0000040545 us-gaap:CostOfSalesMember 2019-01-01 2019-09-30false--12-31Q3201900000405453530000001800000086000000137000000P3Y08738434000873843400087384340008747092000874709200087470920004890000003710000003360000008200000048000000260000001100000038000000300000005000000450000000780000002940000002200000074000000245000000810000002660000001980000005939875593987559398755939875593987559398759400000001830000004000000400000010000002390000000800000012000000247000000193000000765000000830000000<div class="ae2"><div class="ae3"><font class="ae4">NOTE 20. CASH FLOWS INFORMATION</font><font class="ae4"> </font></div><div class="ae5"><font class="ae6">All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss).</font></div><div class="ae5"><font class="ae6"><br clear="none"/></font></div><div class="ae5"><font class="ae6">Amounts reported in the Proceeds from sales of discontinued operations and Proceeds from principal business dispositions lines in our consolidated Statement of Cash Flows are net of cash transferred and included certain deal-related costs. Amounts reported in the Net cash from (payments for) principal businesses purchased line are net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions.</font></div><div class="ae3"><div class="ae7"><table class="ae8"><tr><td colspan="7"></td></tr><tr><td class="ae9"></td><td class="aea"></td><td class="aeb"></td><td class="aea"></td><td class="aea"></td><td class="aeb"></td><td class="aea"></td></tr><tr><td class="aec"><div class="aed"><font class="aee">GE</font></div></td><td colspan="6" class="aef"><div class="aeg"><font class="aeh">Three months ended March 31</font></div></td></tr><tr><td class="aec"><div class="aed"><font class="aei">(In millions)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="aeh">2020</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="aeh">2019</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td><td colspan="3" class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td><td colspan="3" class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Increase (decrease) in employee benefit liabilities(a)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(371</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(489</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Restructuring and other charges(b)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">193</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">247</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Restructuring and other cash expenditures</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">(198</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">(266</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Baker Hughes Class B dividends received</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">&#8212;</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">94</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aet"><div class="aed"><font class="ae6">Other(c)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">294</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">78</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeu"><div class="aed"><font class="aee">All other operating activities</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(82</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(336</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Derivative settlements (net)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(74</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">22</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Other Investments (net)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">137</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">86</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Other(d)</font></div></td><td colspan="2" class="aef"><div class="aek"><font class="ae6">18</font></div></td><td class="aey"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aef"><div class="aek"><font class="ae6">(353</font></div></td><td class="aez"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeu"><div class="aed"><font class="aee">All other investing activities</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">81</font></div></td><td class="ae10"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(245</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td></tr></table></div></div><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(a)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Included non-cash adjustments for stock-based compensation expenses.</font></div></td></tr></table><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(b)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Excludes non-cash adjustments reflected as Depreciation and amortization of property, plant and equipment or Amortization of intangible assets in our consolidated Statement of Cash Flows.</font></div></td></tr></table><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(c)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Included other adjustments to net income, such as write-downs of assets and the impacts of acquisition accounting and changes in other assets and other liabilities classified as operating activities, such as the timing of payments of customer allowances.</font></div></td></tr></table><table class="ae17"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(d)</font></div></td><td class="ae18"><div class="ae5"><font class="ae6">Other primarily included net activity related to settlements between our continuing operations and discontinued operations.</font><font class="ae6"> </font></div></td></tr></table><div class="ae19"><font class="ae1a"><br clear="none"/></font></div><div class="ae5"><font class="ae6">The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in the three months ended March 31, 2020: additional non-cash deferred purchase price received by GE Capital related to sales of current receivables (see Note 4); and right-of-use assets obtained in operating leases.</font></div></div><div class="ae2"><div class="ae3"><div class="ae7"><table class="ae8"><tr><td colspan="7"></td></tr><tr><td class="ae9"></td><td class="aea"></td><td class="aeb"></td><td class="aea"></td><td class="aea"></td><td class="aeb"></td><td class="aea"></td></tr><tr><td class="aec"><div class="aed"><font class="aee">GE</font></div></td><td colspan="6" class="aef"><div class="aeg"><font class="aeh">Three months ended March 31</font></div></td></tr><tr><td class="aec"><div class="aed"><font class="aei">(In millions)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="aeh">2020</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="aeh">2019</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td><td colspan="3" class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td><td colspan="3" class="aeo"><div class="aep"><font class="aen">&#160;</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Increase (decrease) in employee benefit liabilities(a)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(371</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(489</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Restructuring and other charges(b)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">193</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">247</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Restructuring and other cash expenditures</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">(198</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">(266</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Baker Hughes Class B dividends received</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">&#8212;</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">94</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aet"><div class="aed"><font class="ae6">Other(c)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">294</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">78</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeu"><div class="aed"><font class="aee">All other operating activities</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(82</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(336</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Derivative settlements (net)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">(74</font></div></td><td class="aes"><div class="aed"><font class="ae6">)</font></div></td><td class="aej"><div class="aed"><font class="ae6">$</font></div></td><td class="aer"><div class="aek"><font class="ae6">22</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Other Investments (net)</font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">137</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aej"><div class="aek"><font class="ae6">86</font></div></td><td class="ael"><div class="aem"><font class="aen"><br clear="none"/></font></div></td></tr><tr><td class="aeq"><div class="aed"><font class="ae6">Other(d)</font></div></td><td colspan="2" class="aef"><div class="aek"><font class="ae6">18</font></div></td><td class="aey"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td colspan="2" class="aef"><div class="aek"><font class="ae6">(353</font></div></td><td class="aez"><div class="aed"><font class="ae6">)</font></div></td></tr><tr><td class="aeu"><div class="aed"><font class="aee">All other investing activities</font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">81</font></div></td><td class="ae10"><div class="aem"><font class="aen"><br clear="none"/></font></div></td><td class="aev"><div class="aed"><font class="ae6">$</font></div></td><td class="aew"><div class="aek"><font class="ae6">(245</font></div></td><td class="aex"><div class="aed"><font class="ae6">)</font></div></td></tr></table></div></div><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(a)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Included non-cash adjustments for stock-based compensation expenses.</font></div></td></tr></table><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(b)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Excludes non-cash adjustments reflected as Depreciation and amortization of property, plant and equipment or Amortization of intangible assets in our consolidated Statement of Cash Flows.</font></div></td></tr></table><table class="ae11"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(c)</font></div></td><td class="ae15"><div class="ae16"><font class="ae6">Included other adjustments to net income, such as write-downs of assets and the impacts of acquisition accounting and changes in other assets and other liabilities classified as operating activities, such as the timing of payments of customer allowances.</font></div></td></tr></table><table class="ae17"><tr><td class="ae12"></td><td></td></tr><tr><td class="ae13"><div class="ae14"><font class="ae6">(d)</font></div></td><td class="ae18"><div class="ae5"><font class="ae6">Other primarily included net activity related to settlements between our continuing operations and discontinued operations.</font><font class="ae6"> </font></div></td></tr></table></div>
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, 2019March 31, 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 number 001-00035
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) |
(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 |
Floating Rate Notes due 2020 | GE 20E | 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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No ¨
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): |
| | | |
Large accelerated filer | ☑ | 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 ☑
There were 8,733,549,0008,747,092,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2019.March 31, 2020.
TABLE OF CONTENTS
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Non-GAAP Financial Measures | |
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Glossary | |
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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. The Power segment offers technologies, solutions, and services related to energy production, including gas and steam turbines, generators, and power generation services. The Renewable Energy segment provides wind turbine platforms, hardware and software, offshore wind turbines, solutions, products and services to hydropower industry, blades for onshore and offshore wind turbines, and high voltage equipment. The Aviation segment provides jet engines and turboprops for commercial airframes, maintenance, component repair, and overhaul services, as well as replacement parts, additive machines and materials, and engineering services. The Healthcare segment provides healthcare technologies in medical imaging, digital solutions, patient monitoring, and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance enhancement solutions. The Capital segment leases and finances aircraft, aircraft engines and helicopters, provides financial and underwriting solutions, and manages our run-off insurance operations. 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 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)
The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of GE with the financial services businesses of GE Capital or Financial Services and 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 Statements and 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 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 GE 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 these terms to mean the following:
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• | General Electric or the Company – the parent company, General Electric Company.
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• | GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
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• | GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, any intercompany profits resulting from transactions between GE and GE Capital are eliminated at the GE level. We present the results of GE in the center column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. An example of a GE metric is GE Cash Flows from Operations (GE CFOA).
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• | GE Capital or Financial Services – the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
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• | GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial Free Cash Flows (Non-GAAP).
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• | Industrial segment – the sum of our four industrial reportable segments, without giving effect to the elimination of transactions among such segments or 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.
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• | Baker Hughes – represents our Oil & Gas segment through the date of deconsolidation and our remaining interest in Baker Hughes Company.
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ReferConsolidated – the adding together of GE and GE Capital, giving effect to the Glossary forelimination 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 listone-line basis, giving effect to the elimination of key terms usedtransactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, any intercompany profits resulting from transactions between GE and GE Capital are eliminated at the GE level. We present the results of GE in the center column of our MD&Aconsolidated Statements of Earnings (Loss), Financial Position and financial statements. Cash Flows.
GE Capital – the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items.
This document contains “forward-looking statements” - that is, statements related to future events that by their nature address matters that are, to different degrees, uncertain.
Forfor details about the uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements, see the Risk Factors and Forward-Looking Statements section, as well as our Annual Report on Form 10-K for the year ended December 31, 2018 and our other Quarterly Reports on Form 10-Q.sections.
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
Amounts reported in billions in tables 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.
GE’s website at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts and other social media, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
2019 3Q2020 1Q FORM 10-Q 3
CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS.
Coronavirus Disease 2019 (COVID-19) Pandemic. In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million sharesThe COVID-19 pandemic has significantly impacted global economies, resulting in Baker Hughes for $3.0 billion in cash (net of expenses) whichworkforce and travel restrictions, supply chain and production disruptions and reduced our ownership interest from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segmentdemand and reclassified results to discontinued operations for all periods presented. In addition, as disclosed in prior filings, including our 2018 Form 10-K, we expected to record a significant loss upon deconsolidation. In the third quarter of 2019, we recorded a loss of $8.7 billion ($8.2 billion after-tax) in discontinued operations. We elected to prospectively measure our remaining investment in Baker Hughes at fair value and all subsequent changes in fair value will be recognized in earnings from continuing operations. See Notes 2 and 3 to the consolidated financial statements for further information.
In February 2019, we completed the spin-off and subsequent merger of our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. In the transaction, GE shareholders received shares of Wabtec common stock representing a 24.3% ownership interest in Wabtec common stock. GE received $2.8 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represented a 24.9% ownership interest in Wabtec. GE is also entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction. As a result, we reclassified our Transportation segment to discontinued operations in the first quarter of 2019, for all periods presented, and recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. In May 2019, we sold 25.3 million shares of Wabtec common stock for proceeds of $1.8 billion.spending across many sectors. During the third quarterlatter part of 2019, we sold our remaining 22.5 million shares of Wabtec common stock for proceeds of $1.6 billion. See Notes 2 and 3 to the consolidated financial statements for further information.
Also in February 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion subject to certain adjustments. In the first quarter of 2019, we classified BioPharma as a business held for sale. We expect to complete the sale in the first quarter of 2020, subject to regulatory approval, providing us flexibilitythese factors began having a material adverse impact on our operations, financial performance and optionality with respect toprices of our remaining Healthcare business. See Note 2 tosecurities, as well as on the consolidatedoperations and financial statements for further information.performance of many of the customers and suppliers in industries that we serve.
InWe have adopted operational and governance rhythms across the secondCompany to coordinate 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 and mitigating actions in response; funding and liquidity management and related treasury actions; and enterprise risk management and other functional activities. Each of GE’s businesses and Corporate are taking cost and liquidity actions to manage risk and aggressively mitigate financial impact as supply and demand dynamics in GE’s industries continue to shift. We also continue to evaluate market conditions as they evolve and take precautionary measures to strengthen our financial position. We ended the first quarter of 2019, we recognized a non-cash pre-tax impairment charge2020 with $47.3 billion of $0.7 billionconsolidated cash, cash equivalents and restricted cash, in addition to our available credit lines. See the Capital Resources and Liquidity section within MD&A for further information.
This section summarizes the most significant impacts related to goodwillthe COVID-19 pandemic that we have experienced to date, and we have included additional details as applicable throughout other sections of this report. Given that many of these impacts did not begin to be felt broadly across our businesses until the latter part of the first quarter of 2020, in some instances we have identified an impact during the quarter that we would attribute primarily to COVID-19 developments rather than other business or market factors. However, in future periods, depending on the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences, we anticipate that it will become more difficult to distinguish specific aspects of our operational and financial performance that are most directly related to COVID-19 from those that are more broadly influenced by ongoing macroeconomic, market and industry dynamics that may also be, to varying degrees, related to the COVID-19 pandemic and its consequences.
While factors related directly and indirectly to the COVID-19 pandemic have begun impacting operations and financial performance at varying levels across all our businesses, the most significant financial impact to date has been at our Grid Solutions equipmentAviation segment and our GE Capital Aviation Services (GECAS) aircraft leasing business within our Capital segment. The COVID-19 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 requests for government financial assistance by various industry participants. This has decreased demand for higher margin services revenues within our Aviation segment directly impacting our profitability and cash flows during the three months ended March 31, 2020. Our Healthcare segment experienced increased demand for certain types of products and services, reporting unit withinincluding respiratory, computed tomography (CT), monitoring solutions, x-ray, anesthesia and point-of-care ultrasound product lines, partially offset by decreased demand in other parts of the business where hospitals and other customers have deferred services amidst the COVID-19 pandemic. Our other businesses were also adversely impacted by market developments, including delays 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 Renewable Energy segment. Inprofitability and cash flows for the thirdthree months ended March 31, 2020. We anticipate many of these impacts experienced in the latter part of first quarter of 2019, we recognized a non-cash impairment charge of $0.7 billion2020 related to goodwill atdemand, 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 Hydro reporting unit within our Renewable Energy segment. These charges were recorded within earnings from continuing operations at Corporate. See Note 8other businesses, refer to the consolidated financial statements for further information.respective segment sections within MD&A.
In the third quarter of 2019, we completed a tender offer to purchase $4.8 billion of GE senior unsecured debt. The total cash consideration paid for these purchases was $5.0 billion, resulting in a pre-tax loss of $0.3 billion (including feesaddition, financial, oil and gas and other costscommodity markets, including interest rates and credit spreads, have been experiencing significant volatility, which had a material adverse impact on the market values of certain assets, such as our remaining equity interest in Baker Hughes and the value of our investment portfolios supporting our long-term insurance liabilities and pension obligations. In accordance with GAAP, we remeasure the values of our investment portfolio supporting our pension liabilities, our associated withpension liabilities and our long-term insurance liabilities only annually, and our financial statements at March 31, 2020 therefore do not reflect the tender) whichimpact of the recent market conditions on these assets and obligations.
During the three months ended March 31, 2020, COVID-19 factors described above negatively impacted GE cash from operating activities (CFOA) and Industrial free cash flows (FCF)* by approximately $1 billion, GE Industrial profit by approximately $0.8 billion and GE Capital earnings by approximately $0.1 billion. Excluding restructuring of $0.1 billion, adjusted GE Industrial profit* was included in Interestnegatively impacted by $0.7 billion.
See the Consolidated Results, and other financial chargesCritical Accounting Estimates sections within earnings from continuing operations in the GE Statement of Earnings (Loss). See Note 11MD&A, as well as Notes 3, 10 and 12 to the consolidated financial statements for further information.
We annually perform premium deficiency testingare taking cost and cash actions to manage risk and proactively mitigate the financial impacts from COVID-19. In 2020, we are targeting more than $2 billion in operational cost out and more than $3 billion in cash preservation actions across the aggregatecompany, including more than $1 billion in cost out and more than $2 billion in cash preservation actions in Aviation, to right-size its cost structure and preserve its ability to serve customers.
At this time, GE cannot forecast the full duration and magnitude of COVID-19 impacts, or the pace of recovery from the COVID-19 pandemic across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. As a result of our testing, we identified a premium deficiency resulting in a $1.0 billion pre-tax ($0.8 billion after-tax) charge to earnings.end markets, operations, and supply chains. See the “Other Items”Risk Factors section and Note 12 to the consolidated financial statements for further information.
In October 2019, we announced changes to the U.S. GE Pension Planinformation about related risks and the U.S. GE Supplementary Plan whereby the benefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and thereafter these employees will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan and benefits for approximately 700 employees that became executives before 2011 will be frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to new executives since 2011. Finally, we announced our intent to pre-fund approximately $4 to $5 billion of our estimated 2021 and 2022 minimum ERISA funding requirements in 2020 and offer approximately 100,000 former U.S. employees with a vested pension benefit a limited-time option to take a lump sum distribution in lieu of future monthly payments. As a result of these actions, we expect to recognize a pre-tax increase in non-operating benefit costs of approximately $0.6 billion in the fourth quarter of 2019. See Capital Resources and Liquidity - Financial Policy within MD&A and Note 13 to the consolidated financial statements for further information.
THIRD QUARTER 2019 RESULTS.Consolidated revenues were $23.4 billion remained flat for the quarter. Offsetting a decrease in revenues largely attributable to the sale of our Distributed Power business in November 2018, industrial segment organic revenues* increased $1.4 billion, or 7%, driven by our Aviation, Renewable Energy and Healthcare segments, partially offset by our Power segment.
Continuing earnings per share was $(0.15). Excluding non-operating benefit costs, gains (losses) on business dispositions, restructuring and other charges, goodwill impairments, unrealized gains (losses) on investments debt extinguishment costs and insurance premium deficiency test charge, Adjusted earnings per share* was $0.15.
uncertainties.
*Non-GAAP Financial Measure
4 2019 3Q2020 1Q FORM 10-Q
BioPharma. On March 31, 2020, we completed the sale of our BioPharma business within our Healthcare segment to Danaher Corporation for consideration of $21.1 billion, subject to customary working capital and other post-close adjustments, and recognized a pre-tax gain of $12.3 billion ($11.1 billion after tax) in our consolidated Statement of Earnings (Loss). See Note 2 to the consolidated financial statements for further information.
Baker Hughes. We recognized a pre-tax unrealized loss of $5.7 billion ($4.6 billion after tax) for the three months ended March 31, 2020, on our investment in Baker Hughes, based on a share price of $10.50. See Notes 2 and 3 for further information.
Debt offering and tender. On April 22, 2020, we issued $6 billion of GE Company debt and used the proceeds to complete a tender offer to purchase $4.2 billion of GE senior notes with maturities ranging from 2022 to 2024. We intend to use the remaining proceeds to repurchase, redeem or repay GE’s outstanding debt obligations, including other notes or commercial paper. These transactions will be leverage neutral and liquidity enhancing by extending our near-term industrial debt maturities. Additionally, on April 23, 2020, GE Capital, using proceeds from the repayment of the intercompany loan by GE, completed a tender for $5.4 billion of its 2020 maturities. See Capital Resources and Liquidity section within MD&A for further information.
FIRST QUARTER 2020 RESULTS.Consolidated revenues were $20.5 billion, down $1.7 billion for the quarter primarily driven by decreased GE Industrial and GE Capital revenues. GE Industrial revenues decreased $1.5 billion (7%) driven by our Aviation and Power segments, partially offset by our Renewable Energy segment.
Continuing earnings per share was $0.72. Excluding gains (losses) on business dispositions, unrealized gains (losses), non-operating benefit costs, restructuring and other charges and BioPharma tax benefit, Adjusted earnings per share* was $0.05.
For the three months ended September 30, 2019,March 31, 2020, GE Industrial profit was $(0.5)$6.6 billion and profit margins were (2.1)%34.9%, up $22.6$5.5 billion, driven primarily by decreased non-cash goodwill impairment chargesthe gain on sale of $21.2 billion, decreased restructuring and other costsour BioPharma business of $1.2$12.3 billion, partially offset by increased net losses from disposed or held for sale businessesan unrealized loss on our investment in Baker Hughes of $0.3$5.7 billion.Adjusted GE Industrial organic profit* decreased $1.0 billion and increased adjusted Corporate operating costs* of $0.1 billion. Industrial segment profit increased $0.5 billion, or 25%(47%), primarily due to higher results withinas a result of the impacts of COVID-19, particularly at our Aviation segment, as well as decreases at Power Healthcare and Aviation segments, partially offset by the performance of our Renewable Energy segment. Industrial segment organic profit* increased $0.5 billion, or 28%.Energy.
GE CFOA fromof continuing operations was $0.1$(1.7) billion and $(4.5)$(0.6) billion for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. GE CFOA increased primarily due to no GE Pension Plan contributions in 2019 compared to $6.0 billion in 2018 and lower net disbursements for equipment project costs, partially offset by higher cash used for working capital compared to 2018. GE Industrial Free Cash Flows (FCF)* were $(1.6) billion and $(0.3) billion for the nine months ended September 30, 2019 and 2018, respectively. The increase in cash used wasdecreased primarily due to higher cash used for working capital and lower net income, primarily due to COVID-19 impacts, compared to 2018,2019, partially offset by lower net disbursementscash used for equipment project costs comparedcontract & other deferred assets. GE Industrial free cash flows* were $(2.2) billion and $(1.2) billion for the three months ended March 31, 2020 and 2019, respectively. The decrease was primarily due to 2018.the same decreases in GE CFOA as noted above. See the Capital Resources and Liquidity - Statement of Cash Flows section for further information.
Orders are contractual commitments with customers to provide specified goods or services for an agreed upon price.
|
| | | | | | |
GE INDUSTRIAL ORDERS | Three months ended March 31 |
(In billions) | 2020 |
| 2019 |
|
| | |
Equipment | $ | 9.2 |
| $ | 10.0 |
|
Services | 10.3 |
| 10.6 |
|
Total orders(a) | $ | 19.5 |
| $ | 20.6 |
|
Total organic orders | $ | 19.6 |
| $ | 20.2 |
|
(a) Included $1.1 billion and $1.0 billion related to BioPharma for the three months ended March 31, 2020 and 2019, respectively.
For the three months ended March 31, 2020, orders decreased $1.1 billion (5%) on a reported basis and decreased $0.6 billion (3%) organically with growth at Power and Healthcare more than offset by double-digit declines at Aviation, due to the 737 MAX grounding and the impact of COVID-19, and Renewable Energy. Equipment orders were down $0.3 billion (3%) organically and services orders were down $0.3 billion (3%) organically. Excluding BioPharma, orders decreased $0.8 billion (4%) organically.
Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services).
| | GE INDUSTRIAL BACKLOG (In billions) | September 30, 2019 |
| September 30, 2018 |
| March 31, 2020 |
| December 31, 2019 |
| March 31, 2019 |
|
| | |
Equipment | $ | 80.0 |
| $ | 77.3 |
| $ | 76.9 |
| $ | 79.0 |
| $ | 79.0 |
|
Services | 306.0 |
| 261.5 |
| 324.2 |
| 325.6 |
| 274.3 |
|
Total backlog(a) | $ | 386.0 |
| $ | 338.7 |
| $ | 401.1 |
| $ | 404.6 |
| $ | 353.3 |
|
(a) Backlog as of March 31, 2020 excludes the BioPharma business due to its disposition in the first quarter of 2020. |
| | | | | | | | | | | | | |
GE INDUSTRIAL ORDERS | Three months ended September 30 | | Nine months ended September 30 |
(In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Equipment | $ | 11.3 |
| $ | 12.3 |
| | $ | 32.6 |
| $ | 35.0 |
|
Services | 11.3 |
| 11.5 |
| | 32.8 |
| 33.5 |
|
Total orders | $ | 22.5 |
| $ | 23.8 |
| | $ | 65.4 |
| $ | 68.6 |
|
Total organic orders | $ | 22.8 |
| $ | 22.9 |
| | $ | 66.4 |
| $ | 64.6 |
|
As of September 30, 2019,March 31, 2020, backlog decreased $3.5 billion (1%) from December 31, 2019, driven by currency movement due to a stronger U.S. dollar of $1.2 billion, the disposition of our BioPharma business of $1.2 billion and reductions of backlog slightly exceeding new additions, primarily at Renewable Energy. Backlog increased $47.3$47.8 billion or 14%,(14%) from the prior yearMarch 31, 2019, due to an increase in services backlog of $44.5$49.9 billion primarily at Aviation and equipment backlog of $2.7 billion primarily at Renewable Energy.
For the three months ended September 30, 2019(18%),orders decreased $1.3 billion, or 5%, on a reported basis and decreased $0.1 billion, or 1%, organically driven by a decrease in equipment orders of $0.4 billion primarily at Aviation and Power, partially offset by Renewable Energy, and an increase in services orders of $0.3 billion, primarily at Aviation, partially offset by Renewable Energy.
For the nine months ended September 30, 2019, orders decreased $3.2 billion, or 5%, on a reported basis and increased $1.8 billion, or 3%, organically driven by an increase in services orders of $2.1 billion primarily at Aviation and Power and a decrease in equipment ordersbacklog of $0.3$2.2 billion (3%), primarily at Aviation and Power, partially offset by Renewable Energy.Power. Excluding the BioPharma disposition, backlog increased $48.9 billion (14%) from March 31, 2019.
*Non-GAAP Financial Measure
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, even if the likelihood of cancellation is remote based on historical experience. 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 to the consolidated financial statements for further information.
| | September 30, 2019 (In billions) | Equipment |
| Services |
| Total |
| |
March 31, 2020 (In billions) | | Equipment |
| Services |
| Total |
|
| | |
Backlog | $ | 80.0 |
| $ | 306.0 |
| $ | 386.0 |
| $ | 76.9 |
| $ | 324.2 |
| $ | 401.1 |
|
Adjustments | (34.2 | ) | (111.3 | ) | (145.5 | ) | (31.7 | ) | (129.0 | ) | (160.7 | ) |
Remaining performance obligation | $ | 45.8 |
| $ | 194.7 |
| $ | 240.5 |
| $ | 45.2 |
| $ | 195.2 |
| $ | 240.4 |
|
Adjustments to reported backlog of $(145.5)$160.7 billion as of September 30, 2019March 31, 2020 are largely driven by adjustments of $(133.7)$149.9 billion in our Aviation segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable. We have included these in backlog as our historical experience has shown no net cancellations, as any canceled engines are typically moved by the airframer to other program customers; (2) our services backlog includes contracts that are cancelable without substantive penalty, primarily time and materials contracts; (3) backlog includes engines contracted under long-term service agreements, even if the engines have not yet been put into service. These adjustments to reported backlog are expected to be satisfied beyond one year.
*Non-GAAP Financial Measure
| | REVENUES | Three months ended September 30 | | Nine months ended September 30 | Three months ended March 31 |
(In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| 2020 |
| 2019 |
|
| | | | |
Consolidated revenues | $ | 23.4 |
| $ | 23.4 |
| | $ | 69.0 |
| $ | 70.5 |
| $ | 20.5 |
| $ | 22.2 |
|
| | | | |
Equipment | 11.0 |
| 10.3 |
| | 30.5 |
| 30.6 |
| 9.2 |
| 9.6 |
|
Services | 10.4 |
| 10.4 |
| | 31.7 |
| 32.3 |
| 9.7 |
| 10.7 |
|
Industrial segment revenues | 21.4 |
| 20.7 |
| | 62.3 |
| 62.9 |
| |
Corporate items and Industrial eliminations | 0.1 |
| 0.6 |
| | 1.0 |
| 1.7 |
| |
GE Industrial revenues | $ | 21.5 |
| $ | 21.3 |
| | $ | 63.3 |
| $ | 64.6 |
| $ | 18.8 |
| $ | 20.3 |
|
| | | | |
Financial services revenues | $ | 2.1 |
| $ | 2.5 |
| | $ | 6.6 |
| $ | 7.1 |
| |
GE Capital revenues | | $ | 1.9 |
| $ | 2.2 |
|
For the three months ended September 30, 2019March 31, 2020, consolidated revenues were flatdown $1.7 billion, primarily driven by decreased Financial ServicesGE Industrial revenues of $0.4$1.5 billion and decreased CorporateGE Capital revenues of $0.2 billion largely attributable to the sale of our Current business in November 2018. These decreases were offset by increased industrial segment revenues of $0.7$0.3 billion. The overall foreign currency impact on consolidated revenues was a decrease of $0.2 billion.
GE Industrial segment revenues increased $0.7decreased $1.5 billion or 3%(7%), as increases decreases at Aviation Renewable Energy, and HealthcarePower were partially offset by an increase at Renewable Energy. The decrease in services was driven by the impact of COVID-19, resulting in a decrease in commercial services at Power.Aviation due to lower part shipments and decreased shop visits, as well as a decrease in Gas Power services due to declines in transactional and upgrades revenues. This increasedecrease included the net effects of dispositions of $0.5$0.4 billion primarily attributable to the sale of Distributed Power in November 2018, and the effects of a stronger U.S. dollar of $0.2 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segmentGE Industrial organic revenues* increased $1.4decreased $1.0 billion or 7%(5%), with equipment revenues flat and a decrease in services revenues of $1.0 billion (9%). Excluding the BioPharma disposition, GE Industrial organic revenues* decreased $1.1 billion (6%).
Financial ServicesGE Capital revenues decreased $0.4$0.3 billion or 15%, primarily due to lower gains and volume declines, partially offset by lower impairments.
For the nine months ended September 30, 2019, consolidated revenues decreased $1.5 billion, or 2%, primarily driven by decreased industrial segment revenues of $0.6 billion, decreased Corporate revenues of $0.6 billion largely attributable to the sale of our Current business in November 2018, and decreased Financial Services revenues of $0.4 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.2 billion.
Industrial segment revenues decreased $0.6 billion, or 1%, as a decrease at Power was partially offset by increases at Aviation, Renewable Energy and Healthcare. This decrease was driven by the net effects of dispositions of $3.0 billion, primarily attributable to the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, and the effects of a stronger U.S. dollar of $1.2 billion, partially offset by the net effects of acquisitions of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $3.5 billion, or 6%.
Financial Services revenues decreased $0.4 billion, or 6%(14%), primarily due to volume declines, mark-to-market effects and lower gains, partially offset by lower impairments.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 | Three months ended March 31 |
(In billions; per-share in dollars and diluted) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| 2020 |
| 2019 |
|
| | | | |
Continuing earnings | $ | (1.3 | ) | $ | (23.0 | ) | | $ | (0.7 | ) | $ | (21.9 | ) | $ | 6.3 |
| $ | 0.9 |
|
Continuing earnings per share | $ | (0.15 | ) | $ | (2.64 | ) | | $ | (0.08 | ) | $ | (2.53 | ) | $ | 0.72 |
| $ | 0.10 |
|
For the three months ended September 30, 2019March 31, 2020, consolidated continuing earnings increased $21.6$5.4 billion due to decreased goodwill impairment charges of $21.2 billion, increasedan increase in GE Industrial continuing earningsprofit of $1.2 billion and decreased non-operating benefit costs of $0.2$5.5 billion, partially offset by decreased Financial Servicesa decrease in GE Capital earnings of $0.7 billion, increased interest and other financial charges of $0.2 billion and increased provision for GE Industrial income taxes of $0.1 billion.
GE Industrial continuing earnings decreased $1.2profit increased $5.5 billion. Corporate items and eliminations increased $0.7 billion driven primarily attributable to decreased restructuring and other costsby the gain on the sale of $1.2our BioPharma business of $12.3 billion, partially offset by increased net lossesan unrealized loss on our investment in Baker Hughes of $5.7 billion.Adjusted GE Industrial profit* was $1.1 billion, a decrease of 47% organically*, primarily due to decreases at our Aviation, Power and Renewable Energy segments. GE Industrial profit margin was 34.9%, an increase from disposed or held for5.3%, driven primarily by the gain on the sale businesses of $0.3 billion and increased adjusted Corporate operating costs* of $0.1 billion. Industrial segment profit increased $0.5 billion, or 25%, with higher profit at Power, Healthcare and Aviation,our BioPharma business, partially offset by loweran unrealized loss on our investment in Baker Hughes described above. Adjusted GE industrial profit margin* was 5.8%, a decrease of 450 basis points organically*, primarily due to declines at our Aviation, Power, and Renewable Energy. This increase in industrial segment profit includesEnergy segments. At Aviation, the net effectsprimary drivers were lower commercial services volume and spare parts demand as a result of dispositionsCOVID-19. At Power, the primary drivers were supply chain constraints and cost overruns on services agreements. Additionally, at Renewable Energy, declines were largely due to project fulfillment delays and execution challenges, as well as the nonrecurrence of a $0.1 billion primarily associated withnon-cash gain from the saletermination of Distributed Powertwo Offshore Wind contracts in November 2018. Excluding the effectsfirst quarter of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* increased $0.5 billion, or 28%.2019.
Financial ServicesGE Capital continuing earnings decreased $0.7$0.2 billion primarily due tovolume declines, mark-to-market effects and impairments as a $1.0 billion pre-tax charge identified through the completionresult of our annual insurance premium deficiency review and lower gains,COVID-19 and related market impacts, partially offset by lower impairments and lower excess interest costs. cost. Gains were $0.2 billion and $0.4 billion in the thirdfirst quarters of 2019both 2020 and 2018, respectively,2019, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 20192020 and 2018 as well as the sale of GE Capital's Energy Financial Services (EFS) debt origination business and equity investments resulting in gains of $0.3 billion in 2018.2019.
For the nine months ended September 30, 2019, consolidated continuing earnings increased $21.2 billion due to decreased goodwill impairment charges of $20.5 billion, decreased non-operating benefit costs of $0.4 billion, decreased provision for GE Industrial income taxes of $0.3 billion driven by the completion of prior years’ audit, increased GE Industrial continuing earnings of $0.1 billion and decreased interest and other financial charges of $0.1 billion, partially offset by increased Financial Services losses of $0.2 billion.
*Non-GAAP Financial Measure
6 2019 3Q2020 1Q FORM 10-Q
GE Industrial continuing earnings decreased $0.1 billion, or 2%. Corporate items and eliminations increased $0.6 billion primarily attributable to decreased restructuring and other costs of $1.4 billion, partially offset by increased net unrealized losses on investments of $0.3 billion, increased net losses from disposed or held for sale businesses of $0.3 billion and increased adjusted Corporate operating costs* of $0.2 billion. Industrial segment profit decreased $0.5 billion, or 6%, with lower profit at Renewable Energy, partially offset by higher profit at Healthcare, Power and Aviation. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.3 billion, primarily associated with the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, offset by the effects of a weaker U.S. dollar of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.3 billion, or 3%.
Financial Services continuing losses increased $0.2 billion, or 49%, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.5 billion and $0.6 billion in the first nine months of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.3 billion and $0.2 billion in the first nine months of 2019 and 2018, respectively, as well as the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS and the sale of EFS' debt origination business and equity investments resulting in gains of $0.4 billion in 2018.
AVIATION AND GECAS 737 MAX. Aviation develops, produces, and sells LEAP aircraft engines 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. In AprilDuring the second quarter of 2019, Boeing announced a temporary reduction in the 737 MAX production rate, and during the second quarter of 2019, CFM reduced its production rate for the LEAP-1B to meet Boeing's revised aircraft build rate. As a resultIn December 2019, Boeing announced that it would temporarily suspend production of the 737 MAX grounding, GE CFOA was adversely affected bybeginning in January 2020. In March 2020, CFM and Boeing reached an estimated $0.3 billionagreement to align production rates for 2020 and $1.0 billionsecure payment terms for the threeengines delivered in 2019 and nine months ended September 30, 2019, respectively, which primarily represents receivables growth partially offset by2020, net of progress collections. If the 737 MAX remains grounded, based on current assumptions, we anticipate CFM and Boeing continue to work closely to ensure a negative impactsuccessful reentry into service, with a strong commitment to GE CFOA of approximately $0.4 billion in the fourth quarter of 2019. See Capital Resources and Liquidity - Statement of Cash Flows for further information.safety while navigating near term industry disruption.
At September 30, 2019,As of March 31, 2020, GECAS owned 29 of these aircraft, 2526 of which are leasedcontracted for lease to various lesseesairlines that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 150143 of these aircraft on order and has made financing commitments to acquire a further 1918 aircraft under purchase and leaseback contracts with airlines. During April 2020, GECAS agreed with Boeing to restructure its 737 MAX orderbook including previously canceled positions, resulting in the cancellation of 69 orders with 82 orders now remaining.
As of September 30, 2019,March 31, 2020, we have approximately $2.5 billion of net assets ($4.8 billion of assets and $2.3 billion of liabilities) related to the 737 MAX program that primarily comprisescomprise Aviation accounts receivable offset by progress collections and GECAS pre-delivery payments and owned aircraft subject to lease offset by progress collections.lease. No impairment charges were incurred related to the 737 MAX aircraft and related balances, in the first nine months of 2019 as we continue to believe these assets are fully recoverable. We continue to monitor these737 MAX return to service and return to delivery developments with our airline customers, lessees and Boeing.
LEAP continues to be a strong engine program for us, and we delivered 272 engines for Boeing and Airbus platforms in the first quarter of 2020 and 3,662 engines since inception.
SEGMENT OPERATIONS. Segment revenues include sales of products and services by the segment. Industrial segment profit is determined based on performance measures used by our Chief Operating Decision Maker (CODM), who is our Chief Executive Officer (CEO), to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring, rationalization and other similar expenses, acquisition costs and other related charges, certain gains and losses from acquisitions or dispositions, and certain litigation settlements. See the Corporate Items and Eliminations section for additional information about costs excluded from segment profit.
Segment profit excludes results reported as discontinued operations and the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributablePlease refer to our shareAnnual Report on Form 10-K for the year ended December 31, 2019, for further information regarding our determination of the consolidated earnings or loss of consolidated subsidiaries.
InterestIndustrial and other financial charges, income taxes and non-operating benefit costs are excluded in determiningCapital segment profit for the industrial segments. Interestcontinuing operations, and other financial charges, income taxes, non-operating benefitfor our allocations of corporate costs and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.
Other income is included in segment profit for the industrialour segments.
Certain corporate costs, such as those related to shared services, employee benefits, and information technology, are allocated to our segments based on usage. A portion of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.
| | SUMMARY OF REPORTABLE SEGMENTS | Three months ended September 30 | | Nine months ended September 30 | Three months ended March 31 |
(Dollars in millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
| |
(In millions) | | 2020 |
| 2019 |
| V% |
| |
| | | | | | | | |
Power | $ | 3,926 |
| $ | 4,559 |
| (14) | % | | $ | 13,224 |
| $ | 16,768 |
| (21) | % | $ | 4,025 |
| $ | 4,617 |
| (13 | ) | % |
Renewable Energy | 4,425 |
| 3,920 |
| 13 | % | | 10,590 |
| 9,642 |
| 10 | % | 3,194 |
| 2,538 |
| 26 |
| % |
Aviation | 8,109 |
| 7,480 |
| 8 | % | | 23,940 |
| 22,111 |
| 8 | % | 6,892 |
| 7,954 |
| (13 | ) | % |
Healthcare | 4,923 |
| 4,707 |
| 5 | % | | 14,540 |
| 14,387 |
| 1 | % | 4,727 |
| 4,683 |
| 1 |
| % |
Total industrial segment revenues | 21,383 |
| 20,665 |
| 3 | % | | 62,293 |
| 62,908 |
| (1) | % | |
Capital | 2,097 |
| 2,473 |
| (15) | % | | 6,645 |
| 7,075 |
| (6) | % | 1,923 |
| 2,227 |
| (14 | ) | % |
Total segment revenues | 23,480 |
| 23,138 |
| 1 | % | | 68,938 |
| 69,982 |
| (1) | % | 20,761 |
| 22,019 |
| (6 | ) | % |
Corporate items and eliminations | (120 | ) | 254 |
| U |
| | 39 |
| 531 |
| (93) | % | (237 | ) | 183 |
| U |
| |
Consolidated revenues | $ | 23,360 |
| $ | 23,392 |
| — | % | | $ | 68,976 |
| $ | 70,513 |
| (2) | % | $ | 20,524 |
| $ | 22,202 |
| (8 | ) | % |
| | | | | |
|
|
| |
Power | $ | (144 | ) | $ | (676 | ) | 79 | % | | $ | 84 |
| $ | (22 | ) | F |
| $ | (129 | ) | $ | 110 |
| U |
| |
Renewable Energy | (98 | ) | 116 |
| U |
| | (469 | ) | 312 |
| U |
| (302 | ) | (187 | ) | (61 | ) | % |
Aviation | 1,718 |
| 1,665 |
| 3 | % | | 4,764 |
| 4,743 |
| — | % | 1,005 |
| 1,660 |
| (39 | ) | % |
Healthcare | 974 |
| 861 |
| 13 | % | | 2,714 |
| 2,522 |
| 8 | % | 896 |
| 781 |
| 15 |
| % |
Total industrial segment profit (loss) | 2,450 |
| 1,967 |
| 25 | % | | 7,092 |
| 7,555 |
| (6) | % | |
Capital | (645 | ) | 19 |
| U |
| | (599 | ) | (403 | ) | (49 | )% | (30 | ) | 135 |
| U |
| |
Total segment profit (loss) | 1,806 |
| 1,986 |
| (9) | % | | 6,493 |
| 7,151 |
| (9) | % | 1,441 |
| 2,500 |
| (42 | ) | % |
Corporate items and eliminations | (808 | ) | (1,523 | ) | 47 | % | | (2,013 | ) | (2,596 | ) | 22 | % | 6,064 |
| (228 | ) | F |
| |
GE goodwill impairments | (740 | ) | (21,973 | ) | 97 | % | | (1,484 | ) | (21,973 | ) | 93 | % | |
GE interest and other financial charges | (791 | ) | (590 | ) | (34) | % | | (1,693 | ) | (1,773 | ) | 5 | % | (370 | ) | (520 | ) | 29 |
| % |
GE non-operating benefit costs | (562 | ) | (760 | ) | 26 | % | | (1,684 | ) | (2,132 | ) | 21 | % | (616 | ) | (564 | ) | (9 | ) | % |
GE benefit (provision) for income taxes | (229 | ) | (95 | ) | U |
| | (327 | ) | (624 | ) | 48 | % | (187 | ) | (268 | ) | 30 |
| % |
Earnings (loss) from continuing operations attributable to GE common shareowners | (1,325 | ) | (22,956 | ) | 94 | % | | (707 | ) | (21,947 | ) | 97 | % | |
Earnings (loss) from continuing operations attributable to GE common shareholders | | 6,332 |
| 920 |
| F |
| |
Earnings (loss) from discontinued operations, net of taxes | (8,093 | ) | 155 |
| U |
| | (5,212 | ) | (1,526 | ) | U |
| (178 | ) | 2,663 |
| U |
| |
Less net earnings attributable to noncontrolling interests, discontinued operations | 46 |
| 7 |
| F |
| | 58 |
| (97 | ) | F |
| (2 | ) | 34 |
| U |
| |
Earnings (loss) from discontinued operations, net of tax and noncontrolling interest | (8,140 | ) | 148 |
| U |
| | (5,270 | ) | (1,429 | ) | U |
| (176 | ) | 2,629 |
| U |
| |
Consolidated net earnings (loss) attributable to the GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | 59 | % | | $ | (5,977 | ) | $ | (23,376 | ) | 74 | % | |
Consolidated net earnings (loss) attributable to the GE common shareholders | | $ | 6,156 |
| $ | 3,549 |
| 73 |
| % |
8 2019 3Q2020 1Q FORM 10-Q7
POWER
We are monitoring the impacts of COVID-19 on near-term demand and the impact it is having on our operations, including the supply chain and our ability to service our installed base. Our ability to close transactions in the near term will become more challenging due to the impact of lower oil prices on certain customer budgets, the payback of investments and upgrades at lower gas prices, and access to financing for new projects. We are seeing the impact on our suppliers and within our supply chain, which has resulted in delays in parts and equipment output. In addition, the servicing of our customers' assets has been delayed due to travel and country restrictions. Although there may be obstacles in the near term, we believe the long-term outlook for the role of gas in the power market has not materially changed.
Power is continuing 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. We continue to partner with our customers, working through field service travel disruptions to effectively service their fleets to maintain operability.As a result of expected volume declines from COVID-19 in the near term, we are taking several measures to offset these pressures. During the first quarter of 2019,2020, Power had approximately 700 headcount reductions and notified approximately 1,300 contractors. In addition, we reorganizedexecuted on a hiring freeze, are accelerating planned employee reductions where possible, and are initiating meaningful incremental headcount reduction plans in line with the businesses within our Power segment into Gas Power and Power Portfolio, and effectively eliminated the Power headquarters structure to allow us to reduce costs and improve operations. In the second quarter of 2019, we completed the reorganization of our Grid Solutions equipment and services business into our Renewable Energy segment and our Grid Solutions software and Power Digital businesses into Corporate for all periods presented. Gas Power is a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio comprises our Steam Power Systems (including services previously reported in Power Services), Power Conversion and GE Hitachi Nuclear businesses. Power Portfolio's 2018 results also include our former Industrial Solutions and Distributed Power businesses which were sold in June 2018 and November 2018, respectively.demand profile.
TheLooking ahead, we anticipate the power market as well as its operating environmentto continue to be challenging. Over the past several quarters, our outlook for Power was drivenimpacted by the significant overcapacity in the industry, increased price pressure from competition on servicing the installed base, and the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook could be impacted by project execution and our own underlying operational challenges. Also, marketMarket factors such as increasing energy efficiency and renewable energy penetration continue to impact long-term demand.
We have andWhile we navigate the near-term impacts of the COVID-19 pandemic, we will continue to take actions to right size our business for the current market conditions and our long-term outlook, including restructuring our operations to dispose of non-core businesses, resizing our remaining businesses to better align with market demand and driving these businesses with an operational rigor and discipline that is focused on our customers’ lifecycle experience. We are building a cost structure to support an average 25 to 30 gigawatt new unit gas turbine market; however, actual orders in a given year can vary. As a result of these actions and overall market conditions, we believe the business is showing early signs of stabilization. We anticipate lower restructuring cash costs during 2019 than originally planned due to a mix of timing, attrition and executing projects at lower costs. We expect incremental improvements in 2020 with further acceleration in 2021 and beyond.
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 $85 billion in backlog and a gas turbine installed base greater than 7,000 units.
|
| | | | | | | | | |
(In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | |
Equipment | | | | $ | 19.0 |
| $ | 19.4 |
|
Services | | | | 67.8 |
| 67.5 |
|
Total backlog | | | | $ | 86.8 |
| $ | 86.9 |
|
|
| | | | | | | | | |
| Three months ended March 31 |
| Orders | | Sales |
(In units) | 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | |
GE Gas Turbines | 9 |
| 15 |
| | 7 |
| 9 |
|
Heavy-Duty Gas Turbines(a) | 6 |
| 11 |
| | 5 |
| 7 |
|
HA-Turbines(b) | 2 |
| 3 |
| | 4 |
| 1 |
|
Aeroderivatives(a) | 3 |
| 4 |
| | 2 |
| 2 |
|
GE Gas Turbine Gigawatts(c) | 2.2 |
| 2.1 |
| | | |
(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. |
|
| | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
(Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | |
GE Gas Turbine unit orders | 17 |
| | 23 |
| | | 52 |
| | 41 |
| |
Heavy-Duty Gas Turbine unit orders(a) | 15 |
| | 21 |
| | | 42 |
| | 32 |
| |
HA-Turbine unit orders(b) | 5 |
| | 5 |
| | | 15 |
| | 7 |
| |
Aeroderivative unit orders(a) | 2 |
| | 2 |
| | | 10 |
| | 9 |
| |
GE Gas Turbine Gigawatts orders(c) | 3.1 |
| | 3.8 |
| | | 9.8 |
| | 5.8 |
| |
| | | | | | | | | |
GE Gas Turbine unit sales | 12 |
| | 11 |
| | | 32 |
| | 37 |
| |
Heavy-Duty Gas Turbine unit sales(a) | 9 |
| | 9 |
| | | 20 |
| | 28 |
| |
HA-Turbine unit sales(b) | 5 |
| | 5 |
| | | 6 |
| | 9 |
| |
Aeroderivative unit sales(a) | 3 |
| | 2 |
| | | 12 |
| | 9 |
| |
(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.
| | | | | | |
|
| | | | | | | | | |
(In billions) | | | | March 31, 2020 |
| March 31, 2019 |
|
| | | | | |
Equipment | | | | $ | 18.2 |
| $ | 19.1 |
|
Services | | | | 66.9 |
| 66.8 |
|
Total backlog | | | | $ | 85.1 |
| $ | 85.9 |
|
| | | | | | Three months ended March 31 |
( Dollars in billions) | | | 2020 |
| | 2019 |
| |
| | | | | | | | | | | | | | | | | | | | | |
Equipment | $ | 1.3 |
| | $ | 2.4 |
| | $ | 4.3 |
| | $ | 6.4 |
| | | $ | 1.5 |
| | $ | 1.0 |
| |
Services | 2.6 |
| | 3.1 |
| | 8.1 |
| | 9.9 |
| | | 2.6 |
| | 2.7 |
| |
Total orders | $ | 3.9 |
| | $ | 5.5 |
| | $ | 12.4 |
| | $ | 16.3 |
| | | $ | 4.1 |
| | $ | 3.7 |
| |
| | Gas Power | $ | 2.7 |
| | $ | 2.7 |
| | $ | 9.2 |
| | $ | 9.7 |
| | | $ | 2.9 |
| | $ | 3.3 |
| |
Power Portfolio | 1.2 |
| | 1.9 |
| | 4.0 |
| | 7.1 |
| | | 1.2 |
| | 1.4 |
| |
Total sub-segment revenues | $ | 3.9 |
| | $ | 4.6 |
| | $ | 13.2 |
| | $ | 16.8 |
| | |
Total segment revenues | | | $ | 4.0 |
| | $ | 4.6 |
| |
| | Equipment | $ | 1.4 |
| | $ | 1.3 |
| | $ | 4.5 |
| | $ | 6.2 |
| | | $ | 1.5 |
| | $ | 1.6 |
| |
Services | 2.5 |
| | 3.2 |
| | | 8.8 |
| | 10.5 |
| | | | 2.5 |
| | 3.0 |
| |
Total segment revenues | $ | 3.9 |
| | $ | 4.6 |
| | | $ | 13.2 |
| | $ | 16.8 |
| | | | $ | 4.0 |
| | $ | 4.6 |
| |
| | | | | | | | | | | | | |
Segment profit | $ | (0.1 | ) | | $ | (0.7 | ) | | $ | 0.1 |
| | $ | — |
| | |
Segment profit (loss) | | | $ | (0.1 | ) | | $ | 0.1 |
| |
| | | | | | | | | | | | | |
Segment profit margin | (3.7 | ) | % | (14.8 | ) | % | | 0.6 |
| % | (0.1 | ) | % | | (3.2 | ) | % | 2.4 |
| % |
2019 3Q8 2020 1Q FORM 10-Q9
For the three months ended September 30, 2019,March 31, 2020, segment orders were down $1.7up $0.4 billion (30%(12%), segment revenues were down $0.6 billion (14%(13%) and segment profit was up $0.5down $0.2 billion.
Backlog as of March 31, 2020 decreased $0.7 billion (79%(1%).
Reported orders decrease of $1.7 billion was driven primarily by the nonrecurrence of $0.4 billion of orders related to Distributed Power following its sale in November 2018. Orders decreased $1.0 billion, or 20%, organically to $4.0 billion from $5.0 billion, mainly due to orders for six fewer heavy-duty gas turbines at Gas Power and a decrease in Steam orders at Power Portfolio.
Revenues decreased $0.1 billion, or 3%, organically*. Services revenues decreased due to a decrease in equipment backlog.
Orders increased $0.5 billion (14%) organically, primarily due to an increase in Steam convertibleequipment orders at Power Portfolio and Gas Power convertible upgrade orders. Equipment revenues increasedequipment orders due to the absence of liquidated damages recognizedincremental power plant scope on unit orders, partially offset by a decrease in Heavy-Duty Gas Turbine unit orders.
