital and employee benefit liabilities compared to 2018, partially offset by lower net disbursements for equipment project costs compared to 2018. See the Capital Resources and Liquidity - Statement of Cash Flows section for further information.
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■■ Services ■■ Equipment
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(a) Included $2.5 billion related to Baker Hughes |
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INDUSTRIAL PROFIT & MARGINS |
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INDUSTRIAL OPERATING PROFIT & MARGINS
(NON-GAAP)(a)
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(a) Excluded gains on disposals, non-operating pension cost, restructuring and other charges and noncontrolling interests |
*Non-GAAP Financial Measure
8 2017 3Q4 2019 2Q FORM 10-Q
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars and diluted; attributable to GE common shareowners)
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OPERATING EARNINGS (NON-GAAP) |
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OPERATING EARNINGS PER SHARE (NON-GAAP) |
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INDUSTRIAL OPERATING + VERTICALS EARNINGS(NON-GAAP) |
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INDUSTRIAL OPERATING + VERTICALS EPS
(NON-GAAP)
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Orders are contractual commitments with customers to provide specified goods or services for an agreed upon price. Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services).
CONSOLIDATED RESULTS |
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GE INDUSTRIAL BACKLOG (In billions) | June 30, 2019 |
| June 30, 2018 |
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| Equipment | $ | 85.0 |
| $ | 81.8 |
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| Services | 311.5 |
| 276.5 |
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| Total backlog | $ | 396.5 |
| $ | 358.3 |
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2017 SIGNIFICANT DEVELOPMENTS |
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| GE INDUSTRIAL ORDERS | Three months ended June 30 | | Six months ended June 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
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| Equipment | $ | 14.1 |
| $ | 14.9 |
| | $ | 26.4 |
| $ | 27.2 |
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| Services | 14.6 |
| 15.0 |
| | 28.5 |
| 28.7 |
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| Total orders | $ | 28.7 |
| $ | 30.0 |
| | $ | 54.9 |
| $ | 55.9 |
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| Total organic orders | $ | 29.3 |
| $ | 28.2 |
| | $ | 55.8 |
| $ | 52.7 |
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LEADERSHIP CHANGES
As announced onof June 12, 2017, Jeffery R. Immelt retired as Chief Executive Officer (CEO) on July 31, 2017 and John L. Flannery succeeded Mr. Immelt as CEO effective August 1, 2017. Mr. Flannery also joined the Board of Directors on that date. Mr. Immelt remained Chairman of the Board for a transition period through October 2, 2017, at which point Mr. Flannery succeeded Mr. Immelt as Chairman.
On October 6, 2017, we announced that, effective November 1, 2017, Jamie S. Miller, will become Chief Financial Officer, succeeding Jeffrey S. Bornstein. Mr. Bornstein will remain a Vice Chairman through December 31, 2017. Ms. Miller also serves as a director at Baker Hughes, a GE company.
On October 9, 2017, we announced that Robert Lane retired30, 2019, backlog increased $38.1 billion, or 11%, from the Company’s Boardprior year due to an increase in services backlog of Directors (the Board) after 12 years$35.0 billion and equipment backlog of service, effective that same date. In addition,$3.2 billion primarily at Aviation.
For the Board elected Edward P. Garden asthree months ended June 30, 2019, orders decreased $1.3 billion, or 4%, on a director to fill the resulting vacancy, effective on that date. Mr. Garden is the Chief Investment Officerreported basis and a Founding Partnerincreased $1.1 billion, or 4%, organically driven by an increase in services orders of Trian Fund Management, L.P. (Trian), an investment management firm.
2017 SIGNIFICANT TRANSACTIONS
On January 10, 2017, we completed the acquisition of ServiceMax, a leader in cloud-based field service management (FSM) solutions, for $0.9$0.5 billion net of cash acquired.
On April 20, 2017, we completed the acquisition of LM Wind Power, one of the world’s largest wind turbine blade manufacturers for approximately $1.6 billion, net of cash acquired.
On July 3, 2017, we completed the transaction to create BHGE. Under the terms of the deal, which we announced in October 2016, we combined ourprimarily at Renewable Energy, Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new companyAviation, partially offset by Power as well as an increase in which GE holds an ownership interestequipment orders of approximately 62.5%$0.6 billion primarily at Renewable Energy and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Baker Hughes shareholders also received a cash dividend fundedPower, partially offset by a $7.5 billion cash contribution from GE. The completion ofAviation.
For the transaction followed the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment.
In October 2016, we announced our plan to sell our Water & Process Technologies business. In March 2017, we announced an agreement to sell the business to Suez Environnement S.A. (Suez)six months ended June 30, 2019, a French-based utility company operating primarily in the water treatment and waste management sectors. On September 29, 2017, we completed the sale for consideration of orders decreased $3.0 billion, net of obligations assumed and cash transferred (including $0.1 billion from sale of receivables originated in our Water business and sold from GE Capital to Suez), and recognized an after-tax gain of approximately $1.9 billion.
In the first quarter of 2017, we classified our Industrial Solutions business within our Power segment as held for sale. In September 2017, we announced an agreement to sell the business for approximately $2.6 billion to ABB, a Swiss-based engineering company operating primarily in the robotics, power, heavy electrical equipment and automation technology sectors. The deal is expected to close in mid-2018, subject to customary closing conditions and regulatory approval.
THIRD QUARTER 2017 RESULTS
Overall, our consolidated results in the third quarter were below our expectations. Consolidated revenues (after adjusting for the Water gain of $1.9 billion and the impact of incremental Baker Hughes revenues of $2.5 billion*) were $29.0 billion, down $0.21.0 billion, or 1%. The decline in revenues was2%, on a resultreported basis and increased $3.1 billion, or 6%, organically driven by an increase equipment orders of lower Industrial segment revenues of 1% organically* driven principally by our$1.8 billion primarily at Renewable Energy, Power and Oil & Gas, segments. For all other Industrial segments, revenues increased 2% organically*partially offset by Aviation as well as an increase in services orders of $1.3 billion primarily at Aviation and Healthcare experienced revenue growth versusOil & Gas.
Remaining performance obligation (RPO), a defined term under GAAP, is backlog excluding any purchase order that provides the prior year period. Continuing earnings per share was $0.22, down 4% fromcustomer with the prior year. Industrial operating plus Verticals earnings per share* was $0.29, down 9% versusability to cancel or terminate without incurring a substantive penalty, even if the prior year, driven substantially bylikelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a 10% decrease in Industrial segment operating profit*.
Restructuring and other charges were $0.21 per share, including $0.02 per share relateduseful metric for investors, given its relevance to BHGE integration and synergy investment. In total restructuring and other items were $2.4 billion before tax, with restructuring charges totaling about $0.8 billion (including $0.2 billion related to BHGE) and $0.3 billion of businesses development charges, primarily related to the Baker Hughes transaction. Restructuring charges were higher than originally planned, driven by the accelerated restructuring actions taken at Corporate. Additionally, within restructuring and other charges, we recognized two significant impairments in the quarter totaling $0.13 per share, which included non-cash pre-tax impairment charges of $0.9 billion related to goodwill in our Power Conversion business and $0.3 billion related to a power plant asset.orders. See Note 89 to the consolidated financial statements for further informationinformation.
|
| | | | | | | | | |
June 30, 2019 (In billions) | Equipment |
| Services |
| Total |
|
|
|
|
|
| Backlog | $ | 85.0 |
| $ | 311.5 |
| $ | 396.5 |
|
| Adjustments | (34.7 | ) | (110.4 | ) | (145.1 | ) |
| Remaining performance obligation | $ | 50.3 |
| $ | 201.1 |
| $ | 251.4 |
|
Adjustments to reported backlog of $(145.1) billion as of June 30, 2019 are largely driven by adjustments of $(132.1) billion in our Aviation segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable. We have included these in backlog as our historical experience has shown no net cancellations, as any canceled engines are typically moved by the airframer to other program customers; (2) our services backlog includes contracts that are cancelable without substantive penalty, primarily time and materials contracts; (3) backlog includes engines contracted under long-term service agreements, even if the engines have not yet been put into service. These adjustments to reported backlog are expected to be satisfied beyond one year.
|
| | | | | | | | | | | | | |
| REVENUES | Three months ended June 30 | | Six months ended June 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Consolidated revenues | $ | 28.8 |
| $ | 29.2 |
| | $ | 56.1 |
| $ | 56.9 |
|
| | | | | | |
| Equipment | 12.6 |
| 12.6 |
| | 24.2 |
| 24.7 |
|
| Services | 14.5 |
| 14.6 |
| | 28.3 |
| 28.4 |
|
| Industrial segment revenues | 27.1 |
| 27.2 |
| | 52.5 |
| 53.2 |
|
| Corporate items and Industrial eliminations | (0.2 | ) | (0.1 | ) | | (0.2 | ) | — |
|
| GE Industrial revenues | $ | 26.8 |
| $ | 27.1 |
| | $ | 52.2 |
| $ | 53.2 |
|
| | | | | | |
| Financial services revenues | $ | 2.3 |
| $ | 2.4 |
| | $ | 4.5 |
| $ | 4.6 |
|
For the three months ended June 30, 2019, consolidated revenues decreased $0.3 billion, or 1%, primarily driven by decreased industrial segment revenues of $0.1 billion and decreased Financial Services revenues of $0.1 billion. The overall foreign currency impact on consolidated revenues was a decrease of $0.6 billion.
Industrial segment revenues decreased $0.1 billion as decreases at Power and Healthcare were partially offset by increases at Renewable Energy, Oil & Gas and Aviation. This decrease was driven by the resultsnet effects of our annual goodwill impairment testing.dispositions of $1.4 billion, primarily attributable to the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, and the effects of a stronger U.S. dollar of $0.6 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $1.9 billion, or 7%.
*Non-GAAP Financial Measure
10 2017 3Q2019 2Q FORM 10-Q5
Industrial profit was $2.4 billion and industrial margins were 7.6%, down $0.3Financial Services revenues decreased $0.1 billion, or 240 basis points, versus4%, primarily due to volume declines, partially offset by higher gains and lower impairments.
For the third quarter of 2016six months ended June 30, 2019, consolidated revenues decreased $0.8 billion, or 1%, primarily driven by decreased industrial segment revenues of $0.7 billion and decreased Financial Services revenues of $0.1 billion. The overall foreign currency impact on consolidated revenues was a reductiondecrease of $1.3 billion.
Industrial segment revenues decreased $0.7 billion, or 1%, as decreases at Power and Healthcare were partially offset by increases at Aviation, Oil & Gas and Renewable Energy. This decrease was driven by the net effects of dispositions of $2.6 billion, primarily attributable to the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, and the effects of a stronger U.S. dollar of $1.3 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $3.2 billion, or 6%.
Financial Services revenues decreased $0.1 billion, or 1%, primarily due to volume declines, partially offset by higher gains and lower impairments.
|
| | | | | | | | | | | | | |
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | Three months ended June 30 | | Six months ended June 30 |
| (In billions; per-share in dollars and diluted) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Continuing earnings | $ | (0.3 | ) | $ | 0.7 |
| | $ | 0.7 |
| $ | 0.9 |
|
| | | | | | |
| Continuing earnings per share | $ | (0.03 | ) | $ | 0.08 |
| | $ | 0.07 |
| $ | 0.11 |
|
For the three months ended June 30, 2019, consolidated continuing earnings decreased $1.0 billion due to decreased GE Industrial continuing earnings of $1.3 billion, and a goodwill impairment charge of $0.7 billion in 2019, partially offset by increased benefit for GE Industrial income taxes of $0.6 billion driven by the completion of prior years’ audit, decreased interest and other financial charges of $0.2 billion, decreased non-operating benefit costs of $0.1 billion and decreased Financial Services losses of $0.1 billion.
GE Industrial continuing earnings decreased $1.3 billion, or 49%. Corporate items and eliminations decreased $0.7 billion primarily attributable to increased net losses from disposed or held for sale businesses of $0.4 billion, increased unrealized losses on investments of $0.3 billion and increased adjusted Corporate operating costs* of $0.1 billion, partially offset by decreased restructuring and other costs of $0.1 billion. Industrial segment profit decreased $0.6 billion, or 21%, with decreases at Power, Renewable Energy and Aviation, partially offset by higher profit at Healthcare and Oil & Gas. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.1 billion, primarily associated with the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.5 billion, or 17%.
Financial Services continuing losses decreased $0.1 billion, or 57%, primarily due to higher gains, lower impairments, higher tax benefits and lower excess interest costs, partially offset by volume declines. Gains were $0.2 billion and $0.1 billion in the second quarters of 2019 and 2018, respectively, which primarily related to sales of GE Capital Aviation Services (GECAS) aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018 and the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at Energy Financial Services (EFS).
For the six months ended June 30, 2019, consolidated continuing earnings decreased $0.3 billion due to decreased GE Industrial continuing earnings of $0.9 billion and a goodwill impairment charge of $0.7 billion or 16%. After adjusting segment operating profitin 2019, partially offset by decreased Financial Services losses of $3.6$0.5 billion, decreased provision for restructuringGE Industrial income taxes of $0.4 billion driven by the completion of prior years’ audit, decreased interest and other financial charges of $0.3 billion relatedand decreased non-operating benefit costs of $0.3 billion.
GE Industrial continuing earnings decreased $0.9 billion, or 20%. Corporate items and eliminations decreased $0.3 billion primarily attributable toincreased unrealized losses on investments of $0.3 billion and increased adjusted Corporate operating costs* of $0.2 billion, partially offset by decreased restructuring and other costs of $0.2 billion. Industrial segment profit decreased $0.6 billion, or 11%, with decreases at Renewable Energy, Power and Aviation, partially offset by higher profit at Oil & Gas which, subsequentand Healthcare. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.3 billion, primarily associated with the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, offset by lower restructuring and business development costs related to the Baker Hughes transaction, are recorded inof $0.3 billion and the effects of a weaker U.S. dollar of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment rather than at Corporate, adjusted Industrial segment operatingorganic profit* was down $0.4decreased $0.7 billion, or 10%12%. The decline in adjusted Industrial segment operating profit* was
Financial Services continuing losses decreased $0.5 billion primarily due to higher gains, lower results within our Powerexcess interest costs, tax law changes and Oil & Gas segments, partially offset by the performance of our remaining industrial segments, which had increases in organic revenues* of 2%lower impairments. Gains were $0.4 billion and adjusted Industrial segment operating profit* of 23%, including lower Corporate costs.
Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. The Power segment experienced a revenue decline of 4% and an operating profit decline of 51% versus the third quarter of 2016. Power revenues were $8.7 billion, with equipment revenues down 3% and service revenues down 4%.
The decline in Power segment results was primarily driven by three factors:
A decline in year-over-year results, principally in our service business, lower shipments of our aeroderivative products, and performance of our Power Conversion business. Within services, we sold fewer Advanced Gas Path (AGP) upgrades and experienced lower outages. Services outages were down 18% versus the third quarter of 2016. Aeroderivative units were down 32 versus the third quarter of 2016. Our markets have also been challenged by the increasing penetration of renewables, fleet penetration for AGPs, lower capacity payments, utilization, and outages. We expect these conditions to persist through the fourth quarter and into 2018.
Second, we experienced project delays and incurred costs associated with certain quality matters. In addition, we recognized a bad debt reserve for a Venezuelan customer receivable. The net effect of these items amounted to approximately $0.1 billion.
Third, the mix effect of having lower volume in our high-margin aero and service businesses, and higher volume in low-margin grid and balance of plant revenues resulted in a substantial margin headwind.
Refer to the Power segment results section within this MD&A for further information.
Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the combined BHGE entity. We consolidate 100% of BHGE’s revenues and cash flows while segment operating profit and net income are derived net of minority ownership interest of approximately 37.5% attributable to BHGE’s Class A shareholders. Also, the operating profit we report for our Oil & Gas segment is adjusted for GE reporting conventions, such as excluding restructuring and other charges. Therefore, our operating profit of approximately 62.5% will differ from BHGE's operating income as reported in its standalone financial statements.
During the third quarter of 2017, Oil & Gas reported revenues of $5.4 billion, an increase of 81% versus the third quarter of 2016, driven by the effects of the Baker Hughes transaction. Adjusting for the Baker Hughes transaction, segment revenues* were $2.8$0.2 billion in the quarter, down 5% duefirst half of 2019 and 2018, respectively, which primarily related to continued weaknesssales of GECAS aircraft and engines resulting in gains of $0.2 billion and $0.1 billion in the oilfirst half of 2019 and gas market. Segment operating profit (loss) was $(36) million, or $231 million after adjusting for restructuring and other charges reported2018 and the sale of an equity method investment resulting in the segment*. The decline in segment operating profit (after adjusting for restructuring and other charges reported in the segment*)a gain of 35% was primarily driven by longer cycle oilfield equipment business. Refer to the Oil & Gas segment results section within this MD&A for further information.
GE CFOA was $4.1 billion and $18.3 billion for the nine months ended September 30, 2017 and 2016, respectively. The decline in GE CFOA is primarily due to a $12.0 billion decrease in dividends from GE Capital, reflecting a decrease in proceeds from GE Capital Exit Plan disposals. GE CFOA was also impacted by lower earnings from Power and Oil & Gas, as well as lower than expected working capital improvements. Additionally, GE CFOA was negatively impacted by GE Pension Plan payments of $1.4$0.1 billion in 2017, compared to zero in the prior year period. Further, due to our ongoing insurance actuarial review, we have deferred the decision whether GE Capital will pay additional dividends to GE until the review is completed. Refer to the GE Cash Flows and Critical Accounting Estimates sections within this MD&A for further information.2019 at EFS.
As noted in the second quarter of 2017 earnings release presentation, Mr. Flannery is conducting a comprehensive review of the Company, including a review of the Company’s business units, the GE Store and Corporate. Mr. Flannery provided an update on this review as part of the third quarter earnings release presentation, at which time he stated that management had identified $20 billion plus of assets that would be exited in the next one to two years. On November 13, 2017, Mr. Flannery will present to investors outlining, among other items, the results of the business assessment, cost reduction actions, capital allocation and 2018 outlook. We expect additional restructuring charges related to cost reduction actions, and held-for-sale and other associated charges related to the exit or sale of assets or businesses.
*Non-GAAP Financial Measure
2017 3Q6 2019 2Q FORM 10-Q11
CONSOLIDATED RESULTS
THREEAVIATION AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
| | |
REVENUES | | INDUSTRIAL AND FINANCIAL SERVICES REVENUES |
|
| | |
(a) Included $2.5 billion related to Baker Hughes
| | |
THREE MONTHS
Consolidated revenues increased $4.2 billion, or 14%.
Consolidated revenues decreased $0.2 billion, or 1%GECAS 737 MAX.Aviation develops, produces, and sells LEAP aircraft engines through CFM International (CFM), excludinga company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the $1.9 billion pre-tax gain recorded at Corporate fromSafran Group of France. The LEAP-1B engine is the saleexclusive engine for the Boeing 737 MAX. In March 2019, global regulatory authorities ordered a temporary fleet grounding of our Water businessthe Boeing 737 MAX. In April 2019, Boeing announced a temporary reduction in the third quarter of 2017737 MAX production rate, and the impact of incremental Baker Hughes revenues of $2.5 billion*.
Industrial segment revenues increased approximately $0.2 billion, or 1%, excluding the items noted above*, as the net effects of acquisitions of $0.3 billion and the effects of a weaker U.S. dollar of $0.2 billion were partially offset by organic revenue* decreases of $0.4 billion.
Financial Services revenues decreased $0.2 billion, or 8%, primarily due to higher impairments and organic revenue declines, partially offset by higher gains.
NINE MONTHS
Consolidated revenues increased $0.1 billion.
Consolidated revenues decreased $1.2 billion, or 1%, excluding the pre-tax gains recorded at Corporate of $3.1 billion from the sale of Appliances induring the second quarter of 2016 and $1.9 billion from2019, CFM reduced its production rate for the sale of our Water business in the third quarter of 2017 as well as the impact of incremental Baker Hughes revenues of $2.5 billion*.
Industrial segment revenues decreased approximately $0.3 billion, excluding the items noted above*, as the net effects of acquisitions of $0.7 billion and organic revenue* increases of $1.9 billion were partially offset by the net effects of dispositions of $2.8 billion and the effects of a stronger U.S. dollar of $0.1 billion.
Financial Services revenues decreased $0.7 billion, or 9%, primarily dueLEAP-1B to higher impairments, organic revenue declines and lower gains.
*Non-GAAP Financial Measure
THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions; attributable to GE common shareowners) |
| | |
CONTINUING EARNINGS | | OPERATING EARNINGS* |
THREE MONTHS
Consolidated continuing earnings decreased $0.2 billion.
Industrial
Earnings decreased $2.1 billion, or 98%, excluding the $1.9 billion after-tax gain recorded at Corporate from the sale of our Water business in the third quarter of 2017*.
Industrial segment profit decreased $0.7 billion, or 16%, due to organic operating decreases* of $0.6 billion and restructuring costs related to Baker Hughes of $0.3 billion, partially offset by the net effects of acquisitions of $0.1 billion.
In addition, restructuring and other costs recorded at Corporate increased $1.3 billion, including non-cash impairment charges of $0.9 billion related to goodwill and $0.3 billion related to a power plant asset. Gains recorded at Corporate decreased $0.2 billion, excluding the $1.9 billion pre-tax gain on the sale of our Water business.
Interest and other financial charges increased $0.2 billion while the provision for income taxes decreased $0.3 billion, excluding the tax impact from the sale of our Water business*.
The net effect of acquisitions on our consolidated operating earnings was a decrease of $0.2 billion while the net effect of dispositions was an increase of $1.4 billion in the third quarter of 2017.
Foreign exchange favorably affected industrial operating earnings by $0.1 billion asmeet Boeing's revised aircraft build rate. As a result of both translationalthe 737 MAX grounding, GE CFOA was adversely affected by an estimated $0.3 billion and transactional impacts related$0.6 billion for the three and six months ended June 30, 2019, respectively. If the 737 MAX remains grounded, based on current assumptions, we anticipate a negative impact to remeasurement and mark-to-market charges on open hedges.
Financial Services
| |
▪ | Financial Services earnings decreased 8%, primarily due to lower tax benefits primarily associated with a 2016 IRS tax settlement, higher impairments and lower gains, partially offset by lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan and core increases. |
*Non-GAAP Financial Measure
NINE MONTHS
Consolidated continuing earnings decreased $1.5 billion.
Industrial
Earnings decreased $1.6GE CFOA of approximately $0.4 billion or 41%, excluding the after-tax gains recorded at Corporate of $1.8 billion from the sale of Appliancesper quarter in the second quarterhalf of 20162019. See Capital Resources and $1.9Liquidity - Statement of Cash Flows for further information.
At June 30, 2019, GECAS owned 29 of these aircraft, 25 of which are leased to various lessees that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 150 of these aircraft on order and has made financing commitments to acquire a further 19 aircraft under purchase and leaseback contracts with airlines.
As of June 30, 2019, we have approximately $2.1 billion fromof net assets related to the sale of our Water business737 MAX program that primarily comprises pre-delivery payments and owned aircraft subject to lease offset by progress collections. No impairment charges were incurred related to the 737 MAX aircraft and related balances in the third quarterfirst half of 2017*.2019 as we continue to believe these assets are fully recoverable. We continue to monitor these developments with our airline customers, lessees and Boeing.
Industrial segment profit decreased $0.6 billion, or 5%, driven by restructuring costs related to Baker Hughes of $0.3 billion, organic operating decreases* of $0.2 billion and the net effects of dispositions of $0.2 billion, partially offset by the net effects of acquisitions of $0.1 billion.
In addition, restructuring and other costs recorded at Corporate increased $1.2 billion, including non-cash impairment charges of $0.9 billion related to goodwill and $0.3 billion related to a power plant asset. Gains recorded at Corporate decreased $0.3 billion, excluding the $3.1 billion pre-tax gain on the sale of Appliances in 2016 and the $1.9 billion pre-tax gain on the sale of our Water business in 2017.
Interest and other financial charges increased $0.4 billion while the provision for income taxes increased $0.5 billion, excluding the tax impacts from the sale of Appliances and the sale of our Water business*.
The net effect of acquisitions on our consolidated operating earnings was a decrease of $0.2 billion while the net effect of dispositions was a decrease of $1.2 billion in 2017.
Foreign exchange adversely affected industrial operating earnings by an insignificant amount in 2017.
Financial Services
Financial Services losses decreased $1.3 billion, or 87% primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan, lower preferred dividend expenses associated with the January 2016 preferred equity exchange and core increases, partially offset by lower gains, higher impairments and lower tax benefits primarily associated with a 2016 IRS tax settlement.
SEGMENT OPERATIONS
|
| | | | | | | | | | | | | | | | | |
| SUMMARY OF OPERATING SEGMENTS |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| Revenues | | | | | | | |
| Power(a) | $ | 8,679 |
| $ | 8,995 |
| (4) | % | | $ | 26,569 |
| $ | 25,664 |
| 4 | % |
| Renewable Energy | 2,905 |
| 2,770 |
| 5 | % | | 7,406 |
| 6,533 |
| 13 | % |
| Oil & Gas | 5,365 |
| 2,964 |
| 81 | % | | 11,475 |
| 9,497 |
| 21 | % |
| Aviation | 6,816 |
| 6,300 |
| 8 | % | | 20,153 |
| 19,074 |
| 6 | % |
| Healthcare | 4,724 |
| 4,482 |
| 5 | % | | 13,714 |
| 13,190 |
| 4 | % |
| Transportation | 1,074 |
| 1,249 |
| (14) | % | | 3,185 |
| 3,471 |
| (8 | )% |
| Lighting(a) | 483 |
| 576 |
| (16) | % | | 1,442 |
| 4,239 |
| (66 | )% |
| Total industrial segment revenues | 30,046 |
| 27,335 |
| 10 | % | | 83,943 |
| 81,667 |
| 3 | % |
| Capital | 2,397 |
| 2,600 |
| (8) | % | | 7,525 |
| 8,256 |
| (9 | )% |
| Total segment revenues | 32,444 |
| 29,936 |
| 8 | % | | 91,468 |
| 89,923 |
| 2 | % |
| Corporate items and eliminations | 1,028 |
| (670 | ) | | | (777 | ) | 681 |
| |
| Consolidated revenues | $ | 33,472 |
| $ | 29,266 |
| 14 | % | | $ | 90,691 |
| $ | 90,604 |
| — | % |
| | | | | | | | |
| Segment profit (loss) | | | | | | | |
| Power(a) | $ | 611 |
| $ | 1,259 |
| (51) | % | | $ | 2,526 |
| $ | 2,924 |
| (14 | )% |
| Renewable Energy | 257 |
| 202 |
| 27 | % | | 524 |
| 413 |
| 27 | % |
| Oil & Gas(b) | (36 | ) | 353 |
| U |
| | 325 |
| 981 |
| (67 | )% |
| Aviation | 1,680 |
| 1,494 |
| 12 | % | | 4,856 |
| 4,366 |
| 11 | % |
| Healthcare | 820 |
| 717 |
| 14 | % | | 2,289 |
| 2,130 |
| 7 | % |
| Transportation | 276 |
| 309 |
| (11) | % | | 634 |
| 747 |
| (15 | )% |
| Lighting(a) | 23 |
| (15 | ) | F |
| | 43 |
| 196 |
| (78 | )% |
| Total industrial segment profit | 3,630 |
| 4,320 |
| (16) | % | | 11,198 |
| 11,756 |
| (5 | )% |
| Capital | 24 |
| 26 |
| (8 | )% | | (195 | ) | (1,466 | ) | 87 | % |
| Total segment profit (loss) | 3,654 |
| 4,345 |
| (16 | )% | | 11,003 |
| 10,290 |
| 7 | % |
| Corporate items and eliminations | (1,095 | ) | (1,524 | ) | | | (4,687 | ) | (2,120 | ) | |
| GE interest and other financial charges | (718 | ) | (483 | ) | | | (1,918 | ) | (1,490 | ) | |
| GE benefit (provision) for income taxes | 64 |
| (241 | ) | | | (297 | ) | (1,034 | ) | |
Earnings (loss) from continuing operations attributable to GE common shareowners | 1,905 |
| 2,097 |
| (9) | % | | 4,101 |
| 5,645 |
| (27 | )% |
| Earnings (loss) from discontinued operations, net of taxes | (106 | ) | (105 | ) | (1 | )% | | (490 | ) | (954 | ) | 49 | % |
| Less net earnings attributable to | | | | | | | |
| noncontrolling interests, discontinued operations | (1 | ) | (2 | ) | | | 6 |
| 2 |
| |
| Earnings (loss) from discontinued operations, | | | | | | | |
| net of tax and noncontrolling interest | (105 | ) | (103 | ) | (2 | )% | | (497 | ) | (956 | ) | 48 | % |
Consolidated net earnings (loss) attributable to the GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| (10) | % | | $ | 3,604 |
| $ | 4,689 |
| (23 | )% |
| |
(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
| |
(b) | Oil & Gas segment operating profit excluding restructuring and other charges was $231 million and $593 million for the three and nine months ended September 30, 2017, respectively. |
REVENUES AND PROFIT
OPERATIONS. Segment revenues include revenuessales of products and other income related toservices by the segment.
Segment Industrial segment profit is determined based on internal performance measures used by theour Chief Operating Decision Maker (CODM), who is our Chief Executive Officer (CEO), to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring, rationalization and other similar expenses, acquisition costs and other related charges, technology and product development costs, certain gains and losses from acquisitions or dispositions, and certain litigation settlements or other charges, for which responsibility preceded the current management team.settlements. Subsequent to the Baker Hughes transaction on July 3, 2017, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. See the Corporate Items and Eliminations section within this MD&A for additional information about costs excluded from segment profit.
Segment profit excludes results reported as discontinued operations and material accounting changes. Segment profit also excludes the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributable to our share of the consolidated earnings or loss of consolidated subsidiaries.
Segment profit excludes or includes interest and other financial charges, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:
Interest and other financial charges, income taxes and GE preferred stock dividendsnon-operating benefit costs are excluded in determining segment profit (which we sometimes refer to as “operating profit”) for the industrial segments.
Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.
Other income is included in segment profit for the industrial segments.
Certain corporate costs, such as those related to shared services, employee benefits, and information technology, are allocated to our segments based on usage. A portion of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.
With respect to the segment revenue and profit walks, the overall effect of foreign exchange is included within multiple captions as follows:
The translational foreign exchange impact is included within Foreign Exchange.
The transactional impact of foreign exchange hedging is included in operating cost within Productivity and in other income within Other.
SIGNIFICANT SEGMENT DEVELOPMENTS
SALE OF APPLIANCES
On January 15, 2016, we announced the signing of an agreement to sell our Appliances business to Haier. On June 6, 2016, we completed the sale for proceeds of $5.6 billion (including $0.8 billion from the sale of receivables originated in our Appliances business and sold from GE Capital to Haier) and recognized an after-tax gain of $1.8 billion in 2016. For the nine months ended September 30, 2016, Appliances contributed revenues of $2.6 billion and an operating profit of $0.3 billion.
CREATION OF BAKER HUGHES, A GE COMPANY
On July 3, 2017, we completed the transaction to create Baker Hughes, a GE company (BHGE). Under the terms of the deal, which we announced in October 2016, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownership interest of approximately 62.5% and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Baker Hughes shareholders also received a cash dividend funded by a $7.5 billion cash contribution from GE. The completion of the transaction followed the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment.
INCLUSION OF ENERGY CONNECTIONS IN POWER REPORTING SEGMENT
Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of the combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting.
2017 3Q2019 2Q FORM 10-Q 157
SEGMENT RESULTS – THREE AND NINE MONTHS ENDED SEPTEMBER 30
|
| | | | | | | | | | | | | | | | | |
| SUMMARY OF REPORTABLE SEGMENTS | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Power | $ | 4,681 |
| $ | 6,261 |
| (25) | % | | $ | 9,298 |
| $ | 12,209 |
| (24) | % |
| Renewable Energy | 3,627 |
| 2,883 |
| 26 | % | | 6,165 |
| 5,722 |
| 8 | % |
| Aviation | 7,877 |
| 7,519 |
| 5 | % | | 15,831 |
| 14,631 |
| 8 | % |
| Healthcare | 4,934 |
| 4,978 |
| (1) | % | | 9,616 |
| 9,680 |
| (1) | % |
| Oil & Gas | 5,953 |
| 5,554 |
| 7 | % | | 11,569 |
| 10,939 |
| 6 | % |
| Total industrial segment revenues | 27,071 |
| 27,195 |
| — | % | | 52,479 |
| 53,181 |
| (1) | % |
| Capital | 2,321 |
| 2,429 |
| (4) | % | | 4,548 |
| 4,602 |
| (1) | % |
| Total segment revenues | 29,392 |
| 29,623 |
| (1) | % | | 57,027 |
| 57,783 |
| (1) | % |
| Corporate items and eliminations | (561 | ) | (462 | ) | (21) | % | | (910 | ) | (833 | ) | (9) | % |
| Consolidated revenues | $ | 28,831 |
| $ | 29,162 |
| (1) | % | | $ | 56,117 |
| $ | 56,950 |
| (1) | % |
| | | | | | | | |
| Power | $ | 117 |
| $ | 410 |
| (71) | % | | $ | 228 |
| $ | 654 |
| (65) | % |
| Renewable Energy | (184 | ) | 85 |
| U |
| | (371 | ) | 196 |
| U |
|
| Aviation | 1,385 |
| 1,475 |
| (6) | % | | 3,046 |
| 3,078 |
| (1) | % |
| Healthcare | 958 |
| 926 |
| 3 | % | | 1,740 |
| 1,660 |
| 5 | % |
| Oil & Gas | 82 |
| 73 |
| 12 | % | | 245 |
| (70 | ) | F |
|
| Total industrial segment profit (loss) | 2,359 |
| 2,969 |
| (21) | % | | 4,887 |
| 5,518 |
| (11) | % |
| Capital | (89 | ) | (207 | ) | 57 | % | | 46 |
| (422 | ) | F |
|
| Total segment profit (loss) | 2,270 |
| 2,762 |
| (18) | % | | 4,933 |
| 5,095 |
| (3) | % |
| Corporate items and eliminations | (956 | ) | (222 | ) | U |
| | (1,165 | ) | (886 | ) | (31) | % |
| GE goodwill impairments | (744 | ) | — |
| — | % | | (744 | ) | — |
| — | % |
| GE interest and other financial charges | (444 | ) | (686 | ) | 35 | % | | (1,032 | ) | (1,326 | ) | 22 | % |
| GE non-operating benefit costs | (554 | ) | (688 | ) | 19 | % | | (1,115 | ) | (1,369 | ) | 19 | % |
| GE benefit (provision) for income taxes | 137 |
| (487 | ) | F |
| | (213 | ) | (576 | ) | 63 | % |
| Earnings (loss) from continuing operations attributable to GE common shareowners | (291 | ) | 679 |
| U |
| | 663 |
| 940 |
| (29 | )% |
| Earnings (loss) from discontinued operations, net of taxes | 231 |
| (63 | ) | F |
| | 2,823 |
| (1,504 | ) | F |
|
| Less net earnings attributable to noncontrolling interests, discontinued operations | — |
| 1 |
| (100) | % | | (2 | ) | 4 |
| U |
|
| Earnings (loss) from discontinued operations, net of tax and noncontrolling interest | 231 |
| (64 | ) | F |
| | 2,825 |
| (1,508 | ) | F |
|
| Consolidated net earnings (loss) attributable to the GE common shareowners | $ | (61 | ) | $ | 615 |
| U |
| | $ | 3,488 |
| $ | (568 | ) | F |
|
(Dollars in billions)Effective the first quarter of 2019, Corporate items and eliminations includes the results of our Lighting segment for all periods presented.
|
|
INDUSTRIAL SEGMENT EQUIPMENT
& SERVICES REVENUES
|
|
|
INDUSTRIAL SEGMENT PROFIT |
|
| |
■ ■Services (a) ■■ Equipment (b)
| |
|
| |
(a) $13.6 billion, excluding $1.5 billion related to Baker Hughes*, and $40.1 billion, excluding $1.5 billion related to Baker Hughes*, for the three and nine months ended September 30, 2017, respectively
(b) $13.9 billion, excluding $1.0 billion related to Baker Hughes*, and $41.3 billion, excluding $1.0 billion related to Baker Hughes*, for the three and nine months ended September 30, 2017, respectively
| (a) $3.8 billion, excluding $(0.1) billion related to Baker Hughes*
(b) $11.3 billion, excluding $(0.1) billion related to Baker Hughes*
|
|
|
2017 – 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30 |
Industrial segment revenues increased $2.7 billion, or 10%, driven by increases at Oil & Gas primarily due to Baker Hughes, Aviation, Healthcare and Renewable Energy, partially offset by decreases at Power, Transportation and Lighting.
Industrial segment profit decreased $0.7 billion, or 16%, driven primarily by lower earnings at Power,excluding restructuring and other charges* of $135 million and $148 million was $217 million and $222 million for the three months ended June 30, 2019 and 2018, respectively. Oil & Gas primarily due to restructuring costs associated with Baker Hughes, and Transportation, partially offset by higher earnings at Aviation, Healthcare, Renewable Energy and Lighting.
Industrial segment margin decreased 280 bps to 13.0% in 2017 from 15.8% in 2016 driven by negative cost productivity and business mix. The decrease in Industrial segment margin reflects decreases at Oil & Gas and Power, offset by increases at Renewable Energy, Healthcare, Transportation, Aviation and Lighting.
|
|
2017 – 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30 |
Industrial segment revenues increased $2.3 billion, or 3%, driven by increases at Oil & Gas primarily due to Baker Hughes, Aviation, Power, Renewable Energy, and Healthcare, partially offset by decreases at Lighting primarily due to the sale of the Appliances business in the second quarter of 2016, and Transportation.
Industrial segment profit decreased $0.6 billion, or 5%, driven primarily by lower earnings at Oil & Gas, Power, Lighting due toexcluding restructuring and other charges* of $194 million and $473 million was $439 million and $403 million for the sale of Appliances in the second quarter of 2016,six months ended June 30, 2019 and Transportation, partially offset by higher earnings at Aviation, Healthcare, and Renewable Energy.2018, respectively.
Industrial segment margin decreased 70 bps to 13.7% in 2017 from 14.4% in 2016 driven by price and business mix. The decrease in Industrial segment margin reflects decreases at Oil & Gas, Power and Transportation, partially offset by increases at Aviation, Renewable Energy, Healthcare and Lighting.
*Non-GAAP Financial Measure
16 2017 3Q8 2019 2Q FORM 10-Q
|
| | |
| MD&A | SEGMENT OPERATIONS | POWER | |
POWER
POWEREffective the first quarter of 2019, we reorganized the businesses within our Power segment into Gas Power and Power Portfolio, and effectively eliminated the Power headquarters structure to allow us to reduce costs and improve operations. In the second quarter of 2019, we completed the reorganization of our Grid Solutions equipment and services business into our Renewable Energy segment and our Grid Solutions software business into Corporate for all periods presented. Gas Power is a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio comprises our Steam Power Systems (including services previously reported in Power Services), Power Conversion and GE Hitachi Nuclear businesses. Power Portfolio's 2018 results also include our former Industrial Solutions and Distributed Power businesses which were sold in June 2018 and November 2018, respectively.
OPERATIONAL OVERVIEWThe power market as well as its operating environment continue to be challenging. Over the past several quarters, our outlook for Power was driven by the significant overcapacity in the industry, increased price pressure from competition on servicing the installed base, and the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook could be impacted by project execution and our own underlying operational challenges. Also, market factors such as increasing energy efficiency and renewable energy penetration continue to impact long-term demand.
(Dollars
We have and will continue to take actions to right size our business for the current market conditions and our long-term outlook, including restructuring our operations to dispose of non-core businesses, resizing our remaining businesses to better align with market demand and driving these businesses with an operational rigor and discipline that is focused on our customers’ lifecycle experience. We are building a cost structure to support an average 25 to 30 gigawatt new unit gas turbine market; however, actual orders in billions)a given year can vary. As a result of these actions and overall market conditions, we believe the business is showing early signs of stabilization and expect incremental improvements in 2020 with further acceleration in 2021 and beyond.
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
(a) Includes Distributed Power
(b) Includes Water & Process Technologies and GE Hitachi Nuclear
|
We continue to invest in new product development, such as our HA-Turbines, and upgrades which offset our cost reduction initiatives as these are critical to our customers and the long-term strategy of the business. |
| | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Gas Turbines | 30 | 22 | (8) | 69 | 63 | (6) |
|
| | | | | | | | | |
| (In billions) | | | | June 30, 2019 | June 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 19.4 |
| $ | 18.6 |
|
| Services | | | | 67.0 |
| 68.0 |
|
| Total backlog | | | | $ | 86.4 |
| $ | 86.6 |
|
|
| | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GE Gas Turbine unit orders | 20 |
| 10 |
| | 35 |
| 18 |
|
| Heavy-Duty Gas Turbine(a) unit orders | 16 |
| 7 |
| | 27 |
| 11 |
|
| HA-Turbine(b) unit orders | 7 |
| 2 |
| | 10 |
| 2 |
|
| Aeroderivative(a) unit orders | 4 |
| 3 |
| | 8 |
| 7 |
|
| GE Gas Turbine Gigawatts orders(c) | 4.6 |
| 1.5 |
| | 6.7 |
| 2.0 |
|
| | | | | | |
| GE Gas Turbine unit sales | 11 |
| 12 |
| | 20 |
| 26 |
|
| Heavy-Duty Gas Turbine(a) unit sales | 4 |
| 7 |
| | 11 |
| 19 |
|
| HA-Turbine(b) unit sales | — |
| 3 |
| | 1 |
| 4 |
|
| Aeroderivative(a) unit sales | 7 |
| 5 |
| | 9 |
| 7 |
|
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines. (b) HA-Turbines are a subset of Heavy-Duty Gas Turbines. (c) Gigawatts reported associated with financial orders in the periods presented.
| | | |
|
| | | | | | | | | | | | | |
| Equipment | $ | 2.1 |
| $ | 2.5 |
| | $ | 3.1 |
| $ | 4.0 |
|
| Services | 2.8 |
| 3.8 |
| | 5.5 |
| 6.8 |
|
| Total orders | $ | 4.9 |
| $ | 6.3 |
| | $ | 8.6 |
| $ | 10.7 |
|
|
| | | | | | | | | | | | | |
| Gas Power | $ | 3.2 |
| $ | 3.5 |
| | $ | 6.5 |
| $ | 7.0 |
|
| Power Portfolio | 1.4 |
| 2.8 |
| | 2.8 |
| 5.2 |
|
| Total sub-segment revenues | $ | 4.7 |
| $ | 6.3 |
| | $ | 9.3 |
| $ | 12.2 |
|
|
| | | | | | | | | | | | | |
| Equipment | $ | 1.5 |
| $ | 2.4 |
| | $ | 3.0 |
| $ | 4.9 |
|
| Services | 3.2 |
| 3.8 |
| | 6.3 |
| 7.3 |
|
| Total segment revenues | $ | 4.7 |
| $ | 6.3 |
| | $ | 9.3 |
| $ | 12.2 |
|
| | | | | | |
| Segment profit | $ | 0.1 |
| $ | 0.4 |
| | $ | 0.2 |
| $ | 0.7 |
|
| Segment profit margin | 2.5 | % | 6.5 | % | | 2.5 | % | 5.4 | % |
|
| | |
| MD&A | SEGMENT OPERATIONS | POWER | |
FINANCIAL OVERVIEW
(Dollars in billions) |
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 9.0 |
| $ | 1.3 |
|
| Volume | (0.5 | ) | (0.1 | ) |
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| (0.2 | ) |
| Productivity | N/A |
| (0.4 | ) |
| Other | 0.2 |
| 0.1 |
|
| September 30, 2017 | $ | 8.7 |
| $ | 0.6 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 25.7 |
| $ | 2.9 |
|
| Volume | 0.9 |
| 0.1 |
|
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | (0.1 | ) | — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| (0.2 | ) |
| Productivity | N/A |
| (0.4 | ) |
| Other | 0.3 |
| 0.2 |
|
| September 30, 2017 | $ | 26.6 |
| $ | 2.5 |
|
SegmentFor the three months ended June 30, 2019, segment orders were down $1.4 billion (22%), segment revenues were down $1.6 billion (25%) and segment profit was down $0.3 billion (4%(71%);.
Segment profit down $0.6Reported orders decrease of $1.4 billion (51%):
Thewas driven primarily by the nonrecurrence of $1.1 billion of orders related to Industrial Solutions and Distributed Power following their sales in June 2018 and November 2018, respectively. Orders increased $0.1 billion, or 2%, organically mainly due to orders for nine more heavy-duty gas turbines at Gas Power, largely offset by a decrease in Steam orders at Power Portfolio.
Revenues decreased $0.3 billion, or 5%, organically*. Equipment revenues wasdecreased due to lower unit sales, including three fewer heavy-duty gas turbines. Services revenues decreased due to lower contractual services revenues driven by lower services volume at Power Servicesoutages and mix.
Profit decreased $0.2 billion, or 69%, organically* due to 15 fewer AGP upgrades. Equipment volume alsolower unit sales and lower productivity.
For the six months ended June 30, 2019, segment orders were down $2.2 billion (20%), segment revenues were down $2.9 billion (24%) and segment profit was down $0.4 billion (65%).
Backlog as of June 30, 2019 decreased $0.2 billion from June 30, 2018 primarily due to the nonrecurrence of $3.9 billion of backlog related to Industrial Solutions and Distributed Power following their sales in June 2018 and November 2018, respectively. Offsetting this decrease, backlog increased $3.8 billion, or 5%, driven by an increase equipment backlog of $2.1 billion and services backlog of $1.6 billion.
Reported orders decrease of $2.2 billion was driven primarily by the nonrecurrence of $2.3 billion of orders related to Industrial Solutions and Distributed Power following their sales in June 2018 and November 2018, respectively. Orders increased $0.6 billion, or 7%, organically mainly due to orders for 16 more heavy-duty gas turbines at Gas Power, Systems, aslargely offset by a result ofdecrease in Steam orders at Power Portfolio.
Revenues decreased $0.4 billion, or 4%, organically*. Equipment revenues decreased due to lower unit sales, including eight fewer heavy-duty gas turbineturbines, and 32 fewer aeroderivative units,services revenues decreased due to lower contractual services revenues driven by lower outages and mix.
Profit decreased $0.3 billion, or 61%, organically* due to lower unit sales, partially offset by sevenlower costs and favorable contractual settlements of $0.1 billion.
RENEWABLE ENERGY
In the second quarter of 2019, we completed the reorganization of our Grid Solutions equipment and services business into our Renewable Energy segment and our Grid Solutions software business into Corporate for all periods presented. We recognized a non-cash pre-tax impairment charge of $0.7 billion related to goodwill at our Grid Solutions equipment and services reporting unit. This charge was recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
The onshore wind market in the U.S. continues to see the positive impact from the Production Tax Credit (PTC) cycle and customer preference shifting to larger, more Heat Recovery Steam Generator shipmentsefficient units to drive down costs and extended scope including higher balancecompete with other power generation options. Despite the competitive nature of plant revenues. Further decreasesthe market, onshore wind order pricing has stabilized in revenue werethe first half of 2019 due to lower prices offsetdemand caused by the effectsanticipated expiration of PTCs in the U.S. in 2020 and auction stabilization in international markets. We expect a weaker U.S. dollar versussignificant production ramp for 2019 deliveries in onshore wind and are monitoring our operational risk as we execute. The grid market continues to be challenging as we have experienced current year order declines in the euroHigh Voltage Direct Current (HVDC) and increased other income including aHigh Voltage (HV) product lines.
New product introductions continue to be important to our customers who are demonstrating the willingness to invest in new technology that decreases the levelized cost of energy. We are continuing to focus on cost reduction in foreign exchange transactional losses.initiatives of our products, in-sourcing blade production and developing larger, more efficient turbines like the Haliade-X and Cypress.
The decrease in profit was due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, lower prices and lower overall volume, partially offset by increased other income including a reduction in foreign exchange transactional losses.
Segment revenues up $0.9 billion (4%);
Segment profit down $0.4 billion (14%):
The increase in revenues was driven by higher equipment volume, primarily at Gas Power Systems, due to higher balance of plant as well as 36 more Heat Recovery Steam Generator shipments, partially offset by six fewer gas turbine and 27 fewer aeroderivative units. Revenues also increased due to increased other income including a reduction in foreign exchange transactional losses offset by lower prices and the effects of a stronger U.S. dollar versus the euro.
The decrease in profit was due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, and lower prices. These decreases were partially offset by positive base cost productivity on higher volume and increased other income including a reduction in foreign exchange transactional losses.
|
| | | | | | | | | |
| (In billions) | | | | June 30, 2019 | June 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 15.3 |
| $ | 15.3 |
|
| Services | | | | 10.4 |
| 7.9 |
|
| Total backlog | | | | $ | 25.7 |
| $ | 23.3 |
|
*Non-GAAP Financial Measure
18 2017 3Q10 2019 2Q FORM 10-Q
|
| | |
| MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
RENEWABLE ENERGY
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Wind Turbines | 976 | 749 | (227) | 2,500 | 2,073 | (427) |
|
| | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Wind Turbine unit orders | 984 |
| 320 |
| | 1,954 |
| 1,256 |
|
| Wind Turbine Megawatts orders(a) | 2,670 |
| 1,032 |
| | 5,334 |
| 3,380 |
|
| Repower unit orders | 494 |
| 287 |
| | 594 |
| 345 |
|
| | | | | | |
| Wind Turbine unit sales | 804 |
| 351 |
| | 1,157 |
| 703 |
|
| Wind Turbine Megawatts sales(a) | 2,257 |
| 1,039 |
| | 3,245 |
| 1,915 |
|
Repower unit sales
| 221 |
| 227 |
| | 377 |
| 403 |
|
| (a) Megawatts reported associated with financial orders in the periods presented. | | | |
|
| | | | | | | | | | | | | |
| Equipment | $ | 2.9 |
| $ | 2.0 |
| | $ | 5.9 |
| $ | 5.0 |
|
| Services | 0.8 |
| 0.7 |
| | 1.3 |
| 1.2 |
|
| Total orders | $ | 3.7 |
| $ | 2.7 |
| | $ | 7.2 |
| $ | 6.2 |
|
|
| | | | | | | | | | | | | |
| Onshore Wind | $ | 2.4 |
| $ | 1.3 |
| | $ | 3.9 |
| $ | 2.6 |
|
| Grid Solutions equipment and services | 0.9 |
| 1.2 |
| | 1.9 |
| 2.4 |
|
| Hydro and Offshore Wind | 0.2 |
| 0.3 |
| | 0.4 |
| 0.7 |
|
| Total sub-segment revenues | $ | 3.6 |
| $ | 2.9 |
| | $ | 6.2 |
| $ | 5.7 |
|
|
| | | | | | | | | | | | | |
| Equipment | $ | 2.9 |
| $ | 2.2 |
| | $ | 4.8 |
| $ | 4.6 |
|
| Services | 0.8 |
| 0.6 |
| | 1.3 |
| 1.2 |
|
| Total segment revenues | $ | 3.6 |
| $ | 2.9 |
| | $ | 6.2 |
| $ | 5.7 |
|
| | | | | | |
| Segment profit (loss) | $ | (0.2 | ) | $ | 0.1 |
| | $ | (0.4 | ) | $ | 0.2 |
|
| Segment profit margin | (5.1 | )% | 2.9 | % | | (6.0 | )% | 3.4 | % |
For the three months ended June 30, 2019, segment orders were up $1.0 billion (35%), segment revenues were up $0.7 billion (26%) and segment profit was down $0.3 billion.
Orders increased $1.0 billion, or 38%, organically due to increased demand for North America Onshore Wind equipment resulting from the anticipated expiration of PTCs.
Revenues increased $0.9 billion, or 33%, organically*. Equipment revenues increased due to 453 more wind turbine shipments on a unit basis, or 117% more megawatts shipped, than in the prior year, offset by a decrease in Grid Solutions equipment due to lower HVDC and Alternate Current Substation (ACS) project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower units pricing at Onshore Wind from the prior year.
Profit decreased $0.3 billion organically* largely due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018, as well as project execution challenges including higher losses on legacy contracts. These items were offset by increased profit driven by higher volume in Onshore Wind and cost productivity, offset by the impact of U.S.-China tariffs, price pressure in Grid Solutions equipment and services and Onshore Wind and increased research and development spend for Haliade-X and Cypress.
For the six months ended June 30, 2019, segment orders were up $1.0 billion (17%), segment revenues were up $0.4 billion (8%) and segment profit was down $0.6 billion.
Backlog as of June 30, 2019 increased $2.4 billion, or 10%, from June 30, 2018 driven by increased demand at Onshore Wind resulting from the anticipated expiration of PTCs as well as increased repower orders, partially offset by a decrease in Grid Solutions equipment backlog due to lower HVDC orders.
Orders increased $1.2 billion, or 20%, organically due to increased demand for North America Onshore Wind equipment resulting from the anticipated expiration of PTCs.
Revenues increased $0.8 billion, or 14%, organically*. Equipment revenues increased due to 454 more wind turbine shipments on a unit basis, or 69% more megawatts shipped, than in the prior year, partially offset by decreases in Offshore due to the execution of a large project in prior year and Grid Solutions equipment due to lower HVDC and ACS project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower units pricing at Onshore Wind from the prior year.
Profit decreased $0.6 billion organically* due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018, as well as project execution challenges including higher losses on legacy contracts, partially offset by a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts. These items were offset by increased profit driven by higher volume in Onshore Wind and cost productivity, offset by the impact of U.S.-China tariffs, price pressure in Grid Solutions equipment and services and Onshore Wind and increased research and development spend for Haliade-X and Cypress.
*Non-GAAP Financial Measure
|
| | |
| MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 2.8 |
| $ | 0.2 |
|
| Volume | 0.1 |
| — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 2.9 |
| $ | 0.3 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 6.5 |
| $ | 0.4 |
|
| Volume | 0.6 |
| — |
|
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | 0.2 |
| 0.2 |
|
| September 30, 2017 | $ | 7.4 |
| $ | 0.5 |
|
Segment revenues up $0.1 billion (5%);
Segment profit up $0.1 billion (27%):
The increase in revenues was primarily driven by higher services volume due to increased repowering projects at Onshore Wind, partially offset by lower equipment sales driven by 227 fewer wind turbine shipments and 16% fewer megawatts shipped than in the prior year.
The increase in profit was due to positive cost productivity.
Segment revenues up $0.9 billion (13%);
Segment profit up $0.1 billion (27%):
The increase in revenues was primarily driven by higher volume due to increased repowering projects at Onshore Wind and higher equipment sales at Hydro, partially offset by 427 fewer wind turbine shipments and 4% fewer megawatts shipped than in the prior year. Revenues also increased due to increased other income including a reduction in foreign exchange transactional losses, and the effects of a weaker U.S. dollar versus the Brazilian real, partially offset by lower prices.
The increase in profit was due to material deflation and increased other income including a reduction in foreign exchange transactional losses. These increases were partially offset by negative cost productivity and lower prices.
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
OIL & GAS
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
(a) Previously referred to as Surface
(b) Previously referred to as Subsea Systems & Drilling
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
■ ■Services ■■ Equipment
|
(a) Included $2.5 billion related to Baker Hughes
(b) Included $2.5 billion related to Baker Hughes
|
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | |
(a) $2.8 billion, excluding $2.5 billion related to Baker Hughes*
(b) $8.9 billion, excluding $2.5 billion related to Baker Hughes*
| | (a) $0.1 billion, excluding $(0.1) billion related to Baker Hughes*
(b) $0.5 billion, excluding $(0.1) billion related to Baker Hughes*
| | (a) 3.9%, excluding (5.7)% related to Baker Hughes*
(b) 5.3%, excluding (5.7)% related to Baker Hughes*
|
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 3.0 |
| $ | 0.4 |
|
| Volume | (0.2 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.3 | ) |
| Other | 0.1 |
| — |
|
| Baker Hughes | 2.5 |
| (0.1 | ) |
| September 30, 2017 | $ | 5.4 |
| $ | — |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 9.5 |
| $ | 1.0 |
|
| Volume | (0.5 | ) | (0.1 | ) |
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.5 | ) |
| Other | 0.2 |
| 0.1 |
|
| Baker Hughes | 2.5 |
| (0.1 | ) |
| September 30, 2017 | $ | 11.5 |
| $ | 0.3 |
|
*Non-GAAP Financial Measure
Segment revenues up $2.4 billion (81%);
Segment profit down $0.4 billion (110%):
The increase in revenues was primarily driven by the effects of Baker Hughes, a weaker U.S. dollar versus the euro and increased other income including a reduction in foreign exchange transactional losses, partially offset by negative market conditions which resulted in lower organic equipment volume primarily in Oilfield Equipment.
The decrease in operating profit was driven by negative variable cost productivity as well as restructuring and other charges, partially offset by increased volume from Baker Hughes.
Segment revenues up $2.0 billion (21%);
Segment profit down $0.7 billion (67%):
The increase in revenues was primarily driven by the effects of Baker Hughes and increased other income including a reduction in foreign exchange transactional losses, partially offset by negative market conditions which resulted in lower prices and lower organic equipment volume primarily in Oilfield Equipment and Turbomachinery & Process Solutions.
The decrease in operating profit was primarily driven by negative variable cost productivity, restructuring and other charges, lower prices, and lower organic volume, partially offset by increased volume from Baker Hughes, deflation and increased other income including a reduction in foreign exchange transactional losses.
|
| | |
MD&A | SEGMENT OPERATIONS | AVIATION |
AVIATION
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | | | | | | | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Commercial Engines | 654 |
| 641 |
| (13 | ) | 2,055 |
| 1,895 |
| (160 | ) |
| LEAP Engines(a) | 22 |
| 111 |
| 89 |
| 33 |
| 257 |
| 224 |
|
| Military Engines | 100 |
| 145 |
| 45 |
| 402 |
| 402 |
| — |
|
| Spares Rate(b) | $ | 19.1 |
| $ | 23.2 |
| $ | 4.1 |
| $ | 18.5 |
| $ | 22.2 |
| $ | 3.7 |
|
(a) LEAP engines are a subset of commercial engines (b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day |
|
| | |
MD&A | SEGMENT OPERATIONS | AVIATION |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 6.3 |
| $ | 1.5 |
|
| Volume | 0.5 |
| 0.1 |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| — |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 6.8 |
| $ | 1.7 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 19.1 |
| $ | 4.4 |
|
| Volume | 1.0 |
| 0.2 |
|
| Price | 0.1 |
| 0.1 |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| (0.1 | ) |
| Productivity | N/A |
| 0.2 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 20.2 |
| $ | 4.9 |
|
Segment revenues up $0.5 billion (8%);Segment profit up $0.2 billion (12%):
The increase in revenues was primarily due to an increase in services volume including a higher commercial spares shipment rate, partially offset by a decrease in equipment volume. Equipment volume decreased primarily due to fewer GE90 and CF6 Commercial engine shipments, partially offset by 89 more LEAP engine shipments than in the prior year.
The increase in profit was mainly driven by higher volume and material deflation.
Segment revenues up $1.1 billion (6%);
Segment profit up $0.5 billion (11%):
The increase in revenues was primarily due to higher services volume including a higher commercial spares shipment rate and military spare parts demand, and higher prices. Equipment revenues decreased primarily due to 160 fewer Commercial engine shipments, partially offset by 224 more LEAP engine shipments than in the prior year.
The increase in profit was mainly driven by positive cost productivity, higher overall volume and higher prices at Services, partially offset by unfavorable business mix due to negative LEAP margin impact.
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
HEALTHCARE
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 4.5 |
| $ | 0.7 |
|
| Volume | 0.3 |
| — |
|
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 4.7 |
| $ | 0.8 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 13.2 |
| $ | 2.1 |
|
| Volume | 0.8 |
| 0.1 |
|
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | (0.1 | ) | — |
|
| (Inflation)/Deflation | N/A |
| (0.1 | ) |
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.3 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 13.7 |
| $ | 2.3 |
|
Segment revenues up $0.2 billion (5%);
Segment profit up $0.1 billion (14%):
The increase in revenues was due to higher equipment and services volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems.
The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actions as well as a small gain on the disposition of a nonstrategic operation in Life Sciences, partially offset by lower prices at Healthcare Systems.
Segment revenues up $0.5 billion (4%);
Segment profit up $0.2 billion (7%):
The increase in revenues was due to higher equipment and services volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems and the effects of a stronger U.S. dollar versus the pound sterling and the Chinese renminbi.
The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actions, as well as higher volume, partially offset by lower prices at Healthcare Systems and inflation.
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
TRANSPORTATION
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
(a) Includes Marine, Stationary, Drilling and Digital |
|
| | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Locomotives | 200 | 77 | (123) | 578 | 354 | (224) |
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 1.2 |
| $ | 0.3 |
|
| Volume | (0.2 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| 0.1 |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | — |
| — |
|
| September 30, 2017 | $ | 1.1 |
| $ | 0.3 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 3.5 |
| $ | 0.7 |
|
| Volume | (0.3 | ) | (0.1 | ) |
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| 0.1 |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | — |
| — |
|
| September 30, 2017 | $ | 3.2 |
| $ | 0.6 |
|
Segment revenues down $0.2 billion (14%);
Segment profit down 11%:
The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments and increased services volume including locomotive parts.
The decrease in profit was driven by negative cost productivity, partially offset by a favorable business mix.
Segment revenues down $0.3 billion (8%);
Segment profit down $0.1 billion (15%):
The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments and increased services volume including locomotive parts.
The decrease in profit was driven by negative cost productivity and lower volume, partially offset by a favorable business mix.
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
LIGHTING
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
■ ■Services ■■ Equipment
|
(a) Lighting began reporting orders in 3Q'16. As a result, 3Q'16 QTD and YTD orders amounts are the same. |
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 0.6 |
| $ | — |
|
| Volume | (0.1 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| — |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 0.5 |
| $ | — |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 4.2 |
| $ | 0.2 |
|
| Volume | (2.7 | ) | (0.2 | ) |
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 1.4 |
| $ | — |
|
Segment revenues down $0.1 billion (16%);
Segment profit up 253%:
The decrease in revenues was mainly due to lower equipment revenues primarily driven by the decline in sales of traditional lighting product and region exits outside of North America, partially offset by LED, Solar and Digital growth in Current.
The increase in profit was driven by positive cost productivity due to the effects of restructuring actions.
Segment revenues down $2.8 billion (66%);
Segment profit down $0.2 billion (78%):
The decrease in revenues was mainly due to the Appliances disposition in June 2016, lower equipment revenues primarily driven by the decline in sales of traditional lighting product, lower prices and region exits outside of North America, partially offset by LED growth in GE Lighting and Current as well as Solar and Digital growth in Current.
The decrease in profit was due to lower volume driven by the Appliances disposition in June 2016, as well as lower prices, partially offset by positive cost productivity due to the effects of restructuring actions.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
CAPITAL
OPERATIONAL AND FINANCIAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES |
|
|
■■ Verticals ■■ Other Continuing
|
|
|
■■ Verticals ■■ Other Continuing
|
(a) Includes interest and other financial charges and income taxes |
|
|
SIGNIFICANT TRENDS & DEVELOPMENTS |
As of March 30, 2017, GE Capital’s non-US activities are no longer subject to consolidated supervision by the U.K.’s Prudential Regulation Authority (PRA). This completes GE Capital’s global exit from consolidated supervision, having had its designation as a Systemically Important Financial Institution (SIFI) removed in June 2016.
GE Capital paid common dividends of $4.0 billion to GE in the nine months ended September 30, 2017.
Our run-off insurance activities include future policy benefit reserves of $19.2 billion and claim reserves of $4.9 billion at September 30, 2017 of which approximately $9.0 billion and $3.4 billion, respectively, relates to long-term care insurance contracts. We test future policy benefit reserves associated with our run-off insurance activities for premium deficiencies annually. We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts that requires the completion of a comprehensive review of premium deficiency assumptions across all insurance products. This review will be completed in the fourth quarter of 2017. Based upon the work performed to date and complexity of the review as further described within our Critical Accounting Estimates and Note 11 to the consolidated financial statements, a charge related to a probable deficiency is not reasonably estimable at September 30, 2017. Until the above described review has been completed we have deferred the decision whether GE Capital will pay additional dividends to GE.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
THREE MONTHS
Capital revenues decreased $0.2 billion, or 8%, primarily due to higher impairments and organic revenue declines, partially offset by higher gains.
Capital earnings decreased 8%, primarily due to lower tax benefits primarily associated with a 2016 IRS tax settlement, higher impairments and lower gains, partially offset by lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan and core increases.
Within Capital, Verticals net earnings decreased $0.2 billion, or 36%, primarily due to higher impairments ($0.2 billion) and lower gains, partially offset by core increases.
Other Capital losses decreased $0.2 billion, or 38%, primarily associated with the GE Capital Exit Plan as follows:
Lower headquarters operation expenses of $0.3 billion.
Lower treasury operation expenses of $0.2 billion reflecting lower excess interest expense and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.
Lower tax benefits of $0.3 billion primarily associated with a 2016 IRS tax settlement.
NINE MONTHS
Capital revenues decreased $0.7 billion, or 9%, primarily due to higher impairments, organic revenue declines and lower gains.
Capital losses decreased $1.3 billion, or 87%, primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan, lower preferred dividend expenses associated with the January 2016 preferred equity exchange and core increases, partially offset by lower gains, higher impairments and lower tax benefits primarily associated with a 2016 IRS tax settlement.
Within Capital, Verticals net earnings decreased 3%, primarily due to lower gains ($0.1 billion) and higher impairments ($0.1 billion), partially offset by core increases ($0.2 billion).
Other Capital losses decreased $1.3 billion, or 45%, primarily associated with the GE Capital Exit Plan as follows:
Lower treasury operation expenses of $0.7 billion reflecting lower excess interest expense, including costs associated with the February and May 2016 debt tenders and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.
Lower headquarters operation expenses of $0.7 billion.
Lower preferred dividend expenses of $0.2 billion associated with the January 2016 preferred equity exchange.
Lower tax benefits of $0.3 billion primarily associated with a 2016 IRS tax settlement.
