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 September 30, 2020
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 Farnsworth5 Necco 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
(Former name, former address and former fiscal year,
if changed since last report)
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(Registrant’s telephone number, including area code)(617) 443-3000
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 |
| 0.375% Notes due 2022 | GE 22A | New York Stock Exchange |
| 1.250% Notes due 2023 | GE 23E | New York Stock Exchange |
| 0.875% Notes due 2025 | GE 25 | New York Stock Exchange |
| 1.875% Notes due 2027 | GE 27E | New York Stock Exchange |
| 1.500% Notes due 2029 | GE 29 | New York Stock Exchange |
| 7 1/2% Guaranteed Subordinated Notes due 2035 | GE /35 | New York Stock Exchange |
| 2.125% Notes due 2037 | GE 37 | 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. Yes þNo ¨
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). Yes þNo ¨
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 8,672,085,0008,759,873,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2017.2020.
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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.
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| ABOUT GENERAL ELECTRIC | | |
MD&A | | |
ABOUT GENERAL ELECTRIC.General Electric Company (General Electric or the Company) is a high-tech industrial company that operates worldwide through its four industrial segments, Power, Renewable Energy, Aviation and Healthcare, and its financial services segment, Capital. See the Consolidated Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the consolidated financial statements for information regarding our results of operations and recent business portfolio actions. Results of segments reclassified to discontinued operations have been recast for all periods presented.
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, 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.
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 orand are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented in this report are calculated from the underlying numbers in millions. Discussions throughout MD&A are based on continuing operations unless otherwise noted. The MD&A should be read in conjunction with the Financial Services)Statements and its predecessor, General Electric Capital Corporation.Notes to the consolidated financial statements. For purposes of the financial statement display of sales and costs of sales in our consolidated Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and "services" must include all other sales, including other services activities. Throughout MD&A 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.
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 ServicesGE Capital operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use thethese terms to mean the following:
General Electric or the CompanyConsolidated – the parent company, General Electric Company.
adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present consolidated results in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.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, certainany intercompany profits resulting from transactions between GE and GE Capital have beenare eliminated at the GE level. We present the results of GE in the center column of our consolidated statementsStatements of earnings, financial positionEarnings (Loss), Financial Position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).
Cash Flows.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 statementsStatements of earnings, financial positionEarnings (Loss), Financial Position and cash flows.
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
This document contains “forward-looking statements” - for details about the effects of dividends from GE Capital.
Industrial segment – the sum ofuncertainties that could cause our seven industrial reporting segments, without giving effectactual results 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.
Amounts reported in billions in graphs 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 growthmaterially different than those expressed in our industrial businesses.
forward-looking statements, see the Forward-Looking Statements section.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.
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).GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See 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 andNon-GAAP Financial Measures section for 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 measuresmeasures.
CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS. Coronavirus Disease 2019 (COVID-19) Pandemic. The COVID-19 pandemic has significantly impacted global economies, resulting in workforce and travel restrictions, supply chain and production disruptions and reduced demand and spending across many sectors. Since the latter part of the first quarter, these factors have had a material adverse impact on our operations, financial performance and prices of our securities, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve. This section provides a brief overview of how we are included inresponding to current and potential impacts related to COVID-19 on GE’s operations and financial condition and results, with additional details provided throughout the Supplemental Information section within the MD&A. Non-GAAP financial measures referred to in&A and other relevant sections of this report are either labeled as “non-GAAP” or designated as such with an asterisk (*).
report.
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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| MD&A | Power(a)
CONSOLIDATED RESULTS | | Aviation | | Lighting(a)
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| Renewable Energy | | Healthcare | | |
| Oil & Gas(b)
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We have adopted operational and governance rhythms across the Company, and with our Board of Directors, to coordinate and oversee actions related to the COVID-19 pandemic, including an internal task force to protect the health and safety of our employees globally and maintain business continuity; the assessment of financial and operating impacts, financial planning and mitigating cost, cash, and other actions in response; funding and liquidity management and related treasury actions; enterprise risk management and other functional activities across our global commercial, supply chain, human resources, controllership, government affairs, and other organizations. In particular, we took a series of actions during the second quarter to enhance and extend our liquidity at both GE and GE Capital (as described under "Debt offerings and tenders" below), and we continue to evaluate market conditions as they evolve and take precautionary measures to strengthen our financial position. We ended the third quarter of 2020 with $39.2 billion of consolidated cash, cash equivalents and restricted cash, in addition to our available credit lines. See the Capital Resources and Liquidity section for further information.
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 & LightingWhile factors related directly and indirectly to the COVID-19 pandemic have been impacting operations and financial performance at varying levels across all our businesses, the most significant impact to date has been at our Aviation 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,GE Capital Aviation Services (GECAS) aircraft leasing business within our Capital segment. The pandemic is having a material adverse effect on the global airline industry, resulting in reduced flight schedules worldwide, an increased number of idle aircraft, lower utilization, workforce reductions and declining financial performance within the airline industry, as well as GE’s Facebook pagerequests for government financial assistance by various industry participants. This has decreased demand for higher margin service revenues within our Aviation segment directly impacting our profitability and Twitter accountscash flows during 2020. Our Healthcare segment experienced increased demand for certain types of products and services, including ventilators, monitoring solutions, x-ray, anesthesia and point-of-care ultrasound product lines, partially offset by decreased demand in other social media,parts of the business as patients have postponed certain procedures and hospitals have deferred spending. Our other businesses were also adversely impacted by market developments, including @GE_Reports, contain a significant amountdelays or cancellations of new projects, new orders and related down payments. In addition, workplace, travel and supply chain disruptions have caused delays of deliveries and the achievement of other billing milestones directly impacting our profitability and cash flows for the nine months ended September 30, 2020. We anticipate many of these impacts related to demand, profitability and cash flows will continue in future periods depending on the severity and duration of the pandemic. For additional details about impacts related to Aviation and GECAS, Healthcare and our other businesses, refer to the respective segment sections within MD&A.
Each of GE's businesses and Corporate are taking cost and cash actions to manage risk and proactively mitigate the financial impact from COVID-19, as supply and demand dynamics continue to shift. In 2020, we are targeting more than $2 billion in operational cost out and more than $3 billion in cash preservation actions across the company, including more than $1 billion in cost out and more than $2 billion in cash preservation actions at Aviation, to right-size its cost structure and preserve its ability to serve customers. To date, we have realized about 75% of savings from actions at the total company level. During the nine months ended September 30, 2020, excluding business dispositions, we reduced consolidated headcount by approximately 15,600, including 8,800 at Aviation and 2,100 at Power.
At this time, GE cannot forecast the full duration and magnitude of COVID-19 impacts, or the pace of recovery from the pandemic across our end markets, operations, and supply chains. See the Risk Factors section in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 for further information about GE, including financialrelated risks 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.uncertainties.
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars)
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| | 3Q 2017 | YTD 2017 |
| Industrial Segment | 10% | 3% |
| Industrial Segment Organic* | (1)% | 2% |
| Capital | (8)% | (9)% |
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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. |
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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
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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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CONSOLIDATED RESULTS
2017 SIGNIFICANT DEVELOPMENTS
LEADERSHIP CHANGES
As announced on June 12, 2017, Jeffery R. Immelt retired as Chief Executive Officer (CEO) on JulyBioPharma. On March 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 retired from the Company’s Board of Directors (the Board) after 12 years of service, effective that same date. In addition, the Board elected Edward P. Garden as a director to fill the resulting vacancy, effective on that date. Mr. Garden is the Chief Investment Officer and a Founding Partner 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 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 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.
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), a French-based utility company operating primarily in the water treatment and waste management sectors. On September 29, 2017,2020, we completed the sale of our BioPharma business within our Healthcare segment to Danaher Corporation. See the Segment Operations - Healthcare section and Note 2 for consideration of $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.
further information.
Asset impairments. In the firstthird quarter of 2017,2020, we classifiedrecognized non-cash pre-tax impairment charges of $0.4 billion related to property, plant and equipment and intangible assets at our Industrial SolutionsSteam business within our Power segment as held for sale. In September 2017, we announced an agreementdue to sellour recent announcement to exit the business for approximately $2.6 billionnew build coal power market. We will continue to ABB, a Swiss-based engineering companymonitor the operating primarily in the robotics, power, heavy electrical equipmentresults 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 adjustingcash flow forecasts for the Water gainremaining business. In the second quarter of $1.9 billion and the impact of incremental Baker Hughes revenues of $2.5 billion*) were $29.0 billion, down $0.2 billion or 1%. The decline in revenues was a result of lower Industrial segment revenues of 1% organically* driven principally by our Power and Oil & Gas segments. For all other Industrial segments, revenues increased 2% organically* as Aviation and Healthcare experienced revenue growth versus the prior year period. Continuing earnings per share was $0.22, down 4% from the prior year. Industrial operating plus Verticals earnings per share* was $0.29, down 9% versus the prior year, driven substantially by a 10% decrease in Industrial segment operating profit*.
Restructuring and other charges were $0.21 per share, including $0.02 per share related 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,2020, we recognized two significant impairments in the quarter totaling $0.13 per share, which includeda non-cash pre-tax impairment chargescharge of $0.9 billion related to goodwill inat our Power Conversion businessAdditive reporting unit within our Aviation segment. The Steam and $0.3Additive charges were recorded within earnings from continuing operations at Corporate. We recognized non-cash pre-tax impairments of $0.2 billion and $0.5 billion during the three and nine months ended September 30, 2020, respectively, on our GECAS leasing portfolio. In the second quarter of 2020, we also recognized a non-cash pre-tax impairment charge of $0.8 billion related to goodwill in our GECAS reporting unit within our Capital segment. See Segment Operations - Capital and Notes 7 and 8 for further information.
Debt offerings and tenders. In the second quarter of 2020, we took a power plant asset.series of actions to enhance and extend our liquidity at both GE and GE Capital, issuing a total of $13.5 billion of longer-dated debt and reducing near-term debt maturities by $10.5 billion, with the remaining $3 billion to be leverage neutral by the end of 2021. See the Borrowings section of Capital Resources and Liquidity and Note 11 for further information.
SEC investigation. As previously reported, we have been cooperating with the staff of the SEC on its investigation of legacy matters related to long-term service agreements, GE Capital’s run-off insurance operations and the goodwill impairment charge in 2018 related to GE’s Power business. In the third quarter of 2020, the SEC staff issued a “Wells notice” in connection with the portion of its ongoing investigation related to GE Capital’s run-off insurance operations, advising GE that the staff is considering recommending to the commissioners that the SEC bring a civil action against GE for possible violations of the securities laws. We have recorded a reserve of $100 million as of September 30, 2020 related to the investigation in its entirety, encompassing all matters that are under investigation. See Note 8 to the consolidated financial statements19 for further information on the results of our annual goodwill impairment testing.information.
10 20174 2020 3Q FORM 10-Q
Industrial profit was $2.4THIRD QUARTER 2020 RESULTS. Consolidated revenues were $19.4 billion, and industrial margins were 7.6%, down $0.3$3.9 billion or 240 basis points, versusfor the third quarter, of 2016 primarily driven by a reduction indecreased GE Industrial segment profit of $0.7 billion, or 16%. After adjusting segment operating profit ofand GE Capital revenues. GE Industrial revenues decreased $3.6 billion for restructuring charges of $0.3 billion related to Oil & Gas, which, subsequent to the Baker Hughes transaction, are recorded in the segment rather than(17%), driven primarily by decreases at Corporate, adjusted Industrial segment operating profit* was down $0.4 billion, or 10%. The decline in adjusted Industrial segment operating profit* was primarily due to lower results within our PowerAviation and Oil & Gas segments,Healthcare, partially offset by the performance of our remaining industrial segments, which had increases in organic revenues* of 2%at Renewable Energy and adjusted Industrial segment operating profit* of 23%Power. GE Capital revenues decreased $0.4 billion.
Continuing earnings (loss) per share was $(0.13). Excluding unrealized gains (losses), 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 incurredSteam asset impairments, non-operating benefit 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 billion in the quarter, down 5% due to continued weakness in the oil and gas market. Segment operating profit (loss) was $(36) million, or $231 million after adjusting for restructuring and other charges reportedand U.S. tax reform, Adjusted earnings per share* was $0.06.
For the three months ended September 30, 2020, GE Industrial profit was $(1.3) billion and profit margins were (7.2)%, down $0.8 billion, driven primarily by decreases at Aviation and Healthcare, partially offset by increases at Power and Renewable Energy, a larger unrealized loss in the segment*. The declinequarter on our investment in segment operating profit (after adjustingBaker Hughes of $0.6 billion and legal reserves associated with the SEC investigation (see Note 19 for restructuringfurther information), partially offset by a decrease in goodwill impairments of $0.7 billion and lower interest and other financial charges reported inof $0.5 billion.Adjusted GE Industrial organic profit* decreased $0.8 billion, primarily as a result of the segment*)impacts of 35% was primarily drivenCOVID-19, particularly at our Aviation segment, partially offset by longer cycle oilfield equipment business. Refer to the Oil & Gas segment results section within this MD&A for further information.increases at our other industrial segments.
GE CFOAcash flows from operating activities (CFOA) was $4.1$(3.2) billion and $18.3$0.1 billion for the nine months ended September 30, 20172020 and 2016,2019, respectively. The decline in GE CFOA isdecreased primarily due to a $12.0lower net income, primarily due to COVID-19 impacts, higher cash used for working capital and higher cash paid for taxes, partially offset by changes in contract and other deferred assets, and increases in equipment project cost accruals and deferred income. GE Industrial free cash flows (FCF)* were $(3.8) billion decreaseand $(1.6) billion for the nine months ended September 30, 2020 and 2019, respectively. GE Industrial FCF decreased primarily due to lower net income and higher cash used for working capital, partially offset by changes in dividends from GE Capital, reflectingcontract and other deferred assets, increases in equipment project cost accruals and deferred income and a decrease in proceeds from GEadditions to property, plant and equipment and internal-use software. See the Capital Exit Plan disposals. GE CFOA was also impacted by lower earnings from PowerResources and Oil & Gas, as well as lower than expected working capital improvements. Additionally, GE CFOA was negatively impacted by GE Pension Plan paymentsLiquidity - Statement of $1.4 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&Asection for further information.
As notedOrders are contractual commitments with customers to provide specified goods or services for an agreed upon price.
| | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Equipment | $ | 7,510 | | $ | 11,257 | | | $ | 23,847 | | $ | 32,582 | |
| Services | 7,984 | | 11,262 | | | 24,899 | | 32,771 | |
| Total orders(a) | $ | 15,494 | | $ | 22,519 | | | $ | 48,745 | | $ | 65,352 | |
| Total organic orders | $ | 15,497 | | $ | 21,531 | | | $ | 48,971 | | $ | 62,978 | |
(a) Included $0.8 billion related to BioPharma for the three months ended September 30, 2019, and $1.1 billion and $2.6 billion for the nine months ended September 30, 2020 and 2019, respectively.
For the three months ended September 30, 2020, orders decreased $7.0 billion (31%) on a reported basis and decreased $6.0 billion (28%) organically primarily at Aviation, driven by declines in both commercial equipment and service orders due to COVID-19 and the 737 MAX grounding, and at Renewable Energy, Power, and Healthcare primarily due to decreases in equipment orders. Equipment orders were down $2.8 billion (27%) organically and services orders were down $3.2 billion (29%) organically.
For the nine months ended September 30, 2020, orders decreased $16.6 billion (25%) on a reported basis and decreased $14.0 billion (22%) organically with declines at Aviation, primarily driven by declines in both commercial equipment and service orders due to COVID-19 and the 737 MAX grounding, and at Power and Renewable Energy primarily due to decreases in equipment orders, partially offset by an increase at Healthcare. Equipment orders were down $6.4 billion (21%) organically and services orders were down $7.6 billion (23%) organically. Excluding BioPharma, orders decreased $14.2 billion (23%) organically.
Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services).
| | | | | | | | | | | |
GE INDUSTRIAL BACKLOG (In millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Equipment | $ | 71,139 | | $ | 78,968 | | $ | 80,019 | |
| Services | 312,470 | | 325,605 | | 305,989 | |
| Total backlog(a) | $ | 383,609 | | $ | 404,572 | | $ | 386,008 | |
(a) Backlog as of September 30, 2020 excludes the BioPharma business due to its disposition in the secondfirst quarter of 2017 earnings release presentation, Mr. Flannery is conducting2020. Backlog as of both December 31, 2019 and September 30, 2019 included $1.2 billion related to BioPharma.
As of September 30, 2020, backlog decreased $21.0 billion (5%) from December 31, 2019, primarily driven by Aviation due to a comprehensive reviewreduction in our Commercial Services backlog and cancellations of commercial engine orders, in addition to sales outpacing new orders. The reduction in Commercial Services reflects the cancellation of equipment unit orders, lower anticipated engine utilization, customer fleet restructuring and contract modifications. Power and Renewable Energy decreased due to sales outpacing new orders, and Healthcare decreased with the disposition of the Company, includingBioPharma business of $1.2 billion. Backlog decreased $2.4 billion (1%) from September 30, 2019, due to a reviewdecrease in equipment backlog of $8.9 billion (11%), primarily at Aviation, Power and Healthcare, partially offset by an increase in services backlog of $6.5 billion (2%), primarily at Aviation, partially offset by Power. Excluding 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 $20BioPharma disposition, backlog decreased $1.2 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.from September 30, 2019.
*Non-GAAP Financial Measure
20172020 3Q FORM 10-Q 115
CONSOLIDATED RESULTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
| | |
REVENUES | | INDUSTRIAL AND FINANCIAL SERVICES REVENUES |
|
| | |
(a) Included $2.5 billion related to Baker Hughes
| | |
Remaining performance obligation (RPO), a defined term under GAAP, is backlog excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders. See Note 9 for further information. | | | | | | | | | | | |
September 30, 2020 (In millions) | Equipment | Services | Total |
| Backlog | $ | 71,139 | | $ | 312,470 | | $ | 383,609 | |
| Adjustments | (26,505) | | (130,438) | | (156,943) | |
| Remaining performance obligation | $ | 44,634 | | $ | 182,032 | | $ | 226,666 | |
THREE MONTHSAdjustments to reported backlog of $156.9 billion as of September 30, 2020 are largely driven by adjustments of $148.4 billion in our Aviation segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable; (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 September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Consolidated revenues | $ | 19,417 | | $ | 23,360 | | | $ | 57,690 | | $ | 68,976 | |
| | | | | |
| Equipment | 9,625 | | 10,996 | | | 26,928 | | 30,873 | |
| Services | 8,293 | | 10,524 | | | 25,901 | | 32,386 | |
| | | | | |
| | | | | |
| GE Industrial revenues | $ | 17,918 | | $ | 21,519 | | | $ | 52,828 | | $ | 63,259 | |
| | | | | |
| GE Capital revenues | $ | 1,681 | | $ | 2,097 | | | $ | 5,449 | | $ | 6,645 | |
For the three months ended September 30, 2020, Consolidated revenues increased $4.2were down $3.9 billion, or 14%.driven by decreased GE Industrial revenues of $3.6 billion and decreased GE Capital revenues of $0.4 billion.
Consolidated GE Industrial revenues decreased $0.2$3.6 billion or 1%(17%), excluding the $1.9 billion pre-tax gain recordedwith decreases in services and equipment. The decrease in services was primarily at Corporate from the sale of our Water business in the third quarter of 2017Aviation, due to lower commercial spare part shipments, decreased shop visits and the cumulative impact of incremental Baker Hughes revenueschanges in billing and cost assumptions in our long-term service agreements. The decrease in equipment was primarily at Aviation, due to fewer commercial install and spare engine unit shipments; and at Healthcare, due to the disposition 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 wereBioPharma business; partially offset by organic revenue* decreases of $0.4 billion.
Financial Services revenues decreased $0.2 billion, or 8%, primarily dueincreases in Power related to higher impairmentsextended scope shipments at Gas Power; and organic revenue declines, partially offset by higher gains.
NINE MONTHS
ConsolidatedRenewable Energy, from more wind turbine shipments. The decrease in industrial 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 in the second quarter of 2016 and $1.9 billion from 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 byincluded the net effects of dispositions of $2.8$1.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, GE Industrial organic revenues* decreased $2.5 billion (12%), with a decrease in services revenues of $2.1 billion (20%) and equipment revenues of $0.4 billion (4%). GE Industrial organic revenues* decreased at Aviation, partially offset by increases at all other industrial segments. Healthcare organic revenue* increased $0.4 billion (10%) due to higher volume at Healthcare Systems (HCS).
GE Capital revenues decreased $0.4 billion (20%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, and lower gains.
For the nine months ended September 30, 2020, Consolidated revenues were down $11.3 billion, driven by decreased GE Industrial revenues of $10.4 billion and decreased GE Capital revenues of $1.2 billion.
GE Industrial revenues decreased $10.4 billion (16%), with decreases in services and equipment. The decrease in services was primarily at Aviation, driven by lower commercial spare part shipments, decreased shop visits and the cumulative impact of changes in billing and cost assumptions in our long-term service agreements; as well as Power, due to declines in transactional part sales and upgrades at Gas Power. The decrease in equipment was primarily at Aviation, due to fewer commercial install and spare engine unit shipments; and at Healthcare, due to the disposition of the BioPharma business; partially offset by increases at Renewable Energy, primarily from Onshore Wind, with more wind turbine shipments than in the prior year; and Gas Power, due to an increase in Heavy-Duty gas turbine unit shipments. This decrease included the net effects of dispositions of $2.3 billion and the effects of a stronger U.S. dollar of $0.1$0.5 billion.
Excluding the effects of acquisitions, dispositions and foreign currency translation, GE Industrial organic revenues* decreased $7.7 billion (13%), with a decrease in services revenues of $6.1 billion (19%) and a decrease in equipment revenues of $1.6 billion (5%). GE Industrial organic revenues* decreased at Aviation and Power, partially offset by increases at Renewable Energy and Healthcare. Excluding the BioPharma disposition, GE Industrial organic revenues* decreased $7.8 billion (13%).Financial Services GE Capital revenues decreased $0.7$1.2 billion or 9%(18%), as a result of volume declines, primarily dueat GECAS related to higher impairments, organic revenue declineslower interest income attributable to the sale of PK Air Finance and lower gains.rental revenue, lower gains and higher mark-to-market effects and impairments as a result of COVID-19 and related market impacts.
| | | | | | | | | | | | | | | | | |
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | Three months ended September 30 | | Nine months ended September 30 |
| (In millions; per-share in dollars and diluted) | 2020 | 2019 | | 2020 | 2019 |
| Continuing earnings (loss) | $ | (1,155) | | $ | (1,325) | | | $ | 2,991 | | $ | (707) | |
| Continuing earnings per share (loss) | $ | (0.13) | | $ | (0.15) | | | $ | 0.32 | | $ | (0.08) | |
*Non-GAAP Financial Measure
12 20176 2020 3Q FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions; attributable to GE common shareowners) |
| | |
CONTINUING EARNINGS | | OPERATING EARNINGS* |
THREE MONTHS
For the three months ended September 30, 2020, Consolidated continuing earnings decreasedincreased $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*a decrease in GE Industrial profit of $0.8 billion, more than offset by a decrease in GE Capital losses 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 thedecrease in GE provision for income taxes of $0.4 billion.
GE Industrial profit decreased $0.3$0.8 billion excludingdriven by decreases at Aviation and Healthcare and increases at Power and Renewable Energy, a larger unrealized loss in the tax impact from the sale of our Water business*.
The net effect of acquisitionsquarter on our consolidated operating earnings was a decrease of $0.2 billion while the net effect of dispositions was an increase of $1.4 billioninvestment in the third quarter of 2017.
Foreign exchange favorably affected industrial operating earnings by $0.1 billion as a result of both translational and transactional impacts related 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 $1.6 billion, or 41%, excluding the after-tax gains recorded at Corporate of $1.8 billion from the sale of Appliances in the second quarter of 2016 and $1.9 billion from the sale of our Water business in the third quarter of 2017*.
Industrial segment profit decreased $0.6 billion, or 5%, driven by restructuring costs related to Baker Hughes of $0.3$0.6 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$0.4 billion related to goodwillproperty, plant and $0.3 billion related to a power plant asset. Gains recordedequipment and intangible assets at Corporate decreased $0.3 billion, excluding the $3.1 billion pre-tax gain on the sale of Appliances in 2016our Steam business 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 expenseslegal reserves associated with the GE Capital Exit Plan, lower preferred dividend expenses associated with the January 2016 preferred equity exchange and core increases,SEC investigation (see Note 19 for further information), partially offset by lower gains, highergoodwill impairments of $0.7 billion 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
Segment revenues include revenues and other income related to the segment.
Segment profit is determined based on internal performance measures used by the 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 litigation settlements or other charges, for which responsibility preceded the current management team. Subsequent to the Baker Hughes transaction, 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,of $0.5 billion. GE Industrial profit margin was (7.2)%, a decrease of 510 basis points primarily due to the same net decreases as described above. Adjusted GE Industrial profit* was $1.0 billion, a decrease of $0.8 billion organically*, due to a decrease at Aviation, partially offset by increases at Power, Healthcare, and preferred stock dividends accordingRenewable Energy. Adjusted GE industrial profit margin* was 5.6%, a decrease of 310 basis points organically*, primarily due to howthe same net decreases as described above. At Aviation, the primary drivers were lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits in our service agreements. At Power, the primary drivers were higher equipment revenues and better project execution in equipment contracts in Gas Power and improved cost productivity. At Healthcare, the increase was primarily due to cost reductions and increases in HCS volume, and at Renewable Energy, the increase was due to improved pricing and cost deflation at Onshore Wind and lower cost across the segment.
GE Capital continuing losses decreased $0.6 billion primarily due to the nonrecurrence of a particular segment’s management is measured:
Interest and other financial charges, income taxes and GE preferred stock dividends are excluded in determining segment profit (which we sometimes refer to as “operating profit”) for$1.0 billion pre-tax charge identified through the industrial segments.
Interest and other financial charges, income taxes and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.
Certain corporate costs, such as shared services, employeecompletion of our 2019 annual insurance premium deficiency review, higher tax benefits and information technology, are allocated to our segments basedlower excess interest costs, partially offset by volume declines, lower gains and higher mark-to-market effects and impairments, including on usage. A portionthe GECAS fixed-wing aircraft portfolio as a result of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.
With respect to the segment revenueCOVID-19 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 Productivityrelated market impacts. Gains were insignificant 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$0.2 billion in 2016. the third quarters of 2020 and 2019, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains that were insignificant and $0.1 billion in the third quarters of 2020 and 2019, respectively.
For the nine months ended September 30, 2016, Appliances contributed revenues2020, Consolidated continuing earnings increased $3.7 billion due to an increase in GE Industrial profit of $2.6$4.1 billion, an increase in GE Capital losses of $1.0 billion and an operating profita decrease in GE provision for income taxes of $0.3 billion.
CREATION OF BAKER HUGHES, A GE COMPANY
On July 3, 2017, we completedIndustrial profit increased $4.1 billion driven primarily by the transaction to create Baker Hughes, a GE company (BHGE). Undergain on the termssale of the deal, which we announced in October 2016, we combined our Oil & GasBioPharma business of $12.4 billion, decreased goodwill impairments of $0.6 billion, and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownershiplower 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 operationsfinancial charges 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.
SEGMENT RESULTS – THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
|
INDUSTRIAL SEGMENT EQUIPMENT
& SERVICES REVENUES
|
|
|
INDUSTRIAL SEGMENT PROFIT |
|
| |
■ ■Services (a) ■■ Equipment (b)
| |
|
| |
(a) $13.6$0.6 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, Transportationour industrial segments, a larger unrealized loss on our investment in Baker Hughes of $4.5 billion, impairment charges of $0.4 billion related to property, plant and Lighting.
equipment and intangible assets at our Steam business, and legal reserves associated with the SEC investigation (see Note 19 for further information).GE Industrial segment profit decreased $0.7 billion, or 16%margin was 8.3%, driven primarily by lower earnings at Power, Oil & Gasan increase of 790 basis points, primarily due to restructuring costs associated with Baker Hughes,the same net increases as described above. Adjusted GE Industrial profit* was $1.6 billion, a decrease of 70% organically*, primarily due to decreases at our Aviation, Power and Transportation,Renewable Energy segments, partially offset by higher earningsan increase 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. Thea 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%Adjusted corporate operating costs*. Adjusted GE industrial profit margin* was 3.0%, driven by increases at Oil & Gasa decrease of 570 basis points organically*, primarily due to Baker Hughes,the same net decreases as described above. At Aviation, the primary drivers were lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits and net unfavorable changes of $0.9 billion to the estimated profitability in its long-term service agreements. At Power, the primary drivers were lower revenues and a charge of approximately $0.1 billion related to an under-performing JV, partially offset by better equipment project execution in Gas Power. At Renewable Energy, higher sales volume at Onshore Wind and the favorable impact of cost reduction measures were more than offset by the nonrecurrence of a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts in the first quarter of 2019. At Healthcare, the primary drivers were cost reductions and increased demand for HCS products used directly in response to COVID-19, partially offset by decreases at Lightingin Pharmaceutical Diagnostics (PDx) volume.
GE Capital continuing losses increased $1.0 billion primarily due to an impairment of goodwill, volume declines, higher mark-to-market effects and other impairments, including on 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 to the sale of Appliances in the second quarter of 2016, and Transportation, partially offset by higher earnings at Aviation, Healthcare, and Renewable Energy.
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
|
| | |
MD&A | SEGMENT OPERATIONS | POWER |
POWER
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
(a) Includes Distributed Power
(b) Includes Water & Process Technologies and GE Hitachi Nuclear
|
|
| | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Gas Turbines | 30 | 22 | (8) | 69 | 63 | (6) |
|
| | |
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 |
|
Segment revenues down $0.3 billion (4%);
Segment profit down $0.6 billion (51%):
The decrease in revenues was driven by lower services volume at Power Services due to 15 fewer AGP upgrades. Equipment volume also decreased, primarily at Gas Power Systems,GECAS fixed-wing aircraft portfolio as a result of eight fewer gas turbineCOVID-19 and 32 fewer aeroderivative units, partially offset by seven more Heat Recovery Steam Generator shipmentsrelated market impacts, lower gains, debt tender costs and extended scope including higher balance of plant revenues. Further decreases in revenue were due to lower prices offset by the effectsnonrecurrence of a weaker U.S. dollar versus the euro and2019 tax reform enactment adjustment. These increased other income including a reduction in foreign exchange transactional losses.
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.
|
| | |
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) |
|
| | |
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 effectsnonrecurrence of a weaker U.S. dollar versus$1.0 billion pre-tax charge identified through the Brazilian real, partially offset by lower prices.
The increase in profit was duecompletion of our 2019 annual insurance premium deficiency review, higher tax benefits including the tax benefit related to material deflation and increased other income including a reduction in foreign exchange transactional losses. These increases were partially offset by negative cost productivitythe BioPharma sale 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)excess interest cost. Gains were $0.3 billion and $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 reserves2020 and 2019, respectively, which primarily related to sales of $19.2GECAS aircraft and engines resulting in gains of $0.2 billion and claim reserves of $4.9$0.3 billion atin the nine months ended September 30, 20172020 and 2019, respectively, and the nonrecurrence of a sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at Energy Financial Services (EFS).
AVIATION AND GECAS 737 MAX. Aviation develops, produces, and sells LEAP aircraft engines to Boeing, Airbus and COMAC through CFM International (CFM), a company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the Safran Group of France. The LEAP-1B engine is the exclusive engine for the Boeing 737 MAX. In March 2019, global regulatory authorities ordered a temporary fleet grounding of the Boeing 737 MAX. During the second quarter of 2019, Boeing announced a temporary reduction in the 737 MAX production rate, and CFM reduced its production rate for the LEAP-1B to meet Boeing's revised aircraft build rate. In December 2019, Boeing announced that it would temporarily suspend production of the 737 MAX beginning in January 2020. Aviation commercial equipment backlog as of September 30, 2020 includes approximately 10,000 LEAP-1A and 1B engines, including the impact of approximately 1,100 LEAP-1B unit order cancellations since year-end. See the Segment Operations - Aviation section for further information. During 2020, CFM and Boeing reached an agreement to align production rates for 2020 and secure payment terms for engines delivered in 2019 and 2020, net of progress collections, and accordingly received net payments of $0.2 billion during the three months ended September 30, 2020. In May 2020, Boeing resumed production of the 737 MAX. CFM and Boeing continue to work closely to ensure a successful reentry into service, with a strong commitment to safety while navigating near term industry disruption.
*Non-GAAP Financial Measure
As of September 30, 2020, GECAS owned 29 of these aircraft, 26 of which are contracted for lease to various airlines that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 77 of these aircraft on order and has made financing commitments to acquire a further 17 aircraft under purchase and leaseback contracts with airlines. During 2020, GECAS agreed with Boeing to restructure its 737 MAX orderbook including previously canceled positions, resulting in 77 orders now remaining.
As of September 30, 2020, we had approximately $9.0$2.5 billion of net assets ($4.4 billion of assets and $3.4$1.8 billion respectively, relatesof liabilities) related to long-term care insurance contracts.the 737 MAX program that primarily comprised Aviation accounts receivable offset by progress collections and GECAS pre-delivery payments and owned aircraft subject to lease. No impairment charges were incurred related to the 737 MAX aircraft and related balances, as we continue to believe these assets are recoverable over their contractual or useful lives. We test future policy benefit reserves associatedcontinue to monitor 737 MAX return to service and return to delivery developments with our run-off insurance activitiesairline customers, lessees and Boeing.
LEAP continues to be a strong engine program for premium deficiencies annually.us, and we delivered 622 engines for Boeing and Airbus platforms in the nine months ended September 30, 2020, and over 4,000 engines since inception.
SEGMENT OPERATIONS.Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, for further information regarding our determination of Industrial and Capital segment profit for continuing operations, and for our allocations of corporate costs to our segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SUMMARY OF REPORTABLE SEGMENTS | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2020 | 2019 | V% | | | 2020 | 2019 | V% | |
| Power | $ | 4,025 | | $ | 3,926 | | 3 | | % | | $ | 12,206 | | $ | 13,224 | | (8) | | % |
| Renewable Energy | 4,525 | | 4,425 | | 2 | | % | | 11,224 | | 10,590 | | 6 | | % |
| Aviation | 4,919 | | 8,109 | | (39) | | % | | 16,196 | | 23,940 | | (32) | | % |
| Healthcare | 4,565 | | 4,923 | | (7) | | % | | 13,185 | | 14,540 | | (9) | | % |
| | | | | | | | | |
| Capital | 1,681 | | 2,097 | | (20) | | % | | 5,449 | | 6,645 | | (18) | | % |
| Total segment revenues | 19,716 | | 23,480 | | (16) | | % | | 58,260 | | 68,938 | | (15) | | % |
| Corporate items and eliminations | (299) | | (120) | | U | | | (570) | | 39 | | U | |
| Consolidated revenues | $ | 19,417 | | $ | 23,360 | | (17) | | % | | $ | 57,690 | | $ | 68,976 | | (16) | | % |
| | | | | | | | | |
| Power | $ | 150 | | $ | (144) | | F | | | $ | (19) | | $ | 84 | | U | |
| Renewable Energy | 5 | | (98) | | F | | | (493) | | (469) | | (5) | | % |
| Aviation | 356 | | 1,718 | | (79) | | % | | 681 | | 4,764 | | (86) | | % |
| Healthcare | 765 | | 974 | | (21) | | % | | 2,212 | | 2,714 | | (18) | | % |
| | | | | | | | | |
| Capital | (52) | | (645) | | 92 | | % | | (1,558) | | (599) | | U | |
| Total segment profit (loss) | 1,224 | | 1,806 | | (32) | | % | | 823 | | 6,493 | | (87) | | % |
| Corporate items and eliminations | (1,606) | | (808) | | (99) | | % | | 5,917 | | (2,013) | | F | |
| GE goodwill impairments | 0 | | (740) | | F | | | (877) | | (1,484) | | 41 | | % |
| GE interest and other financial charges | (313) | | (791) | | 60 | | % | | (1,079) | | (1,693) | | 36 | | % |
| GE non-operating benefit costs | (603) | | (562) | | (7) | | % | | (1,815) | | (1,684) | | (8) | | % |
| GE benefit (provision) for income taxes | 143 | | (229) | | F | | | 22 | | (327) | | F | |
| Earnings (loss) from continuing operations attributable to GE common shareholders | (1,155) | | (1,325) | | 13 | | % | | 2,991 | | (707) | | F | |
| Earnings (loss) from discontinued operations, net of taxes | (35) | | (8,093) | | 100 | | % | | (206) | | (5,212) | | 96 | | % |
| Less net earnings attributable to noncontrolling interests, discontinued operations | 0 | | 46 | | U | | | (2) | | 58 | | U | |
| Earnings (loss) from discontinued operations, net of tax and noncontrolling interest | (35) | | (8,140) | | 100 | | % | | (204) | | (5,270) | | 96 | | % |
| Consolidated net earnings (loss) attributable to the GE common shareholders | $ | (1,190) | | $ | (9,465) | | 87 | | % | | $ | 2,787 | | $ | (5,977) | | F | |
POWER. We have recently experienced elevated claim experiencecontinue to execute for our customers through COVID-19, prioritizing safety first and foremost. From an operations perspective, we are working within our supply chain and with our suppliers to catch up on parts and project scope that were delayed as a result of COVID-19. Despite difficult travel and customer site restrictions, we continue to service our customers' installed base and expect to complete roughly 95% of all planned outages in the year. From a market perspective, both gas-based electricity generation and GE gas turbine utilization has remained stable. Our ability to close transactions, particularly services parts & upgrades, has been impacted by constrained customer budgets and access to financing due to oil prices and economic slowdown, especially in Gas Power. Although there may be market challenges in the near term, we believe gas will play a critical role in the energy transition and our view of the market has not materially changed, albeit timing on new orders is harder to forecast.
Power continues to right size its business to better align with market demand and driving its businesses with an operational rigor and discipline that is focused on its customers’ lifecycle experience. In Gas Power, we continue to size the business for a portion25-30 GW market, although acknowledge that the size any given year can vary. We remain focused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdles and we have a high confidence to deliver for our customers.
Looking ahead, we anticipate the power market to continue to be impacted by 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. Market factors such as increasing energy efficiency and renewable energy penetration continue to impact long-term demand. As such, we announced this quarter that we will be exiting the new build coal power market, while continuing to service our customers' installed base.