Revenues decreased $0.5 billion (12%) organically*, primarily due to decreases in services revenues at Gas Power and Steam services at Power Portfolio. Services revenues at Gas Power decreased due to delays in planned outages and transactional part sales due to COVID-19 and lower revenues on upgrades, primarily in the third quarter of 2018 at Gas Power.Middle East, where low oil prices are impacting customer budgets.
Profit increased $0.6decreased $0.2 billion or 81%, organically*due to lower revenues, as well as supply chain constraints and cost overruns on service agreements, partially offset by improved variable cost productivity driven by continued efforts to right size the absence of significant warranty and project cost updates as well as liquidated damages recognized in the third quarter of 2018.
For the nine months ended September 30, 2019, segment orders were down $3.8 billion (23%), segment revenues were down $3.5 billion (21%) and segment profit was up $0.1 billion.
Backlog as of September 30, 2019 decreased $0.4 billion from September 30, 2018 primarily due to the nonrecurrence of $2.9 billion of backlog related to Distributed Power following its sale in November 2018. Offsetting this decrease, backlog increased $2.8 billion, or 3%, driven by an increase services backlog of $2.6 billion and equipment backlog of $0.2 billion.
Reported orders decrease of $3.8 billion was driven primarily by the nonrecurrence of $2.7 billion of orders related to Industrial Solutions and Distributed Power following their sales in June 2018 and November 2018, respectively. Orders decreased $0.4 billion, or 3%, organically to $12.9 billion from $13.3 billion mainly due to a decrease in Steam orders at Power Portfolio, partially offset by ten more heavy duty gas turbine orders.
Revenues decreased $0.5 billion, or 4%, organically*. Equipment revenues decreased due to lower unit sales, including eight fewer heavy-duty gas turbines. Services revenues decreased due to lower contractual services revenues driven by lower outages, upgrades and mix.
Profit increased $0.3 billion organically*due to improved variable cost productivity driven by the absence of significant warranty and project cost updates as well as liquidated damages recognized in 2018.business.
RENEWABLE ENERGY
InWe are monitoring the second quarterimpact of 2019,COVID-19 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. While we completed the reorganizationhave observed delays in equipment output at several of our Grid Solutions equipmentmanufacturing facilities, we continue to service our customer assets absent any specific country or other restrictions. In response to expected near-term volume declines from COVID-19, we initiated additional cost reduction measures, restructuring and services business into our Renewable Energy segment and our Grid Solutions software business into Corporate for all periods presented. Also in the second quarter of 2019, we recognized a non-cash pre-tax impairment charge of $0.7 billion related to goodwill at our Grid Solutions equipment and services reporting unit. In the third quarter of 2019, we recognized a non-cash impairment charge of $0.7 billion related to goodwill at our Hydro reporting unit. These charges were recorded within earnings from continuing operations at Corporate. See Note 8 to the consolidated financial statements for further information.cash preservation actions.
The onshore wind market in the U.S. continues to see thea positive impact 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 in 2019 due to demand caused by the anticipated expirationprogressive phase-down of PTCs in the U.S. in, which has recently been extended by one year to include projects meeting certain criteria by 2020 that will be completed through 2024. We expect to continue high levels of production for 2020 deliveries at Onshore Wind and auction stabilization in international markets. We have experienced a significant production ramp for 2019 deliveries in onshore wind and we continue toare closely monitormonitoring our execution during this growth period including risks of delivery delays due to customer site readiness issues and possible project postponements. postponements due to COVID-19 or otherwise.
The grid market continues to be challenging as we have experienced current yearcontinue to experience order declines in the High Voltage Direct Current (HVDC) and High Voltage (HV) product lines. WhileBoth the Grid Solutions equipment and services (Grid) and Hydro business isbusinesses are executing itstheir turnaround plan, we are expecting near term declines in contribution margin.plans.
New product introductions continue to beremain important to our customers who are demonstrating the willingness to adopt the new technology of larger turbines that decrease the levelized cost of energy. We are continuingcontinue to focus on cost reduction initiatives of our products, in-sourcing blade production and developing larger, more efficient turbines like the Haliade-X (Offshore Wind) and Cypress (Onshore Wind). During the third quarterFinal certification of 2019, we signed our largest Cypress order to date, and were selected as the preferred supplier for two Offshore wind projects, an important commercial milestone for the Haliade-X. In October 2019, the prototype for the Haliade-X was successfully installed with final certificationis expected byin the middlesecond half of 2020.
|
| | | | | | | | | |
| Three months ended March 31 |
| Orders | | Sales |
(In units) | 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | |
Onshore | | | | | |
Wind Turbines | 738 |
| 970 |
| | 731 |
| 353 |
|
Wind Turbine Megawatts | 2,333 |
| 2,664 |
| | 2,093 |
| 988 |
|
Repower | 6 |
| 100 |
| | 219 |
| 156 |
|
|
| | | | | | | | | |
(In billions) | | | | March 31, 2020 |
| March 31, 2019 |
|
| | | | | |
Equipment | | | | $ | 15.8 |
| $ | 15.6 |
|
Services | | | | 10.7 |
| 9.6 |
|
Total backlog | | | | $ | 26.5 |
| $ | 25.2 |
|
|
| | | | | | | | | | | | | |
| | | | Three months ended March 31 | |
(In billions) | | | | | | 2020 |
| | 2019 |
| |
| | | | | | | | | |
Equipment | | | | | | $ | 2.7 |
| | $ | 3.0 |
| |
Services | | | | | | 0.4 |
| | 0.5 |
| |
Total orders | | | | | | $ | 3.1 |
| | $ | 3.5 |
| |
|
| | | | | | | | | | | | | |
Onshore Wind | | | | | | $ | 2.1 |
| | $ | 1.4 |
| |
Grid Solutions equipment and services | | | | | | 0.8 |
| | 0.9 |
| |
Hydro, Offshore Wind and other | | | | | | 0.2 |
| | 0.2 |
| |
Total segment revenues | | | | | | $ | 3.2 |
| | $ | 2.5 |
| |
*Non-GAAP Financial Measure
| | (In billions) | | September 30, 2019 | September 30, 2018 | |
| | | | Three months ended March 31 | |
(Dollars in billions) | | | 2020 |
| | 2019 |
| |
| | | | | | | |
Equipment | | $ | 16.4 |
| $ | 14.1 |
| | $ | 2.6 |
| | $ | 2.0 |
| |
Services | | 10.9 |
| 8.8 |
| | 0.6 |
| | 0.6 |
| |
Total backlog | | $ | 27.4 |
| $ | 22.9 |
| |
Total segment revenues | | | $ | 3.2 |
| | $ | 2.5 |
| |
| | | | | | |
Segment profit (loss) | | | $ | (0.3 | ) | | $ | (0.2 | ) | |
| | | | | | |
Segment profit margin | | | (9.5 | ) | % | (7.4 | ) | % |
For the three months ended March 31, 2020, segment orders were down $0.4 billion (13%), segment revenues were up $0.7 billion (26%) and segment profit was down $0.1 billion (61%).
Backlog as of March 31, 2020 increased $1.3 billion (5%) driven by higher services backlog associated with a larger Onshore Wind installed equipment base and increased equipment backlog at Onshore and Offshore Wind, partially offset by foreign currency translation and lower orders at Grid and Hydro.
Orders decreased $0.4 billion (11%) organically, primarily due to the nonrecurrence of a large Grid Automated Control Systems (ACS) order and lower Wind orders, primarily from the impact of U.S. PTCs compared to the prior year.
Revenues increased $0.7 billion (28%) organically*, primarily from 378 more wind turbine shipments on a unit basis, or 112% more megawatts shipped, than in the prior year, partially offset by lower Grid revenues, primarily due to COVID-19.
Profit of $(0.3) billion decreased $0.1 billion (66%) organically*, primarily due to the impact of higher sales volume at Onshore Wind more than offset by project execution losses, costs associated with new product introductions and lower sales volume, primarily at Grid due to supply chain and project fulfillment disruptions associated with COVID-19, as well as 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 is having a material adverse effect on the global airline industry. A key underlying driver of Aviation’s commercial engine and services businesses is global passenger air travel, which in turn is driven by economic activity and consumer and business propensity to travel. The COVID-19 pandemic evolved rapidly in March 2020, and resulted in government travel restrictions, public health advisories, and related declines in economic activity. These factors caused a significant drop in passenger air traffic, and as a result, airlines have grounded their fleets and, in many cases, completely ceased passenger operations. 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 passenger air traffic. For example, the International Air Transport Association (IATA) in April 2020 forecasted a 48% reduction in revenue passenger kilometers (RPK) for the full year 2020 compared to 2019, lowering a prior forecast from March 2020 of a 38% reduction based on updated assessments about the depth of the economic impact and speed of the recovery in passenger air traffic. More broadly, we are in frequent dialogue with our airline and airframe customers about the outlook for passenger air travel, new aircraft production, and after-market services. Due to the global airline industry contraction, Aviation’s airline and airframe customers are taking measures to address reduced demand, which, in turn, is having a material adverse impact on Aviation’s business operations and financial performance.
Aviation has and is continuing to take several business actions to respond to the current adverse environment. We continue to partner with our airline and leasing customers to respond to an increased number of requests for short-term payment deferrals and are working closely with our airframe customers to align production rates for 2020. During the first quarter of 2020, Aviation took several measures including a hiring freeze, cancellation of salaried merit increases, and a reduction of all non-safety related discretionary spending, including capital expenditures and engineering and development efforts. Aviation also announced a reduction of approximately 10% of its total United States (U.S.) workforce and a temporary furlough impacting approximately 50% of its U.S. maintenance, repair and overhaul employees for 90 days. Additionally, Aviation announced a temporary furlough impacting its U.S. assembly operations and component manufacturing shops for approximately four weeks during the second quarter of 2020. Aviation is also working with the appropriate parties to properly address its global workforce.
Looking ahead, Aviation’s operational and financial performance is impacted by demand for passenger air travel, demand for freight, oil prices, 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 additional charges, impairments, or other adverse financial impacts in future periods.
As it relates to the military environment, the U.S. Department of Defense and foreign governments have continued flight operations, and have increased budgets to upgrade and modernize their existing fleets, creating future growth opportunities for our Military business.
Total engineering, comprised of both company and customer funded spending, decreased compared to prior year. Company-funded research and development spend decreased compared to the first quarter of 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, continued to increase.
*Non-GAAP Financial Measure
10 2019 3Q2020 1Q FORM 10-Q
|
| | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
(Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | |
Wind Turbine unit orders | 1,184 |
| | 857 |
| | | 3,138 |
| | 2,113 |
| |
Wind Turbine Megawatts orders(a) | 3,893 |
| | 2,183 |
| | | 9,227 |
| | 5,563 |
| |
Repower unit orders | 318 |
| | 726 |
| | | 912 |
| | 1,071 |
| |
| | | | | | | | | |
Wind Turbine unit sales | 1,128 |
| | 952 |
| | | 2,285 |
| | 1,655 |
| |
Wind Turbine Megawatts sales(a) | 3,148 |
| | 2,611 |
| | | 6,392 |
| | 4,526 |
| |
Repower unit sales | 266 |
| | 120 |
| | | 643 |
| | 523 |
| |
(a) Megawatts reported associated with financial orders in the periods presented. | | | | | | |
|
| | | | | | | | | | | | | | | | | |
Equipment | $ | 4.3 |
| | $ | 2.6 |
| | | $ | 10.1 |
| | $ | 7.6 |
| |
Services | 0.7 |
| | 1.3 |
| | | 2.1 |
| | 2.4 |
| |
Total orders | $ | 5.0 |
| | $ | 3.9 |
| | | $ | 12.2 |
| | $ | 10.0 |
| |
|
| | | | | | | | | | | | | | | | | |
Onshore Wind | $ | 3.2 |
| | $ | 2.5 |
| | | $ | 7.1 |
| | $ | 5.1 |
| |
Grid Solutions equipment and services | 1.0 |
| | 1.1 |
| | | 2.9 |
| | 3.5 |
| |
Hydro and Offshore Wind | 0.2 |
| | 0.3 |
| | | 0.6 |
| | 1.0 |
| |
Total sub-segment revenues | $ | 4.4 |
| | $ | 3.9 |
| | | $ | 10.6 |
| | $ | 9.6 |
| |
|
| | | | | | | | | | | | | | | | | |
Equipment | $ | 3.6 |
| | $ | 3.4 |
| | | $ | 8.5 |
| | $ | 8.0 |
| |
Services | 0.8 |
| | 0.5 |
| | | 2.1 |
| | 1.7 |
| |
Total segment revenues | $ | 4.4 |
| | $ | 3.9 |
| | | $ | 10.6 |
| | $ | 9.6 |
| |
| | | | | | | | | |
Segment profit (loss) | $ | (0.1 | ) | | $ | 0.1 |
| | | $ | (0.5 | ) | | $ | 0.3 |
| |
| | | | | | | | | |
Segment profit margin | (2.2 | ) | % | 3.0 |
| % | | (4.4 | ) | % | 3.2 |
| % |
ForAviation is taking actions to protect its ability to serve its customers now and as the three months ended September 30, 2019, segment orders were up $1.2 billion (30%), segment revenues were up $0.5 billion (13%)global airline industry recovers. While its near-term focus remains on navigating the COVID-19 pandemic, Aviation’s deep history of innovation and segment profit was down $0.2 billion.
Orders increased $1.2 billion, or 32%, organically to $5.1 billion from $3.9 billion due to increased demand in Onshore international markets and a large scale 6MW turbine order in Offshore Wind.
Revenues increased $0.6 billion, or 15%, organically*. Equipment revenues increased due to 176 more wind turbine shipments on a unit basis, or 21% more megawatts shipped, than in the prior year, offset by a decrease in Grid Solutions equipment driven by lower HVDC and Alternating Current Substation (ACS) project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower unit deliveries at Onshore Wind.
Profit decreased $0.2 billion organically* largely due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018. Excluding this, profit decreased driven by price pressure in Grid Solutions equipment and services and Onshore Wind, the impact of U.S.-China tariffs, project execution and increased research and development spend for Haliade-X and Cypress, partially offset by higher volume in Onshore Wind and cost productivity.
For the nine months ended September 30, 2019, segment orders were up $2.2 billion (22%), segment revenues were up $0.9 billion (10%) and segment profit was down $0.8 billion.
Backlog as of September 30, 2019 increased $4.4 billion, or 19%, from September 30, 2018 driven by increased demand at Onshore Wind resulting from the anticipated expiration of PTCs, increased services backlog due to the increased Onshore Wind installed equipment base, and a large scale 6MW turbine order in Offshore Wind.
Orders increased $2.4 billion, or 24%, organically to $12.4 billion from $10.0 billion due to increased demand in domestic and international Onshore markets, partially offset by a decrease in repower unit orders compared to the prior year.
Revenues increased $1.4 billion, or 14%, organically*. Equipment revenues increased due to 630 more wind turbine shipments on a unit basis, or 41% more megawatts shipped, than in the prior year, partially offset by decreases in Offshore due to the nonrecurrence of a project executed in the prior year and Grid Solutions equipment due to lower HVDC and ACS project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower units pricing and volume at Onshore Wind.
Profit decreased $0.8 billion organically* due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018, as well as project execution challenges including higher losses on legacy contracts, partially offset by a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts. Excluding these items, profit decreased driven by price pressure in Grid Solutions equipment and services and Onshore Wind, project execution, the impact of U.S.-China tariffs and increased research and development spend for Haliade-X and Cypress, partially offset by higher volume in Onshore Wind and cost productivity.
*Non-GAAP Financial Measure
AVIATION
Global passenger air travel continued to grow (measured in revenue passenger kilometers (RPK)) at 4.5%* in the current year. Oil prices remained stable, and global traffic growth was broad-based across global regions. We expect this trend to drive continued demand in thetechnology leadership, commercial engine installed base of commercial enginesapproximately 38,000 units, military engine installed base of approximately 27,000 units, and increased focus on newer, more fuel-efficient aircraft. Industry-load factors for airlines remain at all-time high levels above 80%*. Air freight volume decreased, particularly in international markets driven by economic conditions$273 billion backlog represents strong long-term fundamentals. Aviation is actively taking actions to strengthen its business and slowing global trade. As it relatesseeks to the military environment, the U.S. Department of Defense has increased its budgetemerge from this crisis stronger and foreign governments have increased spending to upgradedrive long-term cash and modernize their existing fleets, creating future opportunities.
We announced record commercial wins at the Paris Air Show in June 2019, some of which contributed to backlogprofitable growth of 20% from September 30, 2018. We continue to expect future orders as a result of these wins.
Total engineering, comprised of both company and customer funded spending, continues to grow in line with revenue growth. Company funded research and development spend has decreased compared to prior year. However, customer funded engineering efforts, primarily in our Military business, continue to increase.over time.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
|
| | | | | | | | | |
(In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | |
Equipment | | | | $ | 38.2 |
| $ | 37.8 |
|
Services | | | | 214.7 |
| 173.1 |
|
Total backlog | | | | $ | 252.9 |
| $ | 210.9 |
|
|
| | | | | | | | | | | |
| Three months ended March 31 |
| Orders | | Sales |
(In units, except where noted) | 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | |
Commercial Engines | 145 |
| 799 |
| | 472 |
| 751 |
|
LEAP Engines(a) | 6 |
| 636 |
| | 272 |
| 424 |
|
Military Engines | 272 |
| 26 |
| | 146 |
| 161 |
|
Spare Parts Rate(b) | | | | $ | 26.9 |
| $ | 30.1 |
|
(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. |
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
(Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | |
Commercial Engines unit orders | 297 |
| | 1,779 |
| | | 1,995 |
| | 3,913 |
| |
GEnx Engines unit orders(a) | 99 |
| | 68 |
| | | 150 |
| | 361 |
| |
LEAP Engines unit orders(a) | 49 |
| | 1,555 |
| | | 1,378 |
| | 2,989 |
| |
Military Engines unit orders | 154 |
| | 119 |
| | | 233 |
| | 647 |
| |
| | | | | | | | | |
Commercial Engines unit sales | 714 |
| | 714 |
| | | 2,188 |
| | 2,062 |
| |
GEnx Engines unit sales(a) | 73 |
| | 65 |
| | | 221 |
| | 172 |
| |
LEAP Engines unit sales(a) | 455 |
| | 303 |
| | | 1,316 |
| | 739 |
| |
Military Engines unit sales | 186 |
| | 160 |
| | | 490 |
| | 502 |
| |
Spares Rate unit sales(b) | $ | 30.0 |
| | $ | 28.0 |
| | | $ | 29.0 |
| | $ | 26.6 |
| |
(a) GEnx and LEAP engines are subsets of commercial engines (b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day. | |
|
| | | | | | | | | |
(In billions) | | | | March 31, 2020 |
| March 31, 2019 |
|
| | | | | |
Equipment | | | | $ | 39.2 |
| $ | 38.0 |
|
Services | | | | 234.1 |
| 185.4 |
|
Total backlog | | | | $ | 273.2 |
| $ | 223.5 |
|
| | | | | | Three months ended March 31 | |
(Dollars in billions) | | | 2020 |
| | 2019 |
| |
| | | | | | | | | | | | | | | | | | | | | |
Equipment | $ | 3.0 |
| | $ | 4.1 |
| | $ | 9.7 |
| | $ | 11.8 |
| | | $ | 2.2 |
| | $ | 3.2 |
| |
Services | 5.8 |
| | 5.1 |
| | 16.4 |
| | 15.0 |
| | | 5.2 |
| | 5.5 |
| |
Total orders | $ | 8.8 |
| | $ | 9.1 |
| | $ | 26.1 |
| | $ | 26.8 |
| | | $ | 7.4 |
| | $ | 8.7 |
| |
| | Commercial Engines & Services | $ | 6.0 |
| | $ | 5.6 |
| | $ | 17.8 |
| | $ | 16.4 |
| | | $ | 4.8 |
| | $ | 5.9 |
| |
Military | 1.1 |
| | 0.9 |
| | 3.1 |
| | 2.9 |
| | | 1.0 |
| | 1.0 |
| |
Systems & Other | 1.1 |
| | 0.9 |
| | 3.1 |
| | 2.7 |
| | | 1.2 |
| | 1.0 |
| |
Total sub-segment revenues | $ | 8.1 |
| | $ | 7.5 |
| | | $ | 23.9 |
| | $ | 22.1 |
| | |
Total segment revenues | | | | $ | 6.9 |
| | $ | 8.0 |
| |
| | Equipment | $ | 3.1 |
| | $ | 2.8 |
| | $ | 9.3 |
| | $ | 8.3 |
| | | $ | 2.4 |
| | $ | 3.1 |
| |
Services | 5.0 |
| | 4.6 |
| | 14.6 |
| | 13.8 |
| | | 4.4 |
| | 4.8 |
| |
Total segment revenues | $ | 8.1 |
| | $ | 7.5 |
| | $ | 23.9 |
| | $ | 22.1 |
| | | $ | 6.9 |
| | $ | 8.0 |
| |
| | | | | | | | | | | | | |
Segment profit | $ | 1.7 |
| | $ | 1.7 |
| | $ | 4.8 |
| | $ | 4.7 |
| | | $ | 1.0 |
| | $ | 1.7 |
| |
| | | | | | | | | | | | | |
Segment profit margin | 21.2 |
| % | 22.3 |
| % | | 19.9 |
| % | 21.5 |
| % | | 14.6 |
| % | 20.9 |
| % |
For the three months ended March 31, 2020, segment orders were down $1.3 billion (14%), segment revenues were down $1.1 billion (13%) and segment profit was down $0.7 billion (39%).
Backlog as of March 31, 2020 increased $49.8 billion (22%), primarily due to an increase in long-term service agreements. This included approximately 200 LEAP-1B unit order cancellations in the first quarter of 2020.
* Based onOrders decreased $1.1 billion (13%) organically, primarily driven by lower commercial equipment orders due to the latest available information737 MAX grounding and the impact of COVID-19. Military equipment and service total orders increased 60% compared to the prior year, including a significant order from the InternationalU.S. Department of Navy’s Naval Air Transport AssociationSystems Command (NAVAIR) for F414 engines.
Revenues decreased $0.9 billion (11%) organically*. Equipment revenues decreased, primarily due to 279 fewer commercial install and spare engine units, including 152 fewer LEAP units and 98 fewer CFM56 units versus the prior year. Services revenues also decreased, primarily due to lower commercial spare part shipments and decreased shop visits in our service agreements, due to the impact of COVID-19. Military revenues decreased due to lower volume of engine and spare part shipments, partially offset by increased revenues on development contracts.
Profit decreased $0.6 billion (39%) organically*, primarily due to Services decreased after-market volume and lower volume of commercial spare engines. During the three months ended March 31, 2020, Aviation recorded period expense of $0.1 billion related to abnormal production volumes and initiated restructuring actions given decreases in customer demand primarily related to LEAP engines and COVID-19. Aviation also recorded pre-tax charges totaling $0.1 billion due to expected future losses related to customer credit risk given the current environment. In addition, Aviation recorded a $0.1 billion non-cash, pre-tax charge (reduction in revenues and profit) to reflect the cumulative impacts of changes to assumptions for certain long-term service agreements. Additional adjustments are likely to occur in future periods and could be material as conditions related to COVID-19 continue to evolve.
*Non-GAAP Financial Measure
12 2019 3Q2020 1Q FORM 10-Q11
For the three months ended September 30, 2019, segment orders were down $0.3 billion (4%), segment revenues were up $0.6 billion (8%) and segment profit was up $0.1 billion (3%).
Orders decreased $0.2 billion, or 2%, organically to $8.8 billion from $9.0 billion primarily driven by a decline in LEAP engine orders due to the 737 MAX grounding, partially offset by increased orders in Military equipment compared to the prior year. Services orders increased on both long-term service agreements and continued strength in material orders.
Revenues increased $0.7 billion, or 10%, organically*. Equipment revenues increased primarily due to 152 more LEAP units, and 26 more military engine shipments versus the prior year, partially offset by lower legacy commercial output in the CFM product line. Services revenues also increased primarily due to increased price, a higher commercial spare parts shipment rate and increased shop visits on long-term service agreements.
Profit increased $0.1 billion, or 4%, organically* mainly due to Services increased volume and increased price. Profit also increased due to higher volume on commercial spare engines, including spare LEAP 1-B engines sold to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification, partially offset by continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments.
For the nine months ended September 30, 2019, segment orders were down $0.7 billion (3%), segment revenues were up $1.8 billion (8%) and segment profit was flat.
Backlog as of September 30, 2019 increased $42.0 billion, or 20%, from September 30, 2018 primarily due to an increase in long-term service agreements.
Orders decreased $0.5 billion, or 2%, organically to $26.1 billion from $26.5 billion primarily driven by a decline in LEAP engine orders due to the 737 MAX grounding as well as four large commercial equipment orders received in second quarter 2018 that were not expected to repeat in the current year. This decrease was offset by Services orders which increased on both long-term service agreements and continued strength in materials orders.
Revenues increased $2.0 billion, or 9%, organically*. Equipment revenues increased primarily due to 126 more commercial units, including 577 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM product line. Services revenues also increased primarily due to increased price, a higher commercial spare parts shipment rate and increased shop visits on long-term service agreements.
Profit remained flat organically*, mainly due to Services increased volume and increased price. Profit also increased due to higher volume of commercial spares engines, including spare LEAP 1-B engines sold to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification, partially offset by continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments. Additionally, we recorded charges during the year related to the uncertainty of collection for a customer in a challenging financial position and additional costs for the GE9X engine certification.
HEALTHCARE
During the first quarter of 2020, there was an increase in demand for certain of our products that are highly correlated to the response to COVID-19, including respiratory, computed tomography (CT), 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 COVID-19 response efforts or where procedures could be postponed (magnetic resonance, contrast agents and nuclear tracers). COVID-19 is driving uncertainty in our markets globally, as well as additional supply chain and logistics costs, and we expect this to continue. In response to expected near term volatility and cost pressures from COVID-19, 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 disease,diseases, accelerating demand for healthcare in emerging markets, increasing demand for biologic drugs and insulin, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in a more cost-effective manner has also driven growth across each of our global markets.
The Healthcare Systems 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. Growth in emerging markets is driven by long-term 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.
Dynamics related to tariffs tempered China's growth in 2019. The impact of tariffs on certain types of medical equipment and components that we import from China resulted in increased product costs. We continue to take mitigating actions including moving our sourcing and manufacturing for these parts outside of China. With softening in recent U.S.-China trade relations and continued mitigation actions there has been some moderation in tariffs in both U.S. and China.
The Life Sciences market, which encompasses BioprocessPharmaceutical Diagnostics and Pharmaceutical diagnostics,BioPharma, continues to be strong. The Bioprocess market is growing at a high single-digit rate, driven by growth in biologic drugs. The Pharmaceutical diagnosticsDiagnostics business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow at low- to mid-single digit rates,over the long-term, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhancementtracer-enhanced biomarkers of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians. However, in the short-term the reduction in procedures not related to COVID-19 has temporarily reduced demand. We disposed of the BioPharma business on March 31, 2020.
We continue focusing on creating new products and solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. We striveIn the first quarter of 2020, we introduced the LOGIQ™ E10 Series ultrasound that is powered by advanced algorithms and the same artificial intelligence technology behind advanced gaming. It can process 10 times more data and generate images faster than our previous ultrasound systems to introduce technology innovation that enables our customershelp clinicians bring fast, precise answers to improve their patient and operational outcomes as they diagnose, treat and monitor an increasing number of medical conditions and patients. We recently introduced Venue Go, further expanding our Artificial Intelligence-enabled, pointcontinue to ramp production of care Ultrasound portfolio. Our Life Care Solutions business continuescritical medical equipment used to expand its portfolio via innovative digitaldiagnose and treat COVID-19 patients, respiratory, computed tomography (CT), monitoring solutions, like Mural, a newly-released virtual care solution for use in both teleICU applicationsx-ray, anesthesia and care protocol compliance across hospitals and health systems. Within Imaging, we launched Discovery™ IQ Gen 2, our latest Molecular Imaging scanner with MotionFree technology which enables clinicians to detect lesions with significantly more accuracy.point-of-care ultrasound product lines.
Effective January 1, 2019, the Healthcare Equipment Finance (HEF) financing business within our Capital segment was transferred to our Healthcare segment and is presented within Healthcare Systems. |
| | | | | | | | | |
(In billions) | | | | March 31, 2020 |
| March 31, 2019 |
|
| | | | | |
Equipment | | | | $ | 6.0 |
| $ | 6.6 |
|
Services | | | | 11.4 |
| 11.3 |
|
Total backlog(a) | | | | $ | 17.4 |
| $ | 17.9 |
|
|
| | | | | | | | | | | | | |
| | | Three months ended March 31 |
(In billions) | | | | | | 2020 |
| | 2019 |
| |
| | | | | | | | | |
Equipment | | | | | | $ | 3.3 |
| | $ | 2.9 |
| |
Services | | | | | | 2.0 |
| | 2.0 |
| |
Total orders(a) | | | | | | $ | 5.3 |
| | $ | 4.9 |
| |
*Non-GAAP Financial Measure |
| | | | | | | | | | | | | |
Healthcare Systems (HCS) | | | | | | $ | 3.4 |
| | $ | 3.4 |
| |
Life Sciences(b) | | | | | | 1.3 |
| | 1.3 |
| |
Total segment revenues | | | | | | $ | 4.7 |
| | $ | 4.7 |
| |
| | | | | | | | | |
(a) Backlog as of March 31, 2020 excluded the BioPharma business due to its disposition in the first quarter of 2020. Orders included $1.1 billion and $1.0 billion related to BioPharma for the three months ended March 31, 2020 and 2019, respectively. |
(b) Included revenues of $0.8 billion and $0.8 billion from BioPharma for the three months ended March 31, 2020 and 2019, respectively. |
2019 3Q12 2020 1Q FORM 10-Q13
| | (In billions) | | September 30, 2019 | September 30, 2018 | |
| | | | Three months ended March 31 | |
(Dollars in billions) | | | 2020 |
| | 2019 |
| |
| | | | | | | |
Equipment | | $ | 6.7 |
| $ | 6.2 |
| | $ | 2.7 |
| | $ | 2.7 |
| |
Services | | 11.4 |
| 11.1 |
| | 2.0 |
| | 2.0 |
| |
Total backlog | | $ | 18.1 |
| $ | 17.3 |
| |
Total segment revenues | | | $ | 4.7 |
| | $ | 4.7 |
| |
| | | | | | |
Segment profit | | | $ | 0.9 |
| | $ | 0.8 |
| |
| | | | | | |
Segment profit margin | | | 19.0 |
| % | 16.7 |
| % |
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
(Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | |
Equipment | $ | 3.1 |
| | $ | 3.1 |
| | | $ | 9.2 |
| | $ | 8.9 |
| |
Services | 2.1 |
| | 2.0 |
| | | 6.1 |
| | 6.2 |
| |
Total orders | $ | 5.1 |
| | $ | 5.1 |
| | | $ | 15.3 |
| | $ | 15.1 |
| |
|
| | | | | | | | | | | | | | | | | |
Healthcare Systems | $ | 3.6 |
| | $ | 3.6 |
| | | $ | 10.7 |
| | $ | 10.9 |
| |
Life Sciences | 1.3 |
| | 1.1 |
| | | 3.9 |
| | 3.5 |
| |
Total sub-segment revenues | $ | 4.9 |
| | $ | 4.7 |
| | | $ | 14.5 |
| | $ | 14.4 |
| |
|
| | | | | | | | | | | | | | | | | |
Equipment | $ | 2.8 |
| | $ | 2.7 |
| | | $ | 8.3 |
| | $ | 8.1 |
| |
Services | 2.1 |
| | 2.0 |
| | | 6.2 |
| | 6.3 |
| |
Total segment revenues | $ | 4.9 |
| | $ | 4.7 |
| | | $ | 14.5 |
| | $ | 14.4 |
| |
| | | | | | | | | |
Segment profit | $ | 1.0 |
| | $ | 0.9 |
| | | $ | 2.7 |
| | $ | 2.5 |
| |
| | | | | | | | | |
Segment profit margin | 19.8 |
| % | 18.3 |
| % | | 18.7 |
| % | 17.5 |
| % |
For the three months ended September 30, 2019,March 31, 2020, segment orders were up $0.1$0.4 billion (1%(7%), segment revenues were up $0.2 billion (5%(1%) and segment profit was up $0.1 billion (13%(15%).
Overall, backlog as of March 31, 2020 decreased $0.5 billion (3%). HCS backlog was up $0.6 billion, but was more than offset by the removal of BioPharma backlog of $1.1 billion due to the sale of the business on March 31, 2020. Excluding Biopharma, backlog increased $0.6 billion (4%).
Orders increased $0.4 billion (9%) organically, driven by HCS up 8% organically due to COVID-19 related increases in demand and Life Sciences up 10% organically, driven by BioPharma, partially offset by pressure in Pharmaceutical Diagnostics due to COVID-19. Excluding BioPharma, orders increased $0.3 billion (6%) organically.
Revenues increased $0.1 billion or 2%(2%) organically*, organicallydriven by increased demand in HCS products used directly in response to $5.2 billion from $5.1 billion primarily attributable to continued strength in Life Sciences.
Revenues increased $0.2 billion, or 5%, organically* due to higher volume inCOVID-19 and Life Sciences, driven by BioPharma, andpartially offset by pressure in Pharmaceutical Diagnostics as well as higher volumefrom a decrease in Healthcare Systems.non-essential elective procedures due to COVID-19. Excluding BioPharma, revenues increased (1%) organically*.
Profit increased $0.1 billion or 10%(10%) organically*, organically* primarily driven by volume growth and cost productivity due to current year cost reduction actions, sourcing and logistic initiatives, design engineering and prior year restructuring actions.actions, design engineering and service initiatives. These increases were partially offset by inflation, the impact of U.S.-China tariffs,logistics pressure from COVID-19, and investments in programs includingresearch and development, which includes digital product innovations and Healthcare Systems new product introductions.
For the nine months ended September 30, 2019, segment orders were up $0.1 billion (1%), segment revenues were up $0.2 billion (1%programs. Excluding BioPharma, profits increased (3%) and segment profit was up $0.2 billion (8%)organically*.
Backlog as of September 30, 2019 increased $0.8 billion, or 5%, from September 30, 2018 primarily due to an increase in equipment backlog of $0.5 billion.
Orders increased $0.7 billion, or 5%, organically to $15.6 billion from $14.9 billion primarily attributable to growth in services orders in both Life Sciences and Healthcare Systems.
Revenues increased $0.6 billion, or 4%, organically* due to higher volume in Life Sciences, driven by BioPharma and Pharmaceutical Diagnostics, as well as higher volume in Healthcare Systems.
Profit increased $0.3 billion, or 11%, organically* primarily driven by volume growth and cost productivity due to cost reduction actions, sourcing and logistic initiatives, design engineering and restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and Healthcare Systems new product introductions.
CAPITAL
In 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s Energy Financial Services (EFS) and Industrial Finance (IF) businesses. With respect to this announcement, we completed $15 billion of asset reductions during 2018 and $3.6 billion of asset reductions during the first nine months of 2019, including approximately $2.0 billion during the third quarter of 2019. We expect to execute total asset reductions of approximately $10 billion by the end of 2019, primarily comprising receivables held by GECAS, Working Capital Solutions (WCS), supply chain finance program and EFS assets. In August 2019, we announced that we entered into a definitive agreement for Apollo Global Management, LLC and Athene Holding Ltd. to purchase PK AirFinance, an aviation lending business, from GECAS. The sale of PK AirFinance is aligned to GE Capital’s overall strategy to become smaller and simpler, and we expect to sell the business for a small premium upon closing in the fourth quarter of 2019. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements.
In the second quarter of 2019, GE Capital received a $1.5 billion capital contribution from GE and expects to receive approximately $2.5 billion of additional capital contributions from GE by the end of 2019.
*Non-GAAP Financial Measure
GE Capital made capital contributions to its insurance subsidiaries of $1.9$2.0 billion and $3.5$1.9 billion in the first quarters of 20192020 and 2018,2019, respectively, and expects to provide further capital contributions of approximately $9$7 billion through 2024. See the Capital Resources and LiquidityCritical Accounting Estimates section within MD&A for further information.
We annually perform premium deficiency testingAt GE Capital, the primary effect of COVID-19 pertains to its GECAS business. The COVID-19 outbreak has led to worldwide reduction of flight schedules and it is difficult to predict its longer-term impact. The resulting pressure on its airline customers had led to GECAS preparing for redeployments and repossessions, as well as lease modifications in some cases, while continuing to respond to customer requests for short-term rent deferrals. Continued deterioration in cash flow projections, including current rents, downtime, release rates and residual assumptions could result in further impairments in the aggregate acrossoperating lease portfolio. Additionally, the COVID-19 market-related volatility resulted in higher credit spreads on the investment securities held by our run-off insurance portfolio. business, which resulted in marks and impairments taken in the first quarter.
As previously disclosedof March 31, 2020, GECAS owned 986 fixed-wing aircraft, of which five with a book value of $0.1 billion were available to lease to customers (aircraft on the ground). We test recoverability of each fixed-wing aircraft in our second quarteroperating 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.
During the three months ended March 31, 2020 and 2019, 10-Q, we planned to perform this year’s testingGECAS recognized pre-tax impairments of $45 million and $3 million, respectively, in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. Asits operating lease fixed-wing aircraft. The increase in pre-tax impairments was driven by declining cash flow projections for aircraft as a result of our testing, we identifiedCOVID-19 and related market impacts.
As of March 31, 2020, GECAS has received deferral requests (primarily short term in nature) from approximately 75% of its airline customers operating in approximately 64 countries and expects to continue to receive requests for rent deferrals and/or lease restructures from its global airline customers as a premium deficiency resultingresult of COVID-19 and related market impacts. An extended disruption of regional or international travel could result in a $1.0 billion pre-tax ($0.8 billion after-tax) charge to earnings. See the “Other Items” section and Note 12an increase in these types of requests in future periods, which could result in an increase to the consolidatedtrade 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 statements for further information.
Effective January 1, 2019,position and cash flows. Additionally, the HEFportfolio utilization in our helicopter business within our Capital segment was transferred to our Healthcare segment.86% as of March 31, 2020.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
|
| | | | | | |
(In billions) | September 30, 2019 |
| December 31, 2018 |
|
GECAS | $ | 41.6 |
| $ | 41.7 |
|
EFS | 2.3 |
| 3.0 |
|
Industrial Finance and WCS | 10.8 |
| 15.8 |
|
Insurance | 46.5 |
| 40.3 |
|
Other continuing operations | 15.8 |
| 18.6 |
|
Total segment assets | $ | 117.0 |
| $ | 119.3 |
|
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
(In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
GECAS | $ | 1.2 |
| $ | 1.2 |
| | $ | 3.7 |
| $ | 3.6 |
|
EFS | — |
| 0.3 |
| | 0.1 |
| 0.2 |
|
IF and WCS | 0.2 |
| 0.3 |
| | 0.7 |
| 1.0 |
|
Insurance | 0.7 |
| 0.7 |
| | 2.2 |
| 2.2 |
|
Other continuing operations | — |
| (0.1 | ) | | — |
| — |
|
Total segment revenues | $ | 2.1 |
| $ | 2.5 |
| | $ | 6.6 |
| $ | 7.1 |
|
|
| | | | | | | | | | | | | |
GECAS | $ | 0.3 |
| $ | 0.3 |
| | $ | 0.8 |
| $ | 0.9 |
|
EFS | — |
| 0.2 |
| | 0.1 |
| 0.2 |
|
IF and WCS | 0.1 |
| 0.1 |
| | 0.2 |
| 0.3 |
|
Insurance | (0.7 | ) | (0.1 | ) | | (0.7 | ) | (0.1 | ) |
Other continuing operations(a) | (0.3 | ) | (0.5 | ) | | (1.0 | ) | (1.6 | ) |
Total segment profit | $ | (0.6 | ) | $ | — |
| | $ | (0.6 | ) | $ | (0.4 | ) |
|
| | |
MD&A | September 30, 2019SEGMENT OPERATIONS | December 31, 2018 |
|
| | | | | | |
(Dollars in billions) | March 31, 2020 |
| December 31, 2019 |
|
| | |
GECAS | $ | 37.3 |
| $ | 38.0 |
|
EFS | 1.8 |
| 1.8 |
|
WCS(a) | 7.8 |
| 9.0 |
|
Insurance | 46.8 |
| 46.3 |
|
Other continuing operations(a) | 17.5 |
| 22.5 |
|
Total segment assets | $ | 111.1 |
| $ | 117.5 |
|
|
| | |
GE Capital debt to equity ratio | 4.7:3.6:1 | 5.7:3.9:1 |
(a) In the first quarter of 2020 the remaining Industrial Finance assets of $0.3 billion were transferred to Other continuing operations.
|
| | | | | | | | | |
| | | Three months ended March 31 |
(In billions) | | | | 2020 |
| 2019 |
|
| | | | | |
GECAS | | | | $ | 1.1 |
| $ | 1.2 |
|
EFS | | | | 0.1 |
| — |
|
WCS | | | | 0.1 |
| 0.3 |
|
Insurance | | | | 0.6 |
| 0.7 |
|
Other continuing operations | | | | — |
| — |
|
Total segment revenues | | | | $ | 1.9 |
| $ | 2.2 |
|
|
| | | | | | | | | |
GECAS | | | | $ | 0.2 |
| $ | 0.3 |
|
EFS | | | | 0.1 |
| — |
|
WCS | | | | — |
| 0.1 |
|
Insurance | | | | (0.1 | ) | — |
|
Other continuing operations(a) | | | | (0.2 | ) | (0.3 | ) |
Total segment profit | | | | $ | — |
| $ | 0.1 |
|
(a) Other continuing operations primarily comprise excess interest costs from debt previously allocated to assets that have been sold as part of the GE Capital Exit Plan, preferred stock dividend costs and interest costs not allocated to GE Capital segments, which are driven by GE Capital’s interest allocation process. Interest costs are allocated to GE Capital segments based on the tenor of their assets using the market rate at the time of origination, 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. PreferredSubstantially all preferred stock dividend costs will become a GE obligation in January 2021 as the internal preferred stock issued by GE Capital to GE under which GE Capital pays preferred stock dividends to GE to fund GE preferred stock dividends will convert into common equity.2021. See Note 15 to the consolidated financial statements for further information. The excess interest costs from debt previously allocated to assets that have been sold are expected to run off by 2020. In addition, we anticipate unallocated interest costs to gradually decline as debt matures and/or is refinanced.
For the three months ended September 30, 2019, March 31, 2020, segment revenues decreased $0.3 billion (14%) and segment earnings were down $0.2 billion.
Capital revenues decreased $0.4$0.3 billion or 15%(14%), primarily due to lower gainsvolume declines, mark-to-market effects and impairments as a result of COVID-19 and related market impacts. Capital earnings decreased $0.2 billion, primarily due volume declines, mark-to-market effects and impairments, as a result of COVID-19 and related market impacts, and the tax benefit related to the BioPharma sale, partially offset by lower impairments.
Capital earnings decreased $0.7 billion, primarily due tothe nonrecurrence of a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments2019 tax reform enactment adjustment and lower excess interest costs.cost. Gains were $0.2 billion and $0.4 billion in the thirdfirst quarters of 2019both 2020 and 2018, respectively,2019, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018 as well as the sale of EFS' debt origination business and equity investments resulting in gains of $0.3 billion in 2018.
For the nine months ended September 30, 2019, Capital revenues decreased $0.4 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.
Capital losses increased $0.2 billion, or 49%, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.5 billion and $0.6 billion in the first nine monthsquarters of 2019both 2020 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.3 billion and $0.2 billion in the first nine months of 2019 and 2018, respectively, as well as the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS and the sale of EFS' debt origination business and equity investments resulting in gains of $0.4 billion in 2018.2019.
CORPORATE ITEMS AND ELIMINATIONS
Corporate items and eliminations includes the results of our Lighting segment and GE Digital business for all periods presented.
| | | Three months ended September 30 | | Nine months ended September 30 | Three months ended March 31 |
(In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| 2020 |
| 2019 |
|
| | | | |
Revenues | | | | |
Corporate revenues | $ | 395 |
| $ | 625 |
| | $ | 1,395 |
| $ | 2,035 |
| $ | 377 |
| $ | 592 |
|
Eliminations and other | (515 | ) | (371 | ) | | (1,356 | ) | (1,504 | ) | (615 | ) | (408 | ) |
Total Corporate Items and Eliminations | $ | (120 | ) | $ | 254 |
| | $ | 39 |
| $ | 531 |
| $ | (237 | ) | $ | 183 |
|
| | | | |
Operating profit (cost) | | | | |
Gains (losses) on disposals and held for sale businesses | $ | (97 | ) | $ | 207 |
| | $ | 153 |
| $ | 470 |
| $ | 12,439 |
| $ | 365 |
|
Restructuring and other charges | (322 | ) | (1,491 | ) | | (924 | ) | (2,343 | ) | (207 | ) | (258 | ) |
Unrealized gains (losses) | (86 | ) | (73 | ) | | (125 | ) | 193 |
| (5,794 | ) | 13 |
|
Goodwill impairments (Note 8) | (740 | ) | (21,973 | ) | | (1,484 | ) | (21,973 | ) | |
Adjusted total corporate operating costs (Non-GAAP) | (303 | ) | (165 | ) | | (1,117 | ) | (916 | ) | (374 | ) | (348 | ) |
Total Corporate Items and Eliminations (GAAP) | $ | (1,548 | ) | $ | (23,496 | ) | | $ | (3,497 | ) | $ | (24,570 | ) | $ | 6,064 |
| $ | (228 | ) |
Less: gains (losses) and restructuring & other | (1,245 | ) | (23,331 | ) | | (2,380 | ) | (23,654 | ) | 6,438 |
| 120 |
|
Adjusted total corporate operating costs (Non-GAAP) | $ | (303 | ) | $ | (165 | ) | | $ | (1,117 | ) | $ | (916 | ) | $ | (374 | ) | $ | (348 | ) |
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
|
| | | | | | |
| Three months ended March 31 |
(In millions) | 2020 |
| 2019 |
|
| | |
Functions & operations | $ | (266 | ) | $ | (357 | ) |
Eliminations | (98 | ) | 6 |
|
Environmental, health and safety (EHS) and other items | (10 | ) | 4 |
|
Adjusted total corporate operating costs (Non-GAAP) | $ | (374 | ) | $ | (348 | ) |
Adjusted total corporate operating costs* excludes gains (losses) on disposals and held for sale businesses, restructuring and other charges and unrealized gains (losses) and goodwill impairments.. 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 marketmark-to-market impact on our Baker Hughes shares and an impairment on our Ventures portfolio for the three and nine months ended September 30, 2019,March 31, 2020, and to our Pivotal softwareWabtec equity investment for the three and nine months ended September 30, 2018.March 31, 2019.
For the three months ended September 30, 2019March 31, 2020, revenues decreased by $0.4 billion, primarily as a result of a $0.2 billion decrease in revenue largely attributable toresulting from the sale of our Current business in April 2019 and $0.1a $0.2 billion increase in inter-segment eliminations.
Corporate costs decreased by $21.9$6.3 billion, primarily as a result of $21.2 billion lower net goodwill impairment charges due to a $22.0 billion goodwill impairment charge related to our Power and Renewable Energy segments in the third quarter of 2018 partly offset by a $0.7 billion goodwill impairment charge related to our Renewable Energy segment in the third quarter of 2019. In addition, Corporate costs decreased due to $1.2$12.1 billion of lower restructuring and other charges primarily within our Power segment. These decreases were partly offset by $0.3 billion of lowerhigher net gains from disposed or held for sale businesses, which iswas primarily related to a $0.7$12.3 billion gain from the sale of our Value Based CareBioPharma business to Veritas Capital in the thirdfirst quarter of 2018 partly offset by $0.42020, compared to gains in the first quarter of 2019 of $0.2 billion from the sale of held for sale lossesour Digital ServiceMax business and $0.1 billion from a tax indemnity release related to our Lighting and Aviation segments in the third quarter of 2018 and a $0.1 billion realized loss on our Wabtec investment in the third quarter of 2019. In addition, corporatelegacy NBCU business. Corporate costs also increaseddecreased by $0.1 billion due to an increaselower restructuring costs within Healthcare, which were partially offset by higher restructuring actions taken in Aviation in the first quarter of 2020. These decreases were partially offset by $5.8 billion of higher net unrealized losses, primarily related to a $5.7 billion mark-to market impact on our intercompanyBaker Hughes shares and a $0.1 billion impairment on our Ventures portfolio.
Adjusted total corporate operating costs* remained relatively flat. Intercompany profit eliminations related toincreased $0.1 billion, including the results of higher volume of spare LEAP 1-B engines soldintercompany activity from our Aviation segment to our GECAS business to have an appropriate levelbusiness. This was mostly offset by a decrease in Functions and Operations of spare engines available$0.1 billion (25%), driven by cost reductions in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification.our Digital business.
For the nine months ended September 30, 2019, revenues decreased by $0.5 billion, primarily as a result of a $0.6 billion decrease in revenue largely attributable to the sale of our Current business in April 2019, partly offset by $0.1 billion decrease in inter-segment eliminations.
Corporate costs decreased $21.1 billion primarily as a result of $20.5 billion lower net goodwill impairment charges due to a $22.0 billion goodwill impairment charge related to our Power and Renewable Energy segments in the third quarter of 2018 partly offset by $1.5 billion of goodwill impairment charges related to our Renewable Energy segment during the nine months ended September 30, 2019. In addition, Corporate costs decreased by $1.4 billion related to lower restructuring and other charges primarily within our Power segment. These decreasesAlthough there were partly offset by $0.3 billion of higher net unrealized losses due to $0.2 billion of unrealized gains related to our equity investment in Pivotal Softwareno significant impacts in the first nine months of 2018 and $0.1 billion unrealized losses primarilyquarter related to our mark-to-market impact on our Baker Hughes shares in 2019.COVID-19, potential future impacts at Corporate costs also decreased duemay include, but are not limited to, $0.3 billion of lower net gains from disposed or held for sale businesses, which is primarily related to a $0.7 billion gain from the sale of our Value Based Care business to Veritas Capital in the third quarter of 2018 partly offset by $0.4 billion of held for sale losses related to our Lighting and Aviation segments in 2018. In addition, corporate costs increased by $0.2 billion due to a $0.1 billion increase in costs associated with existingour long-term liabilities, primarily for pension and certain environmental healthobligations, or decrease in asset returns subject to interest rate changes, additional asset impairments driven by overall market conditions, and safety matterslower revenue in the second quarter of 2019our Digital and $0.1 billion due to higher intercompany profit eliminations as the result of higher volume of spare LEAP 1-B engines sold from our Aviation segment to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification.
*Non-GAAP Financial Measure
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
Lighting operations.
RESTRUCTURING. Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of acquisitions, and certain other asset write-downs such as those associated with product line exits. We will continue to closely monitor the economic environment, including the impacts of COVID-19, and expect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
| | RESTRUCTURING & OTHER CHARGES | Three months ended September 30 | | Nine months ended September 30 | |
| | Three months ended March 31 |
(In billions) | 2019 |
| 2018 |
| | 2019 | 2018 | 2020 |
| 2019 |
|
| | | | |
Workforce reductions | $ | 0.1 |
| $ | 0.3 |
| | $ | 0.5 |
| $ | 0.7 |
| $ | 0.2 |
| $ | 0.2 |
|
Plant closures & associated costs and other asset write-downs | 0.2 |
| 1.0 |
| | $ | 0.3 |
| 1.2 |
| — |
| 0.1 |
|
Acquisition/disposition net charges | — |
| 0.2 |
| | $ | 0.1 |
| 0.5 |
| — |
| — |
|
Total | $ | 0.3 |
| $ | 1.5 |
| | $ | 0.9 |
| $ | 2.3 |
| |
Total restructuring and other charges | | $ | 0.2 |
| $ | 0.3 |
|
| | |
Cost of product/services | | $ | 0.1 |
| $ | 0.1 |
|
Selling, general and administrative expenses | | 0.1 |
| 0.2 |
|
Other income | | — |
| — |
|
Total restructuring and other charges | | $ | 0.2 |
| $ | 0.3 |
|
| | |
Power | | $ | — |
| $ | — |
|
Renewable Energy | | — |
| — |
|
Aviation | | 0.1 |
| — |
|
Healthcare | | — |
| 0.1 |
|
Corporate | | 0.1 |
| 0.1 |
|
Total restructuring and other charges | | $ | 0.2 |
| $ | 0.3 |
|
For the three months ended September 30, 2019, restructuring and other charges were $0.3 billion of which approximately $0.1 billion was reported in cost of products/services and $0.3 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate $0.2 billion and Renewable Energy $0.1 billion. Cash expenditures for restructuring and other charges were approximately $0.2 billion for the three months ended September 30, 2019.