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
|
| | | | | | | | | | |
| CORPORATE ITEMS AND ELIMINATIONS | | | |
| | | | | | | |
| REVENUES AND OPERATING PROFIT (COST) | | | | | |
| | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | | |
| Revenues | | | | | |
| | Gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| | Eliminations and other | (869 | ) | (878 | ) | | (2,676 | ) | (2,714 | ) |
| Total Corporate Items and Eliminations | 1,028 |
| (670 | ) | | (777 | ) | 681 |
|
| | | | | | | |
| Operating profit (cost) | | | | | |
| | Gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| | Restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
| | Principal retirement plans(a) | (583 | ) | (542 | ) | | (1,668 | ) | (1,489 | ) |
| | Eliminations and other | (383 | ) | (507 | ) | | (1,164 | ) | (1,469 | ) |
| Total Corporate Items and Eliminations | (1,095 | ) | (1,524 | ) | | (4,687 | ) | (2,120 | ) |
| | | | | | | |
| CORPORATE COSTS | | | | | |
| | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | | |
| Total Corporate Items and Eliminations | (1,095 | ) | (1,524 | ) | | (4,687 | ) | (2,120 | ) |
| Less: non-operating pension cost | (570 | ) | (511 | ) | | (1,708 | ) | (1,534 | ) |
Total Corporate costs (operating)* | (525 | ) | (1,012 | ) | | (2,979 | ) | (586 | ) |
| Less: restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
Less: gains (losses) on disposals
| 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted total corporate costs (operating)* | (396 | ) | (538 | ) | | (1,124 | ) | (1,424 | ) |
| |
(a) | Included non-operating pension cost* of $0.6 billion and $0.5 billion in the three months ended September 30, 2017 and 2016, respectively, and $1.7 billion and $1.5 billion in the nine months ended September 30, 2017 and 2016, respectively, which includes expected return on plan assets, interest costs and non-cash amortization of actuarial gains and losses. |
2017 - 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
Revenues and other income increased $1.7 billion, primarily as a result of:
$1.9 billion gain from the sale of our Water business to Suez
This increase to revenues and other income was partially offset by the following:
$0.2 billion of lower other income for the nonrecurrence of a $0.4 billion gain from the sale of GE Asset Management to State
Street Corporation and a $0.2 billion charge related to the sale of a non-strategic platform in the Aviation business in the
third quarter of 2016
Operating costs decreased $0.4 billion, primarily as a result of:
$1.9 billion of higher gains from the sale of our Water business to Suez
$0.1 billion of lower corporate structural costs
These decreases to operating costs were partially offset by the following:
$1.3 billion of higher restructuring and other charges driven by a charge of $0.9 billion for the impairment of Power Conversion
goodwill and a charge of $0.3 billion for the impairment of a power plant asset
2017 - 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
Revenues and other income decreased $1.5 billion, primarily as a result of:
$1.5 billion of lower net gains primarily driven by the nonrecurrence of the sale of our Appliances business to Haier for $3.1
billion in the second quarter of 2016, partially offset by the sale of our Water business to Suez for $1.9 billion in the third
quarter of 2017
*Non-GAAP Financial Measure
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
Operating costs increased $2.6 billion, primarily as a result of:
$1.5 billion of lower net gains primarily driven by the nonrecurrence of the sale of our Appliances business to Haier for $3.1
billion in the second quarter of 2016, partially offset by the sale of our Water business to Suez for $1.9 billion in the third quarter of 2017
$1.2 billion of higher restructuring and other charges driven by a charge of $0.9 billion for the impairment of Power Conversion
goodwill and a charge of $0.3 billion for the impairment of a power plant asset
$0.2 billion of higher costs associated with our principal retirement plans, including the effects of lower discount rates
These increases to operating costs were partially offset by the following:
$0.3 billion of lower corporate structural costs
RESTRUCTURING
Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of recent acquisitions, including Alstom, the Baker Hughes transaction, and other asset write-downs. We continue to closely monitor the economic environment and may undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
|
| | | | | | | | | | | | | | | |
| RESTRUCTURING & OTHER CHARGES |
| | | Three months ended September 30 | Nine months ended September 30 |
| (In billions) | | 2017 | | 2016 | 2017 | | 2016 |
| | | | | | | | |
| Workforce reductions | | $ | 0.3 |
| | $ | 0.3 |
| $ | 1.0 |
| | $ | 0.9 |
|
| Plant closures & associated costs and other asset write-downs | | 0.8 |
| | 0.2 |
| 1.3 |
| | 0.9 |
|
| Acquisition/disposition net charges | | 0.3 |
| | 0.1 |
| 0.7 |
| | 0.5 |
|
| Goodwill impairment(a) | | 0.9 |
| | — |
| 0.9 |
| | — |
|
| Other | | — |
| | 0.1 |
| 0.1 |
| | 0.3 |
|
| Total(b)(c) | | $ | 2.4 |
| | $ | 0.7 |
| $ | 4.1 |
| | $ | 2.6 |
|
| |
(a) | This amount was recorded in Other costs and expenses in the Statement of Earnings. See Note 8 to the consolidated financial statements for further information. |
| |
(b) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. |
| |
(c) | Included $2.0 billion in GE and $0.4 billion in our Oil & Gas segment for the three months ended September 30, 2017, and $0.6 billion in GE and $0.1 billion in our Oil & Gas segment for the three months ended September 30, 2016. Included $3.5 billion in GE and $0.6 billion in our Oil & Gas segment for the nine months ended September 30, 2017, and $1.9 billion in GE and $0.6 billion in our Oil & Gas segment for the nine months ended September 30, 2016. |
2017 - 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
For the three months ended September 30, 2017, restructuring and other charges were $2.4 billion of which approximately $0.8 billion was reported in cost of products/services, $0.7 billion was reported in selling, general and administrative expenses (SG&A), and $0.9 billion was reported in other costs and expenses. These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.6 billion for three months ended September 30, 2017. Of the total $2.4 billion restructuring and other charges, $0.4 billion was recorded in the Oil & Gas segment, which amounted to $0.3 billion net of noncontrolling interest.
For the three months ended September 30, 2016, restructuring and other charges were $0.7 billion of which approximately $0.5 billion was reported in cost of products/services and $0.2 billion was reported in SG&A. These activities were primarily at Power, Oil & Gas and Lighting. Cash expenditures for restructuring and other charges were approximately $0.5 billion for the three months ended September 30, 2016.
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
2017 - 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
For the nine months ended September 30, 2017, restructuring and other charges were $4.1 billion of which approximately $1.9 billion was reported in cost of products/services, $1.3 billion was reported in SG&A, and $0.9 billion was reported in other costs and expenses. These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $1.6 billion for the nine months ended September 30, 2017. Of the total $4.1 billion restructuring and other charges, $0.4 billion was recorded in the Oil & Gas segment, which amounted to $0.3 billion net of noncontrolling interest.
For the nine months ended September 30, 2016, restructuring and other charges were $2.6 billion of which approximately $1.6 billion was reported in cost of products/services, $0.8 billion was reported in SG&A. These activities were primarily at Power, Oil & Gas, and Healthcare. Cash expenditures for restructuring and other charges were approximately $1.2 billion for the nine months ended September 30, 2016.
COSTS NOT INCLUDED IN SEGMENT RESULTS
As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. The amount of costs not included in segment results follows.
|
| | | | | | | | | | | | | | | | |
| COSTS | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In billions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
Power(a) | $ | 1.1 |
| | $ | 0.4 |
| | $ | 1.7 |
| | $ | 1.0 |
| |
| Renewable Energy | — |
| | — |
| | 0.2 |
| | 0.2 |
| |
| Oil & Gas(b) | — |
| | 0.1 |
| | 0.2 |
| | 0.7 |
| |
| Aviation | — |
| | — |
| | 0.1 |
| | 0.1 |
| |
| Healthcare | 0.1 |
| | 0.1 |
| | 0.2 |
| | 0.4 |
| |
| Transportation | — |
| | — |
| | 0.1 |
| | 0.2 |
| |
Lighting(a) | — |
| | 0.1 |
| | 0.2 |
| | 0.2 |
| |
| Total | $ | 1.3 |
| | $ | 0.7 |
| | $ | 2.7 |
| | $ | 2.7 |
| |
|
| | | | | | | | | | | | | | | | |
| GAINS (LOSSES) | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In billions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
Power(a) | $ | 1.9 |
| | — |
| | $ | 1.9 |
| | — |
| |
| Renewable Energy | — |
| | — |
| | — |
| | — |
| |
| Oil & Gas | — |
| | — |
| | — |
| | — |
| |
| Aviation | — |
| | (0.2 | ) | | — |
| | (0.2 | ) | |
| Healthcare | — |
| | — |
| | — |
| | — |
| |
| Transportation | — |
| | — |
| | — |
| | — |
| |
Lighting(a) | — |
| | — |
| | — |
| | 3.1 |
| (c) |
| Total | $ | 1.9 |
| | $ | (0.2 | ) | | $ | 1.9 |
| | $ | 2.9 |
| |
| |
(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment has been combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
| |
(b) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. |
| |
(c) | Related to the sale of our Appliances business in the second quarter of 2016. |
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
OTHER CONSOLIDATED INFORMATION
INCOME TAXES
GE pays the income taxes it owes in every country it does business. Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in approximately 180 countries and more than half of our revenue is earned outside the U.S., often in countries with lower tax rates than in the U.S. We reinvest most of our foreign earnings overseas to be able to fund our active non-U.S. business operations. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, such as research and development, and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE’s tax payments are due.
See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information on income taxes.
CONSOLIDATED – THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
|
PROVISION (BENEFIT) FOR INCOME TAXES |
2017 – 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
The consolidated income tax rate was (23)% and 1% for the quarters ended September 30, 2017 and 2016, respectively.
The third quarter 2017 consolidated tax rate reflects a 128% tax rate on $0.2 billion of pre-tax loss at GE Capital and a (4)% tax rate* on $1.7 billion of pre-tax income at GE.
The third quarter 2016 consolidated tax rate reflects a 137% tax rate on $0.2 billion of pre-tax loss at GE Capital and a 11% tax rate* on $2.2 billion of pre-tax income at GE.
The consolidated tax provision includes $0.1 billion benefit and $0.2 billion expense for GE (excluding GE Capital) for the third quarters of 2017 and 2016, respectively.
Consolidated income tax benefit was $0.3 billion in the third quarter of 2017 and insignificant for the third quarter of 2016. The decrease in tax expense is primarily due to the benefit from a lower tax rate on the disposition of the Water business, a larger benefit from global activities and a decrease in pre-tax income taxed at above the average tax rate, partially offset by the adjustment to increase the 2017 year-to-date rate to be in line with the higher projected full year rate compared to the decrease in the 2016 year-to-date rate to be in-line with the lower projected full-year rate. The adjustment to bring the third quarter year-to-date tax rate in-line with the full year tax rate in 2017 decreased the rate compared to prior quarters of 2017 due to a decrease in projected full year pre-tax income.
*Non-GAAP Financial Measure
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
2017 – 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
The consolidated tax rate was (8)% in the first nine months of 2017 compared to 5% in the first nine months of 2016.
The first nine months of 2017 consolidated tax rate reflects a 110% tax rate on $0.5 billion of pre-tax loss at GE Capital and a 7% tax rate* on $4.4 billion of pre-tax income at GE.
The first nine months of 2016 consolidated tax rate reflects a 42% tax rate on $1.7 billion of pre-tax loss at GE Capital and a 13% tax rate* on $7.9 billion of pre-tax income at GE.
The consolidated tax provision includes $0.3 billion and $1.0 billion for GE (excluding GE Capital) for the first nine months of 2017 and 2016, respectively.
Consolidated income tax benefit was $0.3 billion for the first nine months of 2017 compared to tax expense of $0.3 billion for the first nine months of 2016. The decrease in tax expense is primarily due to the decrease in pre-tax income taxed at above the average tax rate, a larger benefit from global activities and the benefit from a lower tax rate on the disposition of the Water business. This decrease was partially offset by the adjustment to increase the 2017 year-to-date rate to be in-line with the higher projected full-year rate compared to the decrease in the 2016 year-to-date rate to be in-line with the lower projected full-year rate and the non-repeat of a deductible stock loss. The adjustment to bring the third quarter year-to-date tax rate in-line with the full year rate decreased the tax rate relative to prior quarters of 2017 due to a decrease in projected full year pre-tax income.
The effective tax rate in future periods is expected to increase as a result of changes in our income profile due to changes in GE Capital earnings as we continue to execute on the GE Capital Exit Plan. We expect the GE effective tax rate excluding GE Capital earnings to be in the low single digits for the full year of 2017.
See Note 13 to the consolidated financial statements for additional information related to income taxes.
BENEFITS FROM GLOBAL OPERATIONS
Our consolidated income tax provision is reduced because of the benefits of lower-taxed global operations. There is a benefit from global operations as non-U.S. income is subject to local country tax rates that are significantly below the 35% U.S. statutory rate. These non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations. The rate of tax on our indefinitely reinvested non-U.S. earnings is below the 35% U.S. statutory tax rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GE funds certain non-U.S. operations through foreign companies that are subject to low foreign taxes.
A substantial portion of the benefit related to business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate is derived from our GECAS aircraft leasing operations located in Ireland where the earnings are taxed at 12.5%, from our Power operations located in Switzerland and Hungary where the earnings are taxed at between 9% and 18.6%, and our Healthcare operations in Europe where tax deductions are allowed for certain intangible assets and earnings are taxed below the U.S. statutory rate.
We expect our ability to benefit from non-U.S. income taxed at less than the U.S. rate to continue, subject to changes in U.S. or foreign law. In addition, since this benefit depends on management’s intention to indefinitely reinvest amounts outside the U.S., our tax provision will increase to the extent we no longer indefinitely reinvest foreign earnings.
DISCONTINUED OPERATIONS
Discontinued operations primarily relate to our financial services businesses as a result of the GE Capital Exit Plan and includes our U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.
See Notes 2 and 18 to the consolidated financial statements for additional information related to discontinued operations.
*Non-GAAP Financial Measure
|
| | |
MD&A | STATEMENT OF FINANCIAL POSITION |
STATEMENT OF FINANCIAL POSITION
Because GE and GE Capital share certain significant elements of their Statements of Financial Position, the following discussion addresses significant captions in the consolidated statement. Within the following discussions, however, we distinguish between GE and GE Capital activities in order to permit meaningful analysis of each individual consolidating statement.
MAJOR CHANGES IN OUR FINANCIAL POSITION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2017
The Baker Hughes transaction increased total assets (excluding cash assumed as a result of the transaction) by $27.5 billion, primarily due to goodwill of $14.2 billion, other intangible assets of $4.4 billion, property, plant and equipment of $4.0 billion, current receivables of $2.4 billion and inventories of $2.0 billion. See Note 8 to the consolidated financial statements for additional information.
Cash and equivalents decreased $8.3 billion. GE Cash and equivalents increased $2.3 billion due to the issuance of long-term debt, primarily to fund acquisitions, of $8.6 billion, debt effected through GE Capital of $7.3 billion, common dividends from GE Capital of $4.0 billion and proceeds from business dispositions of $2.9 billion. The increase was partially offset by payments of dividends to shareowners of $6.3 billion, business acquisitions of $6.1 billion (net of $4.1 billion cash assumed as a result of the Baker Hughes transaction), treasury stock net purchases of $2.6 billion (cash basis), net PP&E additions of $2.2 billion, net settlements of derivative hedges of $1.4 billion, the settlement of the remaining portion of 2016 debt effected through GE Capital of $1.3 billion and additions to capitalized software of $0.4 billion. GE Capital Cash and equivalents decreased $10.6 billion primarily due to net repayments of debt of $17.6 billion, GE debt effected through GE Capital of $7.3 billion and payments of dividends to shareowners of $4.2 billion, partially offset by maturities of liquidity investments of $6.5 billion, net collections of financing receivables of $3.2 billion, cash collections from discontinued operations of $2.9 billion, proceeds from borrowings assumed by the buyer in a business disposition of $1.8 billion and the settlement of the remaining portion of 2016 GE debt effected through GE Capital of $1.3 billion. See the Statement of Cash Flows section for additional information.
Investment securities decreased $5.6 billion, primarily due to maturities of liquidity portfolio investments at GE Capital. See Note 3 to the consolidated financial statements for additional information.
Inventories increased $1.5 billion (excluding the impact of the Baker Hughes transaction), primarily due to lower-than-anticipated sales volume, mainly in our Power segment and build for future demand in our Power, Aviation and Renewable Energy segments. See Note 5 to the consolidated financial statements for additional information.
Goodwill increased $2.4 billion (excluding the impact of the Baker Hughes transaction), primarily due to the effects of currency exchange of $2.3 billion, the acquisition of LM Wind Power in our Renewable Energy segment of $1.3 billion and the acquisition of ServiceMax in Digital of $0.7 billion, partially offset by the classification of the Industrial Solutions business in our Power segment as held for sale of $1.1 billion and an impairment in the Power Conversion business in our Power segment of $0.9 billion. See Note 8 to the consolidated financial statements for additional information.
Contract assets increased $4.6 billion. Revenues in excess of billings increased $2.6 billion and $1.3 billion for our long-term service and equipment agreements, respectively. The remaining increase in contract assets of $0.7 billion is primarily due an increase in deferred inventory costs and non-recurring engineering costs. See Note 9 to the consolidated financial statements for additional information.
Assets of discontinued operations decreased $8.0 billion, primarily due to the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.
The Baker Hughes transaction increased total liabilities by $6.8 billion, primarily due to borrowings of $3.4 billion, accounts payable of $1.1 billion, other GE current liabilities of $1.1 billion and non-current compensation and benefits of $0.8 billion. See Note 8 to the consolidated financial statements for additional information.
Borrowings decreased $3.2 billion (excluding the impact of the Baker Hughes transaction), primarily due to net repayment of debt at GE Capital of $17.6 billion, partially offset by the issuance of long-term debt at GE of $8.6 billion, primarily to fund acquisitions and the effects of currency exchange of $5.9 billion. See Note 10 to the consolidated financial statements for additional information.
Liabilities of discontinued operations decreased $3.2 billion, primarily due to the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.
Common stock held in treasury increased $2.2 billion, primarily due to treasury stock purchases of $3.7 billion (book basis), partially offset by treasury stock issuances of $1.6 billion.
Noncontrolling interests increased $16.3 billion, primarily due to the recognition of an approximate 37.5% noncontrolling interest attributable to BHGE's Class A shareholders in conjunction with the Baker Hughes transaction. See Note 8 to the consolidated financial statements for additional information.
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY AND BORROWINGS
We maintain a strong focus on liquidity. At both GE and GE Capital we manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.
Our liquidity and borrowing plans for GE and GE Capital are established within the context of our annual financial and strategic planning processes. At GE, our liquidity and funding plans take into account the liquidity necessary to fund our operating commitments, which include primarily purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also take into account our capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. At GE, we rely primarily on cash generated through our operating activities and any dividend payments from GE Capital. Cash generated from operating activities at GE can be subject to variability based on many factors, including seasonality and timing of billings on long-term contracts. GE has available a variety of liquidity management tools to fund its operations, including a commercial paper program, as well as bank operating lines and short-term intercompany loans from GE Capital which are repaid within the same quarter.
We maintain a detailed liquidity policy for GE Capital that defines GE Capital's liquidity risk tolerance under stress based on its liquidity sources, and a comprehensive framework for managing liquidity risk including metrics to identify and monitor liquidity risk and procedures to escalate and address potential issues.
Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2019. GE Capital mainly relies on excess cash positions, cash generated through dispositions, and the cash flow from our Verticals to fund our debt maturities, including the current portion of long-term debt ($15.6 billion at September 30, 2017), and our operating and interest costs. GE Capital's liquidity position is targeted to meet its obligations under both normal and stressed conditions. We expect to maintain an elevated liquidity position as we generate cash from asset sales, returning to more normalized levels in 2019. During this period we expect to continue to have excess interest costs as asset sales have outpaced our debt maturities. While we maintain elevated liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our excess interest costs.
As part of GE’s previously formulated and communicated plan to incur new long-term debt primarily to fund acquisitions and to refinance existing debt, we issued $15.9 billion of long-term debt in 2017. $8.6 billion equivalent of euro debt was issued in the external debt markets, and $7.3 billion was done through two transactions with GE Capital. The $8.6 billion equivalent consists of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037. In lieu of issuing the $7.3 billion of debt externally in the capital markets, GE effected the transactions through GE Capital because GE Capital is holding excess debt as a result of the GE Capital Exit Plan. The debt transactions with GE Capital were priced at markets terms with a weighted average interest rate of 3.5% and a weighted average term of 15 years. To effectuate these transactions, GE and GE Capital entered into intercompany transactions that had the effect of reducing the intercompany payables and receivables given the right of offset between GE and GE Capital by $7.3 billion, as shown in the table below.
In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital resulting in an intercompany receivable and payable between GE and GE Capital. On the GE Statement of Financial Position, assumed debt is presented within borrowings with an offsetting receivable from GE Capital and on the GE Capital Statement of Financial Position, this is reflected as an intercompany payable to GE within borrowings. As of September 30, 2017, the amount of assumed outstanding debt was $49.9 billion (see Note 10 to the consolidated financial statements for additional information). The following table illustrates total GE and GE Capital external debt and debt assumed by GE as of September 30, 2017.
|
| | | | | | | | | |
| September 30, 2017 (in billions) | GE |
| GE Capital |
| Consolidated(a) |
|
| | | | |
| External debt | $ | 83.8 |
| $ | 54.9 |
| $ | 136.4 |
|
| | | | |
| Debt assumed by GE from GE Capital | (49.9 | ) | 49.9 |
| — |
|
| Intercompany loans with right of offset | 7.3 |
| (7.3 | ) | — |
|
| Total intercompany payable (receivable) between GE and GE Capital | (42.6 | ) | 42.6 |
| — |
|
| | | | |
| Debt adjusted for assumed debt and intercompany loans | $ | 41.3 |
| $ | 97.5 |
| $ | 136.4 |
|
| |
(a) | Includes $2.4 billion elimination of other intercompany borrowings between GE and GE Capital.
|
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
LIQUIDITY SOURCES
GE cash and equivalents of $12.8 billion at September 30, 2017, comprising $8.0 billion at GE and $4.8 billion at BHGE. GE Capital maintained liquidity sources of $32.5 billion that consisted of cash and equivalents of $27.0 billion, high-quality investments of $5.0 billion and cash and equivalents of $0.5 billion classified as discontinued operations. Additionally, at September 30, 2017, GE has $20.0 billion of committed unused credit lines extended by 36 banks in a syndicated credit facility agreement, as well as $5.3 billion of committed operating lines extended by nine banks. GE Capital has the right to compel GE to borrow under these credit lines and transfer the proceeds as loans to GE Capital.
|
| | | | | | | | |
| CASH AND EQUIVALENTS |
| (In billions) | September 30, 2017 |
| | | September 30, 2017 |
|
| | | | | |
| GE(a) | $ | 12.8 |
| | U.S. | $ | 7.9 |
|
| GE Capital(b) | 27.0 |
| | Non-U.S.(c) | 31.9 |
|
| |
(a) | At September 30, 2017, $4.5 billion of GE cash and equivalents was held in countries with currency controls that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. These funds are available to fund operations and growth in these countries and we do not currently anticipate a need to transfer these funds to the U.S. Included in this amount was $1.2 billion of BHGE cash and equivalents, which is subject to similar restrictions. |
| |
(b) | At September 30, 2017, GE Capital cash and equivalents of about $0.6 billion were primarily in insurance entities and were subject to regulatory restrictions. |
| |
(c) | Of this amount at September 30, 2017, $4.6 billion is held outside of the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis through short-term loans, without being subject to U.S. tax. Under the Internal Revenue Code, these loans are permitted to be outstanding for 30 days or less and the total of all such loans is required to be outstanding for less than 60 days during the year. If we were to repatriate this cash, we would be subject to additional U.S. income taxes and foreign withholding taxes. |
|
| | | | | | | |
| COMMERCIAL PAPER |
| (In billions) | GE |
| | GE Capital |
|
| | | | |
| Average commercial paper borrowings during the third quarter of 2017 | $ | 14.8 |
| | $ | 5.0 |
|
| Maximum commercial paper borrowings outstanding during the third quarter of 2017 | $ | 19.5 |
| | $ | 5.1 |
|
| Ending commercial paper balance at September 30, 2017 | $ | 2.0 |
| | $ | 5.0 |
|
GE Capital commercial paper maturities have historically been funded principally through new commercial paper issuances and at GE are substantially repaid before quarter-end using indefinitely reinvested overseas cash, which as discussed above, is available for use in the U.S. on a short-term basis without being subject to U.S. tax.
We securitize financial assets as an alternative source of funding. At September 30, 2017, consolidated non-recourse securitization borrowings were $0.7 billion.
FOREIGN CURRENCY
As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies are euro, the pound sterling, the Brazilian real and the Chinese renminbi. The results of operating entities reported in currencies other than U.S. dollar are translated to the U.S. dollar at the applicable exchange rate for inclusion in the financial statements. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. The foreign currency effect arising from operating activities outside of the U.S., including the remeasurement of derivatives, can result in significant transactional foreign currency fluctuations at points in time, but will generally be offset as the underlying hedged item is recognized in earnings. The effects of foreign currency fluctuations, decreased net earnings by $0.1 billion for the nine months ended September 30, 2017.
See Notes 16 and 21 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
CREDIT RATINGS
We have relied, and may continue to rely, on the short-term and long-term debt capital markets to fund, among other things, a significant portion of our operations and significant acquisitions. The cost and availability of debt financing is influenced by our credit ratings.
On October 20, 2017, Standard and Poor’s Global Ratings (S&P) placed all of its ratings on GE, GE Capital, and their affiliates on CreditWatch, with negative implications. S&P stated it will be conducting a review of these ratings and expects to complete this review at approximately the same time GE announces its financial results for the fourth quarter 2017, if not earlier. On October 30, 2017, Fitch Ratings (Fitch) changed its rating outlook to Negative from Stable for GE, GE Capital, and their affiliates.
We are disclosing these updates and the ratings below to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see our Annual Report on Form 10-K for the year ended December 31, 2016 under “Risk Factors - Financial Risks - Funding access/costs - Failure to maintain our credit ratings, or conditions in the financial and credit markets, could adversely affect our access to capital markets, funding costs and related margins, liquidity and competitive position.”
GE’s and GE Capital’s ratings as of the date of this filing are set forth in the table below.
|
| | | |
| Moody's | S&P | Fitch |
| | | |
GE | | | |
Outlook | Stable | CreditWatch Negative | Negative
|
Short term | P-1 | A-1+ | F1+ |
Long term | A1 | AA- | AA- |
| | | |
GE Capital | | | |
Outlook | Stable | CreditWatch Negative
| Negative
|
Commercial paper | P-1 | A-1+ | F1+ |
Senior notes | A1 | AA- | AA- |
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
STATEMENT OF CASH FLOWS - NINE MONTHS ENDED SEPTEMBER 30, 2017 VERSUS 2016
CONSOLIDATED CASH FLOWS
We evaluate our cash flow performance by reviewing our industrial (non-GE Capital) businesses and GE Capital businesses separately. Cash from operating activities (CFOA) is the principal source of cash generation for our industrial businesses.
GE CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(in billions)
With respect to GE CFOA, we believe that it is useful to supplement our GE Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.
The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material and services. Dividends from GE Capital represent the distribution of a portion of GE Capital retained earnings, and are distinct from cash from continuing operations within the GE Capital businesses.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net income including those related to taxes, interest, pension, contract assets and gains (losses) on principal business dispositions. See Note 21 to the consolidated financial statements for further information.
See the Intercompany Transactions between GE and GE Capital section within the MD&A and Notes 4 and 19 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
|
| | | | | | | |
| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
2017 – 2016 COMMENTARY
GE cash from operating activities decreased $14.3 billion primarily due to the following:
GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared with $16.1 billion in 2016.
Cash generated from Industrial CFOA* amounted to an insignificant amount and $2.3 billion in 2017 and 2016, respectively, primarily due to the following:
Net income plus depreciation and deferred income taxes of $5.9 billion in 2017 compared with $9.1 billion in 2016. Net income included pre-tax gains of $1.9 billion from the sale of Water in 2017 and $3.1 billion from the sale of Appliances and $0.4 billion from the sale of GE Asset Management in 2016 which are not included in Industrial CFOA and are instead reflected as a component of total proceeds from principal business dispositions within cash flows from investing activities. Net income also included non-cash pre-tax impairments of $1.3 billion related to Power Conversion goodwill and a power plant asset in 2017 and current tax expense of $0.7 billion and $1.0 billion in 2017 and 2016, respectively.
A decrease in cash used for working capital of $0.1 billion in 2017 compared with 2016. This was primarily due to a reduction in inventory build of $1.1 billion, partially offset by an increase in cash used for accounts payable of $0.9 billion across all businesses.
An increase in contract assets of $4.0 billion in 2017 compared with $3.0 billion in 2016, primarily due to cumulative catch up adjustments driven by lower forecasted cost to complete the contracts as well as increased forecasted revenue on our long-term service agreements and the timing of revenue recognized relative to the timing of billings and collections on both our long-term service agreements and long-term equipment contracts.
GE Pension Plan contributions of $1.4 billion in 2017 compared with zero in 2016.
Lower taxes paid of $1.8 billion in 2017 compared with $2.3 billion in 2016.
See Note 21 to the consolidated financial statements for further information regarding cash sources and uses as well as non-cash adjustments to net income reported as All other operating activities.
GE cash used for investing activities increased $8.1 billion primarily due to the following:
Business acquisition activities of $6.1 billion, primarily driven by the Baker Hughes transaction for $3.4 billion ($7.5 billion cash consideration, less $4.1 billion of cash assumed), LM Wind Power for $1.6 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired) in 2017, compared with business acquisitions of $0.9 billion in 2016.
Business disposition proceeds of $2.9 billion, primarily driven by the sale of our Water business for $2.7 billion (net of cash transferred) in 2017, compared with proceeds of $5.3 billion, primarily driven by the sale of our Appliances business for $4.8 billion and the sale of GE Asset Management for $0.4 billion in 2016.
Net settlements of derivative hedges of $1.4 billion in 2017 compared with minimal net settlements in 2016.
GE cash from financing activities increased $23.9 billion primarily due to the following:
Net repurchases of GE treasury shares of $2.6 billion and $18.0 billion in 2017 and 2016, respectively.
A net increase in borrowings of $14.9 billion in 2017, mainly driven by the issuance of long-term debt of $8.6 billion, primarily to fund acquisitions, and 2017 debt effected through GE Capital of $7.3 billion, partially offset by the settlement of the remaining portion of 2016 debt effected through GE Capital of $1.3 billion, compared with a net increase in borrowings of $6.2 billion in 2016, primarily driven by debt effected through GE Capital of $5.0 billion.
*Non-GAAP FInancial Measure
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE CAPITAL CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
| | | | | | | |
| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
2017 – 2016 COMMENTARY-CONTINUING OPERATIONS:
GE Capital cash from operating activities-continuing operations increased $0.2 billion primarily due to the following:
Lower income tax payments of $0.2 billion and a general increase in cash generated from earnings of continuing operations.
These increases were partially offset by a net decrease in cash collateral received from counterparties on derivative contracts of $0.8 billion.
GE Capital cash from investing activities-continuing operations decreased $38.7 billion primarily due to the following:
Net proceeds from the sales of our discontinued operations of $1.0 billion in 2017 compared to $53.2 billion in 2016.
Maturities of $10.4 billion related to interest bearing deposits in 2016.
GE debt effected through GE Capital of $7.3 billion, partially offset by the settlement of the remaining portion of 2016 GE debt effected through GE Capital of $1.3 billion in 2017, compared to GE debt effected through GE Capital of $5.0 billion in 2016.
Net cash paid for derivative settlements of an insignificant amount in 2017 compared to net cash received from derivative settlements of $0.6 billion in 2016.
These decreases were partially offset by the following increases:
Investment securities of $18.7 billion related to maturities of $6.5 billion in 2017 compared to investments of $12.2 billion in 2016.
•Higher net collections of financing receivables of $3.1 billion in 2017.
A general reduction in funding related to discontinued operations.
GE Capital cash used for financing activities-continuing operations decreased $45.3 billion primarily due to the following:
Lower net repayments of borrowings of $17.6 billion in 2017 compared to $50.7 billion in 2016.
GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared to $16.1 billion in 2016.
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE CAPITAL DISCONTINUED OPERATIONS CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
| | | | | | | |
| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
2017 – 2016 COMMENTARY-DISCONTINUED OPERATIONS:
GE Capital cash used for operating activities-discontinued operations decreased $5.2 billion primarily due to the following:
Lower cash paid for income taxes in 2017.
GE Capital cash used for investing activities-discontinued operations decreased $9.7 billion primarily due to the following:
The sale of bank deposits of $16.5 billion resulting in net cash paid in conjunction with the sale of GE Capital Bank's U.S. online deposit platform during 2016.
This decrease was partially offset by the following increases:
Reduction in funding from continuing operations (primarily our treasury operations).
Sale of bank deposits for $0.5 billion resulting in net cash paid related to our Consumer platform during 2017.
GE Capital cash from financing activities-discontinued operations increased $1.6 billion primarily due to the following:
Debt issued of $1.8 billion in 2017 and $0.9 billion in 2016 by a discontinued business sold during the first quarter of 2017.
Lower repayment of borrowings and bank deposit activity of $0.6 billion in 2017.
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
We are repositioning GE to be the world’s best infrastructure and technology company, with a smaller financial services division. Our focus is on driving infrastructure leadership, investing in innovation and achieving a culture of simplification to better serve our customers around the world. Over the last decade, we have made significant strides in transforming our portfolio and focusing on our industrial leadership. We have grown our infrastructure platforms with major portfolio moves, investing in adjacencies and pursuing opportunities that are closely related to our core.
In parallel, we have made a concentrated effort to reduce the size of our GE Capital business and align its growth with Industrial earnings. As a result, GE Capital Verticals are now focused on investing financial, human and intellectual capital to promote growth for our industrial businesses and their customers. GE Capital accomplishes this in part through related party transactions with GE that are made on an arms-length basis and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital solutions to optimize GE cash management,
GE Capital enabled GE industrial orders, including related GE guarantees to GE Capital, and
Aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
Expenses related to parent-subsidiary pension plans,
Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Information technology (IT) and other services sold to GE Capital by GE
Settlements of tax liabilities, and
Various investments, loans and allocations of GE corporate overhead costs.
CASH FLOWS
GE Capital paid $4.0 billion and $16.1 billion of common dividends to GE in the nine months ended September 30, 2017 and 2016, respectively.
In order to manage credit exposure, GE sells current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale of receivables to GE Capital and other third parties. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE Capital are made on an arm’s length basis. The incremental amount of cash received from sales of receivables represents the cash generated or used in the period relating to this activity. The effect of cash generated in GE CFOA from current receivables sold to GE Capital, including current receivables subsequently sold to third parties, decreased GE’s CFOA by $2.3 billion and $0.2 billion in the nine months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, GE Capital had approximately $11.2 billion recorded on its balance sheet related to current receivables purchased from GE. Of these amounts, approximately half had been sold by GE to GE Capital with recourse (i.e., the GE business retains the risk of default). The evaluation of whether recourse transactions qualify for accounting derecognition is based, in part, upon the legal jurisdiction of the sale; as such, the majority of recourse transactions outside the U.S. qualify for sale treatment. Claims by GE Capital on receivables sold with recourse to GE have not been significant for the nine months ended September 30, 2017 and 2016.
In December 2016, GE Capital entered into a Receivables Facility with members of a bank group, designed to provide extra liquidity to GE. The Receivables Facility allows us to sell eligible current receivables on a non-recourse basis for cash and a deferred purchase price to members of the bank group. The purchase commitment of the bank group increased from $3.0 billion to $3.2 billion during the third quarter of 2017. See Note 4 to the consolidated financial statements for further information.
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| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
ENABLED ORDERS
Enabled orders represent the act of introducing, elevating and influencing customers and prospects that result in an industrial sale, potentially coupled with programmatic captive financing or driving incremental products or services across the GE Store. During the nine months ended September 30, 2017 and 2016, GE Capital enabled $8.8 billion and $8.2 billion of GE industrial orders, respectively. 2017 orders are primarily with our Power ($3.3 billion), Renewable Energy ($3.3 billion), Healthcare ($1.0 billion) and Oil & Gas ($0.7 billion) businesses.
AVIATION
Global passenger air travel continued to grow (measured in revenue passenger kilometers (RPK)*), oil prices remained stable, and traffic growth was broad-based across global regions. We expect this trend to drive continued demand in the installed base of commercial engines and increased focus on newer, more fuel-efficient aircraft. Industry-load factors for airlines remained above 80%*. Air freight volume decreased, particularly in international markets driven by economic conditions and slowing global trade. As it relates to the military environment, the U.S. Department of Defense has increased its budget and foreign governments have increased spending to upgrade or modernize their existing fleets, creating future opportunities.
We announced record commercial wins at the Paris Air Show, some of which, contributed to backlog growth of 17% from June 30, 2018. We continue to expect future orders as a result of these wins.
Total engineering, comprised of both company and customer funded spending, continues to grow in line with revenue growth. Company funded R&D spend has remained approximately flat as more costs have transitioned to external funding, primarily in our Military business.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
|
| | | | | | | | | |
| (In billions) | | | | June 30, 2019 | June 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 38.2 |
| $ | 36.1 |
|
| Services | | | | 205.7 |
| 171.9 |
|
| Total backlog | | | | $ | 243.9 |
| $ | 208.1 |
|
|
| | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Commercial Engines unit orders | 899 |
| 959 |
| | 1,698 |
| 2,134 |
|
| GEnx Engines(a) unit orders | 21 |
| 269 |
| | 51 |
| 293 |
|
| LEAP Engines(a) unit orders | 693 |
| 440 |
| | 1,329 |
| 1,434 |
|
| Military Engines unit orders | 53 |
| 277 |
| | 79 |
| 528 |
|
| | | | | | |
| Commercial Engines unit sales | 723 |
| 697 |
| | 1,474 |
| 1,348 |
|
| GEnx Engines(a) unit sales | 70 |
| 57 |
| | 148 |
| 107 |
|
| LEAP Engines(a) unit sales | 437 |
| 250 |
| | 861 |
| 436 |
|
| Military Engines unit sales | 143 |
| 204 |
| | 304 |
| 342 |
|
| Spares Rate(b) unit sales | $ | 27.0 |
| $ | 26.6 |
| | $ | 28.5 |
| $ | 25.9 |
|
(a) GEnx and LEAP engines are subsets of commercial engines (b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day. |
|
| | | | | | | | | | | | | |
| Equipment | $ | 3.5 |
| $ | 4.5 |
| | $ | 6.7 |
| $ | 7.7 |
|
| Services | 5.1 |
| 5.0 |
| | 10.6 |
| 9.9 |
|
| Total orders | $ | 8.6 |
| $ | 9.5 |
| | $ | 17.3 |
| $ | 17.6 |
|
|
| | | | | | | | | | | | | |
| Commercial Engines & Services | $ | 5.8 |
| $ | 5.5 |
| | $ | 11.8 |
| $ | 10.8 |
|
| Military | 1.0 |
| 1.1 |
| | 2.0 |
| 2.0 |
|
| Systems & Other | 1.1 |
| 0.9 |
| | 2.0 |
| 1.8 |
|
| Total sub-segment revenues | $ | 7.9 |
| $ | 7.5 |
| | $ | 15.8 |
| $ | 14.6 |
|
|
| | | | | | | | | | | | | |
| Equipment | $ | 3.0 |
| $ | 2.9 |
| | $ | 6.1 |
| $ | 5.4 |
|
| Services | 4.8 |
| 4.6 |
| | 9.7 |
| 9.2 |
|
| Total segment revenues | $ | 7.9 |
| $ | 7.5 |
| | $ | 15.8 |
| $ | 14.6 |
|
| | | | | | |
| Segment profit | $ | 1.4 |
| $ | 1.5 |
| | $ | 3.0 |
| $ | 3.1 |
|
| Segment profit margin | 17.6 | % | 19.6 | % | | 19.2 | % | 21.0 | % |
* Based on the latest available information from the International Air Transport Association
For the three months ended June 30, 2019, segment orders were down $1.0 billion (10%), segment revenues were up $0.4 billion (5%) and segment profit was down $0.1 billion (6%).
Orders decreased $0.8 billion, or 9%, organically primarily driven by four large commercial equipment orders received in second quarter 2018 that were not expected to repeat in the current year. Services orders increased attributable to increased materials orders.
Revenues increased $0.5 billion, or 6%, organically*. Equipment revenues increased primarily due to 26 more commercial units, including 187 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM product line and timing of military equipment deliveries. Services revenues also increased primarily due to increased price and a higher commercial spare parts shipment rate.
Profit decreased $0.1 billion, or 6%, organically*, mainly due to the continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments, partially offset by Services increased volume and increased price. Additionally, we recorded charges in the period related to the uncertainty of collection for a customer in a challenging financial position and additional costs for the GE9X engine certification.
For the six months ended June 30, 2019, segment orders were down $0.4 billion (2%), segment revenues were up $1.2 billion (8%) and segment profit was down 1%.
Backlog as of June 30, 2019 increased $35.8 billion, or 17%, from June 30, 2018 primarily due to an increase in long-term service agreements.
Orders decreased $0.4 billion, or 2%, organically primarily driven by four large commercial equipment orders received in second quarter 2018 that were not expected to repeat in the current year. Services orders increased attributable to increased materials orders.
Revenues increased $1.3 billion, or 9%, organically*. Equipment revenues increased primarily due to 126 more commercial units, including 425 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM product line and the timing of military equipment deliveries. Services revenues also increased primarily due to increased price and a higher commercial spare parts shipment rate.
Profit decreased 1% organically*, mainly due to the continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments, partially offset by Services increased volume and increased price. Additionally, we recorded charges in the period related to the uncertainty of collection for a customer in a challenging financial position and additional costs for the GE9X engine certification.
HEALTHCARE
The global healthcare market has continued to expand, driven by macro trends relating to growing and aging populations, increasing chronic and lifestyle-related disease, accelerating demand for healthcare in emerging markets, increasing demand for biologic drugs and insulin, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in more cost-effective manner has also driven growth across each of our global markets.
The Healthcare Systems market continues to expand at low single-digit rates. Growth in emerging markets is driven by long-term trends of expanding demand and access to healthcare. However, there is short-term variation driven by market-specific political and economic cycles. Developed markets are expected to remain steady in the near term driven by macro trends in the healthcare industry. The Life Sciences market, which encompasses Bioprocess and Pharmaceutical diagnostics, continues to be strong. The Bioprocess market is growing at a high single-digit rate, driven by growth in biologic drugs. The Pharmaceutical diagnostics business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow at low- to mid-single digit rates, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhancement of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians.
We continue focusing on creating new products and solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. We strive to introduce technology innovation that enable our customers to improve their patient and operational outcomes as they diagnose, treat and monitor an increasing number of medical conditions and patients. During the nineyear, we launched a number of new products, including CARESCAPE ONE, our next generation patient monitoring solution, and Revolution Apex, our first Artificial Intelligence-enabled premium CT. In addition, in our first collaboration product with Roche, we released the Navify Tumor Board 2.0, a solution that pools medical imaging and other patient data to give medical teams a more comprehensive view of each patient in a single place before they decide on treatment.
Effective January 1, 2019, the Healthcare Equipment Finance (HEF) financing business within our Capital segment was transferred to our Healthcare segment and is presented within Healthcare Systems.
*Non-GAAP Financial Measure
|
| | | | | | | | | |
| (In billions) | | | | June 30, 2019 | June 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 6.7 |
| $ | 6.2 |
|
| Services | | | | 11.5 |
| 11.4 |
|
| Total backlog | | | | $ | 18.2 |
| $ | 17.6 |
|
|
| | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Equipment | $ | 3.2 |
| $ | 3.1 |
| | $ | 6.1 |
| $ | 5.8 |
|
| Services | 2.0 |
| 2.2 |
| | 4.0 |
| 4.2 |
|
| Total orders | $ | 5.2 |
| $ | 5.3 |
| | $ | 10.1 |
| $ | 10.1 |
|
|
| | | | | | | | | | | | | |
| Healthcare Systems | $ | 3.6 |
| $ | 3.7 |
| | $ | 7.0 |
| $ | 7.3 |
|
| Life Sciences | 1.3 |
| 1.2 |
| | 2.6 |
| 2.4 |
|
| Total sub-segment revenues | $ | 4.9 |
| $ | 5.0 |
| | $ | 9.6 |
| $ | 9.7 |
|
|
| | | | | | | | | | | | | |
| Equipment | $ | 2.8 |
| $ | 2.8 |
| | $ | 5.5 |
| $ | 5.4 |
|
| Services | 2.1 |
| 2.2 |
| | 4.1 |
| 4.3 |
|
| Total segment revenues | $ | 4.9 |
| $ | 5.0 |
| | $ | 9.6 |
| $ | 9.7 |
|
| | | | | | |
| Segment profit | $ | 1.0 |
| $ | 0.9 |
| | $ | 1.7 |
| $ | 1.7 |
|
| Segment profit margin | 19.4 | % | 18.6 | % | | 18.1 | % | 17.1 | % |
For the three months ended SeptemberJune 30, 2019, segment orders were down $0.1 billion (2%), segment revenues were down 1% and segment profit was up 3%.
Orders increased $0.1 billion, or 3%, organically primarily attributable to continued strength in Life Sciences.
Revenues increased $0.2 billion, or 4%, organically* due to higher volume in Life Sciences, driven by BioPharma and Pharmaceutical Diagnostics, as well as higher volume in Healthcare Systems.
Profit increased $0.1 billion, or 9%, organically* primarily driven by volume growth and cost productivity due to cost reduction actions including increased digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and Healthcare Systems new product introductions.
For the six months ended June 30, 2019, segment orders were up $0.1 billion (1%), segment revenues were down $0.1 billion (1%) and segment profit was up $0.1 billion (5%).
Backlog as of June 30, 2019 increased $0.7 billion, or 4%, from June 30, 2018 primarily due to an increase in equipment backlog of $0.5 billion.
Orders increased $0.6 billion, or 6%, organically primarily attributable to growth in services orders in both Life Sciences and Healthcare Systems.
Revenues increased $0.4 billion, or 4%, organically* due to higher volume in Life Sciences, driven by BioPharma and Pharmaceutical Diagnostics, as well as higher volume in Healthcare Systems.
Profit increased $0.2 billion, or 11%, organically* primarily driven by volume growth and cost productivity due to cost reduction actions including increased digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and Healthcare Systems new product introductions.
*Non-GAAP Financial Measure
OIL & GAS
The oil and gas market is dependent on spending by our customers for oil and natural gas exploration, field development and production. This spending is driven by a number of factors, including our customers' forecasts of future energy supply and demand, their access to resources to develop and produce oil and natural gas, their ability to fund their capital programs, the impact of new
government regulations and most importantly, their expectations for oil and natural gas prices as a key driver of their cash flows.
Oil and gas markets remained dynamic in the second quarter of 2019. Commodity prices increased 9% as compared to the first quarter of 2019. However, Brent and WTI oil prices remained 7% and 12%, respectively, lower than the same quarter last year. Within the quarter, Brent oil prices fluctuated from a high of $74.94 to a low of $61.66, and WTI oil prices fluctuated from a high of $66.24 to a low of $51.13. In addition, rig counts in the quarter were up 3% versus the second quarter of 2018 driven by a 15% increase in the international rig count, partially offset with a 7% decline in the North American rig count. From an offshore and liquefied natural gas (LNG) perspective, in the first half of 2019, major equipment projects were awarded in the Oilfield Equipment and Turbomachinery & Process Solutions markets, in line with expectations. We remain focused on delivering innovative cost-efficient solutions that deliver step changes in operating and economic performance for our customers.
|
| | | | | | | | | |
| (In billions) | | | | June 30, 2019 | June 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 5.6 |
| $ | 5.3 |
|
| Services | | | | 15.6 |
| 16.0 |
|
| Total backlog | | | | $ | 21.1 |
| $ | 21.4 |
|
|
| | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (Dollars in billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Equipment | $ | 2.8 |
| $ | 2.5 |
| | $ | 5.1 |
| $ | 4.5 |
|
| Services | 3.7 |
| 3.5 |
| | 7.2 |
| 6.8 |
|
| Total orders | $ | 6.5 |
| $ | 6.0 |
| | $ | 12.2 |
| $ | 11.3 |
|
|
| | | | | | | | | | | | | |
| Turbomachinery & Process Solutions (TPS) | $ | 1.4 |
| $ | 1.4 |
| | $ | 2.7 |
| $ | 2.8 |
|
| Oilfield Services (OFS) | 3.3 |
| 2.9 |
| | 6.2 |
| 5.6 |
|
| Oilfield Equipment (OFE) | 0.7 |
| 0.6 |
| | 1.4 |
| 1.3 |
|
| Digital Solutions | 0.6 |
| 0.7 |
| | 1.2 |
| 1.3 |
|
| Total sub-segment revenues | $ | 6.0 |
| $ | 5.6 |
| | $ | 11.6 |
| $ | 10.9 |
|
|
| | | | | | | | | | | | | |
| Equipment | $ | 2.4 |
| $ | 2.2 |
| | $ | 4.6 |
| $ | 4.4 |
|
| Services | 3.6 |
| 3.4 |
| | 6.9 |
| 6.5 |
|
| Total segment revenues | $ | 6.0 |
| $ | 5.6 |
| | $ | 11.6 |
| $ | 10.9 |
|
| | | | | | |
| Segment profit | $ | 0.1 |
| $ | 0.1 |
| | $ | 0.2 |
| $ | (0.1 | ) |
| Segment profit margin | 1.4 | % | 1.3 | % | | 2.1 | % | (0.6 | )% |
For the three months ended June 30, 2019, segment orders were up $0.5 billion (8%), segment revenues were up $0.4 billion (7%) and segment profit was up 12%.
Orders increased $0.7 billion, or 11%, organically primarily driven by an increase in equipment orders resulting from major contract awards in TPS and increased OFS activity.
Revenues increased $0.6 billion, or 11%, organically* primarily resulting from higher OFS activity of $0.4 billion in international and North America markets and higher OFE activity of $0.1 billion driven by higher volume in subsea production systems and services.
Profit increased 5% organically* primarily driven by volume growth and improved cost productivity, partially offset by a loss related to the expected sale of a non-core business within TPS.
For the six months ended June 30, 2019, segment orders were up $0.9 billion (8%), segment revenues were up $0.6 billion (6%) and segment profit was up $0.3 billion.
Backlog as of June 30, 2019 decreased $0.3 billion, or 1%, from June 30, 2018 primarily due to a decrease in services backlog of $0.5 billion, partially offset by an increase in equipment backlog of $0.2 billion.
Orders increased $1.3 billion, or 11%, organically primarily driven by an increase in equipment orders resulting from major contract awards in TPS and increased OFS activity.
Revenues increased $1.0 billion, or 9%, organically* primarily resulting from higher OFS activity of $0.7 billion in international and North America markets and higher OFE activity of $0.2 billion driven by higher volume in subsea production systems and services.
Profit increased $0.1 billion, or 18%, organically* primarily driven by volume growth and improved cost productivity, partially offset by a loss related to the expected sale of a non-core business within TPS.
*Non-GAAP Financial Measure
CAPITAL
In 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s Energy Financial Services (EFS) and Industrial Finance (IF) businesses (GE Capital strategic shift). With respect to this announcement, we completed $15 billion of asset reductions during 2018 and $1.6 billion of asset reductions during the first half of 2019, including approximately $0.5 billion during the second quarter of 2019. Also in the second quarter of 2019, we classified $3.6 billion of GE Capital Aviation Services (GECAS) financing receivables as held for sale. See Note 5 to the consolidated financial statements for further information. We expect to execute total asset reductions of approximately $10 billion by the end of 2019, primarily comprising receivables held by GECAS, Working Capital Solutions (WCS), supply chain finance program and EFS assets. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements.
In the second quarter of 2019, GE Capital received a $1.5 billion capital contribution from GE and expects to receive approximately $2.5 billion of additional capital contributions from GE by the end of 2019.
GE Capital made capital contributions to its insurance subsidiaries of $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. See the Capital Resources and Liquidity section for further information.
We annually perform premium deficiency testing across our run-off insurance portfolio and expect this year’s testing to be completed in the third quarter of 2019. We have observed a decline in market interest rates this year, which we expect will result in a lower discount rate and, holding all other assumptions constant, an increase in our future policy benefit reserves on a GAAP basis. In addition, it may also result in a lower discount rate under the statutory accounting rules that are relevant for determining the amount of capital to be contributed to our insurance subsidiaries.
As previously disclosed within the GAAP Reserve Sensitivities included in “Other Items” in our Annual Report on Form 10-K for the year ended December 31, 2018, a 25 basis point reduction in our discount rate, holding all other assumptions within our 2018 premium deficiency test constant, could increase our future policy benefit reserves on a GAAP basis by up to $1.0 billion (pre-tax).
Our discount rate is based upon the actual yields on our investment security portfolio and our forecasted reinvestment rate, which comprises the future rates at which we expect to invest proceeds from investment maturities and projected future capital contributions. While the movement in market rates impacts the reinvestment rate, it does not typically impact the actual yield on our existing investments. Furthermore, our assumed reinvestment rate on future fixed income investments is based both on expected long-term average rates and current market interest rates.
For the reasons described above, a decline in market interest rates would not result in an equivalent decline in our discount rate assumption. Since our 2018 premium deficiency test, market interest rates have declined by approximately 75 basis points. This will impact a component of our discount rate only, and holding all other assumptions constant, would have increased our future policy benefit reserves on a GAAP basis by less than $1.0 billion (pre-tax).
There are many other assumptions that we are in the process of updating as part of our annual premium deficiency test that will be completed in the third quarter of 2019.
Effective January 1, 2019, the HEF business within our Capital segment was transferred to our Healthcare segment.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
|
| | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GECAS | $ | 1.2 |
| $ | 1.2 |
| | $ | 2.5 |
| $ | 2.4 |
|
| EFS | 0.1 |
| (0.1 | ) | | 0.1 |
| (0.1 | ) |
| IF and WCS | 0.2 |
| 0.4 |
| | 0.5 |
| 0.7 |
|
| Insurance | 0.7 |
| 0.7 |
| | 1.4 |
| 1.5 |
|
| Other continuing operations | — |
| 0.1 |
| | — |
| 0.1 |
|
| Total sub-segment revenues | $ | 2.3 |
| $ | 2.4 |
| | $ | 4.5 |
| $ | 4.6 |
|
|
| | | | | | | | | | | | | |
| GECAS | $ | 0.3 |
| $ | 0.3 |
| | $ | 0.6 |
| $ | 0.6 |
|
| EFS | 0.1 |
| — |
| | 0.1 |
| — |
|
| IF and WCS | 0.1 |
| 0.1 |
| | 0.1 |
| 0.2 |
|
| Insurance | — |
| — |
| | — |
| — |
|
| Other continuing operations(a) | (0.5 | ) | (0.6 | ) | | (0.8 | ) | (1.1 | ) |
| Total sub-segment profit | $ | (0.1 | ) | $ | (0.2 | ) | | $ | — |
| $ | (0.4 | ) |
|
| | |
| June 30, 2019 | December 31, 2018 |
| GE Capital debt to equity ratio | 4.5:1 | 5.7:1 |
(a) Other continuing operations is primarily driven by excess interest costs from debt previously allocated to assets that have been sold as part of the GE Capital Exit Plan (our plan announced in 2015 to reduce the size of our financial services businesses), preferred stock dividend costs and interest costs not allocated to GE Capital segments, which are driven by GE Capital’s interest allocation process. Interest costs are allocated to GE Capital segments based on the tenor of their assets using the market rate at the time of origination. Debt on the GE Capital balance sheet was issued based on the profile of our balance sheet prior to the decision in 2015 to strategically reduce the size of GE Capital. It included long-dated maturities that are no longer consistent with a much smaller business. As a result, actual interest expense is higher than interest expense allocated to the remaining GE Capital segments. Preferred stock dividend costs will become a GE obligation in January 2021 as the internal preferred stock issued by GE Capital to GE under which GE Capital pays preferred stock dividends to GE to fund GE preferred stock dividends will convert into common equity. See Note 15 to the consolidated financial statements for further information on GE and GE Capital preferred stock. The excess interest costs from debt previously allocated to assets that have been sold are expected to run off by 2020. In addition, we anticipate unallocated interest costs to decline gradually as debt matures and/or is refinanced.
For the three months ended June 30, 2019, Capital revenues decreased $0.1 billion, or 4%, primarily due to volume declines, partially offset by higher gains and lower impairments.
Capital losses decreased $0.1 billion, or 57%, primarily due to higher gains, lower impairments, higher tax benefits and lower excess interest costs, partially offset by volume declines. Gains were $0.2 billion and $0.1 billion in the second quarters of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018 and the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.
For the six months ended June 30, 2019, Capital revenues decreased $0.1 billion, or 1%, primarily due to volume declines, partially offset by higher gains and lower impairments.
Capital losses decreased $0.5 billion primarily due to higher gains, lower excess interest costs, tax law changes and lower impairments. Gains were $0.4 billion and $0.2 billion in the first half of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.2 billion and $0.1 billion in the first half of 2019 and 2018 and the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.
CORPORATE ITEMS AND ELIMINATIONS |
| | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Revenues | | | | | |
| Eliminations and other | $ | (561 | ) | $ | (462 | ) | | $ | (910 | ) | $ | (833 | ) |
| Total Corporate Items and Eliminations | $ | (561 | ) | $ | (462 | ) | | $ | (910 | ) | $ | (833 | ) |
| | | | | | |
| Operating profit (cost) | | | | | |
| Gains (losses) on disposals and held for sale businesses | $ | (116 | ) | $ | 329 |
| | $ | 250 |
| $ | 263 |
|
| Restructuring and other charges(a) | (328 | ) | (462 | ) | | (567 | ) | (800 | ) |
| Unrealized gains (losses) | (51 | ) | 266 |
| | (38 | ) | 266 |
|
| Goodwill impairment (Note 8) | (744 | ) | — |
| | (744 | ) | — |
|
| Adjusted total corporate costs (operating) (Non-GAAP) | (462 | ) | (356 | ) | | (809 | ) | (614 | ) |
| Total Corporate Items and Eliminations (GAAP) | $ | (1,700 | ) | $ | (222 | ) | | $ | (1,909 | ) | $ | (886 | ) |
(a) Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.
|
| | |
| MD&A | CORPORATE ITEMS AND ELIMINATIONS |
Unrealized gains (losses) are related to our retained Wabtec equity investment for the three and six months ended June 30, 2019, and to our Pivotal software equity investment for the three months ended June 30, 2018.
For the three months ended June 30, 2019, revenues decreased by $0.1 billion, primarily as a result of a $0.3 billion decrease in revenue related to our Lighting business, partially offset by a $0.1 billion increase in inter-segment eliminations.
Operating costs increased $1.5 billion, primarily as a result of a goodwill impairment charge of $0.7 billion related to our Renewable Energy segment in the second quarter of 2019, and $0.4 billion of higher net losses from disposed or held for sale businesses. These higher net losses primarily relate to the nonrecurrence of a $0.3 billion gain from the sale of our Industrial Solutions business to ABB in the second quarter of 2018 and a $0.1 billion realized loss on our Wabtec investment in the second quarter of 2019. Operating costs also increased as a result of $0.3 billion of higher unrealized losses due to the nonrecurrence of a $0.3 billion unrealized gain related to our equity investment in Pivotal Software in the second quarter of 2018, and a $0.1 billion unrealized loss related to our equity investment in Wabtec in the second quarter of 2019. These increases were partially offset by $0.1 billion of lower restructuring and other charges. In addition, adjusted total corporate costs* increased $0.1 billion due to an increase of $0.1 billion in costs associated with existing environmental, health and safety matters in the second quarter of 2019, and the nonrecurrence of gains associated with the sale of intangible assets of $0.1 billion in the second quarter of 2018.
For the six months ended June 30, 2019, revenues decreased by $0.1 billion, primarily as a result of a $0.4 billion decrease in revenue related to our Lighting business partly offset by a $0.2 billion increase in inter-segment eliminations.
Operating costs increased $1.0 billion, primarily as a result of a goodwill impairment charge of $0.7 billion related to our Renewable Energy segment in the second quarter of 2019, higher unrealized losses, primarily due to the nonrecurrence of a $0.3 billion unrealized gain related to our equity investment in Pivotal Software in the second quarter of 2018. These increases were partially offset by $0.2 billion of lower restructuring and other charges primarily related to our Power segment. In addition, adjusted total corporate costs* increased $0.2 billion due to a $0.1 billion increase in costs associated with existing environmental, health and safety matters in the second quarter of 2019, and the nonrecurrence of gains associated with the sale of intangible assets of $0.1 billion in the six months ended June 30, 2018.
Excluding gains (losses) on disposals and held for sale businesses, restructuring and other charges, unrealized gains (losses) and goodwill impairment in the above table, adjusted total corporate costs (operating)* were $462 million and $809 million for the three and six months ended June 30, 2019, respectively, and $356 million and $614 million for the three and six months ended June 30, 2018, respectively. We believe that adjusting corporate costs* to exclude the effects of items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
RESTRUCTURING.Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of acquisitions, and certain other asset write-downs such as those associated with product line exits. We continue to closely monitor the economic environment and expect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
|
| | | | | | | | | | | | | |
| RESTRUCTURING & OTHER CHARGES | Three months ended June 30 | | Six months ended June 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 | 2018 |
| | | | | | |
| Workforce reductions | $ | 0.2 |
| $ | 0.2 |
| | $ | 0.4 |
| $ | 0.4 |
|
| Plant closures & associated costs and other asset write-downs | 0.1 |
| 0.3 |
| | $ | 0.2 |
| 0.5 |
|
| Acquisition/disposition net charges | 0.1 |
| 0.2 |
| | $ | 0.2 |
| 0.4 |
|
| Total (including Oil & Gas) | $ | 0.4 |
| $ | 0.7 |
| | $ | 0.8 |
| $ | 1.3 |
|
For the three months ended June 30, 2019, restructuring and other charges were $0.4 billion of which approximately $0.1 billion was reported in cost of products/services and $0.3 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate, Power and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.4 billion for the three months ended June 30, 2019. Of the total $0.4 billion restructuring and other charges, $0.1 billion was recorded in the Oil & Gas segment, which amounted to $0.1 billion net of noncontrolling interest.
For the three months ended June 30, 2018, restructuring and other charges were $0.7 billion of which approximately $0.2 billion was reported in cost of products/services, $0.4 billion was reported in SG&A. These activities were primarily at Corporate, Oil & Gas, and Power. Cash expenditures for restructuring and other charges were approximately $0.4 billion for the three months ended June 30, 2018. Of the total $0.7 billion restructuring and other charges, $0.2 billion was recorded in the Oil & Gas segment, which amounted to $0.1 billion net of noncontrolling interest.
*Non-GAAP Financial Measure
|
| | |
| MD&A | CORPORATE ITEMS AND ELIMINATIONS |
For the six months ended June 30, 2019, restructuring and other charges were $0.8 billion of which approximately $0.2 billion was reported in cost of products/services and $0.5 billion was reported in SG&A. These activities were primarily at Corporate, Power and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.8 billion for the six months ended June 30, 2019. Of the total $0.8 billion restructuring and other charges, $0.2 billion was recorded in the Oil & Gas segment, which amounted to $0.1 billion net of noncontrolling interest.
For the six months ended June 30, 2018, restructuring and other charges were $1.3 billion of which approximately $0.5 billion was reported in cost of products/services, $0.7 billion was reported in SG&A. These activities were primarily at Oil & Gas, Corporate and Power. Cash expenditures for restructuring and other charges were approximately $0.8 billion for the six months ended June 30, 2018. Of the total $1.3 billion restructuring and other charges, $0.5 billion was recorded in the Oil & Gas segment, which amounted to $0.3 billion net of noncontrolling interest.
COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS.As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. These costs relate primarily to restructuring and acquisition and disposition activities.
For the three months ended June 30, 2019, costs not included in segment results were $0.9 billion, of which $0.8 billion was related to the Renewable Energy segment primarily as a result of a goodwill impairment charge of $0.7 billion and $0.1 billion was related to the Power segment. There were no gains or losses not included in the segment results for the three months ended June 30, 2019. In addition to the segment results, there was $0.1 billion of costs and $0.1 billion of losses related to Corporate.
For the three months ended June 30, 2018, costs not included in segment results were $0.3 billion, of which $0.1 billion was related to the Power segment and $0.1 billion was related to the Renewable Energy segment. Gains not included in segment results were $0.3 billion, of which $0.3 billion was related to the Power segment. In addition to the segment results, there was $0.2 billion of costs and $0.3 billion of gains related to Corporate.
For the six months ended June 30, 2019, costs not included in segment results were $1.0 billion, of which $0.8 billion was related to the Renewable Energy segment primarily as a result of a goodwill impairment charge of $0.7 billion, $0.1 billion was related to the Power segment and $0.1 billion was related to the Healthcare segment. There were no gains or losses not included in the segment results for the six months ended June 30, 2019. In addition to the segment results, there was $0.3 billion of costs and $0.2 billion of gains related to Corporate.
For the six months ended June 30, 2018, costs not included in segment results were $0.5 billion, of which $0.3 billion was related to the Power segment, $0.1 billion was related to the Renewable Energy segment, and $0.1 billion was related to the Healthcare segment. Gains not included in segment results were $0.3 billion, of which $0.3 billion was related to the Power segment. In addition to segment results, there was $0.3 billion of costs and $0.2 billion of gains related to Corporate.
OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES.Consolidated interest and other financial charges amounted to $1.0 billion and $1.3 billion for the three months ended June 30, 2019 and 2018, respectively, and $2.1 billion and $2.6 billion for the six months ended
June 30, 2019 and 2018, respectively.
GE interest and other financial charges (which excludes interest on assumed debt) amounted to $0.4 billion and $0.7 billion for the three months ended June 30, 2019 and 2018, respectively and $1.0 billion and $1.3 billion for the six months ended June 30, 2019 and 2018, respectively. The reductions were driven primarily by the reversal of $0.1 billion of accrued interest on tax liabilities due to the completion of the 2012-2013 Internal Revenue Service (IRS) audit in June 2019, as well as lower expense related to lower sales of GE long-term receivables to GE Capital. The primary components of GE interest and other financial charges are interest on short- and long-term borrowings and financing costs on sales of receivables. Total GE interest and other financial charges of $0.2 billion and $0.4 billion was recorded at Corporate and $0.3 billion and $0.3 billion was recorded by GE segments for the three months ended June 30, 2019 and 2018, respectively, and $0.5 billion and $0.7 billion was recorded at Corporate and $0.5 billion and $0.6 billion was recorded by GE segments for the six months ended June 30, 2019 and 2018, respectively.
GE Capital interest and other financial charges (which includes interest on debt assumed by GE) was $0.6 billion and $0.8 billion for the three months ended June 30, 2019 and 2018, respectively, and $1.3 billion and $1.6 billion for the six months ended June 30, 2019 and 2018, respectively. The decrease in 2019 compared to 2018 was primarily due to lower average borrowings balances due to maturities and lower net interest on assumed debt resulting from an increase in intercompany loans to GE which bear the right of offset (see the Borrowings section of Capital Resources and Liquidity for an explanation of assumed debt and right-of-offset loans), partially offset by an increase in average interest rates due to changes in market rates.