We continue to invest in new product development, such as our HA-Turbines, and upgrades as these are critical to our customers and the long-term strategy of the business. Our fundamentals remain strong with approximately $79 billion in backlog and a gas turbine installed base greater than 7,000 units, including approximately 1,800 units under long-term service agreements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| Orders | | Sales | | Orders | | Sales |
| (In units) | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| GE Gas Turbines | 17 | | 17 | | | 11 | | 12 | | | 32 | | 52 | | | 43 | | 32 | |
| Heavy-Duty Gas Turbines(a) | 15 | | 15 | | | 9 | | 9 | | | 23 | | 42 | | | 29 | | 20 | |
| HA-Turbines(b) | 3 | | 5 | | | 3 | | 5 | | | 5 | | 15 | | | 12 | | 6 | |
| Aeroderivatives(a) | 2 | | 2 | | | 2 | | 3 | | | 9 | | 10 | | | 14 | | 12 | |
| GE Gas Turbine Gigawatts(c) | 3.4 | | 3.1 | | | | | | 6.0 | | 9.8 | | | | |
(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. |
| | | | | | | | | | | |
| (Dollars in millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Equipment | $ | 16,734 | | $ | 17,661 | | $ | 18,980 | |
| Services | 62,562 | | 67,640 | | 67,806 | |
| Total backlog | $ | 79,295 | | $ | 85,302 | | $ | 86,787 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | | Nine months ended September 30 |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| Equipment | $ | 814 | | | $ | 1,252 | | | | $ | 2,658 | | | $ | 4,328 | | |
| Services | 2,574 | | | 2,612 | | | | 7,712 | | | 8,113 | | |
| Total orders | $ | 3,388 | | | $ | 3,864 | | | | $ | 10,370 | | | $ | 12,442 | | |
| | | | | | | | | |
| Gas Power | $ | 2,940 | | | $ | 2,732 | | | | $ | 8,876 | | | $ | 9,242 | | |
| Power Portfolio | 1,085 | | | 1,194 | | | | 3,330 | | | 3,982 | | |
| Total segment revenues | $ | 4,025 | | | $ | 3,926 | | | | $ | 12,206 | | | $ | 13,224 | | |
| | | | | | | | | |
| Equipment | $ | 1,595 | | | $ | 1,434 | | | | $ | 4,589 | | | $ | 4,473 | | |
| Services | 2,430 | | | 2,492 | | | | 7,617 | | | 8,751 | | |
| Total segment revenues | $ | 4,025 | | | $ | 3,926 | | | | $ | 12,206 | | | $ | 13,224 | | |
| | | | | | | | | |
| Segment profit (loss) | $ | 150 | | | $ | (144) | | | | $ | (19) | | | $ | 84 | | |
| Segment profit margin | 3.7 | | % | (3.7) | | % | | (0.2) | | % | 0.6 | | % |
For the three months ended September 30, 2020, segment orders were down $0.5 billion (12%), segment revenues were up $0.1 billion (3%) and segment profit was up $0.3 billion.
Orders decreased $0.4 billion (12%) organically, primarily due to decreases in Gas Power Heavy-Duty Gas Turbine equipment and services orders.
Revenues increased $0.1 billion (3%) organically*, primarily due to increases in Gas Power equipment revenues related to higher extended scope shipments in the quarter, partially offset by decreases in Gas Power services primarily related to decreases in upgrades. Steam equipment revenues also decreased primarily driven by project timing.
Profit increased $0.3 billion organically* due to higher Gas Power equipment revenues, better equipment project execution in Gas Power equipment contracts, and improved cost productivity across Gas Power and Power Portfolio driven by continued efforts to right size the business.
For the nine months ended September 30, 2020, segment orders were down $2.1 billion (17%), segment revenues were down $1.0 billion (8%) and segment profit was down $0.1 billion.
Backlog as of September 30, 2020 decreased $6.0 billion (7%) and $7.5 billion (9%) from December 31, 2019 and September 30, 2019, respectively, primarily driven by sales outpacing new orders.
Orders decreased $1.9 billion (16%) organically, primarily due to decreases in Gas Power Heavy-Duty Gas Turbine unit and services orders and Steam equipment orders.
*Non-GAAP Financial Measure
Revenues decreased $0.8 billion (6%) organically*, primarily due to decreases in Gas Power services revenues, primarily related to decreases in transactional part sales and upgrades, partially offset by increases in Gas Power equipment revenues related to 9 more Heavy-Duty gas turbine unit shipments. Steam equipment and service revenues also decreased.
Profit decreased $0.1 billion organically* due to lower revenues, a charge of approximately $0.1 billion related to an under-performing JV in China at Gas Power and a quality reserve at Power Portfolio on the legacy product line that we have since exited in Power Conversion, partially offset by better equipment project execution in Gas Power equipment contracts and continued efforts to right size the business across Gas Power and Power Portfolio.
RENEWABLE ENERGY. During the third quarter of 2020, our manufacturing locations and long-term project sites returned to pre-COVID-19 capacity levels and operations, respectively. While we do not believe the long-term outlook for renewable energy products and services has materially changed, we are monitoring the impact of the pandemic on the renewable energy industry, including electricity consumption forecasts and customer capital expenditure levels, supply chain, availability of financing and our ability to execute on equipment and long-term projects, including the impact of possible customer related delays. In response to volume declines in certain of our long-term care insurance contractsbusinesses, we implemented additional cost reduction measures, restructuring and cash preservation actions.
Our businesses comprise Onshore Wind (including LM Wind), Grid Solutions equipment and services, Hydro, Offshore Wind and Hybrid Solutions. We continue to observe growth across the global onshore wind market together with a positive impact on deliveries and installations in the U.S. from the Production Tax Credit (PTC) cycle and customer preference shifting to larger, more efficient units to drive down costs and compete with other power generation options. Despite the competitive nature of the market, onshore wind order pricing has stabilized globally. In response to the risk of COVID-19 impacting the timing of project completion, the phase-down of U.S. PTCs was extended by an additional year allowing installations in 2021 and 2022 to qualify for a 100% and 80% PTC, respectively. Under the current legislation, the PTC phase-down concludes in 2024. We expect high levels of production to continue for 2020 and 2021 deliveries at Onshore Wind and are closely monitoring our execution during this period.
The grid market remains challenging as we continue to experience pricing pressure in the High Voltage Direct Current (HVDC) and High Voltage (HV) product lines. While we have experienced order declines in both these product lines, we announced in the third quarter of 2020, that requiresGrid has been awarded HVDC scope for a 1.4GW offshore wind project in the completionUnited Kingdom. Both the Grid and Hydro businesses are executing their turnaround plans.
New product introductions remain important to our onshore and offshore customers who are demonstrating the willingness to adopt the new technology of a comprehensive reviewlarger turbines that decrease the levelized cost of premium deficiency assumptions across all insurance products. This review will be completedenergy. We continue to focus on developing larger, more efficient turbines like the Haliade-X (Offshore Wind) and the 5MW Cypress (Onshore Wind), for which we have observed significant market interest, and cost reduction initiatives over these products and our broader portfolio. We are preparing for large scale production of Haliade-X and expect it to receive certification in the fourth quarter of 2017. Based upon2020. During the work performed to date and complexitythird quarter of 2020, we completed delivery of the first Cypress units and have reported more than 700 of these units in backlog.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| | Orders | | Sales | | Orders | | Sales |
| (In units) | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Onshore | Wind Turbines | 953 | | 1,104 | | | 1,170 | | 1,128 | | | 2,336 | | 3,058 | | | 2,731 | | 2,285 | |
| Wind Turbine Megawatts | 3,251 | | 3,413 | | | 3,366 | | 3,148 | | | 7,751 | | 8,747 | | | 7,770 | | 6,392 | |
| Repower units | 75 | | 318 | | | 300 | | 266 | | | 199 | | 912 | | | 876 | | 643 | |
| | | | | | | | | | | |
| (Dollars in millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Equipment | $ | 15,734 | | $ | 16,297 | | $ | 16,423 | |
| Services | 10,767 | | 11,233 | | 10,940 | |
| Total backlog | $ | 26,501 | | $ | 27,530 | | $ | 27,363 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | | Nine months ended September 30 | |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| Equipment | $ | 3,488 | | | $ | 4,271 | | | | $ | 8,631 | | | $ | 10,125 | | |
| Services | 493 | | | 745 | | | | 1,404 | | | 2,079 | | |
| Total orders | $ | 3,981 | | | $ | 5,016 | | | | $ | 10,036 | | | $ | 12,204 | | |
| | | | | | | | | |
| Onshore Wind | $ | 3,303 | | | $ | 3,193 | | | | $ | 7,914 | | | $ | 7,084 | | |
| Grid Solutions equipment and services | 936 | | | 991 | | | | 2,587 | | | 2,843 | | |
| Hydro, Offshore Wind and other | 287 | | | 241 | | | | 722 | | | 663 | | |
| Total segment revenues | $ | 4,525 | | | $ | 4,425 | | | | $ | 11,224 | | | $ | 10,590 | | |
| | | | | | | | | |
| Equipment | $ | 3,771 | | | $ | 3,609 | | | | $ | 9,068 | | | $ | 8,457 | | |
| Services | 754 | | | 816 | | | | 2,155 | | | 2,133 | | |
| Total segment revenues | $ | 4,525 | | | $ | 4,425 | | | | $ | 11,224 | | | $ | 10,590 | | |
| | | | | | | | | |
| Segment profit (loss) | $ | 5 | | | $ | (98) | | | | $ | (493) | | | $ | (469) | | |
| Segment profit margin | 0.1 | | % | (2.2) | | % | | (4.4) | | % | (4.4) | | % |
*Non-GAAP Financial Measure
For the three months ended September 30, 2020, segment orders were down $1.0 billion (21%), segment revenues were up $0.1 billion (2%) and segment profit was up $0.1 billion.
Orders decreased $0.9 billion (18%) organically. Onshore Wind decreased driven by the phase down of the U.S. PTC cycle and lower repower orders. Offshore Wind decreased primarily from the nonrecurrence of the Offshore EDF project.
Revenues increased $0.2 billion (4%) organically*, with higher revenue from 42 more wind turbine shipments, or 7% more megawatts shipped, and 34 more repower units than in the prior year at Onshore Wind. Revenue decreased at Hydro, primarily related to lower volume.
Profit increased $0.1 billion organically*, primarily due to improved pricing and cost deflation at Onshore Wind and lower cost across the segment, partially offset by the impact of higher volume of lower margin products at Onshore Wind.
For the nine months ended September 30, 2020, segment orders were down $2.2 billion (18%), segment revenues were up $0.6 billion (6%) and segment profit was lower (5%).
Backlog as of September 30, 2020 decreased $1.0 billion (4%) and $0.9 billion (3%) from December 31, 2019 and September 30, 2019, respectively. This decrease is primarily attributable to the phase down of the U.S. PTC cycle resulting in deliveries at Onshore Wind in North America exceeding new orders and lower orders at Grid, primarily as a result of increased commercial selectivity in certain product lines. These decreases were partially offset by higher backlog in other Onshore regions driven primarily by orders for the new Cypress platform, and Hydro, primarily in the U.S.
Orders decreased $1.9 billion (16%) organically, primarily due to lower Onshore Wind turbine and repower unit orders associated with the U.S. PTC cycle compared to the prior year, the nonrecurrence of the Offshore EDF project in the prior year, and lower orders at Grid.
Revenues increased $0.9 billion (9%) organically*, primarily from Onshore Wind with 446 more wind turbine shipments on a unit basis, than in the prior year, partially offset by lower Grid revenues, primarily due to COVID-19.
Profit decreased $0.1 billion (11%) organically*, as the impact of higher sales volume at Onshore Wind and the favorable impact of cost reduction measures was offset by the nonrecurrence of a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts in the first quarter of 2019.
AVIATION. The global COVID-19 pandemic continues to have a material adverse effect on the global airline industry. A key underlying driver of Aviation’s commercial engine and services businesses is global commercial air traffic, which in turn is driven by economic activity and consumer and business propensity to travel. Since the beginning of the pandemic in the first quarter of 2020, we have seen varied levels of recovery in global markets. Government travel restrictions, public health advisories, individuals' propensity to travel and continued cases of the virus have all impacted the level of air travel. Due to the global airline industry contraction, Aviation’s airline and airframe customers are taking measures to address reduced demand, which, in turn, continue to materially impact Aviation’s business operations and financial performance. As a result, our long-term service agreement billings decreased approximately 50% from the prior year. Aviation is closely monitoring government actions and economic and industry forecasts, although such forecasts continue to evolve and reflect the uncertainty about the severity and duration of the decline in commercial air traffic. Aviation regularly tracks global departures, which as of September 30, 2020, were approximately 40% below the pre-COVID-19 baseline and have remained relatively flat in October. More broadly, we are in frequent dialogue with our airline and airframe customers about the outlook for commercial air travel, new aircraft production, and after-market services. Given the current trend, we expect domestic travel routes primarily served by narrowbody aircraft to recover before long-haul, international travel routes which are primarily served by widebody aircraft. However, Aviation continues to estimate the duration of the market recovery to be prolonged over multiple years dependent on various factors, including travelers' safety concerns, containment of COVID-19, medical treatment progress, and economic conditions.
Aviation has and is continuing to take several business actions to respond to the current adverse environment, including a permanent reduction of approximately 25% of its total global employee workforce. These actions are estimated to result in more than $1 billion in cost savings and more than $2 billion in cash preservation actions in 2020. Through the third quarter of 2020, the business has completed around 70% of these actions, including workforce reductions of approximately 20%, and realized close to $1 billion in cost savings, and is actively monitoring the pace of demand recovery to ensure the business is appropriately sized for the future. In addition, we continue to partner with our airline and leasing customers and are working closely with our airframe partners to align production rates for 2020 and beyond.
Aviation’s operational and financial performance is impacted by demand for commercial air traffic, shop visit demand, fleet retirements, and demand for new aircraft. We monitor and forecast each of these factors as part of Aviation’s long-term planning process, which may result in additional business restructuring actions. Given the uncertainty related to the severity and length of the global COVID-19 pandemic and the impact on these factors across the aviation sector, Aviation could be required to record charges, impairments, or other adverse financial impacts in future periods if actual results differ significantly from Aviation's current estimates.
As it relates to the military environment, Aviation continues to forecast strong military demand creating future growth opportunities for our Military business as the U.S. Department of Defense and foreign governments have continued flight operations, and have allocated budgets to upgrade and modernize their existing fleets.
*Non-GAAP Financial Measure
Total engineering, comprised both company and customer funded spending, decreased compared to prior year in line with the changes in the commercial environment. For the nine months ended September 30, 2020, company-funded research and development spend decreased compared to 2019, and we expect the reduction to continue in line with the actions outlined above. However, customer-funded engineering efforts, primarily in our Military business, increased compared to the prior year. On September 28, 2020, Aviation announced it received certification from the U.S. Federal Aviation Administration (FAA) for the GE9X engine, the world’s largest and most powerful commercial aircraft engine.
Aviation is taking actions to protect its ability to serve its customers now and as the global airline industry recovers. While its near-term focus remains on navigating the COVID-19 pandemic, Aviation’s deep history of innovation and technology leadership, commercial engine installed base of approximately 38,000 units, military engine installed base of approximately 27,000 units, with approximately 12,000 units under long-term service agreements, and $262 billion backlog represents strong long-term fundamentals. Aviation is taking actions to protect and strengthen its business and seeks to emerge from this crisis stronger and drive long-term cash and profitable growth over time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| Orders | | Sales | | Orders | | Sales |
| (In units, except where noted) | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Commercial Engines | 88 | | 297 | | | 329 | | 714 | | | 291 | | 1,995 | | | 1,121 | | 2,188 | |
| LEAP Engines(a) | 16 | | 49 | | | 172 | | 455 | | | 46 | | 1,378 | | | 622 | | 1,316 | |
| Military Engines | 116 | | 154 | | | 107 | | 186 | | | 851 | | 233 | | | 457 | | 490 | |
| Spare Parts Rate(b) | | | | $ | 14.4 | | $ | 30.0 | | | | | | $ | 18.1 | | $ | 29.0 | |
(a) LEAP engines are subsets of commercial engines.
(b) Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day. |
| | | | | | | | | | | |
| (Dollars in millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Equipment | $ | 34,778 | | $ | 39,131 | | $ | 38,212 | |
| Services | 227,013 | | 234,114 | | 214,686 | |
| Total backlog | $ | 261,791 | | $ | 273,245 | | $ | 252,898 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | | Nine months ended September 30 | |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| Equipment | $ | 1,137 | | | $ | 2,971 | | | | $ | 5,408 | | | $ | 9,687 | | |
| Services | 2,935 | | | 5,825 | | | | 9,851 | | | 16,388 | | |
| Total orders | $ | 4,072 | | | $ | 8,796 | | | | $ | 15,259 | | | $ | 26,074 | | |
| | | | | | | | | |
| Commercial Engines & Services | $ | 2,696 | | | $ | 5,997 | | | | $ | 9,705 | | | $ | 17,796 | | |
| Military | 1,137 | | | 1,061 | | | | 3,258 | | | 3,073 | | |
| Systems & Other | 1,087 | | | 1,050 | | | | 3,233 | | | 3,071 | | |
| Total segment revenues | $ | 4,919 | | | $ | 8,109 | | | | $ | 16,196 | | | $ | 23,940 | | |
| | | | | | | | | |
| Equipment | $ | 1,933 | | | $ | 3,149 | | | | $ | 6,234 | | | $ | 9,295 | | |
| Services | 2,987 | | | 4,960 | | | | 9,961 | | | 14,645 | | |
| Total segment revenues | $ | 4,919 | | | $ | 8,109 | | | | $ | 16,196 | | | $ | 23,940 | | |
| | | | | | | | | |
| Segment profit | $ | 356 | | | $ | 1,718 | | | | $ | 681 | | | $ | 4,764 | | |
| Segment profit margin | 7.2 | | % | 21.2 | | % | | 4.2 | | % | 19.9 | | % |
For the three months ended September 30, 2020, segment orders were down $4.7 billion (54%), segment revenues were down $3.2 billion (39%) and segment profit was down $1.4 billion (79%).
Orders decreased $4.7 billion (53%) organically, primarily driven by declines of approximately 60% in both commercial equipment and service orders as airline customers have slowed or deferred new engine orders, as well as delayed maintenance and repair operations while existing fleets have been grounded.
Revenues decreased $3.1 billion (39%) organically*. Equipment revenues decreased primarily due to 385 fewer commercial install and spare engine unit shipments, including 283 fewer LEAP units versus the prior year, in part due to the 737 MAX grounding and production slowdown. Commercial Services revenues decreased primarily due to lower commercial spare part shipments, decreased shop visits and the cumulative impact of changes in billing and cost assumptions in our long-term service agreements. Military revenues increased primarily due to higher volume of spare part shipments and increased revenues on development contracts, partially offset by fewer engine shipments due to supply chain execution issues.
Profit decreased $1.4 billion (79%) organically*, primarily due to lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits in our service agreements. During the three months ended September 30, 2020, Aviation recorded expenses of $0.1 billion due to lower production volumes given decreases in demand primarily related to commercial engines. Aviation also recorded a pre-tax impairment charge of $0.1 billion in a joint venture in the systems business as a result of changes in the commercial aviation market. In addition, Aviation recorded a $0.1 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements. Additional adjustments could occur in future periods and could be material for certain long-term service agreements if actual customer operating behavior differs significantly from Aviation’s current estimates.
*Non-GAAP Financial Measure
For the nine months ended September 30, 2020, segment orders were down $10.8 billion (41%), segment revenues were down $7.7 billion (32%) and segment profit was down $4.1 billion (86%).
Backlog as of September 30, 2020 decreased $11.5 billion (4%) from December 31, 2019, primarily due to a reduction in our Commercial Services backlog and cancellations of commercial equipment orders, which included approximately 1,100 LEAP 1-B unit order cancellations and 22 GE9x unit order cancellations, as well as sales outpacing new orders. The reduction to Commercial Services backlog reflects the partial cancellation of long-term service agreements related to the equipment unit order cancellations, estimates of lower engine utilization, and anticipated customer fleet restructuring and contract modifications. In addition to cancellations removed from backlog during 2020, there were several public customer announcements that indicate an intent to cancel, however, customer purchase orders with Aviation or the airframer have not been canceled as of September 30, 2020. Based on information currently available, the value of the announced but not canceled orders is less than $2 billion of total backlog. Backlog adjustments could be necessary in future periods for additional cancellations of new commercial engine orders, fleet retirements, or changes to customer aircraft utilization and operating behavior. Backlog increased $8.9 billion (4%) from September 30, 2019, primarily due to an increase in long-term service agreements and transactional services commitments, offset by decreases in commercial equipment orders.
Orders decreased $10.5 billion (41%) organically, primarily driven by lower commercial equipment and service orders as airline customers have slowed or deferred new engine orders, as well as delayed maintenance and repair operations while existing fleets have been grounded. Military orders increased 23% compared to the prior year primarily driven by equipment and new development orders.
Revenues decreased $7.5 billion (32%) organically*. Equipment revenues decreased, primarily due to 1,067 fewer commercial install and spare engine unit shipments, including 694 fewer LEAP units and 202 fewer CFM56 units versus the prior year, in part due to the 737 MAX grounding and production slowdown. Commercial Services revenues decreased, primarily due to lower commercial spare part shipments, decreased shop visits and the cumulative impact of changes in billing and cost assumptions in our long-term service agreements. Military revenues increased primarily due to higher volume of spare part shipments and increased revenues on development contracts, partially offset by fewer engine shipments due to supply chain execution issues in the third quarter.
Profit decreased $4.1 billion (86%) organically*, primarily due to lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits in our service agreements. During the nine months ended September 30, 2020, Aviation recorded expenses of $0.3 billion due to lower production volumes and initiated restructuring actions given decreases in demand primarily related to commercial engines. Aviation also recorded pre-tax charges totaling $0.3 billion due to expected future losses related primarily to customer credit risk given the current environment. In addition, Aviation recorded net unfavorable changes of $0.9 billion to the estimated profitability in its long-term service agreements. This decrease includes a $0.5 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, reflecting lower engine utilization, anticipated customer fleet restructuring and contract modifications. Additional adjustments could occur in future periods and could be material for certain long-term service agreements if actual customer operating behavior differs significantly from Aviation's current estimates.
HEALTHCARE. During the first half of 2020, there was an increase in demand for certain of our products that are highly correlated to the response to the COVID-19 pandemic, including ventilators, monitoring solutions, x-ray, anesthesia and point-of-care ultrasound product lines. However, we also saw reduction in demand and delays in procurement in other products and services that were not critical to the response efforts or where procedures could be postponed (magnetic resonance, contrast agents and nuclear tracers). We have experienced some moderation in COVID-19 related demand in the third quarter and have experienced some recovery in hospital spending on non-COVID-19 related products. The pandemic is still driving uncertainty in our markets globally, as well as additional supply chain and logistics costs, and we expect this to continue. We expect capital expenditures, particularly in private markets, to remain under pressure from financial constraints as they recover from procedure delays and revenue declines related to COVID-19. In response to expected near term volatility and cost pressures, we have initiated additional cost reduction, restructuring and cash preservation actions.
The global healthcare market has continued to expand, driven by macro trends relating to growing and aging populations, increasing chronic and lifestyle-related diseases, accelerating demand for healthcare in emerging markets, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in a more cost-effective manner has also driven growth across each of our global markets.
The Healthcare Systems (HCS) equipment market over the long term continues to expand at low single-digit rates or better, while demand continues for services on new equipment as well as on our existing installed base. However, there is short-term variation driven by market-specific political, environmental and economic cycles. There has been some moderation in tariffs in both U.S. and China, however, this is subject to changes in U.S.-China trade relations. Long-term growth in emerging markets is driven by trends of expanding demand and access to healthcare. Developed markets are expected to remain steady in the near term driven by macro trends in the healthcare industry.
The Pharmaceutical Diagnostics (PDx) business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow over the long-term, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhanced biomarkers of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians. After we experienced reduced demand in the first half of 2020, we saw increases in the third quarter for PDx products as procedure volume increased.
*Non-GAAP Financial Measure
We continue focusing on creating new products and digital solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. GE Healthcare recently introduced the Vivid™ Ultra Edition, which brings the efficiency capabilities of artificial intelligence (AI) to its entire Vivid cardiovascular ultrasound portfolio. We also partnered with Lunit to launch the Thoracic Care Suite on x-ray with Lunit INSIGHT CXR, which leverages AI to help alleviate clinical strain on radiologists by automatically analyzing images.
| | | | | | | | | | | |
| (Dollars in millions) | September 30, 2020 | December 31, 2019 | September 30, 2019 |
| Equipment | $ | 5,476 | | $ | 6,978 | | $ | 6,674 | |
| Services | 11,546 | | 11,480 | | 11,422 | |
| Total backlog(a) | $ | 17,022 | | $ | 18,458 | | $ | 18,096 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| Equipment | $ | 2,139 | | | $ | 3,078 | | | | $ | 7,893 | | | $ | 9,179 | | |
| Services | 1,986 | | | 2,063 | | | | 5,769 | | | 6,097 | | |
| Total orders(a) | $ | 4,125 | | | $ | 5,141 | | | | $ | 13,662 | | | $ | 15,276 | | |
| | | | | | | | | |
| Healthcare Systems | $ | 4,085 | | | $ | 3,642 | | | | $ | 11,056 | | | $ | 10,664 | | |
| Pharmaceutical Diagnostics | 480 | | | 495 | | | | 1,300 | | | 1,497 | | |
| BioPharma | — | | | 786 | | | | 830 | | | 2,378 | | |
| Total segment revenues | $ | 4,565 | | | $ | 4,923 | | | | $ | 13,185 | | | $ | 14,540 | | |
| | | | | | | | | |
| Equipment | $ | 2,538 | | | $ | 2,828 | | | | $ | 7,287 | | | $ | 8,320 | | |
| Services | 2,027 | | | 2,095 | | | | 5,899 | | | 6,220 | | |
| Total segment revenues | $ | 4,565 | | | $ | 4,923 | | | | $ | 13,185 | | | $ | 14,540 | | |
| | | | | | | | | |
| Segment profit | $ | 765 | | | $ | 974 | | | | $ | 2,212 | | | $ | 2,714 | | |
| Segment profit margin | 16.8 | | % | 19.8 | | % | | 16.8 | | % | 18.7 | | % |
| | | | | | | | | |
| (a) Backlog as of September 30, 2020 excluded the BioPharma business due to its disposition in the first quarter of 2020. Backlog as of both December 31, 2019 and September 30, 2019 included $1.2 billion related to BioPharma. Orders included $0.8 billion related to BioPharma for the three months ended September 30, 2019, and included $1.1 billion and $2.6 billion related to BioPharma for the nine months ended September 30, 2020 and 2019, respectively. |
|
For the three months ended September 30, 2020, segment orders were down $1.0 billion (20%), segment revenues were down $0.4 billion (7%) and segment profit was down $0.2 billion (21%).
Orders were down $0.2 billion (4%) organically, driven by decreases in HCS (5%) mainly due to lower equipment demand and in PDx (2%). The difference between reported and organic orders decreases was primarily driven by the BioPharma disposition.
Revenues increased $0.4 billion (10%) organically*, primarily driven by $0.3 billion from the U.S. Department of Health and Human Services (HHS) to deliver ventilators in partnership with Ford and increased volume from COVID-19 related products, partially offset by a decrease in PDx.
Profit was up $0.2 billion (30%) organically*, primarily due to cost reductions and increases in HCS volume.
For the nine months ended September 30, 2020, segment orders were down $1.6 billion (11%), segment revenues were down $1.4 billion (9%) and segment profit was down $0.5 billion (18%).
Backlog as of September 30, 2020 decreased $1.4 billion (8%) from December 31, 2019 and decreased $1.1 billion (6%) from September 30, 2019 primarily due to the BioPharma disposition. Excluding Biopharma, backlog increased $0.1 billion from September 30, 2019.
Orders increased $0.2 billion (2%) organically, due to increases in demand for COVID-19 related products, including a $0.3 billion order from the HHS to deliver 50,000 ventilators in partnership with Ford, partially offset by PDx. Excluding BioPharma, orders were flat organically.
Revenues increased $0.4 billion (3%) organically*, driven by increased demand in HCS products used directly in response to COVID-19, partially offset by reduced volume in PDx from a decrease in non-essential routine procedures. Excluding BioPharma, revenues increased $0.3 billion (2%) organically*.
Profit increased $0.2 billion (12%) organically*, primarily due to cost reductions and increased demand for HCS products used directly in response to COVID-19, partially offset by decreases in PDx volume. Excluding BioPharma, profits increased $0.2 billion (10%) organically*.
CAPITAL. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could result in material financial charges depending on the timing, negotiated terms and conditions of any ultimate arrangements.
At GE Capital, the primary effect of the COVID-19 pandemic pertains to its GECAS business. The pandemic has led to worldwide reduction of flight schedules and it is difficult to predict its longer-term impact. Additionally, the related market volatility resulted in higher credit spreads on the investment securities held by our run-off insurance business, which resulted in marks and impairments taken in the first quarter, which recovered in the second and third quarters of 2020.
*Non-GAAP Financial Measure
As of September 30, 2020, GECAS owned 952 fixed-wing aircraft, of which 29 with a book value of $0.6 billion were available to lease to customers (aircraft on the ground). We test recoverability of each fixed-wing aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when assets are re-leased or current lease terms have changed.
Given the environment, we accelerated our review in the second quarter to focus on leases with higher risk of repossession based on our assessment of customer credit risk default and any unplaced leased assets rolling-off over the next 12 months, which represented approximately 20% of our fixed-wing aircraft operating lease portfolio. In addition, we performed our detailed annual portfolio review in the third quarter of 2020, which incorporated third party appraisal data, updates to all cash flow assumptions as further described withinwell as evolving market and customer dynamics that we are monitoring. These analyses resulted in pre-tax impairments of $0.2 billion and $0.5 billion during the three and nine months ended September 30, 2020, respectively, primarily on our Critical Accounting Estimatesfixed-wing aircraft operating lease portfolio. Pre-tax impairments were insignificant and $0.1 billion for the three and nine months ended September 30, 2019, respectively. The increase in pre-tax impairments was driven by declining cash flow projections of the future collectability of rents on aircraft and engines currently under contract related to market impacts resulting from the pandemic. Continued deterioration in cash flow projections, including current rents, downtime, release rates and residual assumptions could result in future impairments in the operating lease portfolio.
Based on the resulting pressure on its airline customers, GECAS continues to see deferral requests, which are primarily short term in nature. As a result of these requests, we have executed agreements with customers to reschedule certain lease payments. As of September 30, 2020, we have a contractually deferred balance of $408 million, we have invoiced $139 million under these agreements and collected $119 million. We expect to continue to receive requests for rent deferrals and/or lease restructures from our global airline customers as a result of COVID-19 and related market impacts. An extended disruption of regional or international travel could result in an increase in these types of requests in future periods, which could result in an increase to the trade receivable balance. As GECAS evaluates future lease restructures, there is a risk of lease modifications that could have a material adverse effect on GECAS operations, financial position and cash flows.
In October 2020, Pacific Investment Management Company (PIMCO), one of the world’s premier fixed income investment managers, and GECAS reached a preliminary agreement to develop an aviation leasing venture to support up to $3 billion in aircraft asset financings. The transaction is subject to definitive agreement, customary closing conditions and receipt of required regulatory approvals.
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio in the third quarter. As a result of the testing, we identified no premium deficiency. See the Other Items section and Note 1112 to the consolidated financial statements a charge relatedfor further information.
GE Capital expects to a probable deficiency is not reasonably estimable atreceive approximately $2 billion of additional capital contributions from GE in the fourth quarter of 2020. See the Capital Resources and Liquidity section for further information.
| | | | | | | | |
| (Dollars in millions) | September 30, 2020 | December 31, 2019 |
| GECAS | $ | 35,846 | | $ | 37,979 | |
| Energy Financial Services (EFS) | 1,621 | 1,823 |
| Working Capital Solutions (WCS)(a) | 6,785 | 9,014 |
| Insurance | 50,007 | 46,266 |
| Other continuing operations(a)(b) | 18,668 | | 22,463 | |
| Total segment assets | $ | 112,927 | | $ | 117,546 | |
| | |
| GE Capital debt to equity ratio | 4.1:1 | 3.9:1 |
(a) In the first quarter of 2020, the remaining Industrial Finance assets of $0.3 billion were transferred to Other continuing operations.
(b) Included cash, cash equivalents and restricted cash of $13.9 billion as of 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.
2020 and $17.6 billion as of December 31, 2019.
20172020 3Q FORM 10-Q 3115
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| MD&A | SEGMENT OPERATIONS | CAPITAL |
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| GECAS | $ | 923 | | $ | 1,211 | | | $ | 2,994 | | $ | 3,678 | |
| EFS | 15 | | (44) | | | 77 | | 100 | |
| WCS | 57 | | 195 | | | 270 | | 683 | |
| Insurance | 764 | | 718 | | | 2,167 | | 2,160 | |
| Other continuing operations | (78) | | 17 | | | (59) | | 24 | |
| Total segment revenues | $ | 1,681 | | $ | 2,097 | | | $ | 5,449 | | $ | 6,645 | |
| | | | | |
| GECAS | $ | (38) | | $ | 263 | | | $ | (906) | | $ | 815 | |
| EFS | 18 | | (7) | | | 13 | | 110 | |
| WCS | 15 | | 55 | | | 51 | | 203 | |
| Insurance | 57 | | (678) | | | 78 | | (677) | |
| Other continuing operations(a) | (104) | | (277) | | | (794) | | (1,050) | |
| Total segment profit (loss) | $ | (52) | | $ | (645) | | | $ | (1,558) | | $ | (599) | |
THREE MONTHS
Capital revenues decreased $0.2 billion, or 8%,(a) Other continuing operations primarily duecomprised excess interest costs from debt previously allocated 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 withassets that have been sold as part of the GE Capital Exit Plan, preferred stock dividend costs and core increases.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, which differs from the asset profile when the debt was originated. As a result, actual interest expense is higher than interest expense allocated to the remaining GE Capital segments. Substantially all preferred stock dividend costs will become a GE obligation in January 2021. See Note 15 for further information. In addition, we anticipate unallocated interest costs to gradually decline as debt matures and/or is refinanced.
Within
For the three months ended September 30, 2020, segment revenues decreased $0.4 billion (20%) and segment losses were down $0.6 billion.
Capital Verticals net earningsrevenues decreased $0.2$0.4 billion or 36%(20%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, and lower gains. Capital losses decreased $0.6 billion, primarily due to the nonrecurrence of a $1.0 billion pre-tax charge identified through the completion of our 2019 annual insurance premium deficiency review, higher impairments ($0.2 billion)tax benefits and lower gains,excess interest costs, partially offset by core increases.
Other Capital losses decreasedvolume declines, lower gains and higher mark-to-market effects and impairments, including on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts. Gains were insignificant and $0.2 billion or 38%,in the third quarters of 2020 and 2019, respectively, which primarily associated withrelated to sales of GECAS aircraft and engines resulting in gains that were insignificant and $0.1 billion in the GE Capital Exit Plan as follows:third quarters of 2020 and 2019, respectively.
Lower headquarters operation expenses of $0.3
For the nine months ended September 30, 2020, segment revenues decreased $1.2 billion (18%) and segment losses were up $1.0 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$1.2 billion or 9%(18%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, lower gains and higher mark-to-market effects and impairments as a result of COVID-19 and related market impacts. Capital losses increased $1.0 billion, primarily due to an impairment of goodwill, volume declines, higher mark-to-market effects and other impairments, organic revenue declinesincluding on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts, lower gains.
Capitalgains, debt tender costs and the nonrecurrence of a 2019 tax reform enactment adjustment. These increased 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,were partially offset by lower gains,the nonrecurrence of a $1.0 billion pre-tax charge identified through the completion of our 2019 annual insurance premium deficiency review, higher impairments and lower tax benefits primarily associated with a 2016 IRSincluding the tax settlement.
Within Capital, Verticals net earnings decreased 3%, primarily duebenefit related to lower gains ($0.1 billion)the BioPharma sale 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 withcost. Gains were $0.3 billion and $0.5 billion in the Februarynine months ended September 30, 2020 and May 2016 debt tenders2019, respectively, which primarily related to sales of GECAS aircraft 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 expensesengines resulting in gains of $0.2 billion associated with the January 2016 preferred equity exchange.
Lower tax benefits ofand $0.3 billion primarily associated within the nine months ended September 30, 2020 and 2019, respectively, and the nonrecurrence of a 2016 IRS tax settlement.sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.
32 201716 2020 3Q FORM 10-Q
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| MD&A | CORPORATE ITEMS AND ELIMINATIONS |
CORPORATE ITEMS AND ELIMINATIONS.Includes the results of our Lighting segment for the three and nine months of 2019, the nine months of 2020 as well as includes the results of our GE Digital business for all periods presented.
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Revenues | | | | | |
| Corporate revenues | $ | 251 | | $ | 395 | | | $ | 1,039 | | $ | 1,395 | |
| Eliminations and other | (550) | | (515) | | | (1,608) | | (1,356) | |
| Total Corporate Items and Eliminations | $ | (299) | | $ | (120) | | | $ | (570) | | $ | 39 | |
| | | | | |
| Operating profit (cost) | | | | | |
| Gains (losses) on disposals and held for sale businesses | $ | 119 | | $ | (97) | | | $ | 12,632 | | $ | 153 | |
| Restructuring and other charges | (326) | | (322) | | | (967) | | (924) | |
| Steam asset impairments(a) (Notes 7 and 8) | (363) | | — | | | (363) | | — | |
| Unrealized gains (losses) | (760) | | (86) | | | (4,728) | | (125) | |
| Goodwill impairments(b) (Note 8) | — | | (740) | | | (728) | | (1,484) | |
| Adjusted total corporate operating costs (Non-GAAP) | (275) | | (303) | | | (806) | | (1,117) | |
| Total Corporate Items and Eliminations (GAAP) | $ | (1,606) | | $ | (1,548) | | | $ | 5,040 | | $ | (3,497) | |
| Less: gains (losses) and restructuring & other | (1,331) | | (1,245) | | | 5,845 | | (2,380) | |
| Adjusted total corporate operating costs (Non-GAAP) | $ | (275) | | $ | (303) | | | $ | (806) | | $ | (1,117) | |
| | | | | |
| Functions & operations | $ | (201) | | $ | (225) | | | $ | (630) | | $ | (913) | |
| Environmental, health and safety (EHS) and other items | (21) | | (20) | | | 8 | | (117) | |
| Eliminations | (54) | | (58) | | | (184) | | (86) | |
| Adjusted total corporate operating costs (Non-GAAP) | $ | (275) | | $ | (303) | | | $ | (806) | | $ | (1,117) | |
(a) Included non-cash pre-tax impairment charges of $429 million, net of $65 million attributable to noncontrolling interests for the Steam business within our Power segment for the three and nine months ended September 30, 2020. |
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| 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. |
(b) Included non-cash pre-tax impairment charge of $877 million, net of $149 million attributable to noncontrolling interests for the Additive reporting unit within our Aviation segment for the nine months ended September 30, 2020.
2017 - 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
RevenuesAdjusted total corporate operating costs* excludes gains (losses) on disposals and held for sale businesses, restructuring and other income increased $1.7charges including goodwill and unrealized gains (losses). 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.
Unrealized gains (losses) are primarily related to our mark-to-market impact on our Baker Hughes shares for the three and nine months ended September 30, 2020, on our Ventures portfolio for the nine months ended September 30, 2020, and on our mark-to-market impact on our Baker Hughes shares for the three and nine months ended September 30, 2019.
For the three months ended September 30, 2020, revenues decreased by $0.2 billion primarily as a result of:
$1.9of a $0.1 billion gain fromdecrease in revenue due to the sale of our WaterLighting business to Suez
This increase to revenues and other income was partially offset by the following:
$0.2in June 2020. Overall, Corporate costs increased $0.1 billion of lower other income forversus prior year. Corporate costs decreased due to the nonrecurrence of a $0.4$0.7 billion gain from the sale of GE Asset Management to State
Street Corporation and a $0.2 billionnet goodwill impairment charge related to the saleour Renewable Energy segment in 2019 and $0.2 billion of a non-strategic platformhigher gains, primarily due to our Wabtec investment in the Aviation business in the
third quarter of 20162019. Restructuring and other charges were flat year over year, with lower restructuring charges at Corporate, partially offset by higher restructuring at Aviation and legal reserves associated with the SEC investigation (see Note 19 for further information). These decreases were offset by $0.7 billion of higher net unrealized losses, primarily related to a $0.7 billion mark-to-market loss on our Baker Hughes shares in the third quarter of 2020, as compared to a $0.1 billion mark-to-market loss on our Baker Hughes shares in the third quarter of 2019. Corporate recognized $0.4 billion of non-cash impairment charges related to property, plant and equipment and intangible assets at our Steam business within our Power segment during the third quarter of 2020.