For the three months ended September 30, 2018, restructuring and other charges were $1.5 billion of which approximately $0.5 billion was reported in cost of products/services, $0.9 billion was reported in SG&A. These activities were primarily at Power $0.9 billion, Corporate $0.4 billion and Renewable Energy $0.2 billion. Cash expenditures for restructuring and other charges were approximately $0.4$0.3 billion for the three months ended September 30, 2018.March 31, 2020 and 2019 respectively.
*Non-GAAP Financial Measure
For the nine months ended September 30, 20192020 1Q FORM 10-Q , restructuring and other charges were $0.9 billion of which approximately $0.2 billion was reported in cost of products/services and $0.7 billion was reported in SG&A. These activities were primarily at Corporate $0.5 billion, Power $0.2 billion and Healthcare $0.1 billion. Cash expenditures for restructuring and other charges were approximately $0.9 billion for the nine months ended September 30, 2019.15
For the nine months ended September 30, 2018, restructuring and other charges were $2.3 billion of which approximately $0.8 billion was reported in cost of products/services, $1.4 billion was reported in SG&A. These activities were primarily at Power $1.1 billion, Corporate $0.7 billion and Renewable Energy $0.3 billion. Cash expenditures for restructuring and other charges were approximately $1.0 billion for the nine months ended September 30, 2018. |
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS. As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. These costs relate primarily to restructuring and acquisition and disposition activities.
For the three months ended September 30, 2019, costs not included in segment results were $0.9 billion, of which $0.8 billion was related to the Renewable Energy segment primarily as a result of a goodwill impairment charge of $0.7 billion. In addition to the segment results, there was $0.2 billion of costs and $0.2 billion of losses related to Corporate. |
| | | | | | | | | | | | |
| Costs | Gains (Losses) |
| Three months ended March 31 | Three months ended March 31 |
(In billions) | 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| | | | |
Power | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Renewable Energy | — |
| — |
| — |
| — |
|
Aviation | 0.1 |
| — |
| — |
| — |
|
Healthcare | — |
| 0.1 |
| 12.3 |
| — |
|
Total segments | $ | 0.1 |
| $ | 0.1 |
| $ | 12.4 |
| $ | — |
|
Corporate Items & Eliminations | 0.1 |
| 0.1 |
| (5.7 | ) | 0.4 |
|
Total Industrial | $ | 0.2 |
| $ | 0.3 |
| $ | 6.6 |
| $ | 0.4 |
|
For the three months ended September 30, 2018, costs not included in segment results were $23.1 billion, of which $20.0 billion was related to the Power segment which was primarily due to a $19.1 billion goodwill impairment charge, $3.0 billion was related to the Renewable Energy segment which was primarily due to a $2.9 billion goodwill impairment charge and $0.1 billion was related to the Healthcare segment. Gains not included in segment results were $0.5 billion, of which $0.7 billion of gains were related to the Healthcare segment partly offset by $0.1 billion of losses related to the Aviation segment. In addition to the segment results, there was $0.4 billion of costs and $0.4 billion of losses related to Corporate.
For the nine months ended September 30, 2019, costs not included in segment results were $1.9 billion, of which $1.6 billion was related to the Renewable Energy segment primarily as a result of goodwill impairment charges of $1.5 billion, $0.2 billion was related to the Power segment and $0.1 billion was related to the Healthcare segment. In addition to the segment results, there was $0.5 billion of costs related to Corporate.
For the nine months ended September 30, 2018, costs not included in segment results were $23.6 billion, of which $20.2 billion was related to the Power segment which was primarily due to a $19.1 billion goodwill impairment charge, $3.2 billion was related to the Renewable Energy segment which was primarily due to a $2.9 billion goodwill impairment charge and $0.2 billion was related to the Healthcare segment. Gains not included in segment results were $0.8 billion of which, $0.7 billion of gains were related to the Healthcare segment, $0.3 billion of gains were related to the Power segment and $0.1 billion of losses were related to the Aviation segment. In addition to segment results, there was $0.8 billion of costs and $0.2 billion of losses related to Corporate.
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
OTHER CONSOLIDATED INFORMATION
|
| | | | | | | | | | | | | |
INTEREST AND OTHER FINANCIAL CHARGES | Three months ended September 30 | | Nine months ended September 30 |
(In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
GE | $ | 0.8 |
| $ | 0.6 |
| | $ | 1.7 |
| $ | 1.8 |
|
GE Capital | 0.6 |
| 0.7 |
| | 1.9 |
| 2.3 |
|
Total | $ | 1.3 |
| $ | 1.2 |
| | $ | 3.3 |
| $ | 3.6 |
|
|
| | | | | | |
INTEREST AND OTHER FINANCIAL CHARGES | Three months ended March 31 |
(In billions) | 2020 |
| 2019 |
|
| | |
GE | $ | 0.4 |
| $ | 0.5 |
|
GE Capital | 0.5 |
| 0.7 |
|
The increasedecrease in GE interest and other financial charges for the three months ended September 30, 2019,March 31, 2020, was driven primarily by the $0.3 billion loss resulting from the completion of a tender offer to purchase $4.8 billion of GE senior notes (including fees and other costs associated with the tender), partially offset by lower expense related to lower sales of GE receivables. The reduction in GE interest and other financial charges for the nine months ended September 30, 2019, was driven primarily by the reversal of $0.1 billion of accrued interest on tax liabilities due to the completion of the 2012-2013 Internal Revenue Service (IRS) audit in June 2019 as well as lower expenses on sales of GE current and long-term receivables partially offset by the $0.3 billion loss resulting from the completion of a tender offeras well as lower interest on debt due to purchase GE senior notes (including fees and other costs associated with the tender).lower average borrowings balances. 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 $0.6$0.2 billion and $0.4$0.3 billion was recorded at Corporate and $0.2$0.1 billion and $0.2 billion was recorded by GEIndustrial segments for the three months ended September 30, 2019March 31, 2020 and 2018, respectively, and $1.1 billion and $1.1 billion was recorded at Corporate and $0.6 billion and $0.7 billion was recorded by GE segments for the nine months ended September 30, 2019 and 2018, respectively.2019.
The decreasesdecrease in GE Capital interest and other financial charges for the three and nine months ended September 30, 2019 wereMarch 31, 2020 was primarily due to lower average borrowings balances due to maturities and lower net interest on assumed debt resulting from an increase in intercompany loans to GE which bear the right of offset (see the Borrowings section of Capital Resources and Liquidity for an explanation of assumed debt and right-of-offset loans), partially offset by an increase in average interest rates due to changes in market rates.
CONSOLIDATED INCOME TAXES.Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in over 180 countries and the majority of our revenue is earned outside the U.S. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, like research and development; and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates. See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
TAXES
For the three months ended September 30, 2019March 31, 2020, the consolidated income tax rate was (3.3)%1.0% compared to (0.2)%12.5% for the three months ended September 30,March 31, 2019. The negative rate for both periods reflect tax expense on a pre-tax loss.
The consolidated provision (benefit) for income taxes was an insignificant amount$0.1 billion in the thirdfirst quarter of 20192020 and $0.1 billion in the thirdfirst quarter of 2018, reflecting a decrease in2019. The provision was essentially unchanged as the tax provision due to lower expense from global activities includingbenefit associated with the nonrecurrence of an increase in valuation allowancesmark-to-market loss on the deferred tax assets of our non-U.S. operations as a result of lower forecasted earningsremaining investment in our Power business in the third quarter of 2018 partiallyBaker Hughes ($1.1 billion) was offset by the effecttax expense associated with the disposition of higher pretax incomethe BioPharma business excluding non-tax deductible impairment charges.the amount recognized on preparatory steps in 2019 ($1.1 billion).
The consolidated tax provision (benefit) includes $0.2 billion and $0.1$0.3 billion for GE (excluding GE Capital) for the thirdfirst quarters of 20192020 and 2018, respectively.
For the nine months ended September 30, 2019,, the consolidated income tax rate was 0.2% compared to (2.2)% for the nine months ended September 30, 2018. The positive rate for 2019 reflects a tax benefit on a pre-tax loss. The negative rate for 2018 reflects a tax expense on a pre-tax loss.
The consolidated provision (benefit) for income taxes was an insignificant amount for the nine months of 2019 and $0.5 billion for the nine months of 2018. The decrease in tax provision was primarily due to lower expense from global activities including the nonrecurrence of an increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business and a change in deferred taxes resulting from the decision to execute an internal restructuring to separate the Healthcare business in 2018 and from the completion of the IRS audit of the 2012-2013 consolidated U.S. income tax returns. This was partially offset by the lower benefit to adjust the year-to-date tax rate to be in-line with the lower projected full-year rate.
In June 2019, the IRS completed the audit of our consolidated U.S. income tax returns for 2012-2013, which resulted in a decrease in our balance of unrecognized tax benefits (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of $0.4 billion plus an additional net interest benefit of $0.1 billion. Of these amounts, GE recorded $0.4 billion of tax benefits and $0.1 billion of net interest benefits, and GE Capital recorded insignificant amounts of tax and net interest benefits. GE Capital also recorded a non-cash benefit in discontinued operations of $0.3 billion of tax benefits and an insignificant amount of net interest benefits. See Notes 2 and 14 of the consolidated financial statements for further information.
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
The consolidated tax provision (benefit) includes $0.3 billion and $0.6 billion for GE (excluding GE Capital) for the nine months of 2019 and 2018, respectively.
DISCONTINUED OPERATIONS. Discontinued operations primarily include our Baker Hughes and Transportation segments, residual assets and liabilities related tocertain businesses in our exited U.S. mortgage business (WMC), as discussed in Legal Proceedings and Notes 2 and 19 to the consolidated financial statements, ourGE Capital segment (our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses.businesses).
In September 2019, we sold a total of 144.1 million shares in Baker Hughes for $3.0 billion in cash (net of expenses) which reduced our ownership interest in Baker Hughes from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified results to discontinued operations for all periods presented. In addition, as disclosed in prior filings, including our 2018 Form 10-K, we expected to record a significant loss upon deconsolidation. In the third quarter of 2019, we recorded a loss of $8.7 billion ($8.2 billion after-tax) in discontinued operations.
In February 2019, as a result of the spin-off and subsequent merger of our Transportation business with Wabtec, we reclassified our Transportation segment to discontinued operations for all periods presented. In the first quarter of 2019, we recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. See Notes 2 and 3 to the consolidated financial statements for further information.
In June 2019, GE Capital recorded $0.3 billion of tax benefits and an insignificant amount of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See the Consolidated Income Tax section above.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion.
The mortgage portfolio in Poland (Bank BPH) comprises floating rate residential mortgages, with approximately 86% of the portfoliowhich are indexed to or denominated in foreign currencies (primarily Swiss francs) and the remaining 14% denominated in the local currency in Poland.. At September 30, 2019,March 31, 2020, the total portfolio had a carrying value of $2.6$2.4 billion with a 1.4%1.46% 90-day delinquency rate and an average loan to value ratio of approximately 73%70.3%. The portfolio is recorded at fair value less cost to sell, and includes a $0.3 billion impairment, which reflects market yields as well as our best estimate of the effects of potential legislative relief to borrowers and of ongoing litigation in Poland related to foreign currency-denominated mortgages. In October 2019,Discontinued operations income for the European Courtthree months ended March 31, 2020, includes the recognition of Justice (ECJ) issued a decision about$0.1 billion valuation allowance on the approach to remedy incarrying value of the portfolio, primarily driven by a case involving a Polish bank’s foreign currency loans. While it is uncertain how it will influence the Polish courts as they consider individual cases, we expect that the decision could lead to an increase in the number of lawsuits brought against Bank BPH and other banks in Poland with similar portfolios. Future adverse developments in the potential for legislative relief or in litigation across the Polish banking industryhigher discount rate as a result of COVID-19 and related market impacts. Future changes in the recent ECJ decisioneconomic impact of COVID-19, market yields or otherwisechanges in estimated legal liabilities could result in further impairment or other losses related to these loans in future reporting periods.
|
| | | | | | | | | | | | | |
FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | Three months ended September 30 | | Nine months ended September 30 |
(In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Earnings (loss) of discontinued operations, net of taxes | $ | 107 |
| $ | 155 |
| | $ | 436 |
| $ | (1,529 | ) |
Gain (loss) on disposal, net of taxes | (8,201 | ) | — |
| | (5,648 | ) | 3 |
|
Earnings (loss) from discontinued operations, net of taxes | $ | (8,093 | ) | $ | 155 |
| | $ | (5,212 | ) | $ | (1,526 | ) |
See NoteNotes 2 and 19 to the consolidated financial statements for further financial information forregarding our businesses in discontinued operations.
|
| | | | | | |
FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | Three months ended March 31 |
(In billions) | 2020 |
| 2019 |
|
| | |
Earnings (loss) of discontinued operations, net of taxes | $ | (174 | ) | $ | 109 |
|
Gain (loss) on disposal, net of taxes | (4 | ) | 2,553 |
|
Earnings (loss) from discontinued operations, net of taxes | $ | (178 | ) | $ | 2,663 |
|
2019 3Q16 2020 1Q FORM 10-Q19
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY. We intend to maintain a disciplined financial policy, targeting a sustainable long-term credit rating in the Single-A range with a GE Industrial net debt*/EBITDA-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. GE Capital isIn addition to net debt*-to-EBITDA, we also evaluate other 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 tracka strong balance sheet. We intend to meet itscontinue to decrease our leverage goal by the endover time as we navigate this period of 2020, and GE expects to make significant progress towards meeting its leverage goal by the end of 2020. GE Industrial net debt* was $49.0 billion and $55.3 billion at September 30, 2019 and December 31, 2018, respectively.
GE realized a total of approximately $10.3 billion of disposition proceeds for the nine months ended September 30, 2019, comprised of $4.7 billion in the third quarter of 2019 primarily from the sale of a portion of our stake in Baker Hughes and our remaining stake in Wabtec, $2.2 billion in the second quarter of 2019 primarily from the sale of a portion of our stake in Wabtec, and $3.4 billion in the first quarter of 2019 primarily from the completion of the merger of our Transportation business with Wabtec and the sale of our Digital ServiceMax business. We alsouncertainty, although we now expect to realize future proceeds from the sale ofachieve our BioPharma business within our Healthcare segment and the sale of our remaining stake in Baker Hughes. GE total cash, cash equivalents and restricted cash was $16.7 billion at September 30, 2019.
GE made progress towards reducing its debt in third quarter of 2019 through the completion ofprior targets over a tender offer to purchase $4.8 billion of long-term debt and the repayment of $0.5 billion of intercompany loans from GE Capital.
Additionally, in October 2019, we announced changes to the U.S. GE Pension Plan and the U.S. GE Supplementary Plan whereby the benefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and thereafter these employees will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan and benefits for approximately 700 employees that became executives before 2011 will be frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to new executives since 2011. Finally, we announced our intent to pre-fund approximately $4 to $5 billion of our estimated 2021 and 2022 minimum ERISA funding requirements in 2020 and offer approximately 100,000 former U.S. employees with a vested pension benefit a limited-time option to take a lump sum distribution in lieu of future monthly payments. We expect these actions will reduce our future unfunded pension deficit, however, their impact on our unfunded pension deficit is currently offset primarily by the decline in interest rates since December 31, 2018. In the fourth quarter of 2019, we will perform our annual update of the funded status of our benefit plans, which will likely increase our GE Industrial net debt* at December 31, 2019 as a result of current market conditions. See Note 13 to the consolidated financial statements for further information on the financial statement impact of these actions.
GE Capital generated approximately $3.6 billion from asset reductions for the nine months ended September 30, 2019, and with the announced sale of PK AirFinance which is expected to close in the fourth quarter of 2019, we expect to complete our plan to execute total asset reductions of approximately $10 billion by the end of 2019 to meet our overall $25 billion target. GE Capital also expects to receive approximately $2.5 billion of additional capital contributions from GE in the fourth quarter of 2019, totaling $4.0 billion for the full year 2019. GE Capital total cash, cash equivalents and restricted cash was $11.2 billion at September 30, 2019.longer period than previously announced.
LIQUIDITY POLICY. We maintain a strong focus on liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At both GE and GE Capital, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations, throughout business cycles.
Our liquidity plans are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also consider ouras well as capital allocation and growth objectives, including funding debt maturitiesthroughout business cycles. We believe that our consolidated liquidity and insurance obligations, investing in research and development, and dividend payments.availability under our credit facilities will be sufficient to meet our liquidity needs.
CONSOLIDATED LIQUIDITY.Following is an overviewa summary of cash, cash equivalents and restricted cash at March 31, 2020.
|
| | | | | | | | |
(In billions) | March 31, 2020 |
| | | March 31, 2020 |
|
| | | | |
GE | $ | 33.8 |
| | U.S. | $ | 31.7 |
|
GE Capital | 13.5 |
| | Non-U.S. | 15.6 |
|
Consolidated | $ | 47.3 |
| | Consolidated | $ | 47.3 |
|
With net proceeds of $20.3 billion received from the primary sourcessale of our BioPharma business, we ended the first quarter of 2020 with $47.3 billion of consolidated cash, cash equivalents and restricted cash, in addition to our available credit lines. As described below, we have taken a number of actions to further de-risk and de-lever our balance sheet and prudently manage our liquidity for GEamid a challenging external environment.
Cash held in non-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, GE Capital as well as significant transactions that affect their respective liquidity positions. Seeif 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 Liquidity Sources section for details of GE and GE Capital liquidity and the Statement of Cash Flows section for information regarding GE and GE Capital cash flow results.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 cash equivalents, free cash flows from our operating businesses, monetization of receivables, proceeds from announced dispositions, and short-term borrowing facilities. Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions.
As mentioned above, GE also has available a variety of short-term borrowing facilities to fund its operations, including a commercial paper program, revolving credit facilities and short-term intercompany loans from GE Capital, which are generally repaid within the same quarter. See the Liquidity SourcesBorrowings section for details of our credit facilities and borrowing activity in our external short-term borrowing facilities.
*Non-GAAP Financial Measure
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE CAPITAL LIQUIDITY.GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from asset reductions and cash flows from our businesses. Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2021. We expect to maintain an adequate liquidity position to fund our insurance obligations and debt maturities primarily as a result of cash generated from asset reductions and dispositions, as well as from repayments of intercompany loans and capital contributions from GE. Additionally, while we maintain adequate liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our interest expense. See the Segment Operations - Capital section for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.
GE Capital provided capital contributions to its insurance subsidiaries of approximately $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. These contributions are subject to ongoing monitoring by Kansas Insurance Department (KID), and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements. Going forward, we anticipate funding any capital needs for insurance through a combination of GE Capital asset sales, GE Capital liquidity, GE Capital future earnings and capital contributions from GE.
LIQUIDITY SOURCES.Consolidated cash, cash equivalents and restricted cash totaled $27.8 billion at September 30, 2019, comprising $14.7 billion and $13.1 billion held in the U.S. and outside the U.S., respectively.Cash held in non-US entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, if there is a change in reinvestment, we would expect to be able to repatriate that cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.
GE cash, cash equivalents and restricted cash totaled $16.7$33.8 billion at September 30, 2019,March 31, 2020, including $2.2$2.3 billion of cash held in countries with currency control restrictions and $0.6$0.5 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 comprisescomprised collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
In the first quarter of 2020, GE received $20.3 billion of net proceeds from the sale of our BioPharma business within our Healthcare segment. On April 1, 2020, GE used $6.0 billion of these proceeds to repay a portion of the intercompany loans from GE Capital. In addition, our ending commercial paper balance decreased by $1.1 billion compared to December 31, 2019. We intend to maintain a high level of cash and maximize flexibility as we evaluate the next steps over time that are needed to execute our deleveraging priorities throughout this period of uncertainty. Additionally, we continue to evaluate the timing of an orderly sale over time of our remaining stake in Baker Hughes.
GE CAPITAL LIQUIDITY.GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from asset sales and cash flows from our businesses. We expect to maintain an adequate liquidity position to fund our insurance obligations and debt maturities primarily as a result of cash flows from our businesses, GE repayments of intercompany loans and capital contributions from GE. See the Segment Operations - Capital section within MD&A for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.
GE Capital cash, cash equivalents and restricted cash totaled $11.2$13.5 billion at September 30, 2019,March 31, 2020, including $0.9$1.3 billion which was subject to regulatory restrictions, primarily in insurance entities.
GE has in place committed credit lines which it may use from time to time to meet its short-term liquidity needs. The following table provides a summary of committed and available credit lines.
|
| | | | | | |
GE COMMITTED AND AVAILABLE CREDIT FACILITIES (In billions) | September 30, 2019 | December 31, 2018 |
| | |
Unused back-up revolving credit facility | $ | 20.0 |
| $ | 20.0 |
|
Revolving credit facilities (exceeding one year) | 18.9 |
| 23.9 |
|
Bilateral revolving credit facilities (364-day) | 3.1 |
| 3.6 |
|
Total committed credit facilities | $ | 42.0 |
| $ | 47.5 |
|
Less offset provisions | 6.7 |
| 6.7 |
|
Total net available credit facilities | $ | 35.3 |
| $ | 40.8 |
|
Included in our credit facilities is an unused $20.0 billion back-up syndicated credit facility extended by 36 banks, expiring in 2021, and an unused $14.8 billion syndicated credit facility extended by six banks, expiring in 2020. The commitments under these syndicated credit facilities may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both facilities.
In 2019 and 2020, the amount committed and available under the syndicated credit facility expiring in 2020 will periodically be reduced by the greater of specified contractual commitment reductions or calculated commitment reductions, which is determined based on any potential specified issuances of equity and incurrences of incremental debt by GE or its subsidiaries, as well as a portion of industrial business disposition proceeds. In the first quarter of 2019, the amount committed and available under this facility was reduced by the calculated commitment reduction of $5.0 billion to $14.8 billion. Remaining contractual commitment reductions are $7.4 billion in the fourth quarter of 2019, $2.5 billion in the second quarter of 2020, and $5.0 billion in the fourth quarter of 2020. On March 12, 2019, GE entered into an amendment to the facility, which provides for a deferral of the timing of the fourth quarter 2019 and second quarter 2020 contractual commitment reductions if the BioPharma transaction does not close prior to those reduction dates. The $20.0 billion syndicated back-up revolving credit facility expiring in 2021 does not contain any contractual commitment reduction features.
Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under all credit facilities except the syndicated facility expiring in 2020 (see below for details of GE credit facilities), and transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital has not exercised this right.
*Non-GAAP Financial Measure
2019 3Q2020 1Q FORM 10-Q 2117
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
The following table providesGE 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 summarydecision by KID to modify the schedule of contributions set forth in January 2018. We will continue to monitor the volatile 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 of MD&A for discussion of the activity in the primary external sourcessensitivity of short-term liquidityinterest 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 GE in the third quarterinsurance through a combination of 2019 and 2018.
|
| | | | | | | | | |
(In billions) | GE Commercial Paper | Revolving Credit Facilities | Total |
| | | |
2019 | | | |
Average borrowings during the third quarter | $ | 3.0 |
| $ | 1.3 |
| $ | 4.3 |
|
Maximum borrowings outstanding during the third quarter | 3.1 |
| 1.9 |
| 4.9 |
|
Ending balance at September 30 | 3.0 |
| — |
| 3.0 |
|
| | | |
2018 | | | |
Average borrowings during the third quarter | $ | 9.8 |
| $ | 1.8 |
| $ | 11.6 |
|
Maximum borrowings outstanding during the third quarter | 11.7 |
| 2.0 |
| 13.7 |
|
Ending balance at September 30 | 3.0 |
| — |
| 3.0 |
|
Total average and maximum borrowings in the table above are calculated based on the daily outstanding balance of the sum of commercial paper and revolving credit facilities.
The reduction in total GE average and maximum short-term borrowings during the third quarter of 2019 compared to the third quarter of 2018 was driven by holding higher cash balances and improvements in our global funding and cash management operations.
In addition to its external liquidity sources, GE may from time to time enter into short-term intercompany loans from GE Capital to utilizeliquidity, GE Capital’s excess cash as an efficient source of liquidity. These loans are repaid within the same quarter. No such loans were made in 2019.Capital asset sales, GE Capital future earnings and capital contributions from GE.
BORROWINGS. Consolidated total borrowings were $93.2$85.2 billion and $103.6$90.9 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. The reduction was driven primarily by completion of a tender offer to purchase GE long-term debt of $4.8 billion and net repayments of GE Capital debt of $7.5$6.2 billion (including $6.8$4.7 billion of long-term debt maturities), a reduction in GE commercial paper of $1.1 billion, and $0.7 billion of foreign exchange due to strengthening US dollar against most currencies, partially offset by an increase of $1.9$2.4 billion in fair value adjustments for GE Capital debt in fair value hedge relationships as a result of lower interest rates.
GE Industrial net debt* was $34.0 billion and $47.9 billion at March 31, 2020 and December 31, 2019, respectively. The reduction was driven primarily by a higher ending cash balance mainly as a result of the proceeds from the sale of the BioPharma business.
In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital. Under the conditions of the 2015 assumed debt agreement, GE Capital agreed to continue making required principal and interest payments on behalf of GE, resulting in the establishment of an intercompany receivable and payable between GE and GE Capital. In addition, GE Capital has periodically made intercompany loans to GE with maturity terms that mirror the assumed debt. As these loans qualify for right-of-offset presentation, they reduce the assumed debt intercompany receivable and payable between GE and GE Capital, as noted in the table below.
The following table provides a reconciliation of total short- and long-term borrowings as reported on the respective GE and GE Capital Statements of Financial Position to borrowings adjusted for assumed debt and intercompany loans: | | September 30, 2019 (In billions) | GE |
| GE Capital |
| Consolidated(a) |
| |
March 31, 2020 (In billions) | | GE |
| GE Capital |
| Consolidated(a) |
|
| | |
Total short- and long-term borrowings | $ | 54.1 |
| $ | 40.0 |
| $ | 93.2 |
| $ | 48.1 |
| $ | 37.6 |
| $ | 85.2 |
|
| | |
Debt assumed by GE from GE Capital | (33.5 | ) | 33.5 |
| — |
| (29.1 | ) | 29.1 |
| — |
|
Intercompany loans with right of offset | 13.3 |
| (13.3 | ) | — |
| 12.2 |
| (12.2 | ) | — |
|
Total intercompany payable (receivable) between GE and GE Capital | (20.2 | ) | 20.2 |
| — |
| (16.9 | ) | 16.9 |
| — |
|
| | |
Total borrowings adjusted for assumed debt and intercompany loans | $ | 33.8 |
| $ | 60.3 |
| $ | 93.2 |
| $ | 31.2 |
| $ | 54.5 |
| $ | 85.2 |
|
| |
(a) | Included elimination$0.6 billion of eliminations of other GE borrowings from GE Capital, primarily related to timing of cash settlements associated with GE receivables monetization programs. |
When measuring the individual financial positions of GE and GE Capital, assumed debt should be considered a GE Capital debt obligation, and the intercompany loans with the right of offset mentioned above should be considered a GE debt obligation and a reduction of GE Capital’s total debt obligations. The following table illustrates the primary components of GE and GE Capital borrowings, adjusted for assumed debt and intercompany loans.
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
| | GE (In billions) | September 30, 2019 |
| December 31, 2018 |
| | GE Capital (In billions) | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
| | GE Capital (In billions) | March 31, 2020 |
| December 31, 2019 |
|
Commercial paper | $ | 3.0 |
| $ | 3.0 |
| | Commercial paper | $ | — |
| $ | — |
| $ | 1.9 |
| $ | 3.0 |
| | Senior and subordinated notes | $ | 35.8 |
| $ | 36.5 |
|
GE senior notes | 15.4 |
| 20.4 |
| | Senior and subordinated notes | 37.1 |
| 39.1 |
| 15.4 |
| 15.5 |
| | Senior and subordinated notes assumed by GE | 29.1 |
| 31.4 |
|
Intercompany loans from GE Capital | 13.3 |
| 13.7 |
| | Senior and subordinated notes assumed by GE | 33.5 |
| 36.3 |
| 12.2 |
| 12.2 |
| | Intercompany loans to GE | (12.2 | ) | (12.2 | ) |
Other GE borrowings | 2.2 |
| 2.6 |
| | Intercompany loans to GE | (13.3 | ) | (13.7 | ) | 1.6 |
| 2.2 |
| | Other GE Capital borrowings(a) | 1.8 |
| 3.4 |
|
| | | Other GE Capital borrowings | 2.9 |
| 3.9 |
| | | Total GE Capital | |
| | | Total GE Capital | | |
Total GE adjusted borrowings | $ | 33.8 |
| $ | 39.7 |
| | adjusted borrowings | $ | 60.3 |
| $ | 65.5 |
| $ | 31.2 |
| $ | 32.9 |
| | adjusted borrowings | $ | 54.5 |
| $ | 59.0 |
|
Other GE Capital borrowings included $1.5(a) Included $0.6 billion and $1.9$1.7 billion at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, of non-recourse borrowings of consolidated securitization entities where GE Capital has securitized financial assets as an alternative source of funding.
The intercompany loans from GE Capital to GE bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement and can be prepaid by GE at any time, in whole or in part, without premium or penalty. These loans are priced at market terms and have a collective weighted average interest rate of 3.6%3.5% and term of approximately 10.811.8 years at September 30, 2019. In the third quarter of 2019,March 31, 2020. On April 1, 2020, GE repaid $0.5$6.0 billion of intercompany loans from GE Capital.Capital, decreasing GE borrowings with an offsetting increase to GE Capital borrowings.
*Non-GAAP Financial Measure
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| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
On April 22, 2020, GE issued $6.0 billion of senior notes, comprised of $1.0 billion due 2027, $1.25 billion due 2030, $1.5 billion due 2040, and $2.25 billion due 2050, and used the proceeds to complete a tender offer to purchase $4.2 billion of GE senior notes with maturities ranging from 2020 to 2024. We intend to use the remaining proceeds to repurchase, redeem or repay GE’s outstanding debt obligations, including other notes or commercial paper. These transactions will be leverage neutral and liquidity enhancing by extending our near-team industrial debt maturities.
On April 23, 2020, GE Capital completed a tender offer to purchase $5.4 billion of GE Capital senior notes with maturities during 2020 using the proceeds from the repayment of $6.0 billion of intercompany loans from GE.
GE has in place committed revolving credit lines. The following table provides a summary of committed and available credit lines.
|
| | | | | | |
GE COMMITTED AND AVAILABLE REVOLVING CREDIT FACILITIES (In billions) | March 31, 2020 |
| December 31, 2019 |
|
| | |
Unused back-up revolving syndicated credit facility | $ | 20.0 |
| $ | 20.0 |
|
Unused revolving syndicated credit facility | 14.8 |
| 14.8 |
|
Bilateral revolving credit facilities | 7.2 |
| 7.2 |
|
Total committed revolving credit facilities | $ | 42.0 |
| $ | 42.0 |
|
Less offset provisions | 6.7 |
| 6.7 |
|
Total net available revolving credit facilities | $ | 35.3 |
| $ | 35.3 |
|
Included in our credit facilities at March 31, 2020, was an unused $20.0 billion back-up revolving syndicated credit facility extended by 36 banks, expiring in 2021, and an unused $14.8 billion revolving syndicated credit facility extended by six banks, expiring on December 31, 2020. The commitments under these syndicated credit facilities may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both facilities.
As part of our ordinary course refinancing processes, on April 17, 2020, we refinanced unused back-up revolving syndicated credit facility. In connection with the refinancing, we terminated the unused $20.0 billion back-up revolving syndicated credit facility and entered into a new $15.0 billion back-up revolving syndicated credit facility, expiring in April 2023. This facility does not contain any offset provisions. The new back-up revolving credit facility includes a customary net debt-to-EBITDA financial covenant.
The closing of the new $15.0 billion facility also terminated the $14.8 billion unused revolving syndicated credit facility that was scheduled to mature in December 2020, which had an aggregate revolving commitment amount of $4.2 billion effective April 14, 2020, following the sale of the BioPharma business within our Healthcare segment.
Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under all credit facilities in place at March 31, 2020 except the $14.8 billion unused revolving syndicated credit facility expiring on December 31, 2020. Under this agreement, GE would transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital has not exercised this right.
The following table provides a summary of the activity in the primary external sources of short-term borrowings for GE in the first quarters of 2020 and 2019. GE uses bilateral revolving credit facilities from time to time to meet its short-term liquidity needs.
|
| | | | | | | | | |
(In billions) | GE Commercial Paper |
| Bilateral Revolving Credit Facilities |
| Total |
|
| | | |
2020 | | | |
Average borrowings during the first quarter | $ | 2.9 |
| $ | 1.2 |
| $ | 4.1 |
|
Maximum borrowings outstanding during the first quarter | 3.4 |
| 1.5 |
| 4.7 |
|
Ending balance at March 31 | 1.9 |
| — |
| 1.9 |
|
| | | |
2019 | | | |
Average borrowings during the first quarter | $ | 3.2 |
| $ | 1.3 |
| $ | 4.4 |
|
Maximum borrowings outstanding during the first quarter | 3.6 |
| 1.5 |
| 4.8 |
|
Ending balance at March 31 | 3.0 |
| — |
| 3.0 |
|
Total average and maximum borrowings in the table above are calculated based on the daily outstanding balance of the sum of commercial paper and revolving credit facilities.
GE’s ending commercial paper balance decreased to $1.9 billion at March 31, 2020 from $3.0 billion at December 31, 2019, primarily as a result of market conditions and our liquidity position.
In addition to these external sources of short-term borrowings, GE and GE Capital may from time to time enter into short-term intercompany loans to utilize excess cash as an efficient source of liquidity, which are typically repaid within the same quarter.
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MD&A | CAPITAL RESOURCES AND LIQUIDITY |
CREDIT RATINGS AND CONDITIONS. We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and long-term debt.
The credit ratings of GE and GE Capital as of the date of this filing are set forth in the table below.
|
| | | |
| Moody's | S&P | Fitch |
| | | |
GE | | | |
Outlook | StableNegative | Negative | Stable | Negative |
Short term | P-2 | A-2 | F2F3 |
Long term | Baa1 | BBB+ | BBB+BBB |
GE Capital | | | |
Outlook | StableNegative | Negative | Stable | Negative |
Short term | P-2 | A-2 | F2F3 |
Long term | Baa1 | BBB+ | BBB+BBB |
There were no changes inOn April 10, 2020, S&P affirmed the ratings of GE orand GE Capital ratingsshort- and long-term debt and changed its outlook from the end of the first quarter of 2019 through the date of this filing.Stable to Negative.
On April 12, 2020, Fitch lowered the credit ratings of GE and GE Capital short- and long-term debt from F2 to F3 and BBB+ to BBB, respectively, with a Stable outlook.
On April 13, 2020, Moody’s affirmed the ratings of GE and GE Capital short- and long-term debt and changed its outlook from Stable to Negative.
We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
The following table provides a summary of the estimated potential liquidity impact in the event of further downgrades with regards to the most significant contractual credit ratings conditions of the Company based on their proximity to our current ratings.
|
| | | | |
(In billions) | Triggers Below | At September 30, 2019 |
|
| | |
Derivatives | | |
Terminations | BBB/Baa2 | $ | (0.3 | ) |
Cash margin posting | BBB/Baa2 | (0.7 | ) |
Receivables Sales Programs | | |
Loss of cash commingling | A-2/P-2/F2 | $ | (1.0 | ) |
Alternative funding sources | A-2/P-2/F2 | (1.1 | ) |
|
| | | | |
(In billions) | Triggers Below | At March 31, 2020 |
|
| | |
Derivatives | | |
Terminations | BBB/Baa2 | $ | (0.4 | ) |
Cash margin posting | BBB/Baa2 | (0.9 | ) |
Receivables Sales Programs | | |
Loss of cash commingling | A-2/P-2/F2 | $ | (0.6 | ) |
Alternative funding sources | A-2/P-2/F2 | (0.7 | ) |
Surety bond cash collateral posting | BBB-/Baa3 | $ | (0.8 | ) |
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 Substantially all of our debt agreements in place at March 31, 2020 do not contain material credit rating covenants.
If our short-term credit ratings were to fall below A-2/P-2/F2, it is possible that we would lose all or part of our access to the tier-2 commercial paper markets, which would reduce our borrowing capacity in those markets. This and may result in increased utilization of our revolving credit facilities to fund our intra-quarter operations. As of the date of this filing, the Fitch downgrade has not interrupted our ability to access the tier-2 market.
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| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
DERIVATIVE CONDITIONS. Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration of collateral posted by us and outstanding interest payments was $0.3$0.4 billion at September 30, 2019.March 31, 2020. This excludes exposure related to embedded derivatives, which are not subject to these provisions.
In addition, certain of our derivatives, primarily interest rate swaps, are subject to additional cash margin posting requirements if our credit ratings were to fall below BBB/Baa2. The amount of additional margin will vary based on, among other factors, market movements and changes in our positions. At September 30, 2019,March 31, 2020, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.7$0.9 billion.
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MD&A | CAPITAL RESOURCES AND LIQUIDITY |
The Fitch downgrades did not result in a breach of any of our required ratings levels relating to derivatives.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
OTHER CONDITIONS. Where we provide servicing for third-party investors under certain 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-2/P-2/F2.P-2. 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 $1.0$0.6 billion to GE intra-quarter liquidity during the thirdfirst quarter of 2019. In October 2019, we entered into amendments with third-party investors which removed the minimum ratings requirements for cash commingling for certain of our receivables programs; had these amendments been in place during the third quarter of 2019, the loss of cash commingling would have resulted in an estimated maximum reduction of approximately $0.3 billion to GE intra-quarter liquidity.2020.
In addition, weWe have relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of available liquidity generated by these programs could be adversely impacted. In the secondfirst quarter of 2019,2020, the estimated maximum reduction to our ending available liquidity had our credit ratings fallen below these levels was approximately $1.1$0.7 billion. In the event we fall below these ratings levels, these programs contain features that permit continued timely third-party funding subject to additional restrictions, which we do not expect to have a significant impact to the Company.
In conjunction with ordinary course commercial transactions and certain regulatory requirements, the Company 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 March 31, 2020, the maximum amount of cash collateral we could be required to post if we fell below these levels was approximately $0.8 billion.
FOREIGN CURRENCY.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, 2019March 31, 2020 and less than $0.2$0.1 billion for the three and nine months ended September 30, 2018.March 31, 2019. This analysis excludes any offsetting effect from the forecasted future transactions that are economically hedged.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
STATEMENT OF CASH FLOWS – NINETHREE MONTHS ENDED SEPTEMBER 30, 2019MARCH 31, 2020 VERSUS 2018.2019. We manage the cash flow performance of our industrial and financial services businesses separately. We therefore believe it is usefulseparately, in order to report separate GE and GE Capital columns in our Statement of Cash Flows because it enablesenable us and our investors to evaluate the cash from operating activities of our industrial businesses (the principal source of cash generation for our industrial businesses) separately from the cash flows of our financial services business, as well as to evaluate the cash flows between our industrial businesses and GE Capital.business.
In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the effects of currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 20 to the consolidated financial statements for further information regarding All other operating activities, All other investing activities and All other financing activities.
The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in the nine months ended September 30, 2019: the ownership interest received and tax benefits receivable as a result of the spin-off and subsequent merger of our Transportation segment with Wabtec; our retained ownership interest in Baker Hughes; additional non-cash deferred purchase price received by GE Capital related to sales of current receivables; and right-of-use assets obtained in operating leases. See Notes 2, 4 and 7, respectively, to the consolidated financial statements.
See the Intercompany Transactions between GE and GE Capital section and Notes 4 and 2120 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
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MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE CASH FLOWS FROM CONTINUING OPERATIONS. The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities, contribute to post retirement plans and pay others for a wide range of material, services and taxes.
GE cash fromused for operating activities was $0.1$1.7 billion in 20192020, an increase of $1.1 billion compared with cash used of $4.5 billion in 2018 (including $0.3 billion and $0.4 billion cash received for Baker Hughes Class B shareholder dividends in 2019, and 2018, respectively). The $4.5 billionprimarily due to: an increase in cash wasused for working capital of $1.1 billion; and a general decrease in net income (after adjusting for the gain on the sale of BioPharma and the non-cash loss related to our interest in Baker Hughes), primarily due to: the nonrecurrence of GE Pension Plan contributions of $6.0 billionto COVID-19 impacts in 2018 (which are excluded from GE Industrial free cash flows*); a decrease in payments of equipment project cost accruals of $0.7 billion; a net decrease in payments of Aviation-related customer allowance accruals of $0.6 billion; andour Aviation segment; partially offset by a decrease in cash used for contract & other deferred assets of $0.4$0.7 billion, primarily due to higher billings on our long-term service agreements, including the impact of a contract modification resultingequipment contracts and an increased net unfavorable change in increased billings of $0.2 billion,estimated profitability, partially offset by lower liquidations of deferred inventory.higher revenue recognition, on our long-term service agreements.
These decreases in cash used were partially offset by: an increase in cash used for working capital of $2.1 billion; an increase in cash used for employee related liabilities of $0.4 billion; and an increase in cash paid for income taxes of $0.4 billion.
The increase in cash used for working capital was due to: an increase in cash used for current receivablesaccounts payable of $1.8$1.5 billion, which was primarily driven by lower sales of receivables and receivables growth resulting from the 737 MAX grounding; higher inventory build of $0.5 billion, mainly as a result of expected deliverieslower volume in the fourth quarter2020 and higher disbursements related to purchases of 2019materials in prior periods; and the first quarterhigher net utilizations of 2020; and a decrease in cash from accounts payableprogress collections of $0.5$0.3 billion. These increases in cash used for working capital were partially offset by an increase in cash generated from current receivables of $0.5 billion, which was primarily driven by lower volume, partially offset by a higher progress collectionsdecrease in sales of $0.7receivables; and an decrease in cash used for inventories of $0.1 billion, mainlywhich was primarily driven by lower build for anticipated volumes in the year, largely offset by lower liquidations.
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MD&A | CAPITAL RESOURCES AND LIQUIDITY |
As discussed in the Significant Developments section within the Consolidated Results section of MD&A, the COVID-19 pandemic negatively impacted GE CFOA and GE Industrial free cash flows* by approximately $1 billion in the first quarter of 2020, primarily as a result of higherdecreased net utilizationincome and working capital in 2018, including the impact of the timing of progress collections received in the fourth quarter of 2017.our Aviation segment.
GE cash from investing activities was $6.9$20.0 billion in 20192020, an increase of $17.8 billion compared with $0.7 billion in 2018. The $6.2 billion increase was2019, primarily due to: net proceeds from the spin-off of our Transportation business of $6.2 billion (including the secondary offerings of Wabtec common stock shares in the second and third quarters of 2019), the sale of a portion of our stake in Baker Hughes of $3.0 billion and from other business dispositions in Aviation, Corporate and Power (net of cash transferred) of $1.1 billion in 2019, compared with proceeds of $3.3 billion in 2018, primarily from the sale of businesses at Powerour BioPharma business of $20.3 billion; and Healthcare; the nonrecurrence of the purchase of an aviation technology joint venture of $0.6 billion in 2018; a decrease in net cash paid for settlements of derivative hedges of $0.5 billion; partially offset by the 2019 capital contribution to GE Capital of $1.5 billion; business acquisitions of $0.4 billion, related to the transfer of the HEF business from GE Capital to our Healthcare segment in 2019; and an increase inlower cash used relatedin relation to net settlements between our continuing operations and discontinued operations of $0.2$0.4 billion; partially offset by the nonrecurrence of proceeds from the 2019 spin-off of our Transportation business of $2.9 billion. Cash used for additions to property, plant and equipment and internal-use software, which is a component of GE Industrial free cash flows*, decreased by $0.1was $0.6 billion compared with 2018. in both 2020 and 2019.
GE cash used for financing activities was $6.9$2.0 billion in 20192020, an increase of $0.7 billion compared with cash from financing activities of $1.4 billion in 2018. The $8.3 billion increase in cash used was2019, primarily due to: the nonrecurrenceto higher net repayments of intercompany loans from GE Capital to GE of $6.5 billion in 2018 (including $6.0 billion to fund contributions to the GE Pension Plan); completion of a tender offer to purchase GE long-term debt of $4.8 billion in 2019; the nonrecurrence of dispositions of noncontrolling interests in Baker Hughes of $0.6 billion in 2018; partially offset by a decrease in common dividends paid to shareowners of $2.9 billion.borrowings.
GE CASH FLOWS FROM DISCONTINUED OPERATIONS. GE cash used for operating activities of discontinued operations was an insignificant amount in 2019 compared with cash of $0.7 billion in 2018. The $0.7 billion decrease was primarily as a resultreflects operating outflows related to Transportation, prior to our disposition of the disposition of our Transportation businesssegment in the first quarter of 2019, due to cash used in the business compared with cash generated in 2018.
GE cash used for investing activitiesof discontinued operations was $3.5 billion in 2019 compared with $0.2 billion in 2018. The $3.3 billion increase in cash used was primarily due to the deconsolidation of Baker Hughes cash of $3.1 billion as a result of the reduction in our ownership interest in the third quarter of 2019.
GE cash used for financing activitiesof discontinued operations was $0.4 billion in 2019 compared with $2.7 billion in 2018. The $2.4 billion decrease of cash used was primarily due to: Baker Hughes share repurchases of $1.0 billion in 2018; and an increase in Baker Hughes borrowings of $0.3 billion in 2019 compared with net repaymentsreflects payments of Baker Hughes borrowings of $0.9 billion in 2018.dividends to noncontrolling interests.
GE CAPITAL CASH FLOWS FROM CONTINUING OPERATIONS. GE Capital cash from operating activities was $1.3 billion in 2020, an increase of $1.2 billion in 2019 compared with $0.5 billion in 2018. The increase of $0.7 billion was2019, primarily due to: a net increase in cash collateral received and settlements paid from counterparties on derivative contracts of $2.2 billion; partially offset by$0.9 billion and a general decreaseincrease in cash generated from earnings (loss) from continuing operations.
GE Capital cash fromused for investing activities was $2.7$0.1 billion in 20192020, an increase of $3.9 billion compared with $6.5 billion in 2018. The decrease of $3.8 billion was2019, primarily due to: lower collections of financing receivables of $4.3 billion;$2.2 billion and an increase of net purchases of investment securities of $3.7 billion; lower proceeds from business dispositions $1.6 billion; and an increase in cash used related to net settlements between our continuing operations (primarily our Corporate function) and businesses in discontinued operations (primarily WMC) of $2.1 billion; partially offset by the nonrecurrence of intercompany loans from GE Capital to GE of $6.5 billion in 2018 and an increase in cash related to our current receivables and supply chain finance programs with GE of $2.3$1.7 billion.
*Non-GAAP Financial Measure
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MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE Capital cash used for financing activities was $7.3$6.4 billion in 20192020, an increase of $2.9 billion compared with $19.0 billion in 2018. The decrease of $11.7 billion was2019, primarily due to lowerto: higher net repayments of borrowings of $9.9 billion; a capital contribution from GE to GE Capital of $1.5 billion;$2.8 billion and lowerhigher cash settlements on derivatives hedging foreign currency debt of $1.0$0.2 billion.
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL. Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. See Note 2120 to the consolidated financial statements for further information.
Sales of Receivables.In order to manage short-term liquidity and credit exposure, GE sellsmay sell current and long-term customer receivables to GE Capital and other third parties. These transactions are made on arm's length terms and any discount related to time value of money, is recognized within the respective GE Industrial business in the period these receivables were sold to GE Capital or third parties. See Note 4 to the consolidated financial statements for further information.
Supply Chain Finance Programs. ProgramsGE’s industrial businesses participate in a supply chain finance program with. GE Capital where GE Capital may settle supplier invoices early in return for early pay discounts. In turn, GE settles invoices with GE Capital in accordance with the original supplier payment terms. The GE liability associated with the funded participation in the program is presented as accounts payable and amounted to $3.4 billion and $4.4 billion at September 30, 2019 and December 31, 2018, respectively.
On February 28, 2019, GE Capital sold its supply chain finance program platform to MUFG Union Bank, N.A (MUFG) and is transitioning this program to them. The GE funded participation in the GE Capital program will continue to be settled following the original invoice payment terms with an expectation that the majority of the transition will occur by the second half of 2020. GE CFOA could be adversely affected in the short term should certain suppliers not transition to the new third-party program and we elect to take advantage of early pay discounts on trade payables offered by those suppliers. For the three and nine months ended September 30, 2019, the effect on GE CFOA related to the MUFG transition was insignificant.
In addition to the supply chain finance program with MUFG, GE also facilitates other voluntary supply chain finance programs with third parties (collectively, the programs) towhich provide certain of itsparticipating GE suppliers the opportunity to sell their GE receivables from GE to third parties at the sole discretion of both the suppliers and the third parties. The terms of these arrangements do not alter GE’s obligations to its suppliers which arise from the independently negotiated contractual supply agreements. GE's obligation remains limited to making payment on its supplier invoices on the terms originally negotiated with its suppliers, regardless of whether the supplier sells its receivable to a third party.
At September 30, 2019March 31, 2020 and December 31, 2018,2019, included in GE's accounts payable is $1.5$2.6 billion and $0.4$2.4 billion, respectively, of supplier invoices that are subject to the programs with MUFG and other third parties. GE accounts for all payments made under the programs as reductions of CFOA.third-party programs. Total GE supplier invoices paid to MUFG and other third parties underthrough these third-party programs were $0.9$1.1 billion and an insignificant amount$0.1 billion for the ninethree months ended September 30,March 31, 2020 and 2019, respectively.
The GE liability associated with the funded participation in the GE Capital program is presented as accounts payable and 2018,amounted to $1.3 billion and $2.1 billion at March 31, 2020 and December 31, 2019, respectively.
GE Capital Finance Transactions.During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, GE Capital acquired from third parties 39five aircraft with a list price totaling $5.0$0.6 billion and 2813 aircraft with a list price totaling $3.4$1.9 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 $0.3$0.1 billion and $0.1 billion, which included $0.1 billion and an insignificant amount to CFM International during both the ninethree months ended September 30,March 31, 2020 and 2019, and 2018.respectively. Additionally, GE Capital had $1.7$2.1 billion and $1.2$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 September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Also, during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, GE recognized equipment revenues of $1.0$0.5 billion and $0.4$0.2 billion, respectively, from customers within our Power and Renewable Energy segments in which GE Capital is an investee or is committed to be an investee in the underlying projects.
For certain of these investments, 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 include direct performance or payment guarantees, return on investment guarantees and asset value guarantees. As of September 30, 2019,March 31, 2020, GE had outstanding guarantees to GE Capital on $1.4$1.0 billion of funded exposure and $1.4$0.8 billion of unfunded commitments, which included guarantees issued by industrial businesses. The recorded contingent liability for these guarantees was insignificant as of September 30, 2019March 31, 2020 and is based on individual transaction level defaults, losses and/or returns.
*Non-GAAP Financial Measure
|
| | |
MD&A | CRITICAL ACCOUNTING ESTIMATES |
CRITICAL ACCOUNTING ESTIMATES
Please refer to the Critical Accounting Estimates and Other Items sections within MD&A and Note 1 to the consolidated financial statements of our Annual Report on Form 10-K Report filed on February 26,for the year ended December 31, 2019, for a further discussion of our accounting policies and critical accounting estimates. COVID-19 related market events may have an effect on our Insurance business and pension assumptions.