CONSOLIDATED INCOME TAXES.Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in over 180 countries and the majority of our revenue is earned outside the U.S. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, like research and development; and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.
|
| | |
| MD&A | OTHER CONSOLIDATED INFORMATION |
See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
For the three months ended June 30, 2019, the consolidated income tax rate was 54.0% compared to 40.8% for the three months ended June 30, 2018. The positive rate for 2019 reflects a tax benefit on a pre-tax loss.
In June 2019, the IRS completed the audit of our consolidated U.S. income tax returns for 2012-2013, which resulted in a decrease in our balance of unrecognized tax benefits (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of $0.4 billion plus an additional net interest benefit of $0.1 billion. Of these amounts, GE recorded $0.4 billion of tax benefits and $0.1 billion of net interest benefits, and GE Capital recorded insignificant amounts of tax and net interest benefits. These benefits resulted in an impact to continuing earnings per share of $0.06. GE Capital also recorded a non-cash benefit in discontinued operations of $0.3 billion of tax benefits and an insignificant amount of net interest benefits. These benefits resulted in an impact to discontinued earnings per share of $0.04. See Notes 2 and 14 of the consolidated financial statements for further information.
The consolidated provision (benefit) for income taxes was $(0.1) billion in the second quarter of 2019 and $0.5 billion in the second quarter of 2018. The decrease in tax provision was primarily due to the completion of the above-referenced IRS audit of the 2012-2013 consolidated U.S. income tax returns, lower expense from global activities including the nonrecurrence of a 2018 charge associated with a change in deferred taxes resulting from the decision to execute an internal restructuring to separate the Healthcare business, the nonrecurrence of second quarter 2018 dispositions taxed above the statutory rate and the decrease in pre-tax income. This was partially offset by a lower benefit to adjust the year-to-date tax rate to be in-line with the lower projected full-year rate.
The consolidated tax provision (benefit) includes $(0.1) billion and $0.5 billion for GE (excluding GE Capital) for the second quarters of 2019 and 2018, respectively.
For the six months ended June 30, 2019, the consolidated income tax rate was 7.4% compared to 30.0% for the six months ended June 30, 2018.
The consolidated provision (benefit) for income taxes was $0.1 billion for the six months of 2019 and $0.5 billion for the six months of 2018. The decrease in tax provision was primarily due to the completion of the above-referenced IRS audit of the 2012-2013 consolidated U.S. income tax returns, lower expense from global activities including the nonrecurrence of a 2018 charge associated with a change in deferred taxes resulting from the decision to execute an internal restructuring to separate the Healthcare business and the nonrecurrence of 2018 dispositions taxed above the statutory rate. This was partially offset by the lower benefit to adjust the year-to-date tax rate to be in-line with the lower projected full-year rate.
The consolidated tax provision (benefit) includes $0.2 billion and $0.6 billion for GE (excluding GE Capital) for the six months of 2019 and 2018, respectively.
DISCONTINUED OPERATIONS.Discontinued operations primarily comprise our Transportation segment, residual assets and liabilities related to our exited U.S. mortgage business (WMC), as discussed in Legal Proceedings and Notes 2 and 19 to the consolidated financial statements, our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses.
In the first quarter of 2019, as a result of the spin-off and subsequent merger of our Transportation business with Wabtec, we recognized a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. See Notes 2 and 3 to the consolidated financial statements for further information.
In June 2019, GE Capital recorded $0.3 billion of tax benefits and an insignificant amount of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See the Consolidated Income Tax section above.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion.
The mortgage portfolio in Poland comprises floating rate residential mortgages, of which approximately 84% are denominated in Swiss Francs, as opposed to the local currency in Poland, which comprises the remaining 16%. At June 30, 2019, the portfolio had a carrying value of $2.6 billion with a 1.4% 90-day delinquency rate and an average loan to value ratio of 70%. The portfolio is recorded at fair value less cost to sell and includes a $0.3 billion impairment, which reflects our best estimate of the effects of potential legislative relief to borrowers and of ongoing litigation in Poland related to foreign currency-denominated mortgages. Future adverse developments in the potential for legislative relief or in litigation involving our subsidiary or other banks with similar portfolios could result in further impairment or other losses related to these loans in future reporting periods.
|
| | |
| MD&A | OTHER CONSOLIDATED INFORMATION |
|
| | | | | | | | | | | | | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | Three months ended June 30 |
| Six months ended June 30 |
| (In billions) | 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
| Earnings (loss) of discontinued operations, net of taxes | $ | 231 |
| $ | (63 | ) |
| $ | 270 |
| $ | (1,507 | ) |
| Gain (loss) on disposal, net of taxes | — |
| — |
|
| 2,553 |
| 3 |
|
| Earnings (loss) from discontinued operations, net of taxes | $ | 231 |
| $ | (63 | ) |
| $ | 2,823 |
| $ | (1,504 | ) |
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY.We intend to maintain a disciplined financial policy, targeting a sustainable credit rating in the Single-A range with a GE industrial net debt*/EBITDA ratio of less than 2.5x and a dividend in line with our peers over time, as well as a less than 4-to-1 debt-to-equity ratio for GE Capital. We remain on track to deliver against these leverage goals. GE industrial net debt* was $54.4 billion and $55.3 billion at June 30, 2019 and December 31, 2018, respectively.
GE realized $1.8 billion of proceeds in the second quarter of 2019 from the monetization of a portion of our stake in Wabtec, in addition to total proceeds of $3.3 billion realized in the first quarter of 2019, comprising $2.8 billion from the completion of the merger of our Transportation business with Wabtec and $0.4 billion of proceeds from the sale of our Digital ServiceMax business. We also expect to realize future proceeds from the sale of our BioPharma business within our Healthcare segment and the monetization of our remaining stakes in BHGE and Wabtec. At June 30, 2019, GE total cash, cash equivalents and restricted cash was $20.1 billion.
GE Capital generated approximately $1.6 billion from asset reductions for the six months ended June 30, 2019, as part of our plan to execute total asset reductions of approximately $10 billion in 2019 to meet our overall $25 billion target. In addition, in the second quarter of 2019, GE Capital received a $1.5 billion capital contribution from GE, and expects to receive approximately $2.5 billion of additional capital contributions from GE by the end of 2019. At June 30, 2019, GE Capital total cash, cash equivalents and restricted cash was $11.9 billion (excluding $0.6 billion classified within discontinued operations).
We maintain a strong focus on liquidity, and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At both GE and GE Capital, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.
Our liquidity plans are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also consider our capital allocation and growth objectives, including funding debt maturities and insurance obligations, investing in research and development, and dividend payments.
Following is an overview of the primary sources of liquidity for GE and GE Capital as well as significant transactions that affect their respective liquidity positions. See the Liquidity Sources section for details of GE and GE Capital liquidity and the Statement of Cash Flows section for information regarding GE and GE Capital cash flow results.
GE LIQUIDITY.GE's primary sources of liquidity consist of cash and cash equivalents, free cash flows from our operating businesses, monetization of receivables, proceeds from announced dispositions, and short-term borrowing facilities (described below). Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions.
As mentioned above, GE has available a variety of short-term borrowing facilities to fund its operations, including a commercial paper program, revolving credit facilities and short-term intercompany loans from GE Capital, which are generally repaid within the same quarter. See the Liquidity Sources section for details of our credit facilities and borrowing activity in our external short-term borrowing facilities.
GE CAPITAL LIQUIDITY.GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from asset reductions and cash flows from our businesses. Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2021. We expect to maintain an adequate liquidity position to fund our insurance obligations and debt maturities primarily as a result of cash generated from asset reductions and dispositions, as well as from repayments of intercompany loans and capital contributions from GE. Additionally, while we maintain adequate liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our interest expense. See the Segment Operations - Capital section for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.
GE Capital provided capital contributions to its insurance subsidiaries of approximately $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. These contributions are subject to ongoing monitoring by Kansas Insurance Department (KID), and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements. Going forward, we anticipate funding any capital needs for insurance through a combination of GE Capital asset sales, GE Capital liquidity, GE Capital future earnings and capital contributions from GE.
*Non-GAAP Financial Measure
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
In January 2019, we announced an agreement in principle with the United States to settle the DOJ investigation regarding potential violations of FIRREA by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion, on behalf of itself and WMC. GE Capital concurrently paid $1.5 billion to GE to indemnify GE for this payment pursuant to the terms of an agreement between GE and GE Capital.
LIQUIDITY SOURCES.Consolidated cash, cash equivalents and restricted cash totaled $32.0 billion at June 30, 2019, comprising $13.1 billion and $18.8 billion held in the U.S. and outside the U.S., respectively.Cash held in non-US entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, if there is a change in reinvestment, we would expect to be able to repatriate that cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.
GE cash, cash equivalents and restricted cash totaled $20.1 billion at June 30, 2019, including $3.1 billion in BHGE, $2.7 billion of cash held in countries with currency control restrictions, and $0.6 billion of restricted use cash. Excluding these items, total GE cash and cash equivalents was $13.6 billion at June 30, 2019. BHGE cash can only be accessed by GE through the declaration of a dividend by BHGE's Board of Directors, our pro-rata share of BHGE stock buybacks, and settlements of any intercompany positions. Cash held in countries with currency control restrictions represents cash held in countries which may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs, but which is available to fund operations and growth in these countries. Restricted use cash represents cash that is not available to fund operations, and primarily comprises collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
GE Capital cash, cash equivalents and restricted cash totaled $11.9 billion at June 30, 2019 (excluding $0.6 billion classified within discontinued operations), including $0.9 billion which was subject to regulatory restrictions, primarily in insurance entities.
GE has in place committed credit lines which it may use from time to time to meet its short-term liquidity needs. The following table provides a summary of the committed and available credit lines at June 30, 2019.
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GE COMMITTED AND AVAILABLE CREDIT FACILITIES (In billions) | June 30, 2019 | December 31, 2018 |
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| Unused back-up revolving credit facility | $ | 20.0 |
| $ | 20.0 |
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| Revolving credit facilities (exceeding one year) | 18.9 |
| 23.9 |
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| Bilateral revolving credit facilities (364-day) | 3.1 |
| 3.6 |
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| Total committed credit facilities | $ | 42.0 |
| $ | 47.5 |
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| Less offset provisions | 6.7 |
| 6.7 |
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| Total net available credit facilities | $ | 35.3 |
| $ | 40.8 |
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Included in our credit facilities is an unused $20.0 billion back-up syndicated credit facility extended by 36 banks, expiring in 2021, and an unused $14.8 billion syndicated credit facility extended by six banks, expiring in 2020. The commitments under these syndicated credit facilities may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both facilities.
In 2019 and 2020, the amount committed and available under the syndicated credit facility expiring in 2020 will periodically be reduced by the greater of specified contractual commitment reductions or calculated commitment reductions, which is determined based on any potential specified issuances of equity and incurrences of incremental debt by GE or its subsidiaries, as well as a portion of industrial business disposition proceeds. In the first quarter of 2019, the amount committed and available under this facility was reduced by the calculated commitment reduction of $5.0 billion to $14.8 billion. Remaining contractual commitment reductions are $7.4 billion in the fourth quarter of 2019, $2.5 billion in the second quarter of 2020, and $5.0 billion in the fourth quarter of 2020. On March 12, 2019, GE entered into an amendment to the facility, which provides for a deferral of the timing of the fourth quarter 2019 and second quarter 2020 contractual commitment reductions if the BioPharma transaction does not close prior to those reduction dates. The $20 billion syndicated back-up revolving credit facility expiring in 2021 does not contain any contractual commitment reduction features.
Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under all credit facilities except the syndicated credit facility expiring in 2020, and transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital has not exercised this right.
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The following table provides a summary of the activity in the primary external sources of short-term liquidity for GE in the second quarter of 2019 and 2018.
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| (In billions) | GE Commercial Paper | Revolving Credit Facilities | Total |
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| 2019 | | | |
| Average borrowings during the second quarter | $ | 3.0 |
| $ | 1.3 |
| $ | 4.3 |
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| Maximum borrowings outstanding during the second quarter | 3.1 |
| 1.8 |
| 4.8 |
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| Ending balance at June 30 | 3.0 |
| — |
| 3.0 |
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| 2018 | | | |
| Average borrowings during the second quarter | $ | 13.4 |
| $ | 1.6 |
| $ | 15.0 |
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| Maximum borrowings outstanding during the second quarter | 15.8 |
| 2.0 |
| 17.3 |
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| Ending balance at June 30 | 3.0 |
| — |
| 3.0 |
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Total average and maximum borrowings in the table above are calculated based on the daily outstanding balance of the sum of commercial paper and revolving credit facilities.
The reduction in total GE average and maximum short-term borrowings during the second quarter of 2019 compared to the second quarter of 2018 was primarily driven by holding more cash resulting from disposition proceeds.
In addition to its external liquidity sources, GE may from time to time enter into short-term intercompany loans from GE Capital to utilize GE Capital’s excess cash as an efficient source of liquidity. These loans are repaid within the same quarter. No such loans were made in the first six months of 2019.
BORROWINGS.Consolidated total borrowings were $105.8 billion and $109.9 billion at June 30, 2019 and December 31, 2018, respectively. The reduction from 2018 to 2019 was driven primarily by net repayments at GE Capital of $5.3 billion, including $4.3 billion of long-term debt maturities, partially offset by an increase of $1.0 billion in fair value adjustments for debt in fair value hedge relationships.
In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital. Under the conditions of the 2015 assumed debt agreement, GE Capital agreed to continue making required principal and interest payments on behalf of GE, resulting in the establishment of an intercompany receivable and payable between GE and GE Capital. In addition, GE Capital has periodically made intercompany loans to GE with maturity terms that mirror the assumed debt. As these loans qualify for right-of-offset presentation, they reduce the assumed debt intercompany receivable and payable between GE and GE Capital, as noted in the table below.
The following table provides a reconciliation of total short- and long-term borrowings as reported on the respective GE and GE Capital Statements of Financial Position to borrowings adjusted for assumed debt and intercompany loans: |
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June 30, 2019 (In billions) | GE |
| GE Capital |
| Consolidated(a) |
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| Total short- and long-term borrowings | $ | 66.8 |
| $ | 40.0 |
| $ | 105.8 |
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| Debt assumed by GE from GE Capital | (35.0 | ) | 35.0 |
| — |
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| Intercompany loans with right of offset | 13.7 |
| (13.7 | ) | — |
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| Total intercompany payable (receivable) between GE and GE Capital | (21.2 | ) | 21.2 |
| — |
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| Total borrowings adjusted for assumed debt and intercompany loans | $ | 45.6 |
| $ | 61.2 |
| $ | 105.8 |
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| (a) | Included elimination of other GE borrowings from GE Capital, primarily related to timing of cash settlements associated with GE receivables monetization programs. |
When measuring the individual financial positions of GE and GE Capital, assumed debt should be considered a GE Capital debt obligation, and the intercompany loans with the right of offset mentioned above should be considered a GE debt obligation and a reduction of GE Capital’s total debt obligations. The following table illustrates the primary components of GE and GE Capital borrowings, adjusted for assumed debt and intercompany loans.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
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GE (In billions) | June 30, 2019 |
| December 31,
2018 |
| | GE Capital (In billions) | June 30, 2019 |
| December 31, 2018 |
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| Commercial paper | $ | 3.0 |
| $ | 3.0 |
| | Commercial paper | $ | — |
| $ | — |
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| GE senior notes | 20.4 |
| 20.4 |
| | Senior and subordinated notes | 37.3 |
| 39.1 |
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Intercompany loans from GE Capital | 13.7 |
| 13.7 |
| | Senior and subordinated notes assumed by GE | 35.0 |
| 36.3 |
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| Other GE borrowings | 2.2 |
| 2.6 |
| | Intercompany loans to GE | (13.7 | ) | (13.7 | ) |
| Total adjusted borrowings ex. BHGE | $ | 39.3 |
| $ | 39.7 |
| | Other GE Capital borrowings | 2.7 |
| 3.9 |
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| Total BHGE borrowings | 6.3 |
| 6.3 |
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| Total GE adjusted borrowings | $ | 45.6 |
| $ | 46.0 |
| | Total GE Capital adjusted borrowings | $ | 61.2 |
| $ | 65.5 |
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Other GE Capital borrowings included $1.4 billion and $1.9 billion at June 30, 2019 and December 31, 2018, respectively, of non-recourse borrowings of consolidated securitization entities where GE Capital has securitized financial assets as an alternative source of funding.
The intercompany loans from GE Capital to GE bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement and can be prepaid by GE at any time, in whole or in part, without premium or penalty. These loans are priced at market terms and have a collective weighted average interest rate of 3.5% and term of approximately 10.5 years at June 30, 2019.
CREDIT RATINGS AND CONDITIONS.We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and long-term debt.
The credit ratings of GE and GE Capital as of the date of this filing are set forth in the table below.
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| Moody's | S&P | Fitch |
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| GE | | | |
| Outlook | Stable | Stable | Negative |
| Short term | P-2 | A-2 | F2 |
| Long term | Baa1 | BBB+ | BBB+ |
| GE Capital | | | |
| Outlook | Stable | Stable | Negative |
| Short term | P-2 | A-2 | F2 |
| Long term | Baa1 | BBB+ | BBB+ |
There were no changes in GE or GE Capital ratings from the end of the first quarter of 2019 through the date of this filing.
We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.
The following table provides a summary of the estimated potential liquidity impact in the event of further downgrades with regards to the most significant credit ratings conditions of the Company based on their proximity to our current ratings.
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| (In billions) | Triggers Below | At June 30, 2019 |
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| Derivatives | | |
| Terminations | BBB/Baa2 | $ | (0.3 | ) |
| Cash margin posting | BBB/Baa2 | (0.4 | ) |
| Receivables Sales Programs | | |
| Loss of cash commingling | A-2/P-2/F2 | $ | (0.9 | ) |
| Alternative funding sources | A-2/P-2/F2 | (1.3 | ) |
The following sections provide additional details regarding the significant credit rating conditions of the Company.
DEBT CONDITIONS.Substantially all of our debt agreements do not contain material credit rating covenants.
If our short-term credit ratings were to fall below A-2/P-2/F2, it is possible that we would lose all or part of our access to the tier-2 commercial paper markets, which would reduce our borrowing capacity in those markets. This may result in increased utilization of our revolving credit facilities to fund our intra-quarter operations.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
DERIVATIVE CONDITIONS.Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration of collateral posted by us and outstanding interest payments was $0.3 billion at June 30, 2019. This excludes exposure related to embedded derivatives, which are not subject to these provisions.
In addition, certain of our derivatives, primarily interest rate swaps, are subject to additional cash margin posting requirements if our credit ratings were to fall below BBB/Baa2. The amount of additional margin will vary based on, among other factors, market movements and changes in our positions. At June 30, 2019, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.4 billion.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
OTHER CONDITIONS.Where we provide servicing for third-party investors, GE is contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-2/P-2/F2. In the event any of our ratings were to fall below such levels, we may be required to segregate certain of these cash collections owed to third-party investors into restricted bank accounts and would lose the short-term liquidity benefit of commingling with respect to such collections. The financial impact to our intra-quarter liquidity would vary based on collections activity for a given quarter and may result in increased utilization of our revolving credit facilities. The loss of cash commingling would have resulted in an estimated maximum reduction of approximately $0.9 billion to GE intra-quarter liquidity during the second quarter of 2019.
In addition, we have relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of liquidity generated by these programs could be adversely impacted. In the second quarter of 2019, the estimated maximum reduction to our ending liquidity had our credit ratings fallen below these levels was approximately $1.3 billion.
FOREIGN CURRENCY.As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies include the euro, the pound sterling, the Brazilian real and the Chinese renminbi, among others. The effects of foreign currency fluctuations on earnings, excluding the earnings impact of the underlying hedged item, was less than $0.1 billion for the three and six months ended June 30, 2019 and less than $0.2 billion for the three and six months ended June 30, 2018. This analysis excludes any offsetting effect from the forecasted future transactions that are economically hedged.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
STATEMENT OF CASH FLOWS – SIX MONTHS ENDED JUNE 30, 2019 VERSUS 2018.We manage the cash flow performance of our industrial and financial services businesses separately. We therefore believe it is useful to report separate GE and GE Capital columns in our Statement of Cash Flows because it enables us and our investors to evaluate the cash from operating activities of our industrial businesses (the principal source of cash generation for our industrial businesses) separately from the cash flows of our financial services business, as well as to evaluate the cash flows between our industrial businesses and GE Capital.
In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the effects of currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 20 to the consolidated financial statements for further information regarding All other operating activities, All other investing activities and All other financing activities.
The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in the six months ended June 30, 2019: our retained ownership interest in and tax benefits receivable from Wabtec; additional non-cash deferred purchase price received by GE Capital related to sales of current receivables; and right-of-use assets obtained in operating leases. See Notes 2, 4 and 7, respectively, to the consolidated financial statements.
GE CASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material, services and taxes.
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See the Intercompany Transactions between GE and GE Capital section and Notes 4 and 21 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
GE cash used for operating activities was $0.8 billion (including $0.4 billion generated from Oil & Gas CFOA) in both 2019 and 2018. The decrease of an insignificant amount in cash used was primarily due to: the nonrecurrence of GE Pension Plan contributions of $0.9 billion in 2018; a decrease in payments of equipment project cost accruals of $0.6 billion; and a decrease in cash used for contract & other deferred assets of $0.1 billion, primarily due to higher billings on our long-term service agreements, partially offset by lower liquidations of deferred inventory. These decreases in cash used were partially offset by: lower net earnings of $0.6 billion; an increase in cash used for working capital of $0.5 billion; and an increase in cash used for employee related liabilities of $0.4 billion. The increase in cash used for working capital was due to an increase in cash used for current receivables of $1.4 billion, primarily driven by lower sales of receivables and receivables growth resulting from the 737 MAX grounding and higher inventory build of $0.6 billion, mainly as a result of expected deliveries in the second half of 2019. These increases in cash used for working capital were partially offset by higher progress collections of $1.3 billion, mainly as a result of net liquidations in 2018, including the impact of the timing of progress collections received in the fourth quarter of 2017, and 2016,an increase in cash from accounts payable of $0.2 billion. The effects of the BHGE Class B shareholder dividends of $0.2 billion and $0.3 billion in 2019 and 2018, respectively, are eliminated from GE CFOA.
GE cash from investing activities was $2.0 billion in 2019 compared with an insignificant amount in 2018. The $2.0 billion increase was primarily due to: proceeds from the spin-off of our Transportation business of $4.6 billion (including the secondary offering of Wabtec common stock shares in the second quarter of 2019) and proceeds from other business dispositions (net of cash transferred) of $1.0 billion in 2019, from the sale of businesses at Aviation, Corporate and Power, compared with $2.4 billion in 2018, primarily from the sale of our Industrial Solutions business; the nonrecurrence of the purchase of an aviation technology joint venture of $0.6 billion in 2018; a decrease in net cash paid for settlements of derivative hedges of $0.5 billion; partially offset by the 2019 capital contribution to GE Capital of $1.5 billion; business acquisitions of $0.4 billion, related to the transfer of the HEF business from GE Capital to our Healthcare segment in 2019; and an increase in cash used related to net settlements between our continuing operations (primarily our Corporate functions) and businesses in discontinued operations (primarily our Transportation segment) of $0.3 billion. Additions to property, plant and equipment and internal-use software were $1.8 billion in both 2019 and 2018 (including $0.6 billion and $0.4 billion at Oil & Gas in 2019 and 2018, respectively).
GE cash used for financing activities was $1.5 billion in 2019 compared with $4.0 billion in 2018. The $2.5 billion decrease in cash used was primarily due to: a decrease in common dividend payments to shareowners of $1.9 billion; a decrease in BHGE net stock repurchases and dividends to noncontrolling interests of $0.4 billion; and lower repayments of borrowings of $0.2 billion.
GE CAPITAL CASH FLOWS FROM CONTINUING OPERATIONS. GE Capital cash from operating activities was $1.3 billion in 2019 compared with cash used for operating activities of $0.2 billion in 2018. The increase of $1.4 billion was primarily due to: a net increase in cash collateral received from counterparties on derivative contracts of $2.1 billion; partially offset by a general decrease in cash generated from earnings (loss) from continuing operations.
GE Capital cash from investing activities was $0.9 billion in 2019 compared with $5.7 billion in 2018. The decrease of $4.8 billion was primarily due to: lower collections of financing receivables of $3.4 billion; an increase of net purchases of investment securities of $2.0 billion; and an increase in cash used related to net settlements between our continuing operations (primarily our Corporate function) and businesses in discontinued operations (primarily WMC) of $1.6 billion; partially offset by an increase in cash related to our current receivables and supply chain finance programs with GE of $1.8 billion and the nonrecurrence of intercompany loans from GE Capital to GE of $0.9 billion in 2018.
GE Capital cash used for financing activities was $4.7 billion in 2019 compared with $16.7 billion in 2018. The decrease of $12.0 billion was primarily due to lower net repayments of borrowings of $10.5 billion and a capital contribution from GE to GE Capital of $1.5 billion.
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL.Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. See Note 21 to the consolidated financial statements for further information.
Sales of Receivables. In order to manage short-term liquidity and credit exposure, GE sells current and long-term customer receivables to GE Capital and other third parties. These transactions are made on arm's length terms and any discount related to time value of money, is recognized within the respective GE Industrial business in the period these receivables were sold to GE Capital or third parties. See Note 4 to the consolidated financial statements for further information.
Supply Chain Finance Programs. GE’s industrial businesses participate in a supply chain finance program with GE Capital where GE Capital may settle supplier invoices early in return for early pay discounts. In turn, GE settles invoices with GE Capital in accordance with the original supplier payment terms. The GE liability associated with the funded participation in the program is presented as accounts payable and amounted to $4.4 billion and $4.9 billion at June 30, 2019 and December 31, 2018, respectively.
At June 30, 2019, $0.9 billion of the GE accounts payable balance is subject to supply chain finance programs with third parties. The terms of these arrangements do not alter our obligation to our suppliers and service providers which arise from our contractual supply agreements with them.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
On February 28, 2019, we sold GE Capital’s supply chain finance program platform to MUFG Union Bank, N.A. and have started transitioning our existing program to a program with that party. The GE funded participation in the GE Capital program will continue to be settled following the original invoice payment terms with expectation that the majority of the transition will occur by the first half of 2021. GE CFOA could be adversely affected in the short term should certain suppliers not transition to the new third-party program and we elect to take advantage of early pay discounts on trade payables offered by those suppliers. For the three and six months ended June 30, 2019, there was an insignificant effect on GE CFOA related to the MUFG transition.
GE Capital Finance Transactions. During the six months ended June 30, 2019 and 2018, GE Capital acquired 3428 aircraft (list price totaling $4.6$3.5 billion) and 3217 aircraft (list price totaling $4.7$2.0 billion), respectively, from third parties that will be leased to others, which are powered by engines that were manufactured by GE Aviation and affiliates.affiliates and made payments related to spare engines and engine parts to GE Aviation and affiliates of $0.2 billion and $0.3 billion, respectively. Additionally, GE Capital had $1.5$1.4 billion and $1.2 billion of net book value of engines, originally manufactured by GE Aviation and affiliates and subsequently leased back to GE Aviation and affiliates at both SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
POWER, RENEWABLE ENERGY AND AVIATION
Also, during the six months ended June 30, 2019, GE leverages GE Capital for its expertise in structuring long-term financing arrangements with certainrecognized equipment revenues of $0.6 billion from customers within our Power and Renewable Energy and Aviation customers for the purchase of equipment, upgrades and long-term service contracts. These arrangements are made on an arm’s length basis and any fair value adjustments are recognized within the results of our Power, Renewable Energy and Aviation segments. Any associated deferred income recorded bysegments in which GE Capital is eliminated in our consolidated results. In relationan investee or is committed to these arrangements, GE Capital had approximately $2.3 billion and $1.9 billion of long-term financing receivables outstanding, net of deferred income of approximately $0.3 billion and $0.3 billion reported on its balance sheet at September 30, 2017 and December 31, 2016, respectively. The effect of cash generated in GE CFOA from long-term financing arrangements with GE Capital increased GE's CFOA by $0.4 billion and $1.0 billionbe an investee in the nine months ended September 30, 2017 and 2016, respectively.underlying projects.
PENSIONS
GE Capital is a member of certain GE Pension Plans. As a result of the GE Capital Exit Plan, GE Capital will have additional funding obligations for these pension plans. These obligations do not relate to the Verticals and are recognized as an expense in GE Capital’s other continuing operations when they become probable and estimable. The additional funding obligations recognized by GE Capital were an insignificant amount and $0.3 billion for the three and nine months ended September 30, 2017, respectively, and $0.1 billion and $0.4 billion for the three and nine months ended September 30, 2016, respectively.
Certain of this additional funding is recorded as a contra pension expense for GE because GE’s related future pension obligations will be paid by GE Capital. For certain other pension plan funding obligations triggered by the GE Capital Exit Plan, GE agreed to assume the funding obligation that would have been triggered by GE Capital at the date of exit from the plan in exchange for an assumption fee that GE recorded as Other income. There was no cash transferred to GE for the assumption of these GE Capital funding obligations for the three and nine months ended September 30, 2017. The total cash transferred for similar funding obligations assumed by GE from GE Capital for the three and nine months ended September 30, 2016 were zero and $0.1 billion, respectively.
On a consolidated basis, the additional required pension funding and any related assumption fees do not affect current period earnings. Any additional required pension funding will be reflected as a reduction of the pension liability when paid.
GE GUARANTEE OF GE CAPITAL THIRD-PARTY TRANSACTIONS
In certain instances, GE provides guarantees to GE Capital transactions with third parties primarilyinvestments, in connection with enabled orders. In order to meet its underwriting criteria, GE Capital may obtain a direct guarantee from GE related to the performance of the third party. GE guarantees can take many forms and may include, but not be limited to, direct performance or payment guarantees, return on investment guarantees, asset value guarantees and loss pool arrangements. As of SeptemberJune 30, 20172019, GE had outstanding guarantees to GE Capital on $1.5$1.3 billion of funded exposure and $1.2$1.4 billion of unfunded commitments.commitments, which included guarantees issued by industrial businesses. The recorded amount ofcontingent liability for these contingent liabilitiesguarantees was $0.1 billioninsignificant as of SeptemberJune 30, 20172019 and is dependent uponbased on individual transaction level defaults, losses and/or returns.
GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicit and explicit support to GE Capital through commitments, capital contributions and operating support. As previously discussed, debt assumed by GE from GE Capital in connection with the merger of GE Capital into GE was $49.9 billion, and GE guaranteed $44.5 billion of GE Capital debt at September 30, 2017. See Notes 10 and 20 to the consolidated financial statements for additional information.
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
CRITICAL ACCOUNTING ESTIMATES
We utilized significant estimates in the preparation of the third quarter financial statements.
Please refer to the Critical Accounting Estimates sectionand Other Items sections within MD&A and Note 1 Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements of our Annual Report on Form 10-K Report filed on February 24, 2017,26, 2019, for a discussion of our accounting policies and the critical accounting estimates we use to: recognize revenue on long-term product services agreements; assess the recoverability of assets such as financing receivables and goodwill; determine the fair value of financial assets; and determine our provision for income taxes and recoverability of deferred tax assets.estimates.
INSURANCE AND INVESTMENT CONTRACT LIABILITIES
Insurance and investment contract liabilities amounted to $26.6 billion and $26.1 billion at September 30, 2017 and December 31, 2016, respectively and primarily comprise a liability for future policy benefits for those claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported. Reserves ceded to reinsurers were $2.2 billion and $2.0 billion at September 30, 2017 and December 31, 2016, respectively and are included in the caption “Other receivables” on our Consolidated Statement of Financial Position.
Claim reserves amounted to $4.9 billion and $4.6 billion of which $3.4 billion and $3.1 billion relates to long-term care insurance contracts as of September 30, 2017 and December 31, 2016, respectively. Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss estimates with the support of qualified actuaries and any changes are recorded in the period in which they are determined.
Future policy benefit reserves amounted to $19.2 billion and $18.7 billion of which $9.0 billion and $8.7 billion relates to long-term care insurance contracts at September 30, 2017 and December 31, 2016, respectively. These reserves represent the present value of such benefits less the present value of future net premiums and are based on actuarial assumptions established at the time the policies were issued or acquired. These assumptions include, but are not limited to interest rates, health care experience (including type and cost of care), mortality, and the length of time a policy will remain in force. Our annual premium deficiency testing assesses the adequacy of future policy benefit reserves, net of capitalized acquisition costs using current assumptions. As we no longer originate new policies, we perform premium deficiency testing in the aggregate across our run-off insurance products.
We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts, which is most pronounced for policyholders with higher attained ages. As a result, and as described below, we are conducting a comprehensive review of premium deficiency assumptions across all insurance products, including a reassessment of future claim projections for long-term care contracts that will be incorporated within our annual test of future policy benefit reserves for premium deficiencies, which is expected to be completed in the fourth quarter of 2017.
A comprehensive review of premium deficiency assumptions is a complex process and depends on a number of factors, many of which are interdependent and require evaluation individually and in the aggregate across all insurance products. The vast majority of our run-off insurance activities comprises reinsurance from multiple ceding insurance entities with underlying treaties having unique terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers each of the unique treaties. In order to utilize that information for purposes of completing experience studies covering all key assumptions, we perform detailed procedures to conform and validate the data received, including periodic evaluation of the operating environment at ceding entities. Our long-term care business includes coverage where credible claim experience for higher attained ages is still emerging and to the extent that recent experience deviates from previous expectations, new projections of claim costs extending over the expected life of the policies require development. Significant uncertainties exist in making these best estimate projections for these long-duration insurance contracts that includes consideration of a wide range of possible outcomes as well as actuarial peer reviews before a final determination can be made.
Should the net liability for future policy benefits plus the present value of expected future gross premiums be insufficient to provide for the present value of expected future policy benefits and expenses, we would be required to reduce any remaining capitalized acquisition costs and, to the extent a shortfall still exists, increase our existing future policy benefit reserves. We would record a charge to earnings for any premium deficiencies in the fourth quarter of 2017 upon completion of this review. Based upon the work performed to date and complexity of the review described above, a charge related to a probable deficiency is not reasonably estimable at September 30, 2017. Until the above described review has been completed we have deferred the decision whether GE Capital will pay additional dividends to GE.
See Note 11 to the consolidated financial statements of this report and Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.
OTHER ITEMS
NEW ACCOUNTING STANDARDS
ASU NO. 2016-16, ACCOUNTING FOR INCOME TAXES: INTRA-ENTITY TRANSFERS OF ASSETS OTHER THAN INVENTORY
STANDARDS.In October 2016,August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-16, 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than InventoryLong-Duration Contracts. The ASU eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The new standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The effect of2020, with an election to adopt early. In July 2019, the FASB proposed, subject to comment, to delay the adoption of the standard will depend on the nature and amount of future transactions but is currently expected as an increase to retained earnings of approximately $0.4 billion. Future earnings will be reduced in total by this amount. The effect of the change on future transactions will depend on the nature of those transactions as it will affect the timing of recognition of both tax expense and tax benefits, with no change in associated cash flows.
ASU NO. 2016-15, STATEMENT OF CASH FLOWS
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new standard requires that cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities. The new standard is effective for fiscal yearsperiods beginning after December 15, 2017. A retrospective transition approach2021. We are evaluating the effect of the standard on our consolidated financial statements and anticipate that its adoption will significantly change the accounting for measurements of our long-duration insurance liabilities. The ASU requires cash flow assumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidence indicates previous assumptions need to be revised with any required changes recorded in earnings. Under the current accounting guidance, the discount rate is required. Note 4based on expected investment yields, while under the ASU the discount rate will be equivalent to the Financial Statements describesupper-medium grade (i.e., single A) fixed-income instrument yield reflecting the DPP created byduration characteristics of the Receivables Facility. We currently report cash receiptsliability and is required to be updated in each reporting period with changes recorded in other comprehensive income. In measuring the insurance liabilities under the new standard, contracts shall not be grouped together from the purchasing entities to reduce their DPP obligation to the Company as cash inflows from operating activitiesdifferent issue years. These changes result in the Consolidated Statementelimination of Cash Flows.
ASU NO. 2016-02, LEASES
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU assetpremium deficiency testing and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.shadow adjustments. While we continue to evaluate the effect of the standard on our ongoing financial reporting, we anticipate that the adoption of the ASU maywill materially affect our Statementfinancial statements. As the ASU is only applicable to the measurements of Financial Position.our long-duration insurance liabilities under GAAP, it will not affect the accounting for our insurance reserves or the levels of capital and surplus under statutory accounting practices.
ASU NO. 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS
BACKGROUND
In May 2014,June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The ASU introduces a new comprehensive setaccounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of revenuecredit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition principles (ASU No. 2014-09, Revenue from Contracts with Customers)of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that supersedes most existing U.S. GAAP revenue recognition guidance (including ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts).a loss be incurred before it is recognized. The new standard will becomealso apply to receivables arising from revenue transactions such as contract assets and accounts receivables, as well as reinsurance recoverables at GE Capital's run-off insurance operations and is effective for annual reporting periodsfiscal years beginning after December 15, 2017.2019. We will adopt the standard on January 1, 2018, will apply it retrospectively to all periods presented and will elect the practical expedient for contract modifications. Since the issuance of the new standard by the FASB, we have engaged in a collaborative process with our industry peers and worked with standard setters on important interpretive matters with the objective of ensuring consistency in the application of the standard.
TRANSITION METHOD FOR APPLYING THE NEW STANDARD
Companies can use either a full retrospective or modified retrospective method to adopt the standard. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to 2016 will be recorded to retained earnings as of January 1, 2016. Under the modified retrospective approach, prior periods are not updated to be presented on an accounting basis that is consistent with 2018. Rather, a cumulative adjustment for effects of applying the new standard to periods prior to 2018 is recorded to retained earnings as of January 1, 2018. Because only 2018 revenues reflect application of the new standard, incremental disclosures are required to present the 2018 revenues under the prior standard.
As noted above, we have elected to apply the full retrospective approach. We chose that approach because we believe that it is the most helpful to our investors. First and foremost, when we adopt the standard in 2018 we will provide investors with a consistent view of historical trends, as 2016 and 2017 will be on a basis consistent with 2018.
CHANGE IN TIMING AND PRESENTATION, NO IMPACT TO CASH OR ECONOMICS
The new standard requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result, we expect significant changes in the presentation of our financial statements, including: (1) timing of revenue recognition, and (2) changes in classification between revenue and costs. The new standard will have no cash impact and, as such, does not affect the economics of our underlying customer contracts. The effect of applying the new guidance to our existing book of contracts will result in lower reported earnings in 2018 (and comparative periods previously reported) and in the early years after adoption. However, we expect to experience an increase in reported earnings, on that existing book of contracts, as they mature. The new standard will provide for a better alignment of cash and earnings for the affected long-term customer contracts and we expect that it will enhance comparability across industry peers.
SPECIFIC EFFECT ON GE BUSINESSES
Power and Aviation Service Agreements - For our long-term product service agreements, primarily in our Power and Aviation businesses, we expect to continue to recognize revenue based on costs incurred plus an estimated margin rate (over time model). However, the new standard provides prescriptive guidance tied to several factors for determining what constitutes the proper scope of a customer contract for accounting purposes. These factors include optional purchases, contract modifications, and termination clauses. For example, under the new standard contract modifications will be accounted for prospectively by recognizing the financial effect of the modification over the remaining life of the contract. Under existing accounting guidance revisions to estimated margin rates resulting from modifications were reflected as cumulative effect adjustments to earnings in the current period.
Aviation Commercial Engines - Consistent with industry peers, the financial presentation of our Aviation Commercial engines business will be significantly affected as they will be accounted for as of a point in time, which is a change from our current long-term contract accounting process. Our current process applies contract-specific estimated margin rates, which include the effect of estimated cost improvements, to costs incurred. This change is required because our commercial engine contracts do not transfer control to the customer during the manufacturing process. Each install and spare engine will be accounted for as a separate performance obligation, reflecting the actual price and manufacturing costs of such engines. We expect that the most significant effect of this change will be reflected when we have new engine launches, where the cost of earlier production units is higher than the cost of later production units because of cost improvements.
All Other Large Equipment - For the remainder of our equipment businesses, the new revenue standard requires emphasis on transfer of control rather than risks and rewards, which may accelerate timing of revenue recognition versus our current practices. For example, in our Renewable Energy business we wait for risk of loss to be assumed by the customer before recognizing revenue, which generally occurs later than when control is transferred.
CURRENT RANGE OF FINANCIAL STATEMENT EFFECT
We will adopt the new standard as of January 1, 2018. When we report our 2018 results, the comparative results for 2017 and 2016 will be updated to reflect the application of the requirements of the new standard to these periods. Based on our assessment and best estimates to date, we expect a non-cash charge to our January 1, 2016 retained earnings balance of approximately $4.3 billion. We estimate that the charge will comprise approximately $1.0 billion related to commercial aircraft engines and $3.3 billion related primarily to our services businesses (predominately in Power and Aviation). Beyond those effects, we expect application of the new guidance will result in increases and decreases in revenue within our segments, which will largely offset overall and will be immaterial at a total company level. We estimate that our 2016 restated earnings per share will be lower by approximately $0.13, driven primarily by the required changes in accounting for long-term product service arrangements as described above. The expected effect to 2016 earnings per share reflects an increase from the previously reported estimate of approximately $0.10 due to further refinements in the application of our technical interpretations and our detailed assessments at a contract level, which is a complex process for our long-term contracts. In addition, the impact on 2017 will also be a decrease to earnings; however, we are unable to complete that calculation until we finalize our 2017 results. Upon adoption in 2018, our books and records will only reflect the results as required under the new standard limiting our ability to estimateevaluate the effect of the standard on our earnings. Given the inherent difficulty in this ongoing estimation of the effect of the standard on any future periods, we do not plan to continue to assess the effect on 2018.consolidated financial statements.
To summarize, we will adopt the new standard in 2018, at which time we will update prior periods to be presented on a consistent basis. As discussed above, we anticipate a dilutive effect of the new standard in the year of adoption consistent with the effect to the restated 2016 and 2017 results and the effect will be less dilutive for years after initial adoption. However, this expectation is based on many variables, including underlying business performance, which are subject to change, making the effect of the standard on future periods difficult to estimate. Importantly, application of the new guidance has no effect on the cash we expect to receive nor the economics of these contracts. Rather, it will simply more closely align revenue with cash, which we believe will be helpful to our investors.
GE DIGITAL
GE Digital's activities are focused on assisting in the market development of our digital product offerings through software design, fulfillment and product management, while also interfacing with our customers. Digital revenues include internally developed software and associated hardware, including Predix and software solutions that improve our customers’ asset performance. These revenues and associated costs are largely generated from our operating businesses and are included in their segment results.
Revenues were $1.0 billion for the three months ended September 30, 2017, an increase of $0.1 billion or 6% compared to revenues of $0.9 billion for the three months ended September 30, 2016. Revenues were $2.8 billion for the nine months ended September 30, 2017, an increase of $0.3 billion or 11% compared to revenues of $2.6 billion for the nine months ended September 30, 2016. These increases were principally driven by Power and Non-GE Verticals.
Orders were $1.4 billion for the three months ended September 30, 2017, an increase of $0.4 billion or 50% compared to orders of $0.9 billion for the three months ended September 30, 2016. Orders were $3.7 billion for the nine months ended September 30, 2017, an increase of $0.9 billion or 32% compared to orders of $2.8 billion for the nine months ended September 30, 2016. These increases were principally driven by Oil & Gas, Non-GE Verticals, Power and Renewable Energy.
VENEZUELA
Although we continue to experience delays in collecting payments on our receivables from our primary customer in Venezuela, our outstanding receivables are not disputed, and we continue to believe that our carrying value of these receivables are recoverable. In assessing the recoverability of these receivables, we considered our collection experience with this customer. To date we have had no material write-offs related to this customer and have collected approximately $67 million in 2017 and $103 million in 2016. In addition, we consider: the continued importance to the Venezuelan economy of oil production; our strategic relationship with this customer; our current activity levels and our current intention to continue to provide services to this customer; the impact of cross-default provisions within the loan agreements with the customer; and an evaluation of this customer’s financial solvency. We continue to actively manage our relationship with this customer, with ongoing dialogue between key executives of both companies.
As of September 30, 2017, our net exposure to this customer is approximately $260 million. The primary component of this exposure is in GE Capital, which has outstanding financing receivables with a gross value of $210 million and a carrying value of $162 million at September 30, 2017. GE has guaranteed the collectability of these receivables to GE Capital. This exposure also includes approximately $60 million of on-hand inventory that we may not be able to redeploy to other customers should the contracts with this customer be terminated unexpectedly, and net trade receivables of approximately $40 million ($266 million gross value). In 2015 and 2016, we exchanged $257 million and $194 million, respectively, of customer accounts receivable for interest bearing promissory notes with a par value of the same amount. As part of these exchanges, GE recognized a pre-tax loss of $135 million to recognize the notes at fair value. Through the second quarter of 2017, GE recorded approximately $40 million of interest and discount accretion on these loans as no payments were past due and these financing receivables are cross-defaulted with other outstanding customer debt. At September 30, 2017 payments of $52 million were past due and while the majority of these payments were received subsequent to the end of the quarter, due to the difficulties in receiving payment GE placed these loans on nonaccrual status and performed an impairment review of these loans, which supported the carrying value at September 30, 2017.
During the three months ended September 30, 2017, GE recorded a bad debt reserve and receivables write offs on other customer receivables of $62 million and an impairment of two buildings of $26 million.
We believe our collectability assumptions to be reasonable according to the current facts and circumstances and they are reviewed on a quarterly basis. However, differences in actual experience or changes in facts and circumstances may materially affect our financial position or results of operations. Our assumptions and related judgments are sensitive to the political and economic conditions in Venezuela. If conditions in Venezuela worsen or if low commodity prices persist for an extended period, we may be required to record adjustments to our receivables balance. Our financial results can be affected, positively or negatively, by changes in our assessment of the collectability of these trade receivables.
MD&A
MINE SAFETY DISCLOSURES
Our barite mining operations, in support of our drilling fluids products and services business, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. There areDISCLOSURES.We have no mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K to report for the current quarter.
OUR EMPLOYEES AND EMPLOYEE RELATIONS. On June 3, 2019, GE began labor negotiations with most of its U.S. unions, including the Industrial Division of the Communications Workers of America (IUE-CWA), to replace the current labor agreements that were set to expire on or around June 23, 2019. Although GE reached a tentative agreement with the IUE-CWA for a new four-year national collective bargaining agreement at the conclusion of those negotiations, that agreement and new labor agreements with the non-IUE unions have not yet been ratified. However, GE and the union leaders have temporarily agreed to extend the terms of the current labor agreements, with the exception of those benefits that have specific expiration dates outlined in those agreements. While the outcome of the 2019 negotiations cannot be predicted, GE has a history of successfully negotiating national agreements.
2017 3Q2019 2Q FORM 10-Q 5127
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| MD&A | OTHER ITEMS | NON-GAAP FINANCIAL MEASURES |
NON-GAAP FINANCIAL MEASURES
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuantWe believe that presenting non-GAAP financial measures provides management and investors useful measures to Section 13(r)evaluate performance and trends of the Securities Exchange Act of 1934. Under Section 13(r) of the Securities Exchange Act of 1934, enacted in 2012, GE is required to disclose intotal company and its periodic reports if it or any of its affiliates knowingly engaged in business activities relating to Iran, even if those activities are conducted in accordance with authorizations subsequently issuedbusinesses, and increases period-to-period comparability. In addition, management recognizes that certain non-GAAP terms may be interpreted differently by the U.S. Government. Reportable activities include investments that significantly enhance Iran’s ability to develop petroleum resources valued at $20 million or more in the aggregate during a twelve-month period. Reporting is also required for transactions related to Iran’s domestic production of refined petroleum products or Iran’s ability to import refined petroleum products valued at $5 million or more in the aggregate during a twelve-month period.
In January 2016, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License H authorizing U.S.-owned or controlled foreign entities to engage in transactions with Iran if these entities meet the requirements of the general license. Pursuant to this authorization, a non-U.S. affiliate of GE’s Oil & Gas business received five purchase orders during the third quarter of 2017 for the sale of goods pursuant to General License H that could potentially enhance Iran’s ability to develop petroleum resources. The purchase orders cover the sale of valves and parts for industrial machinery and equipment used in gas plants, petrochemical plants and gas production projects in Iran. These purchase orders are valued at €0.1million ($0.1 million), €0.5 million ($0.5 million), €0.2 million ($0.2 million), €0.1 million ($0.1 million), €1.3 million ($1.5 million). This non-US affiliate also booked a modification of a previously reported contract for the sale of spare parts for gas turbines to add additional scope valued at €0.1 million ($0.1 million) and a further modification to another previously reported contract for the sale of spare parts to reduce the value of the contract by €1.6 million ($1.8 million). This non-US affiliate attributed €1.5 million ($1.8 million) in gross revenues and €0.8 million ($0.9 million) in net profits against previously reported transactions during the quarter ending September 30, 2017.
A second non-U.S. affiliate of GE’s Oil & Gas business received two purchase orders during the third quarter of 2017 for the sale of consumable parts, instruments and a digital recording system to be applied to industrial machinery and equipment on gas plants. The purchase orders are valued at €0.1 million ($0.1 million) and €0.1 million ($0.1 million). This non-US affiliate attributed €0.3 million ($0.3 million) in gross revenues and €0.1 million ($0.1 million) in net profits to these transactions during the quarter ending September 30, 2017.
A non-U.S. affiliate of GE’s Power business received a cancellation to a purchase order previously reported for the sale of spare parts to an Iranian entity to provide electricity and steam to an area of Iran that includes certain oil refineries during the quarter ending September 30, 2017. This purchase order cancellation reduces the value by €16.2 million ($18.1 million). This non-US affiliate also received a modification to a previously reported purchase order for the sale of spare parts to reduce the value of the purchase order by €1.3 million ($1.5 million). This non-US affiliate also attributed €4.8 million ($5.7 million) in gross revenues and €3.1 million ($3.7 million) in net profits during the quarter ending September 30, 2017.
A second non-US affiliate of GE’s Power business received three purchase orders pursuant to General License H valued at €0.1 million ($0.1 million), €0.1 million ($0.1 million) and €0.2 million ($0.2 million) during the third quarter of 2017. The purchase orders cover the sale of protection relays for oil refinery related projects in Iran. This non-US affiliate did not recognize any revenue or profit during the quarter ending September 30, 2017.
A third non-US affiliate of GE’s Power business received two purchase orders pursuant to General License H valued at €0.1 million ($0.1 million) and €0.1 million ($0.1 million) during the third quarter of 2017. The purchase orders cover the sale of spare parts for motors for ultimate end use by a petro-chemical company in Iran. This non-US affiliate did not recognize any revenue or profit during the quarter ending September 30, 2017.
All of these non-U.S. affiliates intend to continue the activities described above, as permitted by all applicable laws and regulations.
For additional information on business activities related to Iran, please refer to the Other Items section within MD&A in our Form 10-Q for the quarter ended June 30, 2017.
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MD&A | SUPPLEMENTAL INFORMATION |
SUPPLEMENTAL INFORMATION
FINANCIAL MEASURES THAT SUPPLEMENT U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES MEASURES (NON-GAAP FINANCIAL MEASURES)
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures”other companies under SEC rules. Specifically, we have referred, indifferent circumstances. In various sections of this report to:
we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically GE Industrial segment organic revenues, and(2) profit, specifically GE Industrial segment organic revenues excluding Power and Oil & Gas
Operating and non-operating pension cost
profit; GE Industrial organic profit; Adjusted corporate costs (operating)
GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates
Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS
Industrial operating + Verticals earnings and EPS
Industrial operating profit and operating profit margin (excluding certain items)
Industrial operating profit excluding Power; Adjusted earnings (loss); and Oil & Gas
IndustrialAdjusted earnings (loss) per share (EPS), (3) cash flows, from operating activities (Industrial CFOA)specifically GE Industrial Free Cash Flows (FCF) and Adjusted GE Industrial CFOA excluding deal taxesFCF, and (4) debt balances, specifically GE Pension Plan fundingIndustrial net debt.
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow. |
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| GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | | Revenue | | Segment profit (loss) | | Profit margin |
Three months ended June 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | | |
| Power (GAAP) | | $ | 4,681 |
| | $ | 6,261 |
| | (25 | )% | | $ | 117 |
| | $ | 410 |
| | (71 | )% | | 2.5 | % | | 6.5 | % | (4)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | (4 | ) | | 1,144 |
| | | | — |
| | 85 |
| | | | | | | |
| Less: foreign currency effect | | (165 | ) | | — |
| | | | 17 |
| | — |
| | | | | | | |
| Power organic (Non-GAAP) | | $ | 4,849 |
| | $ | 5,117 |
| | (5 | )% | | $ | 100 |
| | $ | 325 |
| | (69 | )% | | 2.1 | % | | 6.4 | % | (4.3)pts |
| | | | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | | $ | 3,627 |
| | $ | 2,883 |
| | 26 | % | | $ | (184 | ) | | $ | 85 |
| | U |
| | (5.1 | )% | | 2.9 | % | (8)pts |
| Less: acquisitions | | 1 |
| | — |
| | | | 2 |
| | — |
| | | | | | | |
| Less: business dispositions | | — |
| | — |
| | | | — |
| | (2 | ) | | | | | | | |
| Less: foreign currency effect | | (197 | ) | | — |
| | | | 23 |
| | — |
| | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 3,823 |
| | $ | 2,883 |
| | 33 | % | | $ | (208 | ) | | $ | 87 |
| | U |
| | (5.4 | )% | | 3.0 | % | (8.4)pts |
| | | | | | | | | | | | | | | | | | |
| Aviation (GAAP) | | $ | 7,877 |
| | $ | 7,519 |
| | 5 | % | | $ | 1,385 |
| | $ | 1,475 |
| | (6 | )% | | 17.6 | % | | 19.6 | % | (2)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | — |
| | 105 |
| | | | — |
| | 13 |
| | | | | | | |
| Less: foreign currency effect | | (8 | ) | | — |
| | | | 9 |
| | — |
| | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 7,885 |
| | $ | 7,413 |
| | 6 | % | | $ | 1,376 |
| | $ | 1,462 |
| | (6 | )% | | 17.5 | % | | 19.7 | % | (2.2)pts |
| | | | | | | | | | | | | | | | | | |
| Healthcare (GAAP) | | $ | 4,934 |
| | $ | 4,978 |
| | (1 | )% | | $ | 958 |
| | $ | 926 |
| | 3 | % | | 19.4 | % | | 18.6 | % | 0.8pts |
| Less: acquisitions | | 19 |
| | — |
| | | | (6 | ) | | — |
| | | | | | | |
| Less: business dispositions | | — |
| | 108 |
| | | | (10 | ) | | 30 |
| | | | | | | |
| Less: foreign currency effect | | (136 | ) | | — |
| | | | 2 |
| | — |
| | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 5,051 |
| | $ | 4,870 |
| | 4 | % | | $ | 972 |
| | $ | 895 |
| | 9 | % | | 19.2 | % | | 18.4 | % | 0.8pts |
| | | | | | | | | | | | | | | | | | |
| Oil & Gas (GAAP) | | $ | 5,953 |
| | $ | 5,554 |
| | 7 | % | | $ | 82 |
| | $ | 73 |
| | 12 | % | | 1.4 | % | | 1.3 | % | 0.1pts |
| Less: restructuring & other (GE share) | | | | | | | | (135 | ) | | (148 | ) | | | | | | | |
| Adjusted Oil & Gas (Non-GAAP) | | 5,953 |
| | 5,554 |
| | 7 | % | | 217 |
| | 222 |
| | (2 | )% | | 3.6 | % | | 4.0 | % | (0.4)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | 4 |
| | 68 |
| | | | — |
| | 10 |
| | | | | | | |
| Less: foreign currency effect | | (131 | ) | | — |
| | | | (5 | ) | | — |
| | | | | | | |
| Adjusted Oil & Gas organic (Non-GAAP) | | $ | 6,080 |
| | $ | 5,486 |
| | 11 | % | | $ | 223 |
| | $ | 212 |
| | 5 | % | | 3.7 | % | | 3.9 | % | (0.2)pts |
| | | | | | | | | | | | | | | | | | |
| GE Industrial segment (GAAP) | | 27,071 |
| | 27,195 |
| | — | % | | 2,359 |
| | 2,969 |
| | (21 | )% | | 8.7 | % | | 10.9 | % | (2)pts |
| Less: restructuring & other (GE share) | | | | | | | | (135 | ) | | (148 | ) | | | | | | | |
Adjusted GE Industrial segment
(Non-GAAP) | | 27,071 |
| | 27,195 |
| | — | % | | 2,494 |
| | 3,117 |
| | (20 | )% | | 9.2 | % | | 11.5 | % | (2.3)pts |
| Less: acquisitions | | 20 |
| | — |
| | | | (4 | ) | | — |
| | | | | | | |
| Less: business dispositions | | — |
| | 1,426 |
| | | | (10 | ) | | 136 |
| | | | | | | |
| Less: foreign currency effect | | (637 | ) | | — |
| | | | 46 |
| | — |
| | | | | | | |
GE Industrial segment organic
(Non-GAAP) | | 27,688 |
| | 25,769 |
| | 7 | % | | 2,463 |
| | 2,981 |
| | (17 | )% | | 8.9 | % | | 11.6 | % | (3)pts |
| | | | | | | | | | | | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
*Non-GAAP Financial Measure
2017 3Q28 2019 2Q FORM 10-Q53
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL SEGMENT ORGANIC REVENUES |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% | | 2017 |
| 2016 |
| V% |
| | | | | | | | |
| Industrial segment revenues (GAAP) | $ | 30,046 |
| $ | 27,335 |
| 10 | % | | $ | 83,943 |
| $ | 81,667 |
| 3 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 2,865 |
| 6 |
| | | 3,214 |
| 22 |
| |
| Business dispositions | 51 |
| 57 |
| | | 61 |
| 2,852 |
| |
| Currency exchange rates | 219 |
| — |
| | | (51 | ) | — |
| |
| Industrial segment organic revenues (Non-GAAP) | $ | 26,911 |
| $ | 27,272 |
| (1) | % | | $ | 80,718 |
| $ | 78,793 |
| 2 | % |
| | | | | | | | |
| Power revenues (GAAP) | $ | 8,679 |
| $ | 8,995 |
| (4) | % | | $ | 26,569 |
| $ | 25,664 |
| 4 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 94 |
| — |
|
| | 230 |
| 5 |
| |
| Business dispositions | — |
| 19 |
| | | — |
| 154 |
| |
| Currency exchange rates | 123 |
| — |
| | | (73 | ) | — |
| |
| Power organic revenues (Non-GAAP) | $ | 8,462 |
| $ | 8,976 |
| (6) | % | | $ | 26,412 |
| $ | 25,505 |
| 4 | % |
| | | | | | | | |
| Oil & Gas revenues (GAAP) | 5,365 |
| 2,964 |
| 81 | % | | 11,475 |
| 9,497 |
| 21 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 2,541 |
| — |
| | | 2,542 |
| 1 |
| |
| Business dispositions | — |
| — |
| | | — |
| — |
| |
| Currency exchange rates | 58 |
| — |
| | | (13 | ) | — |
| |
| Oil & Gas organic revenues (Non-GAAP) | $ | 2,766 |
| $ | 2,964 |
| (7) | % | | $ | 8,946 |
| $ | 9,496 |
| (6 | )% |
| | | | | | | | |
| Industrial segment organic revenues excluding Power and Oil & Gas (Non-GAAP) | $ | 15,683 |
| $ | 15,332 |
| 2 | % | | $ | 45,360 |
| $ | 43,792 |
| 4 | % |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | | Revenue | | Segment profit (loss) | | Profit margin |
| Six months ended June 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | | |
| Power (GAAP) | | $ | 9,298 |
| | $ | 12,209 |
| | (24 | )% | | $ | 228 |
| | $ | 654 |
| | (65 | )% | | 2.5 | % | | 5.4 | % | (2.9)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | 5 |
| | 2,156 |
| | | | (4 | ) | | 160 |
| | | | | | | |
| Less: foreign currency effect | | (376 | ) | | — |
| | | | 37 |
| | — |
| | | | | | | |
| Power organic (Non-GAAP) | | $ | 9,668 |
| | $ | 10,053 |
| | (4 | )% | | $ | 194 |
| | $ | 494 |
| | (61 | )% | | 2.0 | % | | 4.9 | % | (2.9)pts |
| | | | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | | $ | 6,165 |
| | $ | 5,722 |
| | 8 | % | | $ | (371 | ) | | $ | 196 |
| | U |
| | (6.0 | )% | | 3.4 | % | (9.4)pts |
| Less: acquisitions | | 2 |
| | — |
| | | | 6 |
| | — |
| | | | | | | |
| Less: business dispositions | | — |
| | — |
| | | | — |
| | (2 | ) | | | | | | | |
| Less: foreign currency effect | | (369 | ) | | — |
| | | | 48 |
| | — |
| | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 6,532 |
| | $ | 5,722 |
| | 14 | % | | $ | (425 | ) | | $ | 198 |
| | U |
| | (6.5 | )% | | 3.5 | % | (10)pts |
| | | | | | | | | | | | | | | | | | |
| Aviation (GAAP) | | $ | 15,831 |
| | $ | 14,631 |
| | 8 | % | | $ | 3,046 |
| | $ | 3,078 |
| | (1 | )% | | 19.2 | % | | 21.0 | % | (1.8)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | — |
| | 105 |
| | | | — |
| | 14 |
| | | | | | | |
| Less: foreign currency effect | | (16 | ) | | — |
| | | | 19 |
| | — |
| | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 15,846 |
| | $ | 14,526 |
| | 9 | % | | $ | 3,027 |
| | $ | 3,063 |
| | (1 | )% | | 19.1 | % | | 21.1 | % | (2)pts |
| | | | | | | | | | | | | | | | | | |
| Healthcare (GAAP) | | $ | 9,616 |
| | $ | 9,680 |
| | (1 | )% | | $ | 1,740 |
| | $ | 1,660 |
| | 5 | % | | 18.1 | % | | 17.1 | % | 1pts |
| Less: acquisitions | | 40 |
| | — |
| | | | (10 | ) | | — |
| | | | | | | |
| Less: business dispositions | | — |
| | 217 |
| | | | (43 | ) | | 51 |
| | | | | | | |
| Less: foreign currency effect | | (270 | ) | | — |
| | | | — |
| | — |
| | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 9,847 |
| | $ | 9,463 |
| | 4 | % | | $ | 1,793 |
| | $ | 1,609 |
| | 11 | % | | 18.2 | % | | 17.0 | % | 1.2pts |
| | | | | | | | | | | | | | | | | | |
| Oil & Gas (GAAP) | | $ | 11,569 |
| | $ | 10,939 |
| | 6 | % | | $ | 245 |
| | $ | (70 | ) | | F |
| | 2.1 | % | | (0.6 | )% | 2.7pts |
| Less: restructuring & other (GE share) | | | | | | | | (194 | ) | | (473 | ) | | | | | | | |
| Adjusted Oil & Gas (Non-GAAP) | | 11,569 |
| | 10,939 |
| | 6 | % | | 439 |
| | 402 |
| | 9 | % | | 3.8 | % | | 3.7 | % | 0.1pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions | | 4 |
| | 112 |
| | | | — |
| | 19 |
| | | | | | | |
| Less: foreign currency effect | | (286 | ) | | — |
| | | | (13 | ) | | — |
| | | | | | | |
| Adjusted Oil & Gas organic (Non-GAAP) | | $ | 11,851 |
| | $ | 10,827 |
| | 9 | % | | $ | 452 |
| | $ | 383 |
| | 18 | % | | 3.8 | % | | 3.5 | % | 0.3pts |
| | | | | | | | | | | | | | | | | | |
| GE Industrial segment (GAAP) | | 52,479 |
| | 53,181 |
| | (1 | )% | | 4,887 |
| | 5,518 |
| | (11 | )% | | 9.3 | % | | 10.4 | % | (1.1)pts |
| Less: restructuring & other (GE share) | | | | | | | | (194 | ) | | (473 | ) | | | | | | | |
Adjusted GE Industrial segment
(Non-GAAP) | | 52,479 |
| | 53,181 |
| | (1 | )% | | 5,081 |
| | 5,990 |
| | (15 | )% | | 9.7 | % | | 11.3 | % | (1.6)pts |
| Less: acquisitions | | 41 |
| | — |
| | | | (4 | ) | | — |
| | | | | | | |
| Less: business dispositions | | 9 |
| | 2,590 |
| | | | (46 | ) | | 242 |
| | | | | | | |
| Less: foreign currency effect | | (1,316 | ) | | — |
| | | | 91 |
| | — |
| | | | | | | |
GE Industrial segment organic
(Non-GAAP) | | 53,745 |
| | 50,591 |
| | 6 | % | | 5,040 |
| | 5,748 |
| | (12 | )% | | 9.4 | % | | 11.4 | % | (2.0)pts |
| | | | | | | | | | | | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
Organic revenue growth measures revenue growth excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting organic revenue growth separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenue growth" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.
We also believe that the variability in the revenue of our Power and Oil & Gas businesses may obscure underlying trends of our other industrial businesses. As a result, we have also presented our organic revenue growth measure excluding the revenues of our Power and Oil & Gas businesses.