OperatingAdjusted corporate costs were down $28 million (9%) due to improvements in our functional costs and operations as GE Digital continues to optimize its cost structure, while EHS and other costs and eliminations remained relatively flat.
For the nine months ended September 30, 2020, revenues decreased $0.4by $0.6 billion, primarily as a result of:
$1.9of a $0.3 billion of higher gains fromdecrease in revenue due to 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:
$1.3Current and Lighting businesses in April 2019 and June 2020 respectively and $0.3 billion of higher restructuring and other charges drivenintersegment eliminations. Corporate costs decreased by a charge of $0.9$8.5 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:
$1.5due to $12.5 billion of lowerhigher net gains, primarily driven by the nonrecurrence of the sale of our AppliancesBioPharma business in the first quarter of 2020. Corporate costs also decreased by $0.8 billion due to Haier for $3.1
$1.5 billion inof goodwill impairment charges related to our Renewable Energy segment during the nine months ended September 30, 2019 as compared to $0.7 billion of net goodwill impairment charges related to our Aviation segment during the second quarter of 2016,2020. Restructuring and other charges were flat year over year, with lower restructuring and other charges at Corporate, partially offset by higher restructuring at Aviation and legal reserves associated with the saleSEC investigation. These decreases were partially offset by $4.6 billion of higher net unrealized losses, primarily related to a $4.6 billion mark-to-market impact on our Water business to Suez for $1.9Baker Hughes shares and a $0.1 billion impairment on our Ventures portfolio in the first nine months of 2020, as compared to a $0.1 billion mark-to-market impact on our Baker Hughes shares in the first nine months of 2019. Corporate recognized $0.4 billion of non-cash impairment charges related to property, plant and equipment and intangible assets at our Steam business within our Power segment during the third
quarter of 2017
2020.
*Non-GAAP Financial Measure
20172020 3Q FORM 10-Q 3317
|
| | | | | | | |
| MD&A | CORPORATE ITEMS AND ELIMINATIONS |
OperatingAdjusted total corporate operating costs* decreased by $0.3 billion, primarily due to $0.2 billion of cost reductions in our Digital business, $0.1 billion of lower costs increased $2.6associated with existing EHS matters and $0.1 billion primarilyof lower Corporate costs 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,restructuring and cost reduction actions. These decreases were partially offset by the sale$0.1 billion of higher intercompany elimination activity, primarily from project financing investments associated with wind energy projects in our Water businessRenewable Energy segment, higher GE industrial inter-segment eliminations, partially offset by lower spare engine sales from our Aviation segment to Suez for $1.9 billionGECAS business.
Although there were no significant impacts in the third quarter of 2017
$1.2 billion of higher restructuringrelated to COVID-19, potential future impacts at Corporate may include, but are not limited to, the increase in our long-term liabilities, primarily for pension and other chargescertain environmental obligations, or decrease in asset returns subject to interest rate changes, additional asset impairments driven by a charge of $0.9 billionoverall market conditions, and lower revenue in our Digital operations. See the Critical Accounting Estimates section for the impairment of Power Conversionfurther information on pension assumptions.
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. Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired.efforts. 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 certain other asset write-downs.write-downs such as those associated with product line exits. We will continue to closely monitor the economic environment, including the impacts of COVID-19, and mayexpect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Workforce reductions | $ | 122 | | $ | 88 | | | $ | 609 | | $ | 477 | |
| Plant closures & associated costs and other asset write-downs | 93 | | 194 | | | 201 | | 326 | |
| Acquisition/disposition net charges | 12 | | 40 | | | 57 | | 130 | |
| Other | 100 | | — | | | 100 | | (9) | |
| Total restructuring and other charges | $ | 326 | | $ | 322 | | | $ | 967 | | $ | 924 | |
| | | | | |
| Cost of product/services | $ | 111 | | $ | 69 | | | $ | 368 | | $ | 243 | |
| Selling, general and administrative expenses | 215 | | 253 | | | 599 | | 682 | |
| Total restructuring and other charges | $ | 326 | | $ | 322 | | | $ | 967 | | $ | 924 | |
| | | | | |
| Power | $ | 30 | | $ | 23 | | | $ | 147 | | $ | 158 | |
| Renewable Energy | 58 | | 60 | | | 141 | | 133 | |
| Aviation | 58 | | 2 | | | 300 | | 2 | |
| Healthcare | 25 | | 45 | | | 97 | | 143 | |
| Corporate | 155 | | 192 | | | 283 | | 489 | |
| Total restructuring and other charges | $ | 326 | | $ | 322 | | | $ | 967 | | $ | 924 | |
|
| | | | | | | | | | | | | | | |
| 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.
Forand $0.2 billion for the three months ended September 30, 2016, restructuring2020 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.2019, respectively. Cash expenditures for restructuring and other charges were approximately $0.5$0.8 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 restructuring2020 and other charges, $0.4 billion was recorded in the Oil & Gas segment, which amounted to $0.3 billion net of noncontrolling interest.2019, respectively.
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 AND GAINS NOT INCLUDED IN SEGMENT RESULTS
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 ofThese costs not included in segment results follows.relate primarily to restructuring, impairments and acquisition and disposition activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| Costs | Gains (Losses) | | Costs | Gains (Losses) |
| (In millions) | 2020 | 2019 | 2020 | 2019 | | 2020 | 2019 | 2020 | 2019 |
| Power | $ | 393 | | $ | 25 | | $ | 2 | | $ | (2) | | | $ | 488 | | $ | 154 | | $ | 49 | | $ | (3) | |
| Renewable Energy | 58 | | 799 | | — | | — | | | 141 | | 1,616 | | — | | — | |
| Aviation | 58 | | 2 | | 1 | | 15 | | | 1,013 | | 2 | | 14 | | (2) | |
| Healthcare | 25 | | 45 | | 21 | | 2 | | | 87 | | 143 | | 12,350 | | (1) | |
| Total segments | $ | 533 | | $ | 871 | | $ | 24 | | $ | 15 | | | $ | 1,728 | | $ | 1,915 | | $ | 12,413 | | $ | (7) | |
| Corporate Items & Eliminations | 154 | | 191 | | (665) | | (198) | | | 281 | | 484 | | (4,510) | | 35 | |
| Total Industrial | $ | 687 | | $ | 1,062 | | $ | (641) | | $ | (183) | | | $ | 2,009 | | $ | 2,399 | | $ | 7,904 | | $ | 28 | |
| | | | | | | | | |
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | | | | |
| 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
| | | | | | | | | | | | | | | | | |
| INTEREST AND OTHER FINANCIAL CHARGES | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| GE | $ | 313 | | $ | 791 | | | $ | 1,079 | | $ | 1,693 | |
| GE Capital | 486 | | 590 | | | 1,647 | | 1,913 | |
INCOME TAXES
The decrease in GE paysinterest and other financial charges for the income taxes it owes in every country it does business. Many factors impact our income taxthree months ended September 30, 2020 was primarily due to lower interest expense on debt driven by lower debt balances and cash tax payments. The most significant factor is that we conduct business in approximately 180 countries and more than halfthe nonrecurrence of our revenue is earned outside the U.S., often in countries with lower tax rates thana $0.3 billion loss related to debt repurchases in the U.S. We reinvest mostthird quarter of our foreign earnings overseas2019, as well as lower financing costs on sales of receivables. The decrease in GE interest and other financial charges for the nine months ended September 30, 2020, was primarily due to be ablelower interest expense on debt driven by lower debt balances and the nonrecurrence of a $0.3 billion loss related to fund our active non-U.S. business operations. Ourdebt repurchases in the third quarter of 2019, as well as lower financing costs on sales of receivables, partially offset by the nonrecurrence of the June 2019 reversal of accrued interest on tax liability is also affectedliabilities due to the completion of the 2012-2013 IRS audit. 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 $0.6 billion was recorded at Corporate and $0.1 billion and $0.2 billion was recorded by U.S.Industrial segments for the three months ended September 30, 2020 and foreign tax incentives designed to encourage certain investments, such as research2019, respectively, and development,$0.7 billion and $1.1 billion was recorded at Corporate and $0.3 billion and $0.6 billion was recorded by acquisitions, dispositionsIndustrial segments for the nine months ended September 30, 2020 and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised2019, respectively.
The decrease in these audits sometimes affect our tax rates.
GE and GE Capital fileinterest and other financial charges for the three months ended September 30, 2020 was primarily due to lower average borrowings balances due to maturities and debt purchases as well as lower average interest rates, partially offset by higher interest on assumed debt as a consolidated U.S. federal income tax return. This enablesresult of the repayments of intercompany loans by GE and(effectively transferring that interest cost back to GE Capital). The decrease in GE Capital to use tax deductionsinterest 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-Kother financial charges for the yearnine months ended December 31, 2016 for further informationSeptember 30, 2020 was primarily due to lower average borrowings balances due to maturities and debt purchases as well as lower average interest rates due to changes in market rates, partially offset by the loss resulting from the completion of tender offers to purchase debt, as well as higher interest on income taxes.assumed debt as described above.
CONSOLIDATED – THREE AND NINE MONTHS ENDED SEPTEMBERINCOME TAXES.
For the three months ended September 30,
(Dollars in billions)
|
|
PROVISION (BENEFIT) FOR INCOME TAXES |
2017 – 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
The 2020, the consolidated income tax rate was (23)30.2% compared to (3.3)% and 1% for the quartersthree months ended September 30, 2017 and 2016, respectively.
2019. The third quarter 2017 consolidated taxnegative rate for 2019 reflects a 128% tax rateexpense on $0.2 billion ofa pre-tax loss at GE Capital and a (4)% tax rate* on $1.7 billion of pre-tax income at GE.loss.
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 provision (benefit) for income taxes was $(0.5) billion for the three months ended September 30, 2020 and an insignificant amount in the three months ended September 30, 2019. Income tax was a benefit compared to a provision includesprimarily due to favorable effects of global activities including a $0.1 billion benefit and $0.2favorable impact on the carrying value of deferred tax assets due to a change in tax rate in the United Kingdom ($0.3) billion, expense for GE (excluding GE Capital) for the third quarters of 2017 and 2016, respectively.
Consolidated income tax benefit was $0.3 billionassociated with the mark-to-market loss recorded 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 activitiesremaining interest in Baker Hughes ($0.1) billion and a decrease in pre-tax income taxed at abovehigher benefit to adjust the averageyear-to-date 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.($0.1) billion.
*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 (benefit) includes $0.3$(0.1) billion and $1.0$0.2 billion for GE (excluding GE Capital) for the firstthree months ended September 30, 2020 and 2019, respectively.
For the nine months of 2017 and 2016, respectively.
Consolidatedended September 30, 2020, the consolidated income tax rate was (25.7)% compared to 0.2% for the nine months ended September 30, 2019. The negative rate for 2020 reflects a tax benefit on pre-tax income.
The consolidated provision (benefit) for income taxes was $0.3$(0.6) billion for the first nine months of 2017 compared to tax expense of $0.3 billionended September 30, 2020 and an insignificant amount for the first nine months of 2016.ended September 30, 2019. The decreaseincrease in tax expense isbenefit was primarily due to the decrease in pre-tax income taxed at aboveexcluding the averagegain from the sale of our BioPharma business and non-deductible goodwill impairment charges ($1.9 billion) partially offset by the tax rate, a larger benefit from global activities and the benefit from a lower tax rate onexpense associated with the disposition of the Water business. This decrease was partially offset byBioPharma business excluding the adjustment to increase the 2017 year-to-date rate to be in-line with the higher projected full-year rate compared to the decreaseamount recognized on preparatory steps 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.2019 ($1.1 billion).
The effectiveconsolidated tax rate in future periods is expected to increase as a result of changes in our income profile due to changes inprovision (benefit) includes an insignificant amount and $0.3 billion for GE Capital earnings as we continue to execute on the(excluding GE Capital Exit Plan. We expect the GE effective tax rate excluding GE Capital earnings to be in the low single digitsCapital) for the full year of 2017.nine months ended September 30, 2020 and 2019, respectively.
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
OPERATIONS. Discontinued operations primarily relate toinclude our financial servicesBaker Hughes and Transportation segments, and certain businesses as a result of thein our GE Capital Exit Plansegment (our mortgage portfolio in Poland and includestrailing liabilities associated with the sale of our U.S. mortgage business (WMC)GE Capital businesses). All of these operations were previously reported in the Capital segment.
See Notes 2 and 1819 for further financial information regarding our businesses in discontinued operations.
The mortgage portfolio in Poland (Bank BPH) comprises floating rate residential mortgages, 87% of which are indexed to or denominated in foreign currencies (primarily Swiss francs). At September 30, 2020, the consolidated financial statements for additional informationtotal portfolio had a carrying value of $2.5 billion with a 1.53% 90-day delinquency rate and an average loan to value ratio of approximately 67.0%. The portfolio is recorded at the lower of cost or fair value, less cost to sell, which reflects market yields as well as our best estimate of the effects of ongoing litigation in Poland related to discontinued operations.foreign currency-denominated mortgages. Future changes in the economic impact of COVID-19, market yields or changes in estimated legal liabilities could result in further losses related to these loans in future reporting periods.
*Non-GAAP Financial Measure
20172020 3Q FORM 10-Q 3719
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| 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.
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MD&A | FINANCIALCAPITAL RESOURCES AND LIQUIDITY |
FINANCIALCAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY. We intend to maintain a disciplined financial policy, including maintaining a high cash balance. We are targeting a sustainable long-term credit rating in the Single-A range, achieving a GE Industrial net debt*-to-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. In addition to net debt*-to-EBITDA, we also evaluate other leverage measures, including gross debt-to-EBITDA, and we will ultimately size our deleveraging actions across a range of measures to ensure we are operating the Company based on a strong balance sheet. We intend to continue to decrease our leverage over time as we navigate this period of uncertainty, although we now expect to achieve our targets over time.
LIQUIDITY AND BORROWINGS
POLICY. We maintain a strong focus on liquidity.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. We intend to maintain a high level of cash and maximize flexibility as we navigate the current environment. 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 ouras well as capital allocation and growth objectives, including paying dividends, repurchasing shares, investingthroughout business cycles.
We believe that our consolidated liquidity and availability under our revolving credit facilities will be sufficient to meet our liquidity needs.
CONSOLIDATED LIQUIDITY. Following is a summary of cash, cash equivalents and restricted cash at September 30, 2020.
| | | | | | | | | | | | | | |
| (In millions) | September 30, 2020 | | | September 30, 2020 |
| GE | $ | 24,337 | | | U.S. | $ | 21,211 | |
| GE Capital | 14,825 | | | Non-U.S. | 17,951 | |
| Consolidated | $ | 39,162 | | | Consolidated | $ | 39,162 | |
Cash held in researchnon-U.S. 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, developmentif there is a change in reinvestment, we would expect to be able to repatriate available 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 LIQUIDITY. GE's primary sources of liquidity consist of cash and acquiring industrial businesses. At GE, we rely primarily on cash generated throughequivalents, free cash flows from our operating activitiesbusinesses, monetization of receivables, proceeds from dispositions, and any dividend payments from GE Capital.short-term borrowing facilities, including revolving credit facilities. Cash generated from operating activities at GEgeneration can be subject to variability based on many factors, including seasonality, andreceipt of down payments on large equipment orders, timing of billings on long-term contracts. contracts, market conditions and our ability to execute dispositions. Additionally, as previously reported, we launched a program in the third quarter of 2020 to fully monetize our Baker Hughes position over approximately three years. Consistent with the program’s design, we received initial proceeds of approximately $0.4 billion in October 2020.See Note 21 for further information.
GE hascash, cash equivalents and restricted cash totaled $24.3 billion at September 30, 2020, including $2.3 billion of cash held in countries with currency control restrictions and $0.8 billion of restricted use cash. Cash held in countries with currency controls represents amounts 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. Restricted use cash represents amounts that are not available to fund operations, and primarily comprised collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
GE plans to provide a varietycapital contribution to GE Capital in the fourth quarter of 2020 of approximately $2.0 billion, in line with the first quarter 2020 insurance statutory funding. Capital contributions to GE Capital are determined by considering various metrics, including our internal economic capital framework. In 2021, GE expects to provide an additional contribution to GE Capital to meet the 2021 insurance statutory funding requirement of approximately $2.0 billion. Further capital contributions will depend on GE Capital’s performance, including GECAS operations and the Insurance statutory asset adequacy testing results, in light of the uncertain environment.
GE CAPITAL LIQUIDITY. GE Capital’s primary sources of liquidity management tools to fund its operations, including a commercial paper program,consist of cash and cash equivalents, cash generated from asset sales and cash flows from our businesses, as well as bank operating linesGE repayments of intercompany loans and short-termcapital contributions from GE. We expect to maintain a sufficient liquidity position to fund our insurance obligations and debt maturities. See the Segment Operations - Capital section for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.
GE Capital cash, cash equivalents and restricted cash totaled $14.8 billion at September 30, 2020, including $0.9 billion, which was subject to regulatory restrictions, primarily in insurance entities.
GE Capital provided capital contributions to its insurance subsidiaries of $2.0 billion, $1.9 billion and $3.5 billion in the first quarters of 2020, 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $7 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. We will continue to monitor the interest rate environment, including the impact of reinvestment rates and our investment portfolio performance, and other factors in determining the related effect on our expected future capital contributions. See the Critical Accounting Estimates section for discussion of the sensitivity of interest rate changes to our insurance liabilities. 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 liquidity, GE Capital asset sales, GE Capital future earnings and capital contributions from GE.
*Non-GAAP Financial Measure
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
BORROWINGS. Consolidated total borrowings were $79.5 billion and $90.9 billion at September 30, 2020 and December 31, 2019, respectively, a decrease of $11.4 billion ($11.7 billion excluding intercompany eliminations). See the following table for a summary of GE and GE Capital borrowings.
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GE (In millions) | September 30, 2020 | December 31, 2019 | | GE Capital (In millions) | September 30, 2020 | December 31, 2019 |
| Commercial paper | $ | — | | $ | 3,008 | | | Senior and subordinated notes | $ | 34,391 | | $ | 36,501 | |
| GE senior notes | 18,820 | | 15,488 | | | Senior and subordinated notes assumed by GE | 24,134 | | 31,368 | |
Intercompany loans from
GE Capital | 4,726 | | 12,226 | | | Intercompany loans to GE | (4,726) | | (12,226) | |
| Other GE borrowings | 1,305 | | 2,195 | | | Other GE Capital borrowings | 1,589 | | 3,358 | |
| Total GE | | | | Total GE Capital | | |
| adjusted borrowings(a) | $ | 24,851 | | $ | 32,917 | | | adjusted borrowings(a)(b) | $ | 55,387 | | $ | 59,001 | |
(a) Consolidated total borrowings of $79.5 billion and $90.9 billion at September 30, 2020 and December 31, 2019, respectively, are
net of intercompany eliminations of $0.8 billion and $1.0 billion, respectively, of other GE borrowings from GE Capital, primarily
related to timing of cash settlements associated with GE receivables monetization programs.
(b) Included $6.2 billion and $4.2 billion at September 30, 2020 and December 31, 2019, respectively, of fair value adjustments for debt
in fair value hedge relationships.
The reduction in GE adjusted borrowings at September 30, 2020 compared to December 31, 2019, was driven primarily by $7.5 billion of repayments of intercompany loans from GE Capital, which are repaid withindebt repurchases of $4.2 billion, lower commercial paper of $3.0 billion (including a reduction of $0.5 billion in the same quarter.third quarter of 2020), and net repayments and maturities of other debt of $1.2 billion, partially offset by issuances of new long-term debt of $7.5 billion and $0.4 billion related to changes in foreign exchange rates.
We maintain a detailed liquidity policy forThe reduction in GE Capital that definesadjusted borrowings at September 30, 2020 compared to December 31, 2019, was driven primarily by debt
repurchases of $9.8 billion, debt maturities of $7.7 billion (including $2.3 billion in the third quarter of 2020) and lower nonrecourse borrowings of $1.2 billion, partially offset by repayments of intercompany loans from 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,of $7.5 billion (which has the effect of increasing 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 portionborrowings), issuances of new long-term debt ($15.6of $6.0 billion, and $2.0 billion of fair value adjustments for debt in fair value hedge relationships.
GE Industrial net debt* was $34.6 billion and $47.9 billion at September 30, 2017),2020 and our operatingDecember 31, 2019, respectively. The reduction was driven primarily by $7.5 billion of repayments of intercompany loans from GE Capital, an increase in the net cash deduction of $5.0 billion due to a higher cash balance, the repurchase of $4.2 billion of debt, a reduction in commercial paper of $3.0 billion and interest costs. GE Capital's liquidity position is targeted to meet its obligations under both normalnet repayments 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 ourmaturities of other 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$1.2 billion, partially offset by new issuances of new long-term debt primarilyof $7.5 billion and $0.4 billion related to fund acquisitionschanges in foreign exchange rates.
The following table provides a reconciliation of total short- 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 inborrowings as reported on the external debt markets,respective GE 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 becauseStatements of Financial Position to borrowings adjusted for assumed debt and intercompany loans:
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September 30, 2020 (In millions) | GE | GE Capital | Consolidated |
| Total short- and long-term borrowings | $ | 44,258 | | $ | 35,980 | | $ | 79,463 | |
| | | |
| Debt assumed by GE from GE Capital(a) | (24,134) | | 24,134 | | — | |
| Intercompany loans with right of offset(a) | 4,726 | | (4,726) | | — | |
| Total intercompany payable (receivable) between GE and GE Capital | (19,407) | | 19,407 | | — | |
| | | |
| Total borrowings adjusted for assumed debt and intercompany loans | $ | 24,851 | | $ | 55,387 | | $ | 79,463 | |
(a) See the Capital Resources and Liquidity section of our Annual Report on Form 10-K for the year ended December 31, 2019 for further details on assumed debt and intercompany loans with right of offset.
The intercompany loans from GE Capital is holding excess debt as a resultto GE bear the right of theoffset against amounts owed by GE Capital Exit Plan. Theto GE under the assumed debt transactions withagreement and can be prepaid by GE Capital wereat any time, in whole or in part, without premium or penalty. These loans are priced at marketsmarket terms withand have a collective weighted average interest rate of 3.5%3.4% 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 ofapproximately 12.4 years at September 30, 2017, the amount of assumed outstanding debt was $49.9 billion (see Note 10 to the consolidated financial statements for additional information).2020.
GE has in place committed revolving credit lines. The following table illustrates total GEprovides a summary of committed and GE Capital external debt and debt assumed by GE as of September 30, 2017.available credit lines.
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GE COMMITTED AND AVAILABLE REVOLVING CREDIT FACILITIES (In millions) | September 30, 2020 | December 31, 2019 |
| Unused back-up revolving syndicated credit facility | $ | 15,000 | | $ | 20,000 | |
| Unused revolving syndicated credit facility | — | | 14,772 | |
| Bilateral revolving credit facilities | 5,213 | | 7,225 | |
| Total committed revolving credit facilities | $ | 20,213 | | $ | 41,997 | |
| Less offset provisions | — | | 6,700 | |
| Total net available revolving credit facilities | $ | 20,213 | | $ | 35,297 | |
*Non-GAAP Financial Measure
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| 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.
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| MD&A | FINANCIALCAPITAL RESOURCES AND LIQUIDITY |
LIQUIDITY SOURCES
GE cash and equivalentsUnder the terms of $12.8 billion at September 30, 2017, comprising $8.0 billion at GE and $4.8 billion at BHGE.an agreement between 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 thesethe $15.0 billion unused back-up revolving syndicated credit lines andfacility. Under this agreement, GE would transfer the proceeds as loans to GE Capital.
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| 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 |
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(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. |
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(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. |
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(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. |
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| 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 |
|
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.
The following table provides a summary of the activity in the primary external sources of short-term borrowings for GE in the third quarters of 2020 and 2019. GE uses its bilateral revolving credit facilities from time to time to meet its short-term liquidity needs.
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| | |
| (In millions) | GE Commercial Paper | Bilateral Revolving Credit Facilities | Total |
| | | | |
| 2020 | Average borrowings during the third quarter | $ | 463 | | $ | 508 | | $ | 971 | |
| Maximum borrowings outstanding during the third quarter | 508 | | 1,094 | | 1,601 | |
| Ending balance at September 30 | — | | — | | — | |
| | | | |
| 2019 | Average borrowings during the third quarter | $ | 2,952 | | $ | 1,314 | | $ | 4,266 | |
| Maximum borrowings outstanding during the third quarter | 3,112 | | 1,900 | | 4,924 | |
| Ending balance at September 30 | 2,985 | | — | | 2,985 | |
In the third quarter of 2020, we reduced our ending commercial paper maturities have historically been funded principally through newbalance to zero. Total average and maximum borrowings in the table above are calculated based on the daily outstanding balance of the sum of 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.revolving credit facilities.
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.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
CREDIT RATINGS
AND CONDITIONS. We have relied, and may continue to rely, on the short-termshort- and long-term debt capital markets to fund, among other things, a significant portion of our operations and significant acquisitions.operations. The cost and availability of debt financing is influenced by our credit ratings.
On October 20, 2017, Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P) placed all of its, and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and their affiliates on CreditWatch, with negative implications. S&P stated it will be conducting a reviewlong-term debt. The credit ratings of these ratingsGE 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.as of the date of this filing are set forth in the table below.
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| | Moody's | S&P | Fitch |
| GE | Outlook | Negative | Negative | Stable |
| Short term | P-2 | A-2 | F3 |
| Long term | Baa1 | BBB+ | BBB |
| | | | |
| GE Capital | Outlook | Negative | Negative | Stable |
| Short term | P-2 | A-2 | F3 |
| Long term | Baa1 | BBB+ | BBB |
We are disclosing our credit ratings and any current quarter updates to 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.funds and access to liquidity. 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, 2016 under “Risk Factors - Financial Risks - Funding access/costs - Failure2019.
The following table provides a summary of the estimated potential liquidity impact in the event of further downgrades with regards to maintain ourthe most significant contractual 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.
Company based on their proximity to our current ratings. |
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| (In millions) | Moody'sTriggers Below | S&P | FitchAt September 30, 2020 |
| Derivatives | | | |
GETerminations | BBB/Baa2 | $ | (277) | |
OutlookCash margin posting | StableBBB/Baa2 | CreditWatch Negative(217) | Negative
|
Short termReceivables Sales Programs | P-1 | A-1+ | F1+ |
Long termLoss of cash commingling | A1A-3/P-3 | AA-$ | AA-(129) | |
| Alternative funding sources | A-2/P-2 | (306) | |
GE CapitalSurety bond cash collateral posting | BBB-/Baa3 | $ | |
Outlook(843) | Stable | CreditWatch Negative
| Negative
|
Commercial paper | P-1 | A-1+ | F1+ |
Senior notes | A1 | AA- | AA- |
The timing within the quarter of the potential liquidity impact of these areas may differ, as described in the following sections, which provide additional details regarding the significant credit rating conditions of the Company.
DEBT CONDITIONS. Substantially all debt agreements in place at September 30, 2020 do not contain material credit rating covenants. GE’s unused back-up revolving syndicated credit facility and certain of our bilateral revolving credit facilities contain a customary net debt-to-EBITDA financial covenant, which GE satisfied at September 30, 2020.
201722 2020 3Q FORM 10-Q41
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| MD&A | FINANCIALCAPITAL 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 September 30, 2020. This excludes exposure related to embedded derivatives, which are not subject to these provisions.
STATEMENT OF CASH FLOWS - NINE MONTHS ENDED SEPTEMBERIn 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 September 30, 2017 VERSUS 20162020, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.2 billion.
CONSOLIDATED CASH FLOWSSee Note 17 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 under one of our receivable sales programs, 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-3/P-3 (this program does not contain any Fitch ratings requirements). 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 $0.1 billion to GE intra-quarter liquidity during the third quarter of 2020.
We evaluatehave relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. In the event our short-term credit ratings were to fall below certain levels, we would not be permitted to commingle certain cash flow performance by reviewing our industrial (non-GE Capital) businesses andreceived related to sales of receivables at the end of the quarter. The Fitch downgrade in the second quarter of 2020 resulted in GE classifying $0.3 billion as restricted cash at September 30, 2020. The amount of cash that GE Capital businesses separately. Cash from operating activities (CFOA) iswould have been required to classify as restricted cash if our credit ratings had fallen below A-2/P-2 was approximately $0.3 billion at September 30, 2020.
In conjunction with ordinary course commercial transactions and certain regulatory requirements, the principal sourceCompany may periodically enter into agreements that require us to post surety bonds to counterparties. In the first quarter of 2020, we entered into amendments to our agreements with certain of our surety bond providers that may require us to post cash collateral in the event our credit ratings were to fall below BBB-/Baa3. At September 30, 2020, the maximum amount of cash generationcollateral we could be required to post if we fell below these levels was approximately $0.8 billion.
FOREIGN EXCHANGE. 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 nine months ended September 30, 2020, and less than $0.1 billion for the three and nine months ended September 30, 2019. This analysis excludes any offsetting effect from the forecasted future transactions that are economically hedged.
See Note 17 for further information about our industrial businesses.risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
GE
STATEMENT OF CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30, 2020 VERSUS 2019. We manage the cash flow performance of our industrial and financial services businesses separately, in order to enable us and our investors to evaluate the cash from operating activities of our industrial businesses separately from the cash flows of our financial services business.
(in billions)
With respect toSee the Intercompany Transactions between GE CFOA, we believe that it is useful to supplementand GE Capital section and Notes 4 and 20 for further information regarding certain transactions affecting our GEconsolidated Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.Flows.
GE CASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in GE CFOA is from 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, contribute to post retirement plans and pay others for a wide range of material, services 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.taxes.
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.
2020 3Q FORM 10-Q 23
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.
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| MD&A | FINANCIALCAPITAL RESOURCES AND LIQUIDITY |
2017 – 2016 COMMENTARY
GE cash fromused for operating activities decreased $14.3 was $3.2 billion in 2020, an increase of $3.3 billion compared with 2019, primarily due to: a general decrease in net income (after adjusting for the gain on the sale of BioPharma and non-cash losses related to our interest in Baker Hughes), primarily due to the following:
GE Capital paid common dividends to GE totaling $4.0 billionCOVID-19 impacts in 2017 compared with $16.1 billion in 2016.
Cash generated from Industrial CFOA* amounted toour Aviation segment; 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 decreaseincrease in cash used for working capital of $0.1$0.6 billion; and an increase in cash paid for income taxes of $0.5 billion; partially offset by changes in contract and other deferred assets of $0.9 billion, in 2017 compared with 2016. This was primarily due to a reductionnet unfavorable change in inventory buildestimated profitability of $1.1$0.9 billion partially offset byat Aviation (See Note 10); and an increase in cash from All other operating activities of $0.8 billion (primarily due to an increase in equipment project cost accruals of $0.3 billion and an increase in deferred income of $0.3 billion). Increases in Aviation-related customer allowance accruals (which is a component of All other operating activities) of $0.8 billion remained relatively flat compared with 2019.
We utilized the provision of the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) which allows employers to defer the payment of Social Security taxes and, as a result, we deferred $0.2 billion as of September 30, 2020.
The increase in cash used for working capital was due to: an increase in cash used for accounts payable of $0.9$3.5 billion, across all businesses.
An increasewhich was primarily as a result of lower volume in contract assets2020 and disbursements related to purchases of $4.0materials in prior periods; and higher net liquidations of progress collections of $1.2 billion, which included a partial offset due to early payments received at our Aviation Military equipment business of $0.7 billion in 2017 compared with $3.02020 as part of the U.S. Department of Defense's efforts to support vendors in its supply chain during the pandemic. These increases in cash used for working capital were partially offset by a decrease in cash used for current receivables of $2.3 billion, in 2016,which was primarily due to cumulative catch up adjustments driven by lower forecasted costvolume; and a decrease in cash used for inventories of $1.7 billion, which was primarily driven by lower material purchases, partially offset by lower liquidations.
GE cash from investing activities was $19.3 billion in 2020, an increase of $12.4 billion compared with 2019, primarily due to: net proceeds from the sale of our BioPharma business of $20.3 billion; the nonrecurrence of a capital contribution from GE to completeGE Capital of $1.5 billion in 2019; partially offset by the contracts as well as increased forecasted revenue onnonrecurrences of proceeds from the spin-off of our long-term service agreementsTransportation business of $6.2 million (including the sale of our retained ownership interests in Wabtec) and the timingsale of revenue recognized relativea portion of our stake in Baker Hughes of $3.0 billion. Cash used for additions to the timingproperty, plant and equipment and internal-use software, which is a component of billings and collections on both our long-term service agreements and long-term equipment contracts.
GE Pension Plan contributions ofIndustrial free cash flows*, was $1.4 billion in 20172020, down $0.4 billion compared with zero in 2016.2019.
Lower taxes paid of $1.8
GE cash used for financing activities was $9.4 billion in 20172020, an increase of $2.4 billion compared with $2.32019, primarily due to: higher repayments of intercompany loans from GE Capital to GE of $7.0 billion; a reduction in commercial paper of $3.0 billion; lower repurchases of long-term debt of $0.6 billion; partially offset by new principal issuances of long-term debt of $7.5 billion in 2016.the second quarter of 2020.
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 FLOWS FROM DISCONTINUED OPERATIONS. GE cash used for investing activities increased $8.1 billion in 2019 was primarily due to the following:
Business acquisition activitiesdeconsolidation of $6.1 billion, primarily driven by the Baker Hughes transaction for $3.4 billion ($7.5 billion cash consideration, less $4.1 billionas a result of cash assumed), LM Wind Power for $1.6 billion (netthe reduction in our ownership interest in the segment in the third quarter 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.
2019. GE cash fromused for financing activities increased $23.9 billionin 2019 primarily duereflects payments of Baker Hughes dividends to the following:noncontrolling interests.
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
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE CAPITAL CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
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2017 – 2016 COMMENTARY-CONTINUING OPERATIONS:
FROM CONTINUING OPERATIONS. GE Capital cash from operating activities-continuing operations increased $0.2activities was $2.4 billion in 2020, an increase of $1.1 billion compared with 2019, primarily due to: a net increase in cash collateral received (standard market practice to the following:
Lower income tax paymentsminimize derivative counterparty exposures) and settlements paid on derivative contracts of $0.2$0.7 billion and a general increase in cash generated from earnings of(loss) from continuing operations.
These increases wereoperations; partially offset by a net decreasean increase in cash collateral received from counterparties on derivative contractstrade receivables due to short-term extensions of $0.8 billion.payment terms to customers of $0.3 billion driven primarily by COVID-19 and other market related effects.
GE Capital cash from investing activities-continuing operations decreased $38.7activities was $7.5 billion in 2020, an increase of $4.8 billion compared with 2019, primarily due to: the repayment of GE Capital intercompany loans by GE of $7.0 billion and an increase in cash received related to the following:
Net proceeds from the sales ofnet settlements between our continuing operations (primarily our Corporate function) and businesses in discontinued operations (primarily WMC) 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,$1.9 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 netlower collections of financing receivables of $3.1$2.7 billion, in 2017.a decrease of GECAS sales deposits of $0.8 billion primarily driven by COVID-19 and other market related effects and lower net sales of equity investments $0.5 billion.
A general reduction in funding related to discontinued operations.
GE Capital cash used for financing activities-continuing operations decreased $45.3activities was $13.9 billion in 2020, an increase of $6.6 billion compared with 2019, primarily due to the following:
Lowerto: higher net repayments of borrowings of $17.6$5.8 billion in 2017 comparedand the nonrecurrence of a capital contribution from GE to $50.7 billion in 2016.
GE Capital paid common dividendsin 2019 of $1.5 billion; partially offset by lower cash settlements on derivatives hedging foreign currency debt of $0.9 billion.
GE WORKING CAPITAL TRANSACTIONS. Sales of Receivables. In order to manage short-term liquidity and credit exposure, GE may sell current customer receivables to GE totaling $4.0Capital 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 for further information.
Supply Chain Finance Programs. GE facilitates voluntary supply chain finance programs with third parties, which provide participating GE suppliers the opportunity to sell their GE receivables to third parties at the sole discretion of both the suppliers and the third parties.
At September 30, 2020 and December 31, 2019, included in GE's accounts payable was $2.5 billion and $2.4 billion, respectively, of supplier invoices that are subject to the third-party programs. Total GE supplier invoices paid through these third-party programs were $3.8 billion and $0.9 billion for the nine months ended September 30, 2020 and 2019, respectively.
The GE liability associated with the funded participation in 2017 comparedthe GE Capital program is presented as accounts payable and amounted to $16.1$0.3 billion in 2016.and $2.1 billion at September 30, 2020 and December 31, 2019, respectively.
*Non-GAAP Financial Measure
44 201724 2020 3Q FORM 10-Q
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| MD&A | FINANCIALCAPITAL RESOURCES AND LIQUIDITY |
GE CAPITAL DISCONTINUED OPERATIONS CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
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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.
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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 closelyCAPITAL. Transactions between 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 thatcompanies are made on an arms-length basisarm's length terms and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in derivingwhich we believe provide useful supplemental information to 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 statements20 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.Capital Finance Transactions. During the nine months ended September 30, 20172020 and 2016,2019, GE Capital enabled $8.8acquired from third parties eight aircraft with a list price totaling $0.8 billion and $8.239 aircraft with a list price totaling $5.0 billion, respectively, that will be leased to others and are powered by engines manufactured by GE Aviation and affiliates. GE Capital also made payments to GE Aviation and affiliates related to spare engines and engine parts of GE industrial orders, respectively. 2017 orders are primarily with our Power ($3.3 billion), Renewable Energy ($3.3 billion), Healthcare ($1.0 billion)$0.2 billion and Oil & Gas ($0.7 billion) businesses.
AVIATION
During$0.3 billion, which included $0.1 billion and $0.3 billion to CFM International during the nine months ended September 30, 20172020 and 2016, GE Capital acquired 34 aircraft (list price totaling $4.6 billion) and 32 aircraft (list price totaling $4.7 billion), respectively, from third parties that will be leased to others, which are powered by engines that were manufactured by GE Aviation and affiliates.2019, respectively. Additionally, GE Capital had $1.5$2.1 billion and $2.0 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 September 30, 20172020 and December 31, 2016,2019, respectively.
POWER, RENEWABLE ENERGY AND AVIATION
GE leverages GE Capital for its expertise There were two spare engine sales from our Aviation segment to our GECAS business in structuring long-term financing arrangements with certain Power, 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 by GE Capital is eliminated in our consolidated results. In relation 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 atthree months ended 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 billion in2020.
Also, during the nine months ended September 30, 20172020 and 2016, respectively.
PENSIONS
2019, GE recognized equipment revenues of $1.9 billion and $1.0 billion, respectively, from customers within our Power and Renewable Energy segments in which GE Capital is a member of certain GE Pension Plans. As a result ofan investee or is committed to be an investee in 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.underlying projects.
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 and asset value guarantees and loss pool arrangements.guarantees. As of September 30, 2017,2020, GE had outstanding guarantees to GE Capital on $1.5$0.9 billion of funded exposure and $1.2$0.5 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 September 30, 20172020 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.
ESTIMATES.Please refer to the Critical Accounting Estimates section 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,for the year ended December 31, 2019, and Other Items within MD&A for a further discussion of our accounting policies and the critical accounting estimatesestimates. COVID-19 related market events may have an effect on our Insurance business and pension assumptions.