26INSURANCE AND INVESTMENT CONTRACTS. 2019 3Q FORM 10-Q
OTHER ITEMS
INSURANCE. The run-off insurance operations of North American Life and Health (NALH) primarily include Employers Reassurance Corporation (ERAC) and Union Fidelity Life Insurance Company (UFLIC). ERAC was formerly part of Employers Reinsurance Corporation (ERC) until the sale of ERC to Swiss Re in 2006. UFLIC was formerly part of Genworth Financial Inc. (Genworth) but was retained by GE after Genworth’s initial public offering in 2004.
ERAC primarily assumes long-term care insurance and life insurance from numerous cedents under various types of reinsurance
treaties and stopped accepting new policies after 2008. UFLIC primarily assumes long-term care insurance, structured settlement
annuities with and without life contingencies and variable annuities from Genworth and has been closed to new business since 2004.
The vast majority of NALH’s reinsurance exposures are long-duration arrangements that still involve substantial levels of premium
collections and benefit payments even though ERAC and UFLIC have not entered into new reinsurance treaties in about a decade. These long-duration arrangements involve a number of direct writers and contain a range of risk transfer provisions and other contractual elements. In many instances, these arrangements do not transfer to ERAC or to UFLIC 100 percent of the risk embodied in the encompassed underlying policies issued by the direct writers. Furthermore, we cede insurance risk to third-party reinsurers for a portion ofAt March 31, 2020, our insurance contracts, primarily on long-term care insurance policies.
Our run-off insurance liabilities primarily relate to individual long-term care insurance, structured settlement annuities and life insurance
products. Long-term care insurance provides defined benefit levels of protection against the cost of long-term care services provided in
the insured’s home or in assisted living or nursing home facilities. Structured settlement annuities typically provide fixed monthly or
annual annuity payments for a set period of time or, in the case of a life-contingent structured settlement, for the life of the annuitant and
may include a guaranteed minimum number of payments. Traditional life insurance triggers a payment in the event of death of a
covered life.
Insurance liabilities and annuity benefits amounted to $40.1of $38.2 billion and $35.6 billion and, as further described below, are primarily supported by investment securities of $38.2 billion and $32.9$37.6 billion and commercial mortgage loans of $1.8 billion and $1.7 billion at September 30, 2019 and December 31, 2018, respectively. Additionally, we expect to purchase approximately $9 billion of new assets through 2024 in conjunction with expected capital contributions from GE Capital to our insurance subsidiaries, excluding approximately $1.9 billion, which was received in the first quarter of 2019. 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. Presented in the table below are the reserve balances by insurance product.
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| | | | | | | | | | | | | | | |
September 30, 2019 (In billions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other contracts(a) | Other adjustments | Total |
|
|
|
|
|
|
Future policy benefit reserves | $ | 16.8 |
| $ | 9.6 |
| $ | 0.2 |
| $ | 5.9 |
| $ | 32.4 |
|
Claim reserves | 4.1 |
| 0.2 |
| 1.2 |
| — |
| 5.5 |
|
Investment contracts(b) | — |
| 1.2 |
| 1.1 |
| — |
| 2.2 |
|
Unearned premiums and other | — |
| 0.2 |
| 0.1 |
| — |
| 0.4 |
|
| 20.9 |
| 11.2 |
| 2.5 |
| 5.9 |
| 40.6 |
|
Eliminations | — |
| — |
| (0.5 | ) | — |
| (0.5 | ) |
Total | $ | 20.9 |
| $ | 11.2 |
| $ | 2.1 |
| $ | 5.9 |
| $ | 40.1 |
|
|
| | | | | | | | | | | | | | | |
December 31, 2018 (In billions) |
|
|
|
|
|
|
|
|
|
|
|
Future policy benefit reserves | $ | 16.0 |
| $ | 9.5 |
| $ | 0.2 |
| $ | 2.2 |
| $ | 27.9 |
|
Claim reserves | 3.9 |
| 0.2 |
| 1.2 |
| — |
| 5.3 |
|
Investment contracts(b) | — |
| 1.2 |
| 1.1 |
| — |
| 2.4 |
|
Unearned premiums and other | — |
| 0.2 |
| 0.1 |
| — |
| 0.3 |
|
| 20.0 |
| 11.2 |
| 2.6 |
| 2.2 |
| 36.0 |
|
Eliminations | — |
| — |
| (0.4 | ) | — |
| (0.4 | ) |
Total | $ | 20.0 |
| $ | 11.2 |
| $ | 2.2 |
| $ | 2.2 |
| $ | 35.6 |
|
(a) Other contracts included claim reserves of $0.3 billion related to short-duration contracts at EIC, net of eliminations, at both September 30, 2019 and December 31, 2018.
(b) Investment contracts are contracts without significant mortality or morbidity risks.
We regularly monitor emerging experience in our run-off insurance operations and industry developments to identify trends that may help us refine our reserve assumptions and evaluate opportunities to reduce our insurance risk profile and improve the results of our run-off insurance operations. These opportunities may include the pursuit of future premium rate increases and benefit reductions on long-term care insurance contracts with our ceding companies; recapture and reinsurance transactions to reduce risk where economically justified; investment strategies to improve asset and liability matching and enhance investment portfolio yields; and managing our expense levels.
In calculating our future policy benefit reserves, we are required to consider the impact of net unrealized gains andtheir allowance for losses, on our available-for-sale investment securities supporting our insurance contracts as if those unrealized amounts were realized. To the extent that the realization of gains would result in a premium deficiency, an increase to future policy benefit reserves is recorded with an after-tax offset to Other comprehensive income and included within Other adjustments above. At September 30, 2019, the entire $5.9 billion balance of net unrealized gains on our investment securities required a related increase to future policy benefit reserves. This adjustment increased from $2.2 billion at December 31, 2018 primarily from higher unrealized gains within the investment security portfolio supporting our insurance contracts in response to decreased market yields. See Note 3 to our consolidated financial statements for further information about our investment securities.
For additional information see Key Portfolio Characteristics in Other Items in our Annual Report on Form 10-K for the year ended December 31, 2018.
Critical Accounting Estimates. Our insurance reserves include the following key accounting estimates and assumptions described below.respectively.
Future policy benefit reservesreserves.. 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 morbiditychanges in the future); mortality (i.e., life expectancy or longevity); mortality improvement (i.e., assumeddiscount rate that mortality is expected to reduce over time); policyholder persistency or lapses (i.e., the length of time a policy will remainassumption used 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 future filings through 2028, on long-term care insurance policies; and interest rates. Assumptions are locked-in throughout the remaining life of a contract unless aour annual 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 claim, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss estimates with the support of qualified actuaries, and any changes are recorded in earningstesting performed in the periodthird quarter across our run-off insurance portfolio may be required. A lower discount rate, holding all other assumptions constant, will result in which they are determined.
Reinsurance recoverables. We cede insurance risk to third-party reinsurers for a portion ofan increase in our insurance contracts, primarily on long-term care insurance policies, and record receivables 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 and claim reserves. Reserves ceded to reinsurers, net of allowance, were $2.4 billion and $2.3 billion at September 30, 2019 and December 31, 2018, respectively, and are included in the caption “Other GE Capital receivables” on our consolidated Statement of Financial Position.
Premium Deficiency Testing. We annually perform premium deficiency testing in the third quarter in the aggregate 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 without provision for 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 operations consists of reinsurance from multiple ceding insurance entities pursuant to treaties having complex terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers the 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 from the 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 future experience deviates from current expectations, new projections of claim costs extending over the expected life of the policies may be required. Significant uncertainties exist in making projections for these long-term care insurance contracts, which requires that we consider a wide range of possible outcomes.
The primary assumptions used in the premium 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 expected 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 benefit 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 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 our 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 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 benefit reserves are based on expected investment yields, net of related investment expenses and expected defaults. In estimating future 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 yields result inGAAP basis. Furthermore, a lower discount rate and a higher present valuemay be required under statutory asset adequacy testing that is relevant for determining the amount of future policy benefit reserves.capital to be contributed to our insurance subsidiaries.
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, as we have no ability to seek or to institute such 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.
Terminations. Terminations refers to the rate at which the underlying policy is 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. Our internal claim experience has been consistent with those reconstructed projections, although the extent of actual experience since 2017 to date is limited in the context of a long-tailed, multi-decade portfolio.
2019 Premium Deficiency Testing. We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. These procedures included updating experience studies since our last test completed in the fourth quarter of 2018, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency in 2018, our 2019 premium deficiency testing started with a zero margin and, accordingly, any net adverse development would result in a future charge to earnings. Using our most recent future policy benefit reserve assumptions, including changes to our assumptions related to discount rate and future premium rate increases, as described below, we identified a premium deficiency resulting in a $1.0 billion pre-tax charge to earnings in the third quarter 2019. The increase to future policy benefit reserves resulting from our 2019 testing was primarily attributable to the following key assumption changes:
We have observed a significant decline in market interest rates this year, which has resulted in a lower discount rate and adversely impacted our reserve margin by $1.3 billion. As noted above, ourGAAP discount rate is based upon the actual yields on our investment portfolio and our forecasted reinvestment rates, which comprise the future rates at which we expect to invest proceeds from investment maturities, net of operating cash flows, and projected future capital contributions. Market interest rates have declined by approximately 130 basis points since our 2018 premium deficiency test, with 60 basis points of this reduction occurring since the second quarter 2019. Although the movement in market rates impacts the reinvestment rate, it does not materially impact the actual yield on our existing investments. Furthermore, our assumedWhile credit spreads on fixed-income securities widened during the quarter, benchmark interest rates in the U.S. have been lowered which may impact other discount rate assumptions, including the period over which the reinvestment rate on future fixed income investments is based both on current expected long-term average rates and market interest rates. Thus, a decline in market interest rates will not result in an equivalent decline in our discount rate assumption. Our discount rate assumption for purposes of performingincreases to the premium deficiency assessment resulted in a weighted average rate of 5.74% compared to 6.04% in 2018. This decline in the discount rate from 2018 to 2019 reflected a lower reinvestment rate increasing to an expected long-term average investment yield over a longer period, lower prospectiveand the expected long-term average investment yield (including changes to expected default rates). Furthermore, expected returns on higher yielding assetsasset classes introduced with our 2018 strategic initiatives, and slightly lower actual yieldsmay change.
For further information on our investment security portfolio.
Higher levels of projected long-term care premium rate increases due to larger rate filings by some ceding companies than previously planned, which favorably impacted our reserve margin by $0.3 billion. Since our premium deficiency testing performed in 2018, we have implemented approximately $0.2 billion of previously approved rate increase actions. Our 2019 premium deficiency test includes approximately $2.0 billion of anticipated future premium increases or benefit reductions associated with future in-force rate actions. This represents an increase of $0.3 billion from our 2018 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 effect of the loweroverall discount rate, mentioned above.
As noted above, our observed claim experiencereinvestment rate and mortality assumptions, refer to the GAAP Reserve Sensitivities included in the period since the 2017 reconstructionOther Items within MD&A of our future claim cost projections has been consistent with those projections. BasedAnnual Report on Form 10-K for the application of professional actuarial judgment to the factors discussed above, we have made no substantial change to our assumptions concerning morbidity, morbidity improvement, mortality, mortality improvement, or terminations inyear ended December 31, 2019.
As with all assumptions underlying our premium deficiency testing, we will continue to monitor these factors, whichInvestments. Our investment security portfolio may resultexperience higher gross unrealized losses, downgrades in future changes in our assumptions.
GAAP Reserve Sensitivities. The results of our premium deficiency testing are sensitive to the assumptions described above. Certain future adverse changes in our assumptions could result in the unlocking of reserves, resetting of actuarial assumptions to current assumptions, an increase to future policy benefit reservescredit ratings and a charge to earnings. Considering the results of the 2019 premium deficiency test which reset our margin to zero, any future net adverse changes in our assumptions willhigher default rates and result in an increase to future policy benefit reserves. For example, adverse changes in key assumptions to our future policy benefits reserves, holding all other assumptions constant, would have the following effects as presented in the table below. Any favorable changes to these assumptions could result in 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.
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| 2018 assumption | 2019 assumption | Hypothetical change in 2019 assumption | Estimated increase to future policy benefit reserves (In billions, 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 | $0.7 $3.7 |
Long-term care insurance morbidity | Based on company experience | Based on company experience | 5% increase in dollar amount of paid claims | $1.1 |
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 | $0.4 |
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% | $1.0 |
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 | $0.5 |
Discount rate: | | | | |
Overall discount rate | 6.04% | 5.74% | 25 basis point reduction | $1.0 |
Reinvestment rate | 4.35%; grading to a long-term average investment yield of 6.0% | 3.05%; grading to a long-term average investment yield of 5.9% | 25 basis point reduction; grading to long-term investment yield of 5.9% | Less than $0.1 |
Structured settlement annuity mortality | Based on company experience | Based on company experience | 5% decrease in mortality | $0.1 |
Life insurance mortality | Based on company experience | Based on company experience | 5% increase in mortality | $0.3 |
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 ofallowance for losses on assets supporting our insurance legal entities. We annually perform statutory asset adequacy testing and expect our next testing process to be completed in the first quarter of 2020, the results of which may affect the amount or timing of capital contributions from GE Capital to the insurance legal entities.
liabilities. See Other Items - New Accounting Standards and Note 123 to the consolidated financial statements and Other Items within MD&Afor further information about our investment securities.
PENSION ASSUMPTIONS.As discussed in Critical Accounting Estimates in our Annual Report on Form 10-K for the year ended December 31, 20182019, our defined benefit pension plans are accounted for further information.on an actuarial basis and measured annually as of December 31. Accounting for defined benefit plans requires the selection of certain assumptions and actual results in any given year will often differ from actuarial assumptions because of economic or other factors.
During the first quarter 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 measure 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 high-quality fixed incomes securities have widened.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, 3Q FORM 10-Q 31
changes in key assumptions for our principal pension plans would have the following effects. |
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MD&A | 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 - A 50 basis point decrease in the expected return on assets would increase pension cost in the following year by about $0.3 billion.
OTHER ITEMS | |
NEW ACCOUNTING STANDARDS. In August 2018, theThe Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. In October 2019, the FASB affirmed its decision to defer the with an effective date tofor periods beginning after December 31, 2021, with an election to adopt early. We are evaluating the effect of the standard on our consolidated financial statements and anticipate that its adoption will significantly change the accounting for measurements of our long-duration insurance liabilities. The ASU requires cash flow assumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidence indicates previous assumptions need to be revised with any required changes recorded in earnings. Under the current accounting guidance, the discount rate is 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 will materially affect our financial statements. As the ASU is only applicable to the measurements of our long-duration insurance liabilities under GAAP, it will not affect the accounting for our insurance reserves or the levels of capital and surplus under statutory accounting practices.
In June 2016, the FASB issued ASU No. 2016-13,2020 1Q FORM 10-Q Financial Instruments - Credit Losses23. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables, as well as reinsurance recoverables at GE Capital's run-off insurance operations and is effective for fiscal years beginning after December 15, 2019. The standard will be applied prospectively with an adjustment to retained earnings. We continue to evaluate the effect of the standard on our consolidated financial statements, however do not expect the ASU to have a material effect on our financial statements.
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MD&A | NON-GAAP FINANCIAL MEASURES |
OUR EMPLOYEES AND EMPLOYEE RELATIONS. In August 2019, most of GE's U.S. unions, including the Industrial Division of the Communications Workers of America (IUE-CWA), ratified new four-year labor agreements to replace the current agreements.
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 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 interpreted differently by other companies under different circumstances. In various sections of this report we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically GE Industrial segment organic revenues;revenues by segment; BioPharma organic revenues, GE Industrial organic revenues, and GE Industrial equipment and services organic revenues (2) profit, specifically GE Industrial segment organic profit;profit and profit margin by segment; BioPharma organic profit and profit margin, Adjusted GE Industrial profit and profit margin (excluding certain items); Adjusted GE Industrial organic profit and profit margin; Adjusted earnings (loss); and Adjusted earnings (loss) per share (EPS), (3) cash flows, specifically GE Industrial free cash flows (FCF), and (4) debt balances, specifically GE Industrial net debt.
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
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GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | Revenues | | Segment profit (loss) | | Profit margin |
Three months ended March 31 (In millions) | | 2020 |
| | 2019 |
| | V% |
| | 2020 |
| | 2019 |
| | V% |
| | 2020 |
| | 2019 |
| V pts |
| | | | | | | | | | | | | | | | | |
Power (GAAP) | | $ | 4,025 |
| | $ | 4,617 |
| | (13 | )% | | $ | (129 | ) | | $ | 110 |
| | U |
| | (3.2 | )% | | 2.4 | % | (5.6)pts |
Less: acquisitions | | 16 |
| | — |
| | | | 2 |
| | — |
| | | | | | | |
Less: business dispositions | | 15 |
| | 35 |
| | | | 2 |
| | — |
| | | | | | | |
Less: foreign currency effect | | (46 | ) | | — |
| | | | 2 |
| | — |
| | | | | | | |
Power organic (Non-GAAP) | | $ | 4,040 |
| | $ | 4,583 |
| | (12 | )% | | $ | (135 | ) | | $ | 110 |
| | U |
| | (3.3 | )% | | 2.4 | % | (5.7)pts |
| | | | | | | | | | | | | | | | | |
Renewable Energy (GAAP) | | $ | 3,194 |
| | $ | 2,538 |
| | 26 | % | | $ | (302 | ) | | $ | (187 | ) | | (61 | )% | | (9.5 | )% | | (7.4 | )% | (2.1)pts |
Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: foreign currency effect | | (64 | ) | | — |
| | | | 7 |
| | — |
| | | | | | | |
Renewable Energy organic (Non-GAAP) | | $ | 3,258 |
| | $ | 2,538 |
| | 28 | % | | $ | (310 | ) | | $ | (187 | ) | | (66 | )% | | (9.5 | )% | | (7.4 | )% | (2.1)pts |
| | | | | | | | | | | | | | | | | |
Aviation (GAAP) | | $ | 6,892 |
| | $ | 7,954 |
| | (13 | )% | | $ | 1,005 |
| | $ | 1,660 |
| | (39 | )% | | 14.6 | % | | 20.9 | % | (6.3)pts |
Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions | | 13 |
| | 180 |
| | | | (2 | ) | | 19 |
| | | | | | | |
Less: foreign currency effect | | (2 | ) | | — |
| | | | 4 |
| | — |
| | | | | | | |
Aviation organic (Non-GAAP) | | $ | 6,882 |
| | $ | 7,774 |
| | (11 | )% | | $ | 1,003 |
| | $ | 1,641 |
| | (39 | )% | | 14.6 | % | | 21.1 | % | (6.5)pts |
| | | | | | | | | | | | | | | | | |
Healthcare (GAAP) | | $ | 4,727 |
| | $ | 4,683 |
| | 1 | % | | $ | 896 |
| | $ | 781 |
| | 15 | % | | 19.0 | % | | 16.7 | % | 2.3pts |
Less: acquisitions | | 14 |
| | 21 |
| | | | — |
| | (4 | ) | | | | | | | |
Less: business dispositions | | — |
| | 3 |
| | | | — |
| | (32 | ) | | | | | | | |
Less: foreign currency effect | | (52 | ) | | — |
| | | | (5 | ) | | — |
| | | | | | | |
Healthcare organic (Non-GAAP) | | $ | 4,765 |
| | $ | 4,659 |
| | 2 | % | | $ | 901 |
| | $ | 817 |
| | 10 | % | | 18.9 | % | | 17.5 | % | 1.4pts |
| | | | | | | | | | | | | | | | | |
Less: BioPharma organic (Non-GAAP) | | 839 |
| | 762 |
| | | | 380 |
| | 311 |
| | | | | | | |
Healthcare excluding BioPharma organic (Non-GAAP) | | $ | 3,926 |
| | $ | 3,897 |
| | 1 | % | | $ | 521 |
| | $ | 506 |
| | 3 | % | | 13.3 | % | | 13.0 | % | 0.3pts |
| | | | | | | | | | | | | | | | | |
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. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BIOPHARMA ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN (NON-GAAP) |
| | Revenues | | Segment profit (loss) | | Profit margin |
Three months ended March 31 (In millions) | | 2020 |
| | 2019 |
| | V% |
| | 2020 |
| | 2019 |
| | V% |
| | 2020 |
| | 2019 |
| V pts |
|
| | | | | | | | | | | | | | | | | |
BioPharma (GAAP) | | $ | 830 |
| | $ | 765 |
| | 9 | % | | $ | 382 |
| | $ | 312 |
| | 22 | % | | 46.0 | % | | 40.8 | % | 5.2 | pts |
Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions | | — |
| | 3 |
| | | | — |
| | 1 |
| | | | | | | |
Less: foreign currency effect | | (9 | ) | | — |
| | | | 2 |
| | — |
| | | | | | | |
BioPharma organic (Non-GAAP) | | $ | 839 |
| | $ | 762 |
| | 10 | % | | $ | 380 |
| | $ | 311 |
| | 22 | % | | 45.3 | % | | 40.8 | % | 4.5 | pts |
*Non-GAAP Financial Measure
3224 2019 3Q2020 1Q FORM 10-Q
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | Revenue | | Segment profit (loss) | | Profit margin |
Three months ended September 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | |
Power (GAAP) | | $ | 3,926 |
| | $ | 4,559 |
| | (14 | )% | | $ | (144 | ) | | $ | (676 | ) | | 79 | % | | (3.7 | )% | | (14.8 | )% | 11.1pts |
Less: acquisitions | | 3 |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 1 |
| | 446 |
| | | | 2 |
| | 69 |
| | | | | | | |
Less: foreign currency effect | | (68 | ) | | — |
| | | | — |
| | — |
| | | | | | | |
Power organic (Non-GAAP) | | $ | 3,990 |
| | $ | 4,113 |
| | (3 | )% | | $ | (145 | ) | | $ | (745 | ) | | 81 | % | | (3.6 | )% | | (18.1 | )% | 14.5pts |
| | | | | | | | | | | | | | | | | |
Renewable Energy (GAAP) | | $ | 4,425 |
| | $ | 3,920 |
| | 13 | % | | $ | (98 | ) | | $ | 116 |
| | U |
| | (2.2 | )% | | 3.0 | % | (5.2)pts |
Less: acquisitions | | 1 |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: foreign currency effect | | (69 | ) | | — |
| | | | 5 |
| | — |
| | | | | | | |
Renewable Energy organic (Non-GAAP) | | $ | 4,492 |
| | $ | 3,920 |
| | 15 | % | | $ | (103 | ) | | $ | 117 |
| | U |
| | (2.3 | )% | | 3.0 | % | (5.3)pts |
| | | | | | | | | | | | | | | | | |
Aviation (GAAP) | | $ | 8,109 |
| | $ | 7,480 |
| | 8 | % | | $ | 1,718 |
| | $ | 1,665 |
| | 3 | % | | 21.2 | % | | 22.3 | % | (1.1)pts |
Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 25 |
| | 117 |
| | | | 6 |
| | 17 |
| | | | | | | |
Less: foreign currency effect | | (3 | ) | | — |
| | | | 5 |
| | — |
| | | | | | | |
Aviation organic (Non-GAAP) | | $ | 8,086 |
| | $ | 7,363 |
| | 10 | % | | $ | 1,707 |
| | $ | 1,648 |
| | 4 | % | | 21.1 | % | | 22.4 | % | (1.3)pts |
| | | | | | | | | | | | | | | | | |
Healthcare (GAAP) | | $ | 4,923 |
| | $ | 4,707 |
| | 5 | % | | $ | 974 |
| | $ | 861 |
| | 13 | % | | 19.8 | % | | 18.3 | % | 1.5pts |
Less: acquisitions | | 22 |
| | — |
| | | | (8 | ) | | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 2 |
| | 14 |
| | | | 15 |
| | (9 | ) | | | | | | | |
Less: foreign currency effect | | (43 | ) | | — |
| | | | 10 |
| | — |
| | | | | | | |
Healthcare organic (Non-GAAP) | | $ | 4,942 |
| | $ | 4,693 |
| | 5 | % | | $ | 957 |
| | $ | 870 |
| | 10 | % | | 19.4 | % | | 18.5 | % | 0.9pts |
| | | | | | | | | | | | | | | | | |
GE Industrial segment (GAAP) | | 21,383 |
| | 20,665 |
| | 3 | % | | 2,450 |
| | 1,967 |
| | 25 | % | | 11.5 | % | | 9.5 | % | 2.0pts |
Less: acquisitions | | 27 |
| | — |
| | | | (9 | ) | | — |
| | | | | | | |
Less: business dispositions | | 28 |
| | 577 |
| | | | 23 |
| | 77 |
| | | | | | | |
Less: foreign currency effect | | (183 | ) | | — |
| | | | 20 |
| | — |
| | | | | | | |
GE Industrial segment organic (Non-GAAP) | | 21,510 |
| | 20,088 |
| | 7 | % | | 2,417 |
| | 1,890 |
| | 28 | % | | 11.2 | % | | 9.4 | % | 1.8pts |
| | | | | | | | | | | | | | | | | |
We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
|
| | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES (NON-GAAP) | Three months ended March 31 |
(In millions) | 2020 |
| 2019 |
| V% |
|
| | | |
GE Industrial revenues (GAAP) | $ | 18,844 |
| $ | 20,324 |
| (7 | )% |
Adjustments: | | | |
Less: acquisitions | 42 |
| 21 |
| |
Less: business dispositions(a) | 28 |
| 380 |
| |
Less: foreign currency effect(b) | (166 | ) | — |
| |
GE Industrial organic revenues (Non-GAAP) | $ | 18,941 |
| $ | 19,923 |
| (5 | )% |
| | | |
Less: BioPharma organic revenue (Non-GAAP) | 839 |
| 762 |
| |
GE Industrial organic revenues excluding BioPharma organic revenues (Non-GAAP) | $ | 18,101 |
| $ | 19,162 |
| (6 | )% |
| | | |
(a) Dispositions impact in 2019 primarily related to our Aviation business including the Middle River and Hamble site dispositions, with revenues of $125 million and $55 million, respectively, and Current within our Corporate segment, with revenues of $155 million. (b) Foreign currency impact 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. |
|
| | | | | | | | | | | | | | | | | |
GE INDUSTRIAL EQUIPMENT AND SERVICES ORGANIC | Three months ended March 31 |
REVENUES (NON-GAAP) | Equipment | | Services |
(In millions) | 2020 |
| 2019 |
| V% |
| | 2020 |
| 2019 |
| V% |
|
| | | | | | | |
GE Industrial revenues (GAAP) | $ | 9,177 |
| $ | 9,608 |
| (4 | )% | | $ | 9,668 |
| $ | 10,716 |
| (10 | )% |
Adjustments: | | | | | | | |
Less: acquisitions | 11 |
| — |
| | | 31 |
| 21 |
| |
Less: business dispositions | 11 |
| 314 |
| | | 18 |
| 66 |
| |
Less: foreign currency effect | (111 | ) | — |
| | | (55 | ) | — |
| |
GE Industrial organic revenues (Non-GAAP) | $ | 9,266 |
| $ | 9,294 |
| — | % | | $ | 9,674 |
| $ | 10,629 |
| (9 | )% |
| | | | | | | |
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. |
|
| | | | | | |
ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN | Three months ended March 31 |
(EXCLUDING CERTAIN ITEMS) (NON-GAAP) (In millions) | 2020 |
| 2019 |
|
| | |
GE total revenues (GAAP) | $ | 18,844 |
| $ | 20,324 |
|
| | |
Costs | | |
GE total costs and expenses (GAAP) | $ | 19,133 |
| $ | 20,101 |
|
Less: GE interest and other financial charges | 370 |
| 520 |
|
Less: non-operating benefit costs | 616 |
| 564 |
|
Less: restructuring & other(a) | 207 |
| 267 |
|
Add: noncontrolling interests | 36 |
| 23 |
|
Adjusted GE Industrial costs (Non-GAAP) | $ | 17,976 |
| $ | 18,773 |
|
| | |
Other Income | | |
GE other income (GAAP) | $ | 6,874 |
| $ | 852 |
|
Less: unrealized gains (losses)(b) | (5,794 | ) | 13 |
|
Less: restructuring & other | — |
| 9 |
|
Less: gains (losses) and impairments for disposed or held for sale businesses(b) | 12,439 |
| 365 |
|
Adjusted GE other income (Non-GAAP) | $ | 228 |
| $ | 465 |
|
| | |
GE Industrial profit (GAAP) | $ | 6,585 |
| $ | 1,076 |
|
GE Industrial profit margin (GAAP) | 34.9 | % | 5.3 | % |
| | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 1,096 |
| $ | 2,017 |
|
Adjusted GE Industrial profit margin (Non-GAAP) | 5.8 | % | 9.9 | % |
| | |
(a) See the Corporate Items and Eliminations - Restructuring section for further information. |
(b) 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. |
*Non-GAAP Financial Measure
2019 3Q2020 1Q FORM 10-Q 3325
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | Revenue | | Segment profit (loss) | | Profit margin |
Nine months ended September 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | |
Power (GAAP) | | $ | 13,224 |
| | $ | 16,768 |
| | (21 | )% | | $ | 84 |
| | $ | (22 | ) | | F |
| | 0.6 | % | | (0.1 | )% | 0.7pts |
Less: acquisitions | | 22 |
| | — |
| | | | (3 | ) | | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 10 |
| | 2,621 |
| | | | (2 | ) | | 226 |
| | | | | | | |
Less: foreign currency effect | | (444 | ) | | — |
| | | | 36 |
| | — |
| | | | | | | |
Power organic (Non-GAAP) | | $ | 13,635 |
| | $ | 14,147 |
| | (4 | )% | | $ | 52 |
| | $ | (249 | ) | | F |
| | 0.4 | % | | (1.8 | )% | 2.2pts |
| | | | | | | | | | | | | | | | | |
Renewable Energy (GAAP) | | $ | 10,590 |
| | $ | 9,642 |
| | 10 | % | | $ | (469 | ) | | $ | 312 |
| | U |
| | (4.4 | )% | | 3.2 | % | (7.6)pts |
Less: acquisitions | | 3 |
| | — |
| | | | 6 |
| | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | — |
| | — |
| | | | — |
| | (2 | ) | | | | | | | |
Less: foreign currency effect | | (437 | ) | | — |
| | | | 54 |
| | — |
| | | | | | | |
Renewable Energy organic (Non-GAAP) | | $ | 11,024 |
| | $ | 9,642 |
| | 14 | % | | $ | (528 | ) | | $ | 315 |
| | U |
| | (4.8 | )% | | 3.3 | % | (8.1)pts |
| | | | | | | | | | | | | | | | | |
Aviation (GAAP) | | $ | 23,940 |
| | $ | 22,111 |
| | 8 | % | | $ | 4,764 |
| | $ | 4,743 |
| | — | % | | 19.9 | % | | 21.5 | % | (1.6)pts |
Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 25 |
| | 222 |
| | | | 6 |
| | 32 |
| | | | | | | |
Less: foreign currency effect | | (19 | ) | | — |
| | | | 24 |
| | — |
| | | | | | | |
Aviation organic (Non-GAAP) | | $ | 23,933 |
| | $ | 21,889 |
| | 9 | % | | $ | 4,734 |
| | $ | 4,711 |
| | — | % | | 19.8 | % | | 21.5 | % | (1.7)pts |
| | | | | | | | | | | | | | | | | |
Healthcare (GAAP) | | $ | 14,540 |
| | $ | 14,387 |
| | 1 | % | | $ | 2,714 |
| | $ | 2,522 |
| | 8 | % | | 18.7 | % | | 17.5 | % | 1.2pts |
Less: acquisitions | | 62 |
| | — |
| | | | (18 | ) | | — |
| | | | | | | |
Less: business dispositions (other than dispositions acquired for investment) | | 2 |
| | 231 |
| | | | (27 | ) | | 42 |
| | | | | | | |
Less: foreign currency effect | | (313 | ) | | — |
| | | | 9 |
| | — |
| | | | | | | |
Healthcare organic (Non-GAAP) | | $ | 14,789 |
| | $ | 14,156 |
| | 4 | % | | $ | 2,750 |
| | $ | 2,480 |
| | 11 | % | | 18.6 | % | | 17.5 | % | 1.1pts |
| | | | | | | | | | | | | | | | | |
GE Industrial segment (GAAP) | | 62,293 |
| | 62,908 |
| | (1 | )% | | 7,092 |
| | 7,555 |
| | (6 | )% | | 11.4 | % | | 12.0 | % | (0.6)pts |
Less: acquisitions | | 87 |
| | — |
| | | | (15 | ) | | — |
| | | | | | | |
Less: business dispositions | | 38 |
| | 3,074 |
| | | | (24 | ) | | 298 |
| | | | | | | |
Less: foreign currency effect | | (1,213 | ) | | — |
| | | | 123 |
| | — |
| | | | | | | |
GE Industrial segment organic (Non-GAAP) | | 63,381 |
| | 59,834 |
| | 6 | % | | 7,007 |
| | 7,257 |
| | (3 | )% | | 11.1 | % | | 12.1 | % | (1.0)pts |
| | | | | | | | | | | | | | | | | |
We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
|
| | | | | | | | |
ADJUSTED GE INDUSTRIAL ORGANIC PROFIT | Three months ended March 31 |
(NON-GAAP) (In millions) | 2020 |
| 2019 |
| V% |
| | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 1,096 |
| $ | 2,017 |
| (46) | % |
Adjustments: | | | |
Less: acquisitions | 2 |
| (4 | ) |
|
|
Less: business dispositions | (1 | ) | (21 | ) |
|
|
Less: foreign currency effect | 11 |
| — |
|
|
|
Adjusted GE Industrial organic profit (Non-GAAP) | $ | 1,084 |
| $ | 2,041 |
| (47) | % |
| | | |
Adjusted GE Industrial profit margin (Non-GAAP) | 5.8 | % | 9.9 | % | (410) bps |
|
Adjusted GE Industrial organic profit margin (Non-GAAP) | 5.7 | % | 10.2 | % | (450) bps |
|
| | | |
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. |
|
| | | | | | | | |
ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended March 31 |
(In millions) | 2020 |
| 2019 |
| V% |
|
| | | |
Consolidated earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | $ | 6,332 |
| $ | 920 |
| F |
|
Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | (30 | ) | 135 |
| |
GE Industrial earnings (loss) (Non-GAAP) | 6,362 |
| 785 |
| F |
|
Non-operating benefits costs (pre-tax) (GAAP) | (616 | ) | (564 | ) | |
Tax effect on non-operating benefit costs | 129 |
| 118 |
| |
Less: non-operating benefit costs (net of tax) | (487 | ) | (446 | ) | |
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)(a) | 12,439 |
| 365 |
| |
Tax effect on gains (losses) and impairments for disposed or held for sale businesses | (1,265 | ) | 35 |
| |
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 11,174 |
| 400 |
| |
Restructuring & other (pre-tax)(b) | (207 | ) | (258 | ) | |
Tax effect on restructuring & other | 43 |
| 53 |
| |
Less: restructuring & other (net of tax) | (164 | ) | (205 | ) | |
Unrealized gains (losses)(a) | (5,794 | ) | 13 |
| |
Tax on unrealized gains (losses) | 1,096 |
| (3 | ) | |
Less: unrealized gains (losses) | (4,697 | ) | 10 |
| |
BioPharma deal expense (pre-tax) | — |
| — |
| |
Tax on BioPharma deal expense | — |
| (14 | ) | |
Less: BioPharma deal expense (net of tax) | — |
| (14 | ) | |
Less: GE Industrial U.S. tax reform enactment adjustment | — |
| (101 | ) | |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 536 |
| $ | 1,140 |
| (53 | )% |
| | | |
GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | (30 | ) | 135 |
| U |
|
Less: GE Capital U.S. tax reform enactment adjustment | — |
| 99 |
| |
Less: GE Capital tax benefit related to BioPharma sale | 88 |
| — |
| |
Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | (118 | ) | $ | 36 |
| U |
|
| | | |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 536 |
| $ | 1,140 |
| (53 | )% |
Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | (118 | ) | 36 |
| U |
|
Adjusted earnings (loss) (Non-GAAP) | $ | 418 |
| $ | 1,177 |
| (64 | )% |
| | | |
(a) See the Corporate Items and Eliminations section for further information. |
(b) See the Corporate Items and Eliminations - Restructuring section for further information. |
*Non-GAAP Financial Measure
3426 2019 3Q2020 1Q FORM 10-Q
|
| | |
MD&A | NON-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) (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
GE total revenues (GAAP) | $ | 21,519 |
| $ | 21,273 |
| | $ | 63,259 |
| $ | 64,601 |
|
| | | | | |
Costs | | | | | |
GE total costs and expenses (GAAP) | $ | 22,128 |
| $ | 44,566 |
| | $ | 64,201 |
| $ | 87,001 |
|
Less: GE interest and other financial charges | 791 |
| 590 |
| | 1,693 |
| 1,773 |
|
Less: non-operating benefit costs | 562 |
| 760 |
| | 1,684 |
| 2,132 |
|
Less: restructuring & other | 322 |
| 1,412 |
| | 933 |
| 2,230 |
|
Less: goodwill impairments | 740 |
| 21,973 |
| | 1,484 |
| 21,973 |
|
Add: noncontrolling interests | (5 | ) | (139 | ) | | 17 |
| (130 | ) |
Adjusted GE Industrial costs (Non-GAAP) | $ | 19,708 |
| $ | 19,691 |
| | $ | 58,423 |
| $ | 58,762 |
|
| | | | | |
Other Income | | | | | |
GE other income (GAAP) | $ | 153 |
| $ | 274 |
| | $ | 1,177 |
| $ | 1,350 |
|
Less: unrealized gains (losses) | (86 | ) | (73 | ) | | (125 | ) | 193 |
|
Less: restructuring & other | — |
| (80 | ) | | 9 |
| (113 | ) |
Less: gains (losses) and impairments for disposed or held for sale businesses | (97 | ) | 207 |
| | 153 |
| 470 |
|
Adjusted GE other income (Non-GAAP) | 336 |
| 220 |
| | 1,140 |
| 800 |
|
| | | | | |
GE Industrial profit (GAAP) | $ | (456 | ) | $ | (23,019 | ) | | $ | 236 |
| $ | (21,050 | ) |
GE Industrial profit margin (GAAP) | (2.1 | )% | (108.2 | )% | | 0.4 | % | (32.6 | )% |
| | | | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 2,147 |
| $ | 1,801 |
| | $ | 5,976 |
| $ | 6,639 |
|
Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 8.5 | % | | 9.4 | % | 10.3 | % |
| | | | | |
We believe that GE Industrial profit and profit margins adjusted for the items included in the above reconciliation are meaningful measures because they increase the comparability of period-to-period results. |
|
| | | | | | | | |
ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) | Three months ended March 31 |
(NON-GAAP) | 2020 |
| 2019 |
| V% |
|
| | | |
Consolidated EPS from continuing operations attributable to GE common shareholders (GAAP) | $ | 0.72 |
| $ | 0.10 |
| F |
|
Less: GE Capital EPS from continuing operations attributable to GE common shareholders (GAAP) | — |
| 0.02 |
| |
GE Industrial EPS (Non-GAAP) | 0.73 |
| 0.09 |
| F |
|
Non-operating benefits costs (pre-tax) (GAAP) | (0.07 | ) | (0.06 | ) | |
Tax effect on non-operating benefit costs | 0.01 |
| 0.01 |
| |
Less: non-operating benefit costs (net of tax) | (0.06 | ) | (0.05 | ) | |
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)(a) | 1.42 |
| 0.04 |
| |
Tax effect on gains (losses) and impairments for disposed or held for sale businesses | (0.14 | ) | — |
| |
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 1.28 |
| 0.04 |
| |
Restructuring & other (pre-tax)(b) | (0.02 | ) | (0.03 | ) | |
Tax effect on restructuring & other | — |
| 0.01 |
| |
Less: restructuring & other (net of tax) | (0.02 | ) | (0.02 | ) | |
Unrealized gains (losses)(a) | (0.66 | ) | — |
| |
Tax on unrealized gains (losses) | 0.13 |
| — |
| |
Less: unrealized gains (losses) | (0.54 | ) | — |
| |
BioPharma deal expense (pre-tax) | — |
| — |
| |
Tax on BioPharma deal expense | — |
| — |
| |
Less: BioPharma deal expense (net of tax) | — |
| — |
| |
Less: GE Industrial U.S. tax reform enactment adjustment | — |
| (0.01 | ) | |
Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.06 |
| $ | 0.13 |
| (54 | )% |
| | | |
GE Capital EPS from continuing operations attributable to GE common shareholders (GAAP) | — |
| 0.02 |
| (100 | )% |
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 | ) | $ | — |
| U |
|
| | | |
Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.06 |
| $ | 0.13 |
| (54 | )% |
Add: Adjusted GE Capital EPS (Non-GAAP) | (0.01 | ) | — |
| U |
|
Adjusted EPS (Non-GAAP) | $ | 0.05 |
| $ | 0.13 |
| (62 | )% |
| | | |
(a) See the Corporate Items and Eliminations section for further information. |
(b) See the Corporate Items and Eliminations - Restructuring section for further information. |
Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
The service cost for our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe 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 ORGANIC REVENUES (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
(In millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
GE Industrial revenues (GAAP) | $ | 21,519 |
| $ | 21,273 |
| 1 | % | | $ | 63,259 |
| $ | 64,601 |
| (2 | )% |
Adjustments: | — |
| — |
| | | — |
| — |
| |
Less: acquisitions | 27 |
| — |
| | | 87 |
| — |
| |
Less: business dispositions | 28 |
| 837 |
| | | 45 |
| 3,697 |
| |
Less: foreign currency effect | (184 | ) | — |
| | | (1,226 | ) | — |
| |
GE Industrial organic revenues (Non-GAAP) | $21,648 | $20,435 | 6 | % | | $64,353 | $60,904 | 6 | % |
| | | | | | | |
We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. |
|
| | | | | | |
GE INDUSTRIAL FREE CASH FLOWS (FCF) (NON-GAAP) | Three months ended March 31 |
(In millions) | 2020 |
| 2019 |
|
| | |
GE CFOA (GAAP) | $ | (1,662 | ) | $ | (607 | ) |
Add: gross additions to property, plant and equipment | (504 | ) | (552 | ) |
Add: gross additions to internal-use software | (58 | ) | (66 | ) |
Less: taxes related to business sales | (17 | ) | (8 | ) |
GE Industrial free cash flows (Non-GAAP) | $ | (2,207 | ) | $ | (1,216 | ) |
| | |
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. |
|
| | | | | | | | | | | | | | | | | |
ADJUSTED GE INDUSTRIAL ORGANIC PROFIT | Three months ended September 30 | | Nine months ended September 30 |
(NON-GAAP) (In millions) | 2019 |
| 2018 |
| V% | | 2019 |
| 2018 |
| V% |
| | | | | | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 2,147 |
| $ | 1,801 |
| 19 | % | | $ | 5,976 |
| $ | 6,639 |
| (10 | )% |
Adjustments: | | | | | | | |
Less: acquisitions | (9 | ) | — |
|
|
| | (15 | ) | — |
|
|
|
Less: business dispositions | 23 |
| 85 |
|
|
| | (32 | ) | 284 |
|
|
|
Less: foreign currency effect | 25 |
| — |
|
|
| | 136 |
| — |
|
|
|
Adjusted GE Industrial organic profit (Non-GAAP) | $ | 2,108 |
| $ | 1,716 |
| 23 | % | | $ | 5,887 |
| $ | 6,355 |
| (7 | )% |
| | | | | | | |
Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 8.5 | % | 1.5pts |
| | 9.4 | % | 10.3 | % | 0.9pts |
|
Adjusted GE Industrial organic profit margin (Non-GAAP) | 9.7 | % | 8.4 | % | 1.3pts |
| | 9.1 | % | 10.4 | % | (1.3)pts |
|
| | | | | | | |
We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. |
*Non-GAAP Financial Measure
2019 3Q2020 1Q FORM 10-Q 3527
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | |
ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
(In millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | |
Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | (1,325 | ) | $ | (22,956 | ) | 94 | % | | $ | (707 | ) | $ | (21,947 | ) | 97 | % |
Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (645 | ) | 19 |
| | | (599 | ) | (403 | ) | |
GE Industrial earnings (loss) (Non-GAAP) | (680 | ) | (22,975 | ) | 97 | % | | (108 | ) | (21,544 | ) | 99 | % |
Non-operating benefits costs (pre-tax) (GAAP) | (562 | ) | (760 | ) | | | (1,684 | ) | (2,132 | ) | |
Tax effect on non-operating benefit costs | 118 |
| 160 |
| | | 354 |
| 448 |
| |
Less: non-operating benefit costs (net of tax) | (444 | ) | (601 | ) | | | (1,331 | ) | (1,684 | ) | |
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (97 | ) | 207 |
| | | 153 |
| 470 |
| |
Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | (34 | ) | (89 | ) | | | 3 |
| (194 | ) | |
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (130 | ) | 118 |
| | | 156 |
| 276 |
| |
Restructuring & other (pre-tax) | (322 | ) | (1,491 | ) | | | (924 | ) | (2,343 | ) | |
Tax effect on restructuring & other(a) | 68 |
| 315 |
| | | 208 |
| 272 |
| |
Less: restructuring & other (net of tax) | (254 | ) | (1,176 | ) | | | (716 | ) | (2,071 | ) | |
Goodwill impairments (pre-tax) | (740 | ) | (21,973 | ) | | | (1,484 | ) | (21,973 | ) | |
Tax effect on goodwill impairments(a) | — |
| (246 | ) | | | (55 | ) | (246 | ) | |
Less: goodwill impairments (net of tax) | (740 | ) | (22,220 | ) | | | (1,539 | ) | (22,220 | ) | |
Unrealized gains (losses) | (86 | ) | (73 | ) | | | (125 | ) | 193 |
| |
Tax on unrealized gains (losses) | 18 |
| 15 |
| | | 26 |
| (41 | ) | |
Less: unrealized gains (losses) | (68 | ) | (58 | ) | | | (98 | ) | 153 |
| |
Debt extinguishment costs | (255 | ) | — |
| | | (255 | ) | — |
| |
Tax effect on debt extinguishment costs | 53 |
| — |
| | | 53 |
| — |
| |
Less: debt extinguishment costs (net of tax) | (201 | ) | — |
| | | (201 | ) | — |
| |
Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (101 | ) | (55 | ) | |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,158 |
| $ | 961 |
| 20 | % | | $ | 3,722 |
| $ | 4,058 |
| (8 | )% |
| | | | | | | |
GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (645 | ) | 19 |
| U |
| | (599 | ) | (403 | ) | (49 | )% |
Insurance premium deficiency test charge (pre-tax) | (972 | ) | — |
| | | (972 | ) | — |
| |
Tax effect on insurance premium deficiency test charge(a) | 204 |
| — |
| | | 204 |
| — |
| |
Less: Insurance premium deficiency test charge (net of tax) | (768 | ) | — |
| | | (768 | ) | — |
| |
Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 99 |
| (45 | ) | |
Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | 123 |
| $ | 19 |
| F |
| | $ | 70 |
| $ | (358 | ) | F |
|
| | | | | | | |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,158 |
| $ | 961 |
| 20 | % | | $ | 3,722 |
| $ | 4,058 |
| (8 | )% |
Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | 123 |
| 19 |
| F |
| | 70 |
| (358 | ) | F |
|
Adjusted earnings (loss) (Non-GAAP) | $ | 1,282 |
| $ | 980 |
| 31 | % | | $ | 3,792 |
| $ | 3,699 |
| 3 | % |
| | | | | | | |
(a) The tax effect was calculated using a 21% U.S. federal statutory tax rate, based on its applicability to such cost. |
|
| | | | | | |
GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions) | March 31, 2020 |
| December 31, 2019 |
|
| | |
Total GE short- and long-term borrowings (GAAP) | $ | 48,132 |
| $ | 52,059 |
|
Less: GE Capital short- and long-term debt assumed by GE | 29,136 |
| 31,368 |
|
Add: intercompany loans from GE Capital | 12,226 |
| 12,226 |
|
Total adjusted GE borrowings | $ | 31,222 |
| $ | 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 | 3,266 |
| 3,369 |
|
GE preferred stock | 5,782 |
| 5,738 |
|
Less: 50% of GE preferred stock | 2,891 |
| 2,869 |
|
50% of preferred stock | $ | 2,891 |
| $ | 2,869 |
|
Deduction for total GE cash, cash equivalents and restricted cash | (33,810 | ) | (17,613 | ) |
Less: 25% of GE cash, cash equivalents and restricted cash | (8,453 | ) | (4,403 | ) |
Deduction for 75% of GE cash, cash equivalents and restricted cash | $ | (25,358 | ) | $ | (13,210 | ) |
Total GE Industrial net debt (Non-GAAP) | $ | 33,962 |
| $ | 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. |
*Non-GAAP Financial Measure
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES |
|
| | | | | | | | | | | | | | | | | |
ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) | Three months ended September 30 | | Nine months ended September 30 |
(NON-GAAP) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | |
Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | (0.15 | ) | $ | (2.64 | ) | 94 | % | | $ | (0.08 | ) | $ | (2.53 | ) | 97 | % |
Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.07 | ) | — |
| | | (0.07 | ) | (0.05 | ) | |
GE Industrial EPS (Non-GAAP) | $ | (0.08 | ) | $ | (2.64 | ) | 97 | % | | $ | (0.01 | ) | $ | (2.48 | ) | 100 | % |
Non-operating benefits costs (pre-tax) (GAAP) | (0.06 | ) | (0.09 | ) | | | (0.19 | ) | (0.25 | ) | |
Tax effect on non-operating benefit costs | 0.01 |
| 0.02 |
| | | 0.04 |
| 0.05 |
| |
Less: non-operating benefit costs (net of tax) | (0.05 | ) | (0.07 | ) | | | (0.15 | ) | (0.19 | ) | |
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (0.01 | ) | 0.02 |
| | | 0.02 |
| 0.05 |
| |
Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | — |
| (0.01 | ) | | | — |
| (0.02 | ) | |
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (0.01 | ) | 0.01 |
| | | 0.02 |
| 0.03 |
| |
Restructuring & other (pre-tax) | (0.04 | ) | (0.17 | ) | | | (0.11 | ) | (0.27 | ) | |
Tax effect on restructuring & other(a) | 0.01 |
| 0.04 |
| | | 0.02 |
| 0.03 |
| |
Less: restructuring & other (net of tax) | (0.03 | ) | (0.14 | ) | | | (0.08 | ) | (0.24 | ) | |
Goodwill impairments (pre-tax) | (0.08 | ) | (2.53 | ) | | | (0.17 | ) | (2.53 | ) | |
Tax effect on goodwill impairments(a) | — |
| (0.03 | ) | | | (0.01 | ) | (0.03 | ) | |
Less: goodwill impairments (net of tax) | (0.08 | ) | (2.56 | ) | | | (0.18 | ) | (2.56 | ) | |
Unrealized gains (losses) | (0.01 | ) | (0.01 | ) | | | (0.01 | ) | 0.02 |
| |
Tax on unrealized gains (losses) | — |
| — |
| | | — |
| — |
| |
Less: unrealized gains (losses) | (0.01 | ) | (0.01 | ) | | | (0.01 | ) | 0.02 |
| |
Debt extinguishment costs | (0.03 | ) | — |
| | | (0.03 | ) | — |
| |
Tax effect on debt extinguishment costs | 0.01 |
| — |
| | | 0.01 |
| — |
| |
Less: debt extinguishment costs (net of tax) | (0.02 | ) | — |
| | | (0.02 | ) | — |
| |
Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (0.01 | ) | (0.01 | ) | |
Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.11 |
| 18 | % | | $ | 0.43 |
| $ | 0.47 |
| (9 | )% |
| | | | | | | |
GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.07 | ) | — |
| U |
| | (0.07 | ) | (0.05 | ) | (40 | )% |
Insurance premium deficiency test charge (pre-tax) | (0.11 | ) | — |
| | | (0.11 | ) | — |
| |
Tax effect on insurance premium deficiency test charge(a) | 0.02 |
| — |
| | | 0.02 |
| — |
| |
Less: Insurance premium deficiency test charge (net of tax) | (0.09 | ) | — |
| | | (0.09 | ) | — |
| |
Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 0.01 |
| (0.01 | ) | |
Adjusted GE Capital EPS (Non-GAAP) | $ | 0.01 |
| $ | — |
| F |
| | $ | 0.01 |
| $ | (0.04 | ) | F |
|
| | | | | | | |
Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.11 |
| 18 | % | | $ | 0.43 |
| $ | 0.47 |
| (9 | )% |
Add: Adjusted GE Capital EPS (Non-GAAP) | 0.01 |
| — |
| F |
| | 0.01 |
| (0.04 | ) | F |
|
Adjusted EPS (Non-GAAP) | $ | 0.15 |
| $ | 0.11 |
| 36 | % | | $ | 0.43 |
| $ | 0.42 |
| 2 | % |
| | | | | | | |
(a) The tax effect was calculated using a 21% U.S. federal statutory tax rate, based on its applicability to such cost. |
Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
The service cost for our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe that the retained costs in Adjusted earnings and EPS* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2019. We believe that presenting Adjusted Industrial earnings and EPS* separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. |
*Non-GAAP Financial Measure
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES |
|
| | | | | | |
GE INDUSTRIAL FREE CASH FLOWS (FCF) (NON-GAAP) | Nine months ended September 30 |
(In millions) | 2019 |
| 2018 |
|
| | |
GE CFOA (GAAP) | $ | 77 |
| $ | (4,458 | ) |
Add: gross additions to property, plant and equipment | (1,596 | ) | (1,702 | ) |
Add: gross additions to internal-use software | (203 | ) | (233 | ) |
Less: GE Pension Plan funding | — |
| (6,000 | ) |
Less: taxes related to business sales | (160 | ) | (91 | ) |
GE Industrial free cash flows (Non-GAAP) | $ | (1,562 | ) | $ | (303 | ) |
| | |
We believe that 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 and contributions to the GE Pension Plan. We believe that 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, 2019 |
| December 31, 2018 |
|
| | |
Total GE short- and long-term borrowings (GAAP) | $ | 54,086 |
| $ | 62,212 |
|
Less: GE Capital short- and long-term debt assumed by GE | 33,514 |
| 36,262 |
|
Add: intercompany loans from GE Capital | 13,269 |
| 13,749 |
|
Total adjusted GE borrowings | $ | 33,842 |
| $ | 39,700 |
|
Total pension and retiree benefit plan liabilities (pre-tax)(a) | 27,159 |
| 27,159 |
|
Less: taxes at 21% | 5,703 |
| 5,703 |
|
Total pension and retiree benefit plan liabilities (net of tax) | $ | 21,456 |
| $ | 21,456 |
|
GE operating lease liabilities(b) | 3,389 |
| 3,868 |
|
GE preferred stock | 5,695 |
| 5,573 |
|
Less: 50% of GE preferred stock | 2,848 |
| 2,787 |
|
50% of preferred stock | $ | 2,848 |
| $ | 2,787 |
|
Deduction for total GE cash, cash equivalents and restricted cash | (16,656 | ) | (16,632 | ) |
Less: 25% of GE cash, cash equivalents and restricted cash | (4,164 | ) | (4,158 | ) |
Deduction for 75% of GE cash, cash equivalents and restricted cash | $ | (12,492 | ) | $ | (12,474 | ) |
Total GE Industrial net debt (Non-GAAP) | $ | 49,042 |
| $ | 55,336 |
|
| | |
(a) Represents the total underfunded status of Principal pension plans ($18,491 million), Other pension plans ($3,877 million), and Retiree health and life benefit plans ($4,791 million) at December 31, 2018. The funded status of our benefit plans is updated annually in the fourth quarter. |
(b) Operating lease liabilities at December 31, 2018 were derived using the former rating agency methodology of multiplying annual rental expense by 3. With the January 1, 2019 adoption of ASU No. 2016-02, Leases, operating lease liabilities are now presented on the Statement of Financial Position. |
|
In this document we use GE Industrial net debt*, which is calculated based on rating agency methodologies. There is significant uncertainty around the timing and events that could give rise to items included in the determination of this metric, including the timing of pension funding, proceeds from dispositions, and the impact of interest rates on our pension assets and liabilities. We are including the calculation of GE industrial net debt* to provide investors more clarity regarding how the credit rating agencies measure GE Industrial leverage. |
*Non-GAAP FInancial Measure
CONTROLS AND PROCEDURES
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of
September 30, 2019,March 31, 2020, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2019,March 31, 2020, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
OTHER FINANCIAL DATARISK FACTORS
The risk factor set forth below updates the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2019. These risk factors could materially affect our business, financial position and results of operations.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.The global Coronavirus Disease 2019 (COVID-19) pandemic is having a material adverse impact on our operations and financial performance, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives. Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused, and is expected to continue to cause, the global slowdown of economic activity (including the decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and disruption of financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.