*Non-GAAP Financial Measure
54 2017 3Q2019 2Q FORM 10-Q29
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | |
| OPERATING AND NON-OPERATING PENSION COST |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Service cost for benefits earned | $ | 267 |
| $ | 307 |
| | $ | 810 |
| $ | 913 |
|
| Prior service cost amortization | 73 |
| 76 |
| | 218 |
| 228 |
|
| Curtailment loss (gain) | — |
| — |
| | 43 |
| (1 | ) |
| Operating pension cost (Non-GAAP) | 340 |
| 383 |
| | 1,071 |
| 1,140 |
|
| | | | | | |
| Expected return on plan assets | (847 | ) | (837 | ) | | (2,545 | ) | (2,507 | ) |
| Interest cost on benefit obligations | 715 |
| 736 |
| | 2,144 |
| 2,205 |
|
| Net actuarial loss amortization | 702 |
| 612 |
| | 2,109 |
| 1,836 |
|
| Non-operating pension cost (Non-GAAP) | 570 |
| 511 |
| | 1,708 |
| 1,534 |
|
| Total principal pension plans cost (GAAP) | $ | 910 |
| $ | 894 |
| | $ | 2,779 |
| $ | 2,674 |
|
|
| | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN | Three months ended June 30 | | Six months ended June 30 |
(EXCLUDING CERTAIN ITEMS) (NON-GAAP) (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GE Industrial revenues (GAAP) | $ | 26,833 |
| $ | 27,137 |
| | $ | 52,242 |
| $ | 53,159 |
|
| | | | | | |
| Costs | | | | | |
| GE Industrial costs and expenses (GAAP) | $ | 27,194 |
| $ | 26,764 |
| | $ | 52,259 |
| $ | 52,379 |
|
| Less: GE interest and other financial charges | 444 |
| 686 |
| | 1,032 |
| 1,326 |
|
| Less: non-operating benefit costs | 554 |
| 688 |
| | 1,115 |
| 1,369 |
|
| Less: restructuring & other | 382 |
| 610 |
| | 690 |
| 1,270 |
|
| Less: goodwill impairments | 744 |
| — |
| | 744 |
| — |
|
| Add: noncontrolling interests | (23 | ) | (134 | ) | | 36 |
| (100 | ) |
| Adjusted GE Industrial costs (Non-GAAP) | $ | 25,047 |
| $ | 24,646 |
| | $ | 48,714 |
| $ | 48,314 |
|
| | | | | | |
| Other Income | | | | | |
| GE other income (GAAP) | $ | (1 | ) | $ | 866 |
| | $ | 883 |
| $ | 1,057 |
|
| Less: unrealized gains (losses) | (51 | ) | 266 |
| | (38 | ) | 266 |
|
| Less: restructuring & other | — |
| — |
| | 9 |
| (3 | ) |
| Less: gains (losses) and impairments for disposed or held for sale businesses | (196 | ) | 329 |
| | 169 |
| 263 |
|
| Adjusted GE other income (Non-GAAP) | $ | 246 |
| $ | 270 |
| | $ | 743 |
| $ | 532 |
|
| | | | | | |
| GE Industrial profit (GAAP) | $ | (362 | ) | $ | 1,239 |
| | $ | 866 |
| $ | 1,838 |
|
| GE Industrial profit margin (GAAP) | (1.3 | )% | 4.6 | % | | 1.7 | % | 3.5 | % |
| | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,032 |
| $ | 2,762 |
| | $ | 4,271 |
| $ | 5,377 |
|
| Adjusted GE Industrial profit margin (Non-GAAP) | 7.6 | % | 10.2 | % | | 8.2 | % | 10.1 | % |
| | | | | | |
| We believe that GE Industrial profit and profit margins adjusted for the items included in the above reconciliation are meaningful measures because they increase the comparability of period-to-period results. |
We have provided the operating and non-operating components of cost for our principal pension plans. Operating pension cost comprise the service cost of benefits earned, prior service cost amortization and curtailment loss (gain) for our principal pension plans. Non-operating pension cost comprise the expected return on plan assets, interest cost on benefit obligations and net actuarial loss amortization for our principal pension plans. We believe that the operating components of pension cost better reflects the ongoing service-related cost of providing pension benefits to our employees. We believe that the operating and non-operating components of cost for our principal pension plans, considered along with the corresponding GAAP measure, provide management and investors with additional information for comparison of our pension plan cost and operating results with the pension plan cost and operating results of other companies.
|
| | | | | | | | | | | | | |
| ADJUSTED CORPORATE COSTS (OPERATING) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Total Corporate Items and Eliminations (GAAP) | $ | (1,095 | ) | $ | (1,524 | ) | | $ | (4,687 | ) | $ | (2,120 | ) |
| Less: non-operating pension cost (Non-GAAP) | (570 | ) | (511 | ) | | (1,708 | ) | (1,534 | ) |
| Total Corporate costs (operating) (Non-GAAP) | $ | (525 | ) | $ | (1,012 | ) | | $ | (2,979 | ) | $ | (586 | ) |
| Less: restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
| Less: gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted total corporate costs (operating) (Non-GAAP) | $ | (396 | ) | $ | (538 | ) | | $ | (1,124 | ) | $ | (1,424 | ) |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL ORGANIC PROFIT | Three months ended June 30 | | Six months ended June 30 |
(NON-GAAP) (In millions) | 2019 |
| 2018 |
| V% | | 2019 |
| 2018 |
| V% |
| | | | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,032 |
| $ | 2,762 |
| (26) | % | | $ | 4,271 |
| $ | 5,377 |
| (21 | )% |
| Adjustments: | | | | | | | |
| Less: acquisitions | (4 | ) | — |
| | | (4 | ) | — |
| |
| Less: business dispositions | (10 | ) | 134 |
| | | (55 | ) | 220 |
| |
| Less: foreign currency effect | 47 |
| — |
| | | 98 |
| — |
| |
| Adjusted GE Industrial organic profit (Non-GAAP) | $ | 2,000 |
| $ | 2,628 |
| (24) | % | | $ | 4,232 |
| $ | 5,157 |
| (18 | )% |
| | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. |
Operating corporate costs exclude non-service-related pension costs of our principal pension plans, which comprise interest costs, expected return on plan assets and amortization of actuarial gains/losses. Service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating corporate costs. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. Accordingly, we believe that our measure of operating corporate costs provides management and investors with a useful measure of the operational costs incurred outside of our businesses. We believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating corporate costs to the operating corporate costs of other companies.
We also believe that adjusting operating corporate costs to exclude the effects of items that are not closely associated with ongoing corporate operations, such as earnings of previously divested businesses, gains and losses on disposed and held for sale businesses, and restructuring and other charges, provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
*Non-GAAP Financial Measure
2017 3Q30 2019 2Q FORM 10-Q55
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | |
| GE PRE-TAX EARNINGS FROM CONTINUING OPERATIONS, EXCLUDING GE CAPITAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND THE CORRESPONDING EFFECTIVE TAX RATES |
| | Three months ended September 30 | Nine months ended September 30 |
| (Dollars in millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| GE earnings from continuing operations before income taxes (GAAP) | $ | 1,701 |
| $ | 2,263 |
| | $ | 4,162 |
| $ | 6,405 |
|
| Less: GE Capital earnings (loss) from continuing operations | $ | 24 |
| $ | 26 |
| | $ | (195 | ) | $ | (1,466 | ) |
| Adjusted earnings from continuing operations before income taxes (Non-GAAP) | $ | 1,677 |
| $ | 2,237 |
| | $ | 4,357 |
| $ | 7,871 |
|
| | | | | | |
| GE (excluding GE Capital) provision for income taxes - continuing operations (GAAP) | $ | (64 | ) | $ | 241 |
| | $ | 297 |
| $ | 1,034 |
|
| GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | (4 | )% | 11 | % | | 7 | % | 13 | % |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended June 30 | | Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | (291 | ) | $ | 679 |
| U |
| | $ | 663 |
| $ | 940 |
| (29 | )% |
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (89 | ) | (207 | ) | | | 46 |
| (422 | ) | |
| GE Industrial earnings (loss) (Non-GAAP) | (202 | ) | 886 |
| U |
| | 617 |
| 1,362 |
| (55 | )% |
| Non-operating benefits costs (pre-tax) (GAAP) | (554 | ) | (688 | ) | | | (1,115 | ) | (1,369 | ) | |
| Tax effect on non-operating benefit costs | 116 |
| 144 |
| | | 234 |
| 287 |
| |
| Less: non-operating benefit costs (net of tax) | (437 | ) | (543 | ) | | | (881 | ) | (1,081 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (196 | ) | 329 |
| | | 169 |
| 263 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | 16 |
| (129 | ) | | | 52 |
| (105 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (179 | ) | 200 |
| | | 221 |
| 158 |
| |
| Restructuring & other (pre-tax) | (382 | ) | (610 | ) | | | (681 | ) | (1,139 | ) | |
| Tax effect on restructuring & other(a) | 88 |
| (79 | ) | | | 144 |
| 55 |
| |
| Less: restructuring & other (net of tax) | (295 | ) | (689 | ) | | | (538 | ) | (1,084 | ) | |
| Goodwill impairments (pre-tax) | (744 | ) | — |
| | | (744 | ) | — |
| |
| Tax effect on goodwill impairments(a) | (55 | ) | — |
| | | (55 | ) | — |
| |
| Less: goodwill impairments (net of tax) | (799 | ) | — |
| | | (799 | ) | — |
| |
| Unrealized gains (losses) | (51 | ) | 266 |
| | | (38 | ) | 266 |
| |
| Tax on unrealized gains (losses) | 11 |
| (56 | ) | | | 8 |
| (56 | ) | |
| Less: unrealized gains (losses) | (40 | ) | 210 |
| | | (30 | ) | 210 |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| (24 | ) | | | (101 | ) | (55 | ) | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,549 |
| $ | 1,732 |
| (11 | )% | | $ | 2,745 |
| $ | 3,215 |
| (15 | )% |
| | | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (89 | ) | (207 | ) | 57 | % | | 46 |
| (422 | ) | F |
|
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 99 |
| (45 | ) | |
| Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | (89 | ) | $ | (207 | ) | 57 | % | | $ | (53 | ) | $ | (377 | ) | 86 | % |
| | | | | | | | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,549 |
| $ | 1,732 |
| (11 | )% | | $ | 2,745 |
| $ | 3,215 |
| (15 | )% |
| Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | (89 | ) | (207 | ) | 57 | % | | (53 | ) | (377 | ) | |
| Adjusted earnings (loss) (Non-GAAP) | $ | 1,460 |
| $ | 1,525 |
| (4 | )% | | $ | 2,692 |
| $ | 2,838 |
| (5 | )% |
| | | | | | | | |
| (a) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges. |
We believe that the GE effective tax rate is best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. Management believes that in addition to the Consolidated and GE Capital tax rates shown in Note 14 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses.
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL OPERATING EARNINGS AND GE CAPITAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND EPS |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions; except per-share amounts) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | 1,905 |
| $ | 2,097 |
| (9 | )% | | $ | 4,101 |
| $ | 5,645 |
| (27 | )% |
| Non-operating pension cost | 570 |
| 511 |
| | | 1,708 |
| 1,534 |
| |
| Tax effect on non-operating pension cost(a) | (199 | ) | (179 | ) | | | (597 | ) | (537 | ) | |
| Adjustment: non-operating pension cost (net of tax) | 371 |
| 332 |
| | | 1,111 |
| 997 |
| |
| Operating earnings (loss) (Non-GAAP) | 2,276 |
| 2,429 |
| (6 | )% | | 5,212 |
| 6,642 |
| (22 | )% |
| | | | | | | | |
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners | 24 |
| 26 |
| | | (195 | ) | (1,466 | ) | |
| Industrial operating earnings (loss) (Non-GAAP) | $ | 2,252 |
| $ | 2,404 |
| (6 | )% | | $ | 5,407 |
| $ | 8,109 |
| (33 | )% |
| | | | | | | | |
| Earnings (loss) per share (EPS) – diluted(b) | | | | | | | |
| Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | 0.22 |
| $ | 0.23 |
| (4 | )% | | $ | 0.47 |
| $ | 0.61 |
| (23 | )% |
| Adjustment: non-operating pension cost (net of tax) | 0.04 |
| 0.04 |
| | | 0.13 |
| 0.11 |
| |
| Operating EPS (Non-GAAP) | 0.26 |
| 0.27 |
| (4 | )% | | 0.59 |
| 0.72 |
| (18 | )% |
| Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | — |
| — |
| 0 | % | | (0.02 | ) | (0.16 | ) | 88 | % |
| Industrial operating EPS (Non-GAAP) | $ | 0.26 |
| $ | 0.27 |
| (4 | )% | | $ | 0.61 |
| $ | 0.88 |
| (31 | )% |
| |
(a) | The tax effect on non-operating pension cost was calculated using a 35% U.S. federal statutory tax rate, based on its applicability to such cost. |
| |
(b) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
Operating earnings (loss) excludes non-service related pension cost of our principal pension plans, comprising interest cost, expected return on plan assets and amortization of actuarial gains/losses. The service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating earnings. We believe that these components of pension cost better reflect the ongoing service-related cost of providing pension benefits to our employees. As such, we believe that our measure of operating earnings (loss) provides management and investors with a useful measure of the operational results of our business. Other components of GAAP pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Neither GAAP nor operating pension cost are necessarily indicative of the current or future cash flow requirements related to our pension plans. We believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating results to the operating results of other companies. We also believe that presenting operating earnings separately for our industrial businesses provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company.
56 2017 3Q2019 2Q FORM 10-Q31
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL OPERATING + VERTICALS EARNINGS AND EPS |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions; except per-share amounts) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | 24 |
| $ | 26 |
| (8 | )% | | $ | (195 | ) | $ | (1,466 | ) | 87 | % |
| Less: GE Capital other continuing earnings (loss) (Other Capital)(a) | (275 | ) | (441 | ) | | | (1,573 | ) | (2,881 | ) | |
| Verticals earnings(b) | 299 |
| 466 |
| (36 | )% | | 1,377 |
| 1,414 |
| (3 | )% |
| Industrial operating earnings (Non-GAAP) | 2,252 |
| 2,404 |
| (6 | )% | | 5,407 |
| 8,109 |
| (33 | )% |
| Industrial operating earnings + Verticals earnings (Non-GAAP) | $ | 2,550 |
| $ | 2,870 |
| (11 | )% | | $ | 6,784 |
| $ | 9,523 |
| (29 | )% |
| | | | | | | | |
| Earnings (loss) per share (EPS) - diluted(c) | | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareowners | $ | — |
| $ | — |
| — | % | | $ | (0.02 | ) | $ | (0.16 | ) | 88 | % |
| Less: GE Capital other continuing EPS (Other Capital) | (0.03 | ) | (0.05 | ) | | | (0.18 | ) | (0.31 | ) | |
| Verticals EPS | $ | 0.03 |
| $ | 0.05 |
| (40 | )% | | $ | 0.16 |
| $ | 0.15 |
| 7 | % |
| Industrial operating EPS (Non-GAAP) | 0.26 |
| 0.27 |
| (4 | )% | | 0.61 |
| 0.88 |
| (31 | )% |
| Industrial operating + Verticals EPS (Non-GAAP) | $ | 0.29 |
| $ | 0.32 |
| (9 | )% | | $ | 0.77 |
| $ | 1.03 |
| (25 | )% |
| | | | | | | | |
Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP)
| $ | 0.22 |
| $ | 0.23 |
| (4 | )% | | $ | 0.47 |
| $ | 0.61 |
| (23 | )% |
| Less: non-operating pension cost (net of tax) | (0.04 | ) | (0.04 | ) | | | (0.13 | ) | (0.11 | ) | |
| Less: Other Capital | (0.03 | ) | (0.05 | ) | | | (0.18 | ) | (0.31 | ) | |
| Industrial operating + Verticals EPS (Non-GAAP) | $ | 0.29 |
| $ | 0.32 |
| (9 | )% | | $ | 0.77 |
| $ | 1.03 |
| (25 | )% |
| |
(a) | Includes interest on non-Verticals borrowings, restructuring costs and allocations of GE and GE Capital headquarters costs in excess of those allocated to the Verticals. |
| |
(b) | Verticals include businesses expected to be retained (GECAS, Energy Financial Services, Industrial Finance, and run-off insurance activities), including allocated corporate after-tax costs of $25 million in both the three months ended September 30, 2017 and 2016, and $75 million in both the nine months ended September 30, 2017 and 2016. |
| |
(c) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) | Three months ended June 30 | | Six months ended June 30 |
| (NON-GAAP) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | (0.03 | ) | $ | 0.08 |
| U |
| | $ | 0.07 |
| $ | 0.11 |
| (36 | )% |
| Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.01 | ) | (0.02 | ) | | | 0.01 |
| (0.05 | ) | |
| GE Industrial EPS (Non-GAAP) | $ | (0.02 | ) | $ | 0.10 |
| U |
| | $ | 0.07 |
| $ | 0.16 |
| (56 | )% |
| Non-operating benefits costs (pre-tax) (GAAP) | (0.06 | ) | (0.08 | ) | | | (0.13 | ) | (0.16 | ) | |
| Tax effect on non-operating benefit costs | 0.01 |
| 0.02 |
| | | 0.03 |
| 0.03 |
| |
| Less: non-operating benefit costs (net of tax) | (0.05 | ) | (0.06 | ) | | | (0.10 | ) | (0.12 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (0.02 | ) | 0.04 |
| | | 0.02 |
| 0.03 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | — |
| (0.01 | ) | | | 0.01 |
| (0.01 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (0.02 | ) | 0.02 |
| | | 0.03 |
| 0.02 |
| |
| Restructuring & other (pre-tax) | (0.04 | ) | (0.07 | ) | | | (0.08 | ) | (0.13 | ) | |
| Tax effect on restructuring & other(a) | 0.01 |
| (0.01 | ) | | | 0.02 |
| 0.01 |
| |
| Less: restructuring & other (net of tax) | (0.03 | ) | (0.08 | ) | | | (0.06 | ) | (0.12 | ) | |
| Goodwill impairments (pre-tax) | (0.09 | ) | — |
| | | (0.09 | ) | — |
| |
| Tax effect on goodwill impairments(a) | (0.01 | ) | — |
| | | (0.01 | ) | — |
| |
| Less: goodwill impairments (net of tax) | (0.09 | ) | — |
| | | (0.09 | ) | — |
| |
| Unrealized gains (losses) | (0.01 | ) | 0.03 |
| | | — |
| 0.03 |
| |
| Tax on unrealized gains (losses) | — |
| (0.01 | ) | | | — |
| (0.01 | ) | |
| Less: unrealized gains (losses) | — |
| 0.02 |
| | | — |
| 0.02 |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (0.01 | ) | (0.01 | ) | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.18 |
| $ | 0.20 |
| (10 | )% | | $ | 0.31 |
| $ | 0.37 |
| (16 | )% |
| | | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.01 | ) | (0.02 | ) | 50 | % | | 0.01 |
| (0.05 | ) | F |
|
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 0.01 |
| (0.01 | ) | |
| Adjusted GE Capital EPS (Non-GAAP) | $ | (0.01 | ) | $ | (0.02 | ) | 50 | % | | $ | (0.01 | ) | $ | (0.04 | ) | 75 | % |
| | | | | | | | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.18 |
| $ | 0.20 |
| (10 | )% | | $ | 0.31 |
| $ | 0.37 |
| (16 | )% |
| Add: Adjusted GE Capital EPS (Non-GAAP) | (0.01 | ) | (0.02 | ) | 50 | % | | (0.01 | ) | (0.04 | ) | |
| Adjusted EPS (Non-GAAP) | $ | 0.17 |
| $ | 0.18 |
| (6 | )% | | $ | 0.31 |
| $ | 0.33 |
| (6 | )% |
| | | | | | | | |
| (a) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges. |
| Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
| The service cost for our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe that the retained costs in Adjusted earnings and EPS* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2019. We believe that presenting Adjusted Industrial earnings and EPS* separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. |
As described above, Verticals represents the GE Capital businesses that we expect to retain. We believe that presenting Industrial operating + Verticals earnings-per-share amounts provides management and investors with a useful measure to evaluate the performance of the businesses we expect to retain after the disposition of most of our financial services business.
*Non-GAAP Financial Measure
2017 3Q32 2019 2Q FORM 10-Q57
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | |
| INDUSTRIAL OPERATING PROFIT AND OPERATING PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Revenues | | | | | |
| GE total revenues and other income | $ | 31,603 |
| $ | 27,172 |
| | $ | 84,506 |
| $ | 82,382 |
|
| Less: GE Capital earnings (loss) from continuing operations | 24 |
| 26 |
| | (195 | ) | (1,466 | ) |
| GE revenues and other income excluding GE Capital earnings (loss) (Industrial revenues) (GAAP) | 31,580 |
| 27,146 |
| | 84,701 |
| 83,848 |
|
| | | | | | |
| Less: gains on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted Industrial revenues (Non-GAAP) | $ | 29,682 |
| $ | 26,938 |
| | $ | 82,801 |
| $ | 80,453 |
|
| | | | | | |
| Costs | | | | | |
| GE total costs and expenses | $ | 29,903 |
| $ | 24,909 |
| | $ | 80,344 |
| $ | 75,977 |
|
| Less: GE interest and other financial charges | 718 |
| 483 |
| | 1,918 |
| 1,490 |
|
| Industrial costs excluding interest and other financial charges (GAAP) | 29,185 |
| 24,426 |
| | 78,426 |
| 74,487 |
|
| | | | | | |
| Less: non-operating pension cost | 570 |
| 511 |
| | 1,708 |
| 1,534 |
|
| Less: restructuring and other charges | 2,294 |
| 683 |
| | 4,022 |
| 2,557 |
|
| Less: noncontrolling interests | 140 |
| 76 |
| | 236 |
| 275 |
|
| Adjusted Industrial costs (Non-GAAP) | $ | 26,181 |
| $ | 23,156 |
| | $ | 72,459 |
| $ | 70,121 |
|
| | | | | | |
| Industrial profit (GAAP) | 2,394 |
| 2,720 |
| | 6,275 |
| 9,361 |
|
| Industrial margins (GAAP) | 7.6 | % | 10.0 | % | | 7.4 | % | 11.2 | % |
| | | | | | |
| Industrial operating profit (Non-GAAP) | $ | 3,501 |
| 3,782 |
| | $ | 10,342 |
| $ | 10,332 |
|
| Industrial operating profit margins (Non-GAAP) | 11.8 | % | 14.0 | % | | 12.5 | % | 12.8 | % |
|
| | | | | | |
| GE INDUSTRIAL FREE CASH FLOWS (FCF) AND ADJUSTED GE INDUSTRIAL FCF (NON-GAAP) | Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| GE CFOA (GAAP) | $ | (842 | ) | $ | (850 | ) |
| Add: gross additions to property, plant and equipment | (1,684 | ) | (1,595 | ) |
| Add: gross additions to internal-use software | (163 | ) | (169 | ) |
| Less: GE Pension Plan funding | — |
| (921 | ) |
| Less: taxes related to business sales | (108 | ) | (17 | ) |
| GE Industrial Free Cash Flows (Non-GAAP) | $ | (2,581 | ) | $ | (1,675 | ) |
| | | |
| Less: Oil & Gas CFOA | 410 |
| 433 |
|
| Less: Oil & Gas gross additions to property, plant and equipment | (568 | ) | (399 | ) |
| Less: Oil & Gas gross additions to internal-use software | (26 | ) | (17 | ) |
| Add: BHGE Class B shareholder dividend | 188 |
| 253 |
|
| Adjusted GE Industrial Free Cash Flows (Non-GAAP) | $ | (2,209 | ) | $ | (1,440 | ) |
| | | |
| We believe that this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. In addition, we report Adjusted GE Industrial Free Cash Flows* in order to provide a more fair representation of the cash that we are entitled to utilize in a given period. We also use Adjusted GE Industrial Free Cash Flows* as a performance metric at the company-wide level for our annual executive incentive plan. |
|
| | | | | | | |
| INDUSTRIAL OPERATING PROFIT EXCLUDING POWER AND OIL & GAS (NON-GAAP) |
| | | Three months ended September 30 |
| (In millions) | | 2017 |
| 2016 |
| V% |
|
| | | | | |
| | | | | |
| Industrial operating profit (Non-GAAP from above) | | 3,501 |
| 3,782 |
| |
| Less: Power segment profit | | 611 |
| 1,259 |
| |
| Less: Oil & Gas segment profit, excluding restructuring and other charges | | 231 |
| 353 |
| |
| Industrial operating profit excluding Power and Oil & Gas (Non-GAAP) | | 2,659 |
| 2,169 |
| 23 | % |
|
| | | | | | |
GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions) | June 30, 2019 |
| December 31, 2018 |
|
| | | |
| Total GE short- and long-term borrowings (GAAP) | $ | 66,822 |
| $ | 68,543 |
|
| Less: GE Capital short- and long-term debt assumed by GE | 34,972 |
| 36,262 |
|
| Less: BHGE total borrowings | 6,292 |
| 6,330 |
|
| Add: intercompany loans from GE Capital | 13,749 |
| 13,749 |
|
| Total adjusted GE borrowings | $ | 39,307 |
| $ | 39,700 |
|
| Total pension and retiree benefit plan liabilities (pre-tax)(a) | 27,159 |
| 27,159 |
|
| Less: taxes at 21% | 5,703 |
| 5,703 |
|
| Total pension and retiree benefit plan liabilities (net of tax) | $ | 21,456 |
| $ | 21,456 |
|
| GE operating lease liabilities(b) | 4,302 |
| 5,550 |
|
| Less: BHGE operating lease liabilities | 831 |
| 1,682 |
|
| Total operating lease liabilities excluding BHGE | $ | 3,470 |
| $ | 3,868 |
|
| GE preferred stock | 5,653 |
| 5,573 |
|
| Less: 50% of GE preferred stock | 2,827 |
| 2,787 |
|
| 50% of preferred stock | $ | 2,827 |
| $ | 2,787 |
|
| Deduction for total GE cash, cash equivalents and restricted cash | (20,055 | ) | (20,355 | ) |
| Less: BHGE cash, cash equivalents and restricted cash | (3,138 | ) | (3,723 | ) |
| Deduction for total GE cash, cash equivalents and restricted cash, excluding BHGE | $ | (16,917 | ) | $ | (16,632 | ) |
| Less: 25% of GE cash, cash equivalents and restricted cash, excluding BHGE | (4,229 | ) | (4,158 | ) |
| Deduction for 75% of GE cash, cash equivalents and restricted cash, excluding BHGE | $ | (12,688 | ) | $ | (12,474 | ) |
| Total GE Industrial net debt (Non-GAAP) | $ | 54,372 |
| $ | 55,335 |
|
| | | |
| (a) Represents the total underfunded status of Principal pension plans ($18,491 million), Other pension plans ($3,877 million), and Retiree health and life benefit plans ($4,791 million) at December 31, 2018. The funded status of our benefit plans is updated annually in the fourth quarter. |
(b) Operating lease liabilities at December 31, 2018 were derived using the former rating agency methodology of multiplying annual rental expense by 3. With the January 1, 2019 adoption of ASU No. 2016-02, Leases, operating lease liabilities are now presented on the Statement of Financial Position. |
| |
| In this document we use GE Industrial net debt*, which is calculated based on rating agency methodologies. There is significant uncertainty around the timing and events that could give rise to items included in the determination of this metric, including the timing of pension funding, proceeds from dispositions, and the impact of interest rates on our pension assets and liabilities. We are including the calculation of GE industrial net debt* to provide investors more clarity regarding how the credit rating agencies measure GE Industrial leverage. |
| |
(a) | Oil & Gas segment profit of $(36) million, excluding restructuring and other charges of $267 million, was $231 million for the three months ended September 30, 2017. |
We have presented our Industrial operating profit and operating profit margin excluding gains, non-operating pension cost, restructuring and other charges and noncontrolling interests. We believe that Industrial operating profit and operating profit margin adjusted for these items are meaningful measures because they increase the comparability of period-to-period results. In addition, we have presented our industrial operating profit measure excluding the segment profit of the Power business and the segment profit of the Oil & Gas business, excluding restructuring and other charges as we believe that the variability in the operating profit of our Power and Oil & Gas businesses may obscure underlying trends of our other industrial businesses.
*Non-GAAP FInancial Measure
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | |
| INDUSTRIAL CASH FLOWS FROM OPERATING ACTIVITIES (INDUSTRIAL CFOA) AND INDUSTRIAL CFOA EXCLUDING DEAL TAXES AND GE PENSION PLAN FUNDING |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% |
|
| | | | |
| Cash from GE's operating activities (continuing operations), as reported (GAAP) | $ | 4,050 |
| $ | 18,342 |
| (78 | )% |
| Adjustments: dividends from GE Capital | 4,016 |
| 16,050 |
| |
| Industrial CFOA (Non-GAAP) | $ | 34 |
| $ | 2,292 |
| 99 | % |
| Adjustments: | | | |
| Deal taxes | 112 |
| 1,076 |
| |
| GE Pension Plan funding | 1,431 |
| — |
| |
| Industrial CFOA excluding deal taxes and GE Pension Plan funding (Non-GAAP) | $ | 1,577 |
| $ | 3,368 |
| U |
|
We define “Industrial CFOA” as GE’s cash from operating activities (continuing operations) less the amount of dividends received by GE from GE Capital. This reflects the effects of intercompany transactions, which include, but are not limited to, the following: GE Capital working capital solutions to optimize GE cash management; GE Capital enabled GE industrial orders; aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment; expenses related to parent-subsidiary pension plans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions; information technology (IT) and other services sold to GE Capital by GE; and various investments, loans and allocations of GE corporate overhead costs.
We believe that investors may find it useful to compare GE's operating cash flows without the effect of GE Capital dividends, since these dividends are not representative of the operating cash flows of our industrial businesses and can vary from period-to-period based upon the results of the financial services businesses. We also believe that investors may find it useful to compare Industrial CFOA excluding the effects of deal taxes paid related to the 2016 Appliances sale, the 2017 Baker Hughes transaction and contributions to our GE Pension Plan. Management recognizes that these measures may not be comparable to cash flow results of companies which contain both industrial and financial services businesses, but believes that this comparison is aided by the provision of additional information about the amounts of dividends paid by our financial services business and the separate presentation in our financial statements of the GE Capital cash flows. We believe that our measure of Industrial CFOA and Industrial CFOA excluding deal-related taxes and GE Pension Plan contributions provides management and investors with useful measures to compare the capacity of our industrial operations to generate operating cash flow with the operating cash flow of other non-financial businesses and companies and as such provides useful measures to supplement the reported GAAP CFOA measure.
2017 3Q2019 2Q FORM 10-Q 5933
CONTROLS AND PROCEDURES
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of September
June 30, 2017,2019, and (ii) no change in internal control over financial reporting occurred during the quarter ended SeptemberJune 30, 2017,2019, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSPURCHASERS.GE did not repurchase any equity securities during the three months ended June 30, 2019, and no repurchase program has been authorized.
RISK FACTORS
The risk factor set forth below updates the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019. These risk factors could materially affect our business, financial position and results of operations.
Interest rate sensitivities - We have significant pension and run-off insurance liabilities that are sensitive to market interest rates; lower interest rates could adversely affect our earnings and cash flows, as well as the pace of progress toward our leverage goals.
As described in the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2018, our businesses and financial results are subject to the effects of macroeconomic conditions such as slowing or negative economic growth, recession and lower market interest rates. In particular, our pension and run-off insurance liabilities are sensitive to changes in market interest rates that can impact the discount rates that we will use in our insurance reserve GAAP calculations in the third quarter and in our pension and insurance statutory calculations in the fourth quarter. Holding all other variables constant, the persistence of low interest rates that we have observed in 2019, or continuing declines in interest rates, would increase the present value of our pension and insurance liabilities when we perform those upcoming annual calculations. We continue to expect that we will achieve our leverage goals, but an increase in our pension benefit obligations resulting from significant further declines in interest rates could pose a risk to achieving those goals as planned and, potentially, to our credit ratings, depending on several factors, including the pace and scope of our de-leveraging actions and mitigating actions that we may take. Lower interest rates may also affect the amount of cash that we are required to contribute to pension plans under the Employee Retirement Income Security Act (ERISA), although we continue to expect that our contributions to the GE Pension Plan in 2018 will satisfy our minimum ERISA funding requirements for 2019 and 2020. Although there is not a perfect correlation between market interest rates and the discount rate, declines in our discount rate assumptions for our insurance operations, as described above and in the Capital section within MD&A, would increase future policy benefit reserves on a GAAP basis, as well as under the statutory rules used for calculating the amount of capital to be contributed to our insurance operations. A number of variables and assumptions in addition to discount rates are relevant to the calculation of the present value of our pension and insurance liabilities, including compensation increases, healthcare trend rates and expected return on assets for pension liabilities, and morbidity, mortality and future long-term care premium increases for insurance. Refer also to the discount rate sensitivities included for our pension benefit obligations in “Critical Accounting Estimates” and for our run-off insurance operations in “Other Items” in our Annual Report on Form 10-K for the year ended December 31, 2018, as well as to the interest rate sensitivities in “Capital Resources and Liquidity” for a description of interest rate risks related to our debt and to the risk factors regarding “Global macro-environment,” “Leverage & borrowings,” “Liquidity,” “Economy, customers & counterparties,” “GE Capital” and “Social costs.”
|
| | | | | | | | | | |
| Period | Total number of shares purchased |
| Average price paid per share |
| Total number of shares purchased as part of our share repurchase program(a) |
| Approximate dollar value of shares that may yet be purchased under our share repurchase program(a) |
|
| (Shares in thousands) | | | | |
| | | | | |
| 2017 | | | | |
| July | 696 |
| $ | 26.23 |
| 696 |
| |
| August | 1,132 |
| 24.99 |
| 1,132 |
| |
| September | 899 |
| 24.39 |
| 899 |
| |
| Total | 2,727 |
| $ | 25.11 |
| 2,727 |
| $ | 21 | billion |
| |
(a) | Shares were repurchased through the 2015 GE Share Repurchase Program (the Program). As of September 30, 2017, we were authorized to repurchase up to $50 billion of our common stock through 2018 and we had repurchased a total of approximately $29 billion under the Program. The Program is flexible and shares will be acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. |
2017 3Q34 2019 2Q FORM 10-Q61
LEGAL PROCEEDINGS
The following information supplements and amends our discussion set forth under “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162018 and our Quarterly ReportsReport on Form 10-Q for the quartersquarter ended March 31, 20172019. We also incorporate the information reported under "Legal Proceedings" in Baker Hughes, a GE company's most recent Form 10-K report and updates in its Form 10-Q reports.
WMC.At June 30, 2017.
WMC. There are 5 lawsuits2019, there was one active lawsuit in which our discontinued U.S. mortgage business, WMC, is a party. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. While the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase) and/or monetary damages. Beginning in the fourth quarter 2013, WMC entered into settlements that reduced its exposure on claims asserted in certain securitizations, and the claim amounts reported herein reflect the effect of these settlements.
At September 30, 2017, five WMC cases werelawsuit is pending in the United States District Court for the District of Connecticut. Four of these cases were initiated in 2012, and one was initiated in the third quarter 2013. Deutsche Bank National Trust Company (Deutsche Bank) is the adverse party in four cases, and TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, is the adverse party in one case. The Deutsche Bank complaints assert claims on approximately $4,300 million of mortgage loans and seek to recover damages in excess of approximately $1,800 million. The TMI complaint assertsasserting claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of approximately $425 million. Trial in this case commenced in January 2018. The parties concluded their presentation of evidence and delivered closing arguments in June 2018. Based on a joint application by the parties and subsequent renewals, the District Court has stayed the proceedings in light of ongoing settlement negotiations. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out ofApril 2019, the four securitizationssecuritization trustee notified the bondholders in SABR 2006-WM2, the securitization trust at issue in the Connecticut lawsuits, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructionslawsuit, of a proposed settlement of the lawsuit and requested that Deutsche Bank’s entry intobondholders express any view on whether the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust’s governing documents. No bondholder in any of these securitizations has objected totrustee should accept or reject the proposed settlements. On July 17, 2017,settlement. The amount of the court entered a judgment and order granting Deutsche Bank’s petitions. The period to file an appeal expired October 9, 2017, and the underlying lawsuits were dismissed by stipulation on October 13, 2017. On August 25, 2017, the presiding judgeclaim at issue in the TMI case entered an order setting a trial date of January 16, 2018.
Four cases are pending against WMC in New York State Supreme Court, all of which were initiated by securitization trustees or securities administrators. These cases involve, in the aggregate, claims involving approximately $4,559 million of mortgage loans. One of these lawsuits was initiated by Deutsche Bank in the second quarter 2013 and names as defendants WMC and Barclays Bank PLC. It involves claims against WMC on approximately $1,000 million of mortgage loans and does not specify the amount of damages sought. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the two securitizations at issue in this lawsuit, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructions that Deutsche Bank’s entry into the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust’s governing documents. Bondholders in these two securitizations have filed objections to the proposed settlements and are seeking discovery in connection with their objections. The court has scheduled the next hearing on these objections for December 8, 2017. The second case, in which the plaintiff is The Bank of New York Mellon (BNY), was initiated in the fourth quarter 2012 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $650 million. In the second quarter, WMC and J.P. Morgan reached an agreement with the securitization trustee to settle this case, subject to court approval, and the trustee filed an action in Minnesota state court seeking such approval on July 11, 2017. The court held an initial hearing in this matter on September 11, 2017, at which no bondholder objected to the settlement, and entered an order approving the settlement on October 4, 2017. With this settlement now final, we expect the underlying lawsuit will be dismissed in the fourth quarter. The third case was initiated by BNY in November 2013 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. In this case, BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $600 million. On September 18, 2015, the court granted defendants’ motion to dismiss this case on statute of limitations grounds, and the plaintiff filed a notice of appeal on October 21, 2015. On May 11, 2017, the intermediate appellate court affirmed the dismissal of WMC, and the plaintiff is seeking leave to appeal this decision to the New York Court of Appeals. The fourth case was filed in October 2014 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. The plaintiff, BNY, asserts claims on approximately $959 million of mortgage loans and seeks to recover damages in excess of $475 million. On September 7, 2016, the court granted WMC’s motion to dismiss this case on statute of limitations grounds, and an appeal from this decision is pending in the intermediate appellate court. The latter two cases have been stayed pending the outcome of ongoing settlement negotiations.
At September 30, 2017, one case was pending against WMC in the United States District Court for the Southern District of New York. The case was initiated by the Federal Housing Finance Agency (FHFA) in the fourth quarter 2012. In the second quarter 2013, Deutsche Bank, in its role as securitization trustee, intervened as a plaintiff and filed a complaint relating to approximately $1,300 million of loans and alleging losses in excess of approximately $100 million. In December 2013, the District Court issued an order denying WMC’s motion to dismiss but, on its own motion, ordered re-briefing on several issues raised by WMC’s motion to dismiss in February 2015. On July 10, 2015, the District Court entered an order dismissing the lawsuit as time-barred under the applicable statute of limitations. Deutsche Bank filed a notice of appeal from this order of dismissal on August 13, 2015, and the United States Court of Appeals for the Second Circuit heard oral argument on June 10, 2016. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the securitization at issue in this lawsuit, subject to judicial approval. In October 2016, Deutsche Bank filed a petition for instruction in California state court seeking judicial instructions that Deutsche Bank’s entry into the settlement agreement was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of the trust’s governing documents. No bondholder in this securitization has objected to the proposed settlement. On July 17, 2017, the court entered a judgment and order granting Deutsche Bank’s petition. The period to file an appeal expired October 9, 2017, and the underlying lawsuit was dismissed on October 16, 2017.
The amounts of the claims at issue in these cases (discussed above) reflectreflects the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and dodoes not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. AllAs previously reported, WMC commenced a case in April 2019 under Chapter 11 of the mortgage loans involvedU.S. Bankruptcy Code in these lawsuits are includedthe United States Bankruptcy Court for the District of Delaware. WMC intends to file a Chapter 11 plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor, including the claim at issue in WMC’s reported claims at September 30, 2017.the TMI case. See Note 1819 to the consolidated financial statements for additionalfurther information.
On January 23, 2017, the ResCap Liquidating Trust, as successor to Residential Funding Company, LLC (RFC), filed a lawsuit seeking unspecified damages against WMC in the United States District Court for the District of Minnesota arising from alleged breaches in representations and warranties made by WMC in connection with the sale of approximately $840 million in loans to RFC over a period of time preceding RFC’s filing for bankruptcy protection in May 2012. On September 27, 2017, the parties entered into a settlement agreement, and the lawsuit was dismissed October 8, 2017.
In December 2015, we learned that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice is investigating potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and its affiliates arising out of the origination, purchase or sale of residential mortgage loans between January 1, 2005 and December 31, 2007. The Justice Department subsequently issued subpoenas to WMC and GE Capital, and we are cooperating with the Justice Department’s investigation, including providing documents and witnesses for interviews.
Alstom legacy matters.In connection with our acquisition of Alstom’s Thermal, Renewables and Grid businesses in November 2015, we are subject to legacy legal proceedings and legal compliance risks that relate to claimed anti-competitive conduct or improper payments by Alstom in the pre-acquisition period. See Note 1819 to the consolidated financial statements for additionalfurther information. As previously reported, these include legacy matters related to a September 2013 decision of the Israeli Antitrust Authority whereby Alstom, Siemens AG and ABB Ltd. were held liable for an alleged anti-competitive arrangement in the gas-insulated switchgears market in Israel. While there was no fine in connection with that decision, claimants brought civil actions in 2013 seeking damages of approximately $950 million and $600 million, respectively, related to the alleged conduct underlying the decision that are pending before the Central District Court in Israel. The parties have been working to finalize a settlement, which will be subject to court approval and is expected to be scheduled for a hearing in the second half of 2019.
EC merger notification objections.In July 2017, the European Commission (EC) issued a statement of objections with its preliminary conclusion that GE Retirement Savings Plan class action. On September 27, 2017, three individual plaintiffsprovided incorrect or misleading information about its research and development activities regarding high-power offshore wind turbines during the EC’s review of GE’s planned acquisition of LM Wind. We filed a reply in April 2018 setting forth our position on the EC's statement of objections, and on April 8, 2019, the EC provided notification that it would impose a fine of approximately $59 million in connection with the matter. GE paid the fine in July 2019, and the matter is now closed.
Shareholder lawsuits.Since November 2017, several putative shareholder class actions under the federal securities laws have been filed against GE and certain affiliated individuals and consolidated into a single action lawsuitcurrently pending in the U.S. District Court for the Southern District of CaliforniaNew York (the Hachem case). In October 2018, the lead plaintiff filed a fourth amended consolidated class action complaint naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to insurance reserves and accounting for long-term service agreements and seeks damages on behalf of shareowners who acquired GE stock between February 27, 2013 and January 23, 2018. GE has filed a motion to dismiss, and briefing on that motion concluded in October 2018.
Since February 2018, multiple shareholder derivative lawsuits have also been filed against current and former GE trusteesexecutive officers and members of GE’s Board of Directors and GE (as nominal defendant). In July 2019, two lawsuits that we have previously reported (the Gammel case and the Trueblood case) were dismissed by the New York state court without leave to replead. Two shareholder derivative lawsuits are currently pending: the Bennett case, which was filed in Massachusetts state court, and the Cuker case, which was filed in New York state court. These lawsuits have alleged violations of securities laws, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement, although the specific matters underlying the allegations in the lawsuits have varied. The allegations in the Bennett case relate to substantially the same facts as those underlying the securities class action described above, and the allegations in the Cuker case relate to alleged corruption in China. The Bennett complaint also includes a claim for professional negligence and accounting malpractice against GE’s auditor, KPMG. The plaintiffs seek unspecified damages and improvements in GE’s corporate governance and internal procedures. The Bennett case has been stayed pending resolution of the motion to dismiss in the Gammel case. In February 2019, GE filed a motion to dismiss the Cuker case.
In June 2018, a lawsuit (the Bezio case) was filed in New York state court derivatively on behalf of participants in GE’s 401(k) plan (the GE RSP)Retirement Savings Plan (RSP)), and other individualalternatively as a class action on behalf of shareowners who acquired GE stock between February 26, 2013 and January 24, 2018, alleging violations of Section 11 of the Securities Act of 1933 based on alleged misstatements and omissions related to insurance reserves and performance of GE’s business segments in a GE RSP registration statement and documents incorporated therein by reference. In November 2018, the plaintiffs filed an amended derivative complaint naming as defendants yetGE, former GE executive officers and Fidelity Management Trust Company, as trustee for the GE RSP. In January 2019, GE filed a motion to be named. Likedismiss.
In July 2018, a growing numberputative class action (the Mahar case) was filed in New York state court naming as defendants GE, former GE executive officers, a former member of similar lawsuits that haveGE’s Board of Directors and KPMG. It alleged violations of Sections 11, 12 and 15 of the Securities Act of 1933 based on alleged misstatements related to insurance reserves and performance of GE’s business segments in GE Stock Direct Plan registration statements and documents incorporated therein by reference and seeks damages on behalf of shareowners who acquired GE stock between July 20, 2015 and July 19, 2018 through the GE Stock Direct Plan. In February 2019, this case was dismissed. In March 2019, plaintiffs filed an amended derivative complaint naming the same defendants. In April 2019, GE filed a motion to dismiss the amended complaint.
In October 2018, a putative class action (the Houston case) was filed in New York state court naming as defendants GE, certain GE subsidiaries and current and former GE executive officers and employees. It alleges violations of Sections 11, 12 and 15 of the Securities Act of 1933 and seeks damages on behalf of purchasers of senior notes issued in 2016 and rescission of transactions involving those notes. This case has been brought against other companiesstayed pending resolution of the motion to dismiss the Hachem case.
In December 2018, a putative class action (the Varga case) was filed in recent years, the suitU.S. District Court for the Northern District of New York naming GE and a former GE executive officer as defendants in connection with the oversight of the GE RSP. It alleges that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) by failing to advise GE RSP participants that GE Capital insurance subsidiaries were allegedly under-reserved and continued to retain a GE stock fund as an investment option in their oversight of the GE RSP, including by selecting underperforming proprietary mutual funds as investment options for plan participants.RSP. The plaintiffs purporting to actseek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from 2011January 1, 2010 through January 19, 2018 or later. In April 2019, GE filed a motion to dismiss.
In February 2019, two putative class actions (the Birnbaum case and the Sheet Metal Workers Local 17 Trust Funds case) were filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. In April 2019, the court issued an order consolidating these two actions. In June 2019, the lead plaintiff filed an amended consolidated complaint. It alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged misstatements regarding GE's H-class turbines and goodwill related to GE's Power business. The lawsuit seeks damages on behalf of shareowners who acquired GE stock between December 4, 2017 and December 6, 2018.
In February 2019, a securities action (the Touchstone case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1707.43 of the Ohio Securities Act and common law fraud based on alleged misstatements regarding insurance reserves, GE Power’s revenue recognition practices related to long term service agreements, GE’s acquisition of Alstom, and the goodwill recognized in connection with that transaction. The lawsuit seeks damages on behalf of six institutional investors who purchased GE common stock between August 1, 2014 and October 30, 2016, seek damages2018 and rescission of $700 million, butthose purchases. This case has been stayed pending resolution of the motion to dismiss the Hachem case.
These cases are at an early stage; we believe we have defenses to the claims and will respondare responding accordingly.
2017 3Q36 2019 2Q FORM 10-Q63
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FINANCIAL STATEMENTS AND NOTES
| | | | | | |
| | | | |
| | |
| Consolidated Statement of Changes in Shareowners' Equity | | Consolidated Statement of Changes in Shareowners' Equity | |
| | | | |
| | | | |
| | | | |
| | 1 | | | 1 | | |
| | 2 | | | 2 | | |
| | 3 | | | 3 | | |
| | 4 | Current Receivables | | 4 | Current and Long-Term Receivables | |
| | 5 | | | 5 | | |
| | 6 | | | 6 | Inventories | |
| | 7 | | | 7 | | |
| | 8 | | | 8 | Goodwill and Other Intangible Assets | |
| | 9 | | | 9 | Revenues | |
| | 10 | | | 10 | Contract and Other Deferred Assets & Progress Collections and Deferred Income | |
| | 11 | Investment contracts, insurance liabilities and insurance annuity benefits | | 11 | | |
| | 12 | | | 12 | Insurance Liabilities and Annuity Benefits | |
| | 13 | | | 13 | | |
| | 14 | | | 14 | | |
| | 15 | | | 15 | | |
| | 16 | | | 16 | | |
| | 17 | | | 17 | | |
| | 18 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | | 18 | | |
| | 19 | | | 19 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
| | 20 | | | 20 | Cash Flows Information | |
| | 21 | | | 21 | | |
| | | 22 | | |
Certain columns and rows within the financial statements and accompanying notes may not add due to the use of rounded numbers.
2017 3Q2019 2Q FORM 10-Q 6537
FINANCIAL STATEMENTS
| | | STATEMENT OF EARNINGS (LOSS) | | Three months ended June 30 |
| (UNAUDITED) | | General Electric Company and consolidated affiliates |
| | Three months ended September 30 | |
| | General Electric Company and consolidated affiliates | |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
| 2019 |
| 2018 |
|
| | | |
| Revenues and other income | | |
| Sales of goods | $ | 19,386 |
| $ | 18,553 |
| $ | 17,186 |
| $ | 17,405 |
|
| Sales of services | 10,043 |
| 8,261 |
| 9,601 |
| 9,746 |
|
| Other income | 2,146 |
| 227 |
| |
| GE Capital earnings (loss) from continuing operations | — |
| — |
| |
| GE Capital revenues from services | 1,898 |
| 2,224 |
| 2,043 |
| 2,011 |
|
| Total revenues and other income | 33,472 |
| 29,266 |
| |
| Total revenues (Note 9) | | 28,831 |
| 29,162 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 16,815 |
| 15,255 |
| 14,338 |
| 14,467 |
|
| Cost of services sold | 7,279 |
| 5,711 |
| 7,479 |
| 7,282 |
|
| Selling, general and administrative expenses | 4,855 |
| 4,343 |
| 4,184 |
| 4,346 |
|
| Interest and other financial charges | 1,232 |
| 961 |
| 991 |
| 1,291 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 617 |
| 684 |
| |
| Insurance losses and annuity benefits | | 638 |
| 669 |
|
| Goodwill impairments | | 744 |
| — |
|
| Non-operating benefit costs | | 557 |
| 690 |
|
| Other costs and expenses | 1,208 |
| 238 |
| 167 |
| 66 |
|
| Total costs and expenses | 32,006 |
| 27,191 |
| 29,097 |
| 28,812 |
|
| | | |
| Other income | | (8 | ) | 886 |
|
| GE Capital earnings (loss) from continuing operations | | — |
| — |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | 1,466 |
| 2,074 |
| (274 | ) | 1,236 |
|
| Benefit (provision) for income taxes | 334 |
| (18 | ) | 148 |
| (504 | ) |
| Earnings (loss) from continuing operations | 1,800 |
| 2,056 |
| (126 | ) | 732 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (106 | ) | (105 | ) | 231 |
| (63 | ) |
| Net earnings (loss) | 1,694 |
| 1,951 |
| 104 |
| 669 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (142 | ) | (76 | ) | (23 | ) | (132 | ) |
| Net earnings (loss) attributable to the Company | 1,836 |
| 2,027 |
| 127 |
| 800 |
|
| Preferred stock dividends | (36 | ) | (33 | ) | (188 | ) | (185 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| $ | (61 | ) | $ | 615 |
|
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 1,800 |
| $ | 2,056 |
| $ | (126 | ) | $ | 732 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (141 | ) | (74 | ) | (23 | ) | (132 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 1,941 |
| 2,131 |
| (103 | ) | 864 |
|
| Preferred stock dividends | (36 | ) | (33 | ) | (188 | ) | (185 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | 1,905 |
| 2,097 |
| (291 | ) | 679 |
|
| Earnings (loss) from discontinued operations, net of taxes | (106 | ) | (105 | ) | 231 |
| (63 | ) |
| Less net earnings (loss) attributable to | | |
| noncontrolling interests, discontinued operations | (1 | ) | (2 | ) | — |
| 1 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| $ | (61 | ) | $ | 615 |
|
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | $ | 0.22 |
| $ | 0.23 |
| $ | (0.03 | ) | $ | 0.08 |
|
| Basic earnings (loss) per share | $ | 0.22 |
| $ | 0.24 |
| $ | (0.03 | ) | $ | 0.08 |
|
| | | |
| Net earnings (loss) | | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
| $ | (0.01 | ) | $ | 0.07 |
|
| Basic earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
| $ | (0.01 | ) | $ | 0.07 |
|
| | | |
| Dividends declared per common share | $ | 0.24 |
| $ | 0.23 |
| $ | 0.01 |
| $ | 0.12 |
|
Amounts may not add due to rounding.
See accompanying notes.