PENSION ASSUMPTIONS. As discussed in Critical Accounting Estimates in our Annual Report on Form 10-K for the year ended December 31, 2019, our defined benefit pension plans are accounted for on an actuarial basis and measured annually. During the first nine months of 2020, financial markets and interest rates have experienced volatility, which could result in a change in the discount rate used to measure our pension benefit obligation or our pension assets may realize less than our expected long-term rate of return, either of which could result in a material change in the funded status of our pension plans when we use to: recognize revenuemeasure them at December 31, 2020. Our discount rate is determined using the weighted average of market-observed yields for high-quality fixed income securities with maturities that correspond to the payments of benefits and while benchmark interest rates in the U.S. have been lowered credit spreads on long-term product services agreements; assesshigh-quality fixed incomes securities have widened.
As disclosed in our Annual Report on Form 10-K for the recoverability ofyear ended December 31, 2019, changes in key assumptions for our principal pension plans would have the following effects.
•Discount rate - A 25 basis point decrease in the discount rate would increase pension cost in the following year by about $0.2 billion and would increase the pension benefit obligation by about $2.3 billion.
•Expected return on assets such as financing receivables and goodwill; determine- A 50 basis point decrease in the fair value of financial assets; and determine our provision for income taxes and recoverability of deferred tax assets.expected return on assets would increase pension cost in the following year by about $0.3 billion.
INSURANCE AND INVESTMENT CONTRACT LIABILITIES
OTHER ITEMS
Insurance and investment contract liabilities amounted to $26.6 billion and $26.1 billion atINSURANCE. At September 30, 20172020, our insurance liabilities and December 31, 2016, respectivelyannuity benefits of $41.5 billion were primarily supported by investment securities of $41.2 billion and commercial mortgage loans of $1.9 billion, net of their allowance for losses, respectively. The insurance liabilities and annuity benefits primarily comprise a liability for future policy benefits for those insurance contract 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
For additional information, see Note 12 to reinsurers were $2.2 billionthe consolidated financial statements and $2.0 billion at September 30, 2017 andOther Items - Insurance in our Annual Report on Form 10-K for the year ended December 31, 2016, respectively2019.
Critical Accounting Estimates. Our insurance reserves include the following key accounting estimates and are includedassumptions described below.
Future policy benefit reserves. Future policy benefit reserves represent the present value of future policy benefits less the present value of future gross premiums based on actuarial assumptions including, but not limited to, morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates); morbidity improvement (i.e., assumed rate of improvement in morbidity in the caption “Other receivables”future); mortality (i.e., life expectancy or longevity); mortality improvement (i.e., assumed rate that mortality is expected to reduce over time); policyholder persistency or lapses (i.e., the length of time a policy will remain in force); anticipated premium increases or benefit reductions associated with future in-force rate actions, including actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated 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 tofuture filings through 2028, on long-term care insurance contracts aspolicies; and interest rates. Assumptions are locked-in throughout the remaining life of September 30, 2017 and December 31, 2016, respectively.a contract unless a premium deficiency develops.
Claim reserves. Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the present value of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims,claim, such as the benefits available and cause of disability of the claimant,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 earnings in the period in which they are determined.
FutureReinsurance recoverables. We cede insurance risk to third-party reinsurers for a portion of our insurance contracts, primarily on long-term care insurance policies, and record receivables for estimated recoveries as we are not relieved from our primary obligation to policyholders or cedents. These receivables are estimated in a manner consistent with the future policy benefit reserves amountedand claim reserves. Reserves ceded to $19.2reinsurers, net of allowance, were $2.5 billion and $18.7$2.4 billion of which $9.0 billion and $8.7 billion relates to long-term care insurance contracts at September 30, 20172020 and December 31, 2016, respectively. These reserves represent the present value of such benefits less the present value of future net premiums2019, respectively, and are based on actuarial assumptions established atincluded in the timecaption Other GE Capital receivables in our consolidated Statement of Financial Position.
Premium Deficiency Testing. We annually perform premium deficiency testing in 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, andthird quarter in the length of time a policy will remain in force. Our annualaggregate across our run-off insurance portfolio. The premium deficiency testing assesses the adequacy of future policy benefit reserves, net of unamortized 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 experienceassumptions without provision 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.
adverse deviation. 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 comprisesoperations consists of reinsurance from multiple ceding insurance entities with underlyingpursuant to treaties having uniquecomplex terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers each of the unique treaties.reinsurance treaties and underlying policies. 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 offrom the operating environment at ceding entities. Our long-term care insurance business includes coverage where credible claim experience for higher attained ages is still emerging, and to the extent that recentfuture experience deviates from previouscurrent expectations, new projections of claim costs extending over the expected life of the policies require development.may be required. Significant uncertainties exist in making these best estimate projections for these long-durationlong-term care insurance contracts, which requires that includes consideration ofwe consider a wide range of possible outcomes as well as actuarial peer reviews before a final determination can be made.outcomes.
ShouldThe primary assumptions used in the net liability forpremium deficiency tests include:
Morbidity. Morbidity assumptions used in estimating future policy benefit reserves are based on estimates of expected incidences of disability among policyholders and the costs associated with these policyholders asserting claims under their contracts, and these estimates account for any expected future morbidity improvement. For long-term care exposures, estimating expected future costs includes assessments of incidence (probability of a claim), utilization (amount of available benefits plusexpected to be incurred) and continuance (how long the claim will last). Prior to 2017, premium deficiency assumptions considered the risk of anti-selection by including issue age adjustments to morbidity based on an actuarial assumption that long-term care policies issued to younger individuals would exhibit lower expected incidences and claim costs than those issued to older policyholders. Recent claim experience and the development of reconstructed claim cost curves indicated issue age differences had minimal impact on claim cost projections, and, accordingly, beginning in 2017, issue age adjustments were eliminated in developing morbidity assumptions. Higher morbidity increases, while lower morbidity decreases, the present value of expected future gross premiums be insufficientbenefit payments.
Rate of Change in Morbidity. Our annual premium deficiency testing incorporates our best estimates of projected future changes in the morbidity rates reflected in our base claim cost curves. These estimates draw upon a number of inputs, some of which are subjective, and all of which are interpreted and applied in the exercise of professional actuarial judgment in the context of the characteristics specific to provideour portfolios. This exercise of judgment considers factors such as the work performed by internal and external independent actuarial experts engaged to advise us in our annual testing, the observed actual experience in our portfolios measured against our base projections, industry developments, and other trends, including advances in the state of medical care and health-care technology development. With respect to industry developments, we take into account that there are differences between and among industry peers in portfolio characteristics (such as demographic features of the insured populations), the aggregate effect of morbidity improvement or deterioration as applied to base claim cost projections, the extent to which such base cost projections reflect the most current experience, and the accepted diversity of practice in actuarial professional judgment. We assess the potential for any change in morbidity with reference to our existing base claim cost projections, reconstructed in 2017. Projected improvement or deterioration in morbidity can have a material impact on our future claim cost projections, both on a stand-alone basis and also by virtue of influencing other variables such as discount rate and premium rate increases.
Mortality. Mortality assumptions used in estimating future policy benefit reserves are based on published mortality tables as adjusted for the results of our experience studies and estimates of expected future mortality improvement. For life insurance products, higher mortality increases the present value of expected future benefit payments, while for annuity and long-term care insurance contracts, higher mortality decreases the present value of expected future benefit payments.
Discount rate. Interest rate assumptions used in estimating the present value of future policy benefitsbenefit reserves are based on expected investment yields, net of related investment expenses and expenses,expected defaults. In estimating future investment yields, we consider the actual yields on our current investment securities held by our run-off insurance operations and the future rates at which we expect to reinvest any proceeds from investment security maturities, net of other operating cash flows, and the projected future capital contributions into our run-off insurance operations. Lower future investment yields result in a lower discount rate and a higher present value of future policy benefit reserves.
Future long-term care premium rate increases. As a reinsurer, we rely upon the primary insurers that issued the underlying policies to file proposed premium rate increases on those policies with the relevant state insurance regulators. While we have no direct ability to seek or to institute such premium rate increases, we often collaborate with the primary insurers in accordance with reinsurance contractual terms to file proposed premium rate increases. We consider recent experience of rate increase filings made by our ceding companies along with state insurance regulatory processes and precedents in establishing our current expectations. Higher future premium rate increases lower the present value of future policy benefit reserves and lower future premium rate increases increase the present value of future policy benefit reserves.
Terminations. Terminations refers to the rate at which the underlying policies are cancelled due to either mortality, lapse (non-payment of premiums by a policyholder), or, in the case of long-term care insurance, benefit exhaustion. Termination rate assumptions used in estimating the present value of future policy benefit reserves are based on the results of our experience studies and reflect actuarial judgment. Lower termination rates increase, while higher termination rates decrease, the present value of expected future benefit payments.
In 2017, based on elevated claim experience for a portion of our long-term care insurance contracts, we initiated a comprehensive review of all premium deficiency testing assumptions across all insurance products, resulting in a reconstruction of our future claim cost projections for long-term care insurance products. While our long-term care insurance claim experience has shown some emerging modest favorable experience, it remains largely in-line with those reconstructed projections. However, the extent of actual experience since 2017 to date is limited in the context of a long-tailed, multi-decade portfolio.
2020 Premium Deficiency Testing. We completed our annual premium deficiency testing in the aggregate across our run-off insurance portfolio in the third quarter of 2020. These procedures included updating experience studies since our last test completed in the third quarter of 2019, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency in 2019, our 2020 premium deficiency testing started with a zero margin and, accordingly, any net adverse development would result in a future premium deficiency. Using our most recent future policy benefit reserve assumptions, including changes to our assumptions related to morbidity, future premium rate increases and discount rate, the 2020 premium deficiency testing results indicated there was a positive margin of less than 2% of the recorded future policy benefit reserves, excluding Other adjustments, at September 30, 2020. As a result, the assumptions updated in connection with the premium deficiency recognized in 2019 remain locked-in and will remain so unless another premium deficiency occurs in the future.
The increase in the premium deficiency testing margin from our 2019 testing was primarily attributable to modestly favorable emerging morbidity experience in our long-term care insurance portfolio, primarily at the older attained ages, in the period since the 2017 reconstruction of our future claim cost projections ($0.4 billion) and higher projected future premium rate increase approvals ($0.2 billion), partially offset by a decline in the overall discount rate to a weighted average rate of 5.70% compared to 5.74% in 2019 ($0.2 billion). This decline in the discount rate from 2019 to 2020 reflects a lower expected reinvestment rate, due to lower benchmark interest rates in the U.S, increasing to a lower expected long-term average investment yield over a longer period and slightly lower actual yields on our investment security portfolio, partially offset by increased allocations to higher yielding asset classes introduced with our 2018 strategic initiatives, which included a modest decline in expected yield compared to 2019 assumptions.
As noted above, while our observed long-term care insurance claim experience has shown some emerging modest favorable experience in the period since the 2017 reconstruction of our future claim cost projections, it remains largely in-line with those reconstructed projections. Based on the application of professional actuarial judgment to the factors discussed above, we have made no substantial change to our assumptions concerning morbidity improvement, mortality, mortality improvement, or terminations in 2020.
As with all assumptions underlying our premium deficiency testing, we will continue to monitor these factors, which may result in future changes in our assumptions.
Since our premium deficiency testing performed in 2019, we have implemented approximately $0.3 billion of previously approved rate increase actions and expect higher projected future premium rate increase approvals of approximately $0.2 billion. Our 2020 premium deficiency test includes approximately $1.9 billion of anticipated future premium increases or benefit reductions associated with future in-force rate actions. This represents a decrease of $0.1 billion from our 2019 premium deficiency test to account for actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated on future filings through 2028 and includes the effects of the lower discount rate mentioned above and longer anticipated timing to achieve certain premium rate approvals.
As a result of exposure period cut-off dates to permit experience to develop and lags in ceding company data reporting from our ceding companies, the impact of COVID-19 is not reflected in the experience studies data used in our 2020 premium deficiency testing. However, we assessed certain scenarios to understand potential impacts associated with COVID-19 and, due to the insignificance and short-term nature of such uncertain future impacts, including the natural offsets from mortality in the aggregate across our run-off insurance products, concluded adjustments to our primary assumptions used in the premium deficiency testing were not warranted.
When results of the premium deficiency testing indicate overall reserves are sufficient, we are also required to assess whether additional future policy benefit reserves are required to be accrued over time in the future. Such an accrual would be required if profits are projected in earlier future periods followed by losses projected in later future years (i.e., profits followed by losses). When this pattern of profits followed by losses is projected, we would be required to reduce any remaining capitalized acquisition costsaccrue a liability in the expected profitable years by the amount necessary to offset projected losses in later future years. We noted our projections as of third quarter 2020 indicate the present value of projected earnings in each future year to be positive, and therefore, no further adjustments to our future policy benefit reserves were required at this time.
GAAP Reserve Sensitivities. The results of our premium deficiency testing are sensitive to the extentassumptions described above. Considering the results of the 2020 premium deficiency test which resulted in a shortfall still exists,small margin, any future net adverse changes in our assumptions may reduce the margin or result in a premium deficiency requiring an increase our existingto future policy benefit reserves. WeFor example, adverse changes in key assumptions related to our future policy benefits reserves, holding all other assumptions constant, would record a charge to earnings for any premium deficiencieshave the following effects on the projected present value of future cash flows as presented in the fourthtable below. Any future net favorable changes to these assumptions could result in a lower projected present value of future cash flows and additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income. The assumptions within our future policy benefit reserves are subject to significant uncertainties, including those inherent in the complex nature of our reinsurance treaties. Many of our assumptions are interdependent and require evaluation individually and in the aggregate across all insurance products. Small changes in the amounts used in the sensitivities or the use of different factors could result in materially different outcomes from those reflected below.
| | | | | | | | | | | | | | |
| 2019 assumption | 2020 assumption | Hypothetical change in 2020 assumption | Estimated increase to projected present value of future cash flows (In millions, pre-tax) |
| | | | |
| Long-term care insurance morbidity improvement | 1.25% per year over 12 to 20 years | 1.25% per year over 12 to 20 years | 25 basis point reduction
No morbidity improvement | $600
$3,400 |
| Long-term care insurance morbidity | Based on company experience | Based on company experience | 5% increase in dollar amount of paid claims | $1,000 |
| Long-term care insurance mortality improvement | 0.5% per year for 10 years with annual improvement graded to 0% over next 10 years | 0.5% per year for 10 years with annual improvement graded to 0% over next 10 years | 1.0% per year for 10 years with annual improvement graded to 0% over next 10 years | $400 |
| Total terminations: | | | | |
| Long-term care insurance mortality | Based on company experience | Based on company experience | Any change in termination assumptions that reduce total terminations by 10% | $1,100 |
| Long-term care insurance lapse rate | Varies by block, attained age and benefit period; average 0.5 - 1.15% | Varies by block, attained age and benefit period; average 0.5 - 1.15% |
| Long-term care insurance benefit exhaustion | Based on company experience | Based on company experience |
| Long-term care insurance future premium rate increases | Varies by block based on filing experience | Varies by block based on filing experience | 25% adverse change in premium rate increase success rate | $500 |
| Discount rate: | | | | |
| Overall discount rate | 5.74% | 5.70% | 25 basis point reduction | $900 |
| Reinvestment rate | 3.05%; grading to a long-term average investment yield of 5.9% | 2.70%; grading to a long-term average investment yield of 5.8% | 25 basis point reduction; grading to a long-term average investment yield of 5.8% | Less than $100 |
| Structured settlement annuity mortality | Based on company experience | Based on company experience | 5% decrease in mortality | $100 |
| Life insurance mortality | Based on company experience | Based on company experience | 5% increase in mortality | $300 |
Statutory Considerations. Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices. Statutory accounting practices, not GAAP, determine the required statutory capital levels of our insurance legal entities. We annually perform statutory asset adequacy testing and expect our December 31, 2020 testing process to be completed in the first quarter of 2017 upon completion2021, the results of this review. Based uponwhich may affect the work performed to date and complexityamount or timing 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 whethercapital contributions from GE Capital will pay additional dividends to GE.
the insurance legal entities. See Other Items - New Accounting Standards and Note 1112 to the consolidated financial statements of this report and Note 1 to the consolidated financial statementsOther Items within MD&A in our Annual Report on Form 10-K for the year ended December 31, 20162019 for further information.
48 201728 2020 3Q FORM 10-Q
OTHER ITEMS
NEW ACCOUNTING STANDARDS
ASU NO. 2016-16, ACCOUNTING FOR INCOME TAXES: INTRA-ENTITY TRANSFERS OF ASSETS OTHER THAN INVENTORY
In October 2016, theSTANDARDS. 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 Inventory. 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 isLong-Duration Contracts with an effective date for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The effect of the adoption of the standard will depend on the nature and amount of future transactions but is currently expected as31, 2021, with an increaseelection 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,adopt early. On September 30, 2020, the FASB issueddirected the staff to draft a final 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 isto defer the effective for fiscal years beginning after December 15, 2017. A retrospective transition approach is required. Note 4 to the Financial Statements describes the DPP created by the Receivables Facility. We currently report cash receipts from the purchasing entities to reduce their DPP obligation to the Company as cash inflows from operating activities in the Consolidated Statement 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 asset and a lease liability on the balance sheetdate for all leases with terms longer than 12 months. Leases willinsurance entities by one year and to allow the early application transition date to 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 prior period or the earliest comparativeprior period presentedpresented. 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 financial statements,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 certain practical expedients available.any required changes recorded in earnings. Under the current accounting guidance, the discount rate is based on expected investment yields, while under the ASU the discount rate will be equivalent to the upper-medium grade (i.e., single A) fixed-income instrument yield reflecting the duration characteristics of the liability 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 different issue years. These changes result in the elimination of premium deficiency testing and 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 may materially affect our Statement of Financial Position.
ASU NO. 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS
BACKGROUND
In May 2014, the FASB issued a new comprehensive set of revenue recognition principles (ASU No. 2014-09, Revenue from Contracts with Customers) that supersedes most existing U.S. GAAP revenue recognition guidance (including ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts). The new standard will become effective for annual reporting periods beginning after December 15, 2017. 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 estimate 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.
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 sensitivestatements. As the ASU is only applicable to the politicalmeasurements of our long-duration insurance liabilities under GAAP, it will not affect the accounting for our insurance reserves or the levels of capital and economic conditionssurplus under statutory accounting practices.
NON-GAAP FINANCIAL MEASURES.We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the total company and its businesses. This includes adjustments in Venezuela. If conditions in Venezuela worsen or if low commodity prices persist for an extended period,recent periods to GAAP financial measures to increase period-to-period comparability following actions to strengthen our overall financial position and how we manage our business.
In addition, management recognizes that certain non-GAAP terms may be required to record adjustments to our receivables balance. Our financial results can be affected, positively or negatively,interpreted differently 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 Administrationother companies under the Federal Mine Safety and Health Act of 1977. There are 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.
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuant to Section 13(r) 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 in 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 issued 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.
different circumstances. 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” under SEC rules. Specifically, we have referred, 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 segmentorganic revenues by segment; BioPharma organic revenues, GE Industrial organic revenues, and GE Industrial segmentequipment and services organic revenues excluding Power and Oil & Gas
Operating and non-operating pension cost
Adjusted corporate costs (operating)
(2) profit, specifically 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 operatingorganic profit and operatingprofit margin by segment; BioPharma organic profit and profit margin, Adjusted GE Industrial profit and profit margin (excluding certain items)
; Adjusted GE Industrial operatingorganic profit excluding Power and Oil & Gas
Industrialprofit margin; Adjusted earnings (loss); and Adjusted earnings (loss) per share (EPS), (3) cash flows, from operating activities (Industrial CFOA)specifically GE Industrial free cash flows (FCF), and (4) debt balances, specifically GE Industrial CFOA excluding deal taxes and GE Pension Plan fundingnet 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) |
| (Dollars in millions) | | Revenues | | Segment profit (loss) | | Profit margin |
| Three months ended September 30 | | 2020 | | 2019 | | V% | | 2020 | | 2019 | | V% | | 2020 | | 2019 | V pts |
| Power (GAAP) | | $ | 4,025 | | | $ | 3,926 | | | 3 | % | | $ | 150 | | | $ | (144) | | | F | | 3.7 | % | | (3.7) | % | 7.4pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | — | | | 25 | | | | | — | | | 4 | | | | | | | | |
| Less: foreign currency effect | | — | | | — | | | | | (5) | | | — | | | | | | | | |
| Power organic (Non-GAAP) | | $ | 4,026 | | | $ | 3,901 | | | 3 | % | | $ | 155 | | | $ | (147) | | | F | | 3.8 | % | | (3.8) | % | 7.6pts |
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| Renewable Energy (GAAP) | | $ | 4,525 | | | $ | 4,425 | | | 2 | % | | $ | 5 | | | $ | (98) | | | F | | 0.1 | % | | (2.2) | % | 2.3pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | — | | | 37 | | | | | — | | | (7) | | | | | | | | |
| Less: foreign currency effect | | (32) | | | — | | | | | (2) | | | — | | | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 4,558 | | | $ | 4,388 | | | 4 | % | | $ | 7 | | | $ | (91) | | | F | | 0.2 | % | | (2.1) | % | 2.3pts |
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| Aviation (GAAP) | | $ | 4,919 | | | $ | 8,109 | | | (39) | % | | $ | 356 | | | $ | 1,718 | | | (79) | % | | 7.2 | % | | 21.2 | % | (14.0)pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | — | | | 73 | | | | | — | | | 1 | | | | | | | | |
| Less: foreign currency effect | | 6 | | | — | | | | | (5) | | | — | | | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 4,913 | | | $ | 8,036 | | | (39) | % | | $ | 361 | | | $ | 1,717 | | | (79) | % | | 7.3 | % | | 21.4 | % | (14.1)pts |
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| Healthcare (GAAP) | | $ | 4,565 | | | $ | 4,923 | | | (7) | % | | $ | 765 | | | $ | 974 | | | (21) | % | | 16.8 | % | | 19.8 | % | (3.0)pts |
| Less: acquisitions | | 14 | | | — | | | | | (6) | | | — | | | | | | | | |
| Less: business dispositions | | 21 | | | 825 | | | | | (2) | | | 373 | | | | | | | | |
| Less: foreign currency effect | | 10 | | | — | | | | | (8) | | | — | | | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 4,519 | | | $ | 4,098 | | | 10 | % | | $ | 781 | | | $ | 601 | | | 30 | % | | 17.3 | % | | 14.7 | % | 2.6pts |
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| Less: BioPharma organic (Non-GAAP) | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | | | | | | |
| Healthcare excluding BioPharma organic (Non-GAAP) | | $ | 4,519 | | | $ | 4,098 | | | 10 | % | | $ | 781 | | | $ | 601 | | | 30 | % | | 17.3 | % | | 14.7 | % | 2.6pts |
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20172020 3Q FORM 10-Q 5329
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| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
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| | Revenues | | Segment profit (loss) | | Profit margin |
| Nine months ended September 30 | | 2020 | | 2019 | | V% | | 2020 | | 2019 | | V% | | 2020 | | 2019 | V pts |
| Power (GAAP) | | $ | 12,206 | | | $ | 13,224 | | | (8) | % | | $ | (19) | | | $ | 84 | | | U | | (0.2) | % | | 0.6 | % | (0.8)pts |
| Less: acquisitions | | 19 | | | 19 | | | | | (3) | | | (2) | | | | | | | | |
| Less: business dispositions | | 15 | | | 81 | | | | | 2 | | | 4 | | | | | | | | |
| Less: foreign currency effect | | (111) | | | — | | | | | 16 | | | — | | | | | | | | |
| Power organic (Non-GAAP) | | $ | 12,283 | | | $ | 13,124 | | | (6) | % | | $ | (34) | | | $ | 83 | | | U | | (0.3) | % | | 0.6 | % | (0.9)pts |
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| Renewable Energy (GAAP) | | $ | 11,224 | | | $ | 10,590 | | | 6 | % | | $ | (493) | | | $ | (469) | | | (5) | % | | (4.4) | % | | (4.4) | % | —pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | 8 | | | 60 | | | | | — | | | (7) | | | | | | | | |
| Less: foreign currency effect | | (230) | | | — | | | | | 21 | | | — | | | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 11,445 | | | $ | 10,530 | | | 9 | % | | $ | (513) | | | $ | (462) | | | (11) | % | | (4.5) | % | | (4.4) | % | (0.1)pts |
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| Aviation (GAAP) | | $ | 16,196 | | | $ | 23,940 | | | (32) | % | | $ | 681 | | | $ | 4,764 | | | (86) | % | | 4.2 | % | | 19.9 | % | (15.7)pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | 13 | | | 299 | | | | | (2) | | | 16 | | | | | | | | |
| Less: foreign currency effect | | (1) | | | — | | | | | 2 | | | — | | | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 16,184 | | | $ | 23,640 | | | (32) | % | | $ | 681 | | | $ | 4,748 | | | (86) | % | | 4.2 | % | | 20.1 | % | (15.9)pts |
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| Healthcare (GAAP) | | $ | 13,185 | | | $ | 14,540 | | | (9) | % | | $ | 2,212 | | | $ | 2,714 | | | (18) | % | | 16.8 | % | | 18.7 | % | (1.9)pts |
| Less: acquisitions | | 36 | | | 21 | | | | | (17) | | | (4) | | | | | | | | |
| Less: business dispositions | | 21 | | | 1,656 | | | | | (2) | | | 702 | | | | | | | | |
| Less: foreign currency effect | | (114) | | | — | | | | | (28) | | | — | | | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 13,243 | | | $ | 12,863 | | | 3 | % | | $ | 2,259 | | | $ | 2,015 | | | 12 | % | | 17.1 | % | | 15.7 | % | 1.4pts |
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| Less: BioPharma organic (Non-GAAP) | | $ | 839 | | | $ | 762 | | | | | $ | 379 | | | $ | 311 | | | | | | | | |
| Healthcare excluding BioPharma organic (Non-GAAP) | | $ | 12,404 | | | $ | 12,102 | | | 2 | % | | $ | 1,879 | | | $ | 1,705 | | | 10 | % | | 15.1 | % | | 14.1 | % | 1.0pts |
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| We believe these measures provide 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 presenting organic revenues* and organic profit* 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. |
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| BIOPHARMA ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN (NON-GAAP) |
| Three months ended September 30 | | Revenues | | Segment profit (loss) | | Profit margin |
| (Dollars in millions) | | 2020 | | 2019 | | V% | | 2020 | | 2019 | | V% | | 2020 | | 2019 | V pts |
| BioPharma (GAAP) | | $ | — | | | $ | 786 | | | U | | $ | — | | | $ | 380 | | | U | | — | % | | 48.3 | % | (48.3) | pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | — | | | 786 | | | | | — | | | 380 | | | | | | | | |
| Less: foreign currency effect | | — | | | — | | | | | — | | | — | | | | | | | | |
| BioPharma organic (Non-GAAP) | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | — | | | — | % | | — | % | | — | % | — | pts |
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| Nine months ended September 30 | | 2020 | | 2019 | | V% | | 2020 | | 2019 | | V% | | 2020 | | 2019 | V pts |
| BioPharma (GAAP) | | $ | 830 | | | $ | 2,378 | | | (65) | % | | $ | 382 | | | $ | 1,063 | | | (64) | % | | 46.0 | % | | 44.7 | % | 1.3 | pts |
| Less: acquisitions | | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: business dispositions | | — | | | 1,616 | | | | | — | | | 752 | | | | | | | | |
| Less: foreign currency effect | | (9) | | | — | | | | | 2 | | | — | | | | | | | | |
| BioPharma organic (Non-GAAP) | | $ | 839 | | | $ | 762 | | | 10 | % | | $ | 379 | | | $ | 311 | | | 22 | % | | 45.2 | % | | 40.8 | % | 4.4 | pts |
*Non-GAAP Financial Measure
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| 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 | ) | — |
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| Industrial segment organic revenues (Non-GAAP) | $ | 26,911 |
| $ | 27,272 |
| (1) | % | | $ | 80,718 |
| $ | 78,793 |
| 2 | % |
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| Power revenues (GAAP) | $ | 8,679 |
| $ | 8,995 |
| (4) | % | | $ | 26,569 |
| $ | 25,664 |
| 4 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 94 |
| — |
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| | 230 |
| 5 |
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| Business dispositions | — |
| 19 |
| | | — |
| 154 |
| |
| Currency exchange rates | 123 |
| — |
| | | (73 | ) | — |
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| Power organic revenues (Non-GAAP) | $ | 8,462 |
| $ | 8,976 |
| (6) | % | | $ | 26,412 |
| $ | 25,505 |
| 4 | % |
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| Oil & Gas revenues (GAAP) | 5,365 |
| 2,964 |
| 81 | % | | 11,475 |
| 9,497 |
| 21 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 2,541 |
| — |
| | | 2,542 |
| 1 |
| |
| Business dispositions | — |
| — |
| | | — |
| — |
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| Currency exchange rates | 58 |
| — |
| | | (13 | ) | — |
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| Oil & Gas organic revenues (Non-GAAP) | $ | 2,766 |
| $ | 2,964 |
| (7) | % | | $ | 8,946 |
| $ | 9,496 |
| (6 | )% |
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| Industrial segment organic revenues excluding Power and Oil & Gas (Non-GAAP) | $ | 15,683 |
| $ | 15,332 |
| 2 | % | | $ | 45,360 |
| $ | 43,792 |
| 4 | % |
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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.
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| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
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| GE INDUSTRIAL ORGANIC REVENUES (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions) | 2020 | 2019 | V% | | 2020 | 2019 | V% |
| GE Industrial revenues (GAAP) | $ | 17,918 | | $ | 21,519 | | (16.7) | % | | $ | 52,828 | | $ | 63,259 | | (16) | % |
| Less: acquisitions | 35 | | 6 | | | | 103 | | 45 | | |
| Less: business dispositions(a) | 21 | | 1,104 | | | | 58 | | 2,403 | | |
| Less: foreign currency effect(b) | (15) | | — | | | | (461) | | — | | |
| GE Industrial organic revenues (Non-GAAP) | $ | 17,877 | | $ | 20,410 | | (12.4) | % | | $ | 53,129 | | $ | 60,811 | | (12.6) | % |
| Less: BioPharma organic revenue (Non-GAAP) | — | | — | | | | 839 | | 762 | | |
| GE Industrial organic revenues excluding BioPharma organic revenues (Non-GAAP) | $ | 17,877 | | $ | 20,410 | | (12.4) | % | | $ | 52,290 | | $ | 60,049 | | (12.9) | % |
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(a) Dispositions impact in 2019 primarily related to our BioPharma business, with revenues of $1,616 million, Middle River and Hamble site dispositions, with revenues of $125 million and $148 million, respectively, and Current and Lighting within our Corporate segment, with revenues of $155 million and $144 million, respectively. (b) Foreign currency impact in 2020 is primarily driven by U.S. Dollar appreciation against Euro, Brazilian Real and Chinese Yen. |
| We believe these measures provide 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. |
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| GE INDUSTRIAL EQUIPMENT AND SERVICES | Three months ended September 30 | | Nine months ended September 30 |
ORGANIC REVENUES (NON-GAAP) (Dollars in millions) | 2020 | 2019 | V% | | 2020 | 2019 | V% |
| GE Industrial equipment revenues (GAAP) | $ | 9,625 | | $ | 10,996 | | (12) | % | | $ | 26,928 | | $ | 30,873 | | (13) | % |
| Less: acquisitions | — | | — | | | | 13 | | 14 | | |
| Less: business dispositions | — | | 968 | | | | 19 | | 2,112 | | |
| Less: foreign currency effect | 9 | | — | | | | (299) | | — | | |
| GE Industrial equipment organic revenues (Non-GAAP) | $ | 9,616 | | $ | 10,027 | | (4) | % | | $ | 27,194 | | $ | 28,747 | | (5) | % |
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| GE Industrial services revenues (GAAP) | $ | 8,293 | | $ | 10,524 | | (21) | % | | $ | 25,901 | | $ | 32,386 | | (20) | % |
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| Less: acquisitions | 35 | | 6 | | | | 89 | | 31 | | |
| Less: business dispositions | 21 | | 136 | | | | 39 | | 291 | | |
| Less: foreign currency effect | (24) | | — | | | | (162) | | — | | |
| GE Industrial services organic revenues (Non-GAAP) | $ | 8,261 | | $ | 10,383 | | (20) | % | | $ | 25,934 | | $ | 32,064 | | (19) | % |
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| We believe these measures provide 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. |
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| OPERATING AND NON-OPERATING PENSION COST |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
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| 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 |
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| 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 |
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| Non-operating pension cost (Non-GAAP) | 570 |
| 511 |
| | 1,708 |
| 1,534 |
|
| Total principal pension plans cost (GAAP) | $ | 910 |
| $ | 894 |
| | $ | 2,779 |
| $ | 2,674 |
|
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 | ) |
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.
20172020 3Q FORM 10-Q 5531
|
| | | | | | | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
| | | | | | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
(EXCLUDING CERTAIN ITEMS) (NON-GAAP) (Dollars in millions) | 2020 | 2019 | | 2020 | 2019 |
| GE total revenues (GAAP) | $ | 17,918 | | $ | 21,519 | | | $ | 52,828 | | $ | 63,259 | |
| | | | | |
| Costs | | | | | |
| GE total costs and expenses (GAAP) | $ | 18,705 | | $ | 22,128 | | | $ | 56,943 | | $ | 64,201 | |
| Less: GE interest and other financial charges | 313 | | 791 | | | 1,079 | | 1,693 | |
| Less: non-operating benefit costs | 603 | | 562 | | | 1,815 | | 1,684 | |
| Less: restructuring & other(a) | 326 | | 322 | | | 967 | | 933 | |
| Less: Steam asset impairments(a) | 363 | | — | | | 363 | | — | |
| Less: goodwill impairments(a) | — | | 740 | | | 728 | | 1,484 | |
| Add: noncontrolling interests | (51) | | (5) | | | (161) | | 17 | |
| | | | | |
| Adjusted GE Industrial costs (Non-GAAP) | $ | 17,049 | | $ | 19,708 | | | $ | 51,829 | | $ | 58,423 | |
| | | | | |
| Other Income | | | | | |
| GE other income (GAAP) | $ | (509) | | $ | 153 | | | $ | 8,481 | | $ | 1,177 | |
| Less: unrealized gains (losses)(a) | (760) | | (86) | | | (4,728) | | (125) | |
| Less: restructuring & other | — | | — | | | — | | 9 | |
| Less: gains (losses) and impairments for disposed or held for sale businesses(a) | 119 | | (97) | | | 12,632 | | 153 | |
| Adjusted GE other income (Non-GAAP) | $ | 132 | | $ | 336 | | | $ | 577 | | $ | 1,140 | |
| | | | | |
| GE Industrial profit (GAAP) | $ | (1,296) | | $ | (456) | | | $ | 4,366 | | $ | 236 | |
| GE Industrial profit margin (GAAP) | (7.2) | % | (2.1) | % | | 8.3 | % | 0.4 | % |
| | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 1,001 | | $ | 2,147 | | | $ | 1,576 | | $ | 5,976 | |
| Adjusted GE Industrial profit margin (Non-GAAP) | 5.6 | % | 10.0 | % | | 3.0 | % | 9.4 | % |
| | | | | |
| (a) See the Corporate Items and Eliminations section for further information. |
| We believe these measures are meaningful because they increase the comparability of period-to-period results. |
| | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL ORGANIC PROFIT | Three months ended September 30 | | Nine months ended September 30 |
(NON-GAAP) (Dollars in millions) | 2020 | 2019 | V% | | 2020 | 2019 | V% |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 1,001 | | $ | 2,147 | | (53) | % | | $ | 1,576 | | $ | 5,976 | | (74) | % |
| Less: acquisitions | — | | — | | | | (8) | | (6) | | |
| Less: business dispositions | (2) | | 360 | | | | (3) | | 695 | | |
| Less: foreign currency effect | (15) | | — | | | | 15 | | — | | |
| Adjusted GE Industrial organic profit (Non-GAAP) | $ | 1,018 | | $ | 1,787 | | (43) | % | | $ | 1,572 | | $ | 5,286 | | (70) | % |
| | | | | | | |
| Adjusted GE Industrial profit margin (Non-GAAP) | 5.6 | % | 10.0 | % | (4.4)pts | | 3.0 | % | 9.4 | % | (6.4)pts |
| Adjusted GE Industrial organic profit margin (Non-GAAP) | 5.7 | % | 8.8 | % | (3.1)pts | | 3.0 | % | 8.7 | % | (5.7)pts |
| | | | | | | |
| We believe these measures provide 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. |
|
| | | | | | | | | | | | | |
| 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 | % |
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.
|
| | | | | | | | | | | | | | | | | |
| 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.