The COVID-19 pandemic has subjected our operations, financial performance and financial condition to a number of risks, including, but not limited to those discussed below:
Operations-related risks: Across all of our businesses, we are facing increased operational challenges from the need to protect employee health and safety, site shutdowns, workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at customers and suppliers. We are also experiencing, and expect to continue experiencing, lower demand and volume for products and services, customer requests for potential payment deferrals or other contract modifications, supply chain under-liquidation, delays of deliveries and the achievement of other billing milestones, delays or cancellations of new projects and related down payments and other factors related directly and indirectly to the COVID-19 pandemic that adversely impact our businesses. We expect that the longer the period of economic and global supply chain and disruption continues, the more material the adverse impact will be on our business operations, financial performance and results of operations, and this could include additional charges, impairments and other adverse financial impacts in future periods.
*Non-GAAP Financial Measure
Customer-related risks: In particular, the interruption of regional and international air travel from COVID-19 has resulted in the loss of business and leisure traffic and is having a material adverse effect on our airline and airframer customers, the viability of their businesses and their demand for our services and products. Changes in passenger air travel trends arising from COVID-19 may continue to develop or persist over time and further contribute to this adverse effect. We are also observing a significant increase in the number of requests for payment deferrals, contract modifications, aircraft lease restructurings and similar actions across the aviation sector, and these trends may lead to additional charges, impairments and other adverse financial impacts at GE didAviation and GE Capital Aviation Services over time. We have depended on the strength of our Aviation business as we have been working to improve the operations and execution of other GE businesses and strengthen the company’s balance sheet. As a result, disruption of the aviation industry, which could continue for an uncertain period of time, is particularly significant for GE. Across our businesses, to varying degrees, we anticipate that some existing or potential customers will continue to delay or cancel plans to purchase our products and services, or may not repurchase anybe able to fulfill prior obligations in a timely fashion, as a result of ongoing effects related to the COVID-19 pandemic and adverse economic conditions more broadly.
Leverage- and market-related risks: The current financial market dynamics and volatility pose heightened risks to our timelines for decreasing our leverage, and we now expect to achieve our prior targets over a longer period than previously announced as we seek to maintain appropriate liquidity to compensate for lower cash flows from operations or as variables impacting our leverage ratios fluctuate with extreme market volatility. For example, lower discount rates and lower asset valuations at the time of remeasurement can materially impact the calculation of long-term liabilities such as our pension deficit, GAAP insurance reserve and insurance statutory calculations. In addition, extreme volatility in financial and commodities markets has had and may continue to have adverse impacts on other asset valuations such as the market value of our remaining equity securities duringinterest in Baker Hughes and the three monthsvalue of the investment portfolios supporting our pension and long-term insurance liabilities. Our long-term liabilities are sensitive to numerous factors and assumptions that can move in offsetting directions and should be considered as of the time of a relevant measurement event.
Liquidity- and funding-related risks: While we have significant sources of cash and liquidity and access to committed credit lines, a prolonged period of generating lower cash from operations could adversely affect our financial condition and the achievement of our strategic objectives. As described in the Capital Resources and Liquidity section of this report, in April 2020, Moody's and S&P changed their credit rating outlooks for GE and GE Capital from Stable to Negative, and Fitch lowered its credit ratings for GE and GE Capital. There can also be no assurance that we will not face additional credit rating downgrades as a result of weaker than anticipated performance of our businesses, slower progress in decreasing our leverage or other factors. Future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse commercial impact on our industrial businesses. Conditions in the financial and credit markets may also limit the availability of funding or increase the cost of funding (including for receivables monetization or supply chain finance programs), which could adversely affect our business, financial position and results of operations. Although the U.S. federal and other governments have announced a number of funding programs to support businesses, our ability or willingness to access funding under such programs may be limited by regulations or other guidance, or by further change or uncertainty related to the terms of these programs.
As the COVID-19 pandemic continues to adversely affect our operating and financial results, it may also have the effect of heightening many of the other risks described in the risk factors in our Annual Report on Form 10-K for the year ended September 30, 2019,December 31, 2019. In particular, see the risk factors regarding “Global macro-environment,” “Supply chain,” “Leverage and no repurchase program has been authorized. borrowings,” “Liquidity” and “Economy, customers & counterparties," as updated by the information in this risk factor. Refer also to the Critical Accounting Estimates section of this report for additional details about how COVID-19 related market events may affect our insurance business and pension assumptions. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results.
LEGAL PROCEEDINGS
Refer to Legal Matters and Environmental, Health and Safety Matters in Note 19 to the consolidated financial statements for information relating to legal proceedings. The following information in those sections supplements and amends ourthe discussion set forth under “Legal Proceedings”in the corresponding sections of Note 23 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019.
WMC.At September 30, 2019, there was one active lawsuit in which our discontinued U.S. mortgage business, WMC, is a party. The lawsuit is pending in the United States District Court for the District of Connecticut. TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, is asserting claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of $425 million. Trial in this case commenced in January 2018. The parties concluded their presentation of evidence and delivered closing arguments in June 2018. Based on a joint application by the parties and subsequent renewals, the District Court has stayed the proceedings in light of ongoing settlement negotiations. In April 2019, the securitization trustee notified the bondholders in SABR 2006-WM2, the securitization trust at issue in the lawsuit, of a proposed settlement of the lawsuit and requested that bondholders express any view on whether the trustee should accept or reject the proposed settlement. The amount of the claim at issue in the TMI case reflects the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and does not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. As previously reported, WMC commenced a case in April 2019 under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. WMC has filed a Chapter 11 plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor, including the claim at issue in the TMI case. A hearing to approve the Chapter 11 plan is scheduled for early November 2019. See Note 19 to the consolidated financial statements for further information.
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 19 to the consolidated financial statements for further information.
Shareholder lawsuits.Since November 2017, several putative shareholder class actions under the federal securities laws have been filed against GE and certain affiliated individuals and consolidated into a single action currently pending in the U.S. District Court for the Southern District of New York (the Hachem case). In October 2018, the lead plaintiff filed a fourth amended consolidated class action complaint naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to insurance reserves and accounting for long-term service agreements and seeks damages on behalf of shareowners who acquired GE stock between February 27, 2013 and January 23, 2018. GE filed a motion to dismiss, and in August 2019 the court dismissed a majority of the claims, including all of the claims related to insurance reserves. The court, however, granted the plaintiffs leave to amend their complaint, and we expect the plaintiffs to file a fifth amended complaint during the fourth quarter of 2019.
Since February 2018, multiple shareholder derivative lawsuits have also been filed against current and former GE executive officers and members of GE’s Board of Directors and GE (as nominal defendant). Two shareholder derivative lawsuits are currently pending: the Bennett case, which was filed in Massachusetts state court, and the Cuker case, which was filed in New York state court. These lawsuits have alleged violations of securities laws, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement, although the specific matters underlying the allegations in the lawsuits have varied. The allegations in the Bennett case relate to substantially the same facts as those underlying the securities class action described above, and the allegations in the Cuker case relate to alleged corruption in China. The Bennett complaint also includes a claim for professional negligence and accounting malpractice against GE’s auditor, KPMG. The plaintiffs seek unspecified damages and improvements in GE’s corporate governance and internal procedures. The Bennett case has been stayed pending final resolution of another shareholder derivative lawsuit (the Gammel case) that was previously dismissed. In August 2019, the Cuker plaintiffs filed an amended complaint. In September 2019, GE filed a motion to dismiss the amended complaint.
2019 3Q2020 1Q FORM 10-Q 39
In June 2018, a lawsuit (the Bezio case) was filed in New York state court derivatively on behalf of participants in GE’s 401(k) plan (the GE Retirement Savings Plan (RSP)), and alternatively as a class action on behalf of shareowners who acquired GE stock between February 26, 2013 and January 24, 2018, alleging violations of Section 11 of the Securities Act of 1933 based on alleged misstatements and omissions related to insurance reserves and performance of GE’s business segments in a GE RSP registration statement and documents incorporated therein by reference. In November 2018, the plaintiffs filed an amended derivative complaint naming as defendants GE, former GE executive officers and Fidelity Management Trust Company, as trustee for the GE RSP. In January 2019, GE filed a motion to dismiss.
In July 2018, a putative class action (the Mahar case) was filed in New York state court naming as defendants GE, former GE executive officers, a former member of GE’s Board of Directors and KPMG. It alleged violations of Sections 11, 12 and 15 of the Securities Act of 1933 based on alleged misstatements related to insurance reserves and performance of GE’s business segments in GE Stock Direct Plan registration statements and documents incorporated therein by reference and seeks damages on behalf of shareowners who acquired GE stock between July 20, 2015 and July 19, 2018 through the GE Stock Direct Plan. In February 2019, this case was dismissed. In March 2019, plaintiffs filed an amended derivative complaint naming the same defendants. In April 2019, GE filed a motion to dismiss the amended complaint. In October 2019, the court denied GE's motion to dismiss and stayed the case pending the outcome of the Hachem case.
In October 2018, a putative class action (the Houston case) was filed in New York state court naming as defendants GE, certain GE subsidiaries and current and former GE executive officers and employees. It alleges violations of Sections 11, 12 and 15 of the Securities Act of 1933 and seeks damages on behalf of purchasers of senior notes issued in 2016 and rescission of transactions involving those notes. This case has been stayed pending resolution of the motion to dismiss the Hachem case.
In December 2018, a putative class action (the Varga case) was filed in the U.S. District Court for the Northern District of New York naming GE and a former GE executive officer as defendants in connection with the oversight of the GE RSP. It alleges that the defendants breached fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) by failing to advise GE RSP participants that GE Capital insurance subsidiaries were allegedly under-reserved and continued to retain a GE stock fund as an investment option in the GE RSP. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from January 1, 2010 through January 19, 2018 or later. In April 2019, GE filed a motion to dismiss.
In February 2019, two putative class actions (the Birnbaum case and the Sheet Metal Workers Local 17 Trust Funds case) were filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. In April 2019, the court issued an order consolidating these two actions. In June 2019, the lead plaintiff filed an amended consolidated complaint. It alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged misstatements regarding GE's H-class turbines and goodwill related to GE's Power business. The lawsuit seeks damages on behalf of shareowners who acquired GE stock between December 4, 2017 and December 6, 2018. In August 2019, the lead plaintiff filed a second amended complaint. In September 2019, GE filed a motion to dismiss the second amended complaint.
In February 2019, a securities action (the Touchstone case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1707.43 of the Ohio Securities Act and common law fraud based on alleged misstatements regarding insurance reserves, GE Power’s revenue recognition practices related to long term service agreements, GE’s acquisition of Alstom, and the goodwill recognized in connection with that transaction. The lawsuit seeks damages on behalf of six institutional investors who purchased GE common stock between August 1, 2014 and October 30, 2018 and rescission of those purchases. This case has been stayed pending resolution of the motion to dismiss the Hachem case.
As previously reported by Baker Hughes, a GE company (BHGE), in March 2019, two derivative lawsuits were filed in the Delaware Court of Chancery naming as defendants GE, directors of BHGE (including former members of GE’s Board of Directors and current and former GE executive officers) and BHGE (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 BHGE 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 BHGE 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 BHGE’s Conflicts Committee and a former BHGE 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 August 2019, a putative class action (the Tri-State case) was filed in the Delaware Court of Chancery naming as defendants GE and the former Board of Directors of Baker Hughes Incorporated (BHI). It alleges fraud, aiding and abetting breaches of fiduciary duty, and aiding and abetting breaches of duty of disclosure by GE based on allegations regarding financial statements that GE provided the former BHI board, management and shareholders in connection with BHI’s merger with GE’s Oil and Gas Business in July 2017. The plaintiff seeks damages on behalf of BHI shareholders during the period between October 7, 2016 and July 5, 2017.
These cases are at an early stage; we believe we have defenses to the claims and are responding accordingly.
FINANCIAL STATEMENTS AND NOTES
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| | | |
| |
| |
Consolidated Statement of Changes in Shareowners' Equity | |
| |
| |
| |
| 1 | | |
| 2 | | |
| 3 | | |
| 4 | Current and Long-Term Receivables | |
| 5 | | |
| 6 | Inventories | |
| 7 | | |
| 8 | Goodwill and Other Intangible Assets | |
| 9 | Revenues | |
| 10 | Contract and Other Deferred Assets & Progress Collections and Deferred Income | |
| 11 | | |
| 12 | Insurance Liabilities and Annuity Benefits | |
| 13 | | |
| 14 | | |
| 15 | | |
| 16 | | |
| 17 | | |
| 18 | | |
| 19 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
| 20 | Cash Flows Information | |
| 21 | | |
| 22 | | |
|
| | | | | | |
STATEMENT OF EARNINGS (LOSS) | Three months ended March 31 |
(UNAUDITED) | Consolidated |
(In millions; per-share amounts in dollars) | 2020 |
| 2019 |
|
| | |
Sales of goods | $ | 12,364 |
| $ | 13,249 |
|
Sales of services | 6,450 |
| 7,008 |
|
GE Capital revenues from services | 1,709 |
| 1,945 |
|
Total revenues (Note 9) | 20,524 |
| 22,202 |
|
| | |
Cost of goods sold | 10,540 |
| 10,974 |
|
Cost of services sold | 5,156 |
| 5,234 |
|
Selling, general and administrative expenses | 3,065 |
| 3,402 |
|
Interest and other financial charges | 794 |
| 1,065 |
|
Insurance losses and annuity benefits | 636 |
| 611 |
|
Non-operating benefit costs | 619 |
| 569 |
|
Other costs and expenses | 109 |
| 72 |
|
Total costs and expenses | 20,918 |
| 21,927 |
|
| | |
Other income (Note 23) | 6,869 |
| 847 |
|
GE Capital earnings (loss) from continuing operations | — |
| — |
|
| | |
Earnings (loss) from continuing operations before income taxes | 6,475 |
| 1,122 |
|
Benefit (provision) for income taxes | (63 | ) | (140 | ) |
Earnings (loss) from continuing operations | 6,412 |
| 983 |
|
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (178 | ) | 2,663 |
|
Net earnings (loss) | 6,233 |
| 3,645 |
|
Less net earnings (loss) attributable to noncontrolling interests | 34 |
| 57 |
|
Net earnings (loss) attributable to the Company | 6,199 |
| 3,588 |
|
Preferred stock dividends | (43 | ) | (40 | ) |
Net earnings (loss) attributable to GE common shareholders | $ | 6,156 |
| $ | 3,549 |
|
| | |
Amounts attributable to GE common shareholders | | |
Earnings (loss) from continuing operations | $ | 6,412 |
| $ | 983 |
|
Less net earnings (loss) attributable to noncontrolling interests, | | |
continuing operations | 36 |
| 23 |
|
Earnings (loss) from continuing operations attributable to the Company | 6,375 |
| 960 |
|
Preferred stock dividends | (43 | ) | (40 | ) |
Earnings (loss) from continuing operations attributable | | |
to GE common shareholders | 6,332 |
| 920 |
|
Earnings (loss) from discontinued operations, net of taxes | (178 | ) | 2,663 |
|
Less net earnings (loss) attributable to | | |
noncontrolling interests, discontinued operations | (2 | ) | 34 |
|
Net earnings (loss) attributable to GE common shareholders | $ | 6,156 |
| $ | 3,549 |
|
| | |
Earnings (loss) per share from continuing operations (Note 16) | | |
Diluted earnings (loss) per share | $ | 0.72 |
| $ | 0.10 |
|
Basic earnings (loss) per share | $ | 0.72 |
| $ | 0.10 |
|
| | |
Net earnings (loss) per share (Note 16) | | |
Diluted earnings (loss) per share | $ | 0.70 |
| $ | 0.40 |
|
Basic earnings (loss) per share | $ | 0.70 |
| $ | 0.41 |
|
| | |
Dividends declared per common share | $ | 0.01 |
| $ | 0.01 |
|
Certain columns and rows within the financial statements and accompanying notes may not add due to the use of rounded numbers.
2019 3Q30 2020 1Q FORM 10-Q
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| | | | | | | | | | | | | |
STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Three months ended March 31 |
(UNAUDITED) | GE(a) | | GE Capital |
(In millions; per-share amounts in dollars) | 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | |
Sales of goods | $ | 12,359 |
| $ | 13,315 |
| | $ | 24 |
| $ | 16 |
|
Sales of services | 6,486 |
| 7,009 |
| | — |
| — |
|
GE Capital revenues from services | — |
| — |
| | 1,899 |
| 2,210 |
|
Total revenues | 18,844 |
| 20,324 |
| | 1,923 |
| 2,227 |
|
| | | | | |
Cost of goods sold | 10,541 |
| 11,049 |
| | 17 |
| 13 |
|
Cost of services sold | 4,657 |
| 4,781 |
| | 535 |
| 486 |
|
Selling, general and administrative expenses | 2,949 |
| 3,196 |
| | 203 |
| 267 |
|
Interest and other financial charges | 370 |
| 520 |
| | 504 |
| 677 |
|
Insurance losses and annuity benefits | — |
| — |
| | 653 |
| 633 |
|
Non-operating benefit costs | 616 |
| 564 |
| | 2 |
| 5 |
|
Other costs and expenses | — |
| (8 | ) | | 119 |
| 99 |
|
Total costs and expenses | 19,133 |
| 20,101 |
| | 2,033 |
| 2,180 |
|
| | | | | |
Other income (Note 23) | 6,874 |
| 852 |
| | — |
| — |
|
GE Capital earnings (loss) from continuing operations | (30 | ) | 135 |
| | — |
| — |
|
| | | | | |
Earnings (loss) from continuing operations before income taxes | 6,555 |
| 1,211 |
| | (110 | ) | 47 |
|
Benefit (provision) for income taxes | (187 | ) | (268 | ) | | 123 |
| 128 |
|
Earnings (loss) from continuing operations | 6,368 |
| 943 |
| | 13 |
| 175 |
|
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (178 | ) | 2,663 |
| | (164 | ) | 35 |
|
Net earnings (loss) | 6,190 |
| 3,606 |
| | (151 | ) | 210 |
|
Less net earnings (loss) attributable to noncontrolling interests | 34 |
| 57 |
| | — |
| — |
|
Net earnings (loss) attributable to the Company | 6,156 |
| 3,549 |
| | (151 | ) | 210 |
|
Preferred stock dividends | — |
| — |
| | (43 | ) | (40 | ) |
Net earnings (loss) attributable to GE common shareholders | $ | 6,156 |
| $ | 3,549 |
| | $ | (194 | ) | $ | 171 |
|
| | | | | |
Amounts attributable to GE common shareholders: | | | | | |
Earnings (loss) from continuing operations | $ | 6,368 |
| $ | 943 |
| | $ | 13 |
| $ | 175 |
|
Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
continuing operations | 36 |
| 23 |
| | — |
| — |
|
Earnings (loss) from continuing operations attributable to the Company | 6,332 |
| 920 |
| | 13 |
| 175 |
|
Preferred stock dividends | — |
| — |
| | (43 | ) | (40 | ) |
Earnings (loss) from continuing operations attributable | | | | | |
to GE common shareholders | 6,332 |
| 920 |
| | (30 | ) | 135 |
|
Earnings (loss) from discontinued operations, net of taxes | (178 | ) | 2,663 |
| | (164 | ) | 35 |
|
Less net earnings (loss) attributable to | | | | | |
noncontrolling interests, discontinued operations | (2 | ) | 34 |
| | — |
| — |
|
Net earnings (loss) attributable to GE common shareholders | $ | 6,156 |
| $ | 3,549 |
| | $ | (194 | ) | $ | 171 |
|
(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 FINANCIAL POSITION (UNAUDITED) | Consolidated |
(In millions, except share amounts) | March 31, 2020 |
| December 31, 2019 |
|
|
|
| |
Cash, cash equivalents and restricted cash | $ | 47,286 |
| $ | 36,394 |
|
Investment securities (Note 3) | 42,299 |
| 48,521 |
|
Current receivables (Note 4) | 16,925 |
| 16,769 |
|
Financing receivables – net (Note 5) | 2,998 |
| 3,134 |
|
Inventories (Note 6) | 15,457 |
| 14,104 |
|
Other GE Capital receivables | 7,505 |
| 7,144 |
|
Property, plant and equipment – net (Note 7)(a) | 45,979 |
| 46,186 |
|
Receivable from GE Capital | — |
| — |
|
Investment in GE Capital | — |
| — |
|
Goodwill (Note 8) | 26,598 |
| 26,734 |
|
Other intangible assets – net (Note 8) | 10,381 |
| 10,653 |
|
Contract and other deferred assets (Note 10) | 16,136 |
| 16,801 |
|
All other assets | 15,841 |
| 16,461 |
|
Deferred income taxes (Note 14) | 10,457 |
| 9,889 |
|
Assets of businesses held for sale (Note 2) | 506 |
| 9,149 |
|
Assets of discontinued operations (Note 2) | 3,653 |
| 4,109 |
|
Total assets | $ | 262,021 |
| $ | 266,048 |
|
| | |
Short-term borrowings (Note 11) | $ | 18,122 |
| $ | 22,072 |
|
Short-term borrowings assumed by GE (Note 11) | — |
| — |
|
Accounts payable, principally trade accounts | 15,212 |
| 15,926 |
|
Progress collections and deferred income (Note 10) | 19,818 |
| 20,508 |
|
Other GE current liabilities | 16,290 |
| 15,753 |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | 644 |
| 1,655 |
|
Long-term borrowings (Note 11) | 66,388 |
| 67,155 |
|
Long-term borrowings assumed by GE (Note 11) | — |
| — |
|
Insurance liabilities and annuity benefits (Note 12) | 38,241 |
| 39,826 |
|
Non-current compensation and benefits | 31,104 |
| 31,687 |
|
All other liabilities(a) | 18,985 |
| 19,745 |
|
Liabilities of businesses held for sale (Note 2) | 219 |
| 1,658 |
|
Liabilities of discontinued operations (Note 2) | 139 |
| 203 |
|
Total liabilities | 225,162 |
| 236,187 |
|
| | |
Preferred stock (5,939,875 shares outstanding at both March 31, 2020 and December 31, 2019) | 6 |
| 6 |
|
Common stock (8,747,092,000 and 8,738,434,000 shares outstanding at March 31, 2020 and December 31, 2019, respectively) | 702 |
| 702 |
|
Accumulated other comprehensive income (loss) – net attributable to GE | (10,819 | ) | (11,732 | ) |
Other capital | 34,296 |
| 34,405 |
|
Retained earnings | 93,615 |
| 87,732 |
|
Less common stock held in treasury | (82,516 | ) | (82,797 | ) |
Total GE shareholders’ equity | 35,284 |
| 28,316 |
|
Noncontrolling interests | 1,575 |
| 1,545 |
|
Total equity | 36,859 |
| 29,861 |
|
Total liabilities and equity | $ | 262,021 |
| $ | 266,048 |
|
(a) Included operating lease right of use assets. The related liabilities are included in All Other Liabilities.
|
| | | | | | | | | | | | | |
STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) | | GE Capital |
(UNAUDITED) (In millions, except share amounts) | March 31, 2020 |
| December 31, 2019 |
| | March 31, 2020 |
| December 31, 2019 |
|
| | | | | |
Cash, cash equivalents and restricted cash | $ | 33,810 |
| $ | 17,613 |
| | $ | 13,475 |
| $ | 18,781 |
|
Investment securities (Note 3) | 4,184 |
| 10,008 |
| | 38,117 |
| 38,514 |
|
Current receivables (Note 4) | 13,076 |
| 13,883 |
| | — |
| — |
|
Financing receivables - net (Note 5) | — |
| — |
| | 7,457 |
| 6,979 |
|
Inventories (Note 6) | 15,457 |
| 14,104 |
| | — |
| — |
|
Other GE Capital receivables | — |
| — |
| | 10,764 |
| 11,767 |
|
Property, plant and equipment – net (Note 7)(b) | 17,088 |
| 17,447 |
| | 30,058 |
| 29,886 |
|
Receivable from GE Capital | 16,909 |
| 19,142 |
| | — |
| — |
|
Investment in GE Capital | 14,965 |
| 15,299 |
| | — |
| — |
|
Goodwill (Note 8) | 25,759 |
| 25,895 |
| | 839 |
| 839 |
|
Other intangible assets – net (Note 8) | 10,212 |
| 10,461 |
| | 169 |
| 192 |
|
Contract and other deferred assets (Note 10) | 16,168 |
| 16,833 |
| | — |
| — |
|
All other assets | 8,380 |
| 8,399 |
| | 8,200 |
| 8,648 |
|
Deferred income taxes (Note 14) | 8,654 |
| 8,189 |
| | 1,803 |
| 1,700 |
|
Assets of businesses held for sale (Note 2) | 43 |
| 8,626 |
| | 247 |
| 241 |
|
Assets of discontinued operations (Note 2) | 156 |
| 202 |
| | 3,497 |
| 3,907 |
|
Total assets | $ | 184,861 |
| $ | 186,100 |
| | $ | 114,626 |
| $ | 121,454 |
|
| | | | | |
Short-term borrowings (Note 11) | $ | 3,999 |
| $ | 5,606 |
| | $ | 8,833 |
| $ | 12,030 |
|
Short-term borrowings assumed by GE (Note 11) | 5,888 |
| 5,473 |
| | 2,519 |
| 2,104 |
|
Accounts payable, principally trade accounts | 16,004 |
| 17,702 |
| | 1,054 |
| 886 |
|
Progress collections and deferred income (Note 10) | 19,986 |
| 20,694 |
| | — |
| — |
|
Other GE current liabilities | 17,186 |
| 16,833 |
| | — |
| — |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
| | 644 |
| 1,655 |
|
Long-term borrowings (Note 11) | 14,997 |
| 15,085 |
| | 28,144 |
| 26,175 |
|
Long-term borrowings assumed by GE (Note 11) | 23,247 |
| 25,895 |
| | 14,390 |
| 17,038 |
|
Insurance liabilities and annuity benefits (Note 12) | — |
| — |
| | 38,729 |
| 40,232 |
|
Non-current compensation and benefits | 30,649 |
| 31,208 |
| | 447 |
| 472 |
|
All other liabilities(b) | 15,911 |
| 16,156 |
| | 4,664 |
| 5,278 |
|
Liabilities of businesses held for sale (Note 2) | 181 |
| 1,620 |
| | 52 |
| 52 |
|
Liabilities of discontinued operations (Note 2) | 108 |
| 106 |
| | 31 |
| 97 |
|
Total liabilities | 148,157 |
| 156,379 |
| | 99,507 |
| 106,016 |
|
| | | | | |
Preferred stock (5,939,875 shares outstanding at both March 31, 2020 and December 31, 2019) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,747,092,000 and 8,738,434,000 shares outstanding at March 31, 2020 and December 31, 2019, respectively) | 702 |
| 702 |
| | — |
| — |
|
Accumulated other comprehensive income (loss) - net attributable to GE | (10,819 | ) | (11,732 | ) | | (986 | ) | (852 | ) |
Other capital | 34,296 |
| 34,405 |
| | 17,003 |
| 17,001 |
|
Retained earnings | 93,615 |
| 87,732 |
| | (1,058 | ) | (857 | ) |
Less common stock held in treasury | (82,516 | ) | (82,797 | ) | | — |
| — |
|
Total GE shareholders’ equity | 35,284 |
| 28,316 |
| | 14,965 |
| 15,299 |
|
Noncontrolling interests | 1,421 |
| 1,406 |
| | 154 |
| 139 |
|
Total equity | 36,705 |
| 29,721 |
| | 15,119 |
| 15,438 |
|
Total liabilities and equity | $ | 184,861 |
| $ | 186,100 |
| | $ | 114,626 |
| $ | 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.
(b) Included operating lease right of use assets. The related liabilities are included in All Other Liabilities.
|
| | | | | | |
STATEMENT OF EARNINGS (LOSS) | Three months ended September 30 |
(UNAUDITED) | General Electric Company and consolidated affiliates |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
|
| | |
Sales of goods | $ | 14,869 |
| $ | 14,524 |
|
Sales of services | 6,635 |
| 6,758 |
|
GE Capital revenues from services | 1,856 |
| 2,110 |
|
Total revenues (Note 9) | 23,360 |
| 23,392 |
|
| | |
Cost of goods sold | 12,503 |
| 12,804 |
|
Cost of services sold | 4,825 |
| 5,043 |
|
Selling, general and administrative expenses | 3,293 |
| 4,100 |
|
Interest and other financial charges | 1,279 |
| 1,155 |
|
Insurance losses and annuity benefits | 1,463 |
| 710 |
|
Goodwill impairments | 740 |
| 21,973 |
|
Non-operating benefit costs | 565 |
| 763 |
|
Other costs and expenses | 99 |
| 85 |
|
Total costs and expenses | 24,767 |
| 46,633 |
|
| | |
Other income | 158 |
| 279 |
|
GE Capital earnings (loss) from continuing operations | — |
| — |
|
| | |
Earnings (loss) from continuing operations before income taxes | (1,249 | ) | (22,962 | ) |
Benefit (provision) for income taxes | (41 | ) | (52 | ) |
Earnings (loss) from continuing operations | (1,290 | ) | (23,014 | ) |
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (8,093 | ) | 155 |
|
Net earnings (loss) | (9,383 | ) | (22,859 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 40 |
| (90 | ) |
Net earnings (loss) attributable to the Company | (9,423 | ) | (22,769 | ) |
Preferred stock dividends | (42 | ) | (39 | ) |
Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) |
| | |
Amounts attributable to GE common shareowners | | |
Earnings (loss) from continuing operations | $ | (1,290 | ) | $ | (23,014 | ) |
Less net earnings (loss) attributable to noncontrolling interests, | | |
continuing operations | (7 | ) | (97 | ) |
Earnings (loss) from continuing operations attributable to the Company | (1,283 | ) | (22,917 | ) |
Preferred stock dividends | (42 | ) | (39 | ) |
Earnings (loss) from continuing operations attributable | | |
to GE common shareowners | (1,325 | ) | (22,956 | ) |
Earnings (loss) from discontinued operations, net of taxes | (8,093 | ) | 155 |
|
Less net earnings (loss) attributable to | | |
noncontrolling interests, discontinued operations | 46 |
| 7 |
|
Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) |
| | |
Earnings (loss) per share from continuing operations (Note 16) | | |
Diluted earnings (loss) per share | $ | (0.15 | ) | $ | (2.64 | ) |
Basic earnings (loss) per share | $ | (0.15 | ) | $ | (2.64 | ) |
| | |
Net earnings (loss) per share (Note 16) | | |
Diluted earnings (loss) per share | $ | (1.08 | ) | $ | (2.62 | ) |
Basic earnings (loss) per share | $ | (1.08 | ) | $ | (2.62 | ) |
| | |
Dividends declared per common share | $ | 0.01 |
| $ | 0.12 |
|
|
| | | | | | |
STATEMENT OF CASH FLOWS | Three months ended March 31 |
(UNAUDITED) | Consolidated |
(In millions) | 2020 |
| 2019 |
|
| | |
Net earnings (loss) | $ | 6,233 |
| $ | 3,645 |
|
(Earnings) loss from discontinued operations | 178 |
| (2,663 | ) |
Adjustments to reconcile net earnings (loss) | | |
to cash provided from operating activities | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 991 |
| 995 |
|
Amortization of intangible assets (Note 8) | 340 |
| 367 |
|
(Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
(Gains) losses on purchases and sales of business interests (Note 23) | (12,372 | ) | (253 | ) |
(Gains) losses on equity securities (Note 23) | 5,874 |
| (20 | ) |
Principal pension plans cost (Note 13) | 877 |
| 868 |
|
Principal pension plans employer contributions | (70 | ) | (65 | ) |
Other postretirement benefit plans (net) | (254 | ) | (289 | ) |
Provision (benefit) for income taxes | 63 |
| 140 |
|
Cash recovered (paid) during the year for income taxes | (310 | ) | (280 | ) |
Decrease (increase) in contract and other deferred assets | (12 | ) | (680 | ) |
Decrease (increase) in GE current receivables | (503 | ) | 545 |
|
Decrease (increase) in inventories | (978 | ) | (1,165 | ) |
Increase (decrease) in accounts payable | (601 | ) | 215 |
|
Increase (decrease) in GE progress collections | (655 | ) | (331 | ) |
All other operating activities | 1,050 |
| (609 | ) |
Cash from (used for) operating activities – continuing operations | (148 | ) | 420 |
|
Cash from (used for) operating activities – discontinued operations | (67 | ) | (298 | ) |
Cash from (used for) operating activities | (214 | ) | 122 |
|
| | |
Additions to property, plant and equipment | (1,027 | ) | (1,395 | ) |
Dispositions of property, plant and equipment | 731 |
| 1,068 |
|
Additions to internal-use software | (60 | ) | (69 | ) |
Net decrease (increase) in financing receivables | (50 | ) | 353 |
|
Proceeds from sale of discontinued operations | — |
| 2,865 |
|
Proceeds from principal business dispositions | 20,488 |
| 569 |
|
Net cash from (payments for) principal businesses purchased | (6 | ) | — |
|
All other investing activities | (856 | ) | 305 |
|
Cash from (used for) investing activities – continuing operations | 19,221 |
| 3,696 |
|
Cash from (used for) investing activities – discontinued operations | (134 | ) | (206 | ) |
Cash from (used for) investing activities | 19,086 |
| 3,490 |
|
| | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,905 | ) | (445 | ) |
Newly issued debt (maturities longer than 90 days) | 125 |
| 731 |
|
Repayments and other debt reductions (maturities longer than 90 days) | (5,903 | ) | (3,546 | ) |
Dividends paid to shareholders | (89 | ) | (88 | ) |
All other financing activities | (147 | ) | (113 | ) |
Cash from (used for) financing activities – continuing operations | (7,919 | ) | (3,461 | ) |
Cash from (used for) financing activities – discontinued operations | — |
| (274 | ) |
Cash from (used for) financing activities | (7,919 | ) | (3,735 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (256 | ) | 78 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | 10,697 |
| (45 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 37,077 |
| 35,548 |
|
Cash, cash equivalents and restricted cash at March 31 | 47,774 |
| 35,503 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at March 31 | 437 |
| 3,671 |
|
Cash, cash equivalents and restricted cash of continuing operations at March 31 | $ | 47,338 |
| $ | 31,832 |
|
4234 2019 3Q2020 1Q FORM 10-Q
|
| | | | | | | | | | | | | |
STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Three months ended September 30 |
(UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Sales of goods | $ | 14,879 |
| $ | 14,501 |
| | $ | 22 |
| $ | 37 |
|
Sales of services | 6,640 |
| 6,772 |
| | — |
| — |
|
GE Capital revenues from services | — |
| — |
| | 2,075 |
| 2,436 |
|
Total revenues | 21,519 |
| 21,273 |
| | 2,097 |
| 2,473 |
|
| | | | | |
Cost of goods sold | 12,519 |
| 12,789 |
| | 17 |
| 28 |
|
Cost of services sold | 4,341 |
| 4,560 |
| | 510 |
| 502 |
|
Selling, general and administrative expenses | 3,172 |
| 3,905 |
| | 199 |
| 332 |
|
Interest and other financial charges | 791 |
| 590 |
| | 590 |
| 704 |
|
Insurance losses and annuity benefits | — |
| — |
| | 1,469 |
| 732 |
|
Goodwill impairments | 740 |
| 21,973 |
| | — |
| — |
|
Non-operating benefit costs | 562 |
| 760 |
| | 3 |
| 2 |
|
Other costs and expenses | 4 |
| (13 | ) | | 103 |
| 115 |
|
Total costs and expenses | 22,128 |
| 44,566 |
| | 2,890 |
| 2,416 |
|
| | | | | |
Other income | 153 |
| 274 |
| | — |
| — |
|
GE Capital earnings (loss) from continuing operations | (645 | ) | 19 |
| | — |
| — |
|
| | | | | |
Earnings (loss) from continuing operations before income taxes | (1,101 | ) | (23,000 | ) | | (793 | ) | 57 |
|
Benefit (provision) for income taxes | (229 | ) | (95 | ) | | 188 |
| 43 |
|
Earnings (loss) from continuing operations | (1,330 | ) | (23,095 | ) | | (604 | ) | 99 |
|
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (8,093 | ) | 155 |
| | (18 | ) | 40 |
|
Net earnings (loss) | (9,424 | ) | (22,940 | ) | | (623 | ) | 139 |
|
Less net earnings (loss) attributable to noncontrolling interests | 41 |
| (132 | ) | | (2 | ) | 42 |
|
Net earnings (loss) attributable to the Company | (9,465 | ) | (22,808 | ) | | (621 | ) | 98 |
|
Preferred stock dividends | — |
| — |
| | (42 | ) | (39 | ) |
Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | | $ | (663 | ) | $ | 59 |
|
| | | | | |
Amounts attributable to GE common shareowners: | | | | | |
Earnings (loss) from continuing operations | $ | (1,330 | ) | $ | (23,095 | ) | | $ | (604 | ) | $ | 99 |
|
Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
continuing operations | (5 | ) | (139 | ) | | (2 | ) | 42 |
|
Earnings (loss) from continuing operations attributable to the Company | (1,325 | ) | (22,956 | ) | | (603 | ) | 58 |
|
Preferred stock dividends | — |
| — |
| | (42 | ) | (39 | ) |
Earnings (loss) from continuing operations attributable | | | | | |
to GE common shareowners | (1,325 | ) | (22,956 | ) | | (645 | ) | 19 |
|
Earnings (loss) from discontinued operations, net of taxes | (8,093 | ) | 155 |
| | (18 | ) | 40 |
|
Less net earnings (loss) attributable to | | | | | |
noncontrolling interests, discontinued operations | 46 |
| 7 |
| | — |
| — |
|
Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | | $ | (663 | ) | $ | 59 |
|
|
| | | | | | | | | | | | | |
STATEMENT OF CASH FLOWS (CONTINUED) | Three months ended March 31 |
(UNAUDITED) | GE(a) | | GE Capital |
(In millions) | 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | |
Net earnings (loss) | $ | 6,190 |
| $ | 3,606 |
| | $ | (151 | ) | $ | 210 |
|
(Earnings) loss from discontinued operations | 178 |
| (2,663 | ) | | 164 |
| (35 | ) |
Adjustments to reconcile net earnings (loss) | | | | | |
to cash provided from operating activities | | | | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 453 |
| 505 |
| | 536 |
| 488 |
|
Amortization of intangible assets (Note 8) | 315 |
| 353 |
| | 25 |
| 13 |
|
(Earnings) loss from continuing operations retained by GE Capital | 30 |
| (135 | ) | | — |
| — |
|
(Gains) losses on purchases and sales of business interests (Note 23) | (12,372 | ) | (253 | ) | | — |
| — |
|
(Gains) losses on equity securities (Note 23) | 5,789 |
| (20 | ) | | 86 |
| (1 | ) |
Principal pension plans cost (Note 13) | 877 |
| 868 |
| | — |
| — |
|
Principal pension plans employer contributions | (70 | ) | (65 | ) | | — |
| — |
|
Other postretirement benefit plans (net) | (247 | ) | (292 | ) | | (8 | ) | 3 |
|
Provision (benefit) for income taxes | 187 |
| 268 |
| | (123 | ) | (128 | ) |
Cash recovered (paid) during the year for income taxes | (278 | ) | (272 | ) | | (32 | ) | (8 | ) |
Decrease (increase) in contract and other deferred assets | (12 | ) | (680 | ) | | — |
| — |
|
Decrease (increase) in GE current receivables | 487 |
| (57 | ) | | — |
| — |
|
Decrease (increase) in inventories | (966 | ) | (1,088 | ) | | — |
| — |
|
Increase (decrease) in accounts payable | (1,468 | ) | (2 | ) | | (5 | ) | (41 | ) |
Increase (decrease) in GE progress collections | (673 | ) | (343 | ) | | — |
| — |
|
All other operating activities | (82 | ) | (336 | ) | | 784 |
| (451 | ) |
Cash from (used for) operating activities – continuing operations | (1,662 | ) | (607 | ) | | 1,276 |
| 50 |
|
Cash from (used for) operating activities – discontinued operations | 29 |
| (528 | ) | | (95 | ) | (86 | ) |
Cash from (used for) operating activities | (1,633 | ) | (1,135 | ) | | 1,181 |
| (36 | ) |
| | | | | |
Additions to property, plant and equipment | (504 | ) | (552 | ) | | (541 | ) | (911 | ) |
Dispositions of property, plant and equipment | 29 |
| 79 |
| | 709 |
| 993 |
|
Additions to internal-use software | (58 | ) | (66 | ) | | (1 | ) | (3 | ) |
Net decrease (increase) in financing receivables | — |
| — |
| | (506 | ) | 1,673 |
|
Proceeds from sale of discontinued operations | — |
| 2,865 |
| | — |
| — |
|
Proceeds from principal business dispositions | 20,505 |
| 561 |
| | (16 | ) | 396 |
|
Net cash from (payments for) principal businesses purchased | (6 | ) | (396 | ) | | — |
| — |
|
All other investing activities | 81 |
| (245 | ) | | 300 |
| 1,655 |
|
Cash from (used for) investing activities – continuing operations | 20,046 |
| 2,246 |
| | (56 | ) | 3,802 |
|
Cash from (used for) investing activities – discontinued operations | (33 | ) | (42 | ) | | (101 | ) | 152 |
|
Cash from (used for) investing activities | 20,013 |
| 2,204 |
| | (157 | ) | 3,954 |
|
| | | | | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,881 | ) | (1,170 | ) | | (514 | ) | (612 | ) |
Newly issued debt (maturities longer than 90 days) | 1 |
| 248 |
| | 124 |
| 483 |
|
Repayments and other debt reductions (maturities longer than 90 days) | (64 | ) | (290 | ) | | (5,840 | ) | (3,255 | ) |
Dividends paid to shareholders | (89 | ) | (88 | ) | | (42 | ) | (38 | ) |
All other financing activities | (12 | ) | (18 | ) | | (135 | ) | (95 | ) |
Cash from (used for) financing activities – continuing operations | (2,045 | ) | (1,318 | ) | | (6,406 | ) | (3,518 | ) |
Cash from (used for) financing activities – discontinued operations | — |
| (273 | ) | | — |
| (1 | ) |
Cash from (used for) financing activities | (2,045 | ) | (1,592 | ) | | (6,406 | ) | (3,519 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (143 | ) | 68 |
| | (113 | ) | 10 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | 16,193 |
| (455 | ) | | (5,495 | ) | 409 |
|
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 March 31 | 33,810 |
| 20,073 |
| | 13,964 |
| 15,429 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at March 31 | — |
| 3,078 |
| | 437 |
| 593 |
|
Cash, cash equivalents and restricted cash of continuing operations at March 31 | $ | 33,810 |
| $ | 16,996 |
| | $ | 13,527 |
| $ | 14,836 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
(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.