66 2017 3Q38 2019 2Q FORM 10-Q
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Three months ended June 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Sales of goods | $ | 17,202 |
| $ | 17,364 |
| | $ | 18 |
| $ | 31 |
|
| Sales of services | 9,630 |
| 9,773 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 2,303 |
| 2,398 |
|
| Total revenues | 26,833 |
| 27,137 |
| | 2,321 |
| 2,429 |
|
| | | | | | |
| Cost of goods sold | 14,358 |
| 14,433 |
| | 14 |
| 24 |
|
| Cost of services sold | 6,976 |
| 6,769 |
| | 512 |
| 546 |
|
| Selling, general and administrative expenses | 4,113 |
| 4,190 |
| | 211 |
| 312 |
|
| Interest and other financial charges | 444 |
| 686 |
| | 646 |
| 772 |
|
| Insurance losses and annuity benefits | — |
| — |
| | 668 |
| 694 |
|
| Goodwill impairments | 744 |
| — |
| | — |
| — |
|
| Non-operating benefit costs | 554 |
| 688 |
| | 3 |
| 3 |
|
| Other costs and expenses | 6 |
| (1 | ) | | 178 |
| 79 |
|
| Total costs and expenses | 27,194 |
| 26,764 |
| | 2,233 |
| 2,432 |
|
| | | | | | |
| Other income | (1 | ) | 866 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (89 | ) | (207 | ) | | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | (452 | ) | 1,032 |
| | 88 |
| (3 | ) |
| Benefit (provision) for income taxes | 137 |
| (487 | ) | | 11 |
| (17 | ) |
| Earnings (loss) from continuing operations | (315 | ) | 545 |
| | 99 |
| (20 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | 231 |
| (63 | ) | | 238 |
| (66 | ) |
| Net earnings (loss) | (84 | ) | 482 |
| | 336 |
| (86 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (23 | ) | (133 | ) | | — |
| 2 |
|
| Net earnings (loss) attributable to the Company | (61 | ) | 615 |
| | 336 |
| (88 | ) |
| Preferred stock dividends | — |
| — |
| | (188 | ) | (185 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (61 | ) | $ | 615 |
| | $ | 148 |
| $ | (273 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | (315 | ) | $ | 545 |
| | $ | 99 |
| $ | (20 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (23 | ) | (134 | ) | | — |
| 2 |
|
| Earnings (loss) from continuing operations attributable to the Company | (291 | ) | 679 |
| | 99 |
| (22 | ) |
| Preferred stock dividends | — |
| — |
| | (188 | ) | (185 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | (291 | ) | 679 |
| | (89 | ) | (207 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 231 |
| (63 | ) | | 238 |
| (66 | ) |
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | — |
| 1 |
| | — |
| — |
|
| Net earnings (loss) attributable to GE common shareowners | $ | (61 | ) | $ | 615 |
| | $ | 148 |
| $ | (273 | ) |
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| | | STATEMENT OF EARNINGS (LOSS) (CONTINUED) | |
| STATEMENT OF EARNINGS (LOSS) | | Six months ended June 30 |
| (UNAUDITED) | | | | General Electric Company
and consolidated affiliates |
| | | | | |
| | Three months ended September 30 | |
| | GE(a) | | Financial Services (GE Capital) | |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
| 2019 |
| 2018 |
|
| | | | | |
| Revenues and other income | | | | |
| Sales of goods | $ | 19,358 |
| $ | 18,621 |
| | $ | 39 |
| $ | 34 |
| $ | 33,385 |
| $ | 34,147 |
|
| Sales of services | 10,080 |
| 8,313 |
| | — |
| — |
| 18,745 |
| 19,006 |
|
| Other income | 2,141 |
| 213 |
| | — |
| — |
| |
| GE Capital earnings (loss) from continuing operations | 24 |
| 26 |
| | — |
| — |
| |
| GE Capital revenues from services | — |
| — |
| | 2,359 |
| 2,566 |
| 3,987 |
| 3,797 |
|
| Total revenues and other income | 31,603 |
| 27,172 |
| | 2,397 |
| 2,600 |
| |
| Total revenues (Note 9) | | 56,117 |
| 56,950 |
|
| | | | | |
| Costs and expenses | | | | |
| Cost of goods sold | 16,796 |
| 15,329 |
| | 30 |
| 27 |
| 27,888 |
| 28,223 |
|
| Cost of services sold | 6,725 |
| 5,216 |
| | 592 |
| 547 |
| 14,282 |
| 14,437 |
|
| Selling, general and administrative expenses | 4,717 |
| 3,880 |
| | 285 |
| 631 |
| 8,330 |
| 8,434 |
|
| Interest and other financial charges | 718 |
| 483 |
| | 790 |
| 617 |
| 2,123 |
| 2,573 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 640 |
| 700 |
| |
| Other costs and expenses(b) | 947 |
| — |
| | 271 |
| 241 |
| |
| Insurance losses and insurance annuity benefits | | 1,249 |
| 1,299 |
|
| Goodwill impairment | | 744 |
| — |
|
| Non-operating benefit costs | | 1,123 |
| 1,376 |
|
| Other costs and expenses | | 248 |
| 186 |
|
| Total costs and expenses | 29,903 |
| 24,909 |
| | 2,608 |
| 2,763 |
| 55,986 |
| 56,527 |
|
| | | |
| Other income | | 870 |
| 1,091 |
|
| GE Capital earnings (loss) from continuing operations | | — |
| — |
|
| | | | | |
| Earnings (loss) from continuing operations before income taxes | 1,701 |
| 2,263 |
| | (211 | ) | (163 | ) | 1,001 |
| 1,513 |
|
| Benefit (provision) for income taxes | 64 |
| (241 | ) | | 270 |
| 223 |
| (74 | ) | (454 | ) |
| Earnings (loss) from continuing operations | 1,765 |
| 2,022 |
| | 59 |
| 60 |
| 926 |
| 1,060 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (105 | ) | (103 | ) | | (106 | ) | (105 | ) | 2,823 |
| (1,504 | ) |
| Net earnings (loss) | 1,660 |
| 1,918 |
| | (47 | ) | (45 | ) | 3,749 |
| (444 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (140 | ) | (76 | ) | | (2 | ) | 0 |
| 34 |
| (98 | ) |
| Net earnings (loss) attributable to the Company | 1,800 |
| 1,994 |
| | (46 | ) | (45 | ) | 3,716 |
| (347 | ) |
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) | (228 | ) | (222 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) | $ | 3,488 |
| $ | (568 | ) |
| | | | | |
| Amounts attributable to GE common shareowners: | | | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 1,765 |
| $ | 2,022 |
| | $ | 59 |
| $ | 60 |
| $ | 926 |
| $ | 1,060 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | |
| continuing operations | (140 | ) | (76 | ) | | (1 | ) | 1 |
| 36 |
| (102 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 1,905 |
| 2,097 |
| | 60 |
| 59 |
| 891 |
| 1,161 |
|
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) | (228 | ) | (222 | ) |
| Earnings (loss) from continuing operations attributable | | | | |
| to GE common shareowners | 1,905 |
| 2,097 |
| | 24 |
| 26 |
| 663 |
| 940 |
|
| Earnings (loss) from discontinued operations, net of taxes | (105 | ) | (103 | ) | | (106 | ) | (105 | ) | 2,823 |
| (1,504 | ) |
| Less net earnings (loss) attributable to | | | | |
| noncontrolling interests, discontinued operations | — |
| — |
| | (1 | ) | (2 | ) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| discontinued operations | | (2 | ) | 4 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) | $ | 3,488 |
| $ | (568 | ) |
| | | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | | $ | 0.07 |
| $ | 0.11 |
|
| Basic earnings (loss) per share | | $ | 0.08 |
| $ | 0.11 |
|
| | | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | | $ | 0.40 |
| $ | (0.07 | ) |
| Basic earnings (loss) per share | | $ | 0.40 |
| $ | (0.07 | ) |
| | | |
| Dividends declared per common share | | $ | 0.02 |
| $ | 0.24 |
|
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) | Six months ended June 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Sales of goods | $ | 33,467 |
| $ | 34,097 |
| | $ | 34 |
| $ | 63 |
|
| Sales of services | 18,776 |
| 19,062 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 4,514 |
| 4,539 |
|
| Total revenues | 52,242 |
| 53,159 |
| | 4,548 |
| 4,602 |
|
| | | | | | |
| Cost of goods sold | 27,983 |
| 28,181 |
| | 27 |
| 50 |
|
| Cost of services sold | 13,327 |
| 13,434 |
| | 999 |
| 1,072 |
|
| Selling, general and administrative expenses | 8,052 |
| 8,072 |
| | 478 |
| 655 |
|
| Interest and other financial charges | 1,032 |
| 1,326 |
| | 1,323 |
| 1,592 |
|
| Insurance losses and insurance annuity benefits | — |
| — |
| | 1,302 |
| 1,339 |
|
| Goodwill impairment | 744 |
| — |
| | — |
| — |
|
| Non-operating benefit costs | 1,115 |
| 1,369 |
| | 8 |
| 7 |
|
| Other costs and expenses | 6 |
| (2 | ) | | 277 |
| 212 |
|
| Total costs and expenses | 52,259 |
| 52,379 |
| | 4,413 |
| 4,926 |
|
| | | | | | |
| Other income | 883 |
| 1,057 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | 46 |
| (422 | ) | | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | 912 |
| 1,415 |
| | 135 |
| (324 | ) |
| Benefit (provision) for income taxes | (213 | ) | (576 | ) | | 139 |
| 122 |
|
| Earnings (loss) from continuing operations | 699 |
| 840 |
| | 273 |
| (202 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | 2,823 |
| (1,504 | ) | | 273 |
| (1,618 | ) |
| Net earnings (loss) | 3,522 |
| (664 | ) | | 547 |
| (1,821 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | 33 |
| (96 | ) | | — |
| (2 | ) |
| Net earnings (loss) attributable to the Company | 3,488 |
| (568 | ) | | 547 |
| (1,819 | ) |
| Preferred stock dividends | — |
| — |
| | (228 | ) | (222 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 3,488 |
| $ | (568 | ) | | $ | 319 |
| $ | (2,041 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | 699 |
| $ | 840 |
| | $ | 273 |
| $ | (202 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | 36 |
| (100 | ) | | — |
| (2 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 663 |
| 940 |
| | 273 |
| (201 | ) |
| Preferred stock dividends | — |
| — |
| | (228 | ) | (222 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | 663 |
| 940 |
| | 46 |
| (422 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 2,823 |
| (1,504 | ) | | 273 |
| (1,618 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | (2 | ) | 4 |
| | — |
| — |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 3,488 |
| $ | (568 | ) | | $ | 319 |
| $ | (2,041 | ) |
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
|
| | | | | | | | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
| COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | Three months ended June 30 | | Six months ended June 30 |
| (In millions, net of tax) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Net earnings (loss) | $ | 104 |
| $ | 669 |
| | $ | 3,749 |
| $ | (444 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (23 | ) | (132 | ) | | 34 |
| (98 | ) |
| Net earnings (loss) attributable to the Company | $ | 127 |
| $ | 800 |
| | $ | 3,716 |
| $ | (347 | ) |
| | | | | | |
| Investment securities | $ | 76 |
| $ | 24 |
| | $ | 99 |
| $ | 124 |
|
| Currency translation adjustments | (141 | ) | (1,669 | ) | | 283 |
| (838 | ) |
| Cash flow hedges | (25 | ) | (81 | ) | | 12 |
| (26 | ) |
| Benefit plans | 639 |
| 941 |
| | 1,183 |
| 1,658 |
|
| Other comprehensive income (loss) | 547 |
| (784 | ) | | 1,577 |
| 918 |
|
| Less: other comprehensive income (loss) attributable to noncontrolling interests | (85 | ) | (213 | ) | | 15 |
| (53 | ) |
| Other comprehensive income (loss) attributable to the Company | $ | 633 |
| $ | (571 | ) | | $ | 1,562 |
| $ | 971 |
|
| | | | | | |
| Comprehensive income (loss) | $ | 651 |
| $ | (115 | ) | | $ | 5,326 |
| $ | 474 |
|
| Less: comprehensive income (loss) attributable to noncontrolling interests | (109 | ) | (345 | ) | | 49 |
| (151 | ) |
| Comprehensive income (loss) attributable to the Company | $ | 760 |
| $ | 229 |
| | $ | 5,277 |
| $ | 625 |
|
|
| | | | | | | | | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
| CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED) | Three months ended June 30 | Six months ended June 30 |
| (In millions) | 2019 | | 2018 | 2019 | | 2018 |
|
| | | | | | | |
| Preferred stock issued | $ | 6 |
| | $ | 6 |
| $ | 6 |
| | $ | 6 |
|
| Common stock issued | $ | 702 |
| | $ | 702 |
| $ | 702 |
| | $ | 702 |
|
| | | | | | | |
| Beginning balance | (13,485 | ) | | (12,862 | ) | (14,414 | ) | | (14,404 | ) |
| Investment securities | 75 |
| | 25 |
| 98 |
| | 123 |
|
| Currency translation adjustments | (64 | ) | | (1,457 | ) | 260 |
| | (784 | ) |
| Cash flow hedges | (23 | ) | | (79 | ) | 12 |
| | (26 | ) |
| Benefit plans | 645 |
| | 940 |
| 1,192 |
| | 1,659 |
|
| Accumulated other comprehensive income (loss) ending balance | $ | (12,852 | ) | | $ | (13,432 | ) | $ | (12,852 | ) | | $ | (13,432 | ) |
| Beginning balance | 34,345 |
| | 37,339 |
| 35,504 |
| | 37,384 |
|
| Gains (losses) on treasury stock dispositions | (150 | ) | | (303 | ) | (657 | ) | | (308 | ) |
| Stock-based compensation | 127 |
| | 117 |
| 264 |
| | 207 |
|
| Other changes | 2 |
| | 199 |
| (786 | ) | | 69 |
|
| Other capital ending balance | $ | 34,324 |
| | $ | 37,352 |
| $ | 34,324 |
| | $ | 37,352 |
|
| Beginning balance | 96,921 |
| | 115,477 |
| 93,109 |
| | 117,245 |
|
| Net earnings (loss) attributable to the Company | 127 |
| | 800 |
| 3,716 |
| | (347 | ) |
| Dividends and other transactions with shareowners | (274 | ) | | (1,364 | ) | (419 | ) | | (2,486 | ) |
| Changes in accounting (Note 1) | — |
| | — |
| 368 |
| | 501 |
|
| Retained earnings ending balance | $ | 96,773 |
| | $ | 114,913 |
| $ | 96,773 |
| | $ | 114,913 |
|
| Beginning balance | (83,328 | ) | | (84,697 | ) | (83,925 | ) | | (84,902 | ) |
| Purchases | (7 | ) | | (58 | ) | (45 | ) | | (143 | ) |
| Dispositions | 198 |
| | 284 |
| 834 |
| | 574 |
|
| Common stock held in treasury ending balance | $ | (83,137 | ) | | $ | (84,471 | ) | $ | (83,137 | ) | | $ | (84,471 | ) |
| GE shareowners' equity balance | 35,816 |
| | 55,069 |
| 35,816 |
| | 55,069 |
|
| Noncontrolling interests balance | 20,312 |
| | 16,685 |
| 20,312 |
| | 16,685 |
|
| Total equity balance at June 30(a) (Note 15) | $ | 56,129 |
| | $ | 71,754 |
| $ | 56,129 |
| | $ | 71,754 |
|
| |
| (a) | Total equity balance decreased by $(15,625) million in the last twelve months from June 30, 2018 primarily attributable to a non-cash after-tax goodwill impairment charge of $(22,371) million, partially offset by an increase in non-controlling interest of $4,214 million due to a reduction in our economic interest in BHGE in 2018. See our 2018 Form 10-K for further information. |
|
| | | | | | |
| STATEMENT OF FINANCIAL POSITION | General Electric Company
and consolidated affiliates |
| (In millions, except share amounts) | June 30, 2019 |
| December 31, 2018 |
|
| | (Unaudited) |
| |
| Cash, cash equivalents and restricted cash | $ | 31,968 |
| $ | 34,847 |
|
| Investment securities (Note 3) | 39,383 |
| 33,835 |
|
| Current receivables (Note 4) | 20,152 |
| 19,484 |
|
| Financing receivables – net (Note 5) | 3,436 |
| 7,699 |
|
| Inventories (Note 6) | 19,971 |
| 18,389 |
|
| Other GE Capital receivables | 6,603 |
| 6,674 |
|
| Property, plant and equipment – net (Note 7) | 49,943 |
| 49,839 |
|
| Operating lease assets (Note 7) | 3,860 |
| — |
|
| Receivable from GE Capital | — |
| — |
|
| Investment in GE Capital | — |
| — |
|
| Goodwill (Note 8) | 52,272 |
| 58,730 |
|
| Other intangible assets – net (Note 8) | 16,653 |
| 17,897 |
|
| Contract and other deferred assets (Note 10) | 19,176 |
| 19,231 |
|
| All other assets | 23,401 |
| 19,943 |
|
| Deferred income taxes (Note 14) | 11,894 |
| 12,129 |
|
| Assets of businesses held for sale (Note 2) | 9,206 |
| 1,630 |
|
| Assets of discontinued operations (Note 2) | 4,191 |
| 9,257 |
|
| Total assets | $ | 312,109 |
| $ | 309,585 |
|
| | | |
| Short-term borrowings (Note 11) | $ | 15,620 |
| $ | 12,821 |
|
| Short-term borrowings assumed by GE (Note 11) | — |
| — |
|
| Accounts payable, principally trade accounts | 17,036 |
| 16,722 |
|
| Progress collections and deferred income (Note 10) | 20,901 |
| 20,577 |
|
| Other GE current liabilities | 16,720 |
| 15,865 |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | 1,423 |
| 1,875 |
|
| Long-term borrowings (Note 11) | 88,735 |
| 95,234 |
|
| Long-term borrowings assumed by GE (Note 11) | — |
| — |
|
| Operating lease liabilities (Note 7) | 4,074 |
| — |
|
| Insurance liabilities and annuity benefits (Note 12) | 38,125 |
| 35,562 |
|
| Non-current compensation and benefits | 32,653 |
| 33,775 |
|
| All other liabilities | 18,832 |
| 21,219 |
|
| Liabilities of businesses held for sale (Note 2) | 1,478 |
| 708 |
|
| Liabilities of discontinued operations (Note 2) | 382 |
| 3,747 |
|
| Total liabilities | 255,980 |
| 258,104 |
|
| | | |
Preferred stock (5,939,875 shares outstanding at both June 30, 2019
and December 31, 2018) | 6 |
| 6 |
|
Common stock (8,727,072,000 and 8,702,227,000 shares outstanding
at June 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
|
| Accumulated other comprehensive income (loss) – net attributable to GE | (12,852 | ) | (14,414 | ) |
| Other capital | 34,324 |
| 35,504 |
|
| Retained earnings | 96,773 |
| 93,109 |
|
| Less common stock held in treasury | (83,137 | ) | (83,925 | ) |
| Total GE shareowners’ equity | 35,816 |
| 30,981 |
|
| Noncontrolling interests | 20,312 |
| 20,500 |
|
| Total equity (Note 15) | 56,129 |
| 51,481 |
|
| Total liabilities and equity | $ | 312,109 |
| $ | 309,585 |
|
|
| | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) | | Financial Services (GE Capital) |
| (In millions, except share amounts) | June 30,
2019 |
| December 31, 2018 |
| | June 30,
2019 |
| December 31, 2018 |
|
| | (Unaudited) | | | (Unaudited) | |
| Cash, cash equivalents and restricted cash | $ | 20,055 |
| $ | 20,355 |
| | $ | 11,913 |
| $ | 14,492 |
|
| Investment securities (Note 3) | 2,055 |
| 514 |
| | 37,403 |
| 33,393 |
|
| Current receivables (Note 4) | 16,864 |
| 15,103 |
| | — |
| — |
|
| Financing receivables - net (Note 5) | — |
| — |
| | 8,210 |
| 13,628 |
|
| Inventories (Note 6) | 19,971 |
| 18,389 |
| | — |
| — |
|
| Other GE Capital receivables | — |
| — |
| | 13,553 |
| 15,361 |
|
| Property, plant and equipment – net (Note 7) | 20,377 |
| 21,056 |
| | 29,955 |
| 29,510 |
|
| Operating lease assets (Note 7) | 4,077 |
| — |
| | 256 |
| — |
|
| Receivable from GE Capital | 21,223 |
| 22,513 |
| | — |
| — |
|
| Investment in GE Capital | 13,476 |
| 11,412 |
| | — |
| — |
|
| Goodwill (Note 8) | 51,394 |
| 57,826 |
| | 878 |
| 904 |
|
| Other intangible assets – net (Note 8) | 16,434 |
| 17,661 |
| | 219 |
| 236 |
|
| Contract and other deferred assets (Note 10) | 19,176 |
| 19,231 |
| | — |
| — |
|
| All other assets | 11,016 |
| 10,164 |
| | 12,842 |
| 9,869 |
|
| Deferred income taxes (Note 14) | 9,711 |
| 10,189 |
| | 2,178 |
| 1,936 |
|
| Assets of businesses held for sale (Note 2) | 8,969 |
| 1,525 |
| | — |
| — |
|
| Assets of discontinued operations (Note 2) | 112 |
| 4,573 |
| | 4,078 |
| 4,610 |
|
| Total assets | $ | 234,911 |
| $ | 230,510 |
| | $ | 121,485 |
| $ | 123,939 |
|
| | | | | | |
| Short-term borrowings (Note 11) | $ | 5,556 |
| $ | 5,192 |
| | $ | 4,085 |
| $ | 4,999 |
|
| Short-term borrowings assumed by GE (Note 11) | 6,962 |
| 4,207 |
| | 2,393 |
| 2,684 |
|
| Accounts payable, principally trade accounts | 21,159 |
| 22,085 |
| | 1,738 |
| 1,612 |
|
| Progress collections and deferred income (Note 10) | 21,138 |
| 20,833 |
| | — |
| — |
|
| Other GE current liabilities | 16,931 |
| 15,865 |
| | — |
| — |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
| | 1,423 |
| 1,875 |
|
| Long-term borrowings (Note 11) | 26,294 |
| 27,089 |
| | 34,494 |
| 36,154 |
|
| Long-term borrowings assumed by GE (Note 11) | 28,010 |
| 32,054 |
| | 18,830 |
| 19,828 |
|
| Operating lease liabilities (Note 7) | 4,302 |
| — |
| | 244 |
| — |
|
| Insurance liabilities and annuity benefits (Note 12) | — |
| — |
| | 38,639 |
| 35,994 |
|
| Non-current compensation and benefits | 32,056 |
| 32,910 |
| | 588 |
| 856 |
|
| All other liabilities | 14,775 |
| 16,100 |
| | 5,295 |
| 6,724 |
|
| Liabilities of businesses held for sale (Note 2) | 1,497 |
| 748 |
| | — |
| — |
|
| Liabilities of discontinued operations (Note 2) | 108 |
| 1,947 |
| | 274 |
| 1,800 |
|
| Total liabilities | 178,787 |
| 179,030 |
| | 108,004 |
| 112,527 |
|
| | | | | | |
Preferred stock (5,939,875 shares outstanding at both June 30, 2019
and December 31, 2018) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,727,072,000 and 8,702,227,000 shares outstanding
at June 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
| | — |
| — |
|
| Accumulated other comprehensive income (loss) - net attributable to GE | (12,852 | ) | (14,414 | ) | | (785 | ) | (783 | ) |
| Other capital | 34,324 |
| 35,504 |
| | 14,499 |
| 12,883 |
|
| Retained earnings | 96,773 |
| 93,109 |
| | (243 | ) | (694 | ) |
| Less common stock held in treasury | (83,137 | ) | (83,925 | ) | | — |
| — |
|
| Total GE shareowners’ equity | 35,816 |
| 30,981 |
| | 13,476 |
| 11,412 |
|
| Noncontrolling interests | 20,308 |
| 20,499 |
| | 5 |
| 1 |
|
| Total equity (Note 15) | 56,124 |
| 51,480 |
| | 13,481 |
| 11,412 |
|
| Total liabilities and equity | $ | 234,911 |
| $ | 230,510 |
| | $ | 121,485 |
| $ | 123,939 |
|
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
|
| | | | | | |
| STATEMENT OF CASH FLOWS | Six months ended June 30 |
| (UNAUDITED) | General Electric Company and consolidated affiliates |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| Net earnings (loss) | $ | 3,749 |
| $ | (444 | ) |
| (Earnings) loss from discontinued operations | (2,823 | ) | 1,504 |
|
| Adjustments to reconcile net earnings (loss) | | |
| to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 2,482 |
| 2,640 |
|
| Amortization of intangible assets (Note 8) | 916 |
| 1,149 |
|
| Goodwill impairments (Note 8) | 744 |
| — |
|
| (Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
| (Gains) losses on purchases and sales of business interests | (54 | ) | (300 | ) |
| Principal pension plans cost (Note 13) | 1,693 |
| 2,094 |
|
| Principal pension plans employer contributions | (133 | ) | (1,042 | ) |
| Other postretirement benefit plans (net) | (548 | ) | (669 | ) |
| Provision (benefit) for income taxes | 74 |
| 454 |
|
| Cash recovered (paid) during the year for income taxes | (1,246 | ) | (936 | ) |
| Decrease (increase) in contract and other deferred assets | (502 | ) | (645 | ) |
| Decrease (increase) in GE current receivables | (933 | ) | 362 |
|
| Decrease (increase) in inventories | (2,258 | ) | (1,515 | ) |
| Increase (decrease) in accounts payable | 902 |
| 279 |
|
| Increase (decrease) in GE progress collections | 445 |
| (1,059 | ) |
| All other operating activities | (740 | ) | (2,251 | ) |
| Cash from (used for) operating activities – continuing operations | 1,770 |
| (382 | ) |
| Cash from (used for) operating activities – discontinued operations | (1,749 | ) | (293 | ) |
| Cash from (used for) operating activities | 20 |
| (675 | ) |
| | | |
| Additions to property, plant and equipment | (3,514 | ) | (3,264 | ) |
| Dispositions of property, plant and equipment | 2,033 |
| 1,771 |
|
| Additions to internal-use software | (167 | ) | (180 | ) |
| Net decrease (increase) in financing receivables | 377 |
| 837 |
|
| Proceeds from sale of discontinued operations | 2,827 |
| 29 |
|
| Proceeds from principal business dispositions | 1,058 |
| 2,361 |
|
| Net cash from (payments for) principal businesses purchased | — |
| — |
|
| Capital contribution from GE to GE Capital | — |
| — |
|
| All other investing activities | (968 | ) | 3,713 |
|
| Cash from (used for) investing activities – continuing operations | 1,646 |
| 5,266 |
|
| Cash from (used for) investing activities – discontinued operations | 1,683 |
| 171 |
|
| Cash from (used for) investing activities | 3,329 |
| 5,437 |
|
| | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (434 | ) | (2,051 | ) |
| Newly issued debt (maturities longer than 90 days) | 1,462 |
| 542 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (6,198 | ) | (16,419 | ) |
| Capital contribution from GE to GE Capital | — |
| — |
|
| Net dispositions (purchases) of GE shares for treasury | 35 |
| (6 | ) |
| Dividends paid to shareowners | (324 | ) | (2,236 | ) |
| All other financing activities | (835 | ) | (741 | ) |
| Cash from (used for) financing activities – continuing operations | (6,294 | ) | (20,911 | ) |
| Cash from (used for) financing activities – discontinued operations | (42 | ) | (3 | ) |
| Cash from (used for) financing activities | (6,336 | ) | (20,913 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | 1 |
| (285 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (2,986 | ) | (16,436 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 35,548 |
| 44,724 |
|
| Cash, cash equivalents and restricted cash at June 30 | 32,562 |
| 28,288 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at June 30 | 594 |
| 744 |
|
| Cash, cash equivalents and restricted cash of continuing operations at June 30 | $ | 31,968 |
| $ | 27,545 |
|
|
| | | | | | | | | | | | | |
| STATEMENT OF CASH FLOWS (CONTINUED) | Six months ended June 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Net earnings (loss) | $ | 3,522 |
| $ | (664 | ) | | $ | 547 |
| $ | (1,821 | ) |
| (Earnings) loss from discontinued operations | (2,823 | ) | 1,504 |
| | (273 | ) | 1,618 |
|
| Adjustments to reconcile net earnings (loss) | | | | | |
| to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 1,478 |
| 1,540 |
| | 1,002 |
| 1,086 |
|
| Amortization of intangible assets (Note 8) | 886 |
| 1,119 |
| | 31 |
| 30 |
|
| Goodwill impairments (Note 8) | 744 |
| — |
| | — |
| — |
|
| (Earnings) loss from continuing operations retained by GE Capital(b) | (46 | ) | 422 |
| | — |
| — |
|
| (Gains) losses on purchases and sales of business interests | (54 | ) | (300 | ) | | — |
| — |
|
| Principal pension plans cost (Note 13) | 1,693 |
| 2,094 |
| | — |
| — |
|
| Principal pension plans employer contributions | (133 | ) | (1,042 | ) | | — |
| — |
|
| Other postretirement benefit plans (net) | (547 | ) | (658 | ) | | (1 | ) | (12 | ) |
| Provision (benefit) for income taxes | 213 |
| 576 |
| | (139 | ) | (122 | ) |
| Cash recovered (paid) during the year for income taxes | (1,148 | ) | (854 | ) | | (97 | ) | (83 | ) |
| Decrease (increase) in contract and other deferred assets | (502 | ) | (645 | ) | | — |
| — |
|
| Decrease (increase) in GE current receivables | (1,484 | ) | (64 | ) | | — |
| — |
|
| Decrease (increase) in inventories | (2,130 | ) | (1,512 | ) | | — |
| — |
|
| Increase (decrease) in accounts payable | 414 |
| 207 |
| | (1 | ) | (85 | ) |
| Increase (decrease) in GE progress collections | 440 |
| (889 | ) | | — |
| — |
|
| All other operating activities (Note 20) | (1,364 | ) | (1,684 | ) | | 211 |
| (767 | ) |
| Cash from (used for) operating activities – continuing operations | (842 | ) | (850 | ) | | 1,279 |
| (154 | ) |
| Cash from (used for) operating activities – discontinued operations | (375 | ) | 76 |
| | (1,702 | ) | (293 | ) |
| Cash from (used for) operating activities | (1,217 | ) | (773 | ) | | (423 | ) | (447 | ) |
| | | | | | |
| Additions to property, plant and equipment | (1,684 | ) | (1,595 | ) | | (1,984 | ) | (1,732 | ) |
| Dispositions of property, plant and equipment | 392 |
| 332 |
| | 1,645 |
| 1,439 |
|
| Additions to internal-use software | (163 | ) | (169 | ) | | (4 | ) | (11 | ) |
| Net decrease (increase) in financing receivables | — |
| — |
| | 2,067 |
| 5,451 |
|
| Proceeds from sale of discontinued operations | 2,827 |
| — |
| | — |
| 29 |
|
| Proceeds from principal business dispositions | 1,017 |
| 2,361 |
| | 417 |
| — |
|
| Net cash from (payments for) principal businesses purchased | (417 | ) | — |
| | — |
| — |
|
| Capital contribution from GE to GE Capital | (1,500 | ) | — |
| | — |
| — |
|
| All other investing activities (Note 20) | 1,557 |
| (882 | ) | | (1,280 | ) | 529 |
|
| Cash from (used for) investing activities – continuing operations | 2,029 |
| 47 |
| | 861 |
| 5,705 |
|
| Cash from (used for) investing activities – discontinued operations | 246 |
| (56 | ) | | 1,764 |
| 151 |
|
| Cash from (used for) investing activities | 2,275 |
| (9 | ) | | 2,625 |
| 5,856 |
|
| | | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,101 | ) | (1,173 | ) | | (656 | ) | (1,593 | ) |
| Newly issued debt (maturities longer than 90 days) | 409 |
| 1,058 |
| | 1,053 |
| 394 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (358 | ) | (1,085 | ) | | (5,840 | ) | (15,394 | ) |
| Capital contribution from GE to GE Capital | — |
| — |
| | 1,500 |
| — |
|
| Net dispositions (purchases) of GE shares for treasury | 35 |
| (6 | ) | | — |
| — |
|
| Dividends paid to shareowners | (175 | ) | (2,089 | ) | | (225 | ) | (147 | ) |
| All other financing activities (Note 20) | (287 | ) | (732 | ) | | (561 | ) | (9 | ) |
| Cash from (used for) financing activities – continuing operations | (1,477 | ) | (4,026 | ) | | (4,728 | ) | (16,749 | ) |
| Cash from (used for) financing activities – discontinued operations | (41 | ) | (3 | ) | | (1 | ) | — |
|
| Cash from (used for) financing activities | (1,518 | ) | (4,028 | ) | | (4,729 | ) | (16,749 | ) |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (8 | ) | (206 | ) | | 9 |
| (79 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (468 | ) | (5,017 | ) | | (2,518 | ) | (11,419 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 20,528 |
| 18,822 |
| | 15,020 |
| 25,902 |
|
| Cash, cash equivalents and restricted cash at June 30 | 20,060 |
| 13,805 |
| | 12,502 |
| 14,483 |
|
Less cash, cash equivalents and restricted cash of discontinued operations
at June 30 | 5 |
| 129 |
| | 590 |
| 615 |
|
Cash, cash equivalents and restricted cash of continuing operations
at June 30 | $ | 20,055 |
| $ | 13,676 |
| | $ | 11,913 |
| $ | 13,868 |
|
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
| (b) | GE amount represents a goodwill impairment charge recognized in the third quarter of 2017. See Note 8 for further information. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | |
| STATEMENT OF EARNINGS (LOSS) |
| (UNAUDITED) |
| | Nine months ended September 30 |
| | General Electric Company |
| | and consolidated affiliates |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
|
| | | |
| Revenues and other income | | |
| Sales of goods | $ | 54,562 |
| $ | 54,626 |
|
| Sales of services | 27,333 |
| 25,530 |
|
| Other income | 2,611 |
| 3,385 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
|
| GE Capital revenues from services | 6,184 |
| 7,063 |
|
| Total revenues and other income | 90,691 |
| 90,604 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 46,805 |
| 45,533 |
|
| Cost of services sold | 19,441 |
| 18,177 |
|
| Selling, general and administrative expenses | 13,649 |
| 13,833 |
|
| Interest and other financial charges | 3,545 |
| 4,023 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 1,908 |
| 2,101 |
|
| Other costs and expenses | 1,531 |
| 801 |
|
| Total costs and expenses | 86,879 |
| 84,467 |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | 3,812 |
| 6,137 |
|
| Benefit (provision) for income taxes | 303 |
| (302 | ) |
| Earnings (loss) from continuing operations | 4,115 |
| 5,835 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (490 | ) | (954 | ) |
| Net earnings (loss) | 3,624 |
| 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 5,164 |
|
| Preferred stock dividends | (252 | ) | (474 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
|
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 4,115 |
| $ | 5,835 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (238 | ) | (285 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 4,352 |
| 6,120 |
|
| Preferred stock dividends | (252 | ) | (474 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | 4,101 |
| 5,645 |
|
| Earnings (loss) from discontinued operations, net of taxes | (490 | ) | (954 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| discontinued operations | 6 |
| 2 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
|
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Diluted earnings (loss) per share | $ | 0.47 |
| $ | 0.61 |
|
| Basic earnings (loss) per share | $ | 0.47 |
| $ | 0.62 |
|
| | | |
| Net earnings (loss) | | |
| Diluted earnings (loss) per share | $ | 0.41 |
| $ | 0.51 |
|
| Basic earnings (loss) per share | $ | 0.41 |
| $ | 0.51 |
|
| | | |
| Dividends declared per common share | $ | 0.72 |
| $ | 0.69 |
|
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) |
| (UNAUDITED) |
| | | | | | |
| | Nine months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Revenues and other income | | | | | |
| Sales of goods | $ | 54,622 |
| $ | 54,745 |
| | $ | 101 |
| $ | 88 |
|
| Sales of services | 27,501 |
| 25,745 |
| | — |
| — |
|
| Other income | 2,578 |
| 3,359 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (195 | ) | (1,466 | ) | | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 7,424 |
| 8,168 |
|
| Total revenues and other income | 84,506 |
| 82,382 |
| | 7,525 |
| 8,256 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 46,888 |
| 45,669 |
| | 79 |
| 71 |
|
| Cost of services sold | 17,934 |
| 16,725 |
| | 1,673 |
| 1,667 |
|
| Selling, general and administrative expenses | 12,656 |
| 12,094 |
| | 1,358 |
| 2,238 |
|
| Interest and other financial charges | 1,918 |
| 1,490 |
| | 2,373 |
| 3,006 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 1,958 |
| 2,186 |
|
| Other costs and expenses(b) | 947 |
| — |
| | 629 |
| 822 |
|
| Total costs and expenses | 80,344 |
| 75,977 |
| | 8,070 |
| 9,990 |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | 4,162 |
| 6,405 |
| | (545 | ) | (1,734 | ) |
| Benefit (provision) for income taxes | (297 | ) | (1,034 | ) | | 600 |
| 732 |
|
| Earnings (loss) from continuing operations | 3,865 |
| 5,370 |
| | 55 |
| (1,002 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (497 | ) | (956 | ) | | (494 | ) | (954 | ) |
| Net earnings (loss) | 3,368 |
| 4,414 |
| | (439 | ) | (1,956 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (236 | ) | (275 | ) | | 5 |
| (8 | ) |
| Net earnings (loss) attributable to the Company | 3,604 |
| 4,689 |
| | (443 | ) | (1,948 | ) |
| Preferred stock dividends | — |
| — |
| | (252 | ) | (474 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
| | $ | (695 | ) | $ | (2,422 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | 3,865 |
| $ | 5,370 |
| | $ | 55 |
| $ | (1,002 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (236 | ) | (275 | ) | | (2 | ) | (10 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 4,101 |
| 5,645 |
| | 57 |
| (992 | ) |
| Preferred stock dividends | — |
| — |
| | (252 | ) | (474 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | 4,101 |
| 5,645 |
| | (195 | ) | (1,466 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (497 | ) | (956 | ) | | (494 | ) | (954 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | — |
| — |
| | 6 |
| 2 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
| | $ | (695 | ) | $ | (2,422 | ) |
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | GE amount represents a goodwill impairment charge recognized in the third quarter of 2017. See Note 8 for further information. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | | | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) |
| (UNAUDITED) |
| | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Net earnings (loss) | $ | 1,694 |
| $ | 1,951 |
| | $ | 3,624 |
| $ | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (142 | ) | (76 | ) | | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | $ | 1,836 |
| $ | 2,027 |
| | $ | 3,856 |
| $ | 5,164 |
|
| | | | | | |
| Other comprehensive income (loss) | | | | | |
| Investment securities | $ | 21 |
| $ | 97 |
| | $ | 213 |
| $ | 715 |
|
| Currency translation adjustments | 513 |
| (194 | ) | | 1,854 |
| (138 | ) |
| Cash flow hedges | 100 |
| 30 |
| | 109 |
| 60 |
|
| Benefit plans | 423 |
| 548 |
| | 2,032 |
| 1,481 |
|
| Other comprehensive income (loss) | 1,058 |
| 481 |
| | 4,209 |
| 2,117 |
|
| Less other comprehensive income (loss) attributable to noncontrolling interests | 127 |
| 5 |
| | 134 |
| 10 |
|
| Other comprehensive income (loss) attributable to the Company | $ | 931 |
| $ | 477 |
| | $ | 4,075 |
| $ | 2,107 |
|
| | | | | | |
| Comprehensive income (loss) | $ | 2,752 |
| $ | 2,432 |
| | $ | 7,833 |
| $ | 6,998 |
|
| Less comprehensive income (loss) attributable to noncontrolling interests | (15 | ) | (71 | ) | | (98 | ) | (273 | ) |
| Comprehensive income (loss) attributable to the Company | $ | 2,766 |
| $ | 2,504 |
| | $ | 7,931 |
| $ | 7,271 |
|
Amounts presented net of taxes.
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES | | | |
| CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY |
| (UNAUDITED) |
| | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| | 2016 |
|
| | | | |
| Shareowners' equity balance at January 1 | $ | 75,828 |
| | $ | 98,274 |
|
| Net earnings (loss) attributable to the Company | 3,856 |
| | 5,164 |
|
| Dividends and other transactions with shareowners | (6,514 | ) | | (6,770 | ) |
| Redemption value adjustment for redeemable noncontrolling interests | (177 | ) | | (178 | ) |
| Other comprehensive income (loss) attributable to the Company | 4,075 |
| | 2,107 |
|
| Net sales (purchases) of shares for treasury | (2,161 | ) | | (16,310 | ) |
| Changes in other capital(a) | 1,199 |
| | (404 | ) |
| Ending balance at September 30 | 76,105 |
| | 81,882 |
|
| Noncontrolling interests | 17,947 |
| | 1,663 |
|
| Total equity balance at September 30 | $ | 94,052 |
| | $ | 83,544 |
|
(a) The Baker Hughes transaction resulted in an increase to additional paid in capital of $1,131 million. See Note 8 for further information.
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | |
| STATEMENT OF FINANCIAL POSITION |
| | General Electric Company and consolidated affiliates |
| (In millions, except share amounts) | September 30, 2017 |
| December 31, 2016 |
|
| | (Unaudited) |
| |
| Assets | | |
| Cash and equivalents | $ | 39,854 |
| $ | 48,129 |
|
| Investment securities (Note 3) | 38,696 |
| 44,313 |
|
| Current receivables (Note 4) | 25,026 |
| 24,076 |
|
| Inventories (Note 5) | 25,848 |
| 22,354 |
|
| Financing receivables – net (Note 6) | 12,228 |
| 12,242 |
|
| Other GE Capital receivables | 6,107 |
| 5,944 |
|
| Property, plant and equipment – net (Note 7) | 54,101 |
| 50,518 |
|
| Receivable from GE Capital | — |
| — |
|
| Investment in GE Capital | — |
| — |
|
| Goodwill (Note 8) | 87,068 |
| 70,438 |
|
| Other intangible assets – net (Note 8) | 21,435 |
| 16,436 |
|
| Contract assets (Note 9) | 29,809 |
| 25,162 |
|
| All other assets | 27,576 |
| 27,176 |
|
| Deferred income taxes (Note 13) | 1,129 |
| 1,833 |
|
| Assets of businesses held for sale (Note 2) | 2,369 |
| 1,745 |
|
| Assets of discontinued operations (Note 2) | 6,791 |
| 14,815 |
|
| Total assets(a) | $ | 378,038 |
| $ | 365,183 |
|
| | | |
| Liabilities and equity | | |
| Short-term borrowings (Note 10) | $ | 28,127 |
| $ | 30,714 |
|
| Accounts payable, principally trade accounts | 14,907 |
| 14,435 |
|
| Progress collections and price adjustments accrued | 16,970 |
| 16,760 |
|
| Dividends payable | 2,093 |
| 2,107 |
|
| Other GE current liabilities | 17,420 |
| 17,564 |
|
| Non-recourse borrowings of consolidated securitization entities (Note 10) | 708 |
| 417 |
|
| Long-term borrowings (Note 10) | 107,557 |
| 105,080 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | 26,597 |
| 26,086 |
|
| Non-current compensation and benefits | 42,423 |
| 43,780 |
|
| All other liabilities | 22,191 |
| 22,912 |
|
| Liabilities of businesses held for sale (Note 2) | 561 |
| 656 |
|
| Liabilities of discontinued operations (Note 2) | 990 |
| 4,158 |
|
| Total liabilities(a) | 280,544 |
| 284,668 |
|
| | | |
| Redeemable noncontrolling interests (Note 14) | 3,441 |
| 3,025 |
|
| | | |
Preferred stock (5,944,250 shares outstanding at both September 30, 2017
and December 31, 2016) | 6 |
| 6 |
|
Common stock (8,672,085,000 and 8,742,614,000 shares outstanding
at September 30, 2017 and December 31, 2016, respectively) | 702 |
| 702 |
|
| Accumulated other comprehensive income (loss) – net attributable to GE(b) | | |
| Investment securities | 887 |
| 674 |
|
| Currency translation adjustments | (5,092 | ) | (6,816 | ) |
| Cash flow hedges | 119 |
| 12 |
|
| Benefit plans | (10,436 | ) | (12,469 | ) |
| Other capital | 38,423 |
| 37,224 |
|
| Retained earnings | 136,696 |
| 139,532 |
|
| Less common stock held in treasury | (85,199 | ) | (83,038 | ) |
| Total GE shareowners’ equity | 76,105 |
| 75,828 |
|
| Noncontrolling interests(c) (Note 14) | 17,947 |
| 1,663 |
|
| Total equity (Note 14) | 94,052 |
| 77,491 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 378,038 |
| $ | 365,183 |
|
| |
(a) | Our consolidated assets at September 30, 2017 included total assets of $6,018 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets included current receivables and net financing receivables of $1,486 million and investment securities of $965 million within continuing operations and assets of discontinued operations of $285 million. Our consolidated liabilities at September 30, 2017 included liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities included non-recourse borrowings of consolidated securitization entities (CSEs) of $(708) million within continuing operations. See Note 17. |
| |
(b) | The sum of accumulated other comprehensive income (loss) (AOCI) attributable to the Company was $(14,523) million and $(18,598) million at September 30, 2017 and December 31, 2016, respectively. |
| |
(c) | Included AOCI attributable to noncontrolling interests of $(144) million and $(278) million at September 30, 2017 and December 31, 2016, respectively. |
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions, except share amounts) | September 30,
2017 |
| December 31, 2016 |
| | September 30,
2017 |
| December 31, 2016 |
|
| | (Unaudited) | | | (Unaudited) | |
| Assets | | | | | |
| Cash and equivalents | $ | 12,836 |
| $ | 10,525 |
| | $ | 27,019 |
| $ | 37,604 |
|
| Investment securities (Note 3) | 384 |
| 137 |
| | 38,415 |
| 44,180 |
|
| Current receivables (Note 4) | 14,725 |
| 12,715 |
| | — |
| — |
|
| Inventories (Note 5) | 25,767 |
| 22,263 |
| | 81 |
| 91 |
|
| Financing receivables - net (Note 6) | — |
| — |
| | 24,900 |
| 26,041 |
|
| Other GE Capital receivables | — |
| — |
| | 15,654 |
| 15,576 |
|
| Property, plant and equipment – net (Note 7) | 23,740 |
| 19,103 |
| | 31,260 |
| 32,225 |
|
| Receivable from GE Capital(b) | 42,593 |
| 58,780 |
| | — |
| — |
|
| Investment in GE Capital | 20,856 |
| 24,677 |
| | — |
| — |
|
| Goodwill (Note 8) | 84,698 |
| 68,070 |
| | 2,370 |
| 2,368 |
|
| Other intangible assets – net (Note 8) | 21,170 |
| 16,131 |
| | 266 |
| 305 |
|
| Contract assets (Note 9) | 29,809 |
| 25,162 |
| | — |
| — |
|
| All other assets | 14,083 |
| 12,007 |
| | 13,227 |
| 14,608 |
|
| Deferred income taxes (Note 13) | 6,179 |
| 6,666 |
| | (5,055 | ) | (4,833 | ) |
| Assets of businesses held for sale (Note 2) | 2,220 |
| 1,629 |
| | — |
| — |
|
| Assets of discontinued operations (Note 2) | — |
| 9 |
| | 6,791 |
| 14,806 |
|
| Total assets | $ | 299,061 |
| $ | 277,874 |
| | $ | 154,928 |
| $ | 182,970 |
|
| | | | | | |
| Liabilities and equity | | | | | |
| Short-term borrowings (Note 10)(b) | $ | 18,748 |
| $ | 20,482 |
| | $ | 21,179 |
| $ | 23,443 |
|
| Accounts payable, principally trade accounts | 20,574 |
| 20,876 |
| | 1,883 |
| 1,605 |
|
| Progress collections and price adjustments accrued | 17,139 |
| 16,838 |
| | — |
| — |
|
| Dividends payable | 2,093 |
| 2,107 |
| | — |
| — |
|
| Other GE current liabilities | 17,420 |
| 17,564 |
| | — |
| — |
|
| Non-recourse borrowings of consolidated securitization entities (Note 10) | — |
| — |
| | 708 |
| 417 |
|
| Long-term borrowings (Note 10)(b) | 65,097 |
| 58,810 |
| | 75,651 |
| 93,443 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | — |
| — |
| | 27,105 |
| 26,546 |
|
| Non-current compensation and benefits | 41,447 |
| 42,770 |
| | 967 |
| 1,001 |
|
| All other liabilities | 18,688 |
| 17,506 |
| | 5,388 |
| 7,430 |
|
| Liabilities of businesses held for sale (Note 2) | 561 |
| 656 |
| | — |
| — |
|
| Liabilities of discontinued operations (Note 2) | 24 |
| 35 |
| | 966 |
| 4,123 |
|
| Total liabilities | 201,791 |
| 197,644 |
| | 133,847 |
| 158,008 |
|
| | | | | | |
| Redeemable noncontrolling interests (Note 14) | 3,441 |
| 3,025 |
| | — |
| — |
|
| | | | | | |
Preferred stock (5,944,250 shares outstanding at both September 30, 2017 and December 31, 2016) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,672,085,000 and 8,742,614,000 shares outstanding at September 30, 2017 and December 31, 2016, respectively) | 702 |
| 702 |
| | — |
| — |
|
| Accumulated other comprehensive income (loss) - net attributable to GE | | | | | |
| Investment securities | 887 |
| 674 |
| | 895 |
| 656 |
|
| Currency translation adjustments | (5,092 | ) | (6,816 | ) | | (169 | ) | (740 | ) |
| Cash flow hedges | 119 |
| 12 |
| | 43 |
| 43 |
|
| Benefit plans | (10,436 | ) | (12,469 | ) | | (555 | ) | (622 | ) |
| Other capital | 38,423 |
| 37,224 |
| | 12,773 |
| 12,669 |
|
| Retained earnings | 136,696 |
| 139,532 |
| | 7,863 |
| 12,664 |
|
| Less common stock held in treasury | (85,199 | ) | (83,038 | ) | | — |
| — |
|
| Total GE shareowners’ equity | 76,105 |
| 75,828 |
| | 20,856 |
| 24,677 |
|
| Noncontrolling interests (Note 14) | 17,723 |
| 1,378 |
| | 224 |
| 285 |
|
| Total equity (Note 14) | 93,829 |
| 77,205 |
| | 21,080 |
| 24,962 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 299,061 |
| $ | 277,874 |
| | $ | 154,928 |
| $ | 182,970 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital, resulting in an intercompany receivable and payable between GE and GE Capital. See Note 10. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | |
| STATEMENT OF CASH FLOWS |
| (UNAUDITED) | | |
| | Nine months ended September 30 |
| | General Electric Company and consolidated affiliates |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Cash flows – operating activities | | |
| Net earnings (loss) | $ | 3,624 |
| $ | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 5,164 |
|
| (Earnings) loss from discontinued operations | 490 |
| 954 |
|
| Adjustments to reconcile net earnings (loss) attributable to the | | |
| Company to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment | 3,715 |
| 3,641 |
|
| (Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
| Deferred income taxes | (669 | ) | 1,244 |
|
| Decrease (increase) in GE current receivables | 1,737 |
| 763 |
|
| Decrease (increase) in inventories | (1,454 | ) | (2,594 | ) |
| Increase (decrease) in accounts payable | (518 | ) | (49 | ) |
| Increase (decrease) in GE progress collections | (269 | ) | 78 |
|
| All other operating activities(a) | (2,881 | ) | (5,356 | ) |
| Cash from (used for) operating activities – continuing operations | 4,008 |
| 3,846 |
|
| Cash from (used for) operating activities – discontinued operations | (490 | ) | (5,719 | ) |
| Cash from (used for) operating activities | 3,518 |
| (1,873 | ) |
| | | |
| Cash flows – investing activities | | |
| Additions to property, plant and equipment | (5,071 | ) | (5,109 | ) |
| Dispositions of property, plant and equipment | 3,768 |
| 3,403 |
|
| Net decrease (increase) in GE Capital financing receivables | 1,184 |
| 293 |
|
| Proceeds from sale of discontinued operations | 1,018 |
| 53,250 |
|
| Proceeds from principal business dispositions | 3,030 |
| 5,273 |
|
| Net cash from (payments for) principal businesses purchased | (6,053 | ) | (930 | ) |
| All other investing activities(a) | 6,815 |
| (2,621 | ) |
| Cash from (used for) investing activities – continuing operations | 4,692 |
| 53,559 |
|
| Cash from (used for) investing activities – discontinued operations | (2,349 | ) | (12,056 | ) |
| Cash from (used for) investing activities | 2,343 |
| 41,503 |
|
| | | |
| Cash flows – financing activities | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | 531 |
| (1,021 | ) |
| Newly issued debt (maturities longer than 90 days) | 9,337 |
| 1,178 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (18,418 | ) | (50,500 | ) |
| Net dispositions (purchases) of GE shares for treasury | (2,620 | ) | (17,969 | ) |
| Dividends paid to shareowners | (6,417 | ) | (6,611 | ) |
| All other financing activities | (640 | ) | (266 | ) |
| Cash from (used for) financing activities – continuing operations | (18,228 | ) | (75,188 | ) |
| Cash from (used for) financing activities – discontinued operations | 1,905 |
| 295 |
|
| Cash from (used for) financing activities | (16,323 | ) | (74,893 | ) |
| Effect of currency exchange rate changes on cash and equivalents | 1,253 |
| (169 | ) |
| Increase (decrease) in cash and equivalents | (9,208 | ) | (35,432 | ) |
| Cash and equivalents at beginning of year | 49,558 |
| 90,878 |
|
| Cash and equivalents at September 30 | 40,350 |
| 55,445 |
|
| Less cash and equivalents of discontinued operations at September 30 | 496 |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 39,854 |
| $ | 52,530 |
|
| |
(a) | Included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017. |
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF CASH FLOWS (CONTINUED) | | | |
| (UNAUDITED) |
| | Nine months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Cash flows – operating activities | | | | | |
| Net earnings (loss) | $ | 3,368 |
| $ | 4,414 |
| | $ | (439 | ) | $ | (1,956 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (236 | ) | (275 | ) | | 5 |
| (8 | ) |
| Net earnings (loss) attributable to the Company | 3,604 |
| 4,689 |
| | (443 | ) | (1,948 | ) |
| (Earnings) loss from discontinued operations | 497 |
| 956 |
| | 494 |
| 954 |
|
| Adjustments to reconcile net earnings (loss) attributable to the | | | | | |
| Company to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment | 1,977 |
| 1,857 |
| | 1,736 |
| 1,771 |
|
| (Earnings) loss from continuing operations retained by GE Capital(b) | 4,211 |
| 17,518 |
| | — |
| — |
|
| Deferred income taxes | (401 | ) | 81 |
| | (267 | ) | 1,164 |
|
| Decrease (increase) in GE current receivables | 701 |
| 455 |
| | — |
| — |
|
| Decrease (increase) in inventories | (1,437 | ) | (2,543 | ) | | — |
| (15 | ) |
| Increase (decrease) in accounts payable | (980 | ) | (38 | ) | | (97 | ) | 12 |
|
| Increase (decrease) in GE progress collections | (179 | ) | 179 |
| | — |
| — |
|
| All other operating activities(c) | (3,942 | ) | (4,812 | ) | | 632 |
| (35 | ) |
| Cash from (used for) operating activities – continuing operations | 4,050 |
| 18,342 |
| | 2,053 |
| 1,903 |
|
| Cash from (used for) operating activities – discontinued operations | — |
| — |
| | (490 | ) | (5,719 | ) |
| Cash from (used for) operating activities | 4,050 |
| 18,342 |
| | 1,563 |
| (3,815 | ) |
| | | | | | |
| Cash flows – investing activities | | | | | |
| Additions to property, plant and equipment | (3,051 | ) | (2,804 | ) | | (2,422 | ) | (2,719 | ) |
| Dispositions of property, plant and equipment | 825 |
| 727 |
| | 3,186 |
| 2,974 |
|
| Net decrease (increase) in GE Capital financing receivables | — |
| — |
| | 3,242 |
| 128 |
|
| Proceeds from sale of discontinued operations | — |
| — |
| | 1,018 |
| 53,250 |
|
| Proceeds from principal business dispositions | 2,908 |
| 5,273 |
| | — |
| — |
|
| Net cash from (payments for) principal businesses purchased | (6,053 | ) | (930 | ) | | — |
| — |
|
| All other investing activities(c) | (2,375 | ) | (1,915 | ) | | 3,472 |
| (6,435 | ) |
| Cash from (used for) investing activities – continuing operations | (7,745 | ) | 350 |
| | 8,497 |
| 47,198 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| | (2,349 | ) | (12,056 | ) |
| Cash from (used for) investing activities | (7,744 | ) | 351 |
| | 6,147 |
| 35,142 |
|
| | | | | | |
| Cash flows – financing activities | | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | 170 |
| 1,732 |
| | 243 |
| (1,945 | ) |
| Newly issued debt (maturities longer than 90 days) | 16,214 |
| 5,180 |
| | 420 |
| 987 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (1,532 | ) | (755 | ) | | (18,215 | ) | (49,745 | ) |
| Net dispositions (purchases) of GE shares for treasury | (2,620 | ) | (17,969 | ) | | — |
| — |
|
| Dividends paid to shareowners | (6,269 | ) | (6,427 | ) | | (4,164 | ) | (16,234 | ) |
| All other financing activities | (461 | ) | (143 | ) | | (168 | ) | (259 | ) |
| Cash from (used for) financing activities – continuing operations | 5,501 |
| (18,382 | ) | | (21,884 | ) | (67,196 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| | 1,905 |
| 295 |
|
| Cash from (used for) financing activities | 5,501 |
| (18,382 | ) | | (19,979 | ) | (66,900 | ) |
| Effect of currency exchange rate changes on cash and equivalents | 504 |
| (91 | ) | | 749 |
| (78 | ) |
| Increase (decrease) in cash and equivalents | 2,311 |
| 219 |
| | (11,519 | ) | (35,652 | ) |
| Cash and equivalents at beginning of year | 10,525 |
| 10,372 |
| | 39,033 |
| 80,506 |
|
| Cash and equivalents at September 30 | 12,836 |
| 10,591 |
| | 27,514 |
| 44,854 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| | 496 |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 12,836 |
| $ | 10,591 |
| | $ | 27,019 |
| $ | 41,939 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. |
| |
(b) | Represents GE Capital earnings/lossearnings (loss) from continuing operations attributable to the Company, net of GE Capital dividends paid to GE. |
| |
(c) | GE included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017.
Company. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “Consolidated” columns and are discussed in Note 19.
2017 3Q2019 2Q FORM 10-Q 7547
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements represent the consolidation of General Electric Company (the Company) and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements inour Annual Report on Form 10-K for the year ended December 31, 2016 that discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report),these financial statements, “GE” represents the adding together of all affiliated companies except GE Capital (GE Capital or Financial Services), whose continuing operations are presented on a one-line basis; GE Capital consistsrepresents the adding together of Generalall affiliates of GE Capital Global Holdings, LLC (GECGH) and allwith the effects of its affiliates;transactions among such affiliates eliminated; and “Consolidated” represents the adding together of GE and GE Capital with the effects of transactions between the two eliminated. Unless otherwise indicated,
The consolidated financial statements and notes thereto are unaudited. These statements include all adjustments that we referconsidered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the caption revenuesentire year. These consolidated financial statements should be read in conjunction with the financial statements and other income simply as “revenues” throughout thisnotes thereto included in our consolidated financial statements of our Annual Report on Form 10-Q.10-K for the year ended December 31, 2018.
We have reclassified certain prior-period amounts to conform to the current-period presentation. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations.
INTERIM PERIOD PRESENTATION
The consolidated financial statements and notes theretoOur significant accounting policies are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reporteddescribed in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2016.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to Note 1 Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements of our 2016 Form 10-K Reportaforementioned Annual Report. We include herein certain updates to those policies.
Cash, cash equivalents and restricted cash.Debt securities and money market instruments with original maturities of three months or less are included in cash, cash equivalents and restricted cash unless designated as available-for-sale and classified as investment securities. The balance includes restricted cash of $716 million and $492 million at June 30, 2019 and December 31, 2018, respectively, primarily comprising collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
LEASE ACCOUNTING. We determine if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified we reevaluate our classification.
Lessee. At lease commencement, we record a lease liability and corresponding right-of-use (ROU) asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. We have elected to include lease and non-lease components in determining our lease liability for all leased assets except our vehicle leases. Non-lease components are generally services that the lessor performs for the discussionCompany associated with the leased asset. For those leases with payments based on an index, the lease liability is determined using the index at lease commencement. Lease payments based on increases in the index subsequent to lease commencement are recognized as variable lease expense as they occur. The present value of our significant accounting policies.lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability. Over the lease term we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to earnings in a manner that results in straight-line expense recognition. A ROU asset and lease liability is not recognized for leases with an initial term of 12 months or less and we recognize lease expense for these leases on a straight-line basis over the lease term.
Lessor. Equipment leased to others under operating leases are included in "Property, plant and equipment" and leases classified as finance leases are included in "Financing receivables" on our consolidated Statement of Financial Position. Refer to Notes 5 and 7 for additional information.
ACCOUNTING CHANGES
CHANGES. On January 1, 2017,2019, we adopted ASU 2015-11, SimplifyingNo. 2016-02, Leases. Upon adoption, we recorded a $317 million increase to retained earnings, primarily attributable to the Measurementrelease of Inventory, which was intendeddeferred gains on sale-lease back transactions. Our right-of-use assets and lease liabilities for operating leases excluding discontinued operations at adoption were $4,116 million and $4,303 million, respectively. After the adoption date, cash collections of principal on financing leases, will be classified as Cash from operating activities in our consolidated Statement of Cash Flows. Previously, such flows were classified as Cash from investing activities.
On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to simplifyAccounting for Hedging Activities. The ASU requires certain changes to the subsequentpresentation of hedge accounting in the financial statements and some new or modified disclosures. The ASU also simplifies the application of hedge accounting and expands the strategies that qualify for hedge accounting. Upon adoption, we recorded an increase to retained earnings and a decrease to borrowings of $52 million related to changes to the measurement of inventory held by an entity not measured using last-in, first-out (LIFO) or retail inventory method. The amendments eliminated the requirement that entities consider the replacement cost of inventory and the net realizable value less a normal profit margin, which was historically used to establish a floor and ceiling for an assessment of market value. The adoption of this standard was immaterial to our financial statements.hedged interest rate risks.
76 2017 3Q48 2019 2Q FORM 10-Q
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| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
SALE.On September 25, 2017,June 30, 2019, we signed an agreement to sell our Industrial Solutionshigh-speed Reciprocating Compression business within our PowerOil & Gas segment with assetsand recorded a pre-tax loss of $2,220$160 million and liabilities of $561 million, to ABB for approximately $2,600 million. The transaction is targeted to close in mid-2018.
On March 8, 2017, we signed an agreement to sell our Water business within our Power segment to Suez Environnement S.A. (Suez). On September 30, 2017, we completed the sale for consideration of $3,041 million, net of obligations assumed and cash transferred, (including $122 million from sale of receivables originated in our Water business and sold from GE Capital to Suez) and recognized an after-tax gain of $1,872 million in the third quarter of 2017 in the caption “Other income” in our consolidated Statement of Earnings.Earnings (Loss). We expect to close the transaction in the second half of 2019.
On February 25, 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21,400 million. As of the second quarter of 2019, we had assets of $8,429 million (including goodwill of $5,523) and liabilities of $1,182 million for this business classified as held for sale. We expect to complete the sale of the business in the fourth quarter of 2019.
On November 13, 2017, the Company announced its intention to exit approximately $20 billion of assets over the next one to two years. Since this announcement, GE has classified various businesses across our Power, Aviation, and Healthcare segments, and Corporate as held for sale. In the first half of 2019, we closed certain of these transactions within Corporate and our Power and Aviation segments for total net proceeds of $1,049 million, recognized a pre-tax gain of $217 million in the caption “Other income” in our consolidated Statement of Earnings (Loss) and liquidated $548 million of our previously recorded valuation allowance. These transactions are subject to customary working capital and other post-close adjustments. As of June 30, 2019, we have closed the sale of substantially all of these assets in accordance with the plan.
While we previously announced an orderly separation of our ownership of BHGE over time, this business has not met the accounting criteria for held for sale classification as of June 30, 2019. That classification will depend on the nature and timing of the disposal transactions.
|
| | | | | | |
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
|
|
|
|
| Assets |
|
|
|
| Current receivables(a) | $ | 339 |
| $ | 366 |
|
| Inventories | 361 |
| 211 |
|
| Property, plant, and equipment – net | 390 |
| 632 |
|
| Goodwill | 1,050 |
| 212 |
|
| Other intangible assets – net | 130 |
| 123 |
|
| Contract assets | 52 |
| 125 |
|
| Other | 46 |
| 76 |
|
| Assets of businesses held for sale | $ | 2,369 |
| $ | 1,745 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable | $ | 219 |
| $ | 190 |
|
| Progress collections and price adjustments accrued | 21 |
| 141 |
|
| Other current liabilities | 131 |
| 133 |
|
| Non-current compensation and benefits | 152 |
| 82 |
|
| Other | 38 |
| 110 |
|
| Liabilities of businesses held for sale | $ | 561 |
| $ | 656 |
|
| |
(a) | Included transactions in our industrial businesses that were made on an arms-length basis with GE Capital, including GE current receivables sold to GE Capital of $148 million and $117 million at September 30, 2017 and December 31, 2016, respectively. These intercompany balances included within our held for sale businesses are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. |
|
| | | | | | |
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE (In millions) | June 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
| Current receivables | $ | 512 |
| $ | 184 |
|
| Inventories | 784 |
| 529 |
|
| Property, plant, and equipment – net and Operating leases | 895 |
| 423 |
|
| Goodwill and Other intangible assets - net | 6,344 |
| 884 |
|
| Valuation allowance | (647 | ) | (1,013 | ) |
| Deferred tax asset | 880 |
| — |
|
| Other assets | 438 |
| 623 |
|
| Assets of businesses held for sale | $ | 9,206 |
| $ | 1,630 |
|
|
|
|
| Accounts payable & Progress collections and deferred income | $ | 850 |
| $ | 428 |
|
| Non-current compensation and benefits | 367 |
| 152 |
|
| Other liabilities | 261 |
| 128 |
|
| Liabilities of businesses held for sale | $ | 1,478 |
| $ | 708 |
|
DISCONTINUED OPERATIONS
. Discontinued operations primarily relate to our Transportation segment and certain financial services businesses.
On February 25, 2019, we completed the spin-off and subsequent merger of our Transportation business with Wabtec, a U.S. rail equipment manufacturer. In the transaction, GE shareholders received shares of Wabtec common stock representing an approximate 24.3% ownership interest in Wabtec common stock. GE received $2,827 million in cash (net of certain deal related costs) as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $470 million for tax benefits that Wabtec realizes from the transaction. We reclassified our Transportation segment to discontinued operations in the first quarter of 2019.
As part of the transaction, we recorded a gain of $3,471 million ($2,508 million after-tax) in discontinued operations and a net after-tax decrease of $852million in additional paid in capital in connection with the spin-off ofapproximately 49.4% of Transportation to our shareholders. The fair value of our interest in Wabtec’s common and preferred shares was $3,513 million based on the opening share price of $73.45 at the date of the transaction and was recorded in the caption “Investment securities” in our consolidated Statement of Financial Position.
Discontinued operations for our financial services businesses as a result ofprimarily relate to the GE Capital Exit Plan and also includes(our plan announced in 2015 to reduce the remaining assetssize of our U.S. mortgage business (WMC). All of these operationsfinancial services businesses) and were previously reported in the Capital segment. Results of operations, financial position and cash flows for these businesses are separately reported asThese discontinued operations for all periods presented.primarily comprise residual assets and liabilities related to our exited U.S. mortgage business (WMC), our mortgage portfolio in Poland, and trailing liabilities associated with the sale of our GE Capital businesses.
We haveIn January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into Transitional Service Agreements (TSA) with and provided certain indemnifications to buyers of GE Capital’s assets.a definitive settlement agreement. Under the TSAs,agreement, which concludes this investigation, GE, Capital provides various services for terms generally between 12 and 24 months and receiveswithout admitting liability or wrongdoing, paid the United States a levelcivil penalty of cost reimbursement from the buyers. See Note 18 for further information about indemnifications. $1,500 million.
2017 3Q2019 2Q FORM 10-Q 7749
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| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In June 2019, GE Capital recorded in the caption "Earnings (loss) from discontinued operations, net of taxes" in our consolidated Statement of Earnings (Loss), $332 million of tax benefits and $46 million of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See Note 14 for further information.
Results of operations, financial position and cash flows for these businesses are reported as discontinued operations for all periods presented.
|
| | | | | | | | | | | | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
|
|
|
|
|
| Operations |
|
|
|
|
|
|
|
|
| Total revenues and other income (loss) | $ | 35 |
| $ | 633 |
| $ | 123 |
| $ | 2,494 |
|
|
|
|
|
|
| Earnings (loss) from discontinued operations before income taxes | $ | (191 | ) | $ | 6 |
| $ | (603 | ) | $ | (154 | ) |
| Benefit (provision) for income taxes(a) | 71 |
| 278 |
| 198 |
| 460 |
|
| Earnings (loss) from discontinued operations, net of taxes | $ | (120 | ) | $ | 284 |
| $ | (404 | ) | $ | 306 |
|
|
|
|
|
|
| Disposal |
|
|
|
|
| Gain (loss) on disposal before income taxes | $ | 22 |
| $ | (50 | ) | $ | 3 |
| $ | (591 | ) |
| Benefit (provision) for income taxes(a) | (8 | ) | (339 | ) | (89 | ) | (670 | ) |
| Gain (loss) on disposal, net of taxes | $ | 14 |
| $ | (389 | ) | $ | (86 | ) | $ | (1,261 | ) |
|
|
|
|
|
| Earnings (loss) from discontinued operations, net of taxes(b)(c) | $ | (106 | ) | $ | (105 | ) | $ | (490 | ) | $ | (954 | ) |
| |
(a) | GE Capital's total tax benefit (provision) for discontinued operations and disposals included current tax benefit (provision) of $(63) million and $726 million for the three months ended September 30, 2017 and 2016, respectively, and $(386) million and $(154) million for the nine months ended September 30, 2017 and 2016, respectively, including current U.S. Federal tax benefit (provision) of $1 million and $678 million for the three months ended September 30, 2017 and 2016, respectively, and $(518) million and $207 million for the nine months ended September 30, 2017 and 2016, respectively. The deferred tax benefit (provision) was $126 million and $(787) million for the three months ended September 30, 2017 and 2016, respectively, and $495 million and $(56) million for the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(b) | The sum of GE Industrial earnings (loss) from discontinued operations, net of taxes, and GE Capital earnings (loss) from discontinued operations, net of taxes, after adjusting for earnings (loss) attributable to noncontrolling interests related to discontinued operations, is reported within earnings (loss) from discontinued operations, net of taxes, in the GE Industrial column of the Consolidated Statement of Earnings (Loss).
|
| |
(c) | Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(168) million and $(43) million for the three months ended September 30, 2017 and 2016, respectively, and $(606) million and $(746) million for the nine months ended September 30, 2017 and 2016, respectively.
|
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
|
|
|
| Assets |
|
|
| Cash and equivalents | $ | 496 |
| $ | 1,429 |
|
| Investment securities | 1,131 |
| 2,626 |
|
| Deferred income taxes | 969 |
| 487 |
|
| Financing receivables held for sale | 3,631 |
| 8,547 |
|
| Other assets | 564 |
| 1,727 |
|
| Assets of discontinued operations | $ | 6,791 |
| $ | 14,815 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable | 51 |
| 164 |
|
| Borrowings | — |
| 2,076 |
|
| Other liabilities | 939 |
| 1,918 |
|
| Liabilities of discontinued operations | $ | 990 |
| $ | 4,158 |
|
|
| | | | | | | | | | | | | |
RESULTS OF DISCONTINUED OPERATIONS (In millions) | Three months ended June 30 |
| Six months ended June 30 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
|
|
|
|
|
|
|
| Sales of goods and services | $ | — |
| $ | 942 |
|
| $ | 549 |
| $ | 1,814 |
|
| GE Capital revenues and other income (loss) | (48 | ) | 4 |
|
| (9 | ) | (1,468 | ) |
| Cost of goods and services sold | — |
| (675 | ) |
| (478 | ) | (1,290 | ) |
| Other costs and expenses | (15 | ) | (332 | ) |
| (99 | ) | (556 | ) |
|
|
|
|
|
|
| Earnings (loss) of discontinued operations before income taxes | $ | (64 | ) | $ | (60 | ) |
| $ | (37 | ) | $ | (1,499 | ) |
| Benefit (provision) for income taxes | 295 |
| (3 | ) |
| 308 |
| (7 | ) |
| Earnings (loss) of discontinued operations, net of taxes | $ | 231 |
| $ | (63 | ) |
| $ | 270 |
| $ | (1,507 | ) |
|
|
|
|
|
|
| Gain (loss) on disposal before income taxes | $ | — |
| $ | — |
|
| $ | 3,517 |
| $ | 4 |
|
| Benefit (provision) for income taxes | — |
| — |
|
| (964 | ) | (1 | ) |
| Gain (loss) on disposal, net of taxes | $ | — |
| $ | — |
|
| $ | 2,553 |
| $ | 3 |
|
|
|
|
|
|
|
| Earnings (loss) from discontinued operations, net of taxes | $ | 231 |
| $ | (63 | ) |
| $ | 2,823 |
| $ | (1,504 | ) |
|
|
|
|
|
|
| Gains (loss) on disposals, net of taxes - Transportation and other Industrial | — |
| — |
| | 2,508 |
| — |
|
| Gains (loss) on disposals, net of taxes - Capital | — |
| — |
| | 45 |
| 3 |
|
| Earnings (loss) from discontinued operations, net of taxes - Transportation and other Industrial | (7 | ) | 3 |
|
| 2,550 |
| 115 |
|
| Earnings (loss) from discontinued operations, net of taxes - Capital | 238 |
| (66 | ) |
| 273 |
| (1,618 | ) |
78 2017 3Q |
| | | | | | |
ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS (In millions) | June 30, 2019 |
| December 31, 2018 |
|
|
|
|
| Cash, cash equivalents and restricted cash | $ | 594 |
| $ | 701 |
|
| Investment securities | 206 |
| 195 |
|
| Current receivables | 84 |
| 389 |
|
| Inventories | — |
| 832 |
|
| Financing receivables held for sale | 2,599 |
| 2,745 |
|
| Property, plant and equipment - net and Operating leases | 147 |
| 910 |
|
| Goodwill and intangible assets - net | — |
| 1,146 |
|
| Deferred income taxes | 346 |
| 1,175 |
|
| All other assets | 215 |
| 1,163 |
|
| Assets of discontinued operations | $ | 4,191 |
| $ | 9,257 |
|
|
|
|
| Accounts payable and Progress collections and deferred income | $ | 31 |
| $ | 1,248 |
|
| Operating lease liabilities | 227 |
| — |
|
| Other GE current liabilities | 98 |
| 590 |
|
| All other liabilities | 27 |
| 1,909 |
|
| Liabilities of discontinued operations | $ | 382 |
| $ | 3,747 |
|
Assets and liabilities of discontinued operations included $4,573 million of assets and $1,871 million of liabilities, respectively, related to our Transportation business as of December 31, 2018, which we classified as discontinued operations in the first quarter of 2019.
Included within all other liabilities of discontinued operations at June 30, 2019 and December 31, 2018 are intercompany tax receivables in the amount of $804 million and $1,141 million, respectively, primarily related to the financial services businesses that were part of the GE Capital Exit Plan, that are offset within all other liabilities of consolidated GE.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3. INVESTMENT SECURITIES
Substantially allAll of our investmentdebt securities are classified as available-for-sale and comprise mainlysubstantially all are investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations. We do not have any securities classified as held-to-maturity.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| December 31, 2016 |
| (In millions) | Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value (a) |
|
| Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value (a) |
|
|
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
|
|
|
|
|
| U.S. corporate | $ | 20,255 |
| $ | 3,594 |
| $ | (45 | ) | $ | 23,804 |
|
| $ | 20,049 |
| $ | 3,081 |
| $ | (85 | ) | $ | 23,046 |
|
| Non-U.S. corporate | 5,615 |
| 84 |
| (13 | ) | 5,686 |
|
| 11,917 |
| 98 |
| (27 | ) | 11,987 |
|
| State and municipal | 3,827 |
| 506 |
| (49 | ) | 4,284 |
|
| 3,916 |
| 412 |
| (92 | ) | 4,236 |
|
| Mortgage and asset-backed | 2,808 |
| 97 |
| (19 | ) | 2,886 |
|
| 2,787 |
| 111 |
| (37 | ) | 2,861 |
|
| Government and agencies | 1,769 |
| 74 |
| (10 | ) | 1,833 |
|
| 1,842 |
| 160 |
| (26 | ) | 1,976 |
|
| Equity (b) | 191 |
| 13 |
| — |
| 204 |
|
| 154 |
| 55 |
| (1 | ) | 208 |
|
| Total | $ | 34,464 |
| $ | 4,368 |
| $ | (136 | ) | $ | 38,696 |
|
| $ | 40,665 |
| $ | 3,917 |
| $ | (269 | ) | $ | 44,313 |
|
| |
(a) | Included $384 million and $137 million of investment securities held by GE at September 30, 2017 and December 31, 2016, respectively, of which $149 million and $86 million are equity securities.
|
| |
(b) | Estimated fair values included $107 million and $17 million of trading securities at September 30, 2017 and December 31, 2016, respectively. Net unrealized gains (losses) recorded to earnings related to these securities were $12 million and $1 million for the three months ended and $41 million and $(2) million for the nine months ended September 30, 2017 and 2016, respectively.
|
Investments with aChanges in fair value of $4,452 million and $4,406 million were classified within Level 3 (significant inputs to the valuation model are unobservable) at September 30, 2017 and December 31, 2016, respectively. The remaining investments are substantially all classified within Level 2 (determined based on significant observable inputs). During the nine months ended September 30, 2017 and 2016, there were no significant transfers into or out of Level 3.
|
| | | | | | | | | | | | | |
| ESTIMATED FAIR VALUE AND GROSS UNREALIZED LOSSES OF AVAILABLE-FOR-SALE INVESTMENT SECURITIES |
| | In loss position for |
| | Less than 12 months | | 12 months or more |
| (In millions) | Estimated fair value |
| Gross unrealized losses |
| | Estimated
fair value |
| Gross
unrealized
losses |
|
| | | | | | |
| September 30, 2017 | | | | | |
| Debt | | | | | |
| U.S. corporate | $ | 681 |
| $ | (17 | ) | | $ | 530 |
| $ | (28 | ) |
| Non-U.S. corporate | 581 |
| (4 | ) | | 3,591 |
| (9 | ) |
| State and municipal | 125 |
| (2 | ) | | 270 |
| (47 | ) |
| Mortgage and asset-backed | 821 |
| (9 | ) | | 227 |
| (9 | ) |
| Government and agencies | 593 |
| (9 | ) | | 257 |
| (1 | ) |
| Equity | 3 |
| — |
| | — |
| — |
|
| Total | $ | 2,805 |
| $ | (41 | ) | | $ | 4,874 |
| $ | (95 | ) |
| | | | | | |
| December 31, 2016 | | | | | |
| Debt | | | | | |
| U.S. corporate | $ | 1,692 |
| $ | (55 | ) | | $ | 359 |
| $ | (30 | ) |
| Non-U.S. corporate | 5,352 |
| (26 | ) | | 14 |
| (1 | ) |
| State and municipal | 674 |
| (27 | ) | | 158 |
| (64 | ) |
| Mortgage and asset-backed | 822 |
| (21 | ) | | 132 |
| (16 | ) |
| Government and agencies | 549 |
| (26 | ) | | — |
| — |
|
| Equity | 9 |
| (1 | ) | | — |
| — |
|
| Total | $ | 9,098 |
| $ | (157 | ) | | $ | 663 |
| $ | (111 | ) |
Unrealized losses are not indicative of the amount of credit loss that would be recognized and at September 30, 2017 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be requiredrecorded to sell the vast majority of these securities before anticipated recoveryother comprehensive income. All of our amortized cost. The methodologiesequity securities have readily determinable fair values and significant inputs usedchanges in fair value are recorded to measureearnings.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| December 31, 2018 |
| (In millions) | Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value |
|
| Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value |
|
|
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
|
|
|
|
|
| U.S. corporate | $ | 22,663 |
| $ | 3,866 |
| $ | (26 | ) | $ | 26,504 |
|
| $ | 21,306 |
| $ | 2,257 |
| $ | (357 | ) | $ | 23,206 |
|
| Non-U.S. corporate | 2,186 |
| 187 |
| — |
| 2,373 |
|
| 1,906 |
| 53 |
| (76 | ) | 1,883 |
|
| State and municipal | 3,199 |
| 572 |
| (24 | ) | 3,748 |
|
| 3,320 |
| 367 |
| (54 | ) | 3,633 |
|
| Mortgage and asset-backed | 3,048 |
| 128 |
| (4 | ) | 3,172 |
|
| 3,325 |
| 51 |
| (54 | ) | 3,322 |
|
| Government and agencies | 1,696 |
| 130 |
| — |
| 1,825 |
|
| 1,603 |
| 63 |
| (20 | ) | 1,645 |
|
| Equity | 1,761 |
| — |
| — |
| 1,761 |
|
| 146 |
| — |
| — |
| 146 |
|
| Total | $ | 34,554 |
| $ | 4,884 |
| $ | (55 | ) | $ | 39,383 |
|
| $ | 31,605 |
| $ | 2,792 |
| $ | (561 | ) | $ | 33,835 |
|
At June 30, 2019 estimated fair values have increased since December 31, 2018 primarily due to decreases in market yields and our equity interest in Wabtec that was received as consideration from the amountmerger of credit lossour Transportation business with Wabtec. On May 6, 2019, we completed an underwritten secondary offering in which we sold 25.3 million shares of Wabtec common stock resulting in proceeds of $1,799 million. After the sale, our ownership percentage is approximately 11.8%. This interest is subject to certain trading restrictions and must be sold before the third anniversary of the transaction closing date. See Note 2 for our investment securities during 2017 have not changed.further information.