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
| | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions) | 2020 | 2019 | V% | | 2020 | 2019 | V% |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareholders (GAAP)(a) | $ | (1,155) | | $ | (1,325) | | 13 | % | | $ | 2,984 | | $ | (707) | | F |
| Add: Accretion of redeemable noncontrolling interests (RNCI) | (6) | | — | | | | (141) | | — | | |
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | (52) | | (645) | | | | (1,558) | | (599) | | |
| GE Industrial earnings (loss) (Non-GAAP) | $ | (1,109) | | $ | (680) | | (63) | % | | $ | 4,401 | | $ | (108) | | F |
| Non-operating benefits costs (pre-tax) (GAAP) | (603) | | (562) | | | | (1,815) | | (1,684) | | |
| Tax effect on non-operating benefit costs | 127 | | 118 | | | | 381 | | 354 | | |
| Less: non-operating benefit costs (net of tax) | (476) | | (444) | | | | (1,434) | | (1,331) | | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)(b) | 119 | | (97) | | | | 12,632 | | 153 | | |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses | (35) | | (34) | | | | (1,270) | | 3 | | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 84 | | (130) | | | | 11,362 | | 156 | | |
| Restructuring & other (pre-tax)(b) | (326) | | (322) | | | | (967) | | (924) | | |
| Tax effect on restructuring & other | 47 | | 68 | | | | 181 | | 222 | | |
| Less: restructuring & other (net of tax) | (279) | | (254) | | | | (786) | | (702) | | |
| Steam asset impairments (pre-tax)(b) | (363) | | — | | | | (363) | | — | | |
| Tax effect on Steam asset impairments | 37 | | — | | | | 37 | | — | | |
| Less: Steam asset impairments (net of tax) | (326) | | — | | | | (326) | | — | | |
| Goodwill impairments (pre-tax)(b) | — | | (740) | | | | (728) | | (1,484) | | |
| Tax effect on goodwill impairments | — | | — | | | | (23) | | (55) | | |
| Less: goodwill impairments (net of tax) | — | | (740) | | | | (751) | | (1,539) | | |
| Unrealized gains (losses) (pre-tax)(b) | (760) | | (86) | | | | (4,728) | | (125) | | |
| Tax on unrealized gains (losses) | 132 | | 18 | | | | 951 | | 26 | | |
| Less: unrealized gains (losses) (net of tax) | (628) | | (68) | | | | (3,777) | | (98) | | |
| Debt extinguishment costs (pre-tax) | — | | (255) | | | | (63) | | (255) | | |
| Tax effect on debt extinguishment costs | — | | 53 | | | | (13) | | 53 | | |
| Less: debt extinguishment costs (net of tax) | — | | (201) | | | | (50) | | (201) | | |
| BioPharma deal expense (pre-tax) | — | | — | | | | — | | — | | |
| Tax on BioPharma deal expense | — | | — | | | | — | | (14) | | |
| Less: BioPharma deal expense (net of tax) | — | | — | | | | — | | (14) | | |
| Accretion of RNCI (pre-tax) | (6) | | — | | | | (141) | | — | | |
| Tax effect on accretion of RNCI | — | | — | | | | — | | — | | |
| Less: Accretion of RNCI (net of tax) | (6) | | — | | | | (141) | | — | | |
| Less: GE Industrial U.S. tax reform enactment adjustment | (51) | | — | | | | (51) | | (101) | | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 574 | | $ | 1,158 | | (50) | % | | $ | 355 | | $ | 3,722 | | (90) | % |
| | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | $ | (52) | | $ | (645) | | 92 | % | | $ | (1,558) | | $ | (599) | | U |
| Insurance premium deficiency test charge (pre-tax) | — | | (972) | | | | — | | (972) | | |
| Tax effect on insurance premium deficiency test charge | — | | 204 | | | | — | | 204 | | |
| Less: Insurance premium deficiency test charge (net of tax) | — | | (768) | | | | — | | (768) | | |
| Goodwill impairments (pre-tax) | — | | — | | | | (839) | | — | | |
| Tax effect on goodwill impairments | — | | — | | | | 3 | | — | | |
| Less: goodwill impairments (net of tax) | — | | — | | | | (836) | | — | | |
| Debt extinguishment costs (pre-tax) | — | | — | | | | (143) | | — | | |
| Tax effect on debt extinguishment costs | — | | — | | | | 24 | | — | | |
| Less: debt extinguishment costs (net of tax) | — | | — | | | | (119) | | — | | |
| Less: GE Capital U.S. tax reform enactment adjustment | 2 | | — | | | | 2 | | 99 | | |
| Less: GE Capital tax benefit related to BioPharma sale | 8 | | — | | | | 96 | | — | | |
| Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | (61) | | $ | 123 | | U | | $ | (701) | | $ | 70 | | U |
| | | | | | | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 574 | | $ | 1,158 | | (50) | % | | $ | 355 | | $ | 3,722 | | (90) | % |
| Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | (61) | | 123 | | U | | (701) | | 70 | | U |
| Adjusted earnings (loss) (Non-GAAP) | $ | 513 | | $ | 1,282 | | (60) | % | | $ | (346) | | $ | 3,792 | | U |
| | | | | | | |
| (a) Earnings for per-share calculation includes allocation of participating securities pursuant to the two-class method. See Note 16 for further information. |
| (b) See the Corporate Items and Eliminations section for further information. | | | | |
|
|
|
| | | | | | | | | | | | | | | | | |
| 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. |
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.
|
| | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
| | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) | Three months ended September 30 | | Nine months ended September 30 |
| (NON-GAAP) | 2020 | 2019 | V% | | 2020 | 2019 | V% |
| Consolidated EPS from continuing operations attributable to GE common shareholders (GAAP) | $ | (0.13) | | $ | (0.15) | | 13 | % | | $ | 0.34 | | $ | (0.08) | | F |
| Add: Accretion of redeemable noncontrolling interests (RNCI) | — | | — | | | | (0.02) | | — | | |
| Less: GE Capital EPS from continuing operations attributable to GE common shareholders (GAAP) | (0.01) | | (0.07) | | | | (0.18) | | (0.07) | | |
| GE Industrial EPS (Non-GAAP) | $ | (0.13) | | $ | (0.08) | | (63) | % | | $ | 0.50 | | $ | (0.01) | | F |
| Non-operating benefits costs (pre-tax) (GAAP) | (0.07) | | (0.06) | | | | (0.21) | | (0.19) | | |
| Tax effect on non-operating benefit costs | 0.01 | | 0.01 | | | | 0.04 | | 0.04 | | |
| Less: non-operating benefit costs (net of tax) | (0.05) | | (0.05) | | | | (0.16) | | (0.15) | | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | 0.01 | | (0.01) | | | | 1.44 | | 0.02 | | |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses | — | | — | | | | (0.15) | | — | | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 0.01 | | (0.01) | | | | 1.30 | | 0.02 | | |
| Restructuring & other (pre-tax) | (0.04) | | (0.04) | | | | (0.11) | | (0.11) | | |
| Tax effect on restructuring & other | 0.01 | | 0.01 | | | | 0.02 | | 0.03 | | |
| Less: restructuring & other (net of tax) | (0.03) | | (0.03) | | | | (0.09) | | (0.08) | | |
| Steam asset impairments (pre-tax) | (0.04) | | — | | | | (0.04) | | — | | |
| Tax effect on Steam asset impairments | — | | — | | | | — | | — | | |
| Less: Steam asset impairments (net of tax) | (0.04) | | — | | | | (0.04) | | — | | |
| Goodwill impairments (pre-tax) | — | | (0.08) | | | | (0.08) | | (0.17) | | |
| Tax effect on goodwill impairments | — | | — | | | | — | | (0.01) | | |
| Less: goodwill impairments (net of tax) | — | | (0.08) | | | | (0.09) | | (0.18) | | |
| Unrealized gains (losses) (pre-tax) | (0.09) | | (0.01) | | | | (0.54) | | (0.01) | | |
| Tax on unrealized gains (losses) | 0.02 | | — | | | | 0.11 | | — | | |
| Less: unrealized gains (losses) (net of tax) | (0.07) | | (0.01) | | | | (0.43) | | (0.01) | | |
| Debt extinguishment costs (pre-tax) | — | | (0.03) | | | | (0.01) | | (0.03) | | |
| Tax effect on debt extinguishment costs | — | | 0.01 | | | | — | | 0.01 | | |
| Less: debt extinguishment costs (net of tax) | — | | (0.02) | | | | (0.01) | | (0.02) | | |
| BioPharma deal expense (pre-tax) | — | | — | | | | — | | — | | |
| Tax on BioPharma deal expense | — | | — | | | | — | | — | | |
| Less: BioPharma deal expense (net of tax) | — | | — | | | | — | | — | | |
| Accretion of RNCI (pre-tax) | — | | — | | | | (0.02) | | — | | |
| Tax effect on accretion of RNCI | — | | — | | | | — | | — | | |
| Less: Accretion of RNCI (net of tax) | — | | — | | | | (0.02) | | — | | |
| Less: GE Industrial U.S. tax reform enactment adjustment | (0.01) | | — | | | | (0.01) | | (0.01) | | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.07 | | $ | 0.13 | | (46) | % | | $ | 0.04 | | $ | 0.43 | | (91) | % |
| | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareholders (GAAP) | $ | (0.01) | | $ | (0.07) | | 86 | % | | $ | (0.18) | | $ | (0.07) | | U |
| Insurance premium deficiency test charge (pre-tax) | — | | (0.11) | | | | — | | (0.11) | | |
| Tax effect on insurance premium deficiency test charge | — | | 0.02 | | | | — | | 0.02 | | |
| Less: Insurance premium deficiency test charge (net of tax) | — | | (0.09) | | | | — | | (0.09) | | |
| Goodwill impairments (pre-tax) | — | | — | | | | (0.10) | | — | | |
| Tax effect on goodwill impairments | — | | — | | | | — | | — | | |
| Less: goodwill impairments (net of tax) | — | | — | | | | (0.10) | | — | | |
| Debt extinguishment costs (pre-tax) | — | | — | | | | (0.02) | | — | | |
| Tax effect on debt extinguishment costs | — | | — | | | | — | | — | | |
| Less: debt extinguishment costs (net of tax) | — | | — | | | | (0.01) | | — | | |
| Less: GE Capital U.S. tax reform enactment adjustment | — | | — | | | | — | | 0.01 | | |
| Less: GE Capital tax benefit related to BioPharma sale | — | | — | | | | 0.01 | | — | | |
| Adjusted GE Capital EPS (Non-GAAP) | $ | (0.01) | | $ | 0.01 | | U | | $ | (0.08) | | $ | 0.01 | | U |
| | | | | | | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.07 | | $ | 0.13 | | (46) | % | | $ | 0.04 | | $ | 0.43 | | (91) | % |
| Add: Adjusted GE Capital EPS (Non-GAAP) | (0.01) | | 0.01 | | U | | (0.08) | | 0.01 | | U |
| Adjusted EPS (Non-GAAP) | $ | 0.06 | | $ | 0.15 | | (60) | % | | $ | (0.04) | | $ | 0.43 | | U |
| Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
|
| | | | | | | | | | | | | |
| 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 | % |
|
| | | | | | | |
| 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 | % |
| |
(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.
|
| | | |
| MD&A | SUPPLEMENTAL INFORMATIONNON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | |
| 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.
|
| | | | | | | | | | | | | | | | | | | | | | |
OTHER | | 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 the retained costs in Adjusted earnings* and Adjusted 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 2020. We believe presenting Adjusted Industrial earnings* and Adjusted Industrial 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. |
| | | | | | | | |
| GE INDUSTRIAL FREE CASH FLOWS (FCF) (NON-GAAP) | Nine months ended September 30 |
| (In millions) | 2020 | 2019 |
| GE CFOA (GAAP) | $ | (3,175) | | $ | 77 | |
| Add: gross additions to property, plant and equipment | (1,302) | | (1,596) | |
| Add: gross additions to internal-use software | (121) | | (203) | |
| | |
| | |
| Less: taxes related to business sales | (837) | | (160) | |
| GE Industrial free cash flows (Non-GAAP) | $ | (3,761) | | $ | (1,562) | |
| | |
| We believe investors may find it useful to compare GE's Industrial free cash flows* performance without the effects of cash used for taxes related to business sales. We believe this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. |
| | | | | | | | |
GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions) | September 30, 2020 | December 31, 2019 |
| Total GE short- and long-term borrowings (GAAP) | $ | 44,258 | | $ | 52,059 | |
| Less: GE Capital short- and long-term debt assumed by GE | 24,134 | | 31,368 | |
| Add: intercompany loans from GE Capital | 4,726 | | 12,226 | |
| Total adjusted GE borrowings | $ | 24,851 | | $ | 32,917 | |
| Total pension and principal retiree benefit plan liabilities (pre-tax)(a) | 27,773 | | 27,773 | |
| Less: taxes at 21% | 5,832 | | 5,832 | |
| Total pension and principal retiree benefit plan liabilities (net of tax) | $ | 21,941 | | $ | 21,941 | |
| GE operating lease liabilities | 3,117 | | 3,369 | |
| GE preferred stock | 5,871 | | 5,738 | |
| Less: 50% of GE preferred stock | 2,936 | | 2,869 | |
| 50% of preferred stock | $ | 2,936 | | $ | 2,869 | |
| Deduction for total GE cash, cash equivalents and restricted cash | (24,337) | | (17,613) | |
| Less: 25% of GE cash, cash equivalents and restricted cash | (6,084) | | (4,403) | |
| Deduction for 75% of GE cash, cash equivalents and restricted cash | $ | (18,252) | | $ | (13,210) | |
| Total GE Industrial net debt (Non-GAAP) | $ | 34,592 | | $ | 47,886 | |
| | |
| (a) Represents the total net deficit status of principal pension plans, other pension plans and retiree benefit plans at December 31, 2019. The funded status of our benefit plans is updated annually in the fourth quarter. |
|
| In this document we use GE Industrial net debt*, which is calculated based on rating agency methodologies. 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. |
CONTROLS AND PROCEDURES
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 30, 2017,2020, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2017,2020, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
OTHER FINANCIAL DATA.GE did not repurchase any equity securities during the three months ended September 30, 2020.
*Non-GAAP Financial Measure
60 20172020 3Q FORM 10-Q35
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| | | | | | | |
OTHER FINANCIAL DATASTATEMENTS | | |
| | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) | Three months ended September 30 |
| (UNAUDITED) | Consolidated |
| (In millions; per-share amounts in dollars) | 2020 | 2019 |
| Sales of goods | $ | 12,318 | | $ | 14,869 | |
| Sales of services | 5,558 | | 6,635 | |
| GE Capital revenues from services | 1,541 | | 1,856 | |
| Total revenues (Note 9) | 19,417 | | 23,360 | |
| | |
| Cost of goods sold | 10,833 | | 12,503 | |
| Cost of services sold | 4,442 | | 4,825 | |
| Selling, general and administrative expenses | 3,227 | | 3,293 | |
| Interest and other financial charges | 745 | | 1,279 | |
| Insurance losses and annuity benefits | 624 | | 1,463 | |
| Goodwill impairments (Note 8) | 0 | | 740 | |
| Non-operating benefit costs | 605 | | 565 | |
| Other costs and expenses | 84 | | 99 | |
| Total costs and expenses | 20,561 | | 24,767 | |
| | |
| Other income (Note 22) | (517) | | 158 | |
| GE Capital earnings (loss) from continuing operations | 0 | | 0 | |
| | |
| Earnings (loss) from continuing operations before income taxes | (1,660) | | (1,249) | |
| Benefit (provision) for income taxes | 501 | | (41) | |
| Earnings (loss) from continuing operations | (1,160) | | (1,290) | |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (35) | | (8,093) | |
| Net earnings (loss) | (1,195) | | (9,383) | |
| Less net earnings (loss) attributable to noncontrolling interests | (51) | | 40 | |
| Net earnings (loss) attributable to the Company | (1,144) | | (9,423) | |
| Preferred stock dividends | (46) | | (42) | |
| Net earnings (loss) attributable to GE common shareholders | $ | (1,190) | | $ | (9,465) | |
| | |
| Amounts attributable to GE common shareholders | | |
| Earnings (loss) from continuing operations | $ | (1,160) | | $ | (1,290) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (51) | | (7) | |
| Earnings (loss) from continuing operations attributable to the Company | (1,109) | | (1,283) | |
| Preferred stock dividends | (46) | | (42) | |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareholders | (1,155) | | (1,325) | |
| Earnings (loss) from discontinued operations, net of taxes | (35) | | (8,093) | |
| Less net earnings (loss) attributable to | | |
| noncontrolling interests, discontinued operations | — | | 46 | |
| Net earnings (loss) attributable to GE common shareholders | $ | (1,190) | | $ | (9,465) | |
| | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | $ | (0.13) | | $ | (0.15) | |
| Basic earnings (loss) per share | $ | (0.13) | | $ | (0.15) | |
| | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | $ | (0.14) | | $ | (1.08) | |
| Basic earnings (loss) per share | $ | (0.14) | | $ | (1.08) | |
| | |
| Dividends declared per common share | $ | 0.01 | | $ | 0.01 | |
OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
| | | | | | | | | | |
| 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. |
|
| | | |
LEGAL PROCEEDINGSFINANCIAL STATEMENTS | | |
| | | | | | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Three months ended September 30 |
| (UNAUDITED) | GE(a) | | GE Capital |
| (In millions; per-share amounts in dollars) | 2020 | 2019 | | 2020 | 2019 |
| Sales of goods | $ | 12,314 | | $ | 14,879 | | | $ | 12 | | $ | 22 | |
| Sales of services | 5,604 | | 6,640 | | | 0 | | 0 | |
| GE Capital revenues from services | 0 | | 0 | | | 1,669 | | 2,075 | |
| Total revenues | 17,918 | | 21,519 | | | 1,681 | | 2,097 | |
| | | | | |
| Cost of goods sold | 10,831 | | 12,519 | | | 11 | | 17 | |
| Cost of services sold | 3,853 | | 4,341 | | | 635 | | 510 | |
| Selling, general and administrative expenses | 3,106 | | 3,172 | | | 178 | | 199 | |
| Interest and other financial charges | 313 | | 791 | | | 486 | | 590 | |
| Insurance losses and annuity benefits | 0 | | 0 | | | 635 | | 1,469 | |
| Goodwill impairments (Note 8) | 0 | | 740 | | | 0 | | 0 | |
| Non-operating benefit costs | 603 | | 562 | | | 2 | | 3 | |
| Other costs and expenses | 0 | | 4 | | | 98 | | 103 | |
| Total costs and expenses | 18,705 | | 22,128 | | | 2,045 | | 2,890 | |
| | | | | |
| Other income (Note 22) | (509) | | 153 | | | 0 | | 0 | |
| GE Capital earnings (loss) from continuing operations | (52) | | (645) | | | 0 | | 0 | |
| | | | | |
| Earnings (loss) from continuing operations before income taxes | (1,348) | | (1,101) | | | (364) | | (793) | |
| Benefit (provision) for income taxes | 143 | | (229) | | | 357 | | 188 | |
| Earnings (loss) from continuing operations | (1,205) | | (1,330) | | | (6) | | (604) | |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (35) | | (8,093) | | | (26) | | (18) | |
| Net earnings (loss) | (1,241) | | (9,423) | | | (32) | | (623) | |
| Less net earnings (loss) attributable to noncontrolling interests | (51) | | 41 | | | 0 | | (2) | |
| Net earnings (loss) attributable to the Company | (1,190) | | (9,465) | | | (32) | | (621) | |
| Preferred stock dividends | 0 | | 0 | | | (46) | | (42) | |
| Net earnings (loss) attributable to GE common shareholders | $ | (1,190) | | $ | (9,465) | | | $ | (78) | | $ | (663) | |
| | | | | |
| Amounts attributable to GE common shareholders: | | | | | |
| Earnings (loss) from continuing operations | $ | (1,205) | | $ | (1,330) | | | $ | (6) | | $ | (604) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (51) | | (5) | | | 0 | | (2) | |
| Earnings (loss) from continuing operations attributable to the Company | (1,155) | | (1,325) | | | (6) | | (603) | |
| Preferred stock dividends | 0 | | 0 | | | (46) | | (42) | |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareholders | (1,155) | | (1,325) | | | (52) | | (645) | |
| Earnings (loss) from discontinued operations, net of taxes | (35) | | (8,093) | | | (26) | | (18) | |
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | 0 | | 46 | | | 0 | | 0 | |
| Net earnings (loss) attributable to GE common shareholders | $ | (1,190) | | $ | (9,465) | | | $ | (78) | | $ | (663) | |
(a) Represents the adding together of all GE Industrial affiliates and GE Capital continuing operations on a one-line basis. See Note 1.
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, 2016 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.
WMC. There are 5 lawsuits 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 were 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 asserts claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of approximately $425 million. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the four securitizations 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 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. No bondholder in any of these securitizations has objected to the proposed settlements. On July 17, 2017, 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 judge 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.
62 20172020 3Q FORM 10-Q37
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| | | | | | | |
LEGAL PROCEEDINGSFINANCIAL STATEMENTS | | |
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) reflect the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. All of the mortgage loans involved in these lawsuits are included in WMC’s reported claims at September 30, 2017. See Note 18 to the consolidated financial statements for additional 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 18 to the consolidated financial statements for additional information.
GE Retirement Savings Plan class action. On September 27, 2017, three individual plaintiffs filed a putative class action lawsuit in the U.S. District Court for the Southern District of California against GE, trustees of GE’s 401(k) plan (the GE RSP) and other individual defendants yet to be named. Like a growing number of similar lawsuits that have been brought against other companies in recent years, the suit alleges that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) in their oversight of the GE RSP, including by selecting underperforming proprietary mutual funds as investment options for plan participants. The plaintiffs, purporting to act on behalf of GE RSP participants and beneficiaries from 2011 through June 30, 2016, seek damages of $700 million, but we believe we have defenses to the claims and will respond accordingly.
| | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) | Nine months ended September 30 |
| (UNAUDITED) | Consolidated |
| (In millions; per-share amounts in dollars) | 2020 | 2019 |
| Sales of goods | $ | 35,414 | | $ | 42,220 | |
| Sales of services | 17,336 | | 20,912 | |
| GE Capital revenues from services | 4,940 | | 5,845 | |
| Total revenues (Note 9) | 57,690 | | 68,976 | |
| | |
| Cost of goods sold | 31,679 | | 35,123 | |
| Cost of services sold | 14,375 | | 15,825 | |
| Selling, general and administrative expenses | 9,371 | | 10,120 | |
| Interest and other financial charges | 2,536 | | 3,272 | |
| Insurance losses and annuity benefits | 1,824 | | 2,712 | |
| Goodwill impairments (Note 8) | 1,717 | | 1,484 | |
| Non-operating benefit costs | 1,821 | | 1,694 | |
| Other costs and expenses | 322 | | 337 | |
| Total costs and expenses | 63,645 | | 70,568 | |
| | |
| Other income (Note 22) | 8,430 | | 1,170 | |
| GE Capital earnings (loss) from continuing operations | 0 | | 0 | |
| | |
| Earnings (loss) from continuing operations before income taxes | 2,476 | | (422) | |
| Benefit (provision) for income taxes | 637 | | 1 | |
| Earnings (loss) from continuing operations | 3,113 | | (421) | |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (206) | | (5,212) | |
| Net earnings (loss) | 2,907 | | (5,634) | |
| Less net earnings (loss) attributable to noncontrolling interests | (161) | | 73 | |
| Net earnings (loss) attributable to the Company | 3,068 | | (5,707) | |
| Preferred stock dividends | (280) | | (270) | |
| Net earnings (loss) attributable to GE common shareholders | $ | 2,787 | | $ | (5,977) | |
| | |
| Amounts attributable to GE common shareholders | | |
| Earnings (loss) from continuing operations | $ | 3,113 | | $ | (421) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (159) | | 16 | |
| Earnings (loss) from continuing operations attributable to the Company | 3,271 | | (437) | |
| Preferred stock dividends | (280) | | (270) | |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareholders | 2,991 | | (707) | |
| Earnings (loss) from discontinued operations, net of taxes | (206) | | (5,212) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| discontinued operations | (2) | | 58 | |
| Net earnings (loss) attributable to GE common shareholders | $ | 2,787 | | $ | (5,977) | |
| | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | $ | 0.32 | | $ | (0.08) | |
| Basic earnings (loss) per share | $ | 0.32 | | $ | (0.08) | |
| | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | $ | 0.30 | | $ | (0.69) | |
| Basic earnings (loss) per share | $ | 0.30 | | $ | (0.69) | |
| | |
| Dividends declared per common share | $ | 0.03 | | $ | 0.03 | |
201738 2020 3Q FORM 10-Q63
[PAGE INTENTIONALLY LEFT BLANK]
| | | | | | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Nine months ended September 30 |
| (UNAUDITED) | GE(a) | | GE Capital |
| (In millions; per-share amounts in dollars) | 2020 | 2019 | | 2020 | 2019 |
| Sales of goods | $ | 35,401 | | $ | 42,312 | | | $ | 49 | | $ | 56 | |
| Sales of services | 17,427 | | 20,948 | | | 0 | | 0 | |
| GE Capital revenues from services | 0 | | 0 | | | 5,400 | | 6,589 | |
| Total revenues | 52,828 | | 63,259 | | | 5,449 | | 6,645 | |
| | | | | |
| Cost of goods sold | 31,677 | | 35,233 | | | 38 | | 44 | |
| Cost of services sold | 12,461 | | 14,372 | | | 2,005 | | 1,508 | |
| Selling, general and administrative expenses | 9,034 | | 9,734 | | | 543 | | 677 | |
| Interest and other financial charges | 1,079 | | 1,693 | | | 1,647 | | 1,913 | |
| Insurance losses and annuity benefits | 0 | | 0 | | | 1,866 | | 2,771 | |
| Goodwill impairments (Note 8) | 877 | | 1,484 | | | 839 | | 0 | |
| Non-operating benefit costs | 1,815 | | 1,684 | | | 7 | | 10 | |
| Other costs and expenses | 0 | | 0 | | | 395 | | 380 | |
| Total costs and expenses | 56,943 | | 64,201 | | | 7,340 | | 7,303 | |
| | | | | |
| Other income (Note 22) | 8,481 | | 1,177 | | | 0 | | 0 | |
| GE Capital earnings (loss) from continuing operations | (1,558) | | (599) | | | 0 | | 0 | |
| | | | | |
| Earnings (loss) from continuing operations before income taxes | 2,808 | | (363) | | | (1,890) | | (658) | |
| Benefit (provision) for income taxes | 22 | | (327) | | | 614 | | 327 | |
| Earnings (loss) from continuing operations | 2,830 | | (690) | | | (1,276) | | (331) | |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (206) | | (5,212) | | | (173) | | 255 | |
| Net earnings (loss) | 2,624 | | (5,902) | | | (1,449) | | (76) | |
| Less net earnings (loss) attributable to noncontrolling interests | (163) | | 75 | | | 2 | | (2) | |
| Net earnings (loss) attributable to the Company | 2,787 | | (5,977) | | | (1,451) | | (74) | |
| Preferred stock dividends | 0 | | 0 | | | (280) | | (270) | |
| Net earnings (loss) attributable to GE common shareholders | $ | 2,787 | | $ | (5,977) | | | $ | (1,731) | | $ | (344) | |
| | | | | |
| Amounts attributable to GE common shareholders: | | | | | |
| Earnings (loss) from continuing operations | $ | 2,830 | | $ | (690) | | | $ | (1,276) | | $ | (331) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (161) | | 17 | | | 2 | | (2) | |
| Earnings (loss) from continuing operations attributable to the Company | 2,991 | | (707) | | | (1,278) | | (329) | |
| Preferred stock dividends | 0 | | 0 | | | (280) | | (270) | |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareholders | 2,991 | | (707) | | | (1,558) | | (599) | |
| Earnings (loss) from discontinued operations, net of taxes | (206) | | (5,212) | | | (173) | | 255 | |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | (2) | | 58 | | | 0 | | 0 | |
| Net earnings (loss) attributable to GE common shareholders | $ | 2,787 | | $ | (5,977) | | | $ | (1,731) | | $ | (344) | |
(a) Represents the adding together of all GE Industrial affiliates and GE Capital continuing operations on a one-line basis. See Note 1.
FINANCIAL STATEMENTS AND NOTES
|
| | | |
| |
| |
| |
| |
| |
| |
| | 1 | | |
| | 2 | | |
| | 3 | | |
| | 4 | Current Receivables | |
| | 5 | | |
| | 6 | | |
| | 7 | | |
| | 8 | | |
| | 9 | | |
| | 10 | | |
| | 11 | Investment contracts, insurance liabilities and insurance annuity benefits | |
| | 12 | | |
| | 13 | | |
| | 14 | | |
| | 15 | | |
| | 16 | | |
| | 17 | | |
| | 18 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
| | 19 | | |
| | 20 | | |
| | 21 | | |
20172020 3Q FORM 10-Q 6539
| | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | Consolidated |
| (In millions, except share amounts) | September 30, 2020 | December 31, 2019 |
| Cash, cash equivalents and restricted cash | $ | 39,162 | | $ | 36,394 | |
| Investment securities (Note 3) | 46,881 | | 48,521 | |
| Current receivables (Note 4) | 17,302 | | 16,769 | |
| Financing receivables – net (Note 5) | 3,021 | | 3,134 | |
| Inventories (Note 6) | 14,925 | | 14,104 | |
| Other GE Capital receivables | 7,389 | | 7,144 | |
| Property, plant and equipment – net (Note 7) | 44,830 | | 46,186 | |
| Receivable from GE Capital | 0 | | 0 | |
| Investment in GE Capital | 0 | | 0 | |
| Goodwill (Note 8) | 25,278 | | 26,734 | |
| Other intangible assets – net (Note 8) | 9,909 | | 10,653 | |
| Contract and other deferred assets (Note 10) | 15,571 | | 16,801 | |
| All other assets | 15,094 | | 16,461 | |
| Deferred income taxes (Note 14) | 11,367 | | 9,889 | |
| Assets of businesses held for sale (Note 2) | 0 | | 9,149 | |
| Assets of discontinued operations (Note 2) | 3,587 | | 4,109 | |
| Total assets | $ | 254,315 | | $ | 266,048 | |
| | |
| Short-term borrowings (Note 11) | $ | 5,977 | | $ | 22,072 | |
| Short-term borrowings assumed by GE (Note 11) | 0 | | 0 | |
| Accounts payable, principally trade accounts | 13,941 | | 15,926 | |
| Progress collections and deferred income (Note 10) | 19,523 | | 20,508 | |
| | |
| Other GE current liabilities | 16,243 | | 15,753 | |
| Non-recourse borrowings of consolidated securitization entities (Note 11) | 452 | | 1,655 | |
| Long-term borrowings (Note 11) | 73,034 | | 67,155 | |
| Long-term borrowings assumed by GE (Note 11) | 0 | | 0 | |
| Insurance liabilities and annuity benefits (Note 12) | 41,452 | | 39,826 | |
| Non-current compensation and benefits | 30,809 | | 31,687 | |
| All other liabilities | 17,802 | | 19,745 | |
| Liabilities of businesses held for sale (Note 2) | 0 | | 1,658 | |
| Liabilities of discontinued operations (Note 2) | 288 | | 203 | |
| Total liabilities | 219,522 | | 236,187 | |
| | |
| | |
| | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2020
and December 31, 2019) | 6 | | 6 | |
Common stock (8,759,873,000 and 8,738,434,000 shares outstanding
at September 30, 2020 and December 31, 2019, respectively) | 702 | | 702 | |
| Accumulated other comprehensive income (loss) – net attributable to GE | (9,498) | | (11,732) | |
| | |
| | |
| | |
| | |
| Other capital | 34,279 | | 34,405 | |
| Retained earnings | 89,905 | | 87,732 | |
| Less common stock held in treasury | (82,125) | | (82,797) | |
| Total GE shareholders’ equity | 33,269 | | 28,316 | |
| Noncontrolling interests | 1,524 | | 1,545 | |
| Total equity | 34,793 | | 29,861 | |
| Total liabilities and equity | $ | 254,315 | | $ | 266,048 | |
FINANCIAL STATEMENTS
|
| | | | | | |
| STATEMENT OF EARNINGS (LOSS) | | |
| (UNAUDITED) | | |
| | Three 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 | $ | 19,386 |
| $ | 18,553 |
|
| Sales of services | 10,043 |
| 8,261 |
|
| Other income | 2,146 |
| 227 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
|
| GE Capital revenues from services | 1,898 |
| 2,224 |
|
| Total revenues and other income | 33,472 |
| 29,266 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 16,815 |
| 15,255 |
|
| Cost of services sold | 7,279 |
| 5,711 |
|
| Selling, general and administrative expenses | 4,855 |
| 4,343 |
|
| Interest and other financial charges | 1,232 |
| 961 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 617 |
| 684 |
|
| Other costs and expenses | 1,208 |
| 238 |
|
| Total costs and expenses | 32,006 |
| 27,191 |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | 1,466 |
| 2,074 |
|
| Benefit (provision) for income taxes | 334 |
| (18 | ) |
| Earnings (loss) from continuing operations | 1,800 |
| 2,056 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (106 | ) | (105 | ) |
| Net earnings (loss) | 1,694 |
| 1,951 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (142 | ) | (76 | ) |
| Net earnings (loss) attributable to the Company | 1,836 |
| 2,027 |
|
| Preferred stock dividends | (36 | ) | (33 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
|
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 1,800 |
| $ | 2,056 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (141 | ) | (74 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 1,941 |
| 2,131 |
|
| Preferred stock dividends | (36 | ) | (33 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | 1,905 |
| 2,097 |
|
| Earnings (loss) from discontinued operations, net of taxes | (106 | ) | (105 | ) |
| Less net earnings (loss) attributable to | | |
| noncontrolling interests, discontinued operations | (1 | ) | (2 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
|
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Diluted earnings (loss) per share | $ | 0.22 |
| $ | 0.23 |
|
| Basic earnings (loss) per share | $ | 0.22 |
| $ | 0.24 |
|
| | | |
| Net earnings (loss) | | |
| Diluted earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
|
| Basic earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
|
| | | |
| Dividends declared per common share | $ | 0.24 |
| $ | 0.23 |
|
Amounts may not add due to rounding.
See accompanying notes.
| | | | | | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) | | GE Capital |
(UNAUDITED) (In millions, except share amounts) | September 30, 2020 | December 31, 2019 | | September 30, 2020 | December 31, 2019 |
| Cash, cash equivalents and restricted cash | $ | 24,337 | | $ | 17,613 | | | $ | 14,825 | | $ | 18,781 | |
| Investment securities (Note 3) | 5,176 | | 10,008 | | | 41,705 | | 38,514 | |
| Current receivables (Note 4) | 13,151 | | 13,883 | | | 0 | | 0 | |
| Financing receivables - net (Note 5) | 0 | | 0 | | | 7,425 | | 6,979 | |
| Inventories (Note 6) | 14,925 | | 14,104 | | | 0 | | 0 | |
| Other GE Capital receivables | 0 | | 0 | | | 9,609 | | 11,767 | |
| Property, plant and equipment – net (Note 7) | 16,363 | | 17,447 | | | 29,567 | | 29,886 | |
| Receivable from GE Capital | 19,407 | | 19,142 | | | 0 | | 0 | |
| Investment in GE Capital | 13,547 | | 15,299 | | | 0 | | 0 | |
| Goodwill (Note 8) | 25,278 | | 25,895 | | | 0 | | 839 | |
| Other intangible assets – net (Note 8) | 9,759 | | 10,461 | | | 149 | | 192 | |
| Contract and other deferred assets (Note 10) | 15,604 | | 16,833 | | | 0 | | 0 | |
| All other assets | 8,398 | | 8,399 | | | 7,612 | | 8,648 | |
| Deferred income taxes (Note 14) | 9,332 | | 8,189 | | | 2,035 | | 1,700 | |
| Assets of businesses held for sale (Note 2) | 0 | | 8,626 | | | 0 | | 241 | |
| Assets of discontinued operations (Note 2) | 153 | | 202 | | | 3,434 | | 3,907 | |
| Total assets | $ | 175,430 | | $ | 186,100 | | | $ | 116,362 | | $ | 121,454 | |
| | | | | |
| Short-term borrowings (Note 11) | $ | 1,012 | | $ | 5,606 | | | $ | 3,417 | | $ | 12,030 | |
| Short-term borrowings assumed by GE (Note 11) | 2,323 | | 5,473 | | | 1,881 | | 2,104 | |
| Accounts payable, principally trade accounts | 13,984 | | 17,702 | | | 887 | | 886 | |
| Progress collections and deferred income (Note 10) | 19,683 | | 20,694 | | | 0 | | 0 | |
| Other GE current liabilities | 16,931 | | 16,833 | | | 0 | | 0 | |
| Non-recourse borrowings of consolidated securitization entities (Note 11) | 0 | | 0 | | | 452 | | 1,655 | |
| Long-term borrowings (Note 11) | 19,113 | | 15,085 | | | 32,111 | | 26,175 | |
| Long-term borrowings assumed by GE (Note 11) | 21,811 | | 25,895 | | | 17,526 | | 17,038 | |
| Insurance liabilities and annuity benefits (Note 12) | 0 | | 0 | | | 41,876 | | 40,232 | |
| Non-current compensation and benefits | 30,384 | | 31,208 | | | 418 | | 472 | |
| All other liabilities | 15,396 | | 16,156 | | | 3,961 | | 5,278 | |
| Liabilities of businesses held for sale (Note 2) | 0 | | 1,620 | | | 0 | | 52 | |
| Liabilities of discontinued operations (Note 2) | 159 | | 106 | | | 129 | | 97 | |
| Total liabilities | 140,795 | | 156,379 | | | 102,658 | | 106,016 | |
| | | | | |
| | | | | |
| | | | | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2020 and December 31, 2019) | 6 | | 6 | | | 6 | | 6 | |
Common stock (8,759,873,000 and 8,738,434,000 shares outstanding at September 30, 2020 and December 31, 2019, respectively) | 702 | | 702 | | | 0 | | 0 | |
| Accumulated other comprehensive income (loss) - net attributable to GE | (9,498) | | (11,732) | | | (870) | | (852) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other capital | 34,279 | | 34,405 | | | 17,006 | | 17,001 | |
| Retained earnings | 89,905 | | 87,732 | | | (2,595) | | (857) | |
| Less common stock held in treasury | (82,125) | | (82,797) | | | 0 | | 0 | |
| Total GE shareholders’ equity | 33,269 | | 28,316 | | | 13,547 | | 15,299 | |
| Noncontrolling interests | 1,366 | | 1,406 | | | 157 | | 139 | |
| Total equity | 34,635 | | 29,721 | | | 13,704 | | 15,438 | |
| Total liabilities and equity | $ | 175,430 | | $ | 186,100 | | | $ | 116,362 | | $ | 121,454 | |
(a) Represents the adding together of all GE Industrial affiliates and GE Capital continuing operations on a one-line basis. See Note 1.