2019 3Q2020 1Q FORM 10-Q 4335
|
| | | | | | |
STATEMENT OF EARNINGS (LOSS) | Nine months ended September 30 |
(UNAUDITED) | General Electric Company and consolidated affiliates |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
|
| | |
Sales of goods | $ | 42,220 |
| $ | 42,886 |
|
Sales of services | 20,912 |
| 21,717 |
|
GE Capital revenues from services | 5,845 |
| 5,909 |
|
Total revenues (Note 9) | 68,976 |
| 70,513 |
|
| | |
Cost of goods sold | 35,123 |
| 35,780 |
|
Cost of services sold | 15,825 |
| 16,464 |
|
Selling, general and administrative expenses | 10,120 |
| 11,013 |
|
Interest and other financial charges | 3,272 |
| 3,585 |
|
Insurance losses and insurance annuity benefits | 2,712 |
| 2,009 |
|
Goodwill impairments | 1,484 |
| 21,973 |
|
Non-operating benefit costs | 1,694 |
| 2,141 |
|
Other costs and expenses | 337 |
| 253 |
|
Total costs and expenses | 70,568 |
| 93,219 |
|
| | |
Other income | 1,170 |
| 1,388 |
|
GE Capital earnings (loss) from continuing operations | — |
| — |
|
| | |
Earnings (loss) from continuing operations before income taxes | (422 | ) | (21,318 | ) |
Benefit (provision) for income taxes | 1 |
| (460 | ) |
Earnings (loss) from continuing operations | (421 | ) | (21,777 | ) |
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (5,212 | ) | (1,526 | ) |
Net earnings (loss) | (5,634 | ) | (23,304 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 73 |
| (188 | ) |
Net earnings (loss) attributable to the Company | (5,707 | ) | (23,116 | ) |
Preferred stock dividends | (270 | ) | (260 | ) |
Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) |
| | |
Amounts attributable to GE common shareowners | | |
Earnings (loss) from continuing operations | $ | (421 | ) | $ | (21,777 | ) |
Less net earnings (loss) attributable to noncontrolling interests, | | |
continuing operations | 16 |
| (90 | ) |
Earnings (loss) from continuing operations attributable to the Company | (437 | ) | (21,687 | ) |
Preferred stock dividends | (270 | ) | (260 | ) |
Earnings (loss) from continuing operations attributable | | |
to GE common shareowners | (707 | ) | (21,947 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,212 | ) | (1,526 | ) |
Less net earnings (loss) attributable to noncontrolling interests, | | |
discontinued operations | 58 |
| (97 | ) |
Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) |
| | |
Earnings (loss) per share from continuing operations (Note 16) | | |
Diluted earnings (loss) per share | $ | (0.08 | ) | $ | (2.53 | ) |
Basic earnings (loss) per share | $ | (0.08 | ) | $ | (2.53 | ) |
| | |
Net earnings (loss) per share (Note 16) | | |
Diluted earnings (loss) per share | $ | (0.69 | ) | $ | (2.69 | ) |
Basic earnings (loss) per share | $ | (0.69 | ) | $ | (2.69 | ) |
| | |
Dividends declared per common share | $ | 0.03 |
| $ | 0.36 |
|
|
| | | | | | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | Three months ended March 31 |
(In millions, net of tax) | 2020 |
| 2019 |
|
| | |
Net earnings (loss) | $ | 6,233 |
| $ | 3,645 |
|
Less net earnings (loss) attributable to noncontrolling interests | 34 |
| 57 |
|
Net earnings (loss) attributable to the Company | $ | 6,199 |
| $ | 3,588 |
|
| | |
Investment securities | $ | (41 | ) | $ | 24 |
|
Currency translation adjustments | 135 |
| 423 |
|
Cash flow hedges | (211 | ) | 38 |
|
Benefit plans | 1,035 |
| 545 |
|
Other comprehensive income (loss) | 918 |
| 1,031 |
|
Less: other comprehensive income (loss) attributable to noncontrolling interests | 5 |
| 101 |
|
Other comprehensive income (loss) attributable to the Company | $ | 913 |
| $ | 930 |
|
| | |
Comprehensive income (loss) | $ | 7,152 |
| $ | 4,675 |
|
Less: comprehensive income (loss) attributable to noncontrolling interests | 39 |
| 158 |
|
Comprehensive income (loss) attributable to the Company | $ | 7,113 |
| $ | 4,517 |
|
|
| | | | | | | | | | | | | |
STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Nine months ended September 30 |
(UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Sales of goods | $ | 42,312 |
| $ | 42,815 |
| | $ | 56 |
| $ | 100 |
|
Sales of services | 20,948 |
| 21,786 |
| | — |
| — |
|
GE Capital revenues from services | — |
| — |
| | 6,589 |
| 6,975 |
|
Total revenues | 63,259 |
| 64,601 |
| | 6,645 |
| 7,075 |
|
| | | | | |
Cost of goods sold | 35,233 |
| 35,723 |
| | 44 |
| 78 |
|
Cost of services sold | 14,372 |
| 14,975 |
| | 1,508 |
| 1,573 |
|
Selling, general and administrative expenses | 9,734 |
| 10,457 |
| | 677 |
| 987 |
|
Interest and other financial charges | 1,693 |
| 1,773 |
| | 1,913 |
| 2,296 |
|
Insurance losses and insurance annuity benefits | — |
| — |
| | 2,771 |
| 2,071 |
|
Goodwill impairments | 1,484 |
| 21,973 |
| | — |
| — |
|
Non-operating benefit costs | 1,684 |
| 2,132 |
| | 10 |
| 9 |
|
Other costs and expenses | — |
| (33 | ) | | 380 |
| 328 |
|
Total costs and expenses | 64,201 |
| 87,001 |
| | 7,303 |
| 7,342 |
|
| | | | | |
Other income | 1,177 |
| 1,350 |
| | — |
| — |
|
GE Capital earnings (loss) from continuing operations | (599 | ) | (403 | ) | | — |
| — |
|
| | | | | |
Earnings (loss) from continuing operations before income taxes | (363 | ) | (21,454 | ) | | (658 | ) | (268 | ) |
Benefit (provision) for income taxes | (327 | ) | (624 | ) | | 327 |
| 165 |
|
Earnings (loss) from continuing operations | (690 | ) | (22,078 | ) | | (331 | ) | (103 | ) |
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (5,212 | ) | (1,526 | ) | | 255 |
| (1,579 | ) |
Net earnings (loss) | (5,902 | ) | (23,604 | ) | | (76 | ) | (1,682 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 75 |
| (228 | ) | | (2 | ) | 40 |
|
Net earnings (loss) attributable to the Company | (5,977 | ) | (23,376 | ) | | (74 | ) | (1,722 | ) |
Preferred stock dividends | — |
| — |
| | (270 | ) | (260 | ) |
Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) | | $ | (344 | ) | $ | (1,982 | ) |
| | | | | |
Amounts attributable to GE common shareowners: | | | | | |
Earnings (loss) from continuing operations | $ | (690 | ) | $ | (22,078 | ) | | $ | (331 | ) | $ | (103 | ) |
Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
continuing operations | 17 |
| (130 | ) | | (2 | ) | 40 |
|
Earnings (loss) from continuing operations attributable to the Company | (707 | ) | (21,947 | ) | | (329 | ) | (143 | ) |
Preferred stock dividends | — |
| — |
| | (270 | ) | (260 | ) |
Earnings (loss) from continuing operations attributable | | | | | |
to GE common shareowners | (707 | ) | (21,947 | ) | | (599 | ) | (403 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,212 | ) | (1,526 | ) | | 255 |
| (1,579 | ) |
Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
discontinued operations | 58 |
| (97 | ) | | — |
| — |
|
Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) | | $ | (344 | ) | $ | (1,982 | ) |
|
| | | | | | | |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) | Three months ended March 31 |
(In millions) | 2020 |
| | 2019 |
|
| | | |
Preferred stock issued | $ | 6 |
| | $ | 6 |
|
Common stock issued | $ | 702 |
| | $ | 702 |
|
| | | |
Beginning balance | (11,732 | ) | | (14,414 | ) |
Investment securities | (41 | ) | | 23 |
|
Currency translation adjustments | 133 |
| | 324 |
|
Cash flow hedges | (211 | ) | | 35 |
|
Benefit plans | 1,032 |
| | 547 |
|
Accumulated other comprehensive income (loss) ending balance | $ | (10,819 | ) | | $ | (13,485 | ) |
Beginning balance | 34,405 |
| | 35,504 |
|
Gains (losses) on treasury stock dispositions | (249 | ) | | (507 | ) |
Stock-based compensation | 105 |
| | 137 |
|
Other changes | 35 |
| | (788 | ) |
Other capital ending balance | $ | 34,296 |
| | $ | 34,345 |
|
Beginning balance | 87,732 |
| | 93,109 |
|
Net earnings (loss) attributable to the Company | 6,199 |
| | 3,588 |
|
Dividends and other transactions with shareholders | (142 | ) | | (145 | ) |
Changes in accounting (Note 1) | (175 | ) | | 368 |
|
Retained earnings ending balance | $ | 93,615 |
| | $ | 96,921 |
|
Beginning balance | (82,797 | ) | | (83,925 | ) |
Purchases | (14 | ) | | (38 | ) |
Dispositions | 295 |
| | 636 |
|
Common stock held in treasury ending balance | $ | (82,516 | ) | | $ | (83,328 | ) |
GE shareholders' equity balance | 35,284 |
| | 35,161 |
|
Noncontrolling interests balance (Note 15) | 1,575 |
| | 20,485 |
|
Total equity balance at March 31(a) | $ | 36,859 |
| | $ | 55,646 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
|
| | | | | | | | | | | | | |
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 |
(In millions, net of tax) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Net earnings (loss) | $ | (9,383 | ) | $ | (22,859 | ) | | $ | (5,634 | ) | $ | (23,304 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 40 |
| (90 | ) | | 73 |
| (188 | ) |
Net earnings (loss) attributable to the Company | $ | (9,423 | ) | $ | (22,769 | ) | | $ | (5,707 | ) | $ | (23,116 | ) |
| | | | | |
Investment securities | $ | 18 |
| $ | (57 | ) | | $ | 116 |
| $ | 67 |
|
Currency translation adjustments | 762 |
| (633 | ) | | 1,044 |
| (1,471 | ) |
Cash flow hedges | (2 | ) | (9 | ) | | 10 |
| (35 | ) |
Benefit plans | 655 |
| 862 |
| | 1,838 |
| 2,521 |
|
Other comprehensive income (loss) | 1,433 |
| 164 |
| | 3,010 |
| 1,082 |
|
Less: other comprehensive income (loss) attributable to noncontrolling interests | (58 | ) | (39 | ) | | (43 | ) | (93 | ) |
Other comprehensive income (loss) attributable to the Company | $ | 1,491 |
| $ | 203 |
| | $ | 3,053 |
| $ | 1,174 |
|
| | | | | |
Comprehensive income (loss) | $ | (7,950 | ) | $ | (22,695 | ) | | $ | (2,624 | ) | $ | (22,222 | ) |
Less: comprehensive income (loss) attributable to noncontrolling interests | (19 | ) | (129 | ) | | 30 |
| (281 | ) |
Comprehensive income (loss) attributable to the Company | $ | (7,931 | ) | $ | (22,566 | ) | | $ | (2,654 | ) | $ | (21,941 | ) |
|
| | | | | | | | | | | | | | |
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED) | Three months ended September 30 | Nine months ended September 30 |
(In millions) | 2019 | | 2018 | 2019 | | 2018 |
|
| | | | | | |
Preferred stock issued | $ | 6 |
| | $ | 6 |
| $ | 6 |
| | $ | 6 |
|
Common stock issued | $ | 702 |
| | $ | 702 |
| $ | 702 |
| | $ | 702 |
|
| | | | | | |
Beginning balance | (12,852 | ) | | (13,432 | ) | (14,414 | ) | | (14,404 | ) |
Investment securities | 18 |
| | (56 | ) | 116 |
| | 67 |
|
Currency translation adjustments | 824 |
| | (595 | ) | 1,084 |
| | (1,379 | ) |
Cash flow hedges | (2 | ) | | (8 | ) | 11 |
| | (35 | ) |
Benefit plans | 650 |
| | 863 |
| 1,842 |
| | 2,521 |
|
Accumulated other comprehensive income (loss) ending balance | $ | (11,361 | ) | | $ | (13,229 | ) | $ | (11,361 | ) | | $ | (13,229 | ) |
Beginning balance | 34,324 |
| | 37,352 |
| 35,504 |
| | 37,384 |
|
Gains (losses) on treasury stock dispositions | (160 | ) | | (210 | ) | (817 | ) | | (518 | ) |
Stock-based compensation | 118 |
| | 107 |
| 382 |
| | 315 |
|
Other changes | 33 |
| | 62 |
| (753 | ) | | 131 |
|
Other capital ending balance | $ | 34,315 |
| | $ | 37,311 |
| $ | 34,315 |
| | $ | 37,311 |
|
Beginning balance | 96,773 |
| | 114,913 |
| 93,109 |
| | 117,245 |
|
Net earnings (loss) attributable to the Company | (9,423 | ) | | (22,769 | ) | (5,707 | ) | | (23,116 | ) |
Dividends and other transactions with shareowners | (138 | ) | | (1,276 | ) | (557 | ) | | (3,762 | ) |
Changes in accounting (Note 1) | — |
| | — |
| 368 |
| | 501 |
|
Retained earnings ending balance | $ | 87,213 |
| | $ | 90,867 |
| $ | 87,213 |
| | $ | 90,867 |
|
Beginning balance | (83,137 | ) | | (84,471 | ) | (83,925 | ) | | (84,902 | ) |
Purchases | (8 | ) | | (55 | ) | (53 | ) | | (198 | ) |
Dispositions | 204 |
| | 324 |
| 1,038 |
| | 897 |
|
Common stock held in treasury ending balance | $ | (82,940 | ) | | $ | (84,202 | ) | $ | (82,940 | ) | | $ | (84,202 | ) |
GE shareowners' equity balance | 27,935 |
| | 31,454 |
| 27,935 |
| | 31,454 |
|
Noncontrolling interests balance (Note 15) | 1,219 |
| | 16,383 |
| 1,219 |
| | 16,383 |
|
Total equity balance at September 30(a) | $ | 29,153 |
| | $ | 47,837 |
| $ | 29,153 |
| | $ | 47,837 |
|
| |
(a) | Total equity balance decreased by $(18,684)$(18,787) million in the last twelve months from September 30, 2018,March 31, 2019, primarily due to reduction of non-controlling interest balance of $(15,192)$(19,271) million attributable to Baker Hughes Class A shareholders at September 30, 2018 andMarch 31, 2019, after-tax loss of $(8,190)$(8,238) million in discontinued operations due to deconsolidation of Baker Hughes in the third quarter of 2019, after-tax change in unrealized loss on our remaining interest in Baker Hughes $(4,631) million, partially offset by after-tax gain of $2,508$11,145 million in discontinued operations due to spin-off and subsequent mergerthe sale of our TransportationBioPharma business with Wabtec in the first quarter of 2019. within our Healthcare segment. See NoteNotes 2 and 3 for further information. |
2019 3Q36 2020 1Q FORM 10-Q47
|
| | | | | | |
STATEMENT OF FINANCIAL POSITION (UNAUDITED) | General Electric Company and consolidated affiliates |
(In millions, except share amounts) | September 30, 2019 |
| December 31, 2018 |
|
|
|
| |
Cash, cash equivalents and restricted cash | $ | 27,810 |
| $ | 31,124 |
|
Investment securities (Note 3) | 48,225 |
| 33,508 |
|
Current receivables (Note 4) | 16,018 |
| 14,645 |
|
Financing receivables – net (Note 5) | 3,321 |
| 7,699 |
|
Inventories (Note 6) | 15,203 |
| 13,803 |
|
Other GE Capital receivables | 7,387 |
| 7,143 |
|
Property, plant and equipment – net (Note 7) | 42,886 |
| 43,611 |
|
Operating lease assets (Note 7) | 2,970 |
| — |
|
Receivable from GE Capital | — |
| — |
|
Investment in GE Capital | — |
| — |
|
Goodwill (Note 8) | 26,666 |
| 33,974 |
|
Other intangible assets – net (Note 8) | 10,766 |
| 12,178 |
|
Contract and other deferred assets (Note 10) | 17,133 |
| 17,431 |
|
All other assets | 18,043 |
| 18,357 |
|
Deferred income taxes (Note 14) | 9,570 |
| 12,117 |
|
Assets of businesses held for sale (Note 2) | 12,832 |
| 1,629 |
|
Assets of discontinued operations (Note 2) | 4,178 |
| 63,853 |
|
Total assets | $ | 263,009 |
| $ | 311,072 |
|
| | |
Short-term borrowings (Note 11) | $ | 17,046 |
| $ | 12,776 |
|
Short-term borrowings assumed by GE (Note 11) | — |
| — |
|
Accounts payable, principally trade accounts | 14,493 |
| 14,257 |
|
Progress collections and deferred income (Note 10) | 19,041 |
| 18,983 |
|
Other GE current liabilities | 13,675 |
| 14,453 |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | 1,498 |
| 1,875 |
|
Long-term borrowings (Note 11) | 74,701 |
| 88,949 |
|
Long-term borrowings assumed by GE (Note 11) | — |
| — |
|
Operating lease liabilities (Note 7) | 3,169 |
| — |
|
Insurance liabilities and annuity benefits (Note 12) | 40,084 |
| 35,562 |
|
Non-current compensation and benefits | 31,194 |
| 32,740 |
|
All other liabilities | 17,026 |
| 20,008 |
|
Liabilities of businesses held for sale (Note 2) | 1,543 |
| 708 |
|
Liabilities of discontinued operations (Note 2) | 387 |
| 19,281 |
|
Total liabilities | 233,856 |
| 259,591 |
|
| | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2019 and December 31, 2018) | 6 |
| 6 |
|
Common stock (8,733,549,000 and 8,702,227,000 shares outstanding at September 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
|
Accumulated other comprehensive income (loss) – net attributable to GE | (11,361 | ) | (14,414 | ) |
Other capital | 34,315 |
| 35,504 |
|
Retained earnings | 87,213 |
| 93,109 |
|
Less common stock held in treasury | (82,940 | ) | (83,925 | ) |
Total GE shareowners’ equity | 27,935 |
| 30,981 |
|
Noncontrolling interests | 1,219 |
| 20,500 |
|
Total equity (Note 15) | 29,153 |
| 51,481 |
|
Total liabilities and equity | $ | 263,009 |
| $ | 311,072 |
|
|
| | | | | | | | | | | | | |
STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) | | Financial Services (GE Capital) |
(UNAUDITED) (In millions, except share amounts) | September 30, 2019 |
| December 31, 2018 |
| | September 30, 2019 |
| December 31, 2018 |
|
| | | | | |
Cash, cash equivalents and restricted cash | $ | 16,656 |
| $ | 16,632 |
| | $ | 11,154 |
| $ | 14,492 |
|
Investment securities (Note 3) | 9,485 |
| 187 |
| | 38,741 |
| 33,393 |
|
Current receivables (Note 4) | 12,657 |
| 10,262 |
| | — |
| — |
|
Financing receivables - net (Note 5) | — |
| — |
| | 7,748 |
| 13,628 |
|
Inventories (Note 6) | 15,203 |
| 13,803 |
| | — |
| — |
|
Other GE Capital receivables | — |
| — |
| | 12,999 |
| 15,361 |
|
Property, plant and equipment – net (Note 7) | 14,132 |
| 14,828 |
| | 29,378 |
| 29,510 |
|
Operating lease assets (Note 7) | 3,187 |
| — |
| | 244 |
| — |
|
Receivable from GE Capital | 20,244 |
| 22,513 |
| | — |
| — |
|
Investment in GE Capital | 12,819 |
| 11,412 |
| | — |
| — |
|
Goodwill (Note 8) | 25,827 |
| 33,070 |
| | 839 |
| 904 |
|
Other intangible assets – net (Note 8) | 10,560 |
| 11,942 |
| | 206 |
| 236 |
|
Contract and other deferred assets (Note 10) | 17,166 |
| 17,431 |
| | — |
| — |
|
All other assets | 9,061 |
| 8,578 |
| | 9,418 |
| 9,869 |
|
Deferred income taxes (Note 14) | 7,156 |
| 10,176 |
| | 2,415 |
| 1,936 |
|
Assets of businesses held for sale (Note 2) | 8,755 |
| 1,524 |
| | 3,900 |
| — |
|
Assets of discontinued operations (Note 2) | 186 |
| 59,169 |
| | 3,993 |
| 4,610 |
|
Total assets | $ | 183,094 |
| $ | 231,526 |
| | $ | 121,035 |
| $ | 123,939 |
|
| | | | | |
Short-term borrowings (Note 11) | $ | 5,465 |
| $ | 5,147 |
| | $ | 5,123 |
| $ | 4,999 |
|
Short-term borrowings assumed by GE (Note 11) | 7,310 |
| 4,207 |
| | 2,990 |
| 2,684 |
|
Accounts payable, principally trade accounts | 17,858 |
| 19,148 |
| | 1,397 |
| 1,612 |
|
Progress collections and deferred income (Note 10) | 19,245 |
| 19,239 |
| | — |
| — |
|
Other GE current liabilities | 13,886 |
| 14,453 |
| | — |
| — |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
| | 1,498 |
| 1,875 |
|
Long-term borrowings (Note 11) | 15,107 |
| 20,804 |
| | 33,390 |
| 36,154 |
|
Long-term borrowings assumed by GE (Note 11) | 26,204 |
| 32,054 |
| | 17,255 |
| 19,828 |
|
Operating lease liabilities (Note 7) | 3,389 |
| — |
| | 239 |
| — |
|
Insurance liabilities and annuity benefits (Note 12) | — |
| — |
| | 40,550 |
| 35,994 |
|
Non-current compensation and benefits | 30,654 |
| 31,875 |
| | 532 |
| 856 |
|
All other liabilities | 13,371 |
| 14,889 |
| | 4,748 |
| 6,724 |
|
Liabilities of businesses held for sale (Note 2) | 1,430 |
| 748 |
| | 129 |
| — |
|
Liabilities of discontinued operations (Note 2) | 159 |
| 17,481 |
| | 228 |
| 1,800 |
|
Total liabilities | 154,078 |
| 180,045 |
| | 108,079 |
| 112,527 |
|
| | | | | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2019 and December 31, 2018) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,733,549,000 and 8,702,227,000 shares outstanding at September 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
| | — |
| — |
|
Accumulated other comprehensive income (loss) - net attributable to GE | (11,361 | ) | (14,414 | ) | | (781 | ) | (783 | ) |
Other capital | 34,315 |
| 35,504 |
| | 14,500 |
| 12,883 |
|
Retained earnings | 87,213 |
| 93,109 |
| | (906 | ) | (694 | ) |
Less common stock held in treasury | (82,940 | ) | (83,925 | ) | | — |
| — |
|
Total GE shareowners’ equity | 27,935 |
| 30,981 |
| | 12,819 |
| 11,412 |
|
Noncontrolling interests | 1,082 |
| 20,499 |
| | 137 |
| 1 |
|
Total equity (Note 15) | 29,016 |
| 51,480 |
| | 12,955 |
| 11,412 |
|
Total liabilities and equity | $ | 183,094 |
| $ | 231,526 |
| | $ | 121,035 |
| $ | 123,939 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
|
| | | | | | |
STATEMENT OF CASH FLOWS | Nine months ended September 30 |
(UNAUDITED) | General Electric Company and consolidated affiliates |
(In millions) | 2019 |
| 2018 |
|
| | |
Net earnings (loss) | $ | (5,634 | ) | $ | (23,304 | ) |
(Earnings) loss from discontinued operations | 5,212 |
| 1,526 |
|
Adjustments to reconcile net earnings (loss) | | |
to cash provided from operating activities | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 2,969 |
| 3,357 |
|
Amortization of intangible assets (Note 8) | 1,220 |
| 1,740 |
|
Goodwill impairments (Note 8) | 1,484 |
| 21,973 |
|
(Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
(Gains) losses on purchases and sales of business interests | (260 | ) | (763 | ) |
Principal pension plans cost (Note 13) | 2,509 |
| 3,172 |
|
Principal pension plans employer contributions | (202 | ) | (6,186 | ) |
Other postretirement benefit plans (net) | (809 | ) | (854 | ) |
Provision (benefit) for income taxes | (1 | ) | 460 |
|
Cash recovered (paid) during the year for income taxes | (1,427 | ) | (1,051 | ) |
Decrease (increase) in contract and other deferred assets | (321 | ) | (750 | ) |
Decrease (increase) in GE current receivables | (1,857 | ) | (993 | ) |
Decrease (increase) in inventories | (2,113 | ) | (1,447 | ) |
Increase (decrease) in accounts payable | 1,259 |
| 775 |
|
Increase (decrease) in GE progress collections | (216 | ) | (1,081 | ) |
All other operating activities | 1,606 |
| (908 | ) |
Cash from (used for) operating activities – continuing operations | 3,423 |
| (4,334 | ) |
Cash from (used for) operating activities – discontinued operations | (1,390 | ) | 745 |
|
Cash from (used for) operating activities | 2,033 |
| (3,589 | ) |
| | |
Additions to property, plant and equipment | (4,175 | ) | (4,265 | ) |
Dispositions of property, plant and equipment | 2,796 |
| 2,378 |
|
Additions to internal-use software | (208 | ) | (249 | ) |
Net decrease (increase) in financing receivables | 523 |
| 1,281 |
|
Proceeds from sale of discontinued operations | 5,864 |
| 29 |
|
Proceeds from principal business dispositions | 1,124 |
| 5,477 |
|
Net cash from (payments for) principal businesses purchased | — |
| (1 | ) |
Capital contribution from GE to GE Capital | — |
| — |
|
All other investing activities | 1,165 |
| 7,480 |
|
Cash from (used for) investing activities – continuing operations | 7,087 |
| 12,129 |
|
Cash from (used for) investing activities – discontinued operations | (2,037 | ) | (493 | ) |
Cash from (used for) investing activities | 5,050 |
| 11,636 |
|
| | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | (185 | ) | (1,901 | ) |
Newly issued debt (maturities longer than 90 days) | 1,449 |
| 2,349 |
|
Repayments and other debt reductions (maturities longer than 90 days) | (13,476 | ) | (17,725 | ) |
Capital contribution from GE to GE Capital | — |
| — |
|
Net dispositions (purchases) of GE shares for treasury | 31 |
| (6 | ) |
Dividends paid to shareowners | (411 | ) | (3,282 | ) |
All other financing activities | (1,128 | ) | (1,659 | ) |
Cash from (used for) financing activities – continuing operations | (13,721 | ) | (22,224 | ) |
Cash from (used for) financing activities – discontinued operations | (368 | ) | (2,743 | ) |
Cash from (used for) financing activities | (14,089 | ) | (24,967 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (131 | ) | (440 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | (7,136 | ) | (17,361 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 35,548 |
| 44,724 |
|
Cash, cash equivalents and restricted cash at September 30 | 28,412 |
| 27,364 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 602 |
| 5,310 |
|
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 27,810 |
| $ | 22,054 |
|
|
| | | | | | | | | | | | | |
STATEMENT OF CASH FLOWS (CONTINUED) | Nine months ended September 30 |
(UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
(In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Net earnings (loss) | $ | (5,902 | ) | $ | (23,604 | ) | | $ | (76 | ) | $ | (1,682 | ) |
(Earnings) loss from discontinued operations | 5,212 |
| 1,526 |
| | (255 | ) | 1,579 |
|
Adjustments to reconcile net earnings (loss) | | | | | |
to cash provided from operating activities | | | | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 1,453 |
| 1,756 |
| | 1,513 |
| 1,593 |
|
Amortization of intangible assets (Note 8) | 1,176 |
| 1,698 |
| | 44 |
| 42 |
|
Goodwill impairments (Note 8) | 1,484 |
| 21,973 |
| | — |
| — |
|
(Earnings) loss from continuing operations retained by GE Capital(b) | 599 |
| 403 |
| | — |
| — |
|
(Gains) losses on purchases and sales of business interests | (260 | ) | (475 | ) | | — |
| (288 | ) |
Principal pension plans cost (Note 13) | 2,509 |
| 3,172 |
| | — |
| — |
|
Principal pension plans employer contributions | (202 | ) | (6,186 | ) | | — |
| — |
|
Other postretirement benefit plans (net) | (798 | ) | (835 | ) | | (11 | ) | (19 | ) |
Provision (benefit) for income taxes | 327 |
| 624 |
| | (327 | ) | (165 | ) |
Cash recovered (paid) during the year for income taxes | (1,346 | ) | (956 | ) | | (81 | ) | (95 | ) |
Decrease (increase) in contract and other deferred assets | (321 | ) | (750 | ) | | — |
| — |
|
Decrease (increase) in GE current receivables | (2,370 | ) | (580 | ) | | — |
| — |
|
Decrease (increase) in inventories | (1,950 | ) | (1,442 | ) | | — |
| — |
|
Increase (decrease) in accounts payable | 164 |
| 683 |
| | (3 | ) | (12 | ) |
Increase (decrease) in GE progress collections | (254 | ) | (930 | ) | | — |
| — |
|
All other operating activities (Note 20) | 554 |
| (537 | ) | | 431 |
| (456 | ) |
Cash from (used for) operating activities – continuing operations | 77 |
| (4,458 | ) | | 1,235 |
| 497 |
|
Cash from (used for) operating activities – discontinued operations | (17 | ) | 730 |
| | (1,700 | ) | (101 | ) |
Cash from (used for) operating activities | 60 |
| (3,729 | ) | | (465 | ) | 395 |
|
| | | | | |
Additions to property, plant and equipment | (1,596 | ) | (1,702 | ) | | (2,795 | ) | (2,630 | ) |
Dispositions of property, plant and equipment | 273 |
| 193 |
| | 2,544 |
| 2,196 |
|
Additions to internal-use software | (203 | ) | (233 | ) | | (5 | ) | (16 | ) |
Net decrease (increase) in financing receivables | — |
| — |
| | 2,399 |
| 6,656 |
|
Proceeds from sale of discontinued operations | 5,864 |
| — |
| | — |
| 29 |
|
Proceeds from principal business dispositions | 1,083 |
| 3,270 |
| | 380 |
| 2,011 |
|
Net cash from (payments for) principal businesses purchased | (380 | ) | (1 | ) | | — |
| — |
|
Capital contribution from GE to GE Capital | (1,500 | ) | — |
| | — |
| — |
|
All other investing activities (Note 20) | 3,404 |
| (824 | ) | | 211 |
| (1,739 | ) |
Cash from (used for) investing activities – continuing operations | 6,946 |
| 702 |
| | 2,734 |
| 6,507 |
|
Cash from (used for) investing activities – discontinued operations | (3,480 | ) | (153 | ) | | 1,770 |
| (224 | ) |
Cash from (used for) investing activities | 3,466 |
| 550 |
| | 4,504 |
| 6,283 |
|
| | | | | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,005 | ) | (1,489 | ) | | (539 | ) | (1,765 | ) |
Newly issued debt (maturities longer than 90 days) | 5 |
| 6,555 |
| | 1,445 |
| 2,288 |
|
Repayments and other debt reductions (maturities longer than 90 days) | (5,342 | ) | (1,007 | ) | | (8,613 | ) | (17,274 | ) |
Capital contribution from GE to GE Capital | — |
| — |
| | 1,500 |
| — |
|
Net dispositions (purchases) of GE shares for treasury | 31 |
| (6 | ) | | — |
| — |
|
Dividends paid to shareowners | (262 | ) | (3,135 | ) | | (266 | ) | (185 | ) |
All other financing activities (Note 20) | (348 | ) | 432 |
| | (805 | ) | (2,091 | ) |
Cash from (used for) financing activities – continuing operations | (6,923 | ) | 1,350 |
| | (7,279 | ) | (19,027 | ) |
Cash from (used for) financing activities – discontinued operations | (368 | ) | (2,743 | ) | | (1 | ) | — |
|
Cash from (used for) financing activities | (7,290 | ) | (1,393 | ) | | (7,279 | ) | (19,027 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (103 | ) | (388 | ) | | (28 | ) | (51 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | (3,867 | ) | (4,961 | ) | | (3,269 | ) | (12,400 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 20,528 |
| 18,822 |
| | 15,020 |
| 25,902 |
|
Cash, cash equivalents and restricted cash at September 30 | 16,660 |
| 13,862 |
| | 11,751 |
| 13,502 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 4 |
| 4,878 |
| | 598 |
| 432 |
|
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 16,656 |
| $ | 8,983 |
| | $ | 11,154 |
| $ | 13,071 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | Represents GE Capital earnings (loss) from continuing operations attributable to the Company. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. To the extent that we have 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 currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.
We have reclassified certain prior-period amounts to conform to the current-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. 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.
The accompanying consolidated financial statements represent the consolidation of General Electric Company (the Company) and all companies that we directly or indirectly control, either through majority ownership or otherwise. As used in these financial statements, “GE” represents the adding together of all affiliated companies except GE Capital (GE Capital or Financial Services), whose continuing operations are presented on a one-line basis; GE Capital represents the adding together of all affiliates of GE Capital with the effects of transactions among such affiliates eliminated; and “Consolidated” represents the adding together of GE and GE Capital with the effects of transactions between the two eliminated.
The consolidated financial statements and notes thereto are unaudited. These statements include all adjustments 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. These 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, 2018.
We have reclassified certain prior-period amounts to conform to the current-period presentation. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations.2019.
Our significant accounting policies are described in Note 1 to the consolidated financial statements of our aforementioned Annual Report. We include herein certain updates to those policies.
Cash, cash equivalentsAllowance for credit losses. When we record customer receivables, contract assets and restricted cash.Debt securitiesfinancing receivables arising from revenue transactions, as well as commercial mortgage loans and money market instruments with original maturitiesreinsurance recoveries in GE Capital’s run-off insurance operations, financial guarantees and certain commitments, we record an allowance for credit losses for the current 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 three months or less are included in cash, cash equivalents and restricted cash unless designated as available-for-sale and classified as investment securities. The balance includes restricted cashthe 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 $633 million and $388 million at September 30, 2019 and December 31, 2018, respectively, primarily comprising collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.the assets.
LEASE ACCOUNTING. We determine if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified we reevaluate our classification.
Lessee. At lease commencement, we record a lease liability and corresponding right-of-use (ROU) asset. Lease liabilities represent the present value of our future lease payments over theestimate expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. We have elected to include lease and non-lease components in determining our lease liability for all leased assets except our vehicle leases. Non-lease components are generally services that the lessor performs for the Company associated with the leased asset. For those leases with paymentscredit losses based on an index,relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the lease liability is determined usingcollectability of the index at lease commencement. Lease payments based on increasesreported amount. When measuring expected credit losses, we pool assets with similar country risk and credit risk characteristics. Changes in the index subsequent to lease commencement are recognized as variable lease expense as they occur. The present valuerelevant information may significantly affect the estimates of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to earnings in a manner that results in straight-line expense recognition.
Lessor. Equipment leased to others under operating leases are included in "Property, plant and equipment" and leases classified as finance leases are included in "Financing receivables" on our consolidated Statement of Financial Position. Refer to Notes 5 and 7 for additional information.expected credit losses.
ACCOUNTING CHANGES.On January 1, 2019,2020, we adopted ASU No. 2016-02,2016-13, LeasesFinancial Instruments - Credit Losses (ASU 2016-13). Upon adoption, weASU 2016-13 requires us to prospectively record an allowance for credit losses for the current 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 $315$221 million increase in our allowance for credit losses and a $175 million decrease to retained earnings, primarily attributablenet of tax, reflecting the cumulative effect on retained earnings.
In the three months ended March 31, 2020, we increased our CECL reserves by recording a charge to the releaseearnings of deferred gains on sale-lease back transactions. Our ROU assets and lease liabilities for operating leases excluding discontinued operations at adoption were $3,272$111 million and $3,459 million, respectively. After the adoption date, cash collections of principal on financing leases, are classified as Cash from operating activitiesto reflect higher expected credit losses in our consolidated Statement of Cash Flows. Previously, such flows were classified as Cash from investing activities.Aviation and GE Capital segments.
On January 1, 2019,2020 we adopted ASU No. 2017-12,2017-04, DerivativesIntangibles - Goodwill and HedgingOther (Topic 815)350): Targeted Improvements to AccountingSimplifying the Test for Hedging ActivitiesGoodwill Impairment. The ASU requires certain changes toeliminates Step 2 of the presentation of hedge accounting ingoodwill impairment test and the financial statements and some newqualitative assessment for any reporting unit with a zero or modified disclosures.negative carrying amount. The ASU also simplifiesrequires an entity to disclose the applicationamount of hedge accounting and expands the strategies that qualify for hedge accounting. Upongoodwill allocated to each reporting unit with a zero or negative carrying amount. The adoption we recordeddid not have an increase to retained earnings and a decrease to borrowings of $52 million related to changes to the measurement of hedged interest rate risks.impact on our financial statements.
52 2019 3Q2020 1Q FORM 10-Q37
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE. In August 2019,On March 31, 2020, we announced an agreement to sell PK AirFinance, an aviation lending business within our Capital segment, to Apollo Global Management, LLC (Apollo) and Athene Holding Ltd. (Athene). As of the third quarter of 2019, we had assets of $3,900 million and liabilities of $129 million for this business classified as held for sale. We expect to completecompleted the sale in the fourth quarter of 2019.
In February 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21,400 million. As$21,141 million (after certain working capital adjustments). The consideration consisted of the third quarter$20,724 million in cash and $417 million of 2019,pension liabilities that were assumed by Danaher. We received cash of $20,321 million on March 31st and an additional $403 million on April 1st. In addition, we had assets of $8,332 million (including goodwill of $5,523 million) and liabilities of $1,174 million for this business classified as held for sale. We expect to completeincur approximately $200 million of cash payments directly associated with the sale, subject to regulatory approval,transaction in the first quarter of 2020.
In November 2017, the Company announced its intention to exit approximately $20 billion of assets. Since this announcement, GE has classified various businesses across our Power, Aviation, and Healthcare segments, and Corporate as held for sale. In 2019,second quarter. As a result, we closed certain of these transactions within Corporate and our Power and Aviation segments for total net proceeds of $1,070 million, recognized a pre-taxpretax gain of $218$12,292 million in the caption “Other income”($11,145 million after tax) in our consolidated Statement of Earnings (Loss).
Assets and liquidated $548 millionliabilities of businesses held for sale primarily comprise the remaining Lighting business within Corporate and the remaining PK AirFinance business within our previously recorded valuation allowance. These transactions are subject to customary working capital and other post-close adjustments. As of September 30, 2019, we have closed the sale of substantially all of these assets in accordance with the plan.Capital segment.
| | ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE (In millions) | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| Current receivables | $ | 400 |
| $ | 184 |
| $ | 217 |
| $ | 499 |
|
Inventories | 707 |
| 529 |
| 160 |
| 712 |
|
Financing receivables held for sale | 3,849 |
| — |
| 197 |
| 197 |
|
Property, plant, and equipment – net and Operating leases | 906 |
| 423 |
| |
Property, plant, and equipment | | 77 |
| 958 |
|
Goodwill and Other intangible assets - net | 6,285 |
| 884 |
| 169 |
| 6,286 |
|
Valuation allowance | (508 | ) | (1,013 | ) | (412 | ) | (719 | ) |
Deferred tax asset | 819 |
| — |
| |
Other assets | 376 |
| 622 |
| |
Deferred income taxes | | — |
| 815 |
|
All other assets | | 97 |
| 400 |
|
Assets of businesses held for sale | $ | 12,832 |
| $ | 1,629 |
| $ | 506 |
| $ | 9,149 |
|
| Accounts payable & Progress collections and deferred income | $ | 798 |
| $ | 428 |
| $ | 135 |
| $ | 843 |
|
Non-current compensation and benefits | 360 |
| 152 |
| — |
| 466 |
|
Other liabilities | 384 |
| 128 |
| |
All other liabilities | | 84 |
| 349 |
|
Liabilities of businesses held for sale | $ | 1,543 |
| $ | 708 |
| $ | 219 |
| $ | 1,658 |
|
DISCONTINUED OPERATIONS. Discontinued operations primarily include our Baker Hughes and Transportation segments, and certain assetsbusinesses in our GE Capital segment (our mortgage portfolio in Poland and trailing liabilities from legacyassociated with the sale of our GE Capital businesses). Results of operations, financial services businesses. position and cash flows for these businesses are reported as discontinued operations for all periods presented.
In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million shares in Baker Hughes for $3,037 million in cash (net of expenses) which, reduced our ownership interest in Baker Hughes from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified its results to discontinued operations for all periods presented and recognized a loss of $8,667 million ($8,190 million after-tax) in discontinued operations in the third quarter of 2019. The loss represents the sum of the realized loss on sale of the 144.1 million shares as well as the loss upon deconsolidation, which represents the difference between the carrying value and fair value of our remaining interest as of the transaction date.
We elected to account for our remaining interest in Baker Hughes (comprising our 36.8% ownership interest and a promissory note receivable) at fair value. The initial fair value of this investment was $9,631 million based on the Baker Hughes opening share price of $23.53 as of the transaction date and the fair value of the promissory note receivable of $750 million. Our investment is recorded in the caption “Investment securities” in our consolidated Statement of Financial Position and related earnings or loss from subsequent changes in fair value will be recognized in the caption "Other income" in continuing operations in our consolidated Statement of Earnings (Loss). See Note 3 for further information.presented.
We have continuing involvement with Baker Hughes primarily through our remaining interest, ongoing purchases and sales of products and services, as well as the transition services that we provide to Baker Hughes. SinceHughes as well as an aeroderivative joint venture, which we formed with Baker Hughes and currently consolidate. In the datefirst quarter of the transaction, our2020, we had sales and purchases of products and services with Baker Hughes and affiliates was not significant during the third quarter of 2019. They also participated in GE's supply chain finance program up to the date of separation with a current outstanding balance of $312 million. In addition, Baker Hughes has an outstanding promissory note to GE, which represents cash that Baker Hughes is holding on GE’s behalf due to its restricted nature. The restrictions arise as majority of the cash cannot be transferred or converted into a non-restricted market currency due to the lack of market liquidity, capital controls or exchange limitations by a Government entity. As these restrictions lapse, Baker Hughes is obligated to make principal repayments on the promissory note. Since the date of the transaction, we$290 million and $36 million, respectively. We have collected net cash of $157$415 million from Baker Hughes related to these activities, including $151$106 million repaymentof repayments on the promissory note. In addition, in the first quarter of 2020 we received a dividend of $68 million from Baker Hughes.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In February 2019, we completed the spin-off and subsequent merger of our Transportation business with Wabtec,Wabtec. As a U.S. rail equipment manufacturer. In the transaction, GE shareholders received shares of Wabtec common stock representing an approximate 24.3% ownership interest in Wabtec common stock. GE received $2,827 million in cash (net of certain deal related costs) as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $470 million for tax benefits that Wabtec realizes from the transaction. We reclassified our Transportation segment to discontinued operations in the first quarter of 2019.
As part of the transaction,result, we recorded a gain of $3,471 million ($2,508 million after-tax) in discontinued operations and a net after-tax decrease of $852million in additional paid in capital in connection with the spin-off ofapproximately 49.4% of Transportation to our shareholders. The fair value of our interest in Wabtec’s common and preferred shares was $3,513 million based on the opening share price of $73.45 at the date of the transaction and was recorded in the caption “Investment securities” in our consolidated Statement of Financial Position.
Discontinued operations for our financial services businesses primarily relate to the GE Capital Exit Plan (our plan announced in 2015 to reduce the size of our financial services businesses) and were previously reported in the Capital segment. These discontinued operations primarily comprise residual assets and liabilities related to our exited U.S. mortgage business (WMC), our mortgage portfolio in Poland, and trailing liabilities associated with the sale of our GE Capital businesses.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1,500 million.
In June 2019, GE Capital recorded in the caption "Earnings (loss) from discontinued operations, net of taxes" in our consolidated Statement of Earnings (Loss), $332 million of tax benefits and $46 million of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See Note 14 for further information.
Results of operations, financial position and cash flows for these businesses are reported as discontinued operations for all periods presented. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
RESULTS OF DISCONTINUED OPERATIONS (In millions) | Baker Hughes | | Transportation and Other | | GE Capital | | Total |
Three months ended September 30 | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
| | | | | | | | | | | |
Operations | | | | | | | | | | | |
Sales of goods and services | $ | 4,478 |
| $ | 5,670 |
| | $ | — |
| $ | 932 |
| | $ | — |
| $ | — |
| | $ | 4,478 |
| $ | 6,602 |
|
GE Capital revenues and other income (loss) | — |
| — |
| | — |
| — |
| | 16 |
| 152 |
| | 16 |
| 152 |
|
Cost of goods and services sold | (3,686 | ) | (4,767 | ) | | — |
| (652 | ) | | — |
| — |
| | (3,686 | ) | (5,419 | ) |
Other costs and expenses | (618 | ) | (830 | ) | | (16 | ) | (127 | ) | | (53 | ) | (90 | ) | | (686 | ) | (1,048 | ) |
| | | | | | | | | | | |
Earnings (loss) of discontinued operations before income taxes | 175 |
| 73 |
| | (16 | ) | 152 |
| | (37 | ) | 61 |
| | 121 |
| 287 |
|
Benefit (provision) for income taxes | (50 | ) | (78 | ) | | 6 |
| (32 | ) | | 29 |
| (22 | ) | | (14 | ) | (132 | ) |
Earnings (loss) of discontinued operations, net of taxes(a) | $ | 125 |
| $ | (5 | ) | | $ | (9 | ) | $ | 120 |
| | $ | (8 | ) | $ | 40 |
| | $ | 107 |
| $ | 155 |
|
| | | | | | | | | | | |
Disposal | | | | | | | | | | | |
Gain (loss) on disposal before income taxes | (8,667 | ) | — |
| | — |
| — |
| | (10 | ) | — |
| | (8,677 | ) | — |
|
Benefit (provision) for income taxes | 477 |
| — |
| | — |
| — |
| | — |
| — |
| | 477 |
| — |
|
Gain (loss) on disposal, net of taxes | $ | (8,190 | ) | $ | — |
| | $ | — |
| $ | — |
| | $ | (10 | ) | $ | — |
| | $ | (8,201 | ) | $ | — |
|
| | | | | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (8,066 | ) | $ | (5 | ) | | $ | (9 | ) | $ | 120 |
| | $ | (18 | ) | $ | 40 |
| | $ | (8,093 | ) | $ | 155 |
|
(a) Earnings (loss) of discontinued operations attributable to the Company after income taxes was $61 million and $148 million for the three months ended September 30, 2019 and 2018 respectively.
operations.
5438 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | RESULTS OF DISCONTINUED OPERATIONS (In millions) | Baker Hughes | | Transportation and Other | | GE Capital | | Total | Baker Hughes | | Transportation | | GE Capital | | Total |
Nine months ended September 30 | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | |
Three months ended March 31 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| | | | | | | | | | | | | | |
Operations | | | | | | | | | | | | | | |
Sales of goods and services | $ | 16,047 |
| $ | 16,609 |
| | $ | 549 |
| $ | 2,746 |
| | $ | — |
| $ | — |
| | $ | 16,596 |
| $ | 19,355 |
| $ | — |
| $ | 5,616 |
| | $ | — |
| $ | 549 |
| | $ | — |
| $ | — |
| | $ | — |
| $ | 6,165 |
|
GE Capital revenues and other income (loss) | — |
| — |
| | — |
| — |
| | 7 |
| (1,316 | ) | | 7 |
| (1,316 | ) | |
GE Capital revenues from services | | — |
| — |
| | — |
| — |
| | (76 | ) | 39 |
| | (76 | ) | 39 |
|
Cost of goods and services sold | (13,317 | ) | (14,140 | ) | | (478 | ) | (1,942 | ) | | — |
| — |
| | (13,795 | ) | (16,082 | ) | — |
| (4,677 | ) | | — |
| (478 | ) | | — |
| — |
| | — |
| (5,155 | ) |
Other costs and expenses | (2,386 | ) | (2,530 | ) | | (22 | ) | (473 | ) | | (142 | ) | (298 | ) | | (2,550 | ) | (3,301 | ) | — |
| (787 | ) | | (4 | ) | (9 | ) | | (85 | ) | (74 | ) | | (89 | ) | (870 | ) |
| | | | | | | | | | | | | | |
Earnings (loss) of discontinued operations before income taxes | 345 |
| (61 | ) | | 49 |
| 331 |
| | (136 | ) | (1,614 | ) | | $ | 258 |
| $ | (1,343 | ) | — |
| 152 |
| | (4 | ) | 62 |
| | (161 | ) | (35 | ) | | (165 | ) | 179 |
|
Benefit (provision) for income taxes | (165 | ) | (124 | ) | | (13 | ) | (93 | ) | | 356 |
| 32 |
| | 178 |
| (186 | ) | (13 | ) | (82 | ) | | 7 |
| (12 | ) | | (3 | ) | 25 |
| | (9 | ) | (70 | ) |
Earnings (loss) of discontinued operations, net of taxes(a) | $ | 179 |
| $ | (185 | ) | | $ | 36 |
| $ | 237 |
| | $ | 220 |
| $ | (1,582 | ) | | $ | 436 |
| $ | (1,529 | ) | $ | (13 | ) | $ | 70 |
| | $ | 3 |
| $ | 50 |
| | $ | (164 | ) | $ | (10 | ) | | $ | (174 | ) | $ | 109 |
|
| | | | | | | | | | | | | | |
Disposal | | | | | | | | | | | | | | |
Gain (loss) on disposal before income taxes | (8,667 | ) | — |
| | 3,471 |
| — |
| | 36 |
| 4 |
| | $ | (5,160 | ) | $ | 4 |
| (4 | ) | — |
| | — |
| 3,471 |
| | — |
| 47 |
| | (4 | ) | 3,518 |
|
Benefit (provision) for income taxes | 477 |
| — |
| | (963 | ) | — |
| | (2 | ) | (1 | ) | | (488 | ) | (1 | ) | — |
| — |
| | — |
| (963 | ) | | — |
| (2 | ) | | — |
| (964 | ) |
Gain (loss) on disposal, net of taxes | $ | (8,190 | ) | $ | — |
| | $ | 2,508 |
| $ | — |
| | $ | 35 |
| $ | 3 |
| | $ | (5,648 | ) | $ | 3 |
| $ | (4 | ) | $ | — |
| | $ | — |
| $ | 2,508 |
| | $ | — |
| $ | 45 |
| | $ | (4 | ) | $ | 2,553 |
|
|
| | | | | | | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (8,011 | ) | $ | (185 | ) | | $ | 2,544 |
| $ | 237 |
| | $ | 255 |
| $ | (1,579 | ) | | $ | (5,212 | ) | $ | (1,526 | ) | $ | (17 | ) | $ | 70 |
| | $ | 3 |
| $ | 2,558 |
| | $ | (164 | ) | $ | 35 |
| | $ | (178 | ) | $ | 2,663 |
|
(a) Earnings (loss) of discontinued operations attributable to the Company after income taxes was $378$(172) million and $(1,432)$76 million for the ninethree months ended September 30,March 31, 2020 and 2019 and 2018 respectively.
|
| | | | | | |
ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS (In millions) | September 30, 2019 |
| December 31, 2018 |
|
|
|
|
Cash, cash equivalents and restricted cash | $ | 602 |
| $ | 4,424 |
|
Investment securities | 207 |
| 522 |
|
Current receivables | 81 |
| 6,258 |
|
Inventories | — |
| 5,419 |
|
Financing receivables held for sale (Polish mortgage portfolio) | 2,542 |
| 2,745 |
|
Property, plant and equipment - net and Operating leases | 139 |
| 7,139 |
|
Goodwill and intangible assets - net | — |
| 31,622 |
|
Deferred income taxes | 312 |
| 1,174 |
|
All other assets | 296 |
| 4,550 |
|
Assets of discontinued operations(a) | $ | 4,178 |
| $ | 63,853 |
|
|
|
|
Accounts payable and Progress collections and deferred income | $ | 32 |
| $ | 6,806 |
|
Operating lease liabilities | 217 |
| — |
|
Other GE current liabilities | 51 |
| 2,002 |
|
All other liabilities | 88 |
| 10,473 |
|
Liabilities of discontinued operations(b) | $ | 387 |
| $ | 19,281 |
|
|
| | | | | | |
ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS (In millions) | March 31, 2020 |
| December 31, 2019 |
|
|
|
|
Cash, cash equivalents and restricted cash | $ | 437 |
| $ | 638 |
|
Investment securities | 170 |
| 202 |
|
Current receivables | 63 |
| 81 |
|
Financing receivables held for sale (Polish mortgage portfolio) | 2,371 |
| 2,485 |
|
Property, plant, and equipment | 117 |
| 123 |
|
Deferred income taxes | 211 |
| 264 |
|
All other assets | 285 |
| 317 |
|
Assets of discontinued operations | $ | 3,653 |
| $ | 4,109 |
|
|
|
|
Accounts payable & Progress collections and deferred income | $ | 22 |
| $ | 40 |
|
All other liabilities (a) | 117 |
| 163 |
|
Liabilities of discontinued operations | $ | 139 |
| $ | 203 |
|
(a) Assets of discontinued operations included $54,596 million and $4,573 million related to our Baker Hughes and Transportation businesses, respectively as of December 31, 2018.
(b) Liabilities of discontinued operations included $15,535 million and $1,871 million related to our Baker Hughes and Transportation businesses, respectively as of December 31, 2018.
Included within allAll other liabilities of discontinued operations at September 30, 2019March 31, 2020 and December 31, 20182019 are intercompany tax receivables in the amount of $879$880 million and $1,141$839 million, respectively, primarily related to the financial services businesses that were part of the GE Capital Exit Plan, thatwhich are offset within allAll other liabilities of consolidated GE.
NOTE 3. INVESTMENT SECURITIES
All of our debt securities are classified as available-for-sale and substantially all are investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations. Changes in fair value of our debt securities are recorded toin other comprehensive income. All of our equityEquity securities havewith readily determinable fair values are included within this caption and changes in their fair value are recorded toin earnings.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 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 | $ | 23,167 |
| $ | 3,795 |
| $ | (493 | ) | $ | 26,470 |
|
| $ | 23,037 |
| $ | 4,636 |
| $ | (11 | ) | $ | 27,661 |
|
Non-U.S. corporate | 2,155 |
| 150 |
| (60 | ) | 2,246 |
|
| 2,161 |
| 260 |
| (1 | ) | 2,420 |
|
State and municipal | 3,090 |
| 638 |
| (21 | ) | 3,708 |
|
| 3,086 |
| 598 |
| (15 | ) | 3,669 |
|
Mortgage and asset-backed | 3,296 |
| 51 |
| (143 | ) | 3,205 |
|
| 3,117 |
| 116 |
| (4 | ) | 3,229 |
|
Government and agencies | 1,269 |
| 157 |
| — |
| 1,427 |
|
| 1,391 |
| 126 |
| — |
| 1,516 |
|
Equity | 5,245 |
| — |
| — |
| 5,245 |
|
| 10,025 |
| — |
| — |
| 10,025 |
|
Total | $ | 38,223 |
| $ | 4,792 |
| $ | (716 | ) | $ | 42,299 |
|
| $ | 42,816 |
| $ | 5,736 |
| $ | (31 | ) | $ | 48,521 |
|
2019 3Q2020 1Q FORM 10-Q 5539
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| December 31, 2018 |
(In millions) | Amortized cost |
| Gross unrealized gains |
| Gross unrealized losses |
| Estimated fair value |
|
| Amortized cost |
| Gross unrealized gains |
| Gross unrealized losses |
| Estimated fair value |
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
|
|
|
|
U.S. corporate | $ | 22,945 |
| $ | 4,728 |
| $ | (20 | ) | $ | 27,653 |
|
| $ | 21,306 |
| $ | 2,257 |
| $ | (357 | ) | $ | 23,206 |
|
Non-U.S. corporate | 2,212 |
| 262 |
| (1 | ) | 2,473 |
|
| 1,906 |
| 53 |
| (76 | ) | 1,883 |
|
State and municipal | 3,207 |
| 705 |
| (19 | ) | 3,893 |
|
| 3,320 |
| 367 |
| (54 | ) | 3,633 |
|
Mortgage and asset-backed | 3,000 |
| 158 |
| (3 | ) | 3,155 |
|
| 3,325 |
| 51 |
| (54 | ) | 3,322 |
|
Government and agencies | 1,420 |
| 155 |
| — |
| 1,575 |
|
| 1,314 |
| 62 |
| (20 | ) | 1,357 |
|
Equity | 9,476 |
| — |
| — |
| 9,476 |
|
| 107 |
| — |
| — |
| 107 |
|
Total | $ | 42,259 |
| $ | 6,008 |
| $ | (42 | ) | $ | 48,225 |
|
| $ | 31,277 |
| $ | 2,792 |
| $ | (561 | ) | $ | 33,508 |
|
The amortized cost of debt securities as of March 31, 2020 excludes accrued interest of $432 million, which is reported in Other GE Capital receivables.