Total pre-tax, other-than-temporary impairments on investment securities recognized in earnings were an insignificant amount and $28 million for the nine months ended September 30, 2017 and 2016, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | |
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES |
| (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) |
| | | |
| (In millions) | Amortized cost |
| Estimated fair value |
|
| | | |
| Due | | |
| Within one year | $ | 5,342 |
| $ | 5,344 |
|
| After one year through five years | 3,577 |
| 3,796 |
|
| After five years through ten years | 5,639 |
| 6,171 |
|
| After ten years | 16,994 |
| 20,395 |
|
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
Although we generally do not have the intent to sell any specific debt securities at the end of the period, in the ordinary course of managing our investmentdebt securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. Gross realized gains on available-for-sale investment securities were $54 million and $7 million, and gross realized losses were $(5) million and $(12) million in the three months ended September 30, 2017 and 2016, respectively. Gross realized gains on available-for-sale investment securities were $197 million and $49 million, and gross realized losses were $(9) million and $(52) million in the nine months ended September 30, 2017 and 2016, respectively.
Proceeds from investment securities sales and early redemptions by issuers totaled $659$2,925 million and $416$385 million in the three months ended September 30, 2017 and 2016, respectively primarily from sales of U.S. Corporate and Mortgage and asset-backed securities and $2,433$4,346 million and $1,283$706 million for the in the six months ended June 30, 2019 and 2018, respectively. Gross realized gains on investment securities were $33 million and $26 million and gross realized losses and impairments were $(67) million and $(3) million in the ninethree months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. Gross realized gains on investment securities were $76 million and $39 million and gross realized losses and impairments were $(107) million and $(3) million in the six months ended June 30, 2019 and 2018, respectively.
Net unrealized gains (losses) recorded to earnings for equity securities were $(60) million and $293 million for the three months ended and $(41) million and $263 million for the six months ended June 30, 2019 and 2018, respectively.
Gross unrealized losses of $(13) million and $(42) million are associated with debt securities with a fair value of $846 million and $929 million that have been in a loss position for less than 12 months and 12 months or more, respectively, primarilyat June 30, 2019. Gross unrealized losses of $(310) million and $(251) million are associated with debt securities with a fair value of $7,231 million and $3,856 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at December 31, 2018. Unrealized losses are not indicative of the amount of credit loss that would be recognized and we presently do not intend to sell these debt securities until anticipated recovery of our amortized cost.
|
| | | | | | |
CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) (In millions) | Amortized cost |
| Estimated fair value |
|
| | | |
| Due | | |
| Within one year | $ | 410 |
| $ | 415 |
|
| After one year through five years | 3,000 |
| 3,153 |
|
| After five years through ten years | 6,565 |
| 7,429 |
|
| After ten years | 19,769 |
| 23,453 |
|
We expect actual maturities to differ from salescontractual maturities because borrowers have the right to call or prepay certain obligations.
Substantially all of U.S. corporateour investment securities are classified within Level 2 as their valuation is determined based on significant observable inputs. Investments with a fair value of $4,415 million and Government$4,301 million were classified within Level 3 as significant inputs to the valuation model are unobservable at June 30, 2019 and agencies.December 31, 2018, respectively. During the six months ended June 30, 2019 and 2018, there were no significant transfers into or out of Level 3.
In addition to the investment securities described above, we hold $1,239 million and $1,085 million of equity securities without readily determinable fair value at June 30, 2019 and December 31, 2018, respectively that are classified within "All other assets" in our consolidated Statement of Financial Position. We recognize these assets at cost and have recorded insignificant fair value increases, net of impairment, for the three and six months ended June 30, 2019 and 2018, respectively and cumulatively, based on observable transactions.
NOTE 4.CURRENT RECEIVABLES
|
| | | | | | | | | | | | | |
| | Consolidated(a)(b) | | GE(c) |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
| | September 30, 2017 |
| December 31, 2016 |
|
| | | | | | |
| Current receivables | $ | 26,045 |
| $ | 24,935 |
| | $ | 15,733 |
| $ | 13,562 |
|
| Allowance for losses | (1,019 | ) | (858 | ) | | (1,008 | ) | (847 | ) |
| Total | $ | 25,026 |
| $ | 24,076 |
| | $ | 14,725 |
| $ | 12,715 |
|
| |
(a) | Included GE industrial customer receivables sold to a GE Capital affiliate and recorded on GE Capital’s balance sheet of $11,224 million and $12,304 million at September 30, 2017 and December 31, 2016, respectively. The consolidated total included a deferred purchase price receivable of $436 million and $483 million at September 30, 2017 and December 31, 2016, respectively, related to our Receivables Facility.
|
| |
(b) | In order to manage the credit exposure, the Company sells additional current receivables to third parties outside the Receivables Facility, substantially all of which are serviced by the Company. The outstanding balance of these current receivables was $2,460 million and $3,821 million at September 30, 2017 and December 31, 2016, respectively. Of these balances, $1,284 million and $2,504 million was sold by GE to GE Capital prior to the sale to third parties at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, our maximum exposure to loss under the limited recourse arrangements is $34 million and $215 million, respectively.
|
| |
(c) | GE current receivables balances at September 30, 2017 and December 31, 2016, before allowance for losses, included $9,912 million and $8,927 million, respectively, from sales of goods and services to customers. The remainder of the balances primarily relates to supplier advances, revenue sharing programs and other non-income based tax receivables.
|
RECEIVABLES FACILITY
The Company has a $3,200 million revolving Receivables Facility under which receivables are sold directly to third-party purchasers. The third-party purchasers have no recourse to other assets of the Company in the event of non-payment by the debtors. Where the purchasing entity is a bank multi-seller commercial paper conduit, assets transferred by other parties to that entity form a majority of the entity’s assets. Upon sale of the receivables, we receive proceeds of cash and a deferred purchase price (DPP). The DPP is an interest in specified assets of the purchasers (the receivables sold by GE Capital) that entitles GE Capital to the residual cash flows of those specified assets.
During the nine months ended September 30, 2017, GE Industrial sold current receivables of $15,057 million to GE Capital, which GE Capital sold immediately to third parties under the Receivables Facility. GE Capital continues to service the current receivables for the purchasers. The Company received total cash collections of $14,729 million on previously sold current receivables owed to the purchasing entities. The purchasing entities reinvested $12,681 million of those collections to purchase newly originated current receivables from the Company and paid $461 million to reduce their DPP obligation to the Company.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
|
| | | | | | | | | | | | | |
| CURRENT RECEIVABLES | Consolidated |
| GE |
| (In millions) | June 30, 2019 |
| December 31, 2018 |
|
| June 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
|
|
| Customer receivables | $ | 15,998 |
| $ | 15,716 |
|
| $ | 12,371 |
| $ | 11,330 |
|
| Sundry receivables | 5,265 |
| 4,765 |
| | 5,600 |
| 4,763 |
|
| Allowance for losses | (1,111 | ) | (997 | ) |
| (1,106 | ) | (989 | ) |
| Total current receivables | $ | 20,152 |
| $ | 19,484 |
|
| $ | 16,864 |
| $ | 15,103 |
|
Current sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables, certain intercompany balances that eliminate upon consolidation and deferred purchase price. The deferred purchase price represents our retained risk with respect to current customer receivables sold to third parties through one of the Receivable Facilities. The balance of the deferred purchase price held by GE Capital at June 30, 2019 and December 31, 2018, was $385 million and $468 million, respectively.
Sales of GE current customer receivables. During any given period, GE sells customer receivables to manage short-term liquidity and credit exposure. These sales to GE Capital or third parties are made on arm's length terms and any discount related to time value of money is recognized by GE when the customer receivables are sold. During the ninesix months ended SeptemberJune 30, 2017,2019 and 2018, GE Industrial recognized a losssold approximately 48% and 56% (62% and 70% excluding Oil & Gas), respectively, of $100its customer receivables to GE Capital or third parties. Activity related to customer receivables sold by GE is as follows: |
| | | | | | | | | | | | | | | |
| 2019 |
| 2018 |
Six months ended June 30 (In millions) | GE Capital (a) |
|
| Third Parties |
| GE Capital (a) |
|
| Third Parties |
|
|
|
|
|
|
|
|
| Balance at January 1 | $ | 4,386 |
|
| $ | 7,885 |
|
| $ | 9,877 |
|
| $ | 5,718 |
|
| GE sales to GE Capital | 19,247 |
|
| — |
|
| 24,430 |
|
| — |
|
| GE sales to third parties | — |
|
| 2,079 |
|
| — |
|
| 2,255 |
|
| GE Capital sales to third parties | (13,836 | ) |
| 13,836 |
|
| (14,201 | ) |
| 14,201 |
|
| Collections and other | (6,378 | ) |
| (16,968 | ) |
| (14,011 | ) |
| (16,184 | ) |
| Reclassification from long-term customer receivables | 209 |
|
| — |
|
| 415 |
|
| — |
|
| Balance at June 30 | $ | 3,628 |
|
| $ | 6,832 |
|
| $ | 6,510 |
|
| $ | 5,989 |
|
(a) As of June 30, 2019 and 2018, $1,076 million resultingand $2,283 million, respectively, of the current receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse has been insignificant for the six months ended June 30, 2019 and 2018.
When GE sells customer receivables to GE Capital or third parties it accelerates the receipt of cash that would otherwise have been collected from a discountcustomers. In any given period, the amount of cash received from sales of customer receivables compared to the cash GE would have otherwise collected had those customer receivables not been sold represents the cash generated or used in the period relating to this activity. Sales to GE Capital impact GE CFOA, while sales to third parties impact both GE and consolidated CFOA. The impact of selling fewer customer receivables to GE Capital, including those subsequently sold by GE Capital to third parties, decreased GE’s CFOA by $1,434 million and $3,027 million in the six months ended June 30, 2019 and 2018, respectively.
LONG-TERM RECEIVABLES. In certain circumstances, GE provides customers, primarily within our Power, Renewable Energy and Aviation businesses, with extended payment terms for the purchase of new equipment, purchases of upgrades and spare parts for our long-term service agreements. These long-term customer receivables are initially recorded at present value and have an average remaining duration of approximately 3 years and are included in “All other assets” in the consolidated Statement of Financial Position.
|
| | | | | | | | | | | | | |
| | Consolidated | | GE |
| (In millions) | June 30, 2019 |
| December 31, 2018 |
| | June 30, 2019 |
| December 31, 2018 |
|
| | | | | | |
| Long-term customer receivables | $ | 1,222 |
| $ | 1,444 |
|
| $ | 623 |
| $ | 561 |
|
| Long-term sundry receivables | 1,822 |
| 1,410 |
| | 2,197 |
| 1,750 |
|
| Allowance for losses | (193 | ) | (202 | ) |
| (193 | ) | (202 | ) |
| Total long-term receivables | $ | 2,851 |
| $ | 2,652 |
|
| $ | 2,628 |
| $ | 2,109 |
|
Long-term sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables and certain intercompany balances that eliminate upon consolidation.
Sales of GE long-term customer receivables. GE may sell long-term customer receivables to manage liquidity and credit exposure. Through the second quarter of 2018, these sales were primarily made to GE Capital, while subsequently, GE has sold an insignificant amount to third parties to transfer economic risk during both the six months ended June 30, 2019 and 2018. Activity related to long-term customer receivables purchased by GE Capital is as follows:
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | |
| 2019 |
| 2018 |
Six months ended June 30 (In millions) | GE Capital (a) |
|
| GE Capital (a) |
|
|
|
|
|
| Balance at January 1 | $ | 883 |
|
| $ | 1,947 |
|
| GE sales to GE Capital | — |
|
| 112 |
|
| Sales, collections, accretion and other | (75 | ) |
| (170 | ) |
| Reclassification to current customer receivables | (209 | ) |
| (415 | ) |
| Balance at June 30 | $ | 599 |
|
| $ | 1,475 |
|
(a) As of June 30, 2019 and 2018, $430 million and $885 million, respectively, of long-term customer receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse has been insignificant for the six months ended June 30, 2019 and 2018.
Similar to sales of current customer receivables, sales of long-term customer receivables can result in cash generation or use in our Statements of Cash Flows. The impact from the sale of theselong-term customer receivables to GE Capital.Capital, including those subsequently sold by GE Capital recoveredto third parties, decreased GE’s CFOA by $309 million and $520 million in the majoritysix months ended June 30, 2019 and 2018, respectively.
UNCONSOLIDATED RECEIVABLES FACILITIES. GE Capital has two revolving Receivables Facilities, with a total program size of this loss on$5,100 million, under which customer receivables purchased from GE are sold to third parties. In one of the facilities, upon the sale of receivables, we receive proceeds of cash and deferred purchase price and the Company’s remaining risk with respect to the sold receivables is limited to the balance of the deferred purchase price. In the other facility, upon the sale of receivables, we receive proceeds of cash only and therefore the Company has no remaining risk with respect to the sold receivables. Activity related to these facilities is included in “GE Capital sales to third party purchasers.parties” line in the table above and is as follows:
At September 30, 2017, |
| | | | | | | |
Six months ended June 30 (In millions) | 2019 |
| | 2018 |
|
| | | | |
| Customer receivables sold to receivables facilities | $ | 10,786 |
| | $ | 11,355 |
|
| Total cash purchase price for customer receivables | 10,495 |
| | 8,584 |
|
| Cash collections re-invested to purchase customer receivables | 8,830 |
| | 7,390 |
|
| | | | |
| Non-cash increases to deferred purchase price | $ | 137 |
| | $ | 2,716 |
|
| Cash payments received on deferred purchase price | 220 |
| | 2,691 |
|
CONSOLIDATED SECURITIZATION ENTITIES. GE Capital consolidates three variable interest entities (VIEs) that purchased customer receivables and long-term customer receivables from GE. At June 30, 2019 and December 31, 2018 these VIEs held current customer receivables of $1,863 million and $2,141 million and long-term customer receivables of $512 million and $678 million, respectively that were funded through the issuance of non-recourse debt to third parties. At June 30, 2019 and December 31, 2018, the outstanding debt under the Receivables Facility, serviced $2,903their respective debt facilities was $1,423 million of transferred receivables that remain outstanding.and $1,875 million, respectively.
Given the short-term nature of the underlying receivables, discount rates and prepayments are not factors in determining the value of the DPP. Collections on the DPP are presented within Cash flows from operating activities in the consolidated column in the Statement of Cash Flows. As the performance of the transferred current receivables is similar to the performance of our other current receivables, delinquencies are not expected to be significant.
NOTE 5. INVENTORIES
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Raw materials and work in process | $ | 13,939 |
| $ | 12,636 |
|
| Finished goods | 10,856 |
| 8,798 |
|
| Unbilled shipments | 531 |
| 536 |
|
| | 25,327 |
| 21,971 |
|
| Revaluation to LIFO | 521 |
| 383 |
|
| Total inventories | $ | 25,848 |
| $ | 22,354 |
|
NOTE 6. GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLESALLOWANCES
|
| | | | | | | | | | | | | |
| Consolidated |
| GE Capital |
| (In millions) | June 30, 2019 |
| December 31, 2018 |
|
| June 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
|
|
| Loans, net of deferred income | $ | 1,344 |
| $ | 5,118 |
|
| $ | 5,908 |
| $ | 10,834 |
|
| Investment in financing leases, net of deferred income | 2,139 |
| 2,639 |
|
| 2,316 |
| 2,822 |
|
| 3,483 |
| 7,757 |
|
| 8,224 |
| 13,656 |
|
| Allowance for losses | (47 | ) | (58 | ) |
| (14 | ) | (28 | ) |
| Financing receivables – net | $ | 3,436 |
| $ | 7,699 |
|
| $ | 8,210 |
| $ | 13,628 |
|
|
| | | | | | |
| FINANCING RECEIVABLES, NET |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Loans, net of deferred income | $ | 20,039 |
| $ | 21,101 |
|
| Investment in financing leases, net of deferred income | 4,923 |
| 4,998 |
|
| | 24,962 |
| 26,099 |
|
| Allowance for losses | (62 | ) | (58 | ) |
| Financing receivables – net | $ | 24,900 |
| $ | 26,041 |
|
In the second quarter of 2019, we classified $3,615 million of GE Capital Aviation Services (GECAS) financing receivables as held for sale within "All other assets" in our consolidated Statement of Financial Position, as we no longer intend to hold these receivables for the foreseeable future. There were no write-offs on financing receivables to reduce their carrying value to the lower of cost or fair value, less cost to sell.
We manage our GE Capital financing receivables portfolio using delinquency and nonaccrual data as key performance indicators. At SeptemberJune 30, 2017, $718 million (2.9%)2019, 3.0%, $165 million (0.7%)2.2% and $317 million (1.3%)3.6% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively, with the vast majority of nonaccrual financing receivables secured by collateral. At December 31, 2018, 2.4%, 1.8% and 0.9% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. Of the $317 millionThe increase in these key performance indicators at June 30, 2019 is primarily a result of nonaccrualtransferring financing receivables at September 30, 2017, the vast majority are secured by collateral and $271 million are currently paying in accordance with the contractual terms. At December 31, 2016, $811 million (3.1%), $407 million (1.6%) and $322 million (1.2%) of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively.to held for sale.
The recorded investment in impaired loans at September 30, 2017 and December 31, 2016 was $352 million and $262 million, respectively. The method used to measure impairment for these loans is primarily based on collateral value. At September 30, 2017, troubled debt restructurings included in impaired loans were $137 million.2019 2Q FORM 10-Q 53
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Original cost | $ | 91,421 |
| $ | 85,875 |
|
| Less accumulated depreciation and amortization | (37,321 | ) | (35,356 | ) |
| Property, plant and equipment – net | $ | 54,101 |
| $ | 50,518 |
|
Consolidated depreciation and amortization on property, plant and equipment was $1,397 million and $1,136 million in the three months ended September 30, 2017 and 2016, respectively and $3,715 million and $3,641 million in the nine months ended September 30, 2017 and 2016, respectively.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE Capital financing receivables that comprise receivables purchased from GE are reclassified to either "Current receivables" or "All other assets" in the consolidated Statement of Financial Position. To the extent these receivables are purchased with full or limited recourse, they are excluded from the delinquency and nonaccrual data above. See Note 4 for further information.
The portfolio also includes $575 million and $688 million of financing receivables that are guaranteed by GE, of which $105 million and $96 million of these loans are on nonaccrual at the consolidated level at June 30, 2019 and December 31, 2018, respectively. Additional allowance for loan losses are recorded at GE and on the consolidated level for these guaranteed loans.
NOTE 8. ACQUISITIONS, GOODWILL6. INVENTORIES
|
| | | | | | |
| (In millions) | June 30, 2019 |
| December 31, 2018 |
|
| | | |
| Raw materials and work in process | $ | 10,854 |
| $ | 10,102 |
|
| Finished goods | 8,928 |
| 8,086 |
|
| Unbilled shipments | 189 |
| 201 |
|
| Total inventories | $ | 19,971 |
| $ | 18,389 |
|
NOTE 7. PROPERTY, PLANT AND OTHER INTANGIBLE ASSETSEQUIPMENT AND OPERATING LEASES |
| | | | | | |
PROPERTY, PLANT AND EQUIPMENT (In millions) | June 30, 2019 |
| December 31, 2018 |
|
|
|
|
| Original cost | $ | 85,962 |
| $ | 85,476 |
|
| Less accumulated depreciation and amortization | (36,019 | ) | (35,637 | ) |
| Property, plant and equipment – net | $ | 49,943 |
| $ | 49,839 |
|
ACQUISITIONS
On October 11, 2016, we announced a plan to acquire LM Wind Power, the Danish maker of rotor blades for approximately $1,700 million. The transaction closedConsolidated depreciation and amortization on April 20, 2017. The preliminary purchase price allocation resulted in goodwill of approximately $1,300property, plant and equipment was $2,482 million and amortizable intangible assets of approximately $200 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
In the first quarter of 2017, we acquired the remaining 96% of ServiceMax, a leader in cloud-based field service management solutions, for $867 million, net of cash acquired of $91 million. Upon gaining control, we fair valued the business including our previously held 4% equity interest. The preliminary purchase price allocation resulted in goodwill of approximately $670 million and amortizable intangible assets of approximately $280 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
On September 14, 2016, we acquired the remaining 74% of the software developer Meridium Inc. for cash proceeds of $369 million. Upon gaining control, we fair valued the business including our previously held 26% equity interest. The purchase price allocation resulted in goodwill of approximately $360 million and amortizable intangible assets of approximately $150 million.
On May 10, 2016, we announced the pending acquisition of the heat recovery steam generator (HRSG) business from Doosan Engineering & Construction for $250 million. On August 16, 2016, we closed on 80% of the HRSG business for approximately $220 million. On May 23, 2017, we closed an additional 15% of the remaining HRSG business for approximately $35 million. The business is included in our Power Segment. The agreement to purchase the remaining 5% of the HRSG business was terminated on October 13, 2017. The purchase price allocation resulted in goodwill of approximately $160 million and amortizable intangible assets of approximately $36 million.
BAKER HUGHES
On July 3, 2017, GE completed the previously announced combination of GE’s Oil & Gas business (GE Oil & Gas) with Baker Hughes Incorporated (Baker Hughes). As part of the transaction, GE contributed GE Oil & Gas and $7,498 million in cash in exchange for an ownership interest of approximately 62.5% in the new combined company. The operating assets of the new combined company are held through a partnership named Baker Hughes, a GE company, LLC (BHGE LLC). GE holds an economic interest of approximately 62.5% in this partnership, and Baker Hughes’ former shareholders hold an ownership interest of approximately 37.5% through a newly NYSE listed corporation, Baker Hughes, a GE company (BHGE), which controls the partnership. In turn, GE holds a controlling, voting interest of approximately 62.5% in BHGE through Class B Common Stock, which grants voting rights but no economic rights. Baker Hughes’ former shareholders received one share of BHGE Class A Common Stock and a special one-time cash dividend of $17.50 per share at closing. Total consideration was $24,798 million, including the $7,498 million cash contribution.
The Baker Hughes acquisition has been accounted for as a business combination, using the acquisition method. The net assets of Baker Hughes’ contributed businesses were recorded at their estimated fair value, and GE Oil & Gas continues at its historical or carryover basis. We recorded noncontrolling interest of $16,470$2,640 million for the approximate 37.5% ownership interest in the combined company held by BHGE’s Class A shareholders. The noncontrolling interest is recorded at fair valuesix months ended June 30, 2019 and 2018, respectively.
Operating lease income on our equipment leased to others was $1,181 million and $1,210 million for the portion attributablethree months ended June 30, 2019 and 2018, respectively, and comprises fixed lease income of $748 million and $829 million and variable lease income of $432 million and $381 million, respectively. Operating lease income on our equipment leased to Baker Hughesothers was $2,320 million and at our historical cost$2,392 million for the portion attributable to GE Oil & Gas. The fair valuesix months ended June 30, 2019 and 2018, respectively, and comprises of the noncontrolling interest associated with the acquired net assets was determined by the publicly traded share pricefixed lease income of Baker Hughes at the close$1,524 million and $1,651 million and variable lease income of the transaction. The impact of recognizing the noncontrolling interest in GE Oil & Gas resulted in an increase to additional paid in capital of $1,131 million.$796 million and $740 million, respectively.
The tables below present the preliminary fair value of the consideration exchangedOperating Lease Assets and the preliminary allocation of purchase price to the major classes ofLiabilities. Our ROU assets and lease liabilities for operating leases were $3,860 million and $4,074 million, respectively, as of the acquired Baker Hughes business and the associated fair valueJune 30, 2019. Substantially all of preexisting noncontrolling interest relatedour operating leases have remaining lease terms of 12 years or less, some of which may include options to the acquired net assets of Baker Hughes. The estimated values are not yet final and are subject to change, and the changes could be significant. We will finalize the amounts recognized as soon as possible as we obtain the information necessary to complete the analysis, but no later than one year from the acquisition date.extend.
|
| | | |
| PRELIMINARY PURCHASE PRICE | |
| (In millions) | July 3, 2017 |
|
| | |
| Cash consideration | $ | 7,498 |
|
| Fair value of the Class A Shares in BHGE issued to Baker Hughes shareholders | 17,300 |
|
| Total consideration for Baker Hughes | $ | 24,798 |
|
|
| | | | | | | | | | | | | | | |
| OPERATING LEASE EXPENSE | Three months ended June 30 | | Six months ended June 30 |
| (In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | | |
| Long-term (fixed) | $ | 256 |
| | $ | 285 |
| | $ | 529 |
| | $ | 592 |
|
| Long-term (variable) | 35 |
| | 57 |
| | 90 |
| | 120 |
|
| Short-term | 186 |
| | 177 |
| | 432 |
| | 338 |
|
| Total operating lease expense | $ | 476 |
| | $ | 519 |
| | $ | 1,052 |
| | $ | 1,050 |
|
82 2017 3Q |
| | | |
MATURITY OF LEASE LIABILITIES (In millions) | Total |
|
| | |
| 2019 (excluding six months ended June 30, 2019) | $ | 540 |
|
| 2020 | 949 |
|
| 2021 | 763 |
|
| 2022 | 631 |
|
| 2023 | 500 |
|
| Thereafter | 1,534 |
|
| Total undiscounted lease payments | 4,917 |
|
| Less: imputed interest | (843 | ) |
| Total lease liability as of June 30, 2019 | $ | 4,074 |
|
|
| | | |
SUPPLEMENTAL INFORMATION RELATED TO OPERATING LEASES (In millions) | June 30, 2019 |
|
| | |
| Operating cash flows used for operating leases | $ | 579 |
|
| Right-of-use assets obtained in exchange for new lease liabilities | $ | 409 |
|
| Weighted-average remaining lease term | 7.2 years |
|
| Weighted-average discount rate | 5.0 | % |
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
|
| | | | | | | | | | | | | | | |
GOODWILL (In millions) | January 1, 2019 |
| Dispositions and classification to held for sale |
| Impairments |
| Currency exchange
and other |
| Balance at
June 30, 2019 |
|
|
|
| | |
|
|
| Power | $ | 139 |
| $ | — |
| $ | — |
| $ | 6 |
| $ | 145 |
|
| Renewable Energy | 4,730 |
| — |
| (744 | ) | 72 |
| 4,058 |
|
| Aviation | 9,839 |
| — |
| — |
| 24 |
| 9,863 |
|
| Healthcare | 17,226 |
| (5,523 | ) | — |
| 32 |
| 11,735 |
|
| Oil & Gas | 24,455 |
| (37 | ) | — |
| 301 |
| 24,719 |
|
| Capital | 904 |
| — |
| — |
| (26 | ) | 878 |
|
| Corporate | 1,438 |
| — |
| — |
| (564 | ) | 874 |
|
| Total | $ | 58,730 |
| $ | (5,560 | ) | $ | (744 | ) | $ | (153 | ) | $ | 52,272 |
|
|
| | | |
| PRELIMINARY IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED | |
| (In millions) | July 3, 2017 |
|
| | |
| Cash and cash equivalents | $ | 4,133 |
|
| Accounts receivable | 2,378 |
|
| Inventories | 1,975 |
|
| Property, plant, and equipment - net | 4,048 |
|
| Other intangible assets - net (a) | 4,400 |
|
| All other assets | 1,314 |
|
| Accounts payable | (1,115 | ) |
| Borrowings | (3,373 | ) |
| Deferred taxes (b) | (825 | ) |
| All other liabilities | (2,267 | ) |
| Total identifiable net assets | 10,668 |
|
| Fair value of existing noncontrolling interest | (77 | ) |
| Goodwill (c) | 14,207 |
|
| Total allocated purchase price | $ | 24,798 |
|
| |
(a) | The estimated fair value of intangible assets and related useful lives in the preliminary purchase price allocation include: |
|
| | | | |
| (In millions) | Estimated fair value
|
| Estimated useful life (in years) |
| Trademarks - Baker Hughes | $ | 2,000 |
| Indefinite life |
| Customer-related | 1,300 |
| 15 |
| Patents and technology | 900 |
| 10 |
| Trademarks - Other | 200 |
| 10 |
| Total | $ | 4,400 |
| |
| |
(b) | Includes an increase of approximately $974 millionGoodwill balances decreased primarily related to fair value adjustments to identifiable assets and liabilities (excluding goodwill).
|
| |
(c) | The above goodwill represents future economic benefits expected to be recognized from combining the operations of GE Oil & Gas and Baker Hughes, including expected future synergies and operating efficiencies. Goodwill resulting from the acquisition has been allocated to our Oil & Gas reporting units, of which $67 million is deductible for tax purposes. |
INCOME TAXES
BHGE LLC, will be treated as a disregarded entity for U.S. federal income tax purposes and, accordingly, will not incur any material current or deferred U.S. federal income taxes. BHGE LLC’s foreign subsidiaries, however, are expected to incur current and deferred foreign income taxes.
At closing, GE and BHGE, entered into a Tax Matters Agreement. The Tax Matters Agreement governs the administration and allocation between the parties of tax liabilities and benefits arising prior to, as a result of transferring our BioPharma business within our Healthcare segment to held for sale and subsequentthe goodwill impairment at our Grid Solutions equipment and services reporting unit within our Renewable Energy segment.
In assessing the possibility that a reporting unit’s fair value has been reduced below its carrying amount due to the transaction. GE will be responsibleoccurrence of events or circumstances between annual impairment testing dates, we consider all available evidence, including (i) the results of our impairment testing from the most recent testing date (in particular, the magnitude of the excess of fair value over carrying value observed), (ii) downward revisions to internal forecasts or decreases in market multiples (and the magnitude thereof), if any, and (iii) declines in market capitalization below book value (and the magnitude and duration of those declines), if any.
In the second quarter of 2019, we reorganized our Grid Solutions reporting unit in our Power segment by separating our Grid Solutions software business from the Grid Solutions reporting unit. Our Grid Solutions software business was then moved into Corporate and combined with our Digital business. In addition, the remaining Grid Solutions reporting unit (now referred to as Grid Solutions equipment and services) was moved into our Renewable Energy segment as a separate reporting unit. As a result, we allocated goodwill between Grid Solutions software and the Grid Solutions equipment and services reporting unit based on the relative fair values of each business. This resulted in $1,618 million of goodwill transferring from our Power segment to our Renewable Energy segment and our Digital business within Corporate in the amounts of $744 million and $874 million, respectively.
As a consequence of separating the two businesses, the Grid Solutions equipment and services reporting unit’s fair value was below its carrying value. Therefore, we conducted step two of the goodwill impairment test for certain taxesthis reporting unit using a current outlook.
In performing the second step, we identified unrecognized intangible assets primarily related to internally developed technology and trade name. The combination of these unrecognized intangibles, adjustments to the formationcarrying value of other assets and liabilities, and reduced reporting unit fair value calculated in step one, resulted in an implied fair value of goodwill below the carrying value of goodwill for the Grid Solutions equipment and services reporting unit. Therefore, we recorded a non-cash impairment loss of $744 million in the caption "Goodwill impairments" in our consolidated Statement of Earnings (Loss). After the impairment charge, there is no remaining goodwill associated with our Grid Solutions equipment and services reporting unit.
In addition, in the second quarter of 2019 we performed a qualitative review of our reporting units in our Oil & Gas segment, our Additive reporting unit in our Aviation segment, and our Hydro reporting unit in our Renewable Energy segment. We did not identify any reporting units that required an interim impairment test. While the goodwill in our reporting units within our Oil & Gas segment is not currently impaired, the oil and gas markets continue to be volatile. While the long-term outlook for the industry remains strong, any future declines in macroeconomic or business conditions affecting these reporting units or sustained declines in BHGE’s share price in future periods could result in a goodwill impairment in one or more of our Oil & Gas reporting units. In addition, we will continue to measure our ability to meet our cash flow forecasts and to monitor the operating results of our Additive reporting unit, which could impact the fair value of this reporting unit in the future. In the fourth quarter of 2018, we recorded a goodwill impairment charge in our Hydro reporting unit and the recoverability of its remaining goodwill is reliant on the business achieving its turnaround plan which includes execution improvements on legacy projects and cost reductions in the near term. There can be no assurances that some or all of the transaction undertaken by GE$740 million goodwill balance within this reporting unit will not be impaired in future periods.
Further, in the second quarter of 2019, a portion of goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Oil & Gas, Renewable Energy, Aviation and Baker HughesHealthcare segments in purchase accounting and their respective subsidiaries. We have assumed approximately $35for goodwill testing purposes is reflected in these segments in the table above.
|
| | | | | | |
OTHER INTANGIBLE ASSETS - NET (In millions) | June 30, 2019 |
| December 31, 2018 |
|
| | | |
| Intangible assets subject to amortization | $ | 14,412 |
| $ | 15,675 |
|
| Indefinite-lived intangible assets | 2,242 |
| 2,222 |
|
| Total | $ | 16,653 |
| $ | 17,897 |
|
Indefinite-lived intangible assets comprise trademarks and trade names in our Oil & Gas segment. Intangible assets decreased in the first quarter of 2019, primarily as a result of amortization, and the transfer of BioPharma within our Healthcare segment to held for sale of $524 million. Consolidated amortization expense was $454 million of tax obligations of Baker Hughes related to the formation of the transaction.
The Tax Matters Agreement will also provide for the sharing of certain tax benefits arising from the transaction. GE will be entitled to 100% of these tax benefits to the extent that GE has borne certain taxes related to the formation of the transaction. Thereafter, these tax benefits will be shared by GE and BHGE$547 million in accordance with their ownership of the partnership, which will initially be approximately 62.5% and approximately 37.5%, respectively.
ACQUISITION COSTS
During the three and nine months ended SeptemberJune 30, 2017, acquisition costs of $1592019 and 2018, and $916 million and $310$1,149 million respectively, were expensed as incurredin the six months ended June 30, 2019 and were reported as selling, general and administrative expenses.2018, respectively.
UNAUDITED ACTUAL AND PRO FORMA INFORMATION
Our consolidated "Revenues and other income", and "Earnings (loss) from continuing operations" from July 3, 2017 through September 30, 2017 includes $2,541 million and $(441) million, respectively, related to the Baker Hughes contributed business.
The following unaudited pro forma information has been presented as if the Baker Hughes transaction occurred on January 1, 2016. This information has been prepared by combining the historical results of the Company and historical results of Baker Hughes. The unaudited pro forma combined financial data for all periods presented were adjusted to give effect to proforma events that 1) are directly attributable to the aforementioned transaction, 2) factually supportable, and 3) expected to have a continuing impact on the consolidated results of operations.
2017 3Q2019 2Q FORM 10-Q 8355
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9. REVENUES
The unaudited combined pro forma results do not include any incremental cost savings that may result fromequipment and services revenues classification in the integration. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material. The unaudited combined pro forma informationtable below is for informational purposes only.
The pro forma information is not necessarily indicative of what the combined company’s results actually would have been had the acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company.consistent with our segment MD&A presentation.
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| Revenues and other income | $ | 33,472 |
| $ | 31,617 |
| | $ | 95,353 |
| $ | 98,029 |
|
| Earnings (loss) from continuing operations | 1,960 |
| 1,603 |
| | 4,139 |
| 3,015 |
|
Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine-month period ended September 30, 2016 and exclusion of those costs from all other periods presented; and the amortization associated with an estimate of the acquired intangible assets. A non-recurring contractually obligated termination fee of $3,500 million ($3,320 million net of related costs incurred) received by Baker Hughes due to an inability to obtain antitrust related approvals from a prior merger agreement is recognized in the nine months ended September 30, 2016.
GOODWILL |
| | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | Three months ended June 30 |
| (In millions) | 2019 | | 2018 |
| | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | | |
| Power | $ | 1,463 |
| $ | 3,218 |
| $ | 4,681 |
| | $ | 2,416 |
| $ | 3,845 |
| $ | 6,261 |
|
| Renewable Energy | 2,867 |
| 760 |
| 3,627 |
| | 2,240 |
| 643 |
| 2,883 |
|
| Aviation | 3,033 |
| 4,844 |
| 7,877 |
| | 2,909 |
| 4,610 |
| 7,519 |
|
| Healthcare | 2,838 |
| 2,095 |
| 4,934 |
| | 2,812 |
| 2,166 |
| 4,978 |
|
| Oil & Gas | 2,361 |
| 3,592 |
| 5,953 |
| | 2,189 |
| 3,366 |
| 5,554 |
|
| Total Industrial Segment Revenues | $ | 12,561 |
| $ | 14,510 |
| $ | 27,071 |
| | $ | 12,564 |
| $ | 14,631 |
| $ | 27,195 |
|
|
| | | | | | | | | | | | |
| CHANGES IN GOODWILL BALANCES |
| (In millions) | January 1, 2017 |
| Acquisitions |
| Dispositions,
currency
exchange
and other |
| Balance at
September 30, 2017 |
|
| | | | | |
| Power | $ | 26,403 |
| $ | 55 |
| $ | (1,219 | ) | $ | 25,239 |
|
| Renewable Energy | 2,507 |
| 1,503 |
| 230 |
| 4,240 |
|
| Oil & Gas | 10,363 |
| 14,207 |
| 315 |
| 24,885 |
|
| Aviation | 9,455 |
| 17 |
| 606 |
| 10,077 |
|
| Healthcare | 17,424 |
| 50 |
| 92 |
| 17,566 |
|
| Transportation | 899 |
| — |
| 26 |
| 925 |
|
| Lighting | 281 |
| — |
| 10 |
| 291 |
|
| Capital | 2,368 |
| — |
| 2 |
| 2,370 |
|
| Corporate | 739 |
| 722 |
| 16 |
| 1,476 |
|
| Total | $ | 70,438 |
| $ | 16,553 |
| $ | 78 |
| $ | 87,068 |
|
Goodwill balances increased by $16,630 million in 2017, primarily as a result of the Baker Hughes transaction, the LM Wind Power and ServiceMax acquisitions and the currency exchange effects of a weaker U.S. dollar, partially offset by the reclassification of our Industrial Solutions business to assets of businesses held for sale and impairment of our Power Conversion reporting unit.
We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.
Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 10.0% to 18.0%.
|
| | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | Six months ended June 30 |
| (In millions) | 2019 | | 2018 |
| | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | | |
| Power | $ | 3,039 |
| $ | 6,259 |
| $ | 9,298 |
| | $ | 4,889 |
| $ | 7,319 |
| $ | 12,209 |
|
| Renewable Energy | 4,848 |
| 1,317 |
| 6,165 |
| | 4,564 |
| 1,158 |
| 5,722 |
|
| Aviation | 6,146 |
| 9,685 |
| 15,831 |
| | 5,448 |
| 9,183 |
| 14,631 |
|
| Healthcare | 5,492 |
| 4,125 |
| 9,616 |
| | 5,419 |
| 4,261 |
| 9,680 |
|
| Oil & Gas | 4,630 |
| 6,940 |
| 11,569 |
| | 4,417 |
| 6,522 |
| 10,939 |
|
| Total Industrial Segment Revenues | $ | 24,155 |
| $ | 28,325 |
| $ | 52,479 |
| | $ | 24,737 |
| $ | 28,444 |
| $ | 53,181 |
|
|
| | | | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended June 30 | | Six months ended June 30 |
| (In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | | |
| Gas Power | $ | 3,248 |
| | $ | 3,500 |
| | $ | 6,510 |
| | $ | 7,041 |
|
| Power Portfolio | 1,434 |
| | 2,761 |
| | 2,788 |
| | 5,168 |
|
| Power | $ | 4,681 |
| | $ | 6,261 |
| | $ | 9,298 |
| | $ | 12,209 |
|
| | | | | | | | |
| Onshore Wind | $ | 2,449 |
| | $ | 1,336 |
| | $ | 3,891 |
| | $ | 2,596 |
|
| Grid Solutions equipment and services | 938 |
| | 1,230 |
| | 1,872 |
| | 2,423 |
|
| Hydro and Offshore Wind | 239 |
| | 317 |
| | 402 |
| | 703 |
|
| Renewable Energy | $ | 3,627 |
| | $ | 2,883 |
| | $ | 6,165 |
| | $ | 5,722 |
|
| | | | | | | | |
| Commercial Engines & Services | $ | 5,848 |
| | $ | 5,534 |
| | $ | 11,797 |
| | $ | 10,806 |
|
| Military | 976 |
| | 1,073 |
| | 2,013 |
| | 2,044 |
|
| Systems & Other | 1,052 |
| | 911 |
| | 2,021 |
| | 1,780 |
|
| Aviation | $ | 7,877 |
| | $ | 7,519 |
| | $ | 15,831 |
| | $ | 14,631 |
|
| | | | | | | | |
| Healthcare Systems | $ | 3,589 |
| | $ | 3,735 |
| | $ | 7,020 |
| | $ | 7,311 |
|
| Life Sciences | 1,345 |
| | 1,244 |
| | 2,595 |
| | 2,369 |
|
| Healthcare | $ | 4,934 |
| | $ | 4,978 |
| | $ | 9,616 |
| | $ | 9,680 |
|
| | | | | | | | |
| Turbomachinery & Process Solutions (TPS) | $ | 1,365 |
| | $ | 1,391 |
| | $ | 2,669 |
| | $ | 2,839 |
|
| Oilfield Services (OFS) | 3,263 |
| | 2,884 |
| | 6,249 |
| | 5,561 |
|
| Oilfield Equipment (OFE) | 693 |
| | 617 |
| | 1,428 |
| | 1,281 |
|
| Digital Solutions | 632 |
| | 662 |
| | 1,223 |
| | 1,258 |
|
| Oil & Gas | $ | 5,953 |
| | $ | 5,554 |
| | $ | 11,569 |
| | $ | 10,939 |
|
| | | | | | | | |
| Total Industrial Segment Revenues | $ | 27,071 |
| | $ | 27,195 |
| | $ | 52,479 |
| | $ | 53,181 |
|
| Capital(a) | 2,321 |
| | 2,429 |
| | 4,548 |
| | 4,602 |
|
| Corporate items and eliminations | (561 | ) | | (462 | ) | | (910 | ) | | (833 | ) |
| Consolidated Revenues | $ | 28,831 |
| | $ | 29,162 |
| | $ | 56,117 |
| | $ | 56,950 |
|
| |
| (a) | Substantially all of our revenues at GE Capital are outside of the scope of ASC 606. |
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DuringREMAINING PERFORMANCE OBLIGATION. As of June 30, 2019, the third quarter of 2017, we performed our annual impairment test of goodwill for all our reporting units. Based on the results of our step one testing, the fair values of eachaggregate amount of the GE reporting units exceeded their carrying values exceptcontracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $251,443 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows: 1) equipment-related remaining performance obligation of $50,331 million of which 58%,76% and 86% is expected to be satisfied within 1,2 and 5 years, respectively, and the remaining thereafter; and 2) services-related remaining performance obligation of $201,112 million of which 14%, 47%, 72% and 89% is expected to be recognized within 1, 5, 10 and 15 years, respectively, and the remaining thereafter.Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
NOTE 10. CONTRACT AND OTHER DEFERRED ASSETS & PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract and other deferred assets decreased$55 million in the first half of 2019. Our long-term service agreements increased primarily due to revenues recognized of $5,676 million, offset by billings of $5,553 million and a net unfavorable change in estimated profitability of $80 million, primarily at Aviation. Our short-term and other service agreements increased due to the timing of revenue recognition ahead of billings primarily at Aviation. |
| | | | | | | | | | | | | | | | | | |
June 30, 2019 (In millions) | Power | Aviation | Oil & Gas | Renewable Energy | Healthcare and Other | Total |
| | | | | | | |
| Revenues in excess of billings | $ | 5,661 |
| $ | 4,980 |
| $ | 669 |
| $ | — |
| $ | — |
| $ | 11,310 |
|
| Billings in excess of revenues | (1,576 | ) | (3,175 | ) | (245 | ) | — |
| — |
| (4,997 | ) |
| Long-term service agreements | 4,084 |
| 1,805 |
| 424 |
| — |
| — |
| 6,314 |
|
| Short-term and other service agreements | 135 |
| 338 |
| 177 |
| 35 |
| 297 |
| 983 |
|
| Equipment contract revenues | 2,740 |
| 79 |
| 891 |
| 1,242 |
| 323 |
| 5,275 |
|
| Total contract assets | 6,959 |
| 2,222 |
| 1,493 |
| 1,278 |
| 620 |
| 12,571 |
|
| | | | | | | |
| Deferred inventory costs | 909 |
| 374 |
| 129 |
| 1,463 |
| 338 |
| 3,213 |
|
| Nonrecurring engineering costs | 41 |
| 2,072 |
| 43 |
| 72 |
| 44 |
| 2,273 |
|
| Customer advances and other | — |
| 1,119 |
| — |
| — |
| — |
| 1,119 |
|
| Contract and other deferred assets | $ | 7,909 |
| $ | 5,787 |
| $ | 1,665 |
| $ | 2,813 |
| $ | 1,002 |
| $ | 19,176 |
|
|
| | | | | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
| | | | | | | |
| Revenues in excess of billings | $ | 5,368 |
| $ | 5,412 |
| $ | 703 |
| $ | — |
| $ | — |
| $ | 11,482 |
|
| Billings in excess of revenues | (1,693 | ) | (3,297 | ) | (187 | ) | — |
| — |
| (5,176 | ) |
| Long-term service agreements | 3,675 |
| 2,115 |
| 516 |
| — |
| — |
| 6,306 |
|
| Short-term and other service agreements | 99 |
| 272 |
| 182 |
| 45 |
| 251 |
| 850 |
|
| Equipment contract revenues | 2,829 |
| 80 |
| 902 |
| 1,129 |
| 384 |
| 5,324 |
|
| Total contract assets | 6,603 |
| 2,468 |
| 1,600 |
| 1,174 |
| 635 |
| 12,480 |
|
| | | | | | | |
| Deferred inventory costs | 1,003 |
| 673 |
| 179 |
| 1,267 |
| 365 |
| 3,488 |
|
| Nonrecurring engineering costs | 43 |
| 1,916 |
| 22 |
| 85 |
| 51 |
| 2,117 |
|
| Customer advances and other | — |
| 1,146 |
| — |
| — |
| — |
| 1,146 |
|
| Contract and other deferred assets | $ | 7,650 |
| $ | 6,204 |
| $ | 1,800 |
| $ | 2,525 |
| $ | 1,052 |
| $ | 19,231 |
|
Progress collections represent cash received from customers under ordinary commercial payment terms in advance of delivery. Progress collections on equipment contracts primarily comprises milestone payments received from customer prior to the manufacture and delivery of customized equipment orders. Other progress collections primarily comprise down payments from customers to reserve production slots for our Power Conversion reporting unit,standardized inventory orders such as advance payments from customers when they place orders for wind turbines and blades within our Power operatingRenewable Energy segment and payments from airframers and airlines for install and spare engines, respectively, within our Aviation segment. The primary factors contributing
Progress collections and deferred income increased $305 million in the first half of 2019 primarily due to a reduction in fair valuemilestone payments received primarily at Aviation and Oil & Gas. These increases were partially offset by the timing of this reporting unit were extended downturns in certain of its customer segments, most notably the marine and oil and gas markets, increased pricing and cost pressures in low margin renewable markets, and the delayed introduction of new technologies and products. Therefore, we performed a step two analysis. As a result of this analysis, we recognized a non-cash goodwill impairment loss of $947 million ($940 million after tax) during the third quarter to write down the carrying values of Power Conversion’s goodwill to its implied fair value of $191 million. The impairment loss was recorded on the Statement of Earnings to Other costs and expenses. After the impairment loss, the fair value of our Power Conversion reporting unit wasrevenue recognition in excess of its carrying value by approximately 2%.new collections received, primarily at Power and Renewable Energy.
In addition, we identified one reporting unitRevenues recognized for whichcontracts included in liability position at the fair value was not substantially in excess of its carrying value. The Grid Solutions reporting unit within our Power operating segment was formed as a resultbeginning of the Alstom acquisition in November 2015. Since fair value equaled carrying value at the time of acquisition, this caused the fair value of this reporting unit not to be significantly in excess of its carrying value. In the current annual impairment test, fair value of Grid Solutions was in excess of its carrying value by approximately 3%year were $8,370 million and therefore, continues to be not substantially in excess of carrying value. While the goodwill of this reporting unit is not currently impaired, there could be an impairment in the future as a result of changes in certain assumptions. For example, the fair value could be adversely affected and result in an impairment of goodwill if expected synergies of the acquisition with Alstom are not realized or if the reporting unit was not able to execute on customer opportunities, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease. The goodwill associated with our Grid Solutions reporting unit was $4,418$9,332 million representing approximately 5% of our total goodwill at September 30, 2017.
While the fair values of our Oil & Gas reporting units are in excess of their carrying values, the Oilfield Equipment and Oilfield Services reporting unit continues to experience declines in orders, project commencement delays and pricing pressures, which reduced its fair value. To the extent that conditions further deteriorate, the fair value of this reporting unit will continue to decline. We will continue to monitor the oil & gas industry and the impact it may have on this reporting unit. In addition, because of the Baker Hughes acquisition and related integration activities, the composition of our historical reporting units for the Oil & Gas operating segment may change. In the event that any of our reporting units change substantially, we will be required to re-test the reporting units as of the date of the reorganization, re-allocate goodwill based on the relative fair values of the new reporting units,six months ended June 30, 2019 and record any required impairment. Finally, the operating and reporting segments and associated reporting units for BHGE are different than GE’s, as BHGE is a subsidiary and performs its reporting unit assessment one level below its operating segments.2018, respectively.
As of September 30, 2017, we believe no other goodwill impairment exists, apart from the impairment charge discussed above, and that the remaining goodwill is recoverable for all of the reporting units; however, there can be no assurances that additional goodwill will not be impaired in future periods.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
OTHER INTANGIBLE ASSETS
|
| | | | | | |
| OTHER INTANGIBLE ASSETS - NET | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Intangible assets subject to amortization | $ | 19,345 |
| $ | 16,336 |
|
| Indefinite-lived intangible assets(a) | 2,090 |
| 100 |
|
| Total | $ | 21,435 |
| $ | 16,436 |
|
| |
(a) | Indefinite-lived intangible assets principally comprise trademarks and in-process research and development.
|
2017 3Q2019 2Q FORM 10-Q 8557
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | |
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION |
| | September 30, 2017 | | December 31, 2016 |
| (In millions) | Gross carrying amount |
| Accumulated amortization |
| Net |
| | Gross carrying amount |
| Accumulated amortization |
| Net |
|
| | | | | | | | |
| Customer-related | $ | 10,903 |
| $ | (2,909 | ) | $ | 7,994 |
| | $ | 9,172 |
| $ | (2,408 | ) | $ | 6,764 |
|
| Patents and technology | 10,548 |
| (3,646 | ) | 6,902 |
| | 8,693 |
| (3,325 | ) | 5,368 |
|
| Capitalized software | 8,268 |
| (5,064 | ) | 3,204 |
| | 7,652 |
| (4,538 | ) | 3,114 |
|
| Trademarks | 1,426 |
| (408 | ) | 1,018 |
| | 1,165 |
| (307 | ) | 858 |
|
| Lease valuations | 160 |
| (76 | ) | 84 |
| | 143 |
| (59 | ) | 84 |
|
| Present value of future profits(a) | 709 |
| (709 | ) | — |
| | 684 |
| (684 | ) | — |
|
| All other | 245 |
| (101 | ) | 144 |
| | 273 |
| (124 | ) | 149 |
|
| Total | $ | 32,258 |
| $ | (12,912 | ) | $ | 19,345 |
| | $ | 27,781 |
| $ | (11,444 | ) | $ | 16,336 |
|
| |
(a) | Balances at September 30, 2017 and December 31, 2016 include adjustments of $221 million and $241 million, respectively, to the present value of future profits in our run-off insurance activities to reflect the effects that would have been recognized had the related unrealized investment securities holding net gains actually been realized.
|
|
| | | | | | | | | | | | | | | | | | |
June 30, 2019 (In millions) | Power | Aviation | Oil & Gas | Renewable Energy | Healthcare and Other | Total |
|
|
|
|
|
|
|
| Progress collections on equipment contracts | $ | 5,619 |
| $ | 93 |
| $ | 1,336 |
| $ | 1,136 |
| $ | — |
| $ | 8,184 |
|
| Other progress collections | 552 |
| 4,501 |
| 529 |
| 3,374 |
| 487 |
| 9,443 |
|
| Total progress collections | $ | 6,171 |
| $ | 4,594 |
| $ | 1,865 |
| $ | 4,510 |
| $ | 487 |
| $ | 17,627 |
|
| Deferred income | 61 |
| 1,432 |
| 126 |
| 266 |
| 1,627 |
| 3,510 |
|
| GE Progress collections and deferred income | $ | 6,231 |
| $ | 6,026 |
| $ | 1,991 |
| $ | 4,776 |
| $ | 2,113 |
| $ | 21,138 |
|
Intangible assets subject to amortization increased by $3,009 million in the nine months ended September 30, 2017, primarily as a result of the Baker Hughes transaction, coupled with the LM Wind Power and ServiceMax acquisitions, partially offset by amortization. |
| | | | | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Progress collections on equipment contracts | $ | 5,536 |
| $ | 114 |
| $ | 878 |
| $ | 1,415 |
| $ | — |
| $ | 7,943 |
|
| Other progress collections | 691 |
| 4,034 |
| 552 |
| 3,468 |
| 500 |
| 9,245 |
|
| Total progress collections | $ | 6,227 |
| $ | 4,148 |
| $ | 1,430 |
| $ | 4,883 |
| $ | 500 |
| $ | 17,188 |
|
| Deferred income | 112 |
| 1,338 |
| 164 |
| 260 |
| 1,770 |
| 3,645 |
|
| GE Progress collections and deferred income | $ | 6,339 |
| $ | 5,486 |
| $ | 1,594 |
| $ | 5,143 |
| $ | 2,271 |
| $ | 20,833 |
|
GE amortization expense related to intangible assets subject to amortization was $522 million and $405 million in the three months ended September 30, 2017 and 2016, respectively, and $1,424 million and $1,268 million for the nine months ended September 30, 2017 and 2016, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $16 million and $33 million in the three months ended September 30, 2017 and 2016, respectively, and $50 million and $103 million for the nine months ended September 30, 2017 and 2016, respectively.
NOTE 9. CONTRACT ASSETS11. BORROWINGS
|
| | | | | | |
| (In millions) | June 30, 2019 | December 31, 2018 |
| | | |
| Short-term borrowings | | |
| Commercial paper | $ | 3,002 |
| $ | 3,005 |
|
| Current portion of long-term borrowings | 804 |
| 103 |
|
| Current portion of long-term borrowings assumed by GE | 6,962 |
| 4,207 |
|
| Other | 1,749 |
| 2,084 |
|
| Total GE short-term borrowings | $ | 12,518 |
| $ | 9,400 |
|
| | | |
| Current portion of long-term borrowings | $ | 3,743 |
| $ | 3,984 |
|
| Intercompany payable to GE | 2,393 |
| 2,684 |
|
| Other | 343 |
| 1,015 |
|
| Total GE Capital short-term borrowings | $ | 6,479 |
| $ | 7,684 |
|
| | | |
| Eliminations | (3,376 | ) | (4,262 | ) |
| Total short-term borrowings | $ | 15,620 |
| $ | 12,821 |
|
| | | |
| Long-term borrowings | | |
| Senior notes | $ | 25,792 |
| $ | 26,564 |
|
| Senior notes assumed by GE | 25,171 |
| 29,218 |
|
| Subordinated notes assumed by GE | 2,839 |
| 2,836 |
|
| Other | 502 |
| 524 |
|
| Total GE long-term borrowings | $ | 54,304 |
| $ | 59,143 |
|
| | | |
| Senior notes | $ | 33,468 |
| $ | 35,105 |
|
| Subordinated notes | 176 |
| 165 |
|
| Intercompany payable to GE | 18,830 |
| 19,828 |
|
| Other | 849 |
| 885 |
|
| Total GE Capital long-term borrowings | $ | 53,324 |
| $ | 55,982 |
|
| | | |
| Eliminations | (18,893 | ) | (19,892 | ) |
| Total long-term borrowings | $ | 88,735 |
| $ | 95,234 |
|
| Non-recourse borrowings of consolidated securitization entities | 1,423 |
| 1,875 |
|
| Total borrowings | $ | 105,778 |
| $ | 109,930 |
|
At June 30, 2019, the outstanding GE Capital borrowings that had been assumed by GE as part of the GE Capital Exit Plan was $34,972 million ($6,962 million short term and $28,010 long term), for which GE has an offsetting Receivable from GE Capital of $21,223 million. The difference of $13,749 million ($4,569 million in short-term borrowings and $9,180 million in long-term borrowings) represents the amount of borrowings GE Capital had funded with available cash to GE via intercompany loans in lieu of GE issuing borrowings externally.
At June 30, 2019, total GE borrowings of $45,599 million was comprised of GE-issued borrowings of $31,850 million (including $6,292 million of BHGE borrowings) and intercompany loans from GE Capital to GE of $13,749 million as described above.
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| GE | | |
| Revenues in excess of billings | | |
| Long-term product service agreements(a) | $ | 15,358 |
| $ | 12,752 |
|
| Long-term equipment contract revenues(b) | 7,187 |
| 5,859 |
| Total revenues in excess of billings | 22,545 |
| 18,611 |
| | | |
| Deferred inventory costs(c) | 3,818 |
| 3,349 |
| Non-recurring engineering costs(d) | 2,345 |
| 2,185 |
| Other | 1,101 |
| 1,018 |
| Contract assets | $ | 29,809 |
| $ | 25,162 |
|
| |
(a) | Long-term product service agreement balances are presented net of related billings in excess of revenues of $2,595 million and $3,750 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | Reflects revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as gas power systems). |
| |
(c) | Represents cost deferral for shipped goods (such as components for wind turbine assembly within our Renewable Energy segment) and other costs for which the revenue recognition criteria has not yet been met. |
| |
(d) | Includes costs incurred prior to production (such as requisition engineering) for long-term equipment production contracts, primarily within our Aviation segment, which are allocated ratably to each unit produced. |
Revenues in excess of billings increased $2,606 million and $1,328 million for our long-term service agreements and long-term equipment contracts, respectively. The increase in our long-term service agreements is due to a $1,930 million cumulative catch up adjustment driven by lower forecasted costs to complete these contracts as well as increased forecasted revenue and $676 million due to the timing of revenue recognized for work performed relative to billings and collections. Revenue in excess of billings for our long-term equipment contracts increased $1,328 million primarily due to the timing of revenue recognized for work performed relative to the timing of billings and collections. The remaining increase in contract assets of $712 million is primarily due an increase in deferred inventory costs and non-recurring engineering costs.
The change in estimated profitability within our long-term product service agreements in our Power, Aviation, Transportation, and Oil & Gas segments resulted in an adjustment of $649 million and $588 million for the three months ended September 30, 2017 and 2016, respectively, and $1,930 million and $1,714 million for the nine months ended September 30, 2017 and 2016, respectively, driven primarily by cost execution and increased productivity.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 10. BORROWINGS
|
| | | | | | |
| (In millions) | September 30, 2017 | December 31, 2016 |
| | | |
| Short-term borrowings | | |
| GE | | |
| Commercial paper | $ | 2,000 |
| $ | 1,500 |
|
| Current portion of long-term borrowings(d) | 14,623 |
| 17,109 |
|
| Other | 2,125 |
| 1,874 |
|
| Total GE short-term borrowings(a) | 18,748 |
| 20,482 |
|
| | | |
| GE Capital | | |
| U.S. Commercial paper | 5,021 |
| 5,002 |
|
| Current portion of long-term borrowings(b) | 5,627 |
| 6,517 |
|
| Intercompany payable to GE(c) | 9,971 |
| 11,696 |
|
| Other | 561 |
| 229 |
|
| Total GE Capital short-term borrowings | 21,179 |
| 23,443 |
|
| | | |
| Eliminations(c) | (11,800 | ) | (13,212 | ) |
| Total short-term borrowings | $ | 28,127 |
| $ | 30,714 |
|
| | | |
| Long-term borrowings | | |
| GE | | |
| Senior notes(d) | $ | 60,314 |
| $ | 54,396 |
|
| Subordinated notes | 2,938 |
| 2,768 |
|
| Subordinated debentures(f) | 382 |
| 719 |
|
| Other | 1,463 |
| 928 |
|
| Total GE long-term borrowings(a) | 65,097 |
| 58,810 |
|
| | | |
| GE Capital | | |
| Senior notes | 41,467 |
| 44,131 |
|
| Subordinated notes | 214 |
| 236 |
|
| Intercompany payable to GE(e) | 32,623 |
| 47,084 |
|
| Other(b) | 1,347 |
| 1,992 |
|
| Total GE Capital long-term borrowings | 75,651 |
| 93,443 |
|
| | | |
| Eliminations(e) | (33,191 | ) | (47,173 | ) |
| Total long-term borrowings | $ | 107,557 |
| $ | 105,080 |
|
| Non-recourse borrowings of consolidated securitization entities(g) | $ | 708 |
| $ | 417 |
|
| Total borrowings | $ | 136,392 |
| $ | 136,210 |
|
| |
(a) | Excluding assumed debt of GE Capital, the total amount of GE borrowings was $41,252 million and $20,512 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | Included $1,653 million and $2,665 million of funding secured by aircraft and other collateral at September 30, 2017 and December 31, 2016, respectively, of which $477 million and $1,419 million is non-recourse to GE Capital at September 30, 2017 and December 31, 2016, respectively. |
| |
(c) | Included a reduction of zero and $1,329 million for short-term intercompany loans from GE Capital to GE at September 30, 2017 and December 31, 2016, respectively, which bear the right of offset against amounts owed under the assumed debt agreement. Excluding intercompany loans, total short-term assumed debt was $9,971 million and $13,024 million at September 30, 2017 and December 31, 2016, respectively. The remaining short-term loan balance was paid in January 2017.
|
| |
(d) | Current portion of long-term borrowings and senior notes at September 30, 2017 included $202 million and $2,923 million, respectively, of borrowings issued by BHGE. |
| |
(e) | Included a reduction of $7,271 million and zero for long-term intercompany loans from GE Capital to GE at September 30, 2017 and December 31, 2016, respectively, which bear the right of offset against amounts owed under the assumed debt agreement. Excluding intercompany loans, total long-term assumed debt was $39,893 million and $47,084 million at September 30, 2017 and December 31, 2016, respectively. The $7,271 million of intercompany loans collectively have a weighted average interest rate of 3.5% and term of approximately 15 years. |
| |
(f) | Comprises subordinated debentures which constitute the sole assets of trusts that have issued trust preferred securities and where GE owns 100% of the common securities of the trusts. Obligations associated with these trusts are unconditionally guaranteed by GE. |
| |
(g) | Included $222 million and $320 million of current portion of long-term borrowings at September 30, 2017 and December 31, 2016, respectively. See Note 17. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the second quarter of 2017, GE completed issuances of €8,000 million senior unsecured debt, composed of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037.
On April 10, 2015, GEhas provided a full and unconditional guarantee on the payment of the principal and interest on all tradable senior and subordinated outstanding long-term debt securities and all commercial paper issued or guaranteed by GE Capital. $92,537 million of such debt was assumed by GE on December 2, 2015 upon its merger with GE Capital resulting in an intercompany payable to GE. At SeptemberJune 30, 2017,2019, the Guarantee applies to $44,526$35,347 million of GE Capital debt.
Non-recourse borrowings of consolidated securitization entities are primarily short term in nature. See Notes 164 and 2118 for additionalfurther information.
See Note 17 for further information about borrowings and associated interest rate swaps.
NOTE 11. INVESTMENT CONTRACTS,12. INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Insurance liabilities and investment contract liabilitiesannuity benefits comprise mainly obligations to policyholdersannuitants and annuitantsinsureds in our run-off insurance activities.
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Future policy benefit reserves(a) | | |
Life insurance and other contracts
| $ | 10,125 |
| $ | 10,053 |
|
Long-term care insurance contracts
| 9,031 |
| 8,688 |
|
| 19,156 |
| 18,741 |
|
| Investment contracts | 2,606 |
| 2,813 |
|
| Claim reserves(b) | 4,927 |
| 4,606 |
|
| Unearned premiums and other | 416 |
| 386 |
|
| | 27,105 |
| 26,546 |
|
| Eliminations | (508 | ) | (460 | ) |
| Total | $ | 26,597 |
| $ | 26,086 |
|
| |
(a) | Future policy benefit reserves are accounted for mainly by a net-level premium method using estimated yields generally ranging from 3.0% to 8.5% in both 2017 and 2016. |
| |
(b) | Includes $3,431 million and $3,129 million related to long term-care insurance contracts at September 30, 2017 and December 31, 2016, respectively. |
|
| | | | | | | | | | | | | | | |
June 30, 2019 (In millions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other
contracts | Other adjustments(a) | Total |
|
|
|
|
|
|
| Future policy benefit reserves | $ | 16,118 |
| $ | 9,371 |
| $ | 166 |
| $ | 4,792 |
| $ | 30,447 |
|
| Claim reserves | 4,094 |
| 238 |
| 1,172 |
| — |
| 5,504 |
|
| Investment contracts | — |
| 1,195 |
| 1,103 |
| — |
| 2,298 |
|
| Unearned premiums and other | 31 |
| 199 |
| 160 |
| — |
| 390 |
|
| 20,243 |
| 11,003 |
| 2,601 |
| 4,792 |
| 38,639 |
|
| Eliminations | — |
| — |
| (514 | ) | — |
| (514 | ) |
| Total | $ | 20,243 |
| $ | 11,003 |
| $ | 2,087 |
| $ | 4,792 |
| $ | 38,125 |
|
Future policy benefit reserves represent |
| | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
| Future policy benefit reserves | $ | 16,029 |
| $ | 9,495 |
| $ | 169 |
| $ | 2,247 |
| $ | 27,940 |
|
| Claim reserves | 3,917 |
| 230 |
| 1,178 |
| — |
| 5,324 |
|
| Investment contracts | — |
| 1,239 |
| 1,149 |
| — |
| 2,388 |
|
| Unearned premiums and other | 34 |
| 205 |
| 103 |
| — |
| 342 |
|
| 19,980 |
| 11,169 |
| 2,599 |
| 2,247 |
| 35,994 |
|
| Eliminations | — |
| — |
| (432 | ) | — |
| (432 | ) |
| Total | $ | 19,980 |
| $ | 11,169 |
| $ | 2,167 |
| $ | 2,247 |
| $ | 35,562 |
|
(a) To the present value of such benefits less the present value of future net premiums and are basedextent that unrealized gains on actuarial assumptions established at the time the policies were issued or acquired. These assumptions include, but are not limited to interest rates, health care experience (including type and cost of care), mortality, and the length of timespecific investment securities supporting our insurance contracts would result in a policy will remain in force. Our annual premium deficiency testing assesses the adequacy ofshould those gains be realized, an increase in future policy benefit reserves is recorded, with an after-tax reduction of net unrealized gains recognized through "Accumulated other comprehensive income (loss)" in our consolidated Statement of capitalized acquisition costs using current assumptions. Should the net liability for future policy benefits plus the present value of expected future premiums be insufficient to provide for the present value of expected future policy benefits and expenses, we would be required to reduce remaining capitalized acquisition costs and, to the extent a shortfall still exists, increase our existing future policy benefit reserves. We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts and are conducting a comprehensive review of premium deficiency assumptions across all insurance contracts, including a reassessment of future claim projections for long-term care contracts that will be incorporated within our annual test of future policy benefit reserves for premium deficiencies in the fourth quarter of 2017. We would record a charge to earnings for any premium deficiencies in the fourth quarter of 2017 upon completion of this review.Earnings (Loss).