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) |
| (UNAUDITED) | | | | | |
| | | | | | |
| | Three 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 | $ | 19,358 |
| $ | 18,621 |
| | $ | 39 |
| $ | 34 |
|
| Sales of services | 10,080 |
| 8,313 |
| | — |
| — |
|
| Other income | 2,141 |
| 213 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | 24 |
| 26 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 2,359 |
| 2,566 |
|
| Total revenues and other income | 31,603 |
| 27,172 |
| | 2,397 |
| 2,600 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 16,796 |
| 15,329 |
| | 30 |
| 27 |
|
| Cost of services sold | 6,725 |
| 5,216 |
| | 592 |
| 547 |
|
| Selling, general and administrative expenses | 4,717 |
| 3,880 |
| | 285 |
| 631 |
|
| Interest and other financial charges | 718 |
| 483 |
| | 790 |
| 617 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 640 |
| 700 |
|
| Other costs and expenses(b) | 947 |
| — |
| | 271 |
| 241 |
|
| Total costs and expenses | 29,903 |
| 24,909 |
| | 2,608 |
| 2,763 |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | 1,701 |
| 2,263 |
| | (211 | ) | (163 | ) |
| Benefit (provision) for income taxes | 64 |
| (241 | ) | | 270 |
| 223 |
|
| Earnings (loss) from continuing operations | 1,765 |
| 2,022 |
| | 59 |
| 60 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (105 | ) | (103 | ) | | (106 | ) | (105 | ) |
| Net earnings (loss) | 1,660 |
| 1,918 |
| | (47 | ) | (45 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (140 | ) | (76 | ) | | (2 | ) | 0 |
|
| Net earnings (loss) attributable to the Company | 1,800 |
| 1,994 |
| | (46 | ) | (45 | ) |
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | 1,765 |
| $ | 2,022 |
| | $ | 59 |
| $ | 60 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (140 | ) | (76 | ) | | (1 | ) | 1 |
|
| Earnings (loss) from continuing operations attributable to the Company | 1,905 |
| 2,097 |
| | 60 |
| 59 |
|
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | 1,905 |
| 2,097 |
| | 24 |
| 26 |
|
| Earnings (loss) from discontinued operations, net of taxes | (105 | ) | (103 | ) | | (106 | ) | (105 | ) |
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | — |
| — |
| | (1 | ) | (2 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) |
| |
(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 CASH FLOWS | Nine months ended September 30 |
| (UNAUDITED) | Consolidated |
| (In millions) | 2020 | 2019 |
| Net earnings (loss) | $ | 2,907 | | $ | (5,634) | |
| | |
| | |
| (Earnings) loss from discontinued operations | 206 | | 5,212 | |
| Adjustments to reconcile net earnings (loss) | | |
| to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 3,655 | | 2,969 | |
| Amortization of intangible assets (Note 8) | 1,076 | | 1,220 | |
| Goodwill impairments (Note 8) | 1,717 | | 1,484 | |
| (Earnings) loss from continuing operations retained by GE Capital | 0 | | 0 | |
| (Gains) losses on purchases and sales of business interests (Note 22) | (12,503) | | (260) | |
| (Gains) losses on equity securities (Note 22) | 4,800 | | 230 | |
| Principal pension plans cost (Note 13) | 2,681 | | 2,509 | |
| Principal pension plans employer contributions | (226) | | (202) | |
| Other postretirement benefit plans (net) | (712) | | (809) | |
| Provision (benefit) for income taxes | (637) | | (1) | |
| Cash recovered (paid) during the year for income taxes | (1,138) | | (1,427) | |
| Decrease (increase) in contract and other deferred assets | 563 | | (321) | |
| Decrease (increase) in GE current receivables | (1,665) | | (1,857) | |
| Decrease (increase) in inventories | (258) | | (2,113) | |
| Increase (decrease) in accounts payable | (1,501) | | 1,259 | |
| Increase (decrease) in GE progress collections | (1,397) | | (216) | |
| All other operating activities | 2,320 | | 1,376 | |
| Cash from (used for) operating activities – continuing operations | (112) | | 3,423 | |
| Cash from (used for) operating activities – discontinued operations | 75 | | (1,390) | |
| Cash from (used for) operating activities | (37) | | 2,033 | |
| | |
| Additions to property, plant and equipment | (2,241) | | (4,175) | |
| Dispositions of property, plant and equipment | 1,280 | | 2,796 | |
| Additions to internal-use software | (125) | | (208) | |
| Net decrease (increase) in financing receivables | (37) | | 523 | |
| Proceeds from sale of discontinued operations | 0 | | 5,864 | |
| Proceeds from principal business dispositions | 20,610 | | 1,124 | |
| Net cash from (payments for) principal businesses purchased | (10) | | 0 | |
| Capital contribution from GE to GE Capital | 0 | | 0 | |
| Sales of retained ownership interests in Wabtec | 0 | | 3,383 | |
| All other investing activities | (1,582) | | (2,218) | |
| Cash from (used for) investing activities – continuing operations | 17,895 | | 7,087 | |
| Cash from (used for) investing activities – discontinued operations | (216) | | (2,037) | |
| Cash from (used for) investing activities | 17,679 | | 5,050 | |
| | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (4,198) | | (185) | |
| Newly issued debt (maturities longer than 90 days) | 14,452 | | 1,449 | |
| Repayments and other debt reductions (maturities longer than 90 days) | (24,671) | | (13,476) | |
| Capital contribution from GE to GE Capital | 0 | | 0 | |
| | |
| Dividends paid to shareholders | (412) | | (411) | |
| All other financing activities | (208) | | (1,097) | |
| Cash from (used for) financing activities – continuing operations | (15,038) | | (13,721) | |
| Cash from (used for) financing activities – discontinued operations | 1 | | (368) | |
| Cash from (used for) financing activities | (15,038) | | (14,089) | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (11) | | (131) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 2,593 | | (7,136) | |
| Cash, cash equivalents and restricted cash at beginning of year | 37,077 | | 35,548 | |
| Cash, cash equivalents and restricted cash at September 30 | 39,670 | | 28,412 | |
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 508 | | 602 | |
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 39,162 | | $ | 27,810 | |
|
| | | | | | |
| 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 CASH FLOWS (CONTINUED) | Nine months ended September 30 |
| (UNAUDITED) | GE(a) | | GE Capital |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Net earnings (loss) | $ | 2,624 | | $ | (5,902) | | | $ | (1,449) | | $ | (76) | |
| | | | | |
| | | | | |
| (Earnings) loss from discontinued operations | 206 | | 5,212 | | | 173 | | (255) | |
| Adjustments to reconcile net earnings (loss) | | | | | |
| to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 1,664 | | 1,453 | | | 2,010 | | 1,513 | |
| Amortization of intangible assets (Note 8) | 1,028 | | 1,176 | | | 48 | | 44 | |
| Goodwill impairments (Note 8) | 877 | | 1,484 | | | 839 | | 0 | |
| (Earnings) loss from continuing operations retained by GE Capital | 1,558 | | 599 | | | 0 | | 0 | |
| (Gains) losses on purchases and sales of business interests (Note 22) | (12,445) | | (260) | | | (58) | | 0 | |
| (Gains) losses on equity securities (Note 22) | 4,761 | | 232 | | | 40 | | (2) | |
| Principal pension plans cost (Note 13) | 2,681 | | 2,509 | | | 0 | | 0 | |
| Principal pension plans employer contributions | (226) | | (202) | | | 0 | | 0 | |
| Other postretirement benefit plans (net) | (675) | | (798) | | | (37) | | (11) | |
| Provision (benefit) for income taxes | (22) | | 327 | | | (614) | | (327) | |
| Cash recovered (paid) during the year for income taxes | (1,805) | | (1,346) | | | 667 | | (81) | |
| Decrease (increase) in contract and other deferred assets | 563 | | (321) | | | 0 | | 0 | |
| Decrease (increase) in GE current receivables | (118) | | (2,370) | | | 0 | | 0 | |
| Decrease (increase) in inventories | (211) | | (1,950) | | | 0 | | 0 | |
| Increase (decrease) in accounts payable | (3,305) | | 164 | | | (32) | | (3) | |
| Increase (decrease) in GE progress collections | (1,424) | | (254) | | | 0 | | 0 | |
| All other operating activities | 1,092 | | 322 | | | 766 | | 433 | |
| Cash from (used for) operating activities – continuing operations | (3,175) | | 77 | | | 2,353 | | 1,235 | |
| Cash from (used for) operating activities – discontinued operations | 34 | | (17) | | | 41 | | (1,700) | |
| Cash from (used for) operating activities | (3,141) | | 60 | | | 2,394 | | (465) | |
| | | | | |
| Additions to property, plant and equipment | (1,302) | | (1,596) | | | (992) | | (2,795) | |
| Dispositions of property, plant and equipment | 134 | | 273 | | | 1,153 | | 2,544 | |
| Additions to internal-use software | (121) | | (203) | | | (5) | | (5) | |
| Net decrease (increase) in financing receivables | 0 | | 0 | | | (297) | | 2,399 | |
| Proceeds from sale of discontinued operations | 0 | | 5,864 | | | 0 | | 0 | |
| Proceeds from principal business dispositions | 20,408 | | 1,083 | | | 34 | | 380 | |
| Net cash from (payments for) principal businesses purchased | (10) | | (380) | | | 0 | | 0 | |
| Capital contribution from GE to GE Capital | 0 | | (1,500) | | | 0 | | 0 | |
| Sales of retained ownership interests in Wabtec | 0 | | 3,383 | | | 0 | | 0 | |
| All other investing activities | 210 | | 21 | | | 7,608 | | 211 | |
| Cash from (used for) investing activities – continuing operations | 19,318 | | 6,946 | | | 7,501 | | 2,734 | |
| Cash from (used for) investing activities – discontinued operations | (39) | | (3,480) | | | (177) | | 1,770 | |
| Cash from (used for) investing activities | 19,279 | | 3,466 | | | 7,324 | | 4,504 | |
| | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (4,323) | | (1,005) | | | (460) | | (539) | |
| Newly issued debt (maturities longer than 90 days) | 7,432 | | 5 | | | 7,020 | | 1,445 | |
| Repayments and other debt reductions (maturities longer than 90 days) | (12,129) | | (5,342) | | | (20,043) | | (8,613) | |
| Capital contribution from GE to GE Capital | 0 | | 0 | | | 0 | | 1,500 | |
| | | | | |
| Dividends paid to shareholders | (265) | | (262) | | | (276) | | (266) | |
| All other financing activities | (84) | | (317) | | | (125) | | (805) | |
| Cash from (used for) financing activities – continuing operations | (9,369) | | (6,923) | | | (13,883) | | (7,279) | |
| Cash from (used for) financing activities – discontinued operations | 1 | | (368) | | | 0 | | (1) | |
| Cash from (used for) financing activities | (9,369) | | (7,290) | | | (13,883) | | (7,279) | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (50) | | (103) | | | 38 | | (28) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | 6,719 | | (3,867) | | | (4,126) | | (3,269) | |
| Cash, cash equivalents and restricted cash at beginning of year | 17,617 | | 20,528 | | | 19,460 | | 15,020 | |
| Cash, cash equivalents and restricted cash at September 30 | 24,337 | | 16,660 | | | 15,333 | | 11,751 | |
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 0 | | 4 | | | 508 | | 598 | |
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 24,337 | | $ | 16,656 | | | $ | 14,825 | | $ | 11,154 | |
(a) Represents the adding together of all GE Industrial affiliates and the impact of GE Capital dividends on a one-line basis. See Note 1.
|
| | | | | | | | | | | | | |
| 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.
| | | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions, net of tax) | 2020 | 2019 | | 2020 | 2019 |
| Net earnings (loss) | $ | (1,195) | | $ | (9,383) | | | $ | 2,907 | | $ | (5,634) | |
| Less net earnings (loss) attributable to noncontrolling interests | (51) | | 40 | | | (161) | | 73 | |
| Net earnings (loss) attributable to the Company | $ | (1,144) | | $ | (9,423) | | | $ | 3,068 | | $ | (5,707) | |
| | | | | |
| Investment securities | $ | 9 | | $ | 18 | | | $ | (5) | | $ | 116 | |
| Currency translation adjustments | 55 | | 762 | | | 133 | | 1,044 | |
| Cash flow hedges | 24 | | (2) | | | (134) | | 10 | |
| Benefit plans | 609 | | 655 | | | 2,248 | | 1,838 | |
| Other comprehensive income (loss) | 695 | | 1,433 | | | 2,241 | | 3,010 | |
| Less: other comprehensive income (loss) attributable to noncontrolling interests | 0 | | (58) | | | 7 | | (43) | |
| Other comprehensive income (loss) attributable to the Company | $ | 695 | | $ | 1,491 | | | $ | 2,234 | | $ | 3,053 | |
| | | | | |
| Comprehensive income (loss) | $ | (499) | | $ | (7,950) | | | $ | 5,147 | | $ | (2,624) | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | (50) | | (19) | | | (154) | | 30 | |
| Comprehensive income (loss) attributable to the Company | $ | (449) | | $ | (7,931) | | | $ | 5,302 | | $ | (2,654) | |
| | | | | | | | | | | | | | | | | |
| CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Preferred stock issued | $ | 6 | | $ | 6 | | | $ | 6 | | $ | 6 | |
| Common stock issued | $ | 702 | | $ | 702 | | | $ | 702 | | $ | 702 | |
| | | | | |
| Beginning balance | (10,194) | | (12,852) | | | (11,732) | | (14,414) | |
| Investment securities | 9 | | 18 | | | (5) | | 116 | |
| Currency translation adjustments | 55 | | 824 | | | 129 | | 1,084 | |
| Cash flow hedges | 24 | | (2) | | | (134) | | 11 | |
| Benefit plans | 609 | | 650 | | | 2,245 | | 1,842 | |
| Accumulated other comprehensive income (loss) ending balance | $ | (9,498) | | $ | (11,361) | | | $ | (9,498) | | $ | (11,361) | |
| Beginning balance | 34,292 | | 34,324 | | | 34,405 | | 35,504 | |
| Gains (losses) on treasury stock dispositions | (162) | | (160) | | | (574) | | (817) | |
| Stock-based compensation | 104 | | 118 | | | 319 | | 382 | |
| Other changes | 46 | | 33 | | | 129 | | (753) | |
| Other capital ending balance | $ | 34,279 | | $ | 34,315 | | | $ | 34,279 | | $ | 34,315 | |
| Beginning balance | 91,188 | | 96,773 | | | 87,732 | | 93,109 | |
| Net earnings (loss) attributable to the Company | (1,144) | | (9,423) | | | 3,068 | | (5,707) | |
| Dividends and other transactions with shareholders | (139) | | (138) | | | (720) | | (557) | |
| Changes in accounting (Note 1) | 0 | | 0 | | | (175) | | 368 | |
| Retained earnings ending balance | $ | 89,905 | | $ | 87,213 | | | $ | 89,905 | | $ | 87,213 | |
| Beginning balance | (82,320) | | (83,137) | | | (82,797) | | (83,925) | |
| Purchases | (3) | | (8) | | | (25) | | (53) | |
| Dispositions | 198 | | 204 | | | 697 | | 1,038 | |
| Common stock held in treasury ending balance | $ | (82,125) | | $ | (82,940) | | | $ | (82,125) | | $ | (82,940) | |
| GE shareholders' equity balance | 33,269 | | 27,935 | | | 33,269 | | 27,935 | |
| Noncontrolling interests balance (Note 15) | 1,524 | | 1,219 | | | 1,524 | | 1,219 | |
| Total equity balance at September 30(a) | $ | 34,793 | | $ | 29,153 | | | $ | 34,793 | | $ | 29,153 | |
(a)Total equity balance increased by $5,639 in the last twelve months from September 30, 2019, primarily due to after-tax gain of $11,214 million due to the sale of our BioPharma business within our Healthcare segment, partially offset by after-tax change in unrealized loss on our remaining interest in Baker Hughes $(3,679) million in the nine months ended September 30, 2020. See Notes 2 and 21 for further information.
|
| | | | | | | | | | | | | |
| 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/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.
|
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.
|
| | |
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 accompanyingPOLICIES. We present our financial statements in a three-column format, which allows investors to see our GE industrial operations separately from our financial services operations. We believe that this provides useful supplemental information to our consolidated financial statements representstatements. To the consolidation of General Electric Company (the Company) and all companiesextent 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), “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 consists of General Capital Global Holdings, LLC (GECGH) and all of its affiliates; and “Consolidated” represents the adding together ofhave transactions between GE and GE Capital, these transactions are made on arm's length terms, are reported in the respective columns of our financial statements and are eliminated in consolidation. See Note 20 for further information.
Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP), which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. In particular, a number of estimates have been and will continue to be affected by the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time in response to COVID-19. Such changes could result in future impairments of goodwill, intangibles, long-lived assets and investment securities, revisions to estimated profitability on long-term product service agreements, incremental credit losses on receivables and debt securities, a decrease in the carrying amount of our tax assets, or an increase in our insurance liabilities and pension obligations as of the time of a relevant measurement event.
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 transactions betweencurrency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the two eliminated. Unless otherwise indicated, we refertiming of settlements to the caption revenuessuppliers for property, plant and equipment, non-cash gains/losses and other income simply as “revenues” throughout this Form 10-Q.balance sheet reclassifications.
We have reclassified certain prior-period amounts to conform to the current-periodcurrent-period’s 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. Earnings per share amounts are computed independently for earnings from continuing operations, earnings from discontinued operations and net earnings. As a result, the sum of per-share amounts may not equal the total. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. We present businesses whose disposal represents a strategic shift that has, or will have, a major effect on our operations and financial results as discontinued operations when the components meet the criteria for held for sale, are sold, or spun-off. See Note 2 for further information.
INTERIM PERIOD PRESENTATION
The accompanying consolidated financial statements and notes thereto 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 reported 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 theseThese consolidated financial statements should 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, 2016.2019.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer toOur significant accounting policies are described in 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.
Allowance for credit losses. When we record customer receivables, contract assets and financing receivables arising from revenue transactions, as well as commercial mortgage loans and reinsurance recoverables in GE Capital’s run-off insurance operations, financial guarantees and certain commitments, we record an allowance for credit losses for the discussioncurrent expected credit losses (CECL) inherent in the asset over its expected life. The allowance for credit losses is a valuation account deducted from the amortized cost basis of our significant accounting policies.the assets to present their net carrying value at the amount expected to be collected. Each period the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets. We evaluate debt securities with unrealized losses to determine whether any of the losses arise from concerns about the issuer’s credit or the underlying collateral and record an allowance for credit losses, if required.
We estimate expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. When measuring expected credit losses, we pool assets with similar country risk and credit risk characteristics. Changes in the relevant information may significantly affect the estimates of expected credit losses.
ACCOUNTING CHANGES
CHANGES.On January 1, 2017,2020, we adopted ASU 2015-11, SimplifyingNo. 2016-13, Financial Instruments - Credit Losses (ASU 2016-13). ASU 2016-13 requires us to prospectively record an allowance for credit losses for the Measurementcurrent expected credit losses inherent in the asset over its expected life, replacing the incurred loss model that recognized losses only when they became probable and estimable. We recorded a $221 million increase in our allowance for credit losses and a $175 million decrease to retained earnings, net of Inventory, which was intendedtax, reflecting the cumulative effect on retained earnings.
In March 2020, the SEC issued a final rule amending disclosure requirements for guarantors and issuers of registered guaranteed securities under SEC Regulation S-X, Rule 3-10. The final rule is effective for filings on or after January 4, 2021, however early application is permitted. As a result of the simplification provided by this rule, beginning with our quarterly report on Form 10-Q for the period ended June 30, 2020, we have elected to simplifyearly adopt the subsequent 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.disclosure requirements.
76 20172020 3Q FORM 10-Q45
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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
On September 25, 2017, we signed an agreement to sell our Industrial Solutions business within our Power segment with assets of $2,220 million and liabilities of $561 million, to ABB for approximately $2,600 million. The transaction is targeted to close in mid-2018.
SALE. 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, 2017,31, 2020, we completed the sale of our BioPharma business within our Healthcare segment for total consideration of $3,041$21,112 million net(after certain working capital adjustments). The consideration consisted of obligations$20,695 million in cash and $417 million of pension liabilities that were assumed andby Danaher. In addition, we incurred $185 million of cash transferred, (including $122 million from sale of receivables originated in our Water business and sold from GE Capital to Suez) andpayments directly associated with the transaction. As a result, we recognized an after-taxa pre-tax gain of $1,872$12,362 million in the third quarter of 2017 in the caption “Other income”($11,214 million after-tax) in our consolidated Statement of Earnings.Earnings (Loss).
In the first half of 2020, we sold all our remaining businesses classified as held for sale, including the remaining Lighting business within our Corporate segment and the remaining PK AirFinance business within our Capital segment. |
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| 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. |
DISCONTINUED OPERATIONS
. Discontinued operations primarily relate toinclude our financial servicesBaker Hughes and Transportation segments, and certain businesses as a result of thein our GE Capital Exit Plan,segment (our mortgage portfolio in Poland and also includestrailing liabilities associated with the remaining assetssale of our U.S. mortgage business (WMC). All of these operations were previously reported in theGE Capital segment.businesses). Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
In September 2019, we reduced our ownership interest in Baker Hughes from 50.2% to 36.8%. As a result, we deconsolidated our Baker Hughes segment and reclassified its results to discontinued operations for all periods presented and recognized a loss of $8,715 million ($8,238 million after-tax).
We have entered into Transitional Service Agreements (TSA)continuing involvement with Baker Hughes (BKR) primarily through our remaining interest, ongoing purchases and provided certain indemnificationssales of products and services, transition services that we provide to buyersBKR, as well as an aeroderivative joint venture (JV) we formed with BKR in the fourth quarter of 2019.
The JV is jointly controlled by GE Capital’s assets. Underand BKR and is consolidated by GE due to the TSAs,significance of our investment in BKR. Our Aviation segment sells products and services to the JV. In turn, the JV sells products and services primarily to BKR and our Power segment. Transactions between the JV and GE Capital provides variousbusinesses are eliminated in consolidation. In the first nine months of 2020, we had sales of $432 million to BKR for products and services for terms generally between 12 and 24 months and receives a level of cost reimbursement from the buyers. See Note 18JV, and we collected cash of $389 million. If our investment in BKR is reduced to below 20%, we would no longer have significant influence in BKR and, as a result, we would not consolidate the JV. A potential deconsolidation of the JV is not expected to have a material impact on GE Industrial free cash flows.
In addition, in the first nine months of 2020, we had sales of $536 million and purchases of $167 million with BKR for further information about indemnifications. products and services outside of the JV. We collected net cash of $593 million from BKR related to sales, purchases and transition services. In addition, we received $147 million of repayments on the promissory note receivable from BKR and dividends of $204 million on our investment.
In February 2019, we completed the spin-off and subsequent merger of our Transportation business with Wabtec. As a result, we recorded a gain of $3,471 million ($2,508 million after-tax) in discontinued operations.
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RESULTS OF DISCONTINUED OPERATIONS (In millions) | Baker Hughes | | Transportation | | | | GE Capital | | Total | | |
| Three months ended September 30 | 2020 | 2019 | | 2020 | 2019 | | | | | 2020 | 2019 | | 2020 | 2019 | | | |
| Operations | | | | | | | | | | | | | | | | | |
| Sales of goods and services | $ | 0 | | $ | 4,478 | | | $ | 0 | | $ | 0 | | | | | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 4,478 | | | | |
| GE Capital revenues from services | 0 | | 0 | | | 0 | | 0 | | | | | | 43 | | 16 | | | 43 | | 16 | | | | |
| Cost of goods and services sold | 0 | | (3,686) | | | 0 | | 0 | | | | | | 0 | | 0 | | | 0 | | (3,686) | | | | |
| Other income, costs and expenses | 4 | | (618) | | | 2 | | (16) | | | | | | (63) | | (53) | | | (57) | | (686) | | | | |
| | | | | | | | | | | | | | | | | |
Earnings (loss) of discontinued operations before income taxes | 4 | | 175 | | | 2 | | (16) | | | | | | (20) | | (37) | | | (14) | | 121 | | | | |
| Benefit (provision) for income taxes | (5) | | (50) | | | 0 | | 6 | | | | | | (8) | | 29 | | | (12) | | (14) | | | | |
Earnings (loss) of discontinued operations, net of taxes(a) | $ | 0 | | $ | 125 | | | $ | 2 | | $ | (9) | | | | | | $ | (28) | | $ | (8) | | | $ | (26) | | $ | 107 | | | | |
| | | | | | | | | | | | | | | | | |
| Disposal | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposal before income taxes | 0 | | (8,667) | | | (12) | | 0 | | | | | | 3 | | (10) | | | (8) | | (8,677) | | | | |
| Benefit (provision) for income taxes | 0 | | 477 | | | 0 | | 0 | | | | | | (1) | | 0 | | | (1) | | 477 | | | | |
| Gain (loss) on disposal, net of taxes | $ | 0 | | $ | (8,190) | | | $ | (12) | | $ | 0 | | | | | | $ | 2 | | $ | (10) | | | $ | (9) | | $ | (8,201) | | | | |
| | | | | | | | | | | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | 0 | | $ | (8,066) | | | $ | (10) | | $ | (9) | | | | | | $ | (26) | | $ | (18) | | | $ | (35) | | $ | (8,093) | | | | |
201746 2020 3Q FORM 10-Q77
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| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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| Baker Hughes | | Transportation | | | | GE Capital | | | | Total |
| Nine months ended September 30 | 2020 | 2019 | | 2020 | 2019 | | | | | 2020 | 2019 | | | | | 2020 | 2019 |
| Operations | | | | | | | | | | | | | | | | | |
| Sales of goods and services | $ | 0 | | $ | 16,047 | | | $ | 0 | | $ | 549 | | | | | | $ | 0 | | $ | 0 | | | | | | $ | 0 | | $ | 16,596 | |
| GE Capital revenues from services | 0 | | 0 | | | 0 | | 0 | | | | | | 38 | | 7 | | | | | | 38 | | 7 | |
| Cost of goods and services sold | 0 | | (13,317) | | | 0 | | (478) | | | | | | 0 | | 0 | | | | | | 0 | | (13,795) | |
| Other income, costs and expenses | 1 | | (2,386) | | | (1) | | (22) | | | | | | (209) | | (142) | | | | | | (209) | | (2,550) | |
| | | | | | | | | | | | | | | | | |
Earnings (loss) of discontinued operations before income taxes | 1 | | 345 | | | (1) | | 49 | | | | | | (171) | | (136) | | | | | | (171) | | 258 | |
| Benefit (provision) for income taxes | (15) | | (165) | | | 7 | | (13) | | | | | | (4) | | 356 | | | | | | (12) | | 178 | |
Earnings (loss) of discontinued operations, net of taxes(a) | $ | (14) | | $ | 179 | | | $ | 6 | | $ | 36 | | | | | | $ | (175) | | $ | 220 | | | | | | $ | (184) | | $ | 436 | |
| | | | | | | | | | | | | | | | | |
| Disposal | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposal before income taxes | (13) | | (8,667) | | | (12) | | 3,471 | | | | | | 3 | | 36 | | | | | | (22) | | (5,160) | |
| Benefit (provision) for income taxes | 0 | | 477 | | | 0 | | (963) | | | | | | (1) | | (2) | | | | | | (1) | | (488) | |
| Gain (loss) on disposal, net of taxes | $ | (13) | | $ | (8,190) | | | $ | (12) | | $ | 2,508 | | | | | | $ | 2 | | $ | 35 | | | | | | $ | (23) | | $ | (5,648) | |
| | | | | | | | | | | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (27) | | $ | (8,011) | | | $ | (6) | | $ | 2,544 | | | | | | $ | (173) | | $ | 255 | | | | | | $ | (206) | | $ | (5,212) | |
(a) Earnings (loss) of discontinued operations attributable to the Company after income taxes was $(26) million and $61 million for the three months ended September 30, 2020 and 2019, respectively. Earnings (loss) of discontinued operations attributable to the Company after income taxes was $(181) million and $378 million for the nine months ended September 30, 2020 and 2019, respectively.
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ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS (In millions) | September 30, 2020 | December 31, 2019 |
| Cash, cash equivalents and restricted cash | $ | 508 | | $ | 638 | |
| Investment securities | 0 | | 202 | |
| Current receivables | 61 | | 81 | |
| | |
| Financing receivables held for sale (Polish mortgage portfolio) | 2,469 | | 2,485 | |
| Property, plant, and equipment | 107 | | 123 | |
| | |
| Deferred income taxes | 226 | | 264 | |
| All other assets | 217 | | 317 | |
| Assets of discontinued operations(a) | $ | 3,587 | | $ | 4,109 | |
| | |
| Accounts payable & Progress collections and deferred income | $ | 15 | | $ | 40 | |
| | |
| | |
| | |
| All other liabilities(b) | 273 | | 163 | |
| Liabilities of discontinued operations(a) | $ | 288 | | $ | 203 | |
(a)Assets and liabilities of discontinued operations included $3,434 million and $129 million related to GE Capital as of September 30, 2020, respectively.
(b) Included within All other liabilities of discontinued operations at September 30, 2020 and December 31, 2019 are intercompany tax receivables in the amount of $734 million and $839 million, respectively, primarily related to the financial services businesses that were part of the GE Capital Exit Plan, which are eliminated upon consolidation.
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| 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.
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| |
(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).
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| |
(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.
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| (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 |
|
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3. INVESTMENT SECURITIES
Substantially allSECURITIES. All 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 anyChanges in fair value of our debt securities classified as held-to-maturity. are recorded in Other comprehensive income. Equity securities with readily determinable fair values are included within this caption and changes in their fair value are recorded in earnings.
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| September 30, 2020 | | December 31, 2019 |
| (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 | $ | 23,649 | | $ | 6,090 | | $ | (83) | | $ | 29,656 | | | $ | 23,037 | | $ | 4,636 | | $ | (11) | | $ | 27,661 | |
| Non-U.S. corporate | 2,290 | | 364 | | (2) | | 2,652 | | | 2,161 | | 260 | | (1) | | 2,420 | |
| State and municipal | 3,322 | | 878 | | (18) | | 4,182 | | | 3,086 | | 598 | | (15) | | 3,669 | |
| Mortgage and asset-backed | 3,561 | | 147 | | (100) | | 3,609 | | | 3,117 | | 116 | | (4) | | 3,229 | |
| Government and agencies | 1,266 | | 198 | | 0 | | 1,464 | | | 1,391 | | 126 | | 0 | | 1,516 | |
| Equity | 5,318 | | — | | — | | 5,318 | | | 10,025 | | — | | — | | 10,025 | |
| Total | $ | 39,406 | | $ | 7,677 | | $ | (202) | | $ | 46,881 | | | $ | 42,816 | | $ | 5,736 | | $ | (31) | | $ | 48,521 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
|
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(a)FINANCIAL STATEMENTS | 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
(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.
|
The amortized cost of debt securities as of September 30, 2020, excludes accrued interest of $442 million, which is reported in Other GE Capital receivables.
The estimated fair values of investment securities at September 30, 2020 decreased since December 31, 2019, primarily due to the mark-to-market effects on our remaining interest in BKR, partially offset by a decrease in market yields and new investments in our insurance business. The fair value of the remaining BKR interest and promissory note receivable was $5,102 million at September 30, 2020.
Gross unrealized losses of $(169) million and $(33) million are associated with debt securities with a fair value of $2,413 million and $153 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at September 30, 2020. Gross unrealized losses of $(11) million and $(20) million are associated with debt securities with a fair value of $724 million and $274 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at December 31, 2019.
As of September 30, 2020, gross unrealized losses of $(202) million included $(83) million related to U.S. corporate securities, primarily in the energy industry, and $(87) million related to commercial mortgage-backed securities (CMBS). Substantially all of our CMBS in an unrealized loss position have received investment-grade credit ratings from the major rating agencies and are collateralized by pools of commercial mortgage loans on real estate.
Net unrealized gains (losses) for equity securities with readily determinable fair values, which are recorded in Other income within continuing operations, were $(776) million and $(89) million for the three months ended and $(4,619) million and $(131) million for the nine months ended September 30, 2020 and 2019, respectively.
Proceeds from debt and equity securities sales, early redemptions by issuers and principal payments on the BKR promissory note totaled $833 million and $2,318 million for the three months ended and $3,538 million and $6,652 million for the nine months ended September 30, 2020 and 2019, respectively. Gross realized gains on investment securities were $17 million and $10 million for the three months ended and $145 million and $86 million for the nine months ended September 30, 2020 and 2019, respectively. Gross realized losses and impairments were $(10) million and $(75) million for the three months ended and $(95) million and $(181) million for the nine months ended September 30, 2020 and 2019, respectively.
Contractual maturities of investments in debt securities (excluding mortgage and asset-backed securities) as of September 30, 2020 are due as follows:
| | | | | | | | |
| (In millions) | Amortized
cost | Estimated
fair value |
| | |
| Within one year | $ | 673 | | $ | 684 | |
| After one year through five years | 2,568 | | 2,799 | |
| After five years through ten years | 6,516 | | 7,732 | |
| After ten years | 20,771 | | 26,739 | |
We expect actual maturities to differ from contractual maturities because issuers have the right to call or prepay certain obligations.
Substantially all our equity securities are classified within Level 1 and substantially all our debt securities are classified within Level 2, as their valuation is determined based on significant observable inputs. Investments with a fair value of $4,452$5,548 million and $4,406$5,210 million wereare classified within Level 3, (significantas significant inputs to the valuation model are unobservable)unobservable at September 30, 20172020 and December 31, 2016,2019, respectively. The remaining investments are substantially all classified within Level 2 (determined based on significant observable inputs). During the nine months ended September 30, 20172020 and 2016,2019, 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 indicativeIn addition to the equity securities described above, we hold $258 million and $517 million of the amount of credit loss that would be recognized andequity securities without readily determinable fair value 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 securities2020 and December 31, 2019, respectively, that are classified within All other assets in an unrealized loss position and believe that it is not more likely than not that we will be required to sell the vast majorityour consolidated Statement of these securities before anticipated recovery of our amortized cost. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during 2017 have not changed.
Total pre-tax, other-than-temporaryFinancial Position. Fair value adjustments, including impairments, on investment securities recognizedrecorded in earnings were anboth insignificant amountamounts for the three months ended and $28$(163) million and $25 million for the nine months ended September 30, 20172020 and 2016,2019, respectively.
201748 2020 3Q FORM 10-Q79
|
| | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
| | | | | | | | | | | | | | | | | |
| CURRENT RECEIVABLES | Consolidated | | GE |
| (In millions) | September 30, 2020 | December 31, 2019 | | September 30, 2020 | December 31, 2019 |
| Customer receivables(a) | $ | 13,862 | | $ | 12,594 | | | $ | 9,500 | | $ | 9,507 | |
| Sundry receivables(b)(c) | 4,652 | | 5,049 | | | 4,861 | | 5,247 | |
| Allowance for credit losses(d) | (1,212) | | (874) | | | (1,210) | | (872) | |
| Total current receivables | $ | 17,302 | | $ | 16,769 | | | $ | 13,151 | | $ | 13,883 | |
(a) Includes Aviation receivables from CFM International (CFM) due to 737 MAX temporary fleet grounding of $801 million and $1,397 million as of September 30, 2020 and December 31, 2019, respectively. During 2020, CFM and Boeing reached an agreement to secure payment terms for engines delivered in 2019 and 2020, net of progress collections. Based on the agreement, the receivable is expected to be collected from Boeing through the first quarter of 2021.
(b) Includes supplier advances, revenue sharing programs receivables in our Aviation business, other non-income based tax receivables, primarily value-added tax related to our operations in various countries outside of the U.S., receivables from disposed businesses, including receivables for transactional services agreements and certain intercompany balances that eliminate upon consolidation. Revenue sharing program receivables in Aviation are amounts due from third parties who participate in engine programs by developing and supplying certain engine components through the life of the program. The participants share in program revenues, receive a share of customer progress payments and share costs related to discounts and warranties.
(c) Consolidated current receivables include deferred purchase price which 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 as of September 30, 2020 and December 31, 2019 was $480 million and $421 million, respectively.
(d) GE allowance for credit losses primarily increased due to net new provisions of $313 million, offset by write-offs and foreign currency impact.
Sales of GE current customer receivables. When GE sells customer receivables to GE Capital or third parties, it accelerates the receipt of cash that would otherwise have been collected from customers. 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. GE sales of customer receivables 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. As of September 30, 2020 and 2019, GE sold approximately 45% and 54%, respectively, of its gross customer receivables to GE Capital or third parties. Activity related to customer receivables sold by GE is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| (In millions) | GE Capital | | Third Parties | | GE Capital | | Third Parties |
| Balance at January 1 | $ | 3,087 | | | $ | 6,757 | | | $ | 4,386 | | | $ | 7,880 | |
| GE sales to GE Capital | 24,630 | | | — | | | 30,243 | | | — | |
| GE sales to third parties | — | | | 1,063 | | | — | | | 4,206 | |
| GE Capital sales to third parties | (13,757) | | | 13,757 | | | (20,505) | | | 20,505 | |
| Collections and other | (9,805) | | | (18,119) | | | (10,606) | | | (26,209) | |
| Reclassification from long-term customer receivables | 207 | | | 0 | | | 265 | | | 0 | |
| Balance at September 30 | $ | 4,362 | | (a) | $ | 3,458 | | | $ | 3,782 | | (a) | $ | 6,382 | |
(a) At September 30, 2020 and 2019, $640 million and $707 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 cash flows from operating activities (CFOA) of claims by GE Capital on receivables sold with recourse was insignificant for the nine months ended September 30, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| LONG-TERM RECEIVABLES | Consolidated | | GE |
| (In millions) | September 30, 2020 | December 31, 2019 | | September 30, 2020 | December 31, 2019 |
| Long-term customer receivables(a) | $ | 673 | | $ | 906 | | | $ | 483 | | $ | 506 | |
| Long-term sundry receivables(b) | 1,525 | | 1,504 | | | 1,726 | | 1,834 | |
| Allowance for credit losses | (140) | | (128) | | | (140) | | (128) | |
| Total long-term receivables | $ | 2,058 | | $ | 2,282 | | | $ | 2,069 | | $ | 2,212 | |
(a) As of September 30, 2020 and December 31, 2019, GE Capital held $190 million and $400 million, respectively, of GE long-term customer receivables, of which $173 million and $312 million had been purchased with recourse (i.e., GE retains all or some risk of default). GE sold an insignificant amount of long-term customer receivables during the nine months ended September 30, 2020 and 2019.
(b) Includes supplier advances, revenue sharing programs receivables, other non-income based tax receivables and certain intercompany balances that eliminate upon consolidation.
|
| | | | | | |
| 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 |
|
| | | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We expect actual maturitiesUNCONSOLIDATED RECEIVABLES FACILITIES. GE Capital has 2 revolving receivables facilities, under which customer receivables purchased from GE are sold to differ from contractual maturities because borrowers havethird parties. In the rightfirst facility, which has a program size of $2,500 million, upon the sale of receivables, we receive proceeds of cash and deferred purchase price and the Company’s remaining risk with respect to call or prepay certain obligations.
Although we generally do not have the intentsold receivables is limited to sell any specific securities at the endbalance of the period,deferred purchase price. In the second facility, which has a program size of $800 million, 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. The program sizes of the first facility and the second facility at December 31, 2019 were $3,100 million and $1,200 million, respectively.
Activity related to these facilities is included in the ordinary courseGE Capital sales to third parties line in the sales of managing our investment securities portfolio, we may sell securities prior to their maturities for a varietyGE current customer receivables table above and is as follows:
| | | | | | | | | | | |
Nine months ended September 30 (In millions) | 2020 | | 2019 |
| Customer receivables sold to receivables facilities | $ | 10,570 | | | $ | 16,062 | |
| Total cash purchase price for customer receivables | 10,060 | | | 15,702 | |
| Cash collections re-invested to purchase customer receivables | 8,865 | | | 13,287 | |
| | | |
| Non-cash increases to deferred purchase price | $ | 446 | | | $ | 170 | |
| Cash payments received on deferred purchase price | 388 | | | 270 | |
CONSOLIDATED SECURITIZATION ENTITIES. GE Capital consolidates 3 variable interest entities (VIEs) that purchased customer receivables and long-term customer receivables from GE. At September 30, 2020 and December 31, 2019, these VIEs held current customer receivables 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$1,646 million and $7$2,080 million and gross realized losses were $(5)long-term customer receivables of $190 million and $(12)$375 million, respectively. At September 30, 2020 and December 31, 2019, the outstanding non-recourse debt under their respective debt facilities was $452 million and $1,655 million, respectively.
NOTE 5. FINANCING RECEIVABLES AND ALLOWANCES
| | | | | | | | | | | | | | | | | |
| Consolidated | | GE Capital |
| (In millions) | September 30, 2020 | December 31, 2019 | | September 30, 2020 | December 31, 2019 |
| Loans, net of deferred income | $ | 1,192 | | $ | 1,098 | | | $ | 5,572 | | $ | 4,927 | |
| Investment in financing leases, net of deferred income | 1,914 | | 2,070 | | | 1,914 | | 2,070 | |
| 3,106 | | 3,168 | | | 7,486 | | 6,996 | |
| Allowance for losses | (85) | | (33) | | | (61) | | (17) | |
| Financing receivables – net | $ | 3,021 | | $ | 3,134 | | | $ | 7,425 | | $ | 6,979 | |
Consolidated finance lease income was $33 million and $43 million in the three months ended September 30, 20172020 and 2016, respectively. Gross realized gains on available-for-sale investment securities were $1972019, respectively, and $111 million and $49 million, and gross realized losses were $(9) million and $(52)$135 million in the nine months ended September 30, 20172020 and 2016,2019, respectively.
Proceeds from investment securities sales and early redemptions by issuers totaled $659 million and $416 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 million and $1,283 million in the nine months ended September 30, 2017 and 2016, respectively primarily from sales of U.S. corporate securities and Government and agencies.
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.
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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 |
During the nine months ended September 30, 2017, GE Industrial recognized a loss of $100 million resulting from a discount on the sale of these receivables to GE Capital. GE Capital recovered the majority of this loss on the sale of the receivables to third party purchasers.
At September 30, 2017, GE Capital, under the Receivables Facility, serviced $2,903 million of transferred receivables that remain outstanding.
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 RECEIVABLES
|
| | | | | | |
| 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 |
|
We manage our GE Capital financing receivables portfolio using delinquency and nonaccrual data as key performance indicators. At September 30, 2017, $718 million (2.9%)2020, 5.2%, $165 million (0.7%)4.0% and $317 million (1.3%)4.6% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. Ofrespectively, with the $317 millionvast majority of nonaccrual 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.collateral. At December 31, 2016, $811 million (3.1%)2019, 4.2%, $407 million (1.6%)2.9% and $322 million (1.2%)6.1% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively.