The estimated fair values of investment securities at September 30, 2019 increasedMarch 31, 2020 decreased since December 31, 2018,2019, primarily due to decreases in market yields and the classification ofmark-to-market effects on our remaining equity interest in Baker Hughes, within investment securities. We elected to account for ouras well as an increase in market interest rates as a result of a significant widening in credit spreads, a significant decline in oil prices and a challenging liquidity environment. The fair value of remaining Baker Hughes interest comprising our 36.8% ownership interest and a promissory note receivable was $4,083 million at March 31, 2020.
Gross unrealized losses of $(685) million and $(31) million are associated with debt securities with a fair value whichof $6,253 million and $173 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at March 31, 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.
At March 31, 2020, gross unrealized losses of $(716) million included $(493) million related to U.S. corporate securities and $(114) million related to commercial mortgage-backed securities (CMBS). Of the U.S. corporate securities in an unrealized loss position, $(313) million and $(57) million related to the energy and consumer industries, respectively. 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.
With respect to our debt securities that are in an unrealized loss position at March 31, 2020, our current intention is estimatedto hold them at $9,356least until such time as their individual fair values exceed their amortized cost and based upon the long duration of our insurance liabilities, we have the ability to hold all such debt securities until their maturities. We assessed debt securities in an unrealized loss position for credit losses and recognized an allowance for credit losses on investment securities of $(24) million at September 30, 2019. During for the three months ended September 30, 2019,ending March 31, 2020. In addition to our qualitative and quantitative evaluation criteria, our credit loss assessment at March 31, 2020 considered the continuing market deterioration that resulted in the lack of liquidity and the historic levels of price volatility and credit spreads in the fixed income market. With respect to corporate bonds, we completedevaluated the salecredit quality of our remaining Wabtec common stock for proceeds of $1,584 million. See Note 2 for further information. the issuers. With respect to CMBS, we evaluated the cash flows from the underlying collateral.
Net unrealized gains (losses) recorded to earnings for equity securities with readily determinable fair values, which are recorded in Other income within continuing operations, were $(89)$(5,772) million and $(131) millionan insignificant amount for the three and nine months ended September 30,March 31, 2020 and 2019, respectively, includingrespectively. The amount recognized in the three months ended March 31, 2020 primarily included a loss of $(125)$(5,710) million related to our interest in Baker Hughes. Net unrealized gains (losses) recorded to earnings for equity securities were $(57)Hughes and $(85) million at GE Capital, predominantly from fixed income exchange traded funds supporting our insurance liabilities and $210 million for the three and nine months ended September 30, 2018, respectively.
Although we generally do not have the intent to sell any specific debt securities in the ordinary course of managing our portfolio, we may sell debt securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. Where we have retained an equity interest in disposed businesses, we intend to sell those equity interests when it's economically advantageous to do so.annuity benefits.
Proceeds from debt and equity securities sales, early redemptions by issuers and principal payments on the Baker Hughes promissory note totaled $2,318$1,250 million and $1,483$1,421 million infor the three months ended March 31, 2020 and $6,652 million and $2,173 million in the nine months ended September 30, 2019, and 2018, respectively. Gross realized gains on investment securities were $10$46 million and $11$44 million and gross realized losses and impairments were $(75)$(17) million and $(32)$(39) million infor the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Gross realized gains on investment securities were $86 million and $49 million and gross realized losses and impairments were $(181) million and $(35) million in the nine months ended September 30, 2019 and 2018, respectively. These realized losses included $(70) million and $(130) million related to the Wabtec sale in the three months and nine months ended September 30, 2019, respectively.
Gross unrealized lossesContractual maturities of $(10) million and $(32) million are associated withinvestments in debt securities with a fair value of $791 million(excluding mortgage and $333 million that have been in a loss position for less than 12 months and 12 months or more, respectively,asset-backed securities) at September 30, 2019. Gross unrealized losses of $(310) million and $(251) millionMarch 31, 2020 are associated with debt securities with a fair value of $7,048 million and $3,856 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at December 31, 2018. as follows:
| | CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) (In millions) | Amortized cost |
| Estimated fair value |
| |
(In millions) | | Amortized cost |
| Estimated fair value |
|
| | |
Due | | |
Within one year | $ | 390 |
| $ | 396 |
| $ | 610 |
| $ | 621 |
|
After one year through five years | 2,808 |
| 2,964 |
| 2,328 |
| 2,400 |
|
After five years through ten years | 6,636 |
| 7,628 |
| 6,616 |
| 7,226 |
|
After ten years | 19,950 |
| 24,606 |
| 20,128 |
| 23,603 |
|
We expect actual maturities to differ from contractual maturities because borrowersissuers have the right to call or prepay certain obligations.
Substantially all of 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 $4,971$5,046 million and $4,013$5,210 million were classified within Level 3 as significant inputs to the valuation model are unobservable at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, there were no significant transfers into or out of Level 3.
In addition to the investmentequity securities described above, we hold $586$429 million and $542$517 million of equity securities without readily determinable fair value at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, that are classified within "AllAll other assets"assets in our consolidated Statement of Financial Position. We recognize these assets at costFair value adjustments, including impairments, recorded in earnings were $(93) million and have recordedan insignificant fair value increases, net of impairment,amount for the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, respectively and cumulatively, based on observable transactions.respectively.
5640 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
| | CURRENT RECEIVABLES | Consolidated |
| GE | Consolidated |
| GE |
(In millions) | September 30, 2019 |
| December 31, 2018 |
|
| September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| March 31, 2020 |
| December 31, 2019 |
|
| Customer receivables(a) | $ | 12,225 |
| $ | 10,742 |
|
| $ | 8,444 |
| $ | 6,355 |
| $ | 12,877 |
| $ | 12,594 |
|
| $ | 8,920 |
| $ | 9,507 |
|
Sundry receivables(b) | 4,638 |
| 4,573 |
| | 5,059 |
| 4,569 |
| 4,976 |
| 5,049 |
| | 5,082 |
| 5,247 |
|
Allowance for losses | (845 | ) | (670 | ) |
| (845 | ) | (662 | ) | (929 | ) | (874 | ) |
| (926 | ) | (872 | ) |
Total current receivables | $ | 16,018 |
| $ | 14,645 |
|
| $ | 12,657 |
| $ | 10,262 |
| $ | 16,925 |
| $ | 16,769 |
|
| $ | 13,076 |
| $ | 13,883 |
|
(a) Includes receivables from Boeing due to 737 MAX temporary fleet grounding of $1,407 million and $1,397 million as of March 31, 2020 and December 31, 2019, respectively.
Current sundry receivables include(b) Includes supplier advances, revenue sharing programs receivables, other non-income based tax receivables, certain intercompany balances that eliminate upon consolidation and deferred purchase price. The deferred purchase price represents our retained risk with respect to current customer receivables sold to third parties through one of the Receivable Facilities.receivable facilities. The balance of the deferred purchase price held by GE Capital at September 30, 2019March 31, 2020 and December 31, 2018,2019 was $368$502 million and $468$421 million, respectively.
Sales of GE current customer receivables. During any given period, GE sells customer receivables to manage short-term liquidity and credit exposure. These sales to GE Capital or third parties are made on arm's length terms and any discount related to time value of money is recognized by GE when the customer receivables are sold. During the nine months ended September 30, 2019 and 2018, GE sold approximately 59% and 70%, respectively, of its customer receivables to GE Capital or third parties. Activity related to customer receivables sold by GE is as follows: |
| | | | | | | | | | | | | | | |
Nine months ended September 30 (In millions) | 2019 |
| 2018 |
| GE Capital (a) |
|
| Third Parties |
| GE Capital (a) |
|
| Third Parties |
|
|
|
|
|
|
|
|
Balance at January 1 | $ | 4,386 |
|
| $ | 7,880 |
|
| $ | 9,656 |
|
| $ | 5,710 |
|
GE sales to GE Capital | 30,383 |
|
| — |
|
| 37,349 |
|
| — |
|
GE sales to third parties | — |
|
| 3,002 |
|
| — |
|
| 3,417 |
|
GE Capital sales to third parties | (20,505 | ) |
| 20,505 |
|
| (22,212 | ) |
| 22,212 |
|
Collections and other | (10,746 | ) |
| (25,004 | ) |
| (19,395 | ) |
| (24,431 | ) |
Reclassification from long-term customer receivables | 265 |
|
| — |
|
| 492 |
|
| — |
|
Balance at September 30 | $ | 3,782 |
|
| $ | 6,382 |
|
| $ | 5,889 |
|
| $ | 6,907 |
|
(a) At September 30, 2019 and 2018, $866 million and $1,675 million, respectively, of the current receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse has been insignificant for the nine months ended September 30, 2019 and 2018.
When GE sells customer receivables to GE Capital or third parties it accelerates the receipt of cash that would otherwise have been collected from 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.
Sales to GE
Capital impact GE CFOA, while sales
to third parties impact both GE and consolidated CFOA. The impact of
selling fewer customer receivables to GE Capital
including those subsequentlyor 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 March 31, 2020 and 2019, GE sold approximately 49% and 65%, respectively, of its gross customer receivables to GE Capital or third parties. Activity related to customer receivables sold by GE
is as follows: |
| | | | | | | | | | | | | | | |
(In millions) | 2020 |
| 2019 |
| 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 | 9,225 |
|
| — |
|
| 9,690 |
|
| — |
|
GE sales to third parties | — |
|
| 515 |
|
| — |
|
| 1,376 |
|
GE Capital sales to third parties | (5,253 | ) |
| 5,253 |
|
| (6,591 | ) |
| 6,591 |
|
Collections and other | (3,224 | ) |
| (8,005 | ) |
| (3,967 | ) |
| (8,123 | ) |
Reclassification from long-term customer receivables | 123 |
|
| — |
|
| 140 |
|
| — |
|
Balance at March 31 | $ | 3,958 |
| (a)(b) | $ | 4,519 |
|
| $ | 3,657 |
| (a) | $ | 7,724 |
|
(a) At March 31, 2020 and 2019, $557 million and $1,248 million, respectively, of the current receivables purchased and retained by GE Capital had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse was insignificant for the three months ended March 31, 2020 and 2019.
(b) The $871 million increase in GE current receivables purchased and retained by GE Capital in the quarter was driven by a plan to use excess liquidity in GE Capital to third parties, decreased GE’s CFOA by $1,847purchase and retain GE current receivables. GE Aviation receivables were substantially all of the increase and approximately $288 million and $2,718 million in the nine months ended September 30, 2019 and 2018, respectively. of that increase can be attributed to lower third-party demand for certain GE Aviation receivables.
LONG-TERM RECEIVABLES. In certain circumstances, GE provides customers, primarily within our Power, Renewable Energy and Aviation businesses, with extended payment terms for the purchase of new equipment, purchases of upgrades and spare parts for our long-term service agreements. These long-term customer receivables are initially recorded at present value and have an average remaining duration of approximately 3three years and are included in “AllAll other assets”assets in the consolidated Statement of Financial Position.
| | | Consolidated | | GE | Consolidated | | GE |
(In millions) | September 30, 2019 |
| December 31, 2018 |
| | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
| | March 31, 2020 |
| December 31, 2019 |
|
| | | | | | |
Long-term customer receivables(a) | $ | 1,181 |
| $ | 1,442 |
|
| $ | 653 |
| $ | 559 |
| $ | 756 |
| $ | 906 |
|
| $ | 492 |
| $ | 506 |
|
Long-term sundry receivables(b) | 1,545 |
| 1,180 |
| | 1,743 |
| 1,519 |
| 1,437 |
| 1,504 |
| | 1,647 |
| 1,834 |
|
Allowance for losses | (110 | ) | (145 | ) |
| (110 | ) | (145 | ) | (131 | ) | (128 | ) |
| (131 | ) | (128 | ) |
Total long-term receivables | $ | 2,616 |
| $ | 2,477 |
|
| $ | 2,285 |
| $ | 1,933 |
| $ | 2,063 |
| $ | 2,282 |
|
| $ | 2,008 |
| $ | 2,212 |
|
(a) At March 31, 2020 and December 31, 2019, GE Capital held $265 million and $400 million, respectively, of GE long-term customer receivables, of which $222 million and $312 million had been purchased with recourse (i.e., GE retains all or some risk of default). The effect on GE cash flows from operating activities (CFOA) of claims on long-term receivables sold with recourse was insignificant for the three months ended March 31, 2020 and the year ended December 31, 2019.
Long-term sundry receivables include(b) Includes supplier advances, revenue sharing programs receivables, other non-income based tax receivables and certain intercompany balances that eliminate upon consolidation.
Sales of GE long-term customer receivables. GE may sellSimilar to sales of current customer receivables, sales of long-term customer receivables to manage liquiditycan result in cash generation or use in our consolidated Statement of Cash Flows. During the three months ended March 31, 2020 and credit exposure. Through the second quarter of 2018, these sales were primarily made to2019, GE Capital while subsequently,did not purchase any GE has sold an insignificant amount to third parties to transfer economic risk during both the nine months ended September 30, 2019 and 2018. Activity related tolong-term customer receivables. Reductions in GE Capital outstanding GE long-term customer receivables purchased by GE Capital is as follows:were attributable to collections and reclassification to short-term receivables.
2019 3Q2020 1Q FORM 10-Q 5741
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | |
Nine months ended September 30 (In millions) | 2019 |
| 2018 |
| GE Capital(a) |
|
| GE Capital(a) |
|
|
|
|
|
Balance at January 1 | $ | 883 |
|
| $ | 1,947 |
|
GE sales to GE Capital | — |
|
| 123 |
|
Sales, collections, accretion and other | (90 | ) |
| (272 | ) |
Reclassification to current customer receivables | (265 | ) |
| (492 | ) |
Balance at September 30 | $ | 528 |
|
| $ | 1,307 |
|
(a) At September 30, 2019 and 2018, $402 million and $797 million, respectively, of long-term customer receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse have been insignificant for the nine months ended September 30, 2019 and 2018.
Similar to sales of current customer receivables, sales of long-term customer receivables can result in cash generation or use in our Statements of Cash Flows. The impact from the sale of long-term customer receivables to GE Capital, including those subsequently sold by GE Capital to third parties, decreased GE’s CFOA by $380 million and $629 million in the nine months ended September 30, 2019 and 2018, respectively.
UNCONSOLIDATED RECEIVABLES FACILITIES. GE Capital has 2 revolving Receivables Facilities, with a total program size of $5,100 million,receivables facilities, under which customer receivables purchased from GE are sold to third parties. In onethe first facility, which has a program size of the facilities,$3,100 million, upon the sale of receivables, we receive proceeds of cash and deferred purchase price and the Company’s remaining risk with respect to the sold receivables is limited to the balance of the deferred purchase price. In the othersecond facility, which has a program size of $600 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 size of the second facility reduced from $1,200 million to $600 million in March 2020. Current receivables that would otherwise have been sold to third parties were retained by GE Capital to utilize available funding.
Activity related to these facilities is included in “GEthe GE Capital sales to third parties”parties line in the sales of GE current customer receivables table above and is as follows:
| | Nine months ended September 30 (In millions) | 2019 |
| | 2018 |
| |
Three months ended March 31 (In millions) | | 2020 |
| | 2019 |
|
| | | | | | |
Customer receivables sold to receivables facilities | $ | 16,062 |
| | $ | 17,115 |
| $ | 4,307 |
| | $ | 5,175 |
|
Total cash purchase price for customer receivables | 15,824 |
| | 13,096 |
| 4,120 |
| | 5,071 |
|
Cash collections re-invested to purchase customer receivables | 13,286 |
| | 11,518 |
| 3,723 |
| | 4,253 |
|
| | | | | | |
Non-cash increases to deferred purchase price | $ | 168 |
| | $ | 3,935 |
| $ | 160 |
| | $ | 44 |
|
Cash payments received on deferred purchase price | 268 |
| | 3,905 |
| 78 |
| | 61 |
|
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, 2019March 31, 2020 and December 31, 20182019 these VIEs held current customer receivables of $1,976$1,619 million and $2,141$2,080 million and long-term customer receivables of $456$251 million and $678$375 million, respectively that were funded through the issuance of non-recourse debt to third parties.respectively. At September 30, 2019March 31, 2020 and December 31, 2018,2019, the outstanding non-recourse debt under their respective debt facilities was $1,498$644 million and $1,875$1,655 million, respectively.
NOTE 5. FINANCING RECEIVABLES AND ALLOWANCES
| |
| Consolidated |
| GE Capital | Consolidated |
| GE Capital |
(In millions) | September 30, 2019 |
| December 31, 2018 |
|
| September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| March 31, 2020 |
| December 31, 2019 |
|
| Loans, net of deferred income | $ | 1,251 |
| $ | 5,118 |
|
| $ | 5,639 |
| $ | 10,834 |
| $ | 1,141 |
| $ | 1,098 |
|
| $ | 5,568 |
| $ | 4,927 |
|
Investment in financing leases, net of deferred income | 2,120 |
| 2,639 |
|
| 2,120 |
| 2,822 |
| 1,921 |
| 2,070 |
|
| 1,921 |
| 2,070 |
|
| 3,371 |
| 7,757 |
|
| 7,759 |
| 13,656 |
| 3,062 |
| 3,168 |
|
| 7,489 |
| 6,996 |
|
Allowance for losses | (50 | ) | (58 | ) |
| (12 | ) | (28 | ) | (65 | ) | (33 | ) |
| (33 | ) | (17 | ) |
Financing receivables – net | $ | 3,321 |
| $ | 7,699 |
|
| $ | 7,748 |
| $ | 13,628 |
| $ | 2,998 |
| $ | 3,134 |
|
| $ | 7,457 |
| $ | 6,979 |
|
Consolidated finance lease income was $43 million and $65$46 million in the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $135 million and $193 million for the nine months ended September 30, 2019 and 2018, respectively.
In August 2019, we announced an agreement to sell PK AirFinance, and as of the third quarter of 2019, we classified related financing receivables of $3,849 million within "Assets of businesses held for sale" in our consolidated Statement of Financial Position. See Note 2 for further information.
We manage our GE Capital financing receivables portfolio using delinquency and nonaccrual data as key performance indicators. At September 30, 2019, 3.3%March 31, 2020, 6.2%, 2.3%2.8% and 3.7%5.7% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively, with the vast majority of nonaccrual financing receivables secured by collateral. At December 31, 2018, 2.4%2019, 4.2%, 1.8%2.9% and 0.9%6.1% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. The increase in these key performance indicators at September 30, 2019 is primarily a result of the PK AirFinance reclassification described above.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE Capital financing receivables that comprise receivables purchased from GE are reclassified to either "Current receivables"Current receivables or "AllAll other assets"assets in the consolidated Statement of Financial Position. To the extent these receivables are purchased with full or limited recourse, they are excluded from the delinquency and nonaccrual data above. See Note 4 for further information.
The portfolio also includes $385 million and $688 million of financing receivables that are guaranteed by GE, of which $93 million and $96 million of these loans are on nonaccrual at the consolidated level at September 30, 2019 and December 31, 2018, respectively. Additional allowance for loan losses are recorded at GE and at the consolidated level for these guaranteed loans.
NOTE 6. INVENTORIES
| | (In millions) | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| | |
Raw materials and work in process | $ | 8,983 |
| $ | 8,057 |
| $ | 9,192 |
| $ | 8,771 |
|
Finished goods | 6,025 |
| 5,548 |
| 6,265 |
| 5,333 |
|
Unbilled shipments | 195 |
| 197 |
| |
Total inventories | $ | 15,203 |
| $ | 13,803 |
| $ | 15,457 |
| $ | 14,104 |
|
NOTE 7. PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES | | PROPERTY, PLANT AND EQUIPMENT (In millions) | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| Original cost | $ | 75,196 |
| $ | 75,618 |
| $ | 75,619 |
| $ | 75,187 |
|
Less accumulated depreciation and amortization | (32,310 | ) | (32,007 | ) | (32,453 | ) | (31,897 | ) |
Property, plant and equipment – net | $ | 42,886 |
| $ | 43,611 |
| $ | 43,166 |
| $ | 43,290 |
|
Consolidated depreciation and amortization on property, plant and equipment was $1,004$991 million and $1,257 million in the three months ended September 30, 2019 and 2018, respectively, and $2,969 million and $3,357 million for the nine months ended September 30, 2019 and 2018, respectively.
Operating lease income on our equipment leased to others was $934 million and $997$995 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and comprises fixed lease income of $755 million and $828 million and variable lease income of $178 million and $169 million, respectively. Operating lease income on our equipment leased to others was $2,883 million and $3,003 million for the nine months ended September 30, 2019 and 2018, respectively, and comprises of fixed lease income of $2,293 million and $2,457 million and variable lease income of $589 million and $546 million, respectively.
Operating Lease Assets and Liabilities. Our ROU assets and lease liabilities for operating leases were $2,970 million and $3,169 million, respectively, as of September 30, 2019. Substantially all of our operating leases have remaining lease terms of 12 years or less, some of which may include options to extend.
|
| | | | | | | | | | | | | | | |
OPERATING LEASE EXPENSE | Three months ended September 30 | | Nine months ended September 30 |
(In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | |
Long-term (fixed) | $ | 180 |
| | $ | 232 |
| | $ | 625 |
| | $ | 733 |
|
Long-term (variable) | 41 |
| | 26 |
| | 111 |
| | 135 |
|
Short-term | 60 |
| | 34 |
| | 150 |
| | 100 |
|
Total operating lease expense | $ | 281 |
| | $ | 292 |
| | $ | 887 |
| | $ | 968 |
|
|
| | | |
MATURITY OF LEASE LIABILITIES (In millions) | Total |
|
| |
2019 (excluding nine months ended September 30, 2019) | $ | 212 |
|
2020 | 769 |
|
2021 | 636 |
|
2022 | 530 |
|
2023 | 429 |
|
Thereafter | 1,195 |
|
Total undiscounted lease payments | 3,771 |
|
Less: imputed interest | (602 | ) |
Total lease liability as of September 30, 2019 | $ | 3,169 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | |
SUPPLEMENTAL INFORMATION RELATED TO OPERATING LEASES (In millions) |
|
|
| |
Operating cash flows used for operating leases for the nine months ended September 30, 2019 | $ | 683 |
|
Right-of-use assets obtained in exchange for new lease liabilities for the nine months ended September 30, 2019 | $ | 459 |
|
Weighted-average remaining lease term at September 30, 2019 | 6.8 years |
|
Weighted-average discount rate at September 30, 2019 | 5.1 | % |
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
|
| | | | | | | | | | | | | | | |
GOODWILL (In millions) | January 1, 2019 |
| Dispositions and classification to held for sale |
| Impairments |
| Currency exchange and other |
| Balance at September 30, 2019 |
|
|
|
| | |
|
|
Power | $ | 139 |
| $ | — |
| $ | — |
| $ | 6 |
| $ | 145 |
|
Renewable Energy | 4,730 |
| — |
| (1,484 | ) | 33 |
| 3,279 |
|
Aviation | 9,839 |
| — |
| — |
| (31 | ) | 9,808 |
|
Healthcare | 17,226 |
| (5,532 | ) | — |
| 28 |
| 11,722 |
|
Capital | 904 |
| (39 | ) | — |
| (25 | ) | 839 |
|
Corporate | 1,136 |
| — |
| — |
| (263 | ) | 873 |
|
Total | $ | 33,974 |
| $ | (5,571 | ) | $ | (1,484 | ) | $ | (253 | ) | $ | 26,666 |
|
Goodwill balances decreased primarily as a result of transferring our BioPharma business within our Healthcare segment to held for sale and goodwill impairments at our Hydro and Grid Solutions equipment and services reporting units within our Renewable Energy segment.
We test goodwill for impairment annually in the third quarter of each year. Subsequent to this year's third quarter testing, and in order to improve alignment of our annual goodwill impairment test and strategic planning processes, we are changing our annual testing date from the third quarter to the fourth quarter. As a result, we will be required to retest each of our reporting units in the fourth quarter of 2019. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.
Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our annual reporting unit valuations ranged from 9.6% to 22.0%.
Based on the results of our annual impairment test, the fair values of each of our reporting units exceeded their carrying values except for our Hydro reporting unit within our Renewable Energy segment. The Hydro reporting unit continues to experience declines in order growth and increased project costs which resulted in downward revisions to our current and projected earnings and cash flows for this business. Therefore, we performed a step two analysis which resulted in a non-cash goodwill impairment loss of $740 million. We determined the fair value of the Hydro reporting unit using a combination of the income and market approaches. We recorded the impairment loss in the caption “Goodwill impairments” in our consolidated Statement of Earnings (Loss). After the impairment charge, there is 0 remaining goodwill associated with our Hydro reporting unit. All of the goodwill in this reporting unit was previously recognized as a result of the Alstom acquisition.
In addition, we continue to monitor the operating results and cash flow forecasts of our Additive reporting unit in our Aviation segment as the fair value of this reporting unit was not significantly in excess of its carrying value. At September 30, 2019, our Additive reporting unit had goodwill of $1,097 million.
We also continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material charge depending on the timing, negotiated terms and conditions of any agreements, including $839 million of goodwill.
6042 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Operating lease income on our equipment leased to others, primarily from our GECAS business, was $876 million and $932 million for the three months ended March 31, 2020 and 2019, respectively, and comprises fixed lease income of $705 million and $764 million and variable lease income of $171 million and $168 million, respectively.
Operating 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 $2,813 million and $2,896 million, as of March 31, 2020 and December 31, 2019, respectively. Our consolidated operating lease liabilities, included in All other liabilities in our Statement of Financial Position, were $3,067 million and $3,162 million, as of March 31, 2020 and December 31, 2019, respectively, which included GE Industrial operating lease liabilities of $3,266 million and $3,369 million, respectively.
|
| | | | | | | |
OPERATING LEASE EXPENSE | Three months ended March 31 |
(In millions) | 2020 |
| | 2019 |
|
| | | |
Long-term (fixed) | $ | 177 |
| | $ | 225 |
|
Long-term (variable) | 21 |
| | 44 |
|
Short-term | 68 |
| | 47 |
|
Total operating lease expense | $ | 266 |
| | $ | 317 |
|
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
|
| | | | | | | | | | | | |
GOODWILL (In millions) | January 1, 2020 |
| Dispositions and classification to held for sale |
| Currency exchange and other |
| Balance at March 31, 2020 |
|
|
|
| |
|
|
Power | $ | 145 |
| $ | — |
| $ | — |
| $ | 145 |
|
Renewable Energy | 3,290 |
| — |
| (74 | ) | 3,216 |
|
Aviation | 9,859 |
| — |
| (41 | ) | 9,818 |
|
Healthcare | 11,728 |
| — |
| (17 | ) | 11,711 |
|
Capital | 839 |
| — |
| — |
| 839 |
|
Corporate | 873 |
| — |
| (5 | ) | 869 |
|
Total | $ | 26,734 |
| $ | — |
| $ | (136 | ) | $ | 26,598 |
|
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.
In the secondfirst quarter of 2019,2020, we reorganizedperformed an analysis of the impact of recent events, including business and industry specific considerations, on the fair values of our Grid SolutionsAdditive reporting unit in our PowerAviation segment, by separatingour GECAS reporting unit in our Capital segment, and our Grid Solutions software business from the Grid Solutions reporting unit. Our Grid Solutions software business was then moved into Corporate and combined with our Digital business. In addition, the remaining Grid Solutions reporting unit (now referred to as Grid Solutions equipment and services) was moved into our Renewable Energy segment as a separate reporting unit. As a result, we allocated goodwill between Grid Solutions software and the Grid Solutions equipment and services reporting unit based on the relative fair values of each business. This resulted in $1,618 million of goodwill transferring from our Power segment to our Renewable Energy segment and our Digital business within CorporateCorporate. We did not identify any reporting units that required an interim impairment test. While the goodwill of these reporting units is not currently impaired there can be no assurances that goodwill will not be impaired in future periods. We will continue to monitor the amountsoperating results, cash flow forecasts and challenges from declines in current market conditions, as well as impacts of $744COVID-19 for these reporting units as their fair values are not significantly in excess of their respective carrying values. At March 31, 2020, goodwill in our Additive, GECAS, and Grid Solutions software reporting units was $1,091 million, $839 million and $874$869 million, respectively.
As a consequence of separating the two businesses, the Grid Solutions equipment and services reporting unit’s fair value was below its carrying value. Therefore, we conducted step two of the goodwill impairment test for this reporting unit using a current outlook.
In performing the second step, we identified unrecognized intangible assets primarily related to internally developed technology and trade name. The combination of these unrecognized intangibles, adjustments to the carrying value of other assets and liabilities, and reduced reporting unit fair value calculated in step one, resulted in an implied fair value of goodwill below the carrying value of goodwill for the Grid Solutions equipment and services reporting unit. Therefore, we recorded a non-cash goodwill impairment loss of $744 million in the caption "Goodwill impairments" in our consolidated Statement of Earnings (Loss). After the impairment charge, there is 0 remaining goodwill associated with our Grid Solutions equipment and services reporting unit.
Further, in the second quarter of 2019, a portion of goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Renewable Energy, Aviation and Healthcare segments in purchase accounting and for goodwill testing purposes is reflected in these segments in the table above.
In 2018, we recognized a total non-cash goodwill impairment loss of $22,136 million in our Power Generation, Grid Solutions, and Hydro reporting units in our Power and Renewable Energy segments, of which $21,973 million was recorded in the third quarter of 2018.
Determining the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
| | OTHER INTANGIBLE ASSETS - NET (In millions) | September 30, 2019 |
| December 31, 2018 |
| March 31, 2020 |
| December 31, 2019 |
|
| | |
Intangible assets subject to amortization | $ | 10,766 |
| $ | 12,178 |
| $ | 10,381 |
| $ | 10,653 |
|
Intangible assets decreased in the thirdfirst quarter of 2019,2020, primarily as a result of amortization, impairments, and the transfer of BioPharma within our Healthcare segment to held for sale of $526 million.amortization. Consolidated amortization expense was $496$340 million and $831$367 million in the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $1,220 million and$1,740 million in the nine months ended September 30, 2019 and 2018, respectively.
Included within amortization expense for the three and nine months ended September 30, 2019 and September 30, 2018 were non-cash impairment charges recorded in Corporate and in our Power segment for $103 million and $428 million, respectively. We determined the fair value of these intangible assets using an income approach. These charges were recorded within the caption "Selling, general, and administrative expense" in our consolidated Statement of Earnings (Loss).
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 | Three months ended March 31 |
(In millions) | 2019 | | 2018 | 2020 | | 2019 |
| Equipment | Services | Total | | Equipment | Services | Total | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | |
Power | $ | 1,434 |
| $ | 2,492 |
| $ | 3,926 |
| | $ | 1,334 |
| $ | 3,225 |
| $ | 4,559 |
| $ | 1,506 |
| $ | 2,518 |
| $ | 4,025 |
| | $ | 1,576 |
| $ | 3,041 |
| $ | 4,617 |
|
Renewable Energy | 3,609 |
| 816 |
| 4,425 |
| | 3,414 |
| 505 |
| 3,920 |
| 2,576 |
| 618 |
| 3,194 |
| | 1,982 |
| 557 |
| 2,538 |
|
Aviation | 3,149 |
| 4,960 |
| 8,109 |
| | 2,833 |
| 4,646 |
| 7,480 |
| 2,444 |
| 4,449 |
| 6,892 |
| | 3,113 |
| 4,841 |
| 7,954 |
|
Healthcare | 2,828 |
| 2,095 |
| 4,923 |
| | 2,700 |
| 2,006 |
| 4,707 |
| 2,699 |
| 2,029 |
| 4,727 |
| | 2,653 |
| 2,029 |
| 4,683 |
|
Total Industrial segment revenues | $ | 11,020 |
| $ | 10,363 |
| $ | 21,383 |
| | $ | 10,283 |
| $ | 10,383 |
| $ | 20,665 |
| |
Corporate items and industrial eliminations | | (48 | ) | 54 |
| 6 |
| | 284 |
| 248 |
| 532 |
|
Total GE Industrial revenues | | $ | 9,177 |
| $ | 9,668 |
| $ | 18,844 |
| | $ | 9,608 |
| $ | 10,716 |
| $ | 20,324 |
|
|
| | | | | | | |
REVENUES | Three months ended March 31 |
(In millions) | 2020 |
| | 2019 |
|
| | | |
Gas Power | $ | 2,859 |
| | $ | 3,263 |
|
Power Portfolio | 1,165 |
| | 1,355 |
|
Power | $ | 4,025 |
| | $ | 4,617 |
|
| | | |
Onshore Wind | $ | 2,124 |
| | $ | 1,441 |
|
Grid Solutions equipment and services | 839 |
| | 917 |
|
Hydro, Offshore Wind and other | 230 |
| | 180 |
|
Renewable Energy | $ | 3,194 |
| | $ | 2,538 |
|
| | | |
Commercial Engines & Services | $ | 4,777 |
| | $ | 5,949 |
|
Military | 960 |
| | 1,036 |
|
Systems & Other | 1,156 |
| | 969 |
|
Aviation | $ | 6,892 |
| | $ | 7,954 |
|
| | | |
Healthcare Systems | $ | 3,448 |
| | $ | 3,433 |
|
Life Sciences(a) | 1,280 |
| | 1,251 |
|
Healthcare | $ | 4,727 |
| | $ | 4,683 |
|
| | | |
Corporate items and industrial eliminations | 6 |
| | 532 |
|
Total GE Industrial revenues | $ | 18,844 |
| | $ | 20,324 |
|
Capital | 1,923 |
| | 2,227 |
|
GE Capital-GE eliminations | $ | (244 | ) | | $ | (349 | ) |
Consolidated revenues | $ | 20,524 |
| | $ | 22,202 |
|
| | | |
(a) Includes revenues of $830 million and $765 million from BioPharma for the three months ended March 31, 2020 and 2019, respectively. |
|
| | | | | | | | | | | | | | | | | | | |
EQUIPMENT & SERVICES REVENUES | Nine months ended September 30 |
(In millions) | 2019 | | 2018 |
| Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | |
Power | $ | 4,473 |
| $ | 8,751 |
| $ | 13,224 |
| | $ | 6,224 |
| $ | 10,545 |
| $ | 16,768 |
|
Renewable Energy | 8,457 |
| 2,133 |
| 10,590 |
| | 7,979 |
| 1,663 |
| 9,642 |
|
Aviation | 9,295 |
| 14,645 |
| 23,940 |
| | 8,281 |
| 13,830 |
| 22,111 |
|
Healthcare | 8,320 |
| 6,220 |
| 14,540 |
| | 8,119 |
| 6,268 |
| 14,387 |
|
Total Industrial segment revenues | $ | 30,545 |
| $ | 31,748 |
| $ | 62,293 |
| | $ | 30,602 |
| $ | 32,305 |
| $ | 62,908 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | |
SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
(In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | |
Gas Power | $ | 2,732 |
| | $ | 2,678 |
| | $ | 9,242 |
| | $ | 9,719 |
|
Power Portfolio | 1,194 |
| | 1,882 |
| | 3,982 |
| | 7,050 |
|
Power | $ | 3,926 |
| | $ | 4,559 |
| | $ | 13,224 |
| | $ | 16,768 |
|
| | | | | | | |
Onshore Wind | $ | 3,193 |
| | $ | 2,523 |
| | $ | 7,084 |
| | $ | 5,119 |
|
Grid Solutions equipment and services | 1,004 |
| | 1,059 |
| | 2,876 |
| | 3,483 |
|
Hydro and Offshore Wind | 228 |
| | 337 |
| | 630 |
| | 1,041 |
|
Renewable Energy | $ | 4,425 |
| | $ | 3,920 |
| | $ | 10,590 |
| | $ | 9,642 |
|
| | | | | | | |
Commercial Engines & Services | $ | 5,997 |
| | $ | 5,636 |
| | $ | 17,796 |
| | $ | 16,443 |
|
Military | 1,061 |
| | 898 |
| | 3,073 |
| | 2,942 |
|
Systems & Other | 1,050 |
| | 946 |
| | 3,071 |
| | 2,726 |
|
Aviation | $ | 8,109 |
| | $ | 7,480 |
| | $ | 23,940 |
| | $ | 22,111 |
|
| | | | | | | |
Healthcare Systems | $ | 3,642 |
| | $ | 3,566 |
| | $ | 10,664 |
| | $ | 10,877 |
|
Life Sciences | 1,280 |
| | 1,140 |
| | 3,875 |
| | 3,509 |
|
Healthcare | $ | 4,923 |
| | $ | 4,707 |
| | $ | 14,540 |
| | $ | 14,387 |
|
| | | | | | | |
Total Industrial Segment Revenues | $ | 21,383 |
| | $ | 20,665 |
| | $ | 62,293 |
| | $ | 62,908 |
|
Capital(a) | 2,097 |
| | 2,473 |
| | 6,645 |
| | 7,075 |
|
Corporate items and eliminations | (120 | ) | | 254 |
| | 39 |
| | 531 |
|
Consolidated Revenues | $ | 23,360 |
| | $ | 23,392 |
| | $ | 68,976 |
| | $ | 70,513 |
|
| |
(a) | Substantially all of our revenues at GE Capital are outside of the scope of ASC 606. |
REMAINING PERFORMANCE OBLIGATIONOBLIGATION.. As of September 30, 2019,March 31, 2020, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $240,536 million.$240,381 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows: 1) equipment-related remaining performance obligation of $45,809$45,171 million, of which 53%61%,66% 81% and 71% 96% is expected to be satisfied within 1,2 and 5 years,, respectively, and the remaining thereafter; and 2) services-related remaining performance obligation of $194,727 $195,211 million, of which 11%12%, 48%44%, 72%71% and 91%82% 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$298 $665 million in 2019.2020. Our long-term service agreements decreased primarily due to billings of $8,306$2,544 million and a net unfavorable change in estimated profitability of $61$193 million at Aviation and $57$72 million at Power, offset by revenues recognized of $8,162$2,688 million. Our short-termThe change in estimated profitability at Aviation included a $100 million non-cash pre-tax charge (reduction in revenues and otherprofit) to reflect the cumulative impacts of changes to assumptions for certain long-term service agreements increased dueagreements. Additional adjustments are likely to the timing of revenue recognition ahead of billings primarily at Aviation.occur in future periods and could be material as conditions related to COVID-19 continue to evolve.
|
| | | | | | | | | | | | | | | |
September 30, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total |
| | | | | |
Revenues in excess of billings | $ | 5,346 |
| $ | 4,901 |
| $ | — |
| $ | — |
| $ | 10,247 |
|
Billings in excess of revenues | (1,560 | ) | (3,293 | ) | — |
| — |
| (4,853 | ) |
Long-term service agreements | 3,787 |
| 1,607 |
| — |
| — |
| 5,394 |
|
Short-term and other service agreements | 172 |
| 343 |
| — |
| 290 |
| 804 |
|
Equipment contract revenues | 2,670 |
| 93 |
| 1,288 |
| 324 |
| 4,374 |
|
Total contract assets | 6,628 |
| 2,042 |
| 1,288 |
| 614 |
| 10,573 |
|
| | | | | |
Deferred inventory costs | 904 |
| 357 |
| 1,574 |
| 351 |
| 3,186 |
|
Nonrecurring engineering costs | 42 |
| 2,107 |
| 62 |
| 45 |
| 2,257 |
|
Customer advances and other | 1 |
| 1,149 |
| — |
| (32 | ) | 1,118 |
|
Contract and other deferred assets | $ | 7,576 |
| $ | 5,655 |
| $ | 2,924 |
| $ | 978 |
| $ | 17,133 |
|
6244 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | December 31, 2018 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total | |
March 31, 2020 (In millions) | | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
| |
|
Revenues in excess of billings | $ | 5,368 |
| $ | 5,412 |
| $ | — |
| $ | — |
| $ | 10,780 |
| $ | 5,197 |
| $ | 4,909 |
| $ | — |
| $ | — |
| $ | — |
| $ | 10,106 |
|
Billings in excess of revenues | (1,693 | ) | (3,297 | ) | — |
| — |
| (4,989 | ) | (1,586 | ) | (3,660 | ) | — |
| — |
| — |
| (5,247 | ) |
Long-term service agreements(a) | 3,675 |
| 2,115 |
| — |
| — |
| 5,790 |
| 3,611 |
| 1,248 |
| — |
| — |
| — |
| 4,859 |
|
Short-term and other service agreements | 167 |
| 272 |
| — |
| 251 |
| 690 |
| 155 |
| 389 |
| 33 |
| 174 |
| 45 |
| 795 |
|
Equipment contract revenues(b) | 2,761 |
| 80 |
| 1,174 |
| 384 |
| 4,400 |
| 2,425 |
| 60 |
| 1,185 |
| 278 |
| 133 |
| 4,081 |
|
Total contract assets | 6,603 |
| 2,468 |
| 1,174 |
| 635 |
| 10,880 |
| 6,191 |
| 1,696 |
| 1,217 |
| 452 |
| 178 |
| 9,735 |
|
| | |
Deferred inventory costs | 1,003 |
| 673 |
| 1,267 |
| 365 |
| 3,309 |
| 887 |
| 481 |
| 1,148 |
| 342 |
| 1 |
| 2,859 |
|
Nonrecurring engineering costs | 43 |
| 1,916 |
| 85 |
| 51 |
| 2,095 |
| 49 |
| 2,306 |
| 43 |
| 33 |
| — |
| 2,431 |
|
Customer advances and other(c) | — |
| 1,146 |
| — |
| — |
| 1,146 |
| — |
| 1,143 |
| — |
| — |
| (32 | ) | 1,111 |
|
Contract and other deferred assets | $ | 7,650 |
| $ | 6,204 |
| $ | 2,525 |
| $ | 1,052 |
| $ | 17,431 |
| $ | 7,127 |
| $ | 5,627 |
| $ | 2,409 |
| $ | 827 |
| $ | 146 |
| $ | 16,136 |
|
Progress collections represent cash received from customers under ordinary commercial payment terms in advance of delivery. Progress collections on equipment contracts primarily comprises milestone payments received from customer prior to the manufacture and delivery of customized equipment orders. Other progress collections primarily comprise down payments from customers to reserve production slots for standardized inventory orders such as advance payments from customers when they place orders for wind turbines and blades within our Renewable Energy segment and payments from airframers and airlines for install and spare engines, respectively, within our Aviation segment. |
| | | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | | | | | | |
| | | | | | |
Revenues in excess of billings | $ | 5,342 |
| $ | 4,996 |
| $ | — |
| $ | — |
| $ | — |
| $ | 10,338 |
|
Billings in excess of revenues | (1,561 | ) | (3,719 | ) | — |
| — |
| — |
| (5,280 | ) |
Long-term service agreements(a) | 3,781 |
| 1,278 |
| — |
| — |
| — |
| 5,058 |
|
Short-term and other service agreements | 190 |
| 316 |
| 43 |
| 169 |
| — |
| 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 |
| — |
| 3,267 |
|
Nonrecurring engineering costs | 44 |
| 2,257 |
| 47 |
| 35 |
| 8 |
| 2,391 |
|
Customer advances and other(c) | — |
| 1,165 |
| — |
| — |
| (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 $1,777 million and $1,712 million as of March 31, 2020 and December 31, 2019, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to $332 million and $308 million as of March 31, 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 $877 million and $909 million as of March 31, 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 $961 million and $986 million as of March 31, 2020 and December 31, 2019, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to $268 million and $256 million as of March 31, 2020 and December 31, 2019, respectively. |
Progress collections and deferred income increased $6 decreased $708 million in 2019the first quarter of 2020 primarily due to milestone payments received primarily at Aviation. These increases were partially offset by the timing of revenue recognition in excess of new collections received, primarily at Power and Renewable Energy. These decreases were partially offset by milestone payments received, primarily at Aviation.
Revenues recognized for contracts included in liability position at the beginning of the year were $9,565$3,898 million and $10,692$4,608 million for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
| | September 30, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total | |
March 31, 2020 (In millions) | | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
| Progress collections on equipment contracts | $ | 5,568 |
| $ | 95 |
| $ | 1,105 |
| $ | — |
| $ | 6,768 |
| $ | 5,418 |
| $ | 144 |
| $ | 1,146 |
| $ | — |
| $ | — |
| $ | 6,709 |
|
Other progress collections | 566 |
| 4,700 |
| 3,297 |
| 464 |
| 9,026 |
| 317 |
| 4,791 |
| 3,999 |
| 312 |
| 170 |
| 9,589 |
|
Total progress collections | 6,133 |
| 4,795 |
| 4,402 |
| 464 |
| 15,794 |
| 5,735 |
| 4,935 |
| 5,145 |
| 312 |
| 170 |
| 16,298 |
|
Deferred income(a) | 40 |
| 1,447 |
| 290 |
| 1,673 |
| 3,450 |
| 41 |
| 1,569 |
| 316 |
| 1,654 |
| 109 |
| 3,689 |
|
GE Progress collections and deferred income | $ | 6,174 |
| $ | 6,241 |
| $ | 4,692 |
| $ | 2,137 |
| $ | 19,245 |
| $ | 5,776 |
| $ | 6,504 |
| $ | 5,461 |
| $ | 1,966 |
| $ | 279 |
| $ | 19,986 |
|
| | December 31, 2018 (In millions) |
| |
December 31, 2019 (In millions) | | |
|
| |
Progress collections on equipment contracts | $ | 5,536 |
| $ | 114 |
| $ | 1,325 |
| $ | — |
| $ | 6,975 |
| $ | 5,857 |
| $ | 115 |
| $ | 1,268 |
| $ | — |
| $ | — |
| $ | 7,240 |
|
Other progress collections | 691 |
| 4,034 |
| 3,557 |
| 500 |
| 8,783 |
| 413 |
| 4,748 |
| 4,193 |
| 305 |
| 189 |
| 9,849 |
|
Total progress collections | 6,227 |
| 4,148 |
| 4,883 |
| 500 |
| 15,758 |
| 6,270 |
| 4,863 |
| 5,461 |
| 305 |
| 189 |
| 17,089 |
|
Deferred income(a) | 112 |
| 1,338 |
| 260 |
| 1,770 |
| 3,480 |
| 49 |
| 1,528 |
| 284 |
| 1,647 |
| 98 |
| 3,606 |
|
GE Progress collections and deferred income | $ | 6,339 |
| $ | 5,486 |
| $ | 5,143 |
| $ | 2,271 |
| $ | 19,239 |
| $ | 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 $600 million and $564 million as of March 31, 2020 and December 31, 2019, respectively. |
2019 3Q2020 1Q FORM 10-Q 6345
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 11. BORROWINGS
| | (In millions) | September 30, 2019 | December 31, 2018 | March 31, 2020 |
| December 31, 2019 |
|
| | |
Short-term borrowings | | |
Commercial paper | $ | 2,997 |
| $ | 3,005 |
| $ | 1,946 |
| $ | 3,008 |
|
Current portion of long-term borrowings | 764 |
| 60 |
| 764 |
| 766 |
|
Current portion of long-term borrowings assumed by GE | 7,310 |
| 4,207 |
| 5,888 |
| 5,473 |
|
Other | 1,703 |
| 2,081 |
| 1,288 |
| 1,832 |
|
Total GE short-term borrowings | $ | 12,775 |
| $ | 9,354 |
| $ | 9,887 |
| $ | 11,079 |
|
| | |
Current portion of long-term borrowings | $ | 4,601 |
| $ | 3,984 |
| $ | 8,542 |
| $ | 11,226 |
|
Intercompany payable to GE | 2,990 |
| 2,684 |
| 2,519 |
| 2,104 |
|
Other | 522 |
| 1,015 |
| 292 |
| 804 |
|
Total GE Capital short-term borrowings | $ | 8,113 |
| $ | 7,684 |
| $ | 11,353 |
| $ | 14,134 |
|
| | |
Eliminations | (3,842 | ) | (4,262 | ) | (3,118 | ) | (3,140 | ) |
Total short-term borrowings | $ | 17,046 |
| $ | 12,776 |
| $ | 18,122 |
| $ | 22,072 |
|
| | |
Long-term borrowings | | |
Senior notes | $ | 14,690 |
| $ | 20,387 |
| $ | 14,717 |
| $ | 14,762 |
|
Senior notes assumed by GE | 23,384 |
| 29,218 |
| 21,590 |
| 23,024 |
|
Subordinated notes assumed by GE | 2,820 |
| 2,836 |
| 1,658 |
| 2,871 |
|
Other | 418 |
| 417 |
| 281 |
| 324 |
|
Total GE long-term borrowings | $ | 41,311 |
| $ | 52,858 |
| $ | 38,244 |
| $ | 40,980 |
|
| | |
Senior notes | $ | 32,537 |
| $ | 35,105 |
| $ | 27,373 |
| $ | 25,371 |
|
Subordinated notes | 199 |
| 165 |
| 177 |
| 178 |
|
Intercompany payable to GE | 17,255 |
| 19,828 |
| 14,390 |
| 17,038 |
|
Other | 654 |
| 885 |
| 593 |
| 626 |
|
Total GE Capital long-term borrowings | $ | 50,645 |
| $ | 55,982 |
| $ | 42,534 |
| $ | 43,213 |
|
| | |
Eliminations | (17,255 | ) | (19,892 | ) | (14,390 | ) | (17,038 | ) |
Total long-term borrowings | $ | 74,701 |
| $ | 88,949 |
| $ | 66,388 |
| $ | 67,155 |
|
Non-recourse borrowings of consolidated securitization entities | 1,498 |
| 1,875 |
| 644 |
| 1,655 |
|
Total borrowings | $ | 93,244 |
| $ | 103,599 |
| $ | 85,154 |
| $ | 90,882 |
|
At September 30, 2019,March 31, 2020, the outstanding GE Capital borrowings that had been assumed by GE as part of the GE Capital Exit Plan was $33,514$29,136 million ($7,3105,888 million short term and $26,204$23,247 million long term), for which GE has an offsetting Receivable from GE Capital of $20,244$16,909 million. The difference of $13,269$12,226 million ($4,3203,369 million in short-term borrowings and $8,949$8,857 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. InDuring the thirdfirst quarter of 2019,2020, GE had not repaid $480 million of maturingany intercompany loans from GE Capital.
At September 30, 2019,March 31, 2020, total GE borrowings of $33,842$31,222 million was comprised of GE-issued borrowings of $20,572$18,996 million and intercompany loans from GE Capital to GE of $13,269$12,226 million as described above.
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. At September 30, 2019, the GuaranteeThis guarantee applies to $34,807 $33,077 million and $34,683 million of GE Capital debt.
On September 30,debt at March 31, 2020 and December 31, 2019, GE completed a tender offer to purchase $4,846 million in aggregate principal amount of certain senior unsecured debt, comprised of $1,250 million of 4.500% Notes due 2044, $1,144 million of 4.125% Notes due 2042, €992 million ($1,101 million equivalent) of 2.125% Notes due 2037, €784 million ($870 million equivalent) of 1.500% Notes due 2029, €374 million ($415 million equivalent) of 1.875% Notes due 2027, and €59 million ($66 million equivalent) of 1.250% notes due 2023. The total cash consideration paid for these purchases was $5,031 million and the total carrying amount of the purchased notes was $4,787 million, resulting in a loss of $255 million (including $12 million of accrued 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.respectively.
Non-recourse borrowings of consolidated securitization entities are primarily short term in nature.included $644 million and $1,569 million of current portion of long-term borrowings at March 31, 2020 and December 31, 2019, respectively. See Notes 4 and 18 for further information.
See Note 17 for further information about borrowingsOn April 22, 2020, GE issued a total of $6,000 million in aggregate principal amount of senior unsecured debt, comprised of $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 associated interest rate swaps.$2,250 million of 4.350% Notes due 2050, and used the proceeds 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 carrying amount of the purchased notes was approximately $4,228 million. We intend to use the remaining proceeds to repurchase, redeem or repay GE’s outstanding debt obligations, including other notes or commercial paper.