Claim reserves are established when aincluded incurred claims of $981 million and $1,004 million for the six months ended June 30, 2019 and 2018, respectively, of which insignificant amounts related to the recognition of adjustments to prior year claim is incurred or is estimated to have been incurred and represents our best estimate of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims, such as the benefits available and cause of disability of the claimant, as well as assumptions derivedreserves arising from our actual historical experienceperiodic reserve evaluation. Paid claims were $824 million and expected future changes$904 million in experience factors. Claim reserves are evaluated periodically for potential changes in lossthe six months ended June 30, 2019 and 2018, respectively.
estimates with the support of qualified actuaries and any changes
Reinsurance recoverables are recorded in the period in which they are determined.
When insurance affiliateswhen we cede insurance risk to third parties such as reinsurers, theybut are not relieved of theirfrom our primary obligation to policyholders. When losses on ceded risks give rise to claims for recovery, we establishpolicyholders and cedents. These amounts, net of allowances, for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption “Other receivables” on"Other GE Capital receivables" in our Consolidatedconsolidated Statement of Financial Position, and amounted to $2,182$2,347 million and $2,038$2,271 million at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively.
88 2017 3Q2019 2Q FORM 10-Q59
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We recognize reinsurance recoveries as a reduction of the Consolidated Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” Reinsurance recoveries were $104 million and $339 million for the three and nine months ended September 30, 2017, respectively, and $78 million and $225 million for the three and nine months ended September 30, 2016, respectively.
See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.
NOTE 12.13. POSTRETIREMENT BENEFIT PLANS
We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans are the GE Pension Plan and the GE Supplementary Pension Plan. Other pension plans include the U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. Principal retiree benefit plans provide health and life insurance benefits to certain eligible participants and these participants share in the cost of the healthcare benefits. Other pension plans include the U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate.
|
| | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PENSION PLANS |
| | Principal pension plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 267 |
| | $ | 307 |
| | $ | 810 |
| | $ | 913 |
| |
| Prior service cost amortization | 73 |
| | 76 |
| | 218 |
| | 228 |
| |
| Expected return on plan assets | (847 | ) | | (837 | ) | | (2,545 | ) | | (2,507 | ) | |
| Interest cost on benefit obligations | 715 |
| | 736 |
| | 2,144 |
| | 2,205 |
| |
| Net actuarial loss amortization | 702 |
| | 612 |
| | 2,109 |
| | 1,836 |
| |
| Curtailment loss (gain) | — |
| | — |
| | 43 |
| (a) | (1 | ) | |
| Pension plans cost | $ | 910 |
| | $ | 894 |
| | $ | 2,779 |
| | $ | 2,674 |
| |
| |
(a) | Curtailment loss resulting from our intent to sell the Industrial Solutions business within our Power segment. |
|
| | | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PENSION PLANS | Principal pension plans |
| | Three months ended June 30 | | Six months ended June 30 | |
| (In millions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| Service cost for benefits earned | $ | 160 |
| | $ | 203 |
| | | $ | 318 |
| | $ | 435 |
| |
| Prior service cost amortization | 34 |
| | 36 |
| | | 67 |
| | 72 |
| |
| Expected return on plan assets | (862 | ) | | (820 | ) | | | (1,725 | ) | | (1,640 | ) | |
| Interest cost on benefit obligations | 723 |
| | 667 |
| | | 1,449 |
| | 1,333 |
| |
| Net actuarial loss amortization | 770 |
| | 943 |
| | | 1,533 |
| | 1,894 |
| |
| Curtailment loss | — |
| | — |
| | | 51 |
| | — |
| |
| Pension plans cost | $ | 825 |
| | $ | 1,029 |
| | | $ | 1,693 |
| | $ | 2,094 |
| |
|
| | | | | | | | | | | | | | | | |
| | Other pension plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 156 |
| | $ | 106 |
| | $ | 430 |
| | $ | 337 |
| |
| Prior service credit amortization | (2 | ) | | — |
| | (4 | ) | | (1 | ) | |
| Expected return on plan assets | (324 | ) | | (264 | ) | | (919 | ) | | (786 | ) | |
| Interest cost on benefit obligations | 158 |
| | 172 |
| | 445 |
| | 512 |
| |
| Net actuarial loss amortization | 110 |
| | 68 |
| | 320 |
| | 197 |
| |
| Curtailment loss | 11 |
| | — |
| | 11 |
| (a) | — |
| |
| Pension plans cost | $ | 109 |
| | $ | 82 |
| | $ | 283 |
| | $ | 259 |
| |
| |
(a) | Curtailment loss resulting from a Canadian manufacturing plant closure. |
|
| | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PRINCIPAL RETIREE BENEFIT PLANS |
| | Principal retiree benefit plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 25 |
| | $ | 32 |
| | $ | 77 |
| | $ | 84 |
| |
| Prior service credit amortization | (42 | ) | | (41 | ) | | (128 | ) | | (123 | ) | |
| Expected return on plan assets | (9 | ) | | (11 | ) | | (27 | ) | | (33 | ) | |
| Interest cost on benefit obligations | 55 |
| | 62 |
| | 168 |
| | 188 |
| |
| Net actuarial gain amortization | (20 | ) | | (12 | ) | | (61 | ) | | (39 | ) | |
| Curtailment loss | — |
| | — |
| | 3 |
| (a) | — |
| |
| Retiree benefit plans cost | $ | 9 |
| | $ | 30 |
| | $ | 32 |
| | $ | 77 |
| |
| |
(a) | Curtailment loss resulting from our intent to sell the Industrial Solutions business within our Power segment. |
Curtailment loss in the six months ended June 30, 2019, results from the spin-off and subsequent merger of our Transportation segment with Wabtec which is included in "Earnings (loss) from discontinued operations" in our consolidated Statement of Earnings (Loss).
2017 3Q |
| | | | | | | | | | | | | | | | | |
| | Other pension plans |
| | Three months ended June 30 | | Six months ended June 30 | |
| (In millions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| Service cost for benefits earned | $ | 70 |
| | $ | 99 |
| | | $ | 136 |
| | $ | 194 |
| |
| Prior service cost (credit) amortization | 1 |
| | (2 | ) | | | 1 |
| | (2 | ) | |
| Expected return on plan assets | (320 | ) | | (359 | ) | | | (629 | ) | | (717 | ) | |
| Interest cost on benefit obligations | 156 |
| | 156 |
| | | 313 |
| | 312 |
| |
| Net actuarial loss amortization | 84 |
| | 83 |
| | | 167 |
| | 165 |
| |
| Settlement/curtailment loss (gain) | 7 |
| | (6 | ) | | | 16 |
|
| (6 | ) | |
| Pension plans cost (income) | $ | (2 | ) | | $ | (29 | ) | | | $ | 4 |
| | $ | (54 | ) | |
Principal retiree benefit plans income was $30 million and $20 million for the three months ended June 30, 2019 and 2018, and $91 million and $41 million for the six months ended June 30, 2019 and 2018, respectively, which includes a curtailment gain of $33 million in 2019 resulting from the Transportation transaction. The components of net periodic benefit costs other than the service cost component are included in the caption "Non-operating benefit costs" in our consolidated Statement of Earnings (Loss).
We also have a defined contribution plan for eligible U.S. employees that provides discretionary contributions. Defined contribution plan costs were $90 million and $99 million for the three months ended June 30, 2019 and 2018, respectively, and $191 million and $216 million for the six months ended June 30, 2019 and 2018, respectively.
NOTE 14. INCOME TAXES
Our consolidated effective income tax rate was 7.4% and 30.0% during the six months ended June 30, 2019 and 2018, respectively. The rate for 2019 is lower than the U.S. statutory rate primarily due to favorable audit resolutions and U.S. business credits, partially offset by the cost of global activities, including the recently enacted base erosion and global intangible low tax income provisions and from a largely non-deductible goodwill impairment charge associated with our Grid Solutions equipment and services business within our Renewable Energy segment. The rate for 2018 was higher than the U.S. statutory rate primarily due to a change in deferred taxes resulting from the decision to execute an internal restructuring to separate the Healthcare business and the cost of the newly enacted base erosion and global intangible low tax income provisions in excess of the benefit from other global activities and dispositions taxed at a rate above the statutory rate. This was partially offset by an adjustment to decrease the 2018 six-month tax rate to be in line with the lower expected full-year rate and U.S. business credits.
The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2014-2015. In June 2019, the IRS completed the audit of our consolidated U.S. income tax returns for 2012-2013, which resulted in a decrease in our balance of "unrecognized tax benefits" (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of $378 million plus an additional net interest benefit of $107 million. Of these amounts, GE recorded $355 million of tax benefits and $98 million of net interest benefits and GE Capital recorded $23 million of tax benefits and $9 million of net interest benefits. GE Capital recorded an additional non-cash benefit in discontinued operations of $332 million of tax benefits and $46 million of net interest benefits. See Note 2 for further information.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15. SHAREOWNERS’ EQUITY |
| | | | | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | Three months ended June 30 | | Six months ended June 30 |
| (In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | | |
| Beginning balance | $ | (16 | ) | | $ | (4 | ) | | $ | (39 | ) | | $ | (102 | ) |
| Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $(23), $(17), $15 and $48(a) | 94 |
| | 32 |
| | 121 |
| | 140 |
|
| Reclassifications from OCI – net of deferred taxes of $(5), $0, $(6) and $(2) | (18 | ) | | (7 | ) | | (22 | ) | | (16 | ) |
| Other comprehensive income (loss) | 76 |
| | 25 |
| | 99 |
| | 124 |
|
| Less OCI attributable to noncontrolling interests | — |
| | — |
| | 1 |
| | 1 |
|
| Investment securities ending balance | $ | 60 |
| | $ | 21 |
| | $ | 60 |
| | $ | 21 |
|
| | | | | | | | |
| Beginning balance | $ | (5,810 | ) | | $ | (3,988 | ) | | $ | (6,134 | ) | | $ | (4,661 | ) |
| OCI before reclassifications – net of deferred taxes of $13, $190, $39 and $(241) | (308 | ) | | (2,049 | ) | | (1 | ) | | (1,217 | ) |
| Reclassifications from OCI – net of deferred taxes of $0, $0, $(4) and $0(b) | 167 |
| | 380 |
| | 284 |
| | 378 |
|
| Other comprehensive income (loss) | (141 | ) | | (1,669 | ) | | 283 |
| | (839 | ) |
| Less OCI attributable to noncontrolling interests | (77 | ) | | (211 | ) | | 22 |
| | (54 | ) |
| Currency translation adjustments ending balance | $ | (5,874 | ) | | $ | (5,446 | ) | | $ | (5,874 | ) | | $ | (5,446 | ) |
| | | | | | | | |
| Beginning balance | $ | 49 |
| | $ | 114 |
| | $ | 13 |
| | $ | 62 |
|
| OCI before reclassifications – net of deferred taxes of $(8), $(39), $3 and $(7) | (50 | ) | | (131 | ) | | (16 | ) | | (26 | ) |
| Reclassifications from OCI – net of deferred taxes of $4, $22, $1 and $7 | 25 |
| | 50 |
| | 28 |
| | — |
|
| Other comprehensive income (loss) | (25 | ) | | (81 | ) | | 12 |
| | (26 | ) |
| Less OCI attributable to noncontrolling interests | (1 | ) | | (2 | ) | | 1 |
| | — |
|
| Cash flow hedges ending balance | $ | 26 |
| | $ | 36 |
| | $ | 26 |
| | $ | 36 |
|
| | | | | | | | |
| Beginning balance | $ | (7,708 | ) | | $ | (8,984 | ) | | $ | (8,254 | ) | | $ | (9,702 | ) |
| OCI before reclassifications – net of deferred taxes of $13, $56, $(35) and $55 | 7 |
| | 182 |
| | (111 | ) | | 126 |
|
| Reclassifications from OCI – net of deferred taxes of $164, $218, $347 and $436 | 632 |
| | 758 |
| | 1,294 |
| | 1,533 |
|
| Other comprehensive income (loss) | 639 |
| | 940 |
| | 1,183 |
| | 1,659 |
|
| Less OCI attributable to noncontrolling interests | (6 | ) | | 1 |
| | (8 | ) | | — |
|
| Benefit plans ending balance | $ | (7,063 | ) | | $ | (8,043 | ) | | $ | (7,063 | ) | | $ | (8,043 | ) |
| | | | | | | | |
| Accumulated other comprehensive income (loss) at June 30 | $ | (12,852 | ) | | $ | (13,432 | ) | | $ | (12,852 | ) | | $ | (13,432 | ) |
NOTE 13. INCOME TAXES
Our effective income tax rates were (7.9)%(a) Included adjustments of $(1,054) million and 4.9% during$534 million for the ninethree months ended 2017June 30, 2019 and 2018, respectively and $(2,011) million and $1,472 million for the six months ended June 30, 2019 and 2018, respectively, related to insurance liabilities and annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment security gains been realized. See Note 12 for further information.
(b) Currency translation gains and losses included $116 million for the six months ended June 30, 2019 in earnings (loss) from discontinued operations, net of taxes.
In 2016, we issued $5,694 million of GE Series D preferred stock, which are callable on January 21, 2021. In addition to Series D, $250 million of existing GE Series A, B and C preferred stock are also outstanding. The total carrying value of GE preferred stock at June 30, 2019 was $5,653 million and will increase to $5,944 million by the respective call dates through periodic accretion. Dividends on GE preferred stock are payable semi-annually, in June and December and accretion is recorded on a quarterly basis. Dividends on GE preferred stock totaled $188 million, including cash dividends of $147 million and $185 million, including cash dividends of $147 million, in the three months ended June 30, 2019 and 2018, respectively and $228 million, including cash dividends of $147 million, and $222 million, including cash dividends of $147 million, for the six months ending June 30, 2019 and 2018, respectively. In conjunction with 2016 exchange of GE Capital preferred stock into GE preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirrored the GE external preferred stock. In 2018, GE Capital and GE exchanged the existing Series D preferred stock issued to GE for new Series D preferred stock, which is mandatorily convertible into GE Capital Common stock on January 21, 2021. After this conversion, GE Capital will no longer pay preferred dividends to GE. The rate for 2017 benefited from the tax difference on global activities, the tax rateexchange of GE Capital Series D preferred stock has no impact on the disposition ofGE Series D preferred stock, which remains callable for $5,694 million on January 21, 2021 or thereafter on dividend payment dates. Additionally, there were no changes to the Water business and U.S. business credits andexisting Series A, B or C preferred stock issued to GE. See our Annual Report on Form 10-K for 2016 from a deductible stock loss and U.S. business credits. In the nine monthsyear ended 2017, these decreases were partially offset by the non-deductible impairment of goodwill associated with the Power Conversion business and by an adjustment to bring the nine-month tax rate in line with the higher expected full-year rate. In the nine months ended 2016, there was aDecember 31, 2018 for further decrease to bring the nine-month tax rate in line with the lower expected full-year rate.information.
In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.
|
| | | | | | |
| UNRECOGNIZED TAX BENEFITS | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Unrecognized tax benefits | $ | 5,281 |
| $ | 4,692 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 3,224 |
| 2,886 |
|
| Accrued interest on unrecognized tax benefits | 789 |
| 615 |
|
| Accrued penalties on unrecognized tax benefits | 157 |
| 118 |
|
| Reasonably possible reduction to the balance of unrecognized tax benefits | | |
| in succeeding 12 months | 0-800 |
| 0-600 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-700 |
| 0-500 |
|
| |
(a) | Some portion of such reduction may be reported as discontinued operations. |
The increases for the period ended September 30, 2017 primarily relate to preliminary estimates of uncertain taxes for entities consolidated as part of the Baker Hughes transaction.
The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2012-2013 and 2014-2015. In addition, certain other U.S. tax deficiency issues and refund claims for previous years are still unresolved. It is reasonably possible that a portion of the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balance of "unrecognized tax benefits" - that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 14. SHAREOWNERS’ EQUITY
|
| | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Investment securities | | | | |
| Beginning balance | $ | 866 |
| $ | 1,077 |
| $ | 674 |
| $ | 460 |
|
| Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $45, $48, $204 and $352 | 54 |
| 97 |
| 363 |
| 675 |
|
| Reclassifications from OCI – net of deferred taxes of $(17), $5, $(78) and $36 | (32 | ) | 1 |
| (150 | ) | 40 |
|
| Other comprehensive income (loss)(a) | 21 |
| 97 |
| 213 |
| 715 |
|
| Less OCI attributable to noncontrolling interests | 1 |
| (2 | ) | 1 |
| (1 | ) |
| Ending balance | $ | 887 |
| $ | 1,176 |
| $ | 887 |
| $ | 1,176 |
|
| | | | | |
| Currency translation adjustments (CTA) | | | | |
| Beginning balance | $ | (5,481 | ) | $ | (5,448 | ) | $ | (6,816 | ) | $ | (5,499 | ) |
| OCI before reclassifications – net of deferred taxes of $(407), $5, $(648) and $222 | 710 |
| (280 | ) | 1,463 |
| (138 | ) |
| Reclassifications from OCI – net of deferred taxes of $2, $(6), $(538) and $74 | (196 | ) | 85 |
| 391 |
| 1 |
|
| Other comprehensive income (loss)(a) | 513 |
| (194 | ) | 1,854 |
| (138 | ) |
| Less OCI attributable to noncontrolling interests | 125 |
| 0 |
| 131 |
| 6 |
|
| Ending balance | $ | (5,092 | ) | $ | (5,643 | ) | $ | (5,092 | ) | $ | (5,643 | ) |
| | | | | |
| Cash flow hedges | | | | |
| Beginning balance | $ | 22 |
| $ | (51 | ) | $ | 12 |
| $ | (80 | ) |
| OCI before reclassifications – net of deferred taxes of $55, $(12), $53 and $(17) | 175 |
| (21 | ) | 239 |
| (61 | ) |
| Reclassifications from OCI – net of deferred taxes of $(28), $6, $(37) and $7 | (75 | ) | 52 |
| (129 | ) | 121 |
|
| Other comprehensive income (loss)(a) | 100 |
| 30 |
| 109 |
| 60 |
|
| Less OCI attributable to noncontrolling interests | 3 |
| — |
| 3 |
| — |
|
| Ending balance | $ | 119 |
| $ | (21 | ) | $ | 119 |
| $ | (21 | ) |
| | | | | |
| Benefit plans | | | | |
| Beginning balance | $ | (10,860 | ) | $ | (10,476 | ) | $ | (12,469 | ) | $ | (11,410 | ) |
| Prior service credit (costs) - net of deferred taxes of $0, $0, $0 and $5 | — |
| — |
| — |
| 23 |
|
| Net actuarial gain (loss) – net of deferred taxes of $(49), $49, $84 and $6 | (132 | ) | 83 |
| 367 |
| 71 |
|
| Net curtailment/settlement - net of deferred taxes of $3, $0, $19 and $0 | 8 |
| — |
| 38 |
| (1 | ) |
| Prior service cost amortization – net of deferred taxes of $17, $22, $55 and $63 | 13 |
| 12 |
| 34 |
| 45 |
|
| Net actuarial loss amortization – net of deferred taxes of $255, $216, $759 and $649 | 536 |
| 453 |
| 1,595 |
| 1,343 |
|
| Other comprehensive income (loss)(a) | 423 |
| 548 |
| 2,032 |
| 1,481 |
|
| Less OCI attributable to noncontrolling interests | (1 | ) | 6 |
| (1 | ) | 5 |
|
| Ending balance | $ | (10,436 | ) | $ | (9,934 | ) | $ | (10,436 | ) | $ | (9,934 | ) |
| | | | | |
| Accumulated other comprehensive income (loss) at September 30 | $ | (14,523 | ) | $ | (14,422 | ) | $ | (14,523 | ) | $ | (14,422 | ) |
| |
(a) | Total other comprehensive income (loss) was $1,058 million and $481 million in the three months ended September 30, 2017 and 2016, respectively, and $4,209 million and $2,117 million in the nine months ended September 30, 2017 and 2016 respectively. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | |
| RECLASSIFICATION OUT OF AOCI | | | | | | |
| | Three months ended | | Nine months ended | |
| | September 30 | | September 30 | |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
| Statement of Earnings caption |
| | | | | | | |
| Available-for-sale securities | | | | | | |
| Gains (losses) on securities | $ | 49 |
| $ | (6 | ) | | $ | 228 |
| $ | (76 | ) | Total revenues and other income(a) |
| Income taxes | (17 | ) | 5 |
| | (78 | ) | 36 |
| Benefit (provision) for income taxes(b) |
| Net of tax | $ | 32 |
| $ | (1 | ) | | $ | 150 |
| $ | (40 | ) | |
| Currency translation adjustments | | | | | | |
| Gains (losses) on dispositions | $ | 194 |
| $ | (79 | ) | | $ | 147 |
| $ | (74 | ) | Total revenues and other income(c) |
| Income taxes | 2 |
| (6 | ) | | (538 | ) | 74 |
| Benefit (provision) for income taxes(d) |
| Net of tax | $ | 196 |
| $ | (85 | ) | | $ | (391 | ) | $ | (1 | ) | |
| Cash flow hedges | | | | | | |
| Gains (losses) on interest rate derivatives | $ | (6 | ) | $ | (12 | ) | | $ | (21 | ) | $ | (67 | ) | Interest and other financial charges |
| Foreign exchange contracts | 98 |
| (43 | ) | | 176 |
| (47 | ) | (e) |
| Other | 12 |
| (3 | ) | | 13 |
| (14 | ) | (f) |
| Total before tax | 104 |
| (57 | ) | | 167 |
| (128 | ) | |
| Income taxes | (28 | ) | 6 |
| | (37 | ) | 7 |
| Benefit (provision) for income taxes |
| Net of tax | $ | 75 |
| $ | (52 | ) | | $ | 129 |
| $ | (121 | ) | |
| Benefit plan items | | | | | | |
| Curtailment gain (loss) | $ | (11 | ) | $ | — |
| | $ | (57 | ) | $ | 1 |
| (g) |
| Amortization of prior service cost | (30 | ) | (34 | ) | | (89 | ) | (108 | ) | (g) |
| Amortization of actuarial gains (losses) | (791 | ) | (669 | ) | | (2,354 | ) | (1,992 | ) | (g) |
| Total before tax | (832 | ) | (703 | ) | | (2,500 | ) | (2,099 | ) | |
| Income taxes | 275 |
| 238 |
| | 833 |
| 712 |
| Benefit (provision) for income taxes |
| Net of tax | $ | (557 | ) | $ | (465 | ) | | $ | (1,667 | ) | $ | (1,387 | ) | |
| | | | | | | |
| Total reclassification adjustments (net of tax) | $ | (254 | ) | $ | (602 | ) | | $ | (1,779 | ) | $ | (1,548 | ) | (h) |
| |
(a) | Included insignificant amounts for the three months ended September 30, 2017 and 2016, and an insignificant amount and $(72) million for the nine months ended September 30, 2017 and 2016, respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(b) | Included an insignificant amount and $3 million for the three months ended September 30, 2017 and 2016, and an insignificant amount and $34 million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(c) | Included zero and $(79) million for the three months ended September 30, 2017 and 2016, and $32 million and $(8) million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(d) | Included zero and $(7) million for the three months ended September 30, 2017 and 2016, and $(541) million and $73 million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes
|
| |
(e) | Primarily includes $105 million and $(30) million in GE Capital revenues from services and $(8) million and $(13) million in interest and other financial charges in the three months ended September 30, 2017 and 2016, respectively and $206 million and $1 million in GE Capital revenues from services and $(30) million and $(48) million in interest and other financial charges in the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(f) | Primarily recorded in costs and expenses. |
| |
(g) | Curtailment gain (loss), amortization of prior service cost and actuarial gains and losses out of AOCI are included in the computation of net periodic pension costs. See Note 12 for further information. |
| |
(h) | Included $146 million after-tax reclassification of AOCI to additional paid in capital as a result of recognition of noncontrolling interest in GE Oil & Gas as part of Baker Hughes transaction for the three and nine months ended September 30, 2017. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NONCONTROLLING INTERESTS
Noncontrolling interests in equity of consolidated affiliates include common sharesamounted to $20,312 millionand $20,500 million, including $19,095 million and $19,239 million attributable to the BHGE Class A shareholders at June 30, 2019 and December 31, 2018, respectively. Net earnings (loss) attributable to noncontrolling interests were $(28) million and $(15) million, for the three months ended June 30, 2019 and 2018, respectively and $2 million and $52 million for the six months ended June 30, 2019 and 2018, respectively. Dividends attributable to noncontrolling interests were $(109) million and $(81) million for the three months ended June 30, 2019 and 2018, respectively and $(215) million and $(164) million for the six months ended June 30, 2019 and 2018, respectively.
As previously announced, we plan an orderly separation of our ownership interest in consolidated affiliatesBHGE over time. Any reduction in our ownership interest below 50% will result in us losing control of BHGE. At that point, we would deconsolidate our Oil & Gas segment, recognize any remaining interest at fair value and preferredrecognize any difference between carrying value and fair value of our interest in earnings. Depending on the form and timing of our separation, and if BHGE’s stock issued byprice remains below our affiliates.current carrying value, we may recognize a significant loss in earnings. Based on BHGE's share price at July 26, 2019 of $24.84 per share, the loss upon deconsolidation from a sale of our interest would be approximately $7,400 million.
|
| | | | | | | | | | | | | |
| CHANGES TO NONCONTROLLING INTERESTS | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | |
| Beginning balance | $ | 1,634 |
| $ | 1,693 |
| | $ | 1,663 |
| $ | 1,864 |
|
| Net earnings (loss) | (93 | ) | 6 |
| | (73 | ) | (62 | ) |
| Dividends | (99 | ) | (25 | ) | | (130 | ) | (47 | ) |
| Dispositions | (77 | ) | (53 | ) | | (85 | ) | (94 | ) |
| Other (including AOCI)(a)(b)(c) | 16,582 |
| 42 |
| | 16,572 |
| 1 |
|
| Ending balance at September 30 | $ | 17,947 |
| $ | 1,663 |
| | $ | 17,947 |
| $ | 1,663 |
|
| |
(a) | Includes research & development partner funding arrangements and acquisitions.
|
| |
(b) | 2016 included $(123) million for deconsolidation of investment funds managed by GE Asset Management (GEAM) upon the adoption of ASU 2015-02, Amendments to the Consolidation Analysis, and prior to the July 1, 2016 sale of GEAM.
|
| |
(c) | 2017 includes $16,470 million related to Baker Hughes transaction. See Note 8 for further information. |
REDEEMABLE NONCONTROLLING INTERESTS
Redeemable noncontrolling interests presented within "All other liabilities" in our consolidated Statement of Financial Position include common shares issued by our affiliates that are redeemable at the option of the holder of those interests.
As partinterests and amounted to$408 million and $382 million as of June 30, 2019 and December 31, 2018, respectively. Net earnings (loss) attributable to redeemable noncontrolling interests was $5 million and $(116) million for the Alstom acquisition,three months ended June 30, 2019 and 2018, respectively and $32 million and $(149) million for the six months ended June 30, 2019 and 2018, respectively. On October 2, 2018 we formedsettled the redeemable noncontrolling interest balance associated with three joint ventures with Alstom, in grid technology, renewable energy, and global nuclear and French steam power. Noncontrolling interests in these joint ventures hold certain redemption rights. These joint ventures and the associated redemption rights are discussed in Note 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Our retained earnings is adjusted for subsequent changes in the redemption value of the noncontrolling interest in these entities to the extent that the redemption value exceeds the carryinga payment amount of the noncontrolling interest.$3,105 million in accordance with contractual payment terms.
NOTE 16. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
| CHANGES TO REDEEMABLE NONCONTROLLING INTERESTS | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Beginning balance | $ | 3,193 |
| $ | 3,070 |
| | $ | 3,025 |
| $ | 2,972 |
|
| Net earnings (loss) | (49 | ) | (82 | ) | | (158 | ) | (221 | ) |
| Dividends | (12 | ) | (8 | ) | | (22 | ) | (17 | ) |
| Redemption value adjustment | 63 |
| 68 |
| | 177 |
| 178 |
|
| Other | 248 |
| 3 |
| | 419 |
| 138 |
|
| Ending balance at September 30(a) | $ | 3,441 |
| $ | 3,051 |
| | $ | 3,441 |
| $ | 3,051 |
|
| |
(a) | Included $3,106 million and $2,942 million related to the Alstom joint ventures at September 30, 2017 and 2016, respectively.
|
|
| | | | | | | | | | | | | |
| | Three months ended June 30 |
| | 2019 | | 2018 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Earnings from continuing operations for per-share calculation | $ | (103 | ) | $ | (103 | ) | | $ | 862 |
| $ | 863 |
|
| Preferred stock dividends | (188 | ) | (188 | ) | | (185 | ) | (185 | ) |
Earnings from continuing operations attributable to
common shareowners for per-share calculation | (292 | ) | (292 | ) | | 677 |
| 678 |
|
Earnings (loss) from discontinued operations
for per-share calculation | 230 |
| 230 |
| | (69 | ) | (68 | ) |
Net earnings (loss) attributable to GE common
shareowners for per-share calculation | $ | (61 | ) | $ | (61 | ) | | $ | 614 |
| $ | 615 |
|
| | | | | | |
| Shares of GE common stock outstanding | 8,724 |
| 8,724 |
| | 8,688 |
| 8,688 |
|
| Employee compensation-related shares (including stock options) | — |
| — |
| | 11 |
| — |
|
| Total average equivalent shares | 8,724 |
| 8,724 |
| | 8,699 |
| 8,688 |
|
| | | | | | |
| Earnings per share from continuing operations | $ | (0.03 | ) | $ | (0.03 | ) | | $ | 0.08 |
| $ | 0.08 |
|
| Earnings (loss) per share from discontinued operations | 0.03 |
| 0.03 |
| | (0.01 | ) | (0.01 | ) |
| Net earnings (loss) per share | (0.01 | ) | (0.01 | ) | | 0.07 |
| 0.07 |
|
OTHER
Dividends from GE Capital to GE totaled zero and $5,050 million in the three months ended September 30, 2017 and 2016, respectively and $4,105 million, including cash dividends of $4,016 million, and $16,050 million in the nine months ended September 30, 2017 and 2016, respectively. Dividends on GE preferred stock totaled $36 million and $33 million in the three months ended September 30, 2017 and 2016, respectively, and $252 million, including cash dividends of $147 million and $474 million, including cash dividends of $184 million in the nine months ended September 30, 2017 and 2016, respectively. Dividends on GE preferred stock are payable semi-annually, in June and December, and accretion is recorded on a quarterly basis.
2017 3Q62 2019 2Q FORM 10-Q93
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15. EARNINGS PER SHARE INFORMATION
| | | | | | | | | | | | | |
| | Three months ended September 30 | Six months ended June 30 |
| | 2017 | | 2016 | 2019 | | 2018 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
| Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | | |
| Amounts attributable to the Company: | | | | |
| Consolidated | | | | |
Earnings from continuing operations for per-share calculation(a)(b) | $ | 1,935 |
| $ | 1,935 |
| | $ | 2,127 |
| $ | 2,127 |
| |
| Earnings from continuing operations for per-share calculation | | $ | 873 |
| $ | 888 |
| | $ | 1,156 |
| $ | 1,157 |
|
| Preferred stock dividends | (36 | ) | (36 | ) | | (33 | ) | (33 | ) | (228 | ) | (228 | ) | | (222 | ) | (222 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation(a)(b) | $ | 1,899 |
| $ | 1,899 |
| | $ | 2,094 |
| $ | 2,094 |
| |
Loss from discontinued operations for per-share calculation(a)(b) | (109 | ) | (109 | ) | | (100 | ) | (100 | ) | |
Net earnings attributable to GE common shareowners for per-share calculation(a)(b) | $ | 1,794 |
| $ | 1,794 |
| | $ | 1,991 |
| $ | 1,991 |
| |
Earnings from continuing operations attributable to
common shareowners for per-share calculation(a) | | $ | 645 |
| $ | 661 |
| | $ | 934 |
| $ | 935 |
|
Earnings (loss) from discontinued operations
for per-share calculation(a) | | 2,800 |
| 2,816 |
| | (1,515 | ) | (1,514 | ) |
Net earnings attributable to GE common
shareowners for per-share calculation(a) | | $ | 3,461 |
| $ | 3,476 |
| | $ | (574 | ) | $ | (573 | ) |
| | | | | | | |
| Average equivalent shares | | | | |
| Shares of GE common stock outstanding | 8,665 |
| 8,665 |
| | 8,904 |
| 8,904 |
| 8,716 |
| 8,716 |
| | 8,686 |
| 8,686 |
|
| Employee compensation-related shares (including stock options) | 67 |
| — |
| | 112 |
| — |
| 13 |
| — |
| | 9 |
| — |
|
| Total average equivalent shares | 8,732 |
| 8,665 |
| | 9,016 |
| 8,904 |
| 8,730 |
| 8,716 |
| | 8,694 |
| 8,686 |
|
| | | | | | | |
| Per-share amounts | | | | |
| Earnings from continuing operations | $ | 0.22 |
| $ | 0.22 |
| | $ | 0.23 |
| $ | 0.24 |
| $ | 0.07 |
| $ | 0.08 |
| | $ | 0.11 |
| $ | 0.11 |
|
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | | (0.01 | ) | (0.01 | ) | 0.32 |
| 0.32 |
| | (0.17 | ) | (0.17 | ) |
| Net earnings | 0.21 |
| 0.21 |
| | 0.22 |
| 0.22 |
| 0.40 |
| 0.40 |
| | (0.07 | ) | (0.07 | ) |
(a) Included in 2019 is a dilutive adjustment for the change in income for forward purchase contracts that may be settled in stock. |
| | | | | | | | | | | | | |
| | | | | | |
| | Nine months ended September 30 |
| | 2017 | | 2016 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Amounts attributable to the Company: | | | | | |
| Consolidated | | | | | |
Earnings from continuing operations for per-share calculation(a)(b) | $ | 4,336 |
| $ | 4,336 |
| | $ | 6,110 |
| $ | 6,110 |
|
| Preferred stock dividends | (252 | ) | (252 | ) | | (474 | ) | (474 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation(a)(b) | $ | 4,084 |
| $ | 4,084 |
| | $ | 5,636 |
| $ | 5,636 |
|
Loss from discontinued operations for per-share calculation(a)(b) | (507 | ) | (507 | ) | | (956 | ) | (956 | ) |
Net earnings attributable to GE common shareowners for per-share calculation(a)(b) | $ | 3,588 |
| $ | 3,587 |
| | $ | 4,680 |
| $ | 4,680 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,689 |
| 8,689 |
| | 9,096 |
| 9,096 |
|
| Employee compensation-related shares (including stock options) | 85 |
| — |
| | 105 |
| — |
|
| Total average equivalent shares | 8,774 |
| 8,689 |
| | 9,201 |
| 9,096 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | 0.47 |
| $ | 0.47 |
| | $ | 0.61 |
| $ | 0.62 |
|
| Loss from discontinued operations | (0.06 | ) | (0.06 | ) | | (0.10 | ) | (0.11 | ) |
| Net earnings | 0.41 |
| 0.41 |
| | 0.51 |
| 0.51 |
|
| |
(a) | Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities. For the three months ended September 30, 2017 pursuant to the two-class method, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities. For the three months ended September 30, 2016, participating securities are included in the computation of earnings per share pursuant to the two-class method and the application of this treatment had an insignificant effect. For the ninemonths ended September 30, 2017 and 2016, pursuant to the two-class method, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities.
|
| |
(b) | Included an insignificant amount of dividend equivalents in each of the periods presented. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
FOur unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities, and, therefore, are included in the computation of earnings per share pursuant to the two-class method. For the three months ended SeptemberJune 30, 20172019, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities, and 2016,for the six months ended June 30, 2019, application of this treatment had an insignificant effect. For the three and six months ended June 30, 2018, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities.
For the three months ended June 30, 2019 and 2018, approximately 82485 million and 15411 million of outstanding stock awards were not included in the computation of diluted earnings per share because their effect was antidilutive. ForFor the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, approximately 48468 million and 24407 million of outstanding stock awards were not included in the computation of diluted earnings per share because their effect was antidilutive.
Earnings per share amounts are computed independently for earnings from continuing operations, lossearnings from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.
NOTE 16.17. FINANCIAL INSTRUMENTS AND NON-RECURRING FAIR VALUE MEASUREMENTS
The following table provides information about assets and liabilities not carried at fair value. The tablevalue and excludes finance leases, equity securities without readily determinable fair value and non-financial assets and liabilities. Substantially all of thethese assets discussed below are considered to be Level 3. The3 and the vast majority of our liabilities’ fair value can be determined based on significant observable inputs and thusare considered Level 2. Few
|
| | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| (In millions) | Carrying
amount
(net) |
| Estimated
fair value |
| | Carrying
amount
(net) |
| Estimated
fair value |
|
|
|
| |
|
|
| Assets |
|
| |
|
|
| Loans and other receivables | $ | 8,292 |
| $ | 8,358 |
| | $ | 8,812 |
| $ | 8,830 |
|
| Liabilities |
|
| |
|
|
| Borrowings (Note 11) | 105,778 |
| 110,233 |
| | 109,930 |
| 106,221 |
|
| Investment contracts (Note 12) | 2,298 |
| 2,656 |
| | 2,388 |
| 2,630 |
|
Unlike the carrying amount, estimated fair value of borrowings included $1,140 million and $1,361 million of accrued interest at
June 30, 2019 and December 31, 2018, respectively, and excluded the instruments are actively traded and their fair values must often be determined using financial models. Realizationimpact of derivatives designated as hedges of borrowings. Had they been included, the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.borrowings at June 30, 2019 and December 31, 2018 would be reduced by $1,685 million and $1,300 million, respectively.
DERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for managing risks and not for speculative purposes. Total gross notional was $100,903 million ($60,331 million in GE Capital and $40,573 million in GE) and $123,535 million ($79,082 million in GE Capital and $44,453 million in GE) at June 30, 2019 and December 31, 2018, respectively. GE Capital notional relates primarily to managing interest rate and currency risk between financial assets and liabilities, and GE notional relates primarily to managing currency risk.
|
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In millions) | Carrying
amount
(net) |
| Estimated
fair value |
| | Carrying
amount
(net) |
| Estimated
fair value |
|
|
|
| |
|
|
| GE |
|
| |
|
|
| Assets |
|
| |
|
|
| Investments and notes receivable | $ | 1,337 |
| $ | 1,404 |
| | $ | 1,526 |
| $ | 1,595 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(b) | 33,982 |
| 35,180 |
| | 19,184 |
| 19,923 |
|
| Borrowings (debt assumed)(a)(c) | 49,864 |
| 56,894 |
| | 60,109 |
| 66,998 |
|
|
|
| |
|
|
| GE Capital |
|
| |
|
|
| Assets |
|
| |
|
|
| Loans | 19,994 |
| 20,069 |
| | 21,060 |
| 20,830 |
|
| Other commercial mortgages | 1,490 |
| 1,576 |
| | 1,410 |
| 1,472 |
|
| Loans held for sale | 1,063 |
| 1,063 |
| | 473 |
| 473 |
|
| Other financial instruments(d) | 115 |
| 161 |
| | 121 |
| 150 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(e)(f)(g) | 54,945 |
| 59,327 |
| | 58,523 |
| 62,024 |
|
| Investment contracts | 2,606 |
| 3,057 |
| | 2,813 |
| 3,277 |
|
| |
(b) | Included $230 million and $115 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(c) | Included $575 million and $803 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(d) | Principally comprises cost method investments.
|
| |
(e) | Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at September 30, 2017 and December 31, 2016 would have been reduced by $2,604 million and $2,397 million, respectively.
|
| |
(f) | Included $764 million and $775 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(g) | Excluded $42,593 million and $58,780 million of net intercompany payable to GE at September 30, 2017 and December 31, 2016, respectively.
|
|
| | | | | | |
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | | |
| | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Ordinary course of business lending commitments(a) | $ | 1,729 |
| $ | 687 |
|
| Unused revolving credit lines | 232 |
| 238 |
|
| |
(a) | Excluded investment commitments of $451 million and $522 million at September 30, 2017 and December 31, 2016, respectively.
|
2017 3Q2019 2Q FORM 10-Q 9563
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | June 30, 2019 | | December 31, 2018 |
| (In millions) | Gross Notional |
| All other assets |
| All other liabilities |
| | Gross Notional |
| All other assets |
| All other liabilities |
|
| | | | | | | | |
| Interest rate contracts | $ | 21,518 |
| $ | 1,654 |
| $ | 3 |
| | $ | 22,904 |
| $ | 1,335 |
| $ | 23 |
|
| Currency exchange contracts | 6,313 |
| 97 |
| 104 |
| | 7,970 |
| 175 |
| 121 |
|
| Derivatives accounted for as hedges | $ | 27,831 |
| $ | 1,751 |
| $ | 106 |
| | $ | 30,873 |
| $ | 1,511 |
| $ | 145 |
|
| | | | | | | | |
| Interest rate contracts | $ | 4,934 |
| $ | 46 |
| $ | 12 |
| | $ | 6,198 |
| $ | 28 |
| $ | 2 |
|
| Currency exchange contracts | 65,872 |
| 555 |
| 1,093 |
| | 83,841 |
| 727 |
| 1,546 |
|
| Other contracts | 2,267 |
| 57 |
| 78 |
| | 2,622 |
| 13 |
| 209 |
|
| Derivatives not accounted for as hedges | $ | 73,072 |
| $ | 658 |
| $ | 1,183 |
| | $ | 92,662 |
| $ | 769 |
| $ | 1,757 |
|
| | | | | | | | |
| Gross derivatives | $ | 100,903 |
| $ | 2,409 |
| $ | 1,290 |
| | $ | 123,535 |
| $ | 2,279 |
| $ | 1,902 |
|
| | | | | | | | |
| Netting and credit adjustments | | $ | (683 | ) | $ | (684 | ) | | | $ | (959 | ) | $ | (967 | ) |
| Cash collateral adjustments | | (1,230 | ) | (278 | ) | | | (1,042 | ) | (267 | ) |
| Net derivatives recognized in statement of financial position | | $ | 495 |
| $ | 327 |
| | | $ | 279 |
| $ | 669 |
|
| | | | | | | | |
| Net accrued interest | | $ | 185 |
| $ | 3 |
| | | $ | 205 |
| $ | 1 |
|
| Securities held as collateral | | (460 | ) | — |
| | | (235 | ) | — |
|
| Net amount | | $ | 220 |
| $ | 330 |
| | | $ | 248 |
| $ | 670 |
|
NON-RECURRING FAIR VALUE MEASUREMENTS
The following table represents non-recurring fairFair value amounts (as measuredof derivatives in our consolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $5 million and $21 million at the timeJune 30, 2019, respectively, and $3 million and $439 million at December 31, 2018, respectively. Securities held as collateral excluded excess collateral received of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year$22 million and still heldzero at SeptemberJune 30, 20172019 and December 31, 2016.2018, respectively.
FAIR VALUE HEDGES. We use derivatives to hedge the effects of interest rate and currency exchange rate changes on our borrowings. At June 30, 2019, the cumulative amount of hedging adjustments of $4,221 million (including $2,568 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $58,344 million. The cumulative amount of hedging adjustments was primarily recorded in long-term borrowings. |
| | | | | | | | | | | | |
| | Remeasured during
the nine months ended
September 30, 2017 | Remeasured during
the year ended
December 31, 2016 |
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 |
| | | | | |
| Financing receivables | $ | — |
| $ | 10 |
| $ | — |
| $ | 30 |
|
| Cost and equity method investments | — |
| 60 |
| — |
| 103 |
|
| Long-lived assets | 277 |
| 743 |
| 17 |
| 1,055 |
|
| Goodwill | $ | — |
| $ | 191 |
| $ | — |
| $ | — |
|
| Total | $ | 277 |
| $ | 1,004 |
| $ | 17 |
| $ | 1,189 |
|
The following table representsCASH FLOW HEDGES. Changes in the fair value adjustmentsof cash flow hedges are recorded in Accumulated Other Comprehensive Income (AOCI) and recorded in earnings in the period in which the hedged transaction occurs. The gain (loss) recognized in AOCI was $(49) million and $(162) million for the three months ended June 30, 2019 and 2018, respectively, and $(2) million and $(20) million for the six months ended June 30, 2019 and 2018, respectively. The gain (loss) reclassified from AOCI to assets measuredearnings was $(29) million and $(72) million for the three months ended June 30, 2019 and 2018, respectively, and $(29) million and $(7) million for the six months ended June 30, 2019 and 2018, respectively. These amounts were primarily related to currency exchange and interest rate contracts.
The total amount in AOCI related to cash flow hedges of forecasted transactions was a $49 million gain at June 30, 2019. We expect to reclassify $74 million of loss to earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. For the three months and six months ended June 30, 2019 and 2018, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At June 30, 2019 and 2018, the maximum term of derivative instruments that hedge forecasted transactions was 13 years and 14 years, respectively.
NET INVESTMENT HEDGES. For these hedges, the portion of the fair value on a non-recurring basis and still held at September 30, 2017 and 2016.
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Financing receivables | $ | (1 | ) | $ | — |
| | $ | (1 | ) | $ | (14 | ) |
| Cost and equity method investments | (58 | ) | (2 | ) | | (89 | ) | (95 | ) |
| Long-lived assets | (671 | ) | (21 | ) | | (712 | ) | (161 | ) |
| Goodwill | $ | (947 | ) | $ | — |
| | $ | (947 | ) | $ | — |
|
| Total | $ | (1,676 | ) | $ | (24 | ) | | $ | (1,748 | ) | $ | (270 | ) |
|
| | | | | | |
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | Range
(weighted-average) |
| | | | | |
| September 30, 2017 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Cost and equity method investments | $ | 51 |
| Income approach | Discount rate(a) | 9.0%-40.0%(13.9)%
|
| | | | | |
| Long-lived assets | 508 |
| Income approach | Discount rate(a) | 2.7%-17.0% (7.2%) |
| | | | | |
| | | | | |
| December 31, 2016 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Financing receivables | $ | 30 |
| Income approach | Discount rate(a) | 2.5%-30.0% (20.3%) |
| | | | | |
| Cost and equity method investments | 94 |
| Income approach, | Discount rate(a) | 9.0%-30.0% (11.8%) |
| | | | | |
| Long-lived assets | 683 |
| Income approach | Discount rate(a) | 2.5%-20.0% (10.4%) |
Discountchanges of the derivatives or debt instruments that relates to changes in spot currency exchange rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would resultis recorded in a decrease inseparate component of AOCI. The portion of the fair value.value changes of the derivatives related to differences between spot and forward rates is recorded in earnings each period. The amounts recorded in AOCI affect earnings if the hedged investment is sold, substantially liquidated, or control is lost.
At SeptemberThe total gain (loss) recognized in AOCI on hedging instruments for the three months ended June 30, 20172019 and December 31, 2016, non-recurring measurements of $2522018 was $86 million and $379$810 million, respectively, are valued using non-binding broker quotes or other third-party sources. At Septembercomprising $2 million and $92 million on currency exchange contracts and $85 million and $718 million on foreign currency debt, respectively. The total gain (loss) recognized in AOCI on hedging instruments for the six months ended June 30, 20172019 and December 31, 2016, non-recurring fair2018 was $18 million and $205 million, respectively, comprising $(25) million and $83 million on currency exchange contracts and $44 million and $123 million on foreign currency debt. The total gain (loss) excluded from assessment and recognized in earnings was $8 million and $6 million for the three months ended June 30, 2019 and 2018, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $16 million and $8 million for the six months ended June 30, 2019 and 2018.
The carrying value measurements were individuallyof foreign currency debt designated as net investment hedges was $12,421 million and $9,815 million at
June 30, 2019 and 2018, respectively. The total reclassified from AOCI into earnings was insignificant for the three and utilize a number of different unobservable inputs not subject to meaningful aggregation.six months ended June 30, 2019 and 2018, respectively.
96 2017 3Q64 2019 2Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DERIVATIVES AND HEDGING
FORMS OF HEDGING
In this section we explain the hedging methods we use and their effects on our financial statements.
Cash flow hedges – We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts in our industrial businesses and to convert foreign currency debt that we have issued in our financial services business back to our functional currency.
As part of our ongoing effort to reduce borrowings, we may repurchase debt that was in a cash flow hedge accounting relationship. At the time of determining that the debt cash flows are probable of not occurring any related OCI will be released to earnings.
|
| | | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - CASH FLOW HEDGES |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Balance sheet changes | | | | | |
| Fair value of derivatives increase (decrease) | $ | 225 |
| $ | 2 |
| | $ | 281 |
| $ | (43 | ) |
| Shareowners' equity (increase) decrease | (225 | ) | (2 | ) | | (281 | ) | 43 |
|
| | | | | | |
| Earnings (loss) related to ineffectiveness | — |
| — |
| | — |
| — |
|
| Earnings (loss) effect of derivatives(a) | 104 |
| (57 | ) | | 167 |
| (128 | ) |
| |
(a) | Offsets earnings effect of the hedged forecasted transaction |
Fair value hedges– These derivatives are used to hedge the effects of interest rate and currency exchange rate changes on debt that we have issued. |
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - FAIR VALUE HEDGES | | | | |
| | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Fair value of derivative increase (decrease) | $ | (148 | ) | $ | (116 | ) | $ | (430 | ) | $ | 2,494 |
|
| Adjustment to carrying amount of hedged debt (increase) decrease | 103 |
| 37 |
| 267 |
| (2,651 | ) |
| | | | | |
| Earnings (loss) related to hedge ineffectiveness | (45 | ) | (79 | ) | (162 | ) | (156 | ) |
Net investment hedges – We invest in foreign operations that conduct their financial services activities in currencies other than the US dollar. We hedge the currency risk associated with those investments primarily using short-term currency exchange contracts under which we receive US dollars and pay foreign currency and non-derivative instruments such as debt denominated in a foreign currency.
|
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - NET INVESTMENT HEDGES |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Fair value of derivatives increase (decrease) | $ | (111 | ) | $ | 107 |
| $ | (302 | ) | $ | 154 |
|
| Fair value of non-derivative instruments (increase) decrease | (905 | ) | 475 |
| (1,764 | ) | 425 |
|
| Shareowners' equity (increase) decrease | 1,020 |
| (552 | ) | 2,082 |
| (513 | ) |
| | | | | |
| Earnings (loss) related to | | | | |
| spot-forward differences and ineffectiveness | 4 |
| 30 |
| 17 |
| 67 |
|
| Earnings (loss) related to | | | | |
| reclassification upon sale or liquidation(a) | 18 |
| 47 |
| 78 |
| (1,025 | ) |
| |
(a) | Included zero and $47 million recorded in discontinued operations in the three months ended September 30, 2017 and 2016 and $59 million and $(1,026) million recorded in discontinued operations in the nine months ended September 30, 2017 and 2016, respectively. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Economic Hedges- These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. We use economic hedges when we have exposures to currency exchange risk for which we are unable to meet the requirements for hedge accounting or when changes in the carrying amount of the hedged item are already recorded in earnings in the same period as the derivative making hedge accounting unnecessary. Even though the derivative is an effective economic hedge, there may be a net effect on earnings in each period due to differences in the timing of earnings recognition between the derivative and the hedged item.
|
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - ECONOMIC HEDGES | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Change in fair value of economic hedge increase (decrease) | $ | 663 |
| $ | (686 | ) | $ | 1,304 |
| $ | (808 | ) |
| Change in carrying amount of item being hedged increase (decrease) | (920 | ) | 380 |
| (1,876 | ) | 182 |
|
| | | | | |
| Earnings (loss) effect of economic hedges(a) | (257 | ) | (306 | ) | (572 | ) | (626 | ) |
| |
(a) | Offset by the future earnings effects of economically hedged item. |
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). The notional amount is used to compute interest or other payment streams to be made under the contract and is a measure of our level of activity. We generally disclose derivative notional amounts on a gross basis. The majority of the outstanding notional amount of $185 billion at September 30, 2017 is related to managing interest rate and currency risk between financial assets and liabilities in our financial services business. The remaining derivative notional amount primarily relates to hedges of anticipated sales and purchases in foreign currency, commodity purchases and contractual terms in contracts that are considered embedded derivatives.
The table below provides additional information about how derivatives are reflected in our financial statements.
|
| | | | | | |
| CARRYING AMOUNTS RELATED TO DERIVATIVES | | |
| (In millions) | September 30, 2017 | December 31, 2016 |
| | | |
| Derivative assets | $ | 4,601 |
| $ | 5,467 |
|
| Derivative liabilities | (2,453 | ) | (4,883) |
| Accrued interest | 490 |
| 792 |
| Cash collateral & credit valuation adjustment | (1,816 | ) | (672) |
| Net Derivatives | 822 |
| 703 |
| Securities held as collateral | (437 | ) | (442) |
| Net amount | $ | 385 |
| $ | 262 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
EFFECTS OF DERIVATIVES ON EARNINGS
EARNINGS. All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges.
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | Effect on hedging instrument | Effect on underlying | Effect on earnings | Effect on hedging instrument | Effect on underlying | Effect on earnings |
| | | | | | | |
| 2017 | | | | | | |
| Cash flow hedges | $ | 225 |
| $ | (225 | ) | $ | — |
| $ | 281 |
| $ | (281 | ) | $ | — |
|
| Fair value hedges | (148 | ) | 103 |
| (45 | ) | (430 | ) | 267 |
| (162 | ) |
| Net investment hedges(a) | (1,016 | ) | 1,020 |
| 4 |
| (2,065 | ) | 2,082 |
| 17 |
|
| Economic hedges(b) | 663 |
| (920 | ) | (257 | ) | 1,304 |
| (1,876 | ) | (572 | ) |
| Total |
|
| $ | (298 | ) |
|
| $ | (717 | ) |
| | | | | | | |
| 2016 | | | | | | |
| Cash flow hedges | $ | 2 |
| $ | (2 | ) | $ | — |
| $ | (43 | ) | $ | 43 |
| $ | — |
|
| Fair value hedges | (116 | ) | 37 |
| (79 | ) | 2,494 |
| (2,651 | ) | (156 | ) |
| Net investment hedges(a) | 582 |
| (552 | ) | 30 |
| 580 |
| (513 | ) | 67 |
|
| Economic hedges(b) | (686 | ) | 380 |
| (306 | ) | (808 | ) | 182 |
| (626 | ) |
| Total |
|
| $ | (355 | ) |
|
| $ | (715 | ) |
The amounts in the table above generally do For derivatives not include associated derivative accruals in income or expense.
| |
(a) | Both derivatives and non-derivativesdesignated as hedging instruments, are included. |
| |
(b) | Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods. |
See Note 14 for additional information about changes in shareowners' equity related to hedging and amounts released to earnings.
See Note 21 for other supplemental information about derivatives and hedging.
NOTE 17. VARIABLE INTEREST ENTITIES
A VIE is an entity that has one of three characteristics: (1) it is controlled by someone other than its shareowners or partners, (2) its shareowners or partners are not economically exposed to the entity's earnings (for example, they are protected against losses), or (3) it was thinly capitalized when it was formed.
In the normal course of business we become involved with VIEs either because we help create them or we invest in them. Our VIEs either provide goods and services to customers or provide financing to third parties for the purchase of GE goods and services. If we control the VIE, we consolidate it and provide disclosure below. However, if the VIE is a business and use of its assets is not limited to settling its liabilities, ongoing disclosures are not required.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Our most significant consolidated VIEs are four joint ventures used to complete acquisitions. The newest of these, BHGE LLC was formed as part of the Baker Hughes transaction. BHGE LLC owns the operating assets of GE Oil & Gas and Baker Hughes. BHGE LLC is a VIE as we hold an economic interest of approximately 62.5% in the partnership, but we hold no voting or participating rights through our direct economic ownership. BHGE LLC is a SEC Registrant with separate filing requirements with the SEC and its separate financial information can be obtained from www.sec.gov.
The remaining three joint ventures were formed as part of the Alstom acquisition. These joint ventures include grid technology, renewable energy, and global nuclear and French steam power and have combined assets, liabilities and redeemable non-controlling interest as of September 30, 2017 and December 31, 2016 of $16,282 million, $11,414 million and $3,106 million and $14,460 million, $9,922 million and $2,709 million, respectively. These joint ventures are considered VIEs because the equity held by Alstom does not participate fully in the earnings of the ventures due to contractual features allowing Alstom to sell their interests back to GE.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We consolidate these joint ventures because we control all their significant activities. These joint ventures are in all other repects regular businesses and are therefore exempt from ongoing disclosure requirements for consolidated VIEs provided below.
The table below provides information about consolidated VIEs that are subject to ongoing disclosure requirements. Substantially all of these entities were created to help our customers finance the purchase of GE goods and services or to purchase GE customer notes receivable arising from sales of GE goods and services. These entities have no features that could expose us to losses that could significantly exceed the difference between the consolidated assets and liabilities.
|
| | | | | | | | | | | | |
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs |
| | | GE Capital | |
| (In millions) | GE | Customer Notes receivables(a) | Other | Total |
| | | | | |
| September 30, 2017 | | | | |
| Assets | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| $ | 919 |
| $ | 919 |
|
| Current receivables | 49 |
| 557 |
| — |
| 606 |
|
| Investment securities | — |
| — |
| 965 |
| 965 |
|
| Other assets | 541 |
| 1,273 |
| 1,895 |
| 3,709 |
|
| Total | $ | 590 |
| $ | 1,830 |
| $ | 3,779 |
| $ | 6,199 |
|
| | | | | |
| Liabilities | | | | |
| Borrowings | $ | 71 |
| $ | — |
| $ | 1,078 |
| $ | 1,149 |
|
| Non-recourse borrowings | — |
| 693 |
| 16 |
| 709 |
|
| Other liabilities | 411 |
| 1,053 |
| 1,546 |
| 3,010 |
|
| Total | $ | 482 |
| $ | 1,746 |
| $ | 2,640 |
| $ | 4,868 |
|
| | | | | |
| December 31, 2016 | | | | |
| Assets | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| $ | 1,035 |
| $ | 1,035 |
|
| Current receivables | 57 |
| 670 |
| — |
| 727 |
|
| Investment securities | — |
| — |
| 982 |
| 982 |
|
| Other assets | 492 |
| 1,122 |
| 1,747 |
| 3,361 |
|
| Total | $ | 549 |
| $ | 1,792 |
| $ | 3,764 |
| $ | 6,105 |
|
| | | | | |
| Liabilities | | | | |
| Borrowings | $ | 1 |
| $ | — |
| $ | 818 |
| $ | 819 |
|
| Non-recourse borrowings | — |
| 401 |
| 16 |
| 417 |
|
| Other liabilities | 457 |
| 1,378 |
| 1,482 |
| 3,317 |
|
| Total | $ | 458 |
| $ | 1,779 |
| $ | 2,316 |
| $ | 4,553 |
|
| |
(a) | Two funding vehicles established to purchase customer notes receivable from GE, one of which is partially funded by third-party debt.
|
Total revenues from our consolidated VIEs were $293 million and $211 million for the three months ended September 30, 2017 and 2016, respectively and $801 million and $881 million in the nine months ended September 30, 2017 and 2016, respectively. Related expenses consisted primarily of cost of goods and services of $78 million and $112 million for the three months ended September 30, 2017 and 2016, respectively and $256 million and $610 million in the nine months ended September 30, 2017 and 2016, respectively.
Where we provide servicing for third-party investors, we are contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-1/P1. These third-party investors also owe us amounts for purchased financial assets and scheduled interest and principal payments, At September 30, 2017 and December 31, 2016, the amounts of commingled cash owed to the third-party investors were $1,216 million and $1,117 million, respectively, and the amounts owed to us by third-party investors were zero and $5 million, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
We become involved with unconsolidated VIEs primarily through assisting in the formation and financing of the entity. We do not consolidate these entities because we do not have power over decisions that significantly affect their economic performance. Our investments in unconsolidated VIEs, at September 30, 2017 and December 31, 2016 were $6,382 million and $6,346 million, respectively. Substantially all of these investments are held by Energy Financial Services. Obligations to make additional investments in these entities are not significant.
NOTE 18. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS
The GE Capital Aviation Services (GECAS) business in GE Capital had placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $38,669 million and secondary orders with airlines for used aircraft of approximately $2,077 million at September 30, 2017. In our Aviation segment, we had committed to provide financing assistance of $1,875 million of future customer acquisitions of aircraft equipped with our engines.
GUARANTEES
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.
At September 30, 2017, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 17.
Credit Support. We have provided $1,855 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $47 million at September 30, 2017.
Indemnification Agreements – Continuing Operations. We have agreements that require us to fund up to $190 million at September 30, 2017 under residual value guarantees on a variety of leased equipment. Under most of our residual value guarantees, our commitment is secured by the leased asset. The liability for these indemnification agreements was $7 million at September 30, 2017.
At September 30, 2017, we also had $1,688 million of other indemnification commitments, substantially all of which relate to representations and warrantiesthe gain or loss recognized in sales of businesses or assets. The liability for these indemnification commitments was $277 million at September 30, 2017.
Indemnification Agreements – Discontinued Operations. At September 30, 2017, we provided specific indemnifications to buyers of GE Capital’s assets that amounted to $2,714 million, for which we have recognized related liabilities of $320 million. In addition,earnings is offset by either the current period change in connection with the 2015 public offering and sale of our North American Retail Finance business, Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions related to the acquisition or disposition are achieved. Amount of contingent consideration was insignificant at September 30, 2017.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
PRODUCT WARRANTIES
We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information – mostly historical claims experience – claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Balance at January 1 | $ | 1,920 |
| $ | 1,723 |
|
| Current-year provisions | 615 |
| 539 |
|
| Expenditures | (601 | ) | (539 | ) |
| Other changes(a) | 255 |
| 166 |
|
| Balance as of September 30 | $ | 2,189 |
| $ | 1,889 |
|
(a) Primarily includes effect of currency exchange and acquisitions.
OTHER LOSS CONTINGENCIES
LEGAL MATTERS
WMC. During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At September 30, 2017, such claims consisted of $1,019 million of individual claims generally submitted before the filing of a lawsuit (compared to $1,060 million at December 31, 2016) and $5,435 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $5,456 million at December 31, 2016). The total amount of these claims, $6,454 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable law and the June 11, 2015 decision of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims. Giving effect to the settlements and subsequent dismissals of lawsuits on five securitizations discussed in Legal Proceedings, active claims at October 26, 2017 consisted of $462 million of individual claims generally submitted before the filing of a lawsuit and $3,198 million of Litigation Claims, as defined above.
Reserves related to repurchase claims made against WMC were $647 million at September 30, 2017, reflecting a net increase to reserves in the nine months ended September 30, 2017 of $21 million. The reserve estimate takes into account recent settlement activity and is based upon WMC’s evaluation of the remaining exposures as a percentage of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization for which timely claims have been asserted in litigation against WMC. Settlements in prior periods reduced WMC’s exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements.
|
| | | | | | | | | | | | | | | |
| ROLLFORWARD OF THE RESERVE | | | | | | | |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| | | | | | | | |
| Balance, beginning of period | $ | 636 |
| | $ | 860 |
| | $ | 626 |
| | $ | 875 |
|
| Provision | 11 |
| | — |
| | 21 |
| | 84 |
|
| Claim resolutions / rescissions | — |
| | (195 | ) | | — |
| | (294 | ) |
| Balance, end of period | $ | 647 |
| | $ | 665 |
| | $ | 647 |
| | $ | 665 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at September 30, 2017. This estimate involves significant judgment and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal Proceedings and potential changes in WMC’s legal strategy. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations or an adverse outcome in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) investigation discussed in Legal Proceedings, as WMC is unable at this time to develop such a meaningful estimate. With respect to the FIRREA investigation, this inability to develop a meaningful estimate of the range of reasonably possible loss reflects, among other factors, the range of penalties and other sanctions incurred by various financial institutions in proceedings and settlements involving claims made under FIRREA by the U.S. Department of Justice.
At September 30, 2017, there were 10 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 11 securitizations. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. As discussed in Legal Proceedings, five of these lawsuits have been dismissed following the conclusion of settlement agreements, and one of the lawsuits is subject of a settlement agreement approved by a Minnesota state court. One of the lawsuits involves claims made on two securitizations, and these claims are the subject of settlement agreements to which objections have been filed in California state court. Two of the three remaining lawsuits have been stayed pending the outcome of ongoing settlement negotiations. The sole remaining active lawsuit against WMC is the TMI case, discussed in Legal Proceedings, which was recently scheduled for trial on January 16, 2018. Settlement discussions to date have been unsuccessful, and if this case proceeds to trial and WMC is found liable, it is likely damages would be in an amount exceeding the total value of WMC’s assets.
Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. Itunderlying exposures which is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.
WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS or securitization trustees in connection with actual or potential claims concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party, mortgage loan repurchase claims made against RMBS sponsors or other claims involving alleged defects in loans sold by WMC. WMC believes that it has defenses to these demands.
To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC’s legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.
Alstom legacy matters. On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of two significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65 million by the European Commission for participating in a gas insulated switchgear cartel that operated from 1988 to 2004 (that fine was later reduced to €59 million), and (2) in December 2014, Alstom pled guilty in the United States to multiple violations of the Foreign Corrupt Practices Act and paid a criminal penalty of $772 million. As part of GE’s accounting for the acquisition, we established a reserve amounting to $858 million for legal and compliance matters related to the legacy business practices that were the subject of these and related cases in various jurisdictions.
Regardless of jurisdiction, the allegations relate to claimed anti-competitive conduct or improper payments in the pre-acquisition period as the source of legal violations and/or damages. Given the significant litigation and compliance activity related to these matters and our ongoing efforts to resolve them, it is difficult to assess whether the disbursements will ultimately be consistent with the reserve established. The estimation of this reserve involved significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations of this nature. Damages sought may include disgorgement of profits on the underlying business transactions, fines and/or penalties, interest, or other forms of resolution. Factors that can affect the ultimate amount of losses associated with these matters include the way cooperation is assessed and valued, prosecutorial discretion in the determination of damages, formulas for determining fines and penalties, the duration and amount of legal and investigative resources applied, and political and social influences within each jurisdiction, among other considerations. Actual losses arising from claims in these matters could exceed the amount provided. At this time, we are unable to develop a meaningful estimate of the range of reasonably possible additional losses for this exposure.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ENVIRONMENTAL MATTERS
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites, such amounts are not reasonably estimable. For further information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
NOTE 19. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on an arms-length basis and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital solutions to optimize GE cash management,
GE Capital enabled GE industrial orders, including related GE guarantees to GE Capital, and
Aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
Expenses related to parent-subsidiary pension plans,
Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Information technology (IT) and other services sold to GE Capital by GE
Settlements of tax liabilities, and
Various investments, loans and allocations of GE corporate overhead costs.