The recorded investmentGE Capital financing receivables that comprise receivables purchased from GE are reclassified to either Current receivables or All other assets in impaired loans at September 30, 2017our consolidated Statement of Financial Position. To the extent these receivables are purchased with full or limited recourse, they are excluded from the delinquency and December 31, 2016 was $352 million and $262 million, respectively. The method used to measure impairmentnonaccrual data above. See Note 4 for these loans is primarily based on collateral value. At September 30, 2017, troubled debt restructurings included in impaired loans were $137 million.further information.
| | | | | | | | |
| (In millions) | September 30, 2020 | December 31, 2019 |
| Raw materials and work in process | $ | 8,819 | | $ | 8,771 | |
| Finished goods | 6,106 | | 5,333 | |
| Total inventories | $ | 14,925 | | $ | 14,104 | |
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
| | | | | | | | |
| (In millions) | September 30, 2020 | December 31, 2019 |
| Original cost | $ | 76,885 | | $ | 75,187 | |
| Less accumulated depreciation and amortization | (34,675) | | (31,897) | |
| Property, plant and equipment – net | $ | 42,211 | | $ | 43,290 | |
|
| | | | | | |
| (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 |
|
| | | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Consolidated depreciation and amortization on property, plant and equipment was $1,397$1,374 million and $1,136$1,004 million infor the three months ended September 30, 20172020 and 2016,2019, respectively, and $3,715$3,655 million and $3,641$2,969 million in the nine months ended September 30, 20172020 and 2016,2019, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 8. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
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 closed on April 20, 2017. The preliminary purchase price allocation resulted in goodwill of approximately $1,300 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 firstthird quarter of 2017,2020, we acquired the remaining 96%recognized a non-cash pre-tax impairment charge of ServiceMax, a leader in cloud-based field service management solutions, for $867$316 million net of cash acquired of $91 million. Upon gaining control, we fair valued therelated to property, plant and equipment at our Steam 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 inwithin our Power Segment. The agreementsegment due 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% inour recent announcement to exit the new combined company. The operating assets ofbuild coal power market. We determined 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 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 value for the portion attributable to Baker Hughes and at our historical cost for the portion attributable to GE Oil & Gas. The fair value of the noncontrolling interest associated with the acquired netthese assets using an income approach. This charge was determinedrecorded by the publicly traded share priceCorporate in Selling, general, and administrative expenses in our consolidated Statement of Baker Hughes at the close 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.Earnings (Loss).
The tables below present the preliminary fair value of the consideration exchanged and the preliminary allocation of purchase price to the major classes of assets and liabilities of the acquired Baker Hughes business and the associated fair value of preexisting noncontrolling interest related 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.
|
| | | |
| 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 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | |
| 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 million 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, and subsequent to the transaction. GE will be responsible for certain taxes related to the formation of the transaction undertaken by GE and Baker Hughes and their respective subsidiaries. We have assumed approximately $35 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 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 September 30, 2017, acquisition costs2020, our GE Capital Aviation Services (GECAS) business recognized pre-tax impairments of $159$160 million and $310$497 million, respectively, primarily on its fixed-wing aircraft operating lease portfolio. Pre-tax impairments were expensed as incurred and were reported as selling, general and administrative expenses.
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$28 million and $(441)$57 million respectively, related tofor 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 Companythree 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.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The unaudited combined pro forma results do not include any incremental cost savings that may result from 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 information 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.
|
| | | | | | | | | | | | | |
| | 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 periodnine months ended September 30, 20162019, respectively. We determined the fair values of these assets using primarily the income approach. These charges are included in costs of services sold within the Statement of Earnings (Loss) and exclusionwithin our Capital segment.
Income on our operating lease portfolio, primarily from our GECAS business, was $844 million and $935 million for the three months ended September 30, 2020 and 2019, respectively, and comprised fixed lease income of those costs from all other periods presented;$713 million and the amortization associated with an estimate$757 million and variable lease income of the acquired intangible assets. A non-recurring contractually obligated termination fee of $3,500$131 million ($3,320and $179 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 inrespectively. Income on our operating lease portfolio was $2,515 million and $2,885 million for the nine months ended September 30, 2016.2020 and 2019, respectively, and comprised fixed lease income of $2,132 million and $2,296 million and variable lease income of $384 million and $589 million, respectively.
GOODWILLOperating Lease Assets and Liabilities. Our consolidated Right of use operating lease (ROU) assets, included within property, plant and equipment in our Statement of Financial Position were $2,619 million and $2,896 million, as of September 30, 2020 and December 31, 2019, respectively. Our consolidated operating lease liabilities, included in All other liabilities in our Statement of Financial Position, were $2,943 million and $3,162 million, as of September 30, 2020 and December 31, 2019, respectively, which included GE Industrial operating lease liabilities of $3,117 million and $3,369 million, respectively.
| | | | | | | | | | | | | | | | | |
| OPERATING LEASE EXPENSE | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Long-term (fixed) | $ | 170 | | $ | 180 | | | $ | 529 | | $ | 625 | |
| Long-term (variable) | 47 | | 40 | | | 92 | | 111 | |
| Short-term | 39 | | 60 | | | 162 | | 150 | |
| Total operating lease expense | $ | 256 | | $ | 281 | | | $ | 784 | | $ | 887 | |
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
| | | CHANGES IN GOODWILL BALANCES | |
| (In millions) | January 1, 2017 |
| Acquisitions |
| Dispositions,
currency
exchange
and other |
| Balance at
September 30, 2017 |
| |
| | | | | |
GOODWILL (In millions) | | GOODWILL (In millions) | January 1, 2020 | | Impairments | Currency exchange
and other | Balance at September 30, 2020 |
| Power | $ | 26,403 |
| $ | 55 |
| $ | (1,219 | ) | $ | 25,239 |
| Power | $ | 145 | | | $ | 0 | | $ | 0 | | $ | 145 | |
| Renewable Energy | 2,507 |
| 1,503 |
| 230 |
| 4,240 |
| Renewable Energy | 3,290 | | | 0 | | 48 | | 3,338 | |
| Oil & Gas | 10,363 |
| 14,207 |
| 315 |
| 24,885 |
| |
| Aviation | 9,455 |
| 17 |
| 606 |
| 10,077 |
| Aviation | 9,859 | | | (877) | | 191 | | 9,172 | |
| Healthcare | 17,424 |
| 50 |
| 92 |
| 17,566 |
| Healthcare | 11,728 | | | 0 | | 20 | | 11,748 | |
| Transportation | 899 |
| — |
| 26 |
| 925 |
| |
| Lighting | 281 |
| — |
| 10 |
| 291 |
| |
| Capital | 2,368 |
| — |
| 2 |
| 2,370 |
| Capital | 839 | | | (839) | | 0 | | 0 | |
| Corporate | 739 |
| 722 |
| 16 |
| 1,476 |
| Corporate | 873 | | | 0 | | 1 | | 874 | |
| Total | $ | 70,438 |
| $ | 16,553 |
| $ | 78 |
| $ | 87,068 |
| Total | $ | 26,734 | | | $ | (1,717) | | $ | 260 | | $ | 25,278 | |
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 thirdfourth quarter. In assessing the possibility that a reporting unit’s fair value has been reduced below its carrying amount due to the occurrence 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. Due to the impact of recent events, including challenges from declines in current market conditions, we performed an interim impairment test at our Additive reporting unit within our Aviation segment and GECAS reporting unit within our Capital segment in the second quarter of each year using data as2020, both 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, orincorporated a combination of both. We assess theincome and market valuation methodology based upon the relevance and availabilityapproaches. The results 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 metricsanalysis indicated that carrying values of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which theboth reporting units operate giving consideration to risk profiles, size, geography,were in excess of their respective fair values. Therefore, we recorded non-cash impairment losses of $877 million and diversity of products$839 million for the Additive and services. A market approach is limited toGECAS reporting units, for which there are publicly traded companies that haverespectively, in the characteristics similar tocaption Goodwill impairments in our businesses.
Under the income approach, fair value is determined based on the present valueconsolidated Statement 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 viewsEarnings (Loss). All of the long-term outlookgoodwill in Additive was the result of the Arcam AB and Concept Laser GmBH acquisitions in 2016. Of the $839 million of goodwill for each business. Actual results may differGECAS, $729 million arose from those assumedthe acquisition of Milestone Aviation, our helicopter leasing business, in 2015. After the impairment charges, there is $236 million goodwill remaining in our forecasts. We derive our discount rates using a capital asset pricing modelAdditive reporting unit 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 and0 goodwill remaining in our internally developed forecasts. Discount rates used inGECAS reporting unit. In the third quarter, we performed an additional review of our Additive reporting unit valuations ranged from 10.0% to 18.0%.and concluded an additional impairment test was not required.
84 20172020 3Q FORM 10-Q51
|
| | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DuringAlso in 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 eachan analysis of the GE reporting units exceeded their carrying values except for our Power Conversion reporting unit, within our Power operating segment. The primary factors contributing to a reduction in fair valueimpact of this reporting unit were extended downturns in certain of its customer segments, most notably the marinerecent events, including business 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 recordedindustry specific considerations, on the Statement of Earnings to Other costs and expenses. After the impairment loss, the fair value of our Power ConversionGrid Solutions software reporting unit was in excess of its carrying value by approximately 2%.
In addition, we identified one reporting unit for which the fair valueour Digital business within Corporate, and concluded an interim impairment test was not substantially in excess of its carrying value. The Grid Solutions reporting unit within our Power operating segment was formed as a result 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% and, therefore, continues to be not substantially in excess of carrying value.required. 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 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, 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.
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 We will continue to monitor the operating results, cash flow forecasts and challenges from declines in current market conditions, as well as impacts of COVID-19 for this reporting unit as its fair value is not significantly in excess of its carrying value. At September 30, 2020, goodwill in our Grid Solutions software 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.unit was $874 million.
OTHER INTANGIBLE ASSETS
| | | | | | | | |
OTHER INTANGIBLE ASSETS - NET (In millions) | September 30, 2020 | December 31, 2019 |
| Intangible assets subject to amortization | $ | 9,909 | | $ | 10,653 | |
| | |
| | |
|
| | | | | | |
| 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.
|
|
| | |
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.
|
Intangible assets subject todecreased in the third quarter of 2020, primarily as a result of amortization. Consolidated amortization increased by $3,009expense was $428 million and $496 million in the three months ended September 30, 2020 and 2019, respectively, and $1,076 million and $1,220 million in the nine months ended September 30, 2017, primarily as2020 and 2019, respectively. Included within consolidated amortization expense for the three and nine months ended September 30, 2020 and 2019, were non-cash pre-tax impairment charges of $113 million and $103 million, respectively.
In the third quarter of 2020, we recognized a resultnon-cash pre-tax impairment charge of the Baker Hughes transaction, coupled with the LM Wind Power and ServiceMax acquisitions, partially offset by amortization.
GE amortization expense$113 million related to intangible assets subjectat our Steam business within our Power segment due to amortizationour recent announcement to exit the new build coal power market. We determined the fair value of these intangible assets using an income approach. This charge was $522recorded by Corporate in Selling, general, and administrative expenses in our consolidated Statement of Earnings (Loss).
NOTE 9. REVENUES. The equipment and services revenues classification in the table below is consistent with our segment MD&A presentation.
| | | | | | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | |
| Three months ended September 30 | 2020 | | 2019 |
| (In millions) | Equipment | Services | Total | | Equipment | Services | Total |
| Power | $ | 1,595 | | $ | 2,430 | | $ | 4,025 | | | $ | 1,434 | | $ | 2,492 | | $ | 3,926 | |
| Renewable Energy | 3,771 | | 754 | | 4,525 | | | 3,609 | | 816 | | 4,425 | |
| Aviation | 1,933 | | 2,987 | | 4,919 | | | 3,149 | | 4,960 | | 8,109 | |
| Healthcare | 2,538 | | 2,027 | | 4,565 | | | 2,828 | | 2,095 | | 4,923 | |
| Corporate items and industrial eliminations | (212) | | 95 | | (117) | | | (24) | | 161 | | 137 | |
| Total GE Industrial revenues | $ | 9,625 | | $ | 8,293 | | $ | 17,918 | | | $ | 10,996 | | $ | 10,524 | | $ | 21,519 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30 | 2020 | | 2019 |
| (In millions) | Equipment | Services | Total | | Equipment | Services | Total |
| Power | $ | 4,589 | | $ | 7,617 | | $ | 12,206 | | | $ | 4,473 | | $ | 8,751 | | $ | 13,224 | |
| Renewable Energy | 9,068 | | 2,155 | | 11,224 | | | 8,457 | | 2,133 | | 10,590 | |
| Aviation | 6,234 | | 9,961 | | 16,196 | | | 9,295 | | 14,645 | | 23,940 | |
| Healthcare | 7,287 | | 5,899 | | 13,185 | | | 8,320 | | 6,220 | | 14,540 | |
| Corporate items and industrial eliminations | (251) | | 268 | | 17 | | | 328 | | 638 | | 967 | |
| Total GE Industrial revenues | $ | 26,928 | | $ | 25,901 | | $ | 52,828 | | | $ | 30,873 | | $ | 32,386 | | $ | 63,259 | |
| | | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | | | | | | | | | | |
| REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | | 2019 | | 2020 | | 2019 |
| Gas Power | $ | 2,940 | | | $ | 2,732 | | | $ | 8,876 | | | $ | 9,242 | |
| Power Portfolio | 1,085 | | | 1,194 | | | 3,330 | | | 3,982 | |
| Power | $ | 4,025 | | | $ | 3,926 | | | $ | 12,206 | | | $ | 13,224 | |
| | | | | | | |
| Onshore Wind | $ | 3,303 | | | $ | 3,193 | | | $ | 7,914 | | | $ | 7,084 | |
| Grid Solutions equipment and services | 936 | | | 991 | | | 2,587 | | | 2,843 | |
| | | | | | | |
| Hydro, Offshore Wind and other | 287 | | | 241 | | | 722 | | | 663 | |
| Renewable Energy | $ | 4,525 | | | $ | 4,425 | | | $ | 11,224 | | | $ | 10,590 | |
| | | | | | | |
| Commercial Engines & Services | $ | 2,696 | | | $ | 5,997 | | | $ | 9,705 | | | $ | 17,796 | |
| Military | 1,137 | | | 1,061 | | | 3,258 | | | 3,073 | |
| Systems & Other | 1,087 | | | 1,050 | | | 3,233 | | | 3,071 | |
| Aviation | $ | 4,919 | | | $ | 8,109 | | | $ | 16,196 | | | $ | 23,940 | |
| | | | | | | |
| Healthcare Systems | $ | 4,085 | | | $ | 3,642 | | | $ | 11,056 | | | $ | 10,664 | |
| Pharmaceutical Diagnostics | 480 | | | 495 | | | 1,300 | | | 1,497 | |
| BioPharma | 0 | | | 786 | | | 830 | | | 2,378 | |
| Healthcare | $ | 4,565 | | | $ | 4,923 | | | $ | 13,185 | | | $ | 14,540 | |
| | | | | | | |
| Corporate items and industrial eliminations | (117) | | | 137 | | | 17 | | | 967 | |
| Total GE Industrial revenues | $ | 17,918 | | | $ | 21,519 | | | $ | 52,828 | | | $ | 63,259 | |
| Capital | 1,681 | | | 2,097 | | | 5,449 | | | 6,645 | |
| GE Capital-GE eliminations | $ | (181) | | | $ | (256) | | | $ | (587) | | | $ | (928) | |
| Consolidated revenues | $ | 19,417 | | | $ | 23,360 | | | $ | 57,690 | | | $ | 68,976 | |
| | | | | | | |
|
REMAINING PERFORMANCE OBLIGATION. As of September 30, 2020, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $226,666 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows: (1) equipment-related remaining performance obligation of $44,634 million, of which 59%, 83% and $405100% is expected to be satisfied within 1, 2 and 5 years, respectively; and (2) services-related remaining performance obligation of $182,032 million, of which 11%, 42%, 66% and 81% 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 $1,230 million in the threenine months ended September 30, 2017 and 2016, respectively, and $1,4242020. Our long-term service agreements decreased primarily due to billings of $6,373 million and $1,268a net unfavorable change in estimated profitability of $940 million at Aviation and $122 million at Power, offset by revenues recognized of $6,563 million. The decrease in long-term service agreements at Aviation included a $536 million pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, reflecting lower engine utilization, anticipated customer fleet restructuring and contract modifications. Additional adjustments could occur in future periods and could be material for certain long-term service agreements if actual customer operating behavior differs significantly from Aviation's current estimates.
| | | | | | | | | | | | | | | | | | | | |
September 30, 2020 (In millions) | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
| Revenues in excess of billings | $ | 5,282 | | $ | 4,147 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 9,429 | |
| Billings in excess of revenues | (1,566) | | (3,754) | | 0 | | 0 | | 0 | | (5,320) | |
| Long-term service agreements(a) | 3,716 | | 394 | | 0 | | 0 | | 0 | | 4,110 | |
| Short-term and other service agreements | 138 | | 300 | | 94 | | 182 | | 30 | | 744 | |
| Equipment contract revenues(b) | 2,667 | | 77 | | 1,164 | | 308 | | 181 | | 4,397 | |
| Total contract assets | 6,521 | | 770 | | 1,259 | | 490 | | 211 | | 9,251 | |
| | | | | | |
| Deferred inventory costs | 898 | | 496 | | 1,001 | | 353 | | 0 | | 2,748 | |
| Nonrecurring engineering costs | 22 | | 2,384 | | 39 | | 33 | | 0 | | 2,478 | |
| Customer advances and other(c) | 0 | | 1,127 | | 0 | | 0 | | (32) | | 1,094 | |
| Contract and other deferred assets | $ | 7,441 | | $ | 4,776 | | $ | 2,299 | | $ | 876 | | $ | 179 | | $ | 15,571 | |
| | | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
| Revenues in excess of billings | $ | 5,342 | | $ | 4,996 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 10,338 | |
| Billings in excess of revenues | (1,561) | | (3,719) | | 0 | | 0 | | 0 | | (5,280) | |
| Long-term service agreements(a) | 3,781 | | 1,278 | | 0 | | 0 | | 0 | | 5,058 | |
| Short-term and other service agreements | 190 | | 316 | | 43 | | 169 | | 0 | | 717 | |
| Equipment contract revenues(b) | 2,508 | | 82 | | 1,217 | | 324 | | 106 | | 4,236 | |
| Total contract assets | 6,478 | | 1,675 | | 1,260 | | 492 | | 106 | | 10,011 | |
| | | | | | |
| Deferred inventory costs | 943 | | 287 | | 1,677 | | 359 | | 0 | | 3,267 | |
| Nonrecurring engineering costs | 44 | | 2,257 | | 47 | | 35 | | 8 | | 2,391 | |
| Customer advances and other(c) | 0 | | 1,165 | | 0 | | 0 | | (32) | | 1,133 | |
| Contract and other deferred assets | $ | 7,465 | | $ | 5,384 | | $ | 2,985 | | $ | 886 | | $ | 82 | | $ | 16,801 | |
(a)Included amounts due from customers at Aviation for the sales of engines, spare parts and services, which we will collect through higher usage-based fees from servicing equipment under long-term service agreements, totaling $1,858 million and $1,712 million as of September 30, 2020 and December 31, 2019, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to $294 million and $308 million as of September 30, 2020 and December 31, 2019, respectively.
(b)Included are amounts due from customers at Power for the sale of services upgrades, which we collect through incremental fixed or usage-based fees from servicing the equipment under long-term service agreements, totaling $850 million and $909 million as of September 30, 2020 and December 31, 2019, respectively.
(c)Included advances to and amounts due from customers at Aviation for the sale of engines, spare parts and services, which we will collect through incremental fees for goods and services to be delivered in future periods, totaling $947 million and $986 million as of September 30, 2020 and December 31, 2019, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to $264 million and $256 million as of September 30, 2020 and December 31, 2019, respectively.
Progress collections and deferred income decreased $1,012 million primarily due to the timing of revenue recognition in excess of new collections received, primarily at Renewable Energy and Power. These decreases were partially offset by early payments received at our Aviation Military equipment business of $708 million in the second quarter 2020 as part of the U.S. Department of Defense's efforts to support vendors in its supply chain during the pandemic.
Revenues recognized for contracts included in liability position at the beginning of the year were $10,383 million and $9,565 million for the nine months ended September 30, 20172020 and 2016, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $162019, respectively.
| | | | | | | | | | | | | | | | | | | | |
September 30, 2020 (In millions) | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
| Progress collections on equipment contracts | $ | 5,142 | | $ | 157 | | $ | 1,255 | | $ | 0 | | $ | 0 | | $ | 6,554 | |
| Other progress collections | 426 | | 5,069 | | 3,141 | | 370 | | 154 | | 9,160 | |
| Total progress collections | 5,568 | | 5,226 | | 4,396 | | 370 | | 154 | | 15,714 | |
| Deferred income(a) | 128 | | 1,565 | | 378 | | 1,780 | | 118 | | 3,969 | |
| GE Progress collections and deferred income | $ | 5,696 | | $ | 6,791 | | $ | 4,773 | | $ | 2,150 | | $ | 272 | | $ | 19,683 | |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | | | | | | |
| Progress collections on equipment contracts | $ | 5,857 | | $ | 115 | | $ | 1,268 | | $ | 0 | | $ | 0 | | $ | 7,240 | |
| Other progress collections | 413 | | 4,748 | | 4,193 | | 305 | | 189 | | 9,849 | |
| Total progress collections | 6,270 | | 4,863 | | 5,461 | | 305 | | 189 | | 17,089 | |
| Deferred income(a) | 49 | | 1,528 | | 284 | | 1,647 | | 98 | | 3,606 | |
| GE Progress collections and deferred income | $ | 6,319 | | $ | 6,391 | | $ | 5,745 | | $ | 1,952 | | $ | 287 | | $ | 20,694 | |
(a)Included in this balance are finance discounts associated with customer advances at Aviation of $558 million and $33$564 million in the three months endedas of September 30, 20172020 and 2016, respectively, and $50 million and $103 million for the nine months ended September 30, 2017 and 2016,December 31, 2019, respectively.
NOTE 9. CONTRACT ASSETS
|
| | | | | | |
| (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 11. BORROWINGS
| | | | | | | | |
| (In millions) | September 30, 2020 | December 31, 2019 |
| Commercial paper | $ | — | | $ | 3,008 | |
| Current portion of long-term borrowings | 37 | | 766 | |
| Current portion of long-term borrowings assumed by GE | 2,323 | | 5,473 | |
| Other | 975 | | 1,832 | |
| Total GE short-term borrowings | $ | 3,335 | | $ | 11,079 | |
| | |
| Current portion of long-term borrowings | $ | 3,070 | | $ | 11,226 | |
| Intercompany payable to GE | 1,881 | | 2,104 | |
| Other | 347 | | 804 | |
| Total GE Capital short-term borrowings | $ | 5,298 | | $ | 14,134 | |
| | |
| Eliminations | (2,656) | | (3,140) | |
| Total short-term borrowings | $ | 5,977 | | $ | 22,072 | |
| | |
| Senior notes | $ | 18,820 | | $ | 14,762 | |
| Senior notes assumed by GE | 20,074 | | 23,024 | |
| Subordinated notes assumed by GE | 1,737 | | 2,871 | |
| Other | 294 | | 324 | |
| Total GE long-term borrowings | $ | 40,923 | | $ | 40,980 | |
| | |
| Senior notes | $ | 31,337 | | $ | 25,371 | |
| Subordinated notes | 186 | | 178 | |
| Intercompany payable to GE | 17,526 | | 17,038 | |
| Other | 588 | | 626 | |
| Total GE Capital long-term borrowings | $ | 49,637 | | $ | 43,213 | |
| | |
| Eliminations | (17,526) | | (17,038) | |
| Total long-term borrowings | $ | 73,034 | | $ | 67,155 | |
| Non-recourse borrowings of consolidated securitization entities | 452 | | 1,655 | |
| Total borrowings | $ | 79,463 | | $ | 90,882 | |
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 debtAt September 30, 2020, the outstanding GE Capital borrowings that had been assumed by GE as part of the GE Capital Exit Plan was $24,134 million ($2,323 million short term and $21,811 million long term), for which GE has an offsetting Receivable from GE Capital of $19,407 million. The difference of $4,726 million ($442 million in short-term borrowings and $4,284 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. GE repaid a total of $7.5 billion 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 2017,2020.
At September 30, 2020, total GE completed issuancesborrowings of €8,000$24,851 million senior unsecured debt, composedcomprised GE-issued borrowings of €1,750$20,125 million and intercompany loans from GE Capital to GE of 0.375% Notes due 2022, €2,000$4,726 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.as described above.
On April 10, 2015, GE has 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. $92,537This guarantee applied to $31,719 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 September 30, 2017, the Guarantee applies to $44,526 and $34,683 million of GE Capital debt.debt at September 30, 2020 and December 31, 2019, respectively.
Non-recourse borrowings of consolidated securitization entities included an insignificant amount and $1,569 million of current portion of long-term borrowings at September 30, 2020 and December 31, 2019, respectively. See Notes 4 and 18 for further information.
In the second quarter of 2020, GE issued a total of $7,500 million in aggregate principal amount of senior unsecured debt, comprising $1,000 million of 3.450% Notes due 2027, $1,250 million of 3.625% Notes due 2030, $1,500 million of 4.250% Notes due 2040, and $3,750 million of 4.350% Notes due 2050, and used these proceeds in addition to a portion of the proceeds from the BioPharma sale to repay a total of $7,500 million of intercompany loans to GE Capital and to complete a tender offer to purchase $4,237 million in aggregate principal amount of certain GE unsecured debt, comprising $2,046 million of 2.700% Notes due 2022, €934 million ($1,011 million equivalent) of 0.375% Notes due 2022, €425 million ($460 million equivalent) of 1.250% Notes due 2023, €376 million ($407 million equivalent) of floating-rate Notes due 2020, and $312 million of 3.375% Notes due 2024. The total cash consideration paid for these purchases was $4,282 million and the total carrying amount of the purchased notes was $4,228 million, resulting in a loss of $63 million (including $9 million of fees and other costs associated with the tender) which was recorded in Interest and other financial charges in the GE Statement of Earnings (Loss). In addition to the purchase price, GE paid any accrued and unpaid interest on the purchased notes through the date of purchase.
| | | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In the second quarter of 2020, GE Capital issued a total of $6,000 million in aggregate principal amount of senior unsecured debt with maturities ranging from 2025 to 2032, and used these proceeds in addition to the proceeds received from repayments of intercompany loans from GE to complete tender offers to purchase a total of $9,787 million in aggregate principal amount of certain senior unsecured debt. The total cash consideration paid for these purchases was $9,950 million and the total carrying amount of the purchased notes was $9,827 million, resulting in a total loss of $143 million (including $20 million of fees and other costs associated with the tender) which was recorded in Interest and other financial charges in the GE Capital Statement of Earnings (Loss). In addition to the purchase price, GE Capital paid any accrued and unpaid interest on the purchased notes through the date of purchase.
See Notes 16 and 21Note 17 for additionalfurther information about borrowings and associated interest rate swaps.
NOTE 11. INVESTMENT CONTRACTS,12. INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
BENEFITS.Insurance liabilities and investment contract liabilitiesannuity benefits comprise mainly obligations to policyholdersannuitants and annuitantsinsureds in our run-off insurance activities.
| | | | | | | | | | | | | | | | | |
September 30, 2020 (In millions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other
contracts | Other adjustments(a) | Total |
| Future policy benefit reserves | $ | 16,866 | | $ | 9,294 | | $ | 178 | | $ | 7,404 | | $ | 33,742 | |
| Claim reserves | 4,364 | | 270 | | 1,079 | | — | | 5,713 | |
| Investment contracts | 0 | | 1,060 | | 1,034 | | — | | 2,094 | |
| Unearned premiums and other | 20 | | 189 | | 118 | | — | | 327 | |
| 21,250 | | 10,813 | | 2,409 | | 7,404 | | 41,876 | |
| Eliminations | — | | — | | (424) | | — | | (424) | |
| Total | $ | 21,250 | | $ | 10,813 | | $ | 1,985 | | $ | 7,404 | | $ | 41,452 | |
|
| | | | | | |
| (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. |
| | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | | | | | |
| Future policy benefit reserves | $ | 16,755 | | $ | 9,511 | | $ | 183 | | $ | 5,655 | | $ | 32,104 | |
| Claim reserves | 4,238 | | 252 | | 1,125 | | — | | 5,615 | |
| Investment contracts | 0 | | 1,136 | | 1,055 | | — | | 2,191 | |
| Unearned premiums and other | 30 | | 196 | | 96 | | — | | 322 | |
| 21,023 | | 11,095 | | 2,459 | | 5,655 | | 40,232 | |
| Eliminations | — | | — | | (406) | | — | | (406) | |
| Total | $ | 21,023 | | $ | 11,095 | | $ | 2,053 | | $ | 5,655 | | $ | 39,826 | |
Future policy benefit reserves represent(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) (AOCI) in our consolidated Statement of capitalized acquisition costs using current assumptions. Should the net liability for future policyEarnings (Loss).
The increase in insurance liabilities and annuity benefits plus the present value of expected future premiums be insufficient$1,626 million from December 31, 2019 to provide for the present valueSeptember 30, 2020 is primarily due to an adjustment of expected future policy benefits and expenses, we$1,749 million resulting from an increase in unrealized gains on investment securities that would be required to reduce remaining capitalized acquisition costs and, to the extentresult in 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 willshould those gains 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.realized.
Claim reserves are established when aincluded incurred claims of $1,390 million and $1,410 million, 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 for the nine months ended September 30, 2020 and expected future changes2019, respectively. Paid claims were $1,328 million and $1,237 million in experience factors. Claim reserves are evaluated periodically for potential changes in lossthe nine months ended September 30, 2020 and 2019, 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 recoverablesof $1,485 million and $1,355 million, are included in the caption “Other receivables” onOther GE Capital receivables in our Consolidatedconsolidated Statement of Financial Position and amounted to $2,182$2,486 million and $2,038$2,416 million at September 30, 20172020 and December 31, 2016,2019, respectively.
2020 Premium Deficiency Testing. We completed our annual premium deficiency testing in the aggregate across our run-off insurance portfolio in the third quarter of 2020. These procedures included updating experience studies since our last test completed in the third quarter of 2019, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency in 2019, our 2020 premium deficiency testing started with a zero margin and, accordingly, any net adverse development would result in a future premium deficiency. Using our most recent future policy benefit reserve assumptions, including changes to our assumptions related to morbidity, future premium rate increases and discount rate, the 2020 premium deficiency testing results indicated there was a positive margin of less than 2% of the recorded future policy benefit reserves, excluding Other adjustments, at September 30, 2020. As a result, the assumptions updated in connection with the premium deficiency recognized in 2019 remain locked-in and will remain so unless another premium deficiency occurs in the future.
88 201756 2020 3Q FORM 10-Q
|
| | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The increase in the premium deficiency testing margin from our 2019 testing was primarily attributable to modestly favorable emerging morbidity experience in our long-term care insurance portfolio, primarily at the older attained ages, in the period since the 2017 reconstruction of our future claim cost projections ($412 million) and higher projected future premium rate increase approvals ($199 million), partially offset by a decline in the overall discount rate to a weighted average rate of 5.70% compared to 5.74% in 2019 ($218 million). This decline in the discount rate from 2019 to 2020 reflects a lower expected reinvestment rate, due to lower benchmark interest rates in the U.S, increasing to a lower expected long-term average investment yield over a longer period and slightly lower actual yields on our investment security portfolio, partially offset by increased allocations to higher yielding asset classes introduced with our 2018 strategic initiatives, which included a modest decline in expected yield compared to 2019 assumptions.
We recognize reinsurance recoveries as a reductionWhen results of the Consolidated Statementpremium deficiency testing indicate overall reserves are sufficient, we are also required to assess whether additional future policy benefit reserves are required to be accrued over time in the future. Such an accrual would be required if profits are projected in earlier future periods followed by losses projected in later future years (i.e., profits followed by losses). When this pattern of Earnings caption “Investment contracts, insuranceprofits followed by losses is projected, we would be required to accrue a liability in the expected profitable years by the amount necessary to offset projected losses in later future years. We noted our projections as of third quarter 2020 indicate the present value of projected earnings in each future year to be positive, and insurance annuity benefits.” Reinsurance recoveriestherefore, no further adjustments to our future policy benefit reserves 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.required at this time.
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
PLANS. We sponsor a number of pension and retiree health and life insurance benefit plans that we present in 3 categories, principal pension plans, other pension plans and principal retiree benefit plans. Principal pension plans arerepresent the GE Pension Plan and the GE Supplementary Pension Plan. Other pension plans include 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.Smaller pension plans with pension assets or obligations greaterless than $50 million. Smaller pension plansmillion and other retiree benefit plans are not material individually orpresented.
EFFECT ON OPERATIONS OF BENEFIT PLANS.The components of benefit plans costs other than the service cost are included in the aggregate.caption Non-operating benefit costs in our consolidated Statement of Earnings (Loss).
| | | | | | | | | | | | | | | | | |
| PRINCIPAL PENSION PLANS | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Service cost for benefits earned | $ | 156 | | $ | 154 | | | $ | 501 | | $ | 472 | |
| Prior service cost amortization | 36 | | 34 | | | 110 | | 101 | |
| Expected return on plan assets | (747) | | (863) | | | (2,243) | | (2,588) | |
| Interest cost on benefit obligations | 588 | | 724 | | | 1,764 | | 2,173 | |
| Net actuarial loss amortization | 850 | | 767 | | | 2,549 | | 2,300 | |
| Curtailment/settlement loss (gain) | 0 | | 0 | | | 0 | | 51 | |
| Benefit plans cost | $ | 883 | | $ | 816 | | | $ | 2,681 | | $ | 2,509 | |
Principal retiree benefit plans income was $31 million and $31 million for the three months ended September 30, 2020 and 2019, and $85 million and $122 million for the nine months ended September 30, 2020 and 2019, respectively, which includes a curtailment gain of $33 million in 2019 resulting from the Transportation transaction. Other pension plans cost were immaterial for the three months ended September 30, 2020 and 2019, and for the nine months ended September 30, 2020 and 2019.
We also have a defined contribution plan for eligible U.S. employees that provides discretionary contributions. Defined contribution plan costs were $71 million and $83 million for the three months ended September 30, 2020 and 2019, and $253 million and $274 million for the nine months ended September 30, 2020 and 2019, respectively.
|
| | | | | | | | | | | | | | | | |
| 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. |
|
| | | | | | | | | | | | | | | | |
| | 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. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 13.14. INCOME TAXES
TAXES. Our consolidated effective income tax rates were (7.9)rate was (25.7)% and 4.9%0.2% during the nine months ended 2017September 30, 2020 and 2016,2019, respectively. The negative rate in 2020 reflects a tax benefit on pre-tax income. The tax benefit for 2017 benefited from2020 is primarily due to the tax difference on global activities, thelower tax rate on the dispositionsale of the Waterour BioPharma business and U.S. business creditscredits. The low tax rate on the BioPharma sale reflects gain outside the U.S. taxed at lower than 21% and because we recorded $633 million of the tax associated with preparatory steps for 2016 from a deductible stock loss and U.S. business credits. In the nine months ended 2017, these decreases weretransaction in the fourth quarter of 2019. This was partially offset by the largely non-deductible goodwill impairment of goodwillcharges associated with our Additive business within our Aviation segment and our GECAS business within our Capital segment. The rate for 2019 benefited from favorable audit resolutions and U.S. business credits, partially offset by the Power Conversioncost of global activities, including the base erosion and global intangible low tax income provisions and from largely non-deductible goodwill impairment charges associated with our Hydro and Grid Solutions equipment and services 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 a further decrease to bring the nine-month tax rate in line with the lower expected full-year rate.within our Renewable Energy segment.
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 2012-20132014-2015 and 2014-2015. In addition, certain other U.S. tax deficiency issues and refund claims for previous years are still unresolved.2016-2018. It is reasonably possible that a portion of the unresolved items could2014-2015 audit will be resolved duringcompleted in the next 12 months, whichmonths. The United Kingdom tax authorities disallowed interest deductions claimed by GE Capital for the years 2004-2015 that could result in a decrease in our balancepotential impact of "unrecognizedapproximately $1 billion, which includes a possible assessment of tax benefits" - that is,and reduction of deferred tax assets, not including interest and penalties. We are contesting the aggregatedisallowance. We comply with all applicable tax effectlaws and judicial doctrines of differences between tax return positionsthe United Kingdom and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claimsentire benefit is more likely than not 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.
sustained on its technical merits.