Presented below is a walk of intercompany eliminations from the combined GE and GE Capital totals to the consolidated cash flows from continuing operations.
|
| | | | | | |
| | Nine months ended September 30, 2017 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Cash from (used for) operating activities-continuing operations | | |
| Combined | $ | 6,103 |
| $ | 20,245 |
|
| GE current receivables sold to GE Capital | 1,402 |
| 675 |
|
| GE Capital dividends to GE | (4,016 | ) | (16,050 | ) |
| Other reclassifications and eliminations(a) | 519 |
| (1,024 | ) |
| Total cash from (used for) operating activities-continuing operations | $ | 4,008 |
| $ | 3,846 |
|
| Cash from (used for) investing activities-continuing operations | | |
| Combined | $ | 752 |
| $ | 47,548 |
|
| GE current receivables sold to GE Capital | (1,653 | ) | (622 | ) |
| GE debt effected through GE Capital | 5,942 |
| 5,002 |
|
| Other reclassifications and eliminations(a) | (349 | ) | 1,631 |
|
| Total cash from (used for) investing activities-continuing operations | $ | 4,692 |
| $ | 53,559 |
|
| Cash from (used for) financing activities-continuing operations | | |
| Combined | $ | (16,383 | ) | $ | (85,578 | ) |
| GE current receivables sold to GE Capital | 251 |
| (54 | ) |
| GE Capital dividends to GE | 4,016 |
| 16,050 |
|
| GE debt effected through GE Capital | (5,942 | ) | (5,002 | ) |
| Other reclassifications and eliminations(a) | (170 | ) | (604 | ) |
| Total cash from (used for) financing activities-continuing operations | $ | (18,228 | ) | $ | (75,188 | ) |
| |
(a) | Includes eliminations of other cash flows activities including those related to GE Capital enabled GE industrial orders, various investments, loans and allocations of GE corporate overhead costs. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20. GUARANTOR FINANCIAL INFORMATION
GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On October 26, 2015, GE Capital International Funding Company Unlimited Company, formerly GE Capital International Funding Company (the Issuer), then a finance subsidiary of General Electric Capital Corporation, settled its previously announced private offers to exchange (the Exchange Offers) the Issuer’s new senior unsecured notes for certain outstanding debt securities of General Electric Capital Corporation.
The new notes that were issued were fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (GECIHL) (each a Guarantor, and together, the Guarantors).
Under the terms of a registration rights agreement entered into in connection with the Exchange Offers, the Issuer and the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (SEC) for an offer to exchange new senior notes of the Issuer registered with the SEC and guaranteed by the Guarantors for certain of the Issuer’s outstanding unregistered senior notes. This exchange was completed in July 2016.
PRESENTATION
In connection with the registration of the senior notes, the Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities. Included are the Condensed Consolidating Statements of Earnings and Comprehensive Income for the three months ended September 30, 2017 and 2016 and nine months ended September 30, 2017 and 2016, Condensed Consolidating Statements of Financial Position as of September 30, 2017 and December 31, 2016 and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 for:
General Electric Company (the Parent Company Guarantor) - prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations;
GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary for debt;
GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor)- prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting;
Non-Guarantor Subsidiaries- prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows;
Consolidating Adjustments - adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries; and
Consolidated - prepared on a consolidated basis.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 8,025 |
| $ | — |
| $ | — |
| $ | 40,741 |
| $ | (19,338 | ) | $ | 29,428 |
|
| Other income (loss) | (1,152 | ) | — |
| — |
| 25,159 |
| (21,861 | ) | 2,146 |
|
| Equity in earnings (loss) of affiliates | 5,672 |
| — |
| 1,019 |
| 21,123 |
| (27,813 | ) | — |
|
| GE Capital revenues from services | — |
| 176 |
| 209 |
| 2,785 |
| (1,272 | ) | 1,898 |
|
| Total revenues and other income (loss) | 12,545 |
| 176 |
| 1,228 |
| 89,808 |
| (70,284 | ) | 33,472 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 1,671 |
| 168 |
| 542 |
| 1,279 |
| (2,428 | ) | 1,232 |
|
| Other costs and expenses | 9,382 |
| — |
| — |
| 40,253 |
| (18,861 | ) | 30,774 |
|
| Total costs and expenses | 11,053 |
| 168 |
| 542 |
| 41,533 |
| (21,290 | ) | 32,006 |
|
| Earnings (loss) from continuing operations before income taxes | 1,491 |
| 7 |
| 686 |
| 48,275 |
| (48,994 | ) | 1,466 |
|
| Benefit (provision) for income taxes | 457 |
| (1 | ) | — |
| (59 | ) | (63 | ) | 334 |
|
| Earnings (loss) from continuing operations | 1,948 |
| 6 |
| 686 |
| 48,216 |
| (49,058 | ) | 1,800 |
|
| Earnings (loss) from discontinued operations, net of taxes | (113 | ) | — |
| (562 | ) | 4 |
| 565 |
| (106 | ) |
| Net earnings (loss) | 1,836 |
| 6 |
| 125 |
| 48,220 |
| (48,493 | ) | 1,694 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (21 | ) | (121 | ) | (142 | ) |
| Net earnings (loss) attributable to the Company | 1,836 |
| 6 |
| 125 |
| 48,241 |
| (48,372 | ) | 1,836 |
|
| Other comprehensive income (loss) | 931 |
| — |
| (187 | ) | 19,935 |
| (19,749 | ) | 931 |
|
| Comprehensive income (loss) attributable to the Company | $ | 2,766 |
| $ | 6 |
| $ | (62 | ) | $ | 68,176 |
| $ | (68,121 | ) | $ | 2,766 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 8,194 |
| $ | — |
| $ | — |
| $ | 36,082 |
| $ | (17,462 | ) | $ | 26,814 |
|
| Other income (loss) | 883 |
| — |
| — |
| 35,578 |
| (36,234 | ) | 227 |
|
| Equity in earnings (loss) of affiliates | 1,788 |
| — |
| 428 |
| 29,804 |
| (32,019 | ) | — |
|
| GE Capital revenues from services | — |
| 166 |
| 243 |
| 2,838 |
| (1,023 | ) | 2,224 |
|
| Total revenues and other income (loss) | 10,865 |
| 166 |
| 671 |
| 104,302 |
| (86,738 | ) | 29,266 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 1,166 |
| 138 |
| 525 |
| 856 |
| (1,724 | ) | 961 |
|
| Other costs and expenses | 8,498 |
| — |
| 16 |
| 36,101 |
| (18,385 | ) | 26,230 |
|
| Total costs and expenses | 9,664 |
| 138 |
| 541 |
| 36,957 |
| (20,109 | ) | 27,191 |
|
| Earnings (loss) from continuing operations before income taxes | 1,201 |
| 28 |
| 130 |
| 67,345 |
| (66,630 | ) | 2,074 |
|
| Benefit (provision) for income taxes | 932 |
| (3 | ) | (11 | ) | (951 | ) | 16 |
| (18 | ) |
| Earnings (loss) from continuing operations | 2,132 |
| 24 |
| 119 |
| 66,395 |
| (66,614 | ) | 2,056 |
|
| Earnings (loss) from discontinued operations, net of taxes | (105 | ) | — |
| (552 | ) | 224 |
| 328 |
| (105 | ) |
| Net earnings (loss) | 2,027 |
| 24 |
| (433 | ) | 66,619 |
| (66,286 | ) | 1,951 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (51 | ) | (25 | ) | (76 | ) |
| Net earnings (loss) attributable to the Company | 2,027 |
| 24 |
| (433 | ) | 66,670 |
| (66,262 | ) | 2,027 |
|
| Other comprehensive income (loss) | 477 |
| — |
| 51 |
| (711 | ) | 661 |
| 477 |
|
| Comprehensive income (loss) attributable to the Company | $ | 2,504 |
| $ | 24 |
| $ | (382 | ) | $ | 65,959 |
| $ | (65,601 | ) | $ | 2,504 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 24,897 |
| $ | — |
| $ | — |
| $ | 114,446 |
| $ | (57,448 | ) | $ | 81,895 |
|
| Other income (loss) | (1,041 | ) | — |
| — |
| 57,784 |
| (54,132 | ) | 2,611 |
|
| Equity in earnings (loss) of affiliates | 10,444 |
| — |
| 1,711 |
| 71,787 |
| (83,942 | ) | — |
|
| GE Capital revenues from services | — |
| 505 |
| 583 |
| 7,644 |
| (2,548 | ) | 6,184 |
|
| Total revenues and other income (loss) | 34,301 |
| 505 |
| 2,294 |
| 251,661 |
| (198,070 | ) | 90,691 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 3,348 |
| 477 |
| 1,485 |
| 3,582 |
| (5,348 | ) | 3,545 |
|
| Other costs and expenses | 27,567 |
| — |
| 22 |
| 113,764 |
| (58,020 | ) | 83,334 |
|
| Total costs and expenses | 30,916 |
| 478 |
| 1,507 |
| 117,346 |
| (63,368 | ) | 86,879 |
|
| Earnings (loss) from continuing operations before income taxes | 3,385 |
| 27 |
| 787 |
| 134,315 |
| (134,702 | ) | 3,812 |
|
| Benefit (provision) for income taxes | 971 |
| (3 | ) | 115 |
| (758 | ) | (22 | ) | 303 |
|
| Earnings (loss) from continuing operations | 4,356 |
| 24 |
| 902 |
| 133,557 |
| (134,724 | ) | 4,115 |
|
| Earnings (loss) from discontinued operations, net of taxes | (501 | ) | — |
| (284 | ) | 7 |
| 287 |
| (490 | ) |
| Net earnings (loss) | 3,856 |
| 24 |
| 618 |
| 133,564 |
| (134,437 | ) | 3,624 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (53 | ) | (178 | ) | (231 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 24 |
| 618 |
| 133,617 |
| (134,259 | ) | 3,856 |
|
| Other comprehensive income (loss) | 4,075 |
| — |
| 463 |
| (7,059 | ) | 6,596 |
| 4,075 |
|
| Comprehensive income (loss) attributable to the Company | $ | 7,931 |
| $ | 24 |
| $ | 1,081 |
| $ | 126,559 |
| $ | (127,663 | ) | $ | 7,931 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 28,870 |
| $ | — |
| $ | — |
| $ | 108,043 |
| $ | (56,757 | ) | $ | 80,156 |
|
| Other income (loss) | 845 |
| — |
| — |
| 55,062 |
| (52,522 | ) | 3,385 |
|
| Equity in earnings (loss) of affiliates | 7,923 |
| — |
| 1,093 |
| 58,732 |
| (67,747 | ) | — |
|
| GE Capital revenues from services | — |
| 762 |
| 1,262 |
| 9,182 |
| (4,144 | ) | 7,063 |
|
| Total revenues and other income (loss) | 37,638 |
| 762 |
| 2,355 |
| 231,019 |
| (181,170 | ) | 90,604 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 2,828 |
| 685 |
| 2,133 |
| 4,027 |
| (5,651 | ) | 4,023 |
|
| Other costs and expenses | 30,555 |
| — |
| 71 |
| 110,725 |
| (60,906 | ) | 80,445 |
|
| Total costs and expenses | 33,383 |
| 686 |
| 2,204 |
| 114,752 |
| (66,558 | ) | 84,467 |
|
| Earnings (loss) from continuing operations before income taxes | 4,255 |
| 76 |
| 150 |
| 116,267 |
| (114,612 | ) | 6,137 |
|
| Benefit (provision) for income taxes | 1,862 |
| (10 | ) | (58 | ) | (1,908 | ) | (189 | ) | (302 | ) |
| Earnings (loss) from continuing operations | 6,118 |
| 67 |
| 93 |
| 114,359 |
| (114,801 | ) | 5,835 |
|
| Earnings (loss) from discontinued operations, net of taxes | (954 | ) | — |
| (1,547 | ) | 398 |
| 1,149 |
| (954 | ) |
| Net earnings (loss) | 5,164 |
| 67 |
| (1,455 | ) | 114,757 |
| (113,652 | ) | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (143 | ) | (140 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 5,164 |
| 67 |
| (1,455 | ) | 114,900 |
| (113,512 | ) | 5,164 |
|
| Other comprehensive income (loss) | 2,107 |
| (12 | ) | 114 |
| 136 |
| (238 | ) | 2,107 |
|
| Comprehensive income (loss) attributable to the Company | $ | 7,271 |
| $ | 55 |
| $ | (1,341 | ) | $ | 115,036 |
| $ | (113,750 | ) | $ | 7,271 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash and equivalents | $ | 737 |
| $ | — |
| $ | 3 |
| $ | 39,623 |
| $ | (509 | ) | $ | 39,854 |
|
| Investment securities | 1 |
| — |
| — |
| 40,298 |
| (1,603 | ) | 38,696 |
|
| Receivables - net | 51,669 |
| 17,452 |
| 31,245 |
| 87,077 |
| (144,082 | ) | 43,362 |
|
| Inventories | 5,264 |
| — |
| — |
| 24,695 |
| (4,112 | ) | 25,848 |
|
| Property, plant and equipment - net | 5,645 |
| — |
| — |
| 49,754 |
| (1,299 | ) | 54,101 |
|
| Investment in subsidiaries(a) | 297,324 |
| — |
| 80,506 |
| 695,869 |
| (1,073,699 | ) | — |
|
| Goodwill and intangible assets | 6,812 |
| — |
| — |
| 84,760 |
| 16,932 |
| 108,503 |
|
| All other assets | 27,636 |
| 44 |
| 387 |
| 214,163 |
| (181,348 | ) | 60,882 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 6,791 |
| 6,791 |
|
| Total assets | $ | 395,089 |
| $ | 17,497 |
| $ | 112,142 |
| $ | 1,236,239 |
| $ | (1,382,929 | ) | $ | 378,038 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 183,427 |
| $ | — |
| $ | 46,537 |
| $ | 23,793 |
| $ | (225,630 | ) | $ | 28,127 |
|
| Accounts payable | 9,672 |
| — |
| — |
| 66,041 |
| (60,807 | ) | 14,907 |
|
| Other current liabilities | 11,479 |
| 33 |
| 3 |
| 24,418 |
| 550 |
| 36,483 |
|
| Long-term and non-recourse borrowings | 72,193 |
| 16,724 |
| 34,810 |
| 53,517 |
| (68,979 | ) | 108,265 |
|
| All other liabilities | 42,212 |
| 544 |
| 137 |
| 55,881 |
| (7,003 | ) | 91,772 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 990 |
| 990 |
|
| Total Liabilities | 318,984 |
| 17,302 |
| 81,488 |
| 223,650 |
| (360,879 | ) | 280,544 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 2,713 |
| 727 |
| 3,441 |
|
| | | | | | | |
| GE shareowners' equity | 76,105 |
| 195 |
| 30,654 |
| 1,008,330 |
| (1,039,179 | ) | 76,105 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,545 |
| 16,402 |
| 17,947 |
|
| Total equity | 76,105 |
| 195 |
| 30,654 |
| 1,009,876 |
| (1,022,777 | ) | 94,052 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 395,089 |
| $ | 17,497 |
| $ | 112,142 |
| $ | 1,236,239 |
| $ | (1,382,929 | ) | $ | 378,038 |
|
| |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $19,301 million and net assets of discontinued operations of $3,776 million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| DECEMBER 31, 2016 |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash and equivalents | $ | 2,558 |
| $ | — |
| $ | 3 |
| $ | 46,994 |
| $ | (1,426 | ) | $ | 48,129 |
|
| Investment securities | 1 |
| — |
| — |
| 47,394 |
| (3,082 | ) | 44,313 |
|
| Receivables - net | 63,620 |
| 17,157 |
| 30,470 |
| 79,401 |
| (148,385 | ) | 42,263 |
|
| Inventories | 4,654 |
| — |
| — |
| 21,076 |
| (3,377 | ) | 22,354 |
|
| Property, plant and equipment - net | 5,768 |
| — |
| — |
| 46,366 |
| (1,615 | ) | 50,518 |
|
| Investment in subsidiaries(a) | 272,685 |
| — |
| 80,481 |
| 492,674 |
| (845,840 | ) | — |
|
| Goodwill and intangible assets | 8,128 |
| — |
| — |
| 42,074 |
| 36,673 |
| 86,875 |
|
| All other assets | 14,692 |
| 44 |
| 39 |
| 201,276 |
| (160,134 | ) | 55,917 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 14,815 |
| 14,815 |
|
| Total assets | $ | 372,107 |
| $ | 17,202 |
| $ | 110,992 |
| $ | 977,255 |
| $ | (1,112,372 | ) | $ | 365,183 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 167,089 |
| $ | 1 |
| $ | 46,432 |
| $ | 25,919 |
| $ | (208,727 | ) | $ | 30,714 |
|
| Accounts payable | 5,412 |
| — |
| — |
| 47,366 |
| (38,343 | ) | 14,435 |
|
| Other current liabilities | 11,072 |
| 33 |
| 117 |
| 25,095 |
| 114 |
| 36,431 |
|
| Long-term and non-recourse borrowings | 68,983 |
| 16,486 |
| 34,389 |
| 68,912 |
| (83,273 | ) | 105,496 |
|
| All other liabilities | 43,722 |
| 511 |
| 481 |
| 58,376 |
| (9,656 | ) | 93,434 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 4,158 |
| 4,158 |
|
| Total Liabilities | 296,279 |
| 17,030 |
| 81,419 |
| 225,667 |
| (335,727 | ) | 284,668 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 2,223 |
| 802 |
| 3,025 |
|
| | | | | | | |
| GE shareowners' equity | 75,828 |
| 171 |
| 29,573 |
| 747,719 |
| (777,463 | ) | 75,828 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,647 |
| 16 |
| 1,663 |
|
| Total equity | 75,828 |
| 171 |
| 29,573 |
| 749,366 |
| (777,447 | ) | 77,491 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 372,107 |
| $ | 17,202 |
| $ | 110,992 |
| $ | 977,255 |
| $ | (1,112,372 | ) | $ | 365,183 |
|
| |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $28,516 million and net assets of discontinued operations of $6,012 million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| NINE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| | | | | | | |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash flows – operating activities | | | | | | |
| Cash from (used for) operating activities - continuing operations | $ | (25,937 | ) | $ | 39 |
| $ | (81 | ) | $ | 193,403 |
| $ | (163,416 | ) | $ | 4,008 |
|
| Cash from (used for) operating activities - discontinued operations | (501 | ) | — |
| — |
| 8 |
| 3 |
| (490 | ) |
| Cash from (used for) operating activities | (26,437 | ) | 39 |
| (81 | ) | 193,411 |
| (163,413 | ) | 3,518 |
|
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | (1,723 | ) | (39 | ) | 345 |
| (257,130 | ) | 263,239 |
| 4,692 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (2,349 | ) | — |
| (2,349 | ) |
| Cash from (used for) investing activities | (1,723 | ) | (39 | ) | 345 |
| (259,479 | ) | 263,239 |
| 2,343 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | 26,339 |
| — |
| (265 | ) | 104,160 |
| (148,463 | ) | (18,228 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| 1,905 |
| — |
| 1,905 |
|
| Cash from (used for) financing activities | 26,339 |
| — |
| (265 | ) | 106,065 |
| (148,463 | ) | (16,323 | ) |
| Effect of currency exchange rate changes on cash and equivalents | — |
| — |
| — |
| 1,253 |
| — |
| 1,253 |
|
| Increase (decrease) in cash and equivalents | (1,821 | ) | — |
| — |
| 41,251 |
| (48,638 | ) | (9,208 | ) |
| Cash and equivalents at beginning of year | 2,558 |
| — |
| 3 |
| (1,132 | ) | 48,129 |
| 49,558 |
|
| Cash and equivalents at September 30 | 737 |
| — |
| 3 |
| 40,119 |
| (509 | ) | 40,350 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| — |
| 496 |
| — |
| 496 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 737 |
| $ | — |
| $ | 3 |
| $ | 39,623 |
| $ | (509 | ) | $ | 39,854 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| NINE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| | | | | | | |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash flows – operating activities | | | | | | |
| Cash from (used for) operating activities - continuing operations | $ | (14,847 | ) | $ | 175 |
| $ | (121 | ) | $ | 83,404 |
| $ | (64,766 | ) | $ | 3,846 |
|
| Cash from (used for) operating activities - discontinued operations | (954 | ) | — |
| — |
| (4,366 | ) | (399 | ) | (5,719 | ) |
| Cash from (used for) operating activities | (15,801 | ) | 175 |
| (121 | ) | 79,038 |
| (65,165 | ) | (1,873 | ) |
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | 20,902 |
| 16,080 |
| 36,317 |
| 32,000 |
| (51,740 | ) | 53,559 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (12,056 | ) | — |
| (12,056 | ) |
| Cash from (used for) investing activities | 20,902 |
| 16,080 |
| 36,317 |
| 19,944 |
| (51,740 | ) | 41,503 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | (6,894 | ) | (16,255 | ) | (36,194 | ) | (150,446 | ) | 134,601 |
| (75,188 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| 295 |
| — |
| 295 |
|
| Cash from (used for) financing activities | (6,894 | ) | (16,255 | ) | (36,194 | ) | (150,151 | ) | 134,601 |
| (74,893 | ) |
| Effect of currency exchange rate changes on cash and equivalents | — |
| — |
| — |
| (169 | ) | — |
| (169 | ) |
| Increase (decrease) in cash and equivalents | (1,792 | ) | — |
| 3 |
| (51,339 | ) | 17,696 |
| (35,432 | ) |
| Cash and equivalents at beginning of year | 4,137 |
| — |
| — |
| 107,350 |
| (20,609 | ) | 90,878 |
|
| Cash and equivalents at September 30 | 2,344 |
| — |
| 3 |
| 56,011 |
| (2,913 | ) | 55,445 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| — |
| 2,915 |
| — |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 2,344 |
| $ | — |
| $ | 3 |
| $ | 53,095 |
| $ | (2,913 | ) | $ | 52,530 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 21. SUPPLEMENTAL INFORMATION
CASH FLOWS INFORMATION
Amounts reported in the "All other operating activities" line in the Statement of Cash Flows reflect cash sources and uses as well as non-cash adjustments to net income including those related to taxes, interest, pension, contract assets and gains (losses) on principal business dispositions. Certain supplemental information related to our cash flows is shown below.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| GE | | |
| All other operating activities | | |
| (Gains) losses on purchases and sales of business interests(a) | $ | (1,968 | ) | $ | (3,471 | ) |
| Contract assets (net)(b) | (4,009 | ) | (3,035 | ) |
| Income taxes(c) | (1,107 | ) | (1,318 | ) |
| Interest charges(d) | 327 |
| 323 |
|
| Principal pension plans(e) | 1,179 |
| 2,520 |
|
| Other(f) | 1,636 |
| 169 |
|
| | $ | (3,942 | ) | $ | (4,812 | ) |
| Net dispositions (purchases) of GE shares for treasury | | |
| Open market purchases under share repurchase program | $ | (3,394 | ) | $ | (18,708 | ) |
| Other purchases | (58 | ) | (430 | ) |
| Dispositions | 831 |
| 1,168 |
|
| | $ | (2,620 | ) | $ | (17,969 | ) |
| |
(a) | Included pre-tax gains on sales of businesses reclassified to Proceeds from principal business dispositions within Cash flows from investing activities of $(1,897) million for Water in the nine months ended September 30, 2017, and $(3,130) million for Appliances and $(398) million for GE Asset Management in the nine months ended September 30, 2016. |
| |
(b) | Contract assets are presented net of related billings in excess of revenues on our long-term product service agreements. See Note 9. |
| |
(c) | Reflected the effects of current tax expense (benefit) of $699 million and $953 million and net cash paid during the year for income taxes of $(1,806) million and $(2,271) million for the nine months ended September 30, 2017 and 2016, respectively. Cash flows effects of deferred tax provisions (benefits) are shown separately within cash flows from operating activities. |
| |
(d) | Reflected the effects of interest expense of $1,918 million and $1,490 million and cash paid for interest of $(1,591) million and $(1,167) million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(e) | Reflected the effects of pension costs of $2,779 million and $2,674 million and employer contributions of $(1,600) million and $(154) million for the nine months ended September 30, 2017 and 2016, respectively. See Note 12. |
| |
(f) | Included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017. |
DERIVATIVES AND HEDGING
See Note 16 for the primary information related to our derivatives and hedging activity. This section provides certain supplemental information about this topic.
Changes in the fair value of derivatives are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income, or AOCI) and are recorded in earnings in the current period in whichor a future period when the hedged transaction occurs. recording of the exposures occur.
The table below summarizes this activity by hedging instrument.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
presents the effect of our derivative financial instruments in the consolidated Statement of Earnings: |
| | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | |
| | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| (In millions) | Assets |
| Liabilities |
| | Assets |
| Liabilities |
|
| | | | | | |
| Derivatives accounted for as hedges | | | | | |
| Interest rate contracts | $ | 2,663 |
| $ | 108 |
| | $ | 3,106 |
| $ | 210 |
|
| Currency exchange contracts | 233 |
| 105 |
| | 402 |
| 624 |
|
| Other contracts | — |
| — |
| | — |
| — |
|
| | 2,895 |
| 213 |
| | 3,508 |
| 834 |
|
| | | | | | |
| Derivatives not accounted for as hedges | | | | | |
| Interest rate contracts | 74 |
| 6 |
| | 62 |
| 20 |
|
| Currency exchange contracts | 1,499 |
| 2,187 |
| | 1,778 |
| 4,011 |
|
| Other contracts | 132 |
| 46 |
| | 119 |
| 17 |
|
| | 1,705 |
| 2,240 |
| | 1,958 |
| 4,048 |
|
| | | | | | |
| Gross derivatives recognized in statement of financial position | | | | | |
| Gross derivatives | 4,601 |
| 2,453 |
| | 5,467 |
| 4,883 |
|
| Gross accrued interest | 491 |
| — |
| | 768 |
| (24 | ) |
| | 5,091 |
| 2,454 |
| | 6,234 |
| 4,859 |
|
| | | | | | |
| Amounts offset in statement of financial position | | | | | |
| Netting adjustments(a) | (1,802 | ) | (1,802 | ) | | (3,097 | ) | (3,094 | ) |
| Cash collateral(b) | (2,091 | ) | (276 | ) | | (2,025 | ) | (1,355 | ) |
| | (3,893 | ) | (2,078 | ) | | (5,121 | ) | (4,449 | ) |
| | | | | | |
| Net derivatives recognized in statement of financial position | | | | | |
| Net derivatives | 1,198 |
| 376 |
| | 1,113 |
| 410 |
|
| | | | | | |
| Amounts not offset in statement of financial position | | | | | |
| Securities held as collateral(c) | (437 | ) | — |
| | (442 | ) | — |
|
| | | | | | |
| Net amount | $ | 761 |
| $ | 376 |
| | $ | 671 |
| $ | 410 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2019 | | Three months ended June 30, 2018 |
| (In millions) | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income |
| | | | | | | | | | | | |
| Total amounts presented in the consolidated Statement of Earnings | $ | 28,831 |
| $ | 21,817 |
| $ | 991 |
| $ | 4,184 |
| $ | (8 | ) | | $ | 29,162 |
| $ | 21,749 |
| $ | 1,291 |
| $ | 4,346 |
| $ | 886 |
|
| | | | | | | | | | | | |
| Total effect of cash flow hedges | $ | (15 | ) | $ | (5 | ) | $ | (9 | ) | $ | — |
| $ | — |
| | $ | (72 | ) | $ | 9 |
| $ | (10 | ) | $ | — |
| $ | — |
|
| | | | | | | | | | | | |
| Hedged items | | | $ | (659 | ) | | | | | | $ | 195 |
| | |
| Derivatives designated as hedging instruments | | | 646 |
| | | | | | (225 | ) | | |
| Total effect of fair value hedges | | | $ | (14 | ) | | | | | | $ | (30 | ) | | |
| | | | | | | | | | | | |
| Interest rate contracts | $ | (16 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (20 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Currency exchange contracts | (370 | ) | (52 | ) | (76 | ) | 1 |
| (33 | ) | | (1,159 | ) | (249 | ) | 69 |
| 130 |
| (52 | ) |
| Other | — |
| — |
| 27 |
| — |
| (11 | ) | | 4 |
| — |
| 25 |
| — |
| 11 |
|
| Total effect of derivatives not designated as hedges | $ | (385 | ) | $ | (52 | ) | $ | (49 | ) | $ | 1 |
| $ | (43 | ) | | $ | (1,175 | ) | $ | (249 | ) | $ | 94 |
| $ | 130 |
| $ | (40 | ) |
Derivatives are classified in the captions "All other assets" and "All other liabilities" and the related accrued interest is classified in "Other GE Capital receivables" and "All other liabilities" in our Statement of Financial Position.
| |
(a) | The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. At September 30, 2017 and December 31, 2016, the cumulative adjustment for non-performance risk was insignificant and $(3) million, respectively. |
| |
(b) | Excluded excess cash collateral received and posted of $90 million and $151 million at September 30, 2017, respectively, and $6 million and $177 million at December 31, 2016, respectively. |
| |
(c) | Excluded excess securities collateral received of $42 million and zero at September 30, 2017 and December 31, 2016, respectively. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | CASH FLOW HEDGE ACTIVITY | | | | |
| | Gain (loss) recognized in AOCI | | Gain (loss) reclassified
from AOCI into earnings | | | | | | | | | | | | | | | | | | | | | |
| | for the three months ended September 30 | | for the three months ended September 30 | Six months ended June 30, 2019 | | Six months ended June 30, 2018 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
| Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income |
| | | | | | | |
| Total amounts presented in the consolidated Statement of Earnings | | $ | 56,117 |
| $ | 42,170 |
| $ | 2,123 |
| $ | 8,330 |
| $ | 870 |
| | $ | 56,950 |
| $ | 42,659 |
| $ | 2,573 |
| $ | 8,434 |
| $ | 1,091 |
|
| | | | | |
| Total effect of cash flow hedges | | $ | 5 |
| $ | (14 | ) | $ | (19 | ) | $ | (1 | ) | $ | — |
| | $ | (4 | ) | $ | 16 |
| $ | (20 | ) | $ | — |
| $ | — |
|
| | | | | |
| Hedged items | | | $ | (1,186 | ) | | | | $ | 866 |
| |
|
| Derivatives designated as hedging instruments | | | 1,161 |
| | | | (922 | ) | |
|
| Total effect of fair value hedges | | | $ | (25 | ) | | | | $ | (56 | ) | |
|
| | | | | |
| Interest rate contracts | $ | 1 |
| $ | 1 |
| | $ | (6 | ) | $ | (12 | ) | $ | (36 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (34 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Currency exchange contracts | 224 |
| — |
| | 110 |
| (46 | ) | 83 |
| (44 | ) | (139 | ) | (44 | ) | (29 | ) | | (506 | ) | (243 | ) | — |
| — |
| (1 | ) |
| Commodity contracts | — |
| 1 |
| | — |
| — |
| |
| Total(a) | $ | 225 |
| $ | 2 |
| | $ | 104 |
| $ | (57 | ) | |
| Other | | — |
| — |
| 123 |
| — |
| 3 |
| | (1 | ) | — |
| (10 | ) | — |
| 21 |
|
| Total effect of derivatives not designated as hedges | | $ | 48 |
| $ | (44 | ) | $ | (16 | ) | $ | (44 | ) | $ | (27 | ) | | $ | (542 | ) | $ | (243 | ) | $ | (10 | ) | $ | — |
| $ | 19 |
|
|
| | | | | | | | | | | | | |
| | | | | | |
| CASH FLOW HEDGE ACTIVITY | | | | | |
| | Gain (loss) recognized in AOCI | | Gain (loss) reclassified
from AOCI into earnings |
| | for the nine months ended September 30 | | for the nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Interest rate contracts | $ | 3 |
| $ | 32 |
| | $ | (21 | ) | $ | (67 | ) |
| Currency exchange contracts | 278 |
| (76 | ) | | 189 |
| (59 | ) |
| Commodity contracts | — |
| 1 |
| | — |
| (3 | ) |
| Total(a) | $ | 281 |
| $ | (43 | ) | | $ | 167 |
| $ | (128 | ) |
| |
(a) | Gain (loss) is recorded in "GE Capital revenues from services", "Interest and other financial charges", and "Other costs and expenses" in our Statement of Earnings when reclassified. |
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was a $160 million gain at September 30, 2017. We expect to transfer $39 million gain to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both the six months ended 2017 and 2016, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At September 30, 2017 and 2016, the maximum term of derivative instruments that hedge forecasted transactions was 15 years and 16 years, respectively. See Note 14 for additional information about reclassifications out of AOCI.
For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness were insignificant for each reporting period.
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we net our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasury securities) when our receivable due from the counterparties, measured at current market value, exceeds a specified limit. The fair value of such collateral was $2,529 million at September 30, 2017, of which $2,091 million was cash and $437 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of cash collateral posted was $276 million at September 30, 2017. At September 30, 2017, our exposure Our exposures to counterparties (including accrued interest), net of collateral we hold,held, was $681 million. This excludes exposure related$123 million and $148 million at June 30, 2019 and December 31, 2018, respectively. Counterparties' exposures to embedded derivatives.
Additionally, our master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3 or other ratings levels agreed upon with the counterparty. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability after consideration(including accrued interest), net of collateral posted by us, was $307 million and outstanding interest payments was $271$644 million at SeptemberJune 30, 2017. This excludes exposure related to embedded derivatives.2019 and December 31, 2018, respectively.
2017 3Q2019 2Q FORM 10-Q 11365
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 18. VARIABLE INTEREST ENTITIES
In addition to the three VIEs detailed in Note 4, we have other consolidated VIEs with assets of $2,130 million and $2,551 million, and liabilities of $1,489 million and $1,636 million at June 30 2019 and December 31, 2018, respectively. These entities were created to help our customers facilitate or finance the purchase of GE goods and services. These entities have no features that could expose us to losses that would significantly exceed the difference between the consolidated assets and liabilities. Substantially all the assets of our consolidated VIEs at June 30, 2019 can only be used to settle the liabilities of those VIEs.
Our investments in unconsolidated VIEs were $2,357 million and $2,346 million at June 30, 2019 and December 31, 2018, respectively. These investments are primarily owned by GE Capital businesses, $1,334 million and $1,670 million of which were owned by EFS and $502 million and zero of which were owned by Insurance at June 30, 2019 and December 31, 2018, respectively. Obligations to make additional investments in these entities are not significant.
NOTE 19. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS. The GECAS business within the Capital segment has placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $32,550 million (including 377 new aircraft with delivery dates of 15% in 2019, 20% in 2020 and 65% in 2021 through 2024) and secondary orders with airlines for used aircraft approximating $2,159 million (including 57 used aircraft with delivery dates of 47% in 2019, 37% in 2020 and 16% in 2021 through 2022) at June 30, 2019. When we purchase aircraft, it is at a contractual price, which is usually less than the aircraft manufacturer’s list price and excludes any pre-delivery payments made in advance. As of June 30, 2019, we have made $3,153 million of pre-delivery payments to aircraft manufacturers.
GE Capital had total investment commitments of $3,037 million at June 30, 2019, that primarily comprise investment commitments related to our run-off insurance operations and project financing investments in thermal and wind energy projects.
As of June 30, 2019, in our Aviation segment, we have committed to provide financing assistance of $2,365 million for future customer acquisitions of aircraft equipped with our engines.
GUARANTEES. Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, and are not netted against the liabilities. At June 30, 2019, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 18 for further information.
Credit Support. At June 30, 2019, we have provided $1,627 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should our customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company for the term of the related financing arrangements or transactions. The liability for such credit support was $53 million at June 30, 2019.
Indemnification Agreements – Continuing Operations.At June 30, 2019, we have $1,610 million of other indemnification commitments, including representations and warranties in sales of businesses or assets, for which we recorded a liability of $139 million.
Indemnification Agreements – Discontinued Operations. At June 30, 2019, we provided specific indemnities to buyers of GE Capital’s businesses and assets that, in the aggregate, represent a maximum potential claim of $1,136million with related reserves of $149 million. In addition, in connection with the 2015 public offering and sale of Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations.
PRODUCT WARRANTIES. We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information, mostly historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
|
| | | | | | |
| Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
|
|
|
|
| Balance at January 1 | $ | 2,428 |
| $ | 2,268 |
|
| Current-year provisions | 328 |
| 349 |
|
| Expenditures | (332 | ) | (417 | ) |
| Other changes | 38 |
| 144 |
|
| Balance as of June 30 | $ | 2,462 |
| $ | 2,344 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
LEGAL MATTERS. In the normal course of our business, we are involved from time to time in various arbitrations, class actions, commercial litigation, investigations and other legal, regulatory or governmental actions, including the significant matters described below. In many proceedings, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the size or range of the possible loss, and accruals for legal matters are not recorded until a loss for a particular matter is considered probable and reasonably estimable. Given the nature of legal matters and the complexities involved, it is often difficult to predict and determine a meaningful estimate of loss or range of loss until we know, among other factors, the particular claims involved, the likelihood of success of our defenses to those claims, the damages or other relief sought, how discovery or other procedural considerations will affect the outcome, the settlement posture of other parties and other factors that may have a material effect on the outcome. Moreover, it is not uncommon for legal matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated.
WMC. During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and was never a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued. The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). These claims will be resolved as part of the Chapter 11 bankruptcy case described below.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1,500 million.
In April 2019, WMC commenced a case under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. WMC intends to file a Chapter 11 plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor. GE Capital is providing up to $25 million of debtor-in-possession financing to fund administrative expenses associated with the Chapter 11 proceeding.
Beginning in the second quarter of 2019, as a result of WMC commencing the Chapter 11 case, we will no longer consolidate WMC’s financial results or position on the books and records of GE Capital. We recognized $67 million of pre-tax charges during the second quarter of 2019, reflecting an updated settlement estimate in the context of bankruptcy for litigation that was pending when the Chapter 11 case commenced, as well as additional claims that have been brought in bankruptcy. In total, we have recognized $211 million of liabilities as of June 30, 2019, associated with amounts we anticipate paying in connection with an efficient and orderly resolution of claims in the Chapter 11 case.
Alstom legacy matters. On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of two significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65 million by the European Commission for participating in a gas insulated switchgear cartel that operated from 1988 to 2004 (that fine was later reduced to €59 million), and (2) in December 2014, Alstom pled guilty in the United States to multiple violations of the Foreign Corrupt Practices Act and paid a criminal penalty of $772 million. As part of GE’s accounting for the acquisition, we established a reserve amounting to $858 million for legal and compliance matters related to the legacy business practices that were the subject of these and related cases in various jurisdictions. At June 30, 2019, this reserve balance was $872 million. The increase is primarily driven by foreign currency movements.
Regardless of jurisdiction, the allegations relate to claimed anti-competitive conduct or improper payments in the pre-acquisition period as the source of legal violations and/or damages. Given the significant litigation and compliance activity related to these matters and our ongoing efforts to resolve them, it is difficult to assess whether the disbursements will ultimately be consistent with the reserve established. The estimation of this reserve involved significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations of this nature, and at this time we are unable to develop a meaningful estimate of the range of reasonably possible additional losses beyond the amount of this reserve. Damages sought may include disgorgement of profits on the underlying business transactions, fines and/or penalties, interest, or other forms of resolution. Factors that can affect the ultimate amount of losses associated with these and related matters include the way cooperation is assessed and valued, prosecutorial discretion in the determination of damages, formulas for determining fines and penalties, the duration and amount of legal and investigative resources applied, political and social influences within each jurisdiction, and tax consequences of any settlements or previous deductions, among other considerations. Actual losses arising from claims in these and related matters could exceed the amount provided.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws, as well as litigation involving asbestos and other environmental, health and safety-related claims. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual matters, such amounts are not reasonably estimable. For further information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
NOTE 20. CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.
Amounts reported in the “Proceeds from sales of discontinued operations” and “Proceeds from principal business dispositions” lines in our consolidated Statement of Cash Flows are net of cash transferred and included certain deal-related costs. Amounts reported in the “Net cash from (payments for) principal businesses purchased” line are net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions.
|
| | | | | | |
| GE | Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| Increase (decrease) in employee benefit liabilities | $ | (861 | ) | $ | (506 | ) |
| Other gains on investing activities | (45 | ) | (449 | ) |
| Restructuring and other charges(a) | 721 |
| 1,198 |
|
| Restructuring and other cash expenditures | (775 | ) | (807 | ) |
| Increase (decrease) in equipment project accruals | (218 | ) | (831 | ) |
| Other(b) | (186 | ) | (289 | ) |
| All other operating activities | $ | (1,364 | ) | $ | (1,684 | ) |
| Derivative settlements (net) | $ | 30 |
| $ | (489 | ) |
| Investments in intangible assets (net) | (13 | ) | (533 | ) |
| Other investments (net)(c) | 1,866 |
| 10 |
|
| Other(d) | (326 | ) | 130 |
|
| All other investing activities | $ | 1,557 |
| $ | (882 | ) |
| Acquisition of noncontrolling interests | $ | (28 | ) | $ | (627 | ) |
| Dividends paid to noncontrolling interests | (232 | ) | (159 | ) |
| Other | (27 | ) | 54 |
|
| All other financing activities | $ | (287 | ) | $ | (732 | ) |
| |
| (a) | Excludes non-cash adjustments reflected as "Depreciation and amortization of property, plant and equipment" or "Amortization of intangible assets" in our consolidated Statement of Cash Flows. |
| |
| (b) | Included other adjustments to net income, such as write-downs of assets and the impacts of acquisition accounting and changes in other assets and other liabilities classified as operating activities, such as the timing of payments of customer allowances. |
| |
| (c) | Primarily included proceeds from the secondary offering of Wabtec common stock shares of $1,799 million in the second quarter of 2019. |
| |
| (d) | Other primarily included net activity related to settlements between our continuing operations and businesses in discontinued operations (primarily our Transportation segment) in 2019. |
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 21. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. These transactions are eliminated in consolidation and may include, but are not limited to, the following: GE Capital working capital services to GE, including current receivables and supply chain finance programs; GE Capital finance transactions, including related GE guarantees to GE Capital; GE Capital financing of GE long-term receivables; and aircraft engines, power equipment and renewable energy equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following: expenses related to parent-subsidiary pension plans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions; information technology (IT) and other services sold to GE Capital by GE; settlements of tax liabilities; and various investments, loans and allocations of GE corporate overhead costs.
Presented below is a walk of intercompany eliminations from the combined GE and GE Capital totals to the consolidated cash flows.
|
| | | | | | |
| | Six months ended June 30 |
| (In millions) | 2019 |
| 2018 |
|
|
|
|
|
|
| Combined | $ | 437 |
| $ | (1,003 | ) |
| GE current receivables sold to GE Capital | 557 |
| 491 |
|
| GE long-term receivables sold to GE Capital | 269 |
| 738 |
|
| Supply chain finance programs | 489 |
| 145 |
|
| Other reclassifications and eliminations | 18 |
| (752 | ) |
| Total cash from (used for) operating activities - continuing operations | $ | 1,770 |
| $ | (382 | ) |
| Combined | $ | 2,890 |
| $ | 5,752 |
|
| GE current receivables sold to GE Capital | (1,294 | ) | (1,469 | ) |
| GE long-term receivables sold to GE Capital | (269 | ) | (738 | ) |
| GE Capital long-term loans to GE | — |
| 920 |
|
| Supply chain finance programs | (489 | ) | (145 | ) |
| Capital contribution from GE to GE Capital | 1,500 |
| — |
|
| Other reclassifications and eliminations | (692 | ) | 946 |
|
| Total cash from (used for) investing activities - continuing operations | $ | 1,646 |
| $ | 5,266 |
|
| Combined | $ | (6,206 | ) | $ | (20,775 | ) |
| GE current receivables sold to GE Capital | 737 |
| 978 |
|
| GE Capital long-term loans to GE | — |
| (920 | ) |
| Capital contribution from GE to GE Capital | (1,500 | ) | — |
|
| Other reclassifications and eliminations | 674 |
| (193 | ) |
| Total cash from (used for) financing activities - continuing operations | $ | (6,294 | ) | $ | (20,911 | ) |
GE current receivables sold to GE Capital excludes $220 million and $2,691 million related to cash payments received on the Receivable facility deferred purchase price in the six months ended June 30, 2019 and 2018 respectively, which are reflected as "Cash from investing activities" in the GE Capital and the GE columns of our consolidated Statement of Cash Flows. Sales of current and long-term receivables from GE to GE Capital are classified as "Cash from operating activities" in the GE column of our Statement of Cash Flows. See Note 4 for further information.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 22. GUARANTOR FINANCIAL INFORMATION
GE Capital International Funding Company Unlimited Company (the Issuer) previously issued senior unsecured registered notes that are fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (each a Guarantor, and together, the Guarantors). The Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities, specifically Condensed Consolidating Statements of Earnings and Comprehensive Income, Condensed Consolidating Statements of Financial Position and Condensed Consolidating Statements of Cash Flows for:
| |
| • | General Electric Company (the Parent Company Guarantor) – prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations; |
| |
| • | GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary that issued the guaranteed notes for debt; |
| |
| • | GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor) – prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting; |
| |
| • | Non-Guarantor Subsidiaries – prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows; |
| |
| • | Consolidating Adjustments – adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries and in the comparative periods, this category includes the impact of new accounting policies adopted as described in Note 1; and |
| |
| • | Consolidated – prepared on a consolidated basis. |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED JUNE 30, 2019 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 8,245 |
| $ | — |
| $ | — |
| $ | 25,141 |
| $ | (6,598 | ) | $ | 26,788 |
|
| GE Capital revenues from services | — |
| 245 |
| 11 |
| 2,052 |
| (265 | ) | 2,043 |
|
| Total revenues | 8,245 |
| 245 |
| 11 |
| 27,193 |
| (6,863 | ) | 28,831 |
|
| | | | | | | |
| Interest and other financial charges | 541 |
| 241 |
| 332 |
| 110 |
| (234 | ) | 991 |
|
| Other costs and expenses | 4,663 |
| — |
| 38 |
| 5,931 |
| 17,473 |
| 28,106 |
|
| Total costs and expenses | 5,205 |
| 241 |
| 371 |
| 6,042 |
| 17,239 |
| 29,097 |
|
| Other income (loss) | 3,529 |
| — |
| — |
| (8,832 | ) | 5,295 |
| (8 | ) |
| Equity in earnings (loss) of affiliates | (6,727 | ) | — |
| 469 |
| 16,162 |
| (9,904 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (159 | ) | 4 |
| 110 |
| 28,481 |
| (28,711 | ) | (274 | ) |
| Benefit (provision) for income taxes | 48 |
| (1 | ) | — |
| 366 |
| (266 | ) | 148 |
|
| Earnings (loss) from continuing operations | (110 | ) | 4 |
| 110 |
| 28,847 |
| (28,977 | ) | (126 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 238 |
| — |
| 2 |
| — |
| (9 | ) | 231 |
|
| Net earnings (loss) | 127 |
| 4 |
| 112 |
| 28,847 |
| (28,986 | ) | 104 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| 4 |
| (28 | ) | (23 | ) |
| Net earnings (loss) attributable to the Company | 127 |
| 4 |
| 112 |
| 28,843 |
| (28,959 | ) | 127 |
|
| Other comprehensive income (loss) | 633 |
| — |
| (22 | ) | — |
| 22 |
| 633 |
|
| Comprehensive income (loss) attributable to the Company | $ | 760 |
| $ | 4 |
| $ | 89 |
| $ | 28,843 |
| $ | (28,936 | ) | $ | 760 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED JUNE 30, 2018 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 7,947 |
| $ | — |
| $ | — |
| $ | 41,000 |
| $ | (21,796 | ) | $ | 27,151 |
|
| GE Capital revenues from services | — |
| 233 |
| 326 |
| 2,593 |
| (1,141 | ) | 2,011 |
|
| Total revenues | 7,947 |
| 233 |
| 326 |
| 43,593 |
| (22,937 | ) | 29,162 |
|
| | | | | | | |
| Interest and other financial charges | 74 |
| 230 |
| 617 |
| 872 |
| (502 | ) | 1,291 |
|
| Other costs and expenses | 13,486 |
| — |
| — |
| 38,881 |
| (24,845 | ) | 27,520 |
|
| Total costs and expenses | 13,560 |
| 230 |
| 617 |
| 39,753 |
| (25,347 | ) | 28,812 |
|
| Other income (loss) | 1,621 |
| — |
| — |
| 2,970 |
| (3,705 | ) | 886 |
|
| Equity in earnings (loss) of affiliates | 4,442 |
| — |
| (127 | ) | 12,249 |
| (16,563 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | 450 |
| 3 |
| (418 | ) | 19,059 |
| (17,858 | ) | 1,236 |
|
| Benefit (provision) for income taxes | 471 |
| — |
| — |
| (1,162 | ) | 188 |
| (504 | ) |
| Earnings (loss) from continuing operations | 921 |
| 3 |
| (418 | ) | 17,897 |
| (17,670 | ) | 732 |
|
| Earnings (loss) from discontinued operations, net of taxes | (121 | ) | — |
| (63 | ) | — |
| 121 |
| (63 | ) |
| Net earnings (loss) | 800 |
| 3 |
| (482 | ) | 17,897 |
| (17,550 | ) | 669 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (116 | ) | (16 | ) | (132 | ) |
| Net earnings (loss) attributable to the Company | 800 |
| 3 |
| (482 | ) | 18,013 |
| (17,534 | ) | 800 |
|
| Other comprehensive income (loss) | (571 | ) | — |
| (94 | ) | (2,509 | ) | 2,603 |
| (571 | ) |
| Comprehensive income (loss) attributable to the Company | $ | 229 |
| $ | 3 |
| $ | (575 | ) | $ | 15,503 |
| $ | (14,931 | ) | $ | 229 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE SIX MONTHS ENDED JUNE 30, 2019 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 12,825 |
| $ | — |
| $ | — |
| $ | 63,597 |
| $ | (24,292 | ) | $ | 52,130 |
|
| GE Capital revenues from services | — |
| 479 |
| 86 |
| 4,631 |
| (1,209 | ) | 3,987 |
|
| Total revenues | 12,825 |
| 479 |
| 86 |
| 68,228 |
| (25,501 | ) | 56,117 |
|
| | | | | | | |
| Interest and other financial charges | 632 |
| 472 |
| 712 |
| 750 |
| (442 | ) | 2,123 |
|
| Other costs and expenses | 13,445 |
| — |
| 39 |
| 44,748 |
| (4,369 | ) | 53,863 |
|
| Total costs and expenses | 14,077 |
| 472 |
| 750 |
| 45,499 |
| (4,811 | ) | 55,986 |
|
| Other income (loss) | (3,211 | ) | — |
| — |
| 8,131 |
| (4,049 | ) | 870 |
|
| Equity in earnings (loss) of affiliates | 8,198 |
| — |
| 845 |
| 27,175 |
| (36,218 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | 3,735 |
| 7 |
| 181 |
| 58,036 |
| (60,957 | ) | 1,001 |
|
| Benefit (provision) for income taxes | (287 | ) | (1 | ) | — |
| (292 | ) | 506 |
| (74 | ) |
| Earnings (loss) from continuing operations | 3,448 |
| 6 |
| 181 |
| 57,744 |
| (60,452 | ) | 926 |
|
| Earnings (loss) from discontinued operations, net of taxes | 268 |
| — |
| 2 |
| — |
| 2,553 |
| 2,823 |
|
| Net earnings (loss) | 3,716 |
| 6 |
| 182 |
| 57,744 |
| (57,899 | ) | 3,749 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| 4 |
| 30 |
| 34 |
|
| Net earnings (loss) attributable to the Company | 3,716 |
| 6 |
| 182 |
| 57,740 |
| (57,929 | ) | 3,716 |
|
| Other comprehensive income (loss) | 1,562 |
| — |
| (1,104 | ) | (443 | ) | 1,547 |
| 1,562 |
|
| Comprehensive income (loss) attributable to the Company | $ | 5,277 |
| $ | 6 |
| $ | (922 | ) | $ | 57,297 |
| $ | (56,382 | ) | $ | 5,277 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 15,651 |
| $ | — |
| $ | — |
| $ | 78,980 |
| $ | (41,478 | ) | $ | 53,153 |
|
| GE Capital revenues from services | — |
| 441 |
| 551 |
| 4,151 |
| (1,346 | ) | 3,797 |
|
| Total revenues | 15,651 |
| 441 |
| 551 |
| 83,131 |
| (42,824 | ) | 56,950 |
|
| | | | | | | |
| Interest and other financial charges | (8 | ) | 436 |
| 1,164 |
| 1,702 |
| (720 | ) | 2,573 |
|
| Other costs and expenses | 23,085 |
| — |
| — |
| 77,458 |
| (46,588 | ) | 53,954 |
|
| Total costs and expenses | 23,077 |
| 436 |
| 1,163 |
| 79,160 |
| (47,308 | ) | 56,527 |
|
| Other income (loss) | 1,896 |
| — |
| — |
| 1,097 |
| (1,902 | ) | 1,091 |
|
| Equity in earnings (loss) of affiliates | 7,034 |
| — |
| 493 |
| 12,090 |
| (19,617 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | 1,503 |
| 5 |
| (119 | ) | 17,159 |
| (17,035 | ) | 1,513 |
|
| Benefit (provision) for income taxes | (177 | ) | (1 | ) | — |
| (562 | ) | 286 |
| (454 | ) |
| Earnings (loss) from continuing operations | 1,326 |
| 4 |
| (119 | ) | 16,596 |
| (16,748 | ) | 1,060 |
|
| Earnings (loss) from discontinued operations, net of taxes | (1,673 | ) | — |
| (81 | ) | 1 |
| 249 |
| (1,504 | ) |
| Net earnings (loss) | (347 | ) | 4 |
| (200 | ) | 16,597 |
| (16,500 | ) | (444 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (121 | ) | 24 |
| (98 | ) |
| Net earnings (loss) attributable to the Company | (347 | ) | 4 |
| (200 | ) | 16,719 |
| (16,523 | ) | (347 | ) |
| Other comprehensive income (loss) | 971 |
| — |
| (55 | ) | (1,631 | ) | 1,686 |
| 971 |
|
| Comprehensive income (loss) attributable to the Company | $ | 625 |
| $ | 4 |
| $ | (254 | ) | $ | 15,087 |
| $ | (14,837 | ) | $ | 625 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION JUNE 30, 2019 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 8,639 |
| $ | — |
| $ | — |
| $ | 23,913 |
| $ | (585 | ) | $ | 31,968 |
|
| Receivables - net | 46,050 |
| 17,601 |
| 20 |
| 60,972 |
| (94,452 | ) | 30,191 |
|
| Investment in subsidiaries | 183,102 |
| — |
| 45,441 |
| 710,678 |
| (939,222 | ) | — |
|
| All other assets | 37,287 |
| 110 |
| — |
| 322,236 |
| (109,684 | ) | 249,950 |
|
| Total assets | $ | 275,079 |
| $ | 17,711 |
| $ | 45,462 |
| $ | 1,117,800 |
| $ | (1,143,943 | ) | $ | 312,109 |
|
| | | | | | | |
| Short-term borrowings | $ | 143,998 |
| $ | — |
| $ | 6,619 |
| $ | 8,186 |
| $ | (143,183 | ) | $ | 15,620 |
|
| Long-term and non-recourse borrowings | 47,641 |
| 16,559 |
| 25,402 |
| 44,901 |
| (11,226 | ) | 90,158 |
|
| All other liabilities | 65,106 |
| 101 |
| 216 |
| 141,194 |
| (56,415 | ) | 150,202 |
|
| Total liabilities | 256,745 |
| 16,660 |
| 32,237 |
| 194,281 |
| (243,943 | ) | 255,980 |
|
| | | | | | | |
| Total liabilities and equity | $ | 275,079 |
| $ | 17,711 |
| $ | 45,462 |
| $ | 1,117,800 |
| $ | (1,143,943 | ) | $ | 312,109 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2018 |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 9,561 |
| $ | — |
| $ | — |
| $ | 25,975 |
| $ | (689 | ) | $ | 34,847 |
|
| Receivables - net | 28,426 |
| 17,467 |
| 2,792 |
| 69,268 |
| (84,095 | ) | 33,857 |
|
| Investment in subsidiaries | 215,434 |
| — |
| 45,832 |
| 733,535 |
| (994,801 | ) | — |
|
| All other assets | 29,612 |
| 12 |
| — |
| 359,066 |
| (147,810 | ) | 240,880 |
|
| Total assets | $ | 283,033 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,187,844 |
| $ | (1,227,394 | ) | $ | 309,585 |
|
| | | | | | | |
| Short-term borrowings | $ | 150,426 |
| $ | — |
| $ | 9,854 |
| $ | 9,649 |
| $ | (157,108 | ) | $ | 12,821 |
|
| Long-term and non-recourse borrowings | 59,800 |
| 16,115 |
| 24,341 |
| 41,066 |
| (44,213 | ) | 97,109 |
|
| All other liabilities | 41,826 |
| 336 |
| 245 |
| 153,166 |
| (47,399 | ) | 148,174 |
|
| Total liabilities | 252,052 |
| 16,452 |
| 34,439 |
| 203,881 |
| (248,720 | ) | 258,104 |
|
| | | | | | | |
| Total liabilities and equity | $ | 283,033 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,187,844 |
| $ | (1,227,394 | ) | $ | 309,585 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2019 (UNAUDITED) |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash from (used for) operating activities(a) | $ | (3,564 | ) | $ | 341 |
| $ | (1,272 | ) | $ | (558 | ) | $ | 5,073 |
| $ | 20 |
|
| | | | | | | |
| Cash from (used for) investing activities | $ | 20,887 |
| $ | (341 | ) | $ | 820 |
| $ | 105,020 |
| $ | (123,057 | ) | $ | 3,329 |
|
| | | | | | | |
| Cash from (used for) financing activities | $ | (18,245 | ) | $ | — |
| $ | 452 |
| $ | (106,630 | ) | $ | 118,087 |
| $ | (6,336 | ) |
| | | | | | | |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| 1 |
| — |
| 1 |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | (922 | ) | — |
| — |
| (2,168 | ) | 104 |
| (2,986 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 9,561 |
| — |
| — |
| 26,676 |
| (689 | ) | 35,548 |
|
Cash, cash equivalents and restricted cash
at June 30 | 8,639 |
| — |
| — |
| 24,508 |
| (585 | ) | 32,562 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at June 30 | — |
| — |
| — |
| 594 |
| — |
| 594 |
|
| Cash, cash equivalents and restricted cash of continuing operations at June 30 | $ | 8,639 |
| $ | — |
| $ | — |
| $ | 23,913 |
| $ | (585 | ) | $ | 31,968 |
|
| |
| (a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $(2,048) million. |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2018 (UNAUDITED) |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash from (used for) operating activities(a) | $ | 10,952 |
| $ | (123 | ) | $ | (117 | ) | $ | 9,711 |
| $ | (21,098 | ) | $ | (675 | ) |
| | | | | | | |
| Cash from (used for) investing activities | $ | 12,523 |
| $ | 193 |
| $ | (882 | ) | $ | (21,946 | ) | $ | 15,549 |
| $ | 5,437 |
|
| | | | | | | |
| Cash from (used for) financing activities | $ | (25,094 | ) | $ | (70 | ) | $ | 999 |
| $ | (2,406 | ) | $ | 5,658 |
| $ | (20,913 | ) |
| | | | | | | |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (285 | ) | — |
| (285 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (1,620 | ) | — |
| — |
| (14,926 | ) | 110 |
| (16,436 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 3,472 |
| — |
| 3 |
| 41,993 |
| (743 | ) | 44,724 |
|
Cash, cash equivalents and restricted cash
at June 30 | 1,852 |
| — |
| 3 |
| 27,067 |
| (634 | ) | 28,288 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at June 30 | — |
| — |
| — |
| 744 |
| — |
| 744 |
|
| Cash, cash equivalents and restricted cash of continuing operations at June 30 | $ | 1,852 |
| $ | — |
| $ | 3 |
| $ | 26,323 |
| $ | (634 | ) | $ | 27,545 |
|
| |
| (a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $(2,441) million. |
|
| | |
| FORWARD LOOKING STATEMENTS | | |
FORWARD-LOOKING STATEMENTS
Our public communications and SEC filings may contain statements related to future, not past, events. These 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," "will," "would," "estimate," "forecast," "target," "preliminary," or "range." Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; macroeconomic and market conditions; planned and potential business or asset dispositions; our de-leveraging plans, including leverage ratios and targets, the timing and nature of actions to reduce indebtedness and our credit ratings and outlooks; GE's and GE Capital's funding and liquidity; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; or tax rates.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced GE Industrial and GE Capital business or asset dispositions or other transactions, including the planned sale of our BioPharma business within our Healthcare segment and plans to exit our equity ownership positions in BHGE and Wabtec, the timing of closing for those transactions and the expected proceeds and benefits to GE;
our de-leveraging and capital allocation plans, including with respect to actions to reduce our indebtedness, the timing and amount of GE dividends, organic investments, and other priorities;
further downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our liquidity, funding profile, costs and competitive position;
GE’s liquidity and the amount and timing of our GE Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations, the amount and timing of required capital contributions and strategic actions that we may pursue; the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets; the availability and cost of funding; and GE Capital's exposure to particular counterparties and markets;
the results of our annual GAAP premium deficiency testing for GE Capital's run-off insurance operations, which we expect to be completed in the third quarter of 2019;
changes in macroeconomic and market conditions, particularly interest rates, as well as the value of stocks and other financial assets (including our equity ownership positions in BHGE and Wabtec), oil and other commodity prices and exchange rates;
market developments or customer actions that may affect levels of demand and the financial performance of the major industries and customers we serve, such as secular and cyclical pressures in our Power business, pricing and other pressures in the renewable energy market, conditions in China and other key markets, early aircraft retirements, and other shifts in the competitive landscape for our products and services;
operational execution by our businesses, including our ability to improve the operations and execution of our Power business, execution by our Renewable Energy business, and the continued strength of our Aviation business;
changes in law, regulation or policy that may affect our businesses, such as trade policy and tariffs, regulation related to climate change and the effects of U.S. tax reform and other tax law changes;
our decisions about investments in new products, services and platforms, and our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of operational changes, restructuring and other cost reduction measures;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom, SEC and other investigative and legal proceedings;
the impact of actual or potential failures or our products or our customers' products, such as the fleet grounding of the Boeing 737 MAX, and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches;
the other factors that are described in "Forward-Looking Statements" in BHGE’s most recent earnings release or SEC filings; and
the other factors that are described in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as updated in our Quarterly Reports on Form 10-Q.
These or other 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 includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
GLOSSARY
FINANCIAL TERMS
| |
| • | Continuing earnings – refers to the caption “earnings from continuing operations attributable to GE common shareowners” |
| |
| • | Continuing earnings per share (EPS) – refers to the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.” |
| |
| • | GE Cash Flows from Operating Activities (GE CFOA) – unless otherwise indicated, GE CFOA is from continuing operations. |
| |
| • | Net earnings (loss) – refers to the caption “net earnings (loss) attributable to GE common shareowners” |
| |
| • | Net earnings (loss) per share (EPS) – refers to the diluted per-share amount of “net earnings attributable to GE common shareowners.” |
| |
| • | Segment profit – refers to the profit of the industrial segments and the net earnings of the financial services segment, both of which include other income. See the Segment Operations section within the MD&A for a description of the basis for segment profits. |
OPERATIONAL TERMS
| |
| • | Organic – excludes the effects of acquisitions, dispositions and foreign currency. |
| |
| • | Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Aviation and Oil & Gas installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant. See "Revenues from the Sale of Services" section within Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information. |
| |
| • | Services – for purposes of the financial statement presentation of sales and costs of sales in our consolidated Statement of Earnings (Loss), “sales of goods” per SEC regulations includes all sales of tangible products, and "sales of services" includes all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as "sales of services,” which is an important part of our operations. |
EXHIBITS
|
| | |
| Exhibit 3(i) | Exhibit 10(a)The Restated Certificate of Incorporation of General Electric Company as of January 16, 2014, as amended by the Certificate of Amendment, dated December 2, 2015, as further amended by the Certificate of Amendment, dated January 19, 2016, as further amended by the Certificate of Change, dated September 1, 2016, and as further amended by the Certificate of Amendment, dated May 13, 2019. |
GE 2007 Long-Term Incentive Plan (as | |
| Exhibit 3(ii) | |
| |
| Computation of Per Share Earnings.*
Computation of Ratio of Earnings to Fixed Charges.
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
|
| |
| Exhibit 31(a) | |
| |
| Exhibit 31(b) | |
| |
| Exhibit 32 | |
| |
| Exhibit 101 | The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2019, formatted in XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, (ii) Consolidated Statement of Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, (iii) Consolidated Statement of Changes in Shareowners’Shareowners' Equity for the ninethree and six months ended SeptemberJune 30, 20172019 and 2016,2018, (iv) Statement of Financial Position at SeptemberJune 30, 20172019 and December 31, 2016,2018, (v) Statement of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, and (vi) Notes to Consolidated Financial Statements. |
| | | |
| | * | Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 1516 to the Consolidated Financial Statements in this Report. |
114 2017 3Q2019 2Q FORM 10-Q75
FORM 10-Q CROSS REFERENCE INDEX
|
| | | | |
| Item Number | | Page(s) |
| Part I – FINANCIAL INFORMATION |
| Item 1. | | Financial Statements | | 66-11337-73 |
| | | | | |
| Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4-594-33 |
| | | | | |
| Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | | Not applicable(a) |
| | | | | |
| Item 4. | | Controls and Procedures | | 6034 |
| | | | | |
Part II – OTHER INFORMATION |
| Item 1. | | Legal Proceedings | | 62-6335-36 |
| | | | | |
| Item 1A. | | Risk Factors | | Not applicable(b)34 |
| | | | | |
| Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 6134 |
| | | | | |
| Item 3. | | Defaults Upon Senior Securities | | Not applicable |
| | | | | |
| Item 4. | | Mine Safety Disclosures | | 5127 |
| | | | | |
| Item 5. | | Other Information | | Not applicable |
| | | | | |
| Item 6. | | Exhibits | | 11475 |
| | | | | |
| Signatures | | | 11677 |
| |
| (a) | There have been no significant changes to our market risk since December 31, 2016.2018. For a discussion of our exposure to market risk, refer to our Annual Report on Form 10-K for the year ended December 31, 2016. |
| |
(b) | There have been no significant changes to our risk factors since December 31, 2016. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.2018. |
2017 3Q76 2019 2Q FORM 10-Q115
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | General Electric Company
(Registrant)
|
October 30, 2017July 31, 2019 | | /s/ Jan R. HauserThomas S. Timko |
| Date | | Jan R. HauserThomas S. Timko
Vice President, Chief Accounting Officer and Controller Duly Authorized Officer and Principal Accounting Officer
|
116 2017 3Q2019 2Q FORM 10-Q77