90 20172020 3Q FORM 10-Q57
|
| | | | | | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 14. SHAREOWNERS’15. SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Beginning balance | $ | 47 | | $ | 59 | | | $ | 61 | | $ | (39) | |
| AOCI before reclasses – net of taxes of $0, $15, $7 and $30(a) | 3 | | 30 | | | 44 | | 151 | |
| Reclasses from AOCI – net of taxes of $2, $(3), $(12) and $(9) | 5 | | (12) | | | (50) | | (35) | |
| AOCI | 9 | | 18 | | | (5) | | 116 | |
| Less AOCI attributable to noncontrolling interests | 0 | | 0 | | | 0 | | 0 | |
| Investment securities AOCI ending balance | $ | 55 | | $ | 77 | | | $ | 55 | | $ | 77 | |
| | | | | |
| Beginning balance | $ | (4,743) | | $ | (5,874) | | | $ | (4,818) | | $ | (6,134) | |
| AOCI before reclasses – net of taxes of $(59), $(12), $(39) and $27 | 55 | | (189) | | | (558) | | (191) | |
| Reclasses from AOCI – net of taxes of $0, $(5), $0 and $(9)(b) | 0 | | 951 | | | 691 | | 1,234 | |
| AOCI | 55 | | 762 | | | 133 | | 1,043 | |
| Less AOCI attributable to noncontrolling interests | 0 | | (63) | | | 3 | | (41) | |
| Currency translation adjustments AOCI ending balance | $ | (4,689) | | $ | (5,050) | | | $ | (4,689) | | $ | (5,050) | |
| | | | | |
| Beginning balance | $ | (109) | | $ | 26 | | | $ | 49 | | $ | 13 | |
| AOCI before reclasses – net of taxes of $62, $(4), $(7) and $(1) | 62 | | (30) | | | (160) | | (43) | |
| Reclasses from AOCI – net of taxes of $(13), $6, $(5) and $7(b) | (38) | | 28 | | | 26 | | 56 | |
| AOCI | 24 | | (2) | | | (134) | | 13 | |
| Less AOCI attributable to noncontrolling interests | 0 | | 1 | | | 0 | | 2 | |
| Cash flow hedges AOCI ending balance | $ | (86) | | $ | 24 | | | $ | (86) | | $ | 24 | |
| | | | | |
| Beginning balance | $ | (5,387) | | $ | (7,063) | | | $ | (7,024) | | $ | (8,254) | |
| AOCI before reclasses – net of taxes of $(22), $1, $6 and $36 | (87) | | 39 | | | 58 | | (72) | |
| Reclasses from AOCI – net of taxes of $187, $170, $613 and $517(b) | 695 | | 616 | | | 2,190 | | 1,910 | |
| AOCI | 609 | | 655 | | | 2,248 | | 1,838 | |
| Less AOCI attributable to noncontrolling interests | 0 | | 4 | | | 3 | | (4) | |
| Benefit plans AOCI ending balance | $ | (4,779) | | $ | (6,412) | | | $ | (4,779) | | $ | (6,412) | |
| | | | | |
| AOCI at September 30 | $ | (9,498) | | $ | (11,361) | | | $ | (9,498) | | $ | (11,361) | |
|
| | | | | | | | | | | | |
| 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. |
(a) Included adjustments of $(420) million and $(877) million for the three months ended September 30, 2020 and 2019, respectively and $(1,382) million and $(2,888) million for the nine months ended September 30, 2020 and 2019, 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) The total reclassification from AOCI included $836 million, including currency translation of $688 million, net of taxes, for the nine months ended September 30, 2020, related to the sale of our BioPharma business within our Healthcare segment.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 September 30, 2020 was $5,871 million and will increase to $5,944 million by the respective call dates through periodic accretion. See our Annual Report on Form 10-K for the year ended December 31, 2019 for further information.
|
| | | | | | | | | | | | | | |
| 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 shares in consolidated affiliatesamounted to $1,524 million and preferred stock issued by our affiliates.$1,545 million at September 30, 2020 and December 31, 2019, respectively.
|
| | | | | | | | | | | | | |
| 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 $498 million and $439 million as of the Alstom acquisition, we formed three joint ventures with Alstom in grid technology, renewable energy,September 30, 2020 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 carrying amount of the noncontrolling interest.2019, respectively.
|
| | | | | | | | | | | | | |
| 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.
|
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.
|
| | | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15.16. EARNINGS PER SHARE INFORMATION
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | 2020 | | 2019 |
| (Earnings for per-share calculation, in millions; per-share amounts in dollars) | Diluted | Basic | | Diluted | Basic |
| Earnings from continuing operations | $ | (1,109) | | $ | (1,109) | | | $ | (1,283) | | $ | (1,283) | |
| Preferred stock dividends | (46) | | (46) | | | (42) | | (42) | |
| Accretion of redeemable noncontrolling interests, net of tax(a) | (6) | | (6) | | | 0 | | 0 | |
| Earnings from continuing operations attributable to common shareholders | (1,161) | | (1,161) | | | (1,325) | | (1,325) | |
| Earnings (loss) from discontinued operations | (35) | | (35) | | | (8,140) | | (8,140) | |
| Net earnings (loss) attributable to GE common shareholders | (1,196) | | (1,196) | | | (9,465) | | (9,465) | |
| | | | | |
| Shares of GE common stock outstanding | 8,756 | | 8,756 | | | 8,730 | | 8,730 | |
| Employee compensation-related shares (including stock options) | 0 | | — | | | 0 | | — | |
| Total average equivalent shares | 8,756 | | 8,756 | | | 8,730 | | 8,730 | |
| | | | | |
| Earnings per share from continuing operations | $ | (0.13) | | $ | (0.13) | | | $ | (0.15) | | $ | (0.15) | |
| Earnings (loss) per share from discontinued operations | 0 | | 0 | | | (0.93) | | (0.93) | |
| Net earnings (loss) per share | (0.14) | | (0.14) | | | (1.08) | | (1.08) | |
| | | | | |
| Potentially dilutive securities(b) | 486 | | | | 453 | | |
|
| | | | | | | | | | | | | |
| | Three 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) | $ | 1,935 |
| $ | 1,935 |
| | $ | 2,127 |
| $ | 2,127 |
|
| Preferred stock dividends | (36 | ) | (36 | ) | | (33 | ) | (33 | ) |
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 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,665 |
| 8,665 |
| | 8,904 |
| 8,904 |
|
| Employee compensation-related shares (including stock options) | 67 |
| — |
| | 112 |
| — |
|
| Total average equivalent shares | 8,732 |
| 8,665 |
| | 9,016 |
| 8,904 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | 0.22 |
| $ | 0.22 |
| | $ | 0.23 |
| $ | 0.24 |
|
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | | (0.01 | ) | (0.01 | ) |
| Net earnings | 0.21 |
| 0.21 |
| | 0.22 |
| 0.22 |
|
| | | | | | | | | | | | | | | | | |
| | | | | |
| Nine months ended September 30 | 2020 | | 2019 |
| (Earnings for per-share calculation; in millions; per-share amounts in dollars) | Diluted | Basic | | Diluted | Basic |
| Earnings from continuing operations | $ | 3,264 | | $ | 3,264 | | | $ | (438) | | $ | (438) | |
| Preferred stock dividends | (280) | | (280) | | | (270) | | (270) | |
| Accretion of redeemable noncontrolling interests, net of tax(a) | (141) | | (141) | | | 0 | | 0 | |
| Earnings from continuing operations attributable to common shareholders | 2,843 | | 2,843 | | | (708) | | (708) | |
| Earnings (loss) from discontinued operations | (203) | | (203) | | | (5,270) | | (5,270) | |
| Net earnings attributable to GE common shareholders | 2,639 | | 2,639 | | | (5,977) | | (5,977) | |
| | | | | |
| Shares of GE common stock outstanding | 8,749 | | 8,749 | | | 8,721 | | 8,721 | |
| Employee compensation-related shares (including stock options) | 6 | | — | | | 0 | | — | |
| Total average equivalent shares | 8,755 | | 8,749 | | | 8,721 | | 8,721 | |
| | | | | |
| Earnings from continuing operations | $ | 0.32 | | $ | 0.32 | | | $ | (0.08) | | $ | (0.08) | |
| Loss from discontinued operations | (0.02) | | (0.02) | | | (0.60) | | (0.60) | |
| Net earnings | 0.30 | | 0.30 | | | (0.69) | | (0.69) | |
| | | | | |
| Potentially dilutive securities(b) | 454 | | | | 462 | | |
(a) Represents accretion adjustment of redeemable noncontrolling interests in our Additive business within our Aviation segment. |
| | | | | | | | | | | | | |
| | | | | | |
| | 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 |
For the three months ended September 30, 2017 and 2016, approximately 82 million and 15 million of outstanding(b) Outstanding stock awards were not included in the computation of diluted earnings per share because their effect was antidilutive.F
Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or the nine months ended September 30, 2017dividend equivalents are considered participating securities and, 2016, approximately 48 million and 24 million of outstanding stock awards were nottherefore, are included in the computation of diluted earnings per share because their effect was antidilutive.
Earnings per share amounts are computed independently for earningspursuant to the two-class method. For the three months ended September 30, 2020 and 2019, as a result of the loss from continuing operations, loss from discontinued operations and net earnings. Aslosses were not allocated to the participating securities. For the nine months ended September 30, 2020, application of this treatment had an insignificant effect. For the nine months ended September 30, 2019, as a result of the sum of per-share amountsloss from continuing operations, and discontinued operations maylosses were not equalallocated to the total per-share amounts for net earnings.participating securities.
NOTE 16.17. FINANCIAL INSTRUMENTS AND NON-RECURRING FAIR VALUE MEASUREMENTS
INSTRUMENTS.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 of
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| (In millions) | Carrying
amount
(net) | Estimated
fair value | | Carrying
amount
(net) | Estimated
fair value |
| Assets | Loans and other receivables | $ | 3,895 | | $ | 4,014 | | | $ | 4,113 | | $ | 4,208 | |
| | | | | | |
| Liabilities | Borrowings (Note 11) | 79,463 | | 83,122 | | | 90,882 | | 97,754 | |
| Investment contracts (Note 12) | 2,094 | | 2,575 | | | 2,191 | | 2,588 | |
The lower fair value in relation to carrying value for borrowings at September 30, 2020 compared to December 31, 2019 was driven primarily by widening GE credit spreads, partially offset by a decline in market interest rates. Unlike the instruments are actively traded and their fair values must often be determined using financial models. Realization of thecarrying amount, estimated fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.borrowings included $978 million and $1,106 million of accrued interest at September 30, 2020 and December 31, 2019, respectively.
|
| | | | | | | | | | | | | |
| 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.
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NON-RECURRING FAIR VALUE MEASUREMENTS
The following table represents non-recurringAssets and liabilities that are reflected in the accompanying financial statements at fair value amounts (as measured atare not included in the time of the adjustment)above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.
DERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for those assets remeasured to fair value on a non-recurring basis during the fiscal yearmanaging risks and still heldnot for speculative purposes. Total gross notional was $92,529 million ($44,010 million in GE Capital and $48,519 million in GE) and $98,018 million ($55,704 million in GE Capital and $42,314 million in GE) at September 30, 20172020 and December 31, 2016.2019, 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | September 30, 2020 | | December 31, 2019 |
| (In millions) | Gross Notional | All other assets | All other liabilities | | Gross Notional | All other assets | All other liabilities |
| Interest rate contracts | $ | 20,974 | | $ | 2,019 | | $ | 8 | | | $ | 23,918 | | $ | 1,636 | | $ | 11 | |
| Currency exchange contracts | 6,968 | | 73 | | 113 | | | 7,044 | | 99 | | 46 | |
| | | | | | | |
| Derivatives accounted for as hedges | $ | 27,942 | | $ | 2,091 | | $ | 121 | | | $ | 30,961 | | $ | 1,734 | | $ | 57 | |
| | | | | | | |
| Interest rate contracts | $ | 446 | | $ | 6 | | $ | 7 | | | $ | 3,185 | | $ | 18 | | $ | 12 | |
| Currency exchange contracts | 62,340 | | 877 | | 1,107 | | | 62,165 | | 697 | | 744 | |
| Other contracts | 1,801 | | 187 | | 30 | | | 1,706 | | 123 | | 40 | |
| Derivatives not accounted for as hedges | $ | 64,586 | | $ | 1,070 | | $ | 1,144 | | | $ | 67,056 | | $ | 838 | | $ | 796 | |
| | | | | | | |
| Gross derivatives | $ | 92,529 | | $ | 3,162 | | $ | 1,265 | | | $ | 98,018 | | $ | 2,572 | | $ | 853 | |
| | | | | | | |
| Netting and credit adjustments | | $ | (740) | | $ | (745) | | | | $ | (546) | | $ | (546) | |
| Cash collateral adjustments | | (1,934) | | (133) | | | | (1,286) | | (105) | |
| Net derivatives recognized in statement of financial position | | $ | 488 | | $ | 387 | | | | $ | 740 | | $ | 202 | |
| | | | | | | |
| Net accrued interest | | $ | 74 | | $ | 1 | | | | $ | 182 | | $ | 1 | |
| Securities held as collateral | | (2) | | 0 | | | | (469) | | 0 | |
| Net amount | | $ | 560 | | $ | 388 | | | | $ | 452 | | $ | 203 | |
|
| | | | | | | | | | | | |
| | 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 represents the fair value adjustmentsIt is standard market practice to assets measured at fair valuepost or receive cash collateral with our derivative counterparties in order to minimize counterparty exposure. Included in GE Capital cash, cash equivalents and restricted cash was total net cash collateral received on a non-recurring basisderivatives of $3,603 million (comprising $4,620 million received and still held$1,017 million posted) at September 30, 20172020, 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%) |
Discount rates are determined based on inputs that market participants would use when pricing investments, including credit$1,584 million (comprising $2,294 million received and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
At$710 million posted) at December 31, 2019. Of these amounts, $2,595 million and $902 million at September 30, 20172020 and December 31, 2016, non-recurring measurements2019, respectively, were received on interest rate derivatives traded through clearing houses, which are recorded as a reduction of $252derivative assets and net accrued interest.
Also included in total net cash collateral received are amounts presented as cash collateral adjustments in the table above, as well as
excess net cash collateral posted of $792 million (comprising $90 million received and $379$882 million respectively, are valued using non-binding broker quotes or other third-party sources. Atposted) at September 30, 20172020, and $499 million (comprising $104 million received and $603 million posted) at December 31, 2019, which are excluded from cash collateral adjustments in the table above.
Securities held as collateral excluded excess collateral received of 0 and $27 million at September 30, 2020 and December 31, 2016, non-recurring fair2019, respectively. In the third quarter of 2020, one of our counterparties converted its collateral from securities to cash, which is in line with our other derivative counterparties.
Fair value measurements were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.derivatives in our consolidated Statement of Financial Position excludes accrued interest.
|
| | |
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 –FAIR VALUE 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 thanour borrowings. At September 30, 2020, 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 othercumulative amount of 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 changesadjustments of $6,203 million (including $2,346 million on discontinued hedging relationships) was included in the carrying amount of the hedged itemliability of $33,434 million. At September 30, 2019, the cumulative amount of hedging adjustments of $5,118 million (including $2,484 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $44,558 million. The cumulative amount of hedging adjustments was primarily recorded in long-term borrowings.
CASH FLOW HEDGES. Changes in the fair value of cash flow hedges are alreadyrecorded in AOCI and recorded in earnings in the same period asin which the derivative making hedge accounting unnecessary. Even thoughhedged transaction occurs. The gain (loss) recognized in AOCI was $121 million and $(21) million for the derivative is an effective economic hedge, there may bethree months ended September 30, 2020 and 2019, respectively, and $(139) million and $(24) million for the nine months ended September 30, 2020 and 2019, 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 net effect on$48 million loss at September 30, 2020. We expect to reclassify $39 million of loss to earnings in each period duethe next 12 months contemporaneously with the earnings effects of the related forecasted transactions. For all periods presented we recognized an immaterial amount related to differences inhedged forecasted transactions and firm commitments that did not occur by the timingend of earnings recognition between the originally specified period. At September 30, 2020 and 2019, the maximum term of derivative instruments that hedge forecasted transactions was 15 years and the hedged item.13 years, respectively.
|
| | | | | | | | | | | | |
| 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 |
NET INVESTMENT HEDGES. For these hedges, the portion of the fair value changes of the derivatives or debt instruments that relates to changes in spot currency exchange rates is recorded in a separate component of AOCI. The portion of the fair 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.
The total gain (loss) recognized in AOCI on hedging instruments for the three months ended September 30, 2020 and 2019 was $(529) million and $213 million, and for the nine months ended September 30, 2020 and 2019 was $(461) million and $231 million, respectively, predominantly from foreign currency debt. For all periods presented we recognized an immaterial amount excluded from assessment and recognized in earnings.
The carrying value of foreign currency debt designated as net investment hedges was $8,175 million and $9,119 million at September 30, 2020 and 2019, respectively. The total reclassified from AOCI into earnings was 0 and $338 million for the three months ended September 30, 2020 and 2019, respectively. The total reclassified from AOCI into earnings was 0 and $344 million for the nine months ended September 30, 2020 and 2019, respectively.
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. For derivatives not designated as hedging instruments, substantially all of the gain or loss recognized in earnings is offset by either the current period change in value of underlying exposures, which is recorded in earnings in the current period or a future period when the recording of the exposures occur.
The table below presents the effect of our derivative financial instruments in the consolidated Statement of Earnings (Loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2020 | | Three months ended September 30, 2019 |
| (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 (Loss) | $ | 19,417 | | $ | 15,275 | | $ | 745 | | $ | 3,227 | | $ | (517) | | | $ | 23,360 | | $ | 17,328 | | $ | 1,279 | | $ | 3,293 | | $ | 158 | |
| | | | | | | | | | | |
| Total effect of cash flow hedges | $ | 68 | | $ | (14) | | $ | (9) | | $ | 6 | | $ | 0 | | | $ | (24) | | $ | (1) | | $ | (8) | | $ | (2) | | $ | 0 | |
| | | | | | | | | | | |
| Hedged items | | | $ | 311 | | | | | | | $ | (1,000) | | | |
| Derivatives designated as hedging instruments | | | (330) | | | | | | | 1,011 | | | |
| Total effect of fair value hedges | | | $ | (19) | | | | | | | $ | 10 | | | |
| | | | | | | | | | | |
| Interest rate contracts | $ | 0 | | $ | 0 | | $ | (3) | | $ | 0 | | $ | 0 | | | $ | (7) | | $ | 0 | | $ | (10) | | $ | 0 | | $ | 0 | |
| Currency exchange contracts | 174 | | 10 | | 0 | | (130) | | 35 | | | (165) | | (8) | | 0 | | 60 | | (28) | |
| Other | 0 | | 0 | | 0 | | 48 | | 50 | | | (1) | | 0 | | 0 | | 0 | | 9 | |
| Total effect of derivatives not designated as hedges | $ | 174 | | $ | 10 | | $ | (3) | | $ | (81) | | $ | 85 | | | $ | (172) | | $ | (8) | | $ | (11) | | $ | 60 | | $ | (18) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 | | Nine months ended September 30, 2019 |
| (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 (Loss) | $ | 57,690 | | $ | 46,054 | | $ | 2,536 | | $ | 9,371 | | $ | 8,430 | | | $ | 68,976 | | $ | 50,949 | | $ | 3,272 | | $ | 10,120 | | $ | 1,170 | |
| | | | | | | | | | | |
| Total effect of cash flow hedges | $ | 62 | | $ | (52) | | $ | (31) | | $ | 1 | | $ | 0 | | | $ | (18) | | $ | (14) | | $ | (27) | | $ | (3) | | $ | 0 | |
| | | | | | | | | | | |
| Hedged items | | | $ | (2,290) | | | | | | | $ | (2,186) | | | |
| Derivatives designated as hedging instruments | | | 2,290 | | | | | | | 2,172 | | | |
| Total effect of fair value hedges | | | $ | 0 | | | | | | | $ | (14) | | | |
| | | | | | | | | | | |
| Interest rate contracts | $ | (35) | | $ | 0 | | $ | (16) | | $ | 0 | | $ | 0 | | | $ | (25) | | $ | 0 | | $ | (40) | | $ | 0 | | $ | 0 | |
| Currency exchange contracts | (443) | | 39 | | 0 | | 29 | | 14 | | | (208) | | (29) | | 0 | | (2) | | (52) | |
| Other | 0 | | 0 | | 0 | | (15) | | 39 | | | (1) | | 0 | | 123 | | 0 | | 10 | |
| Total effect of derivatives not designated as hedges | $ | (478) | | $ | 39 | | $ | (16) | | $ | 14 | | $ | 53 | | | $ | (234) | | $ | (29) | | $ | 83 | | $ | (2) | | $ | (42) | |
The gain (loss) of amount excluded for cash flow hedges was $8 million and 0 for the three months ended September 30, 2020 and 2019, respectively, and $30 million and 0 for the nine months ended September 30, 2020 and 2019, respectively. This amount is recognized primarily in Revenues in our consolidated Statement of Earnings (Loss).
|
| | | | | | | | | | | | | | | | | | |
| | 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 not include associated derivative accruals in income or expense.
| |
(a) | Both derivatives and non-derivatives 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 |
COUNTERPARTY CREDIT RISK. We manage 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. Our exposures to counterparties (including accrued interest), net of collateral we held, was $440 million and $368 million at September 30, 2020 and December 31, 2019, respectively. Counterparties' exposures to our derivative liability (including accrued interest), net of collateral posted by us, was $332 million and $159 million at September 30, 2020 and December 31, 2019, respectively.
We consolidate these joint ventures because
NOTE 18. VARIABLE INTEREST ENTITIES. In addition to the 3 VIEs detailed in Note 4, in our consolidated Statement of Financial Position, we control all their significant activities.have assets of $2,268 million and $2,134 million and liabilities of $1,196 million and $1,233 million at September 30, 2020 and December 31, 2019, respectively, from other consolidated VIEs. 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 facilitate or 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 couldwould 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, oneSubstantially all the assets 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 endedat September 30, 2017 and 2016, respectively and $801 million and $881 million in2020 can only be used to settle the nine months ended September 30, 2017 and 2016, respectively. Related expenses consisted primarilyliabilities 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.those VIEs.
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.
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| | |
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 were $2,291 million and $1,937 million at September 30, 20172020, and December 31, 2016 were $6,3822019, respectively. These investments are primarily owned by GE Capital businesses, $421 million and $6,346$621 million respectively. Substantially all of these investments are heldwhich were owned by Energy Financial Services. ObligationsServices, comprising equity method investments, and $1,469 million and $896 million of which were owned by our run-off insurance operations, primarily comprising investment securities at September 30, 2020 and December 31, 2019, respectively. The increase in investments in unconsolidated VIEs in our run-off insurance operations reflects implementation of our revised reinvestment plan, which incorporates the introduction of strategic initiatives to invest in higher-yielding asset classes. Our maximum exposure to loss in respect of unconsolidated VIEs is increased by our commitments to make additional investments in these entities are not significant. described in Note 19.
NOTE 18.19. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS
COMMITMENTS.The GEGECAS business within the Capital Aviation Services (GECAS) business in GE Capital hadsegment has placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $38,669$27,455 million (including 295 new aircraft with estimated delivery dates of 5% in 2020, 25% in 2021 and 70% in 2022 through 2026) and secondary orders with airlines for used aircraft approximating $2,301 million (including 53 used aircraft with estimated delivery dates of approximately $2,07717% in 2020, 60% in 2021 and 23% in 2022 through 2023) at September 30, 2020. 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 September 30, 2020, we have made $3,596 million of pre-delivery payments to aircraft manufacturers.
During 2020, GECAS agreed with Boeing to restructure its 737 MAX orderbook including previously canceled positions, resulting in 77 orders now remaining.
GE Capital had total investment commitments of $2,628 million at September 30, 2017. In2020. The commitments primarily comprise project financing investments in thermal and wind energy projects of $1,190 million and investments by our run-off insurance operations in investment securities and other assets of $1,411 million, included within these commitments are obligations to make additional investments in unconsolidated VIEs of $334 million and $1,171 million, respectively. See Note 18 for further information.
As of September 30, 2020, in our Aviation segment, we hadhave committed to provide financing assistance of $1,875$1,977 million offor future customer acquisitions of aircraft equipped with our engines.
GUARANTEESGUARANTEES.Credit Support and Indemnification Agreements - Continuing Operations. For further information on credit support and indemnification agreements for continuing operations, see our Annual Report on Form 10-K for the year ended December 31, 2019.
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.
Indemnification agreements - Discontinued Operations.At September 30, 2017,2020, 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 warranties 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 indemnificationsindemnities to buyers of GE Capital’sCapital's assets that, amounted to $2,714in the aggregate, represent a maximum potential claim of $648 million for which we have recognizedwith related liabilitiesreserves of $320$103 million. In addition, 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.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
PRODUCT WARRANTIES
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 theThe 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 exchangewas $2,022 million 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$2,165 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 activity2020 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.December 31, 2019, respectively.
|
| | | | | | | | | | | | | | | |
| 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 |
LEGAL MATTERS. The following information supplements and amends the discussion of Legal Matters in Note 23 in our Annual Report on Form 10-K for the year ended December 31, 2019 and in Note 19 in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020; refer to those discussions for information about previously reported legal matters that are not updated below. 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 that could have a material impact on our results of operations. In many proceedings, including the specific matters described below, 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 significant litigation activitynature of legal matters and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC,complexities involved, it is often 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 judgmentpredict 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 developdetermine a meaningful estimate of theloss or range of reasonably possible loss reflects,until we know, among other factors, the rangeparticular claims involved, the likelihood of penalties andsuccess of our defenses to those claims, the damages or 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 trusteesrelief sought, how discovery 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 pendingother procedural considerations will affect the outcome, the settlement posture 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. It is not possible to predict the outcome or impact of these defensesother parties and other factors anythat may have a material effect on the outcome. For these matters, unless otherwise specified, we do not believe it is possible to provide a meaningful estimate 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 WMCat this time. Moreover, it 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 defensesuncommon for legal matters to these demands.be resolved over many years, during which time relevant developments and new information must be continuously evaluated.
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. Onmatters. In November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of two2 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.jurisdictions, including the previously reported legal proceedings in Slovenia that are described below. The reserve balance was $863 million and $875 million at September 30, 2020 and December 31, 2019, respectively.
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.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, and 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. At this time,
In connection with alleged improper payments by Alstom relating to contracts won in 2006 and 2008 for work on a state-owned power plant in Šoštanj, Slovenia, the power plant owner in January 2017 filed an arbitration claim for damages of approximately $430 million before the International Chamber of Commerce Court of Arbitration in Vienna, Austria. In February 2017, a government investigation in Slovenia of the same underlying conduct proceeded to an investigative phase overseen by a judge of the Celje District Court. In September 2020, the relevant Alstom legacy entity was served with an indictment, which we have anticipated as we are unableworking with the parties to developresolve these matters.
Shareholder and related lawsuits. Since February 2018, as previously reported, multiple shareholder derivative lawsuits have been filed against current and former GE executive officers and members of GE's Board of Directors and GE (as nominal defendant). In July 2020, a meaningful estimatenew shareholder derivative lawsuit (the Lindsey case) was filed in New York state court against former GE executive officers and GE (as nominal defendant). The lawsuit alleges breaches of fiduciary duties, based on alleged misstatements regarding accounting practices, and the plaintiff seeks unspecified damages and improvements in GE’s corporate governance and internal procedures. The case has been stayed by agreement of the rangeparties.
As previously reported by Baker Hughes, in March 2019, 2 derivative lawsuits were filed in the Delaware Court of reasonably possible additional lossesChancery naming as defendants GE, directors of Baker Hughes (including former members of GE’s Board of Directors and current and former GE executive officers) and Baker Hughes (as nominal defendant), and the court issued an order consolidating these two actions (the Schippnick case). The complaint as amended in May 2019 alleges, among other things, that GE and the Baker Hughes directors breached their fiduciary duties and that GE was unjustly enriched by entering into transactions and agreements related to GE's sales of approximately 12% of its ownership interest in Baker Hughes in November 2018. The complaint seeks declaratory relief, disgorgement of profits, an award of damages, pre- and post-judgment interest and attorneys’ fees and costs. In May 2019, the plaintiffs voluntarily dismissed their claims against the directors who were members of the Baker Hughes Conflicts Committee and a former Baker Hughes director. In October 2019, the Court denied the remaining defendants’ motions to dismiss, except with respect to the unjust enrichment claim against GE, which has been dismissed. In November 2019, the defendants filed their answer to the complaint, and a special litigation committee of the Baker Hughes Board of Directors moved for an order staying all proceedings in this exposure.
action pending completion of the committee's investigation of the allegations and claims asserted in the complaint. In October 2020, the special litigation committee filed a report with the Court recommending that the derivative action be terminated.
20172020 3Q FORM 10-Q 10363
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| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ENVIRONMENTAL MATTERS
OurSEC investigation. As previously reported, the staff of the U.S. Securities and Exchange Commission (SEC) has notified GE that they are conducting an investigation of GE’s legacy revenue recognition practices and internal controls over financial reporting related to long-term service agreements. Following GE’s investor update in January 2018 about the increase in future policy benefit reserves for GE Capital’s run-off insurance operations, like operationsthe SEC staff expanded the scope of other companies engagedits investigation to encompass the reserve increase and the process leading to the reserve increase. Following GE’s announcement in similar businesses, involveOctober 2018 about the use, disposal and cleanupexpected non-cash goodwill impairment charge related to GE’s Power business, the SEC staff expanded the scope of substances regulated under environmental protection laws.its investigation to include that charge as well. We are involvedproviding documents and other information requested by the SEC staff, and we are cooperating with the ongoing investigation.
We reported in numerous remediation actionsa Form 8-K filing on October 6, 2020 that the SEC staff issued a “Wells notice” advising GE that the staff is considering recommending to clean up hazardous wastesthe commissioners that the SEC bring a civil action against GE for possible violations of the securities laws. GE has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital’s run-off insurance operations, as required bywell as GE’s disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the matters other than GE Capital's run-off insurance operations that are under investigation. The Wells notice is neither a formal allegation nor a finding of wrongdoing. GE disagrees with the SEC staff with respect to this recommendation and is responding through the Wells notice process.
We have recorded a reserve of $100 million as of September 30, 2020 related to the SEC investigation in its entirety, encompassing all matters that are under investigation. We are also exploring whether an appropriate settlement can be reached to fully resolve all matters that are under investigation. In the event that an appropriate settlement cannot be reached, we believe the SEC staff is likely to recommend that the commissioners authorize a civil action against GE with respect to issues involving GE Capital’s run-off insurance operations, as those issues are farthest along in the SEC staff's investigation and have already been the subject of a Wells notice. That civil action could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and state laws. Liabilities for remediation costs exclude possibleother relief within the SEC’s authority. In the event that such an action is brought, GE believes it would have strong defenses to the proposed charges and would vigorously defend the case. The results of the SEC investigation (including the continued investigation of matters other than the run-off insurance recoveriesoperations if an appropriate settlement cannot be reached), the Wells notice, and when datesany enforcement action are unknown at this time, 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. Itit is reasonably possible that the ultimate amount of GE's liability could be higher than 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. current reserve.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. For further information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019.
NOTE 19.20. 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.
TRANSACTIONS. Presented below is a walk of intercompany eliminations from the combined GE and GE Capital totals to the consolidated cash flows from continuing operations.flows.
| | | | | | | | |
| Nine months ended September 30 |
| (In millions) | 2020 | 2019 |
| Combined GE and GE Capital cash from (used for) operating activities - continuing operations | $ | (822) | | $ | 1,311 | |
| GE current receivables sold to GE Capital(a) | (1,361) | | 508 | |
| GE long-term receivables sold to GE Capital(b) | 210 | | 340 | |
| | |
| Supply chain finance programs(c) | 1,853 | | 1,062 | |
| Other reclassifications and eliminations | 8 | | 201 | |
| | |
| Consolidated cash from (used for) operating activities - continuing operations | $ | (112) | | $ | 3,423 | |
| | |
| Combined GE and GE Capital cash from (used for) investing activities - continuing operations | $ | 26,819 | | $ | 9,680 | |
| GE current receivables sold to GE Capital | 1,086 | | (1,167) | |
| GE long-term receivables sold to GE Capital(b) | (210) | | (340) | |
| Supply chain finance programs(c) | (1,853) | | (1,062) | |
| | |
| GE Capital long-term loans to GE | (7,500) | | (480) | |
| Capital contribution from GE to GE Capital | 0 | | 1,500 | |
| Other reclassifications and eliminations | (446) | | (1,043) | |
| Consolidated cash from (used for) investing activities - continuing operations | $ | 17,895 | | $ | 7,087 | |
| | |
| Combined GE and GE Capital cash from (used for) financing activities - continuing operations | $ | (23,252) | | $ | (14,201) | |
| GE current receivables sold to GE Capital | 276 | | 659 | |
| | |
| | |
| | |
| GE Capital long-term loans to GE | 7,500 | | 480 | |
| Capital contribution from GE to GE Capital | 0 | | (1,500) | |
| Other reclassifications and eliminations | 438 | | 842 | |
| Consolidated cash from (used for) financing activities - continuing operations | $ | (15,038) | | $ | (13,721) | |
|
| | | | | | |
| | 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(a)Included the elimination of $11,335 million payments to GE for current receivables purchased and retained by GE Capital and the related reclassification to CFOA of $9,974 million due to GE Capital collections and other activity in our consolidated statement 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, 20172020. Included the elimination of $11,038 million payments and 2016 for:the reclassification to CFOA of $11,546 million collections and other activity for the nine months ended September 30, 2019.
General Electric Company (the Parent Company Guarantor) - prepared with investments in subsidiaries accounted for under(b)Primarily included the equity methodreclassification of accountinglong-term receivables purchased and excluding any inter-segment eliminations;
retained by GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary for debt;
to current receivables.(c)Represents the elimination of net payments from GE to GE Capital International Holdings Limited (GECIHL)(related to the Subsidiary Guarantor)- preparedfunded participation in a supply chain finance program with investmentsGE Capital. The reduction of the GE liability associated with this program is primarily as a result of GE Capital's sale of the program platform to MUFG Union Bank, N.A. (MUFG) in non-guarantor subsidiaries accounted for under the equity method of accounting;
2019.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.
201764 2020 3Q FORM 10-Q105
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| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Cash payments received on the Receivable facility deferred purchase price are reflected as Cash from investing activities in the GE Capital and Consolidated columns of our consolidated Statement of Cash Flows. Sales of customer 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.
NOTE 21. BAKER HUGHES SUMMARIZED FINANCIAL INFORMATION. We account for our remaining interest in Baker Hughes (comprising 377.4 million shares and a promissory note receivable) at fair value. At September 30, 2020, the fair value of our interest in Baker Hughes was $5,102 million. We recognized a net pre-tax unrealized loss of $748 million ($618 million after-tax) and a pre-tax unrealized loss of $4,613 million ($3,679 million after-tax) for the three and nine months ended September 30, 2020, respectively, based on a share price of $13.29. These losses were recorded net of a $45 million derivative gain associated with a forward sale of up to approximately 28 million Baker Hughes shares pursuant to our previously announced program to monetize our Baker Hughes position. In October 2020, we completed this initial forward sale and received proceeds of $417 million. We recognized a pre-tax unrealized loss of $125 million ($98 million after-tax) for the three and nine months ended September 30, 2019. See Notes 2 and 3 for further information.
Summarized financial information of Baker Hughes is as follows.
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019(a) | | 2020 | 2019(a) |
| Revenues | $ | 5,049 | | $ | 1,404 | | | $ | 15,210 | | $ | 1,404 | |
| Gross Profit | 757 | | 263 | | | 2,190 | | 263 | |
| Net income (loss) | (270) | | 25 | | | (16,712) | | 25 | |
| Net income (loss) attributable to the entity | (170) | | 12 | | | (10,592) | | 12 | |
(a) Financial information is from September 16, 2019 (date of deconsolidation) to September 30, 2019.
Baker Hughes is a SEC registrant with separate filing requirements, and its financial information can be obtained from www.sec.gov or www.bakerhughes.com.
NOTE 22. OTHER INCOME
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2020 | 2019 | | 2020 | 2019 |
| Purchases and sales of business interests(a) | $ | 21 | | $ | 46 | | | $ | 12,445 | | $ | 260 | |
| Licensing and royalty income | 44 | | 56 | | | 117 | | 176 | |
| Associated companies | (78) | | 42 | | | (9) | | 163 | |
| Net interest and investment income(b) | (582) | | (29) | | | (4,259) | | 131 | |
| Other items | 86 | | 37 | | | 187 | | 447 | |
| GE | $ | (509) | | $ | 153 | | | $ | 8,481 | | $ | 1,177 | |
| Eliminations | (8) | | 5 | | | (50) | | (7) | |
| Total | $ | (517) | | $ | 158 | | | $ | 8,430 | | $ | 1,170 | |
(a)Included a pre-tax gain of $12,362 million on the sale of BioPharma for the nine months ended September 30, 2020. Included a pre-tax gain of $224 million on the sale of ServiceMax for the nine months ended September 30, 2019. See Note 2 for further information.
(b)Included a net pre-tax unrealized loss of $748 million and a pre-tax unrealized loss of $4,613 million for the three and nine months ended September 30, 2020, respectively, related to our interest in Baker Hughes in 2020. Included a pre-tax unrealized loss of $125 million for the three and nine months ended September 30, 2019, related to our interest in Baker Hughes in 2019. See Notes 3 and 21 for further information.
|
| | | | | | | | | | | | | | | | | | |
| 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 STATEMENTSOTHER ITEMS | NOTES TO CONSOLIDATED FINANCIAL 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 the potential impacts of the COVID-19 pandemic on our business operations, financial results and financial position and on the world economy; our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; macroeconomic and market conditions and volatility; 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:
•the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic, of businesses’ and governments’ responses to the pandemic and of individual factors such as aviation passenger confidence on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains;
•our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position, the prices of our securities and the achievement of our strategic objectives;
•changes in macroeconomic and market conditions and market volatility (including developments and volatility arising from the COVID-19 pandemic), including interest rates, the value of securities and other financial assets (including our equity ownership position in Baker Hughes), oil, natural gas and other commodity prices and exchange rates, and the impact of such changes and volatility on our financial position and businesses;
•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, supplier, 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 and discontinued operations, the amount and timing of required capital contributions to the insurance operations and any 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, including through GECAS to the aviation sector and adverse impacts related to COVID-19;
•our success in executing and completing asset dispositions or other transactions, including our plan to exit our equity ownership position in Baker Hughes, the timing of closing for such transactions and the expected proceeds and benefits to GE;
•global economic trends, competition and geopolitical risks, including changes in the rates of investment or economic growth in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses' global supply chains and strategies;
•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, cyclical and competitive pressures in our Power business, pricing and other pressures in the renewable energy market, levels of demand for air travel and other customer dynamics such as early aircraft retirements, conditions in key geographic markets 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 and Renewable Energy businesses, and the performance 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 of our products or third-party products with which our products are integrated, such as the fleet grounding of the Boeing 737 MAX, and the timing of its return to service and return to delivery, and related reputational effects;
•the impact of potential information technology, cybersecurity or data security breaches; and
•the other factors that are described in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, as such descriptions may be updated or amended in any future reports we file with the SEC.
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.
|
| | | | | | | | | | | | | | | | | | |
| 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 STATEMENTSOTHER ITEMS | 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. |
EXHIBITS
|
| | |
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. |
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(b) | Contract assets are presented net of related billings in excess of revenues on our long-term product service agreements. See Note 9. |
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(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. |
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(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. |
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(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. |
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(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 period in which the hedged transaction occurs. The table below summarizes this activity by hedging instrument.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | |
| 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 |
|
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.
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(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. |
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(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. |
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(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 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Interest rate contracts | $ | 1 |
| $ | 1 |
| | $ | (6 | ) | $ | (12 | ) |
| Currency exchange contracts | 224 |
| — |
| | 110 |
| (46 | ) |
| Commodity contracts | — |
| 1 |
| | — |
| — |
|
| Total(a) | $ | 225 |
| $ | 2 |
| | $ | 104 |
| $ | (57 | ) |
|
| | | | | | | | | | | | | |
| | | | | | |
| 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 to counterparties (including accrued interest), net of collateral we hold, was $681 million. This excludes exposure related 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 of collateral posted by us and outstanding interest payments was $271 million at September 30, 2017. This excludes exposure related to embedded derivatives.
EXHIBITS
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Computation Data is provided in Note 16 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.this Report.
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| Exhibit 101 | The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2020, formatted in XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the three and nine months ended September 30, 20172020 and 2016,2019, (ii) Statement of Financial Position at September 30, 2020 and December 31, 2019, (iii) Statement of Cash Flows for the nine months ended September 30, 2020 and 2019, (iv) Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 20172020 and 2016, (iii) Consolidated2019, (v) Statement of Changes in Shareowners’Shareholders' Equity for the three and nine months ended September 30, 20172020 and 2016, (iv) Statement of Financial Position at September 30, 2017 and December 31, 2016, (v) Statement of Cash Flows for the nine months ended September 30, 2017 and 2016,2019, and (vi) Notes to Consolidated Financial Statements. |
| Exhibit 104 | | |
| * | Cover Page Interactive Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is providedFile (formatted as Inline XBRL and contained in Note 15 to the Consolidated Financial Statements in this Report. |
FORM 10-Q CROSS REFERENCE INDEX
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| | | | | | | | | | | | | |
| Item Number | | Page(s) |
| Part I – FINANCIAL INFORMATION |
| Item 1. | | Financial Statements | | 66-11336-65 |
| | | | |
| Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4-593-35 |
| | | | |
| Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | | Not applicable(a)22-23, 60-62 |
| | | | |
| Item 4. | | Controls and Procedures | | 60 |
| | | | 35 |
Part II – OTHER INFORMATION |
| Item 1. | | Legal Proceedings | | 62-6363-64 |
| Item 1A. | | Risk Factors | | Not applicable(a) |
Item 1A. | | Risk Factors | | Not applicable(b) |
| | | | |
| Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 6135 |
| | | | |
| Item 3. | | Defaults Upon Senior Securities | | Not applicable |
| | | | |
| Item 4. | | Mine Safety Disclosures | | 51Not applicable |
| Item 5. | | Other Information | | Not applicable |
Item 5.6. | | Other InformationExhibits | | Not applicable67 |
| Signatures | | | | |
Item 6. | | Exhibits | | 114 |
| | | | |
Signatures | | | 11667 |
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(a) | There have been no significant changes to our market risk since December 31, 2016. 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. |
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(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. |
(a) There have been no material changes to our risk factors since June 30, 2020. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
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.
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| | | | | | | |
| October 28, 2020 | | General Electric Company
(Registrant)
/s/ Thomas S. Timko |
October 30, 2017Date | | /s/ Jan R. Hauser |
Date | | Jan R. HauserThomas S. Timko
Vice President, Chief Accounting Officer and Controller Duly Authorized Officer and Principal Accounting Officer
|
116 20172020 3Q FORM 10-Q67