6446 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
On April 23, 2020, GE Capital completed a tender offer to purchase $5,443 million in aggregate principal amount of certain senior unsecured debt, comprising $3,858 million of 2.342% Notes due 2020, €575 million ($623 million equivalent) of 2.250% Notes due 2020, $460 million of 4.375% Notes due 2020, and £404 million ($503 million of 5.875% Notes due 2020. The total carrying amount of the purchased notes was approximately $5,427 million.
See Note 17 for further information about borrowings and associated interest rate swaps.
NOTE 12. INSURANCE LIABILITIES AND ANNUITY BENEFITS
Insurance liabilities and annuity benefits comprise mainly obligations to annuitants and insureds in our run-off insurance activities.
| | September 30, 2019 (In millions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other contracts | Other adjustments(a) | Total | |
March 31, 2020 (In millions) | | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other contracts | Other adjustments(a) | Total |
| Future policy benefit reserves | $ | 16,770 |
| $ | 9,578 |
| $ | 182 |
| $ | 5,903 |
| $ | 32,433 |
| $ | 16,785 |
| $ | 9,491 |
| $ | 181 |
| $ | 4,051 |
| $ | 30,508 |
|
Claim reserves | 4,130 |
| 236 |
| 1,154 |
| — |
| 5,520 |
| 4,314 |
| 253 |
| 1,099 |
| — |
| 5,666 |
|
Investment contracts | — |
| 1,165 |
| 1,074 |
| — |
| 2,239 |
| — |
| 1,112 |
| 1,057 |
| — |
| 2,169 |
|
Unearned premiums and other | 28 |
| 198 |
| 132 |
| — |
| 358 |
| 26 |
| 194 |
| 165 |
| — |
| 385 |
|
| 20,928 |
| 11,177 |
| 2,542 |
| 5,903 |
| 40,550 |
| 21,125 |
| 11,050 |
| 2,502 |
| 4,051 |
| 38,729 |
|
Eliminations | — |
| — |
| (466 | ) | — |
| (466 | ) | — |
| — |
| (488 | ) | — |
| (488 | ) |
Total | $ | 20,928 |
| $ | 11,177 |
| $ | 2,076 |
| $ | 5,903 |
| $ | 40,084 |
| $ | 21,125 |
| $ | 11,050 |
| $ | 2,014 |
| $ | 4,051 |
| $ | 38,241 |
|
| | December 31, 2018 (In millions) |
| |
December 31, 2019 (In millions) | |
|
| Future policy benefit reserves | $ | 16,029 |
| $ | 9,495 |
| $ | 169 |
| $ | 2,247 |
| $ | 27,940 |
| $ | 16,755 |
| $ | 9,511 |
| $ | 183 |
| $ | 5,655 |
| $ | 32,104 |
|
Claim reserves | 3,917 |
| 230 |
| 1,178 |
| — |
| 5,324 |
| 4,238 |
| 252 |
| 1,125 |
| — |
| 5,615 |
|
Investment contracts | — |
| 1,239 |
| 1,149 |
| — |
| 2,388 |
| — |
| 1,136 |
| 1,055 |
| — |
| 2,191 |
|
Unearned premiums and other | 34 |
| 205 |
| 103 |
| — |
| 342 |
| 30 |
| 196 |
| 96 |
| — |
| 322 |
|
| 19,980 |
| 11,169 |
| 2,599 |
| 2,247 |
| 35,994 |
| 21,023 |
| 11,095 |
| 2,459 |
| 5,655 |
| 40,232 |
|
Eliminations | — |
| — |
| (432 | ) | — |
| (432 | ) | — |
| — |
| (406 | ) | — |
| (406 | ) |
Total | $ | 19,980 |
| $ | 11,169 |
| $ | 2,167 |
| $ | 2,247 |
| $ | 35,562 |
| $ | 21,023 |
| $ | 11,095 |
| $ | 2,053 |
| $ | 5,655 |
| $ | 39,826 |
|
(a) To the extent that unrealized gains on specific investment securities supporting our insurance contracts would result in a premium deficiency should those gains be realized, an increase in future policy benefit reserves is recorded, with an after-tax reduction of net unrealized gains recognized through "AccumulatedAccumulated other comprehensive income (loss)" in our consolidated Statement of Earnings (Loss).
We annually perform premium deficiency testingThe decrease in the aggregate across our run-off insurance portfolio. As previously disclosedliabilities and annuity benefits of $1,586 million from December 31, 2019 to March 31, 2020, is primarily due to an adjustment of $1,604 million resulting from a decrease in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. These procedures included updating experience studies since our last test completed in the fourth quarter of 2018, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency in 2018, our 2019 premium deficiency testing started with a zero margin and, accordingly, any net adverse developmentunrealized gains on investment securities that would result in a future charge to earnings. Using our most recent future policy benefit reserve assumptions, including changes to our assumptions related to discount rate and future premium rate increases, as described below, we identified a premium deficiency resulting in a $972 million non-cash pre-tax charge to earnings in the third quarter 2019. The increase to future policy benefit reserves resulting from our 2019 testing was primarily attributable to the following key assumption changes:
We have observed a significant decline in market interest rates this year, which has resulted in a lower discount rate and adversely impacted our reserve margin by $1,344 million. As noted above, our discount rate is based upon the actual yields on our investment portfolio and our forecasted reinvestment rates, which comprise the future rates at which we expect to invest proceeds from investment maturities, net of operating cash flows, and projected future capital contributions. Market interest rates have declined by approximately 130 basis points since our 2018 premium deficiency test, with 60 basis points of this reduction occurring since the second quarter 2019. Although the movement in market rates impacts the reinvestment rate, it does not materially impact the actual yield on our existing investments. Furthermore, our assumed reinvestment rate on future fixed income investments is based both on current expected long-term average rates and market interest rates. Thus, a decline in market interest rates will not result in an equivalent decline in our discount rate assumption. Our discount rate assumption for purposes of performing the premium deficiency assessment resulted in weighted average rate of 5.74% compared to 6.04% in 2018. This decline in the discount rate from 2018 to 2019 reflected a lower reinvestment rate increasing to an expected long-term average investment yield over a longer period, lower prospective expected returns on higher yielding assets classes introduced with our 2018 strategic initiatives, and slightly lower actual yields on our investment security portfolio.
Higher levels of projected long-term care premium rate increases due to larger rate filings by some ceding companies than previously planned, which favorably impacted our reserve margin by $263 million. Since our premium deficiency testing performed in 2018, we have implemented approximately $200 million of previously approved rate increase actions. Our 2019 premium deficiency test includes approximately $2,000 million of anticipated future premium increases or benefit reductions associated with future in-force rate actions. This represents an increase of $300 million from our 2018 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 effect of the lower discount rate mentioned above.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Certain future adverse changes in our assumptions could result in the unlocking of reserves, resetting of actuarial assumptions to current assumptions, an increase to future policy benefit reserves and a charge to earnings. Any favorable changes to these assumptions could result in additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income. should those gains be realized.
Claim reserves included incurred claims of $1,410$507 million and $1,641$473 million, of which $(16) million and $1 millioninsignificant amounts related to the recognition of adjustments to prior year claim reserves arising from our periodic reserve evaluation for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Paid claims were $1,237$405 million and $1,499$421 million in the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
Reinsurance recoverables are recorded when we cede insurance risk to third parties but are not relieved from our primary obligation to policyholders and cedents. These amounts, net of allowances of $1,374 million and $1,355 million, are included in the caption "OtherOther GE Capital receivables"receivables in our consolidated Statement of Financial Position and amounted to $2,365$2,463 million and $2,271$2,416 million at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 13. POSTRETIREMENT BENEFIT PLANS
We sponsor a number of pension and retiree health and life insurance benefit plans that we present in three3 categories, principal pension plans, other pension plans and principal retiree benefit plans. Principal pension plans represent 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. Smaller pension plans with pension assets or obligations less than $50 million and other retiree benefit plans are not presented as they are not material individually or in the aggregate.presented.
EFFECT ON OPERATIONS OF BENEFIT PLANS. The components of benefit plans costs other than the service cost are included in the caption "Non-operatingNon-operating benefit costs"costs in our consolidated Statement of Earnings (Loss).
| | | Principal pension plans | Principal pension plans | | Other pension plans |
| Three months ended September 30 | | Nine months ended September 30 | Three months ended March 31 | | Three months ended March 31 |
(In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
| | | | | | |
Service cost for benefits earned | $ | 154 |
| $ | 232 |
| | $ | 472 |
| $ | 667 |
| $ | 153 |
| $ | 158 |
| | $ | 65 |
| $ | 63 |
|
Prior service cost amortization | 34 |
| 36 |
| | 101 |
| 108 |
| 37 |
| 33 |
| | — |
| — |
|
Expected return on plan assets | (863 | ) | (803 | ) | | (2,588 | ) | (2,443 | ) | (748 | ) | (863 | ) | | (274 | ) | (284 | ) |
Interest cost on benefit obligations | 724 |
| 666 |
| | 2,173 |
| 1,999 |
| 587 |
| 726 |
| | 108 |
| 139 |
|
Net actuarial loss amortization | 767 |
| 947 |
| | 2,300 |
| 2,841 |
| 848 |
| 763 |
| | 112 |
| 80 |
|
Curtailment loss (a) | — |
| 46 |
| | 51 |
| 46 |
| |
Curtailment/settlement loss (gain) | | — |
| 51 |
| (a) | (1 | ) | 9 |
|
Benefit plans cost | $ | 816 |
| $ | 1,124 |
| | $ | 2,509 |
| $ | 3,218 |
| $ | 877 |
| $ | 868 |
| | $ | 10 |
| $ | 7 |
|
(a) Curtailment loss in the ninethree months ended September 30,March 31, 2019, and September 30, 2018, resultsresulted from the spin-off and subsequent merger of our Transportation segment with Wabtec, and the Baker Hughes decision to no longer participate in the GE Pension Plan after December 31, 2018, respectively. These curtailment losses arewhich is included in "EarningsEarnings (loss) from discontinued operations"operations in our consolidated Statement of Earnings (Loss).
|
| | | | | | | | | | | | | |
| Other pension plans |
| Three months ended September 30 | | Nine months ended September 30 |
(In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Service cost for benefits earned | $ | 61 |
| $ | 85 |
| | $ | 197 |
| $ | 279 |
|
Prior service cost (credit) amortization | 1 |
| (2 | ) | | 2 |
| (4 | ) |
Expected return on plan assets | (316 | ) | (342 | ) | | (945 | ) | (1,059 | ) |
Interest cost on benefit obligations | 154 |
| 150 |
| | 467 |
| 462 |
|
Net actuarial loss amortization | 83 |
| 78 |
| | 250 |
| 243 |
|
Settlement/curtailment loss (gain) | — |
| — |
| | 16 |
| (6 | ) |
Benefit plans cost (income) | $ | (17 | ) | $ | (31 | ) | | $ | (13 | ) | $ | (85 | ) |
Principal retiree benefit plans income was $31$32 million and $17$61 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, and $122 million and $58 million for the nine months ended September 30, 2019 and 2018, respectively, which includes a curtailment gain of $33 million in 2019 resulting from the Transportation transaction, which is included in "EarningsEarnings (loss) from discontinued operations"operations in our consolidated Statement of Earnings (Loss).
We also have a defined contribution plan for eligible U.S. employees that provides discretionary contributions. Defined contribution plan costs were $83$95 million and $104$101 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $274 million and $320 million for the nine months ended September 30, 2019 and 2018, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In October 2019, we announced changes to the GE Pension Plan whereby the benefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and thereafter these employees will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan. As a result, we will recognize a non-cash pre-tax curtailment loss of approximately $300 million in the fourth quarter of 2019 as non-operating benefit costs.
In addition, we announced changes to our GE Supplementary Pension Plan whereby the benefits for approximately 700 employees that became executives before 2011 will be frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to new executives since 2011. The change in the GE Supplementary Pension Plan is expected to reduce the projected benefit obligation by approximately $300 million and will be treated as a plan amendment that will be amortized over future periods as a reduction to non-operating benefit costs.
As result of these actions, we have remeasured the pension assets and obligations for the affected plans as of the beginning of the fourth quarter. This will result in an increase in our projected benefit obligation and recognition of a net actuarial loss of approximately $5,000 million that will be recorded in Accumulated Other Comprehensive Income. The increase in the projected benefit obligation is primarily driven by a reduction in the discount rate since December 31, 2018, offset by our asset performance through September 30, 2019, and the impact of the GE Pension Plan freeze. This remeasurement and the $300 million curtailment loss associated with the GE Pension Plan described above will increase our non-operating benefit costs by approximately $600 million in the fourth quarter of 2019.
Finally, we have offered approximately 100,000 former U.S. employees with a vested pension benefit a limited-time option to take a lump sum distribution in lieu of future monthly payments. Those accepting the option will be paid from the assets of the GE Pension Trust in December 2019. This action will accelerate the satisfaction of future pension obligations and could result in a non-cash pre-tax settlement loss in the fourth quarter of 2019, which will be determined based on the rate of acceptance. The settlement loss, if triggered, would be recognized as an additional non-operating benefit cost.
The remeasurement described above is in addition to our annual year-end measurement of the funded status of our benefit plans that we will record as of December 31, 2019. As a result, the change in our pension benefit obligation and net actuarial loss will differ from the $5,000 million discussed above primarily as a result of any changes in interest rates and actual asset performance different from our expected return on assets in the fourth quarter as well as the amount of lump-sum distributions made to former U.S. employees in connection with the limited-time offer.
NOTE 14. INCOME TAXES
Our consolidated effective income tax rate was 0.2%1.0% and (2.2)%12.5% during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. The positive rate for 20192020 is lower than the U.S. statutory rate primarily due to the lower tax rate on the sale of our BioPharma business. The low tax rate on the sale reflects again outside the U.S. taxed at lower than 21% and because we recorded $633 million of the tax benefit on a pretax loss. The negative rateassociated with preparatory steps for 2018 reflects a tax expense on a pretax loss.the transaction in the fourth quarter of 2019. The rate for 2019 is lower than the U.S. statutory rate primarily due to favorable audit resolutions, the benefit of the lower-taxed disposition of our Digital ServiceMax business and U.S. business credits,credits. This was partially offset by the cost of global activities, including the recently enacted 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 businesses within our Renewable Energy segment. The rate for 2018 differs from the U.S. statutory rate primarily due to the non-deductible impairment of goodwill associated with the Power business and international tax expenses in excess of the benefit from other global activities. International tax expenses were impacted by the increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business and the decision to execute an internal restructuring to separate the Healthcare business and the cost of the newly enacted base erosion and global intangible low tax income provisions. This was partially offset by U.S. business credits and an adjustment to decrease the 2018 nine-month tax rate to be in line with the lower expected full-year rate.
The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2014-2015. In June 2019,2014-2015 and 2016-2018. It is possible the IRS2014-2015 audit will be completed in the audit of our consolidated U.S. incomenext 12 months. The United Kingdom tax returnsauthorities disallowed interest deductions claimed by GE Capital for 2012-2013, which resultedthe years 2004-2015 that could result in a decrease in our balancepotential impact of "unrecognized tax benefits" (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognizedapproximately $1 billion, which includes a resulting non-cash continuing operations tax benefit of $378 million plus an additional net interest benefit of $107 million. Of these amounts, GE recorded $355 millionpossible assessment of tax benefits and $98 millionreduction of netdeferred tax assets, not including interest benefits and GE Capital recorded $23 millionpenalties. We are contesting the disallowance. We comply with all applicable tax laws and judicial doctrines of tax benefitsthe United Kingdom and $9 million of net interest benefits. GE Capital recorded an additional non-cashbelieve that the entire benefit in discontinued operations of $332 million of tax benefits and $46 million of net interest benefits. See Note 2 for further information.
is more likely than not to be sustained on its technical merits.
2019 3Q48 2020 1Q FORM 10-Q67
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15. SHAREOWNERS’SHAREHOLDERS’ EQUITY | | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | Three months ended September 30 | | Nine months ended September 30 | Three months ended March 31 |
(In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| 2020 |
| | 2019 |
|
| | | | | | | | | | |
Beginning balance | $ | 59 |
| | $ | 21 |
| | $ | (39 | ) | | $ | (102 | ) | $ | 61 |
| | $ | (39 | ) |
Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $15, $(22), $30 and $26(a) | 30 |
| | (74 | ) | | 151 |
| | 66 |
| |
Reclassifications from OCI – net of deferred taxes of $(3), $5, $(9) and $3 | (12 | ) | | 17 |
| | (35 | ) | | 1 |
| |
Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $0 and $38(a) | | 6 |
| | 28 |
|
Reclassifications from OCI – net of deferred taxes of $(12) and $(1) | | (47 | ) | | (4 | ) |
Other comprehensive income (loss) | 18 |
| | (57 | ) | | 116 |
| | 67 |
| (41 | ) | | 24 |
|
Less OCI attributable to noncontrolling interests | — |
| | — |
| | — |
| | 1 |
| — |
| | 1 |
|
Investment securities ending balance | $ | 77 |
| | $ | (36 | ) | | $ | 77 |
| | $ | (36 | ) | $ | 20 |
| | $ | (16 | ) |
| | | | | | | | | | |
Beginning balance | $ | (5,874 | ) | | $ | (5,446 | ) | | $ | (6,134 | ) | | $ | (4,661 | ) | $ | (4,818 | ) | | $ | (6,134 | ) |
OCI before reclassifications – net of deferred taxes of $(12), $(24), $27 and $17 | (189 | ) | | (639 | ) | | (191 | ) | | (1,856 | ) | |
Reclassifications from OCI – net of deferred taxes of $(5), $(1), $(9) and $(1)(b) | 951 |
| | 7 |
| | 1,234 |
| | 385 |
| |
OCI before reclassifications – net of deferred taxes of $(5) and $26 | | (554 | ) | | 307 |
|
Reclassifications from OCI – net of deferred taxes of $0 and $(4)(b) | | 690 |
| | 117 |
|
Other comprehensive income (loss) | 762 |
| | (632 | ) | | 1,043 |
| | (1,471 | ) | 135 |
| | 423 |
|
Less OCI attributable to noncontrolling interests | (63 | ) | | (38 | ) | | (41 | ) | | (93 | ) | 2 |
| | 100 |
|
Currency translation adjustments ending balance | $ | (5,050 | ) | | $ | (6,040 | ) | | $ | (5,050 | ) | | $ | (6,040 | ) | $ | (4,685 | ) | | $ | (5,810 | ) |
| | | | | | | | | | |
Beginning balance | $ | 26 |
| | $ | 36 |
| | $ | 13 |
| | $ | 62 |
| $ | 49 |
| | $ | 13 |
|
OCI before reclassifications – net of deferred taxes of $(4), $2, $(1) and $(6) | (30 | ) | | (8 | ) | | (43 | ) | | (35 | ) | |
Reclassifications from OCI – net of deferred taxes of $6, $2, $7 and $9 | 28 |
| | (1 | ) | | 56 |
| | — |
| |
OCI before reclassifications – net of deferred taxes of $(45) and $11 | | (262 | ) | | 34 |
|
Reclassifications from OCI – net of deferred taxes of $8 and $(4)(b) | | 51 |
| | 3 |
|
Other comprehensive income (loss) | (2 | ) | | (9 | ) | | 13 |
| | (35 | ) | (211 | ) | | 38 |
|
Less OCI attributable to noncontrolling interests | 1 |
| | (1 | ) | | 2 |
| | — |
| — |
| | 2 |
|
Cash flow hedges ending balance | $ | 24 |
| | $ | 27 |
| | $ | 24 |
| | $ | 27 |
| $ | (163 | ) | | $ | 49 |
|
| | | | | | | | | | |
Beginning balance | $ | (7,063 | ) | | $ | (8,043 | ) | | $ | (8,254 | ) | | $ | (9,702 | ) | $ | (7,024 | ) | | $ | (8,254 | ) |
OCI before reclassifications – net of deferred taxes of $1, $16, $36 and $71 | 39 |
| | 73 |
| | (72 | ) | | 199 |
| |
Reclassifications from OCI – net of deferred taxes of $170, $230, $517 and $666 | 616 |
| | 789 |
| | 1,910 |
| | 2,322 |
| |
OCI before reclassifications – net of deferred taxes of $30 and $48 | | 219 |
| | (116 | ) |
Reclassifications from OCI – net of deferred taxes of $239 and $183(b) | | 817 |
| | 662 |
|
Other comprehensive income (loss) | 655 |
| | 862 |
| | 1,838 |
| | 2,521 |
| 1,035 |
| | 545 |
|
Less OCI attributable to noncontrolling interests | 4 |
| | — |
| | (4 | ) | | — |
| 3 |
| | (2 | ) |
Benefit plans ending balance | $ | (6,412 | ) | | $ | (7,181 | ) | | $ | (6,412 | ) | | $ | (7,181 | ) | $ | (5,991 | ) | | $ | (7,708 | ) |
| | | | | | | | | | |
Accumulated other comprehensive income (loss) at September 30 | $ | (11,361 | ) | | $ | (13,229 | ) | | $ | (11,361 | ) | | $ | (13,229 | ) | |
Accumulated other comprehensive income (loss) at March 31 | | $ | (10,819 | ) | | $ | (13,485 | ) |
(a) Included adjustments of $(877)$1,267 million and $234$(957) million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively and $(2,888) million and $1,705 million for the nine months ended September 30, 2019 and 2018, respectively related to insurance liabilities and annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment security gains been realized. See Note 12 for further information.
(b) CurrencyIncluded $836 million, including currency translation gains and losses included $1,079of $688 million, net of taxes, for the ninethree months ended September 30, 2019 in earnings (loss) from discontinued operations, netMarch 31, 2020, related to the sale of taxes.our BioPharma business within our Healthcare segment.
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, 2019March 31, 2020 was $5,695$5,782 million and will increase to $5,944 million by the respective call dates through periodic accretion. Dividends on GE preferred stock are payable semi-annually, in June and December and accretion is recorded on a quarterly basis. Dividends on GE preferred stock totaled $42 million and $39 million in the three months ended September 30, 2019 and 2018, respectively, and $270 million, including cash dividends of $147 million, and $260 million, including cash dividends of $147 million, for the nine months ending September 30, 2019 and 2018, respectively. In conjunction with 2016 exchange of GE Capital preferred stock into GE preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirrored the GE external preferred stock. In 2018, GE Capital and GE exchanged the existing Series D preferred stock issued to GE for new Series D preferred stock, which is mandatorily convertible into GE Capital Common stock on January 21, 2021. After this conversion, GE Capital will no longer pay preferred dividends to GE. The exchange of GE Capital Series D preferred stock has no impact on the GE Series D preferred stock, which remains callable for $5,694 million on January 21, 2021 or thereafter on dividend payment dates. Additionally, there were no changes to the existing Series A, B or C preferred stock issued to GE. See our Annual Report on Form 10-K for the year ended December 31, 20182019 for further information.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Noncontrolling interests in equity of consolidated affiliates amounted to $1,219$1,575 million and $20,500$1,545 million including 0 and $19,239 million attributable to Baker Hughes Class A shareholder at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million shares which, reduced our ownership interest in from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified results to discontinued operations for all periods presented. See Note 2 for further information. Net earnings (loss) attributable to noncontrolling interests were $39$7 million and $54$30 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively and $41 million and $105 million for the nine months ended September 30, 2019 and 2018, respectively. Dividends attributable to noncontrolling interests were $(110)$(3) million and $(96)$(106) million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively and $(325) million and $(260) million for the nine months ended September 30, 2019 and 2018, respectively.
Redeemable noncontrolling interests presented within "AllAll other liabilities"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 and amounted to $408470 million and $378$439 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Net earnings (loss) attributable to redeemable noncontrolling interests was insignificant$27 million and $(144)$27 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively and $32 million and $(293) million for the nine months ended September 30, 2019 and 2018, respectively.On October 2, 2018 we settled the redeemable noncontrolling interest balance associated with 3 joint ventures with Alstom, for a payment amount of $3,105 million in accordance with contractual payment terms.
NOTE 16. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
Three months ended September 30 | 2019 | | 2018 |
(In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | |
Earnings from continuing operations for per-share calculation | $ | (1,283 | ) | $ | (1,283 | ) | | $ | (22,920 | ) | $ | (22,920 | ) |
Preferred stock dividends | (42 | ) | (42 | ) | | (39 | ) | (39 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation | (1,325 | ) | (1,325 | ) | | (22,959 | ) | (22,959 | ) |
Earnings (loss) from discontinued operations for per-share calculation | (8,140 | ) | (8,140 | ) | | 144 |
| 144 |
|
Net earnings (loss) attributable to GE common shareowners for per-share calculation | $ | (9,465 | ) | $ | (9,465 | ) | | $ | (22,812 | ) | $ | (22,812 | ) |
| | | | | |
Shares of GE common stock outstanding | 8,730 |
| 8,730 |
| | 8,694 |
| 8,694 |
|
Employee compensation-related shares (including stock options) | — |
| — |
| | — |
| — |
|
Total average equivalent shares | 8,730 |
| 8,730 |
| | 8,694 |
| 8,694 |
|
| | | | | |
Earnings per share from continuing operations | $ | (0.15 | ) | $ | (0.15 | ) | | $ | (2.64 | ) | $ | (2.64 | ) |
Earnings (loss) per share from discontinued operations | (0.93 | ) | (0.93 | ) | | 0.02 |
| 0.02 |
|
Net earnings (loss) per share | (1.08 | ) | (1.08 | ) | | (2.62 | ) | (2.62 | ) |
| | | | | |
Potentially dilutive securities(a) | 453 |
| | | 424 |
| |
|
| | | | | | | | | | | | | |
| | | | | |
Nine months ended September 30 | 2019 | | 2018 |
(In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | |
Earnings from continuing operations for per-share calculation | $ | (438 | ) | $ | (438 | ) | | $ | (21,694 | ) | $ | (21,694 | ) |
Preferred stock dividends | (270 | ) | (270 | ) | | (260 | ) | (260 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation | $ | (708 | ) | $ | (708 | ) | | $ | (21,954 | ) | $ | (21,955 | ) |
Earnings (loss) from discontinued operations for per-share calculation | (5,270 | ) | (5,270 | ) | | (1,437 | ) | (1,437 | ) |
Net earnings attributable to GE common shareowners for per-share calculation | $ | (5,977 | ) | $ | (5,977 | ) | | $ | (23,383 | ) | $ | (23,383 | ) |
| | | | | |
Shares of GE common stock outstanding | 8,721 |
| 8,721 |
| | 8,689 |
| 8,689 |
|
Employee compensation-related shares (including stock options) | — |
| — |
| | — |
| — |
|
Total average equivalent shares | 8,721 |
| 8,721 |
| | 8,689 |
| 8,689 |
|
| | | | | |
Earnings from continuing operations | $ | (0.08 | ) | $ | (0.08 | ) | | $ | (2.53 | ) | $ | (2.53 | ) |
Loss from discontinued operations | (0.60 | ) | (0.60 | ) | | (0.17 | ) | (0.17 | ) |
Net earnings | (0.69 | ) | (0.69 | ) | | (2.69 | ) | (2.69 | ) |
| | | | | |
Potentially dilutive securities(a) | 462 |
| | | 410 |
| |
(a) Outstanding stock awards not included in the computation of diluted earnings per share because their effect was antidilutive.
2019 3Q2020 1Q FORM 10-Q 6949
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 16. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
Three months ended March 31 | 2020 | | 2019 |
(In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | |
Earnings from continuing operations for per-share calculation | $ | 6,358 |
| $ | 6,358 |
| | $ | 936 |
| $ | 954 |
|
Preferred stock dividends | (43 | ) | (43 | ) | | (40 | ) | (40 | ) |
Earnings from continuing operations attributable to common shareholders for per-share calculation | 6,315 |
| 6,315 |
| | 897 |
| 915 |
|
Earnings (loss) from discontinued operations for per-share calculation | (175 | ) | (175 | ) | | 2,604 |
| 2,622 |
|
Net earnings (loss) attributable to GE common shareholders for per-share calculation | $ | 6,140 |
| $ | 6,140 |
| | $ | 3,519 |
| $ | 3,537 |
|
| | | | | |
Shares of GE common stock outstanding | 8,742 |
| 8,742 |
| | 8,711 |
| 8,711 |
|
Employee compensation-related shares (including stock options) | 7 |
| — |
| | 15 |
| — |
|
Total average equivalent shares | 8,749 |
| 8,742 |
| | 8,726 |
| 8,711 |
|
| | | | | |
Earnings per share from continuing operations | $ | 0.72 |
| $ | 0.72 |
| | $ | 0.10 |
| $ | 0.10 |
|
Earnings (loss) per share from discontinued operations | (0.02 | ) | (0.02 | ) | | 0.30 |
| 0.30 |
|
Net earnings (loss) per share | 0.70 |
| 0.70 |
| | 0.40 |
| 0.41 |
|
| | | | | |
Potentially dilutive securities(a) | 422 |
| | | 471 |
| |
(a) Outstanding stock awards not included in the computation of diluted earnings per share because their effect was antidilutive. Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities, and, therefore, are included in the computation of earnings per share pursuant to the two-class method. For the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, as a resultapplication of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities.this treatment had an insignificant effect.
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 from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.
NOTE 17. FINANCIAL INSTRUMENTS
The following table provides information about assets and liabilities not carried at fair value and excludes finance leases, equity securities without readily determinable fair value and non-financial assets and liabilities. Substantially all of these assets are considered to be Level 3 and the vast majority of our liabilities’ fair value are considered Level 2.
| |
| September 30, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
(In millions) | Carrying amount (net) |
| Estimated fair value |
| | Carrying amount (net) |
| Estimated fair value |
| Carrying amount (net) |
| Estimated fair value |
| | Carrying amount (net) |
| Estimated fair value |
|
|
| |
|
| |
|
Assets |
| |
|
| |
|
Loans and other receivables | $ | 4,540 |
| $ | 4,638 |
| | $ | 8,811 |
| $ | 8,829 |
| $ | 3,912 |
| $ | 3,777 |
| | $ | 4,113 |
| $ | 4,208 |
|
Liabilities |
| |
|
| |
|
Borrowings (Note 11) | 93,244 |
| 98,246 |
| | 103,599 |
| 100,492 |
| 85,154 |
| 85,033 |
| | 90,882 |
| 97,754 |
|
Investment contracts (Note 12) | 2,239 |
| 2,653 |
| | 2,388 |
| 2,630 |
| 2,169 |
| 2,485 |
| | 2,191 |
| 2,588 |
|
The lower fair value in relation to carrying value for borrowings at March 31, 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 carrying amount, estimated fair value of borrowings included $1,017$913 million and $1,324$1,106 million of accrued interest at
September 30, 2019 March 31, 2020 and December 31, 2018, respectively,2019, respectively.
Assets and excludedliabilities that are reflected in the impact of derivatives designated as hedges of borrowings. Had they been included, theaccompanying financial statements at fair value of borrowings at September 30, 2019are not included in the above disclosures; such items include cash and December 31, 2018 would be reduced by $1,710 millionequivalents, investment securities and $1,300 million, respectively. derivative financial instruments.
DERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for managing risks and not for speculative purposes. Total gross notional was $96,690$101,209 million ($58,67153,808 million in GE Capital and $38,019$47,401 million in GE) and $117,104$98,018 million ($79,08255,704 million in GE Capital and $38,022$42,314 million in GE) at September 30, 2019March 31, 2020 and December 31, 2018,2019, 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, 2019 | | December 31, 2018 |
(In millions) | Gross Notional |
| All other assets |
| All other liabilities |
| | Gross Notional |
| All other assets |
| All other liabilities |
|
| | | | | | | |
Interest rate contracts | $ | 23,819 |
| $ | 1,904 |
| $ | 11 |
| | $ | 22,904 |
| $ | 1,335 |
| $ | 23 |
|
Currency exchange contracts | 6,661 |
| 89 |
| 98 |
| | 7,854 |
| 175 |
| 114 |
|
Derivatives accounted for as hedges | $ | 30,480 |
| $ | 1,993 |
| $ | 109 |
| | $ | 30,758 |
| $ | 1,511 |
| $ | 138 |
|
| | | | | | | |
Interest rate contracts | $ | 3,413 |
| $ | 28 |
| $ | 3 |
| | $ | 6,198 |
| $ | 28 |
| $ | 2 |
|
Currency exchange contracts | 61,050 |
| 543 |
| 953 |
| | 77,544 |
| 653 |
| 1,472 |
|
Other contracts | 1,746 |
| 67 |
| 82 |
| | 2,604 |
| 13 |
| 209 |
|
Derivatives not accounted for as hedges | $ | 66,210 |
| $ | 639 |
| $ | 1,037 |
| | $ | 86,346 |
| $ | 695 |
| $ | 1,682 |
|
| | | | | | | |
Gross derivatives | $ | 96,690 |
| $ | 2,632 |
| $ | 1,146 |
| | $ | 117,104 |
| $ | 2,205 |
| $ | 1,820 |
|
| | | | | | | |
Netting and credit adjustments | | $ | (674 | ) | $ | (678 | ) | | | $ | (959 | ) | $ | (967 | ) |
Cash collateral adjustments | | (1,226 | ) | (202 | ) | | | (1,042 | ) | (267 | ) |
Net derivatives recognized in statement of financial position | | $ | 732 |
| $ | 266 |
| | | $ | 205 |
| $ | 586 |
|
�� | | | | | | | |
Net accrued interest | | $ | 152 |
| $ | 4 |
| | | $ | 205 |
| $ | 1 |
|
Securities held as collateral | | (567 | ) | — |
| | | (235 | ) | — |
|
Net amount | | $ | 317 |
| $ | 270 |
| | | $ | 174 |
| $ | 587 |
|
Fair value of derivatives in our consolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $51 million and $786 million at September 30, 2019, respectively, and $3 million and $439 million at December 31, 2018, respectively. Securities held as collateral excluded excess collateral received of $18 million and 0 at September 30, 2019 and December 31, 2018, respectively.
7050 2019 3Q2020 1Q FORM 10-Q
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | |
FAIR VALUE OF DERIVATIVES | March 31, 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 | $ | 23,617 |
| $ | 2,191 |
| $ | 9 |
| | $ | 23,918 |
| $ | 1,636 |
| $ | 11 |
|
Currency exchange contracts | 7,307 |
| 170 |
| 277 |
| | 7,044 |
| 99 |
| 46 |
|
Derivatives accounted for as hedges | $ | 30,924 |
| $ | 2,361 |
| $ | 287 |
| | $ | 30,961 |
| $ | 1,734 |
| $ | 57 |
|
| | | | | | | |
Interest rate contracts | $ | 2,447 |
| $ | 29 |
| $ | 7 |
| | $ | 3,185 |
| $ | 18 |
| $ | 12 |
|
Currency exchange contracts | 66,240 |
| 1,105 |
| 1,477 |
| | 62,165 |
| 697 |
| 744 |
|
Other contracts | 1,598 |
| 5 |
| 103 |
| | 1,706 |
| 123 |
| 40 |
|
Derivatives not accounted for as hedges | $ | 70,285 |
| $ | 1,139 |
| $ | 1,587 |
| | $ | 67,056 |
| $ | 838 |
| $ | 796 |
|
| | | | | | | |
Gross derivatives | $ | 101,209 |
| $ | 3,500 |
| $ | 1,874 |
| | $ | 98,018 |
| $ | 2,572 |
| $ | 853 |
|
| | | | | | | |
Netting and credit adjustments | | $ | (1,145 | ) | $ | (1,155 | ) | | | $ | (546 | ) | $ | (546 | ) |
Cash collateral adjustments | | (1,297 | ) | (198 | ) | | | (1,286 | ) | (105 | ) |
Net derivatives recognized in statement of financial position | | $ | 1,058 |
| $ | 520 |
| | | $ | 740 |
| $ | 202 |
|
| | | | | | | |
Net accrued interest | | $ | 71 |
| $ | 1 |
| | | $ | 182 |
| $ | 1 |
|
Securities held as collateral | | (693 | ) | — |
| | | (469 | ) | — |
|
Net amount | | $ | 436 |
| $ | 521 |
| | | $ | 452 |
| $ | 203 |
|
Fair value of derivatives in our consolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $198 million and $995 million at March 31, 2020, respectively, and $104 million and $603 million at December 31, 2019, respectively. Securities held as collateral excluded excess collateral received of $45 million and $27 million at March 31, 2020 and December 31, 2019 respectively.
FAIR VALUE HEDGES.We use derivatives to hedge the effects of interest rate and currency exchange rate changes on our borrowings. At September 30, 2019,March 31, 2020, the cumulative amount of hedging adjustments of $5,118$6,527 million (including $2,484$2,348 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $57,017$53,272 million. At September 30, 2018,March 31, 2019, the cumulative amount of hedging adjustments of $2,847$3,712 million (including $2,844$2,685 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $61,292$58,885 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 recorded in Accumulated Other Comprehensive Income (AOCI) and recorded in earnings in the period in which the hedged transaction occurs. The gain (loss) recognized in AOCI was $(21)$(313) million and $(5)$47 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $(24) million and $(25) million for the nine months ended September 30, 2019 and 2018, respectively. The gain (loss) reclassified from AOCI to earnings was $(34)$(59) million and $(1) million0 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $(63) million and $(9) million for the nine months ended September 30, 2019 and 2018, respectively. These amounts were primarily related to currency exchange and interest rate contracts.
The total amount in AOCI related to cash flow hedges of forecasted transactions was a $64$183 million gainloss at September 30, 2019.March 31, 2020. We expect to reclassify $58$125 million of loss to earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. For the three months ended March 31, 2020 and nine months ended September 30, 2019, and 2018, we recognized $18 million of loss, primarily as a result of the disposition of BioPharma, and insignificant gains and losses, respectively, related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At September 30,March 31, 2020 and 2019, and 2018, the maximum term of derivative instruments that hedge forecasted transactions was 1315 years and 14 years, respectively.
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,March 31, 2020 and 2019 and 2018 was $213$158 million and $(62)$(68) million, respectively, comprising $32$109 million and $18$(27) million on currency exchange contracts and $181$48 million and $(79) million on foreign currency debt, respectively. The total gain (loss) recognized in AOCI on hedging instruments for the nine months ended September 30, 2019 and 2018 was $231 million and $144 million, respectively, comprising $7 million and $100 million on currency exchange contracts and $225 million and $43$(41) million on foreign currency debt, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $6$2 million and $6$8 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $22 million and $14 million for the nine months ended September 30, 2019 and 2018.
The carrying value of foreign currency debt designated as net investment hedges was $9,119$9,145 million and $12,894$12,502 million at
September 30,March 31, 2020 and 2019, respectively. and 2018, respectively. The totalgain (loss) reclassified from AOCI into earnings was $338 million0 and $(7)$6 million for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. The total reclassified from AOCI into earnings was $344 million and $(7) million for the nine months ended September 30, 2019 and 2018, respectively.
EFFECTS OF DERIVATIVES ON 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 occuroccur..
The table below presents the effect of our derivative financial instruments in the consolidated Statement of Earnings:
2019 3Q2020 1Q FORM 10-Q 7151
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2019 | | Three months ended September 30, 2018 |
(In millions) | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income |
| | | | | | | | | | | |
Total amounts presented in the consolidated Statement of Earnings | $ | 23,360 |
| $ | 17,328 |
| $ | 1,279 |
| $ | 3,293 |
| $ | 158 |
| | $ | 23,392 |
| $ | 17,847 |
| $ | 1,155 |
| $ | 4,100 |
| $ | 279 |
|
| | | | | | | | | | | |
Total effect of cash flow hedges | $ | (24 | ) | $ | (1 | ) | $ | (8 | ) | $ | (2 | ) | $ | — |
| | $ | 8 |
| $ | 1 |
| $ | (10 | ) | $ | — |
| $ | — |
|
| | | | | | | | | | | |
Hedged items | | | $ | (1,000 | ) | | | | | | $ | 333 |
| | |
Derivatives designated as hedging instruments | | | 1,011 |
| | | | | | (362 | ) | | |
Total effect of fair value hedges | | | $ | 10 |
| | | | | | $ | (29 | ) | | |
| | | | | | | | | | | |
Interest rate contracts | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (11 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Currency exchange contracts | (108 | ) | (8 | ) | (73 | ) | 60 |
| (28 | ) | | (415 | ) | (240 | ) | — |
| — |
| (10 | ) |
Other | (1 | ) | — |
| — |
| — |
| 9 |
| | — |
| — |
| 38 |
| — |
| (22 | ) |
Total effect of derivatives not designated as hedges | $ | (109 | ) | $ | (8 | ) | $ | (74 | ) | $ | 60 |
| $ | (18 | ) | | $ | (426 | ) | $ | (240 | ) | $ | 38 |
| $ | — |
| $ | (32 | ) |
The table below presents the effect of our derivative financial instruments in the consolidated Statement of Earnings: | | | Nine months ended September 30, 2019 | | Nine months ended September 30, 2018 | Three months ended March 31, 2020 | | Three months ended March 31, 2019 |
(In millions) | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | 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 | $ | 68,976 |
| $ | 50,949 |
| $ | 3,272 |
| $ | 10,120 |
| $ | 1,170 |
| | $ | 70,513 |
| $ | 52,244 |
| $ | 3,585 |
| $ | 11,013 |
| $ | 1,388 |
| $ | 20,524 |
| $ | 15,695 |
| $ | 794 |
| $ | 3,065 |
| $ | 6,869 |
| | $ | 22,202 |
| $ | 16,208 |
| $ | 1,065 |
| $ | 3,402 |
| $ | 847 |
|
| | | | | | |
Total effect of cash flow hedges | $ | (18 | ) | $ | (14 | ) | $ | (27 | ) | $ | (3 | ) | $ | — |
| | $ | 4 |
| $ | 17 |
| $ | (30 | ) | $ | — |
| $ | — |
| $ | (21 | ) | $ | (25 | ) | $ | (10 | ) | $ | (3 | ) | $ | — |
| | $ | 20 |
| $ | (9 | ) | $ | (10 | ) | $ | (1 | ) | $ | — |
|
| | | | | | |
Hedged items | | $ | (2,186 | ) | | | | $ | 1,200 |
| |
| | $ | (2,480 | ) | | | | $ | (527 | ) | |
Derivatives designated as hedging instruments | | 2,172 |
| | | | (1,285 | ) | |
| | 2,511 |
| | | | 515 |
| |
Total effect of fair value hedges | | $ | (14 | ) | | | | $ | (85 | ) | |
| | $ | 31 |
| | | | $ | (11 | ) | |
| | | | | | |
Interest rate contracts | $ | (36 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (46 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (23 | ) | $ | — |
| $ | (9 | ) | $ | — |
| $ | — |
| | $ | (4 | ) | $ | — |
| $ | (16 | ) | $ | — |
| $ | — |
|
Currency exchange contracts | (25 | ) | (29 | ) | (212 | ) | (2 | ) | (52 | ) | | (921 | ) | (484 | ) | — |
| — |
| (6 | ) | (521 | ) | 13 |
| — |
| 54 |
| 11 |
| | 390 |
| 9 |
| — |
| (45 | ) | 3 |
|
Other | (1 | ) | — |
| 123 |
| — |
| 10 |
| | (1 | ) | — |
| 27 |
| — |
| (2 | ) | — |
| — |
| — |
| (160 | ) | (22 | ) | | — |
| — |
| 96 |
| — |
| 13 |
|
Total effect of derivatives not designated as hedges | $ | (62 | ) | $ | (29 | ) | $ | (89 | ) | $ | (2 | ) | $ | (42 | ) | | $ | (967 | ) | $ | (484 | ) | $ | 27 |
| $ | — |
| $ | (8 | ) | $ | (545 | ) | $ | 13 |
| $ | (9 | ) | $ | (106 | ) | $ | (12 | ) | | $ | 386 |
| $ | 9 |
| $ | 80 |
| $ | (45 | ) | $ | 16 |
|
The amount excluded for cash flow hedges which is recognized in earnings was $15 million and 0 for the three months ended March 31, 2020 and 2019, respectively.
COUNTERPARTY CREDIT RISK
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. Our exposures to counterparties (including accrued interest), net of collateral we held, was $227$270 million and $95$368 million at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. Counterparties' exposures to our derivative liability (including accrued interest), net of collateral posted by us, was $250$463 million and $571$159 million at September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
NOTE 18. VARIABLE INTEREST ENTITIES
In addition to the 3 VIEs detailed in Note 4, in our consolidated Statement of Financial Position, we have other consolidated VIEs with assets of $1,539$2,106 million and $2,321$2,134 million and liabilities of $1,007$1,103 million and $1,611$1,233 million at September 30 2019March 31, 2020, and December 31, 2018, respectively.2019, respectively, from other consolidated VIEs. These entities were created to help our customers facilitate or finance the purchase of GE goods and services. These entities have no features that could expose us to losses that would significantly exceed the difference between the consolidated assets and liabilities. Substantially all the assets of our consolidated VIEs at September 30, 2019March 31, 2020, can only be used to settle the liabilities of those VIEs.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our investments in unconsolidated VIEs were $1,859$1,939 million and $2,346$1,937 million at September 30, 2019March 31, 2020, and December 31, 2018,2019, respectively. These investments are primarily owned by GE Capital businesses, $837$506 million and $1,670$621 million of which were owned by EFSEnergy Financial Services, comprising equity method investments, and $525$1,040 million and 0$896 million of which were owned by our run-off insurance operations, primarily comprising investment securities at September 30, 2019March 31, 2020 and December 31, 2018,2019, 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. ObligationsOur maximum exposure to loss in respect of unconsolidated VIEs is increased by our commitments to make additional investments in these entities total $579 million, of which $483 million relates to our run-off insurance operations.described in Note 19.
NOTE 19. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS.COMMITMENTS. The GECAS business within the Capital segment has placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $33,153$35,772 million (including 369358 new aircraft with estimated delivery dates of 6% in 2019, 18%10% in 2020, and 76%18% in 2021 and 72% in 2022 through 2025)2026) and secondary orders with airlines for used aircraft approximating $2,317$2,297 million (including 5753 used aircraft with estimated delivery dates of 28% in 2019, 47%21% in 2020, and 25%64% in 2021 throughand 15% in 2022) at September 30, 2019.March 31, 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, 2019,March 31, 2020, we have made $3,064$2,963 million of pre-delivery payments to aircraft manufacturers.
In additionDuring April 2020, GECAS agreed with Boeing to our obligation to make investmentsrestructure its 737 MAX orderbook including previously canceled positions, resulting in unconsolidated VIEs described in Note 18, the cancellation of 69 orders with 82 orders now remaining.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE Capital had total investment commitments of $2,614$2,786 million at September 30, 2019, thatMarch 31, 2020. The commitments primarily comprise project financing investments in thermal and wind energy projects of $1,395$1,149 million and investment commitments related toinvestments by our run-off insurance operations in investment securities and other assets of $1,189 million.$1,608 million, included within these commitments are obligations to make additional investments in unconsolidated VIEs of $260 million and $1,090 million, respectively. See Note 18 for further information.
As of September 30, 2019,March 31, 2020, in our Aviation segment, we have committed to provide financing assistance of $2,318$2,072 million for future customer acquisitions of aircraft equipped with our engines.
GUARANTEES.At September 30, 2019,March 31, 2020, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 18 for further information.arrangements:
Credit Support. At September 30, 2019,March 31, 2020, we have provided $1,637$1,483 million of credit support on behalf of certain customers or associated companies,customers' predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. The liability for such credit support was $40$33 million at September 30, 2019. March 31, 2020.
Indemnification Agreements – Continuing Operations. At September 30, 2019,March 31, 2020, we have $1,654$1,544 million of other indemnification commitments,indemnifications, including representations and warranties in sales of businesses or assets, for which we recorded a liability of $139$144 million.
Indemnification Agreements – Discontinued Operations. At September 30, 2019,March 31, 2020, we have provided specific indemnities to buyers of GE Capital’s businesses and assets that, in the aggregate, represent a maximum potential claim of $1,136$1,019 million with related reserves of $148$139 million. In addition, in connection with the 2015 public offering and sale of Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations.
PRODUCT WARRANTIESWARRANTIES.. 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.
|
| | | | | | |
(In millions) | 2019 |
| 2018 |
|
|
|
|
Balance at January 1 | $ | 2,193 |
| $ | 2,103 |
|
Current-year provisions | 527 |
| 722 |
|
Expenditures | (525 | ) | (597 | ) |
Other changes | 34 |
| 7 |
|
Balance as of September 30 | $ | 2,229 |
| $ | 2,236 |
|
was $2,081 million and $2,165 million at March 31, 2020 and December 31, 2019, respectively.
LEGAL MATTERS.The following information supplements and amends the discussion of Legal Matters in Note 23 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019; refer to that discussion 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.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 nature of legal matters and the complexities involved, it is often difficult to predict and determine a meaningful estimate of loss or range of loss until we know, among other factors, the particular claims involved, the likelihood of success of our defenses to those claims, the damages or other relief sought, how discovery or other procedural considerations will affect the outcome, the settlement posture of other parties and other factors that may have a material effect on the outcome. For these matters, unless otherwise specified, we do not believe it is possible to provide a meaningful estimate of loss at this time. Moreover, it is not uncommon for legal matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
WMC. During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and was never a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued. The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). These claims will be resolved as part of the Chapter 11 bankruptcy case described below.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1,500 million.
In April 2019, WMC commenced a case under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. WMC has filed a Chapter 11 Plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor. GE Capital is providing up to $25 million of debtor-in-possession financing to fund administrative expenses associated with the Chapter 11 proceeding. In August 2019, we reached a settlement with WMC to resolve potential claims that WMC may have against certain GE entities. This settlement is incorporated into, and will be approved as part of, the Chapter 11 plan.
Beginning in the second quarter of 2019, as a result of WMC commencing the Chapter 11 case, we no longer consolidate WMC’s financial results or position on the books and records of GE Capital. We recognized $67 million of pre-tax charges during the second quarter of 2019, reflecting an updated settlement estimate in the context of bankruptcy for litigation that was pending when the Chapter 11 case commenced, as well as additional claims that have been brought in bankruptcy. In total, we have recognized $211 million of liabilities as of September 30, 2019, associated with amounts we anticipate paying to WMC in connection with the settlement of potential claims that WMC may have against us, as discussed above.
Alstom legacy matters.On In November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of 2 significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65 million by the European Commission for participating in a gas insulated switchgear cartel that operated from 1988 to 2004 (that fine was later reduced to €59 million), and (2) in December 2014, Alstom pled guilty in the United States to multiple violations of the Foreign Corrupt Practices Act and paid a criminal penalty of $772 million. As part of GE’s accounting for the acquisition, we established a reserve amounting to $858 million for legal and compliance matters related to the legacy business practices that were the subject of these and related cases in various jurisdictions. At September 30, 2019, thisjurisdictions, including the previously reported legal proceedings in Israel that are described below. The reserve balance was $859 million. The increase is primarily driven by foreign currency movements.$846 million and $875 million at March 31, 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, and at this time we are unable to develop a meaningful estimate of the range of reasonably possible additional losses beyond the amount of this reserve. Damages sought may include disgorgement of profits on the underlying business transactions, fines and/or penalties, interest, or other forms of resolution. Factors that can affect the ultimate amount of losses associated with these and related matters include the way cooperation is assessed and valued, prosecutorial discretion in the determination of damages, formulas for determining fines and penalties, the duration and amount of legal and investigative resources applied, political and social influences within each jurisdiction, and tax consequences of any settlements or previous deductions, among other considerations. Actual losses arising from claims in these and related matters could exceed the amount provided.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In September 2013, the Israeli Antitrust Authority issued a decision whereby Alstom, Siemens AG and ABB Ltd. were held liable for an alleged anti-competitive arrangement in the gas-insulated switchgears market in Israel. While there was no fine in connection with that decision, claimants brought two civil actions in 2013 seeking damages of approximately $950 million and $600 million, respectively, related to the alleged conduct underlying the decision that are pending before the Central District Court in Israel. The court in March 2020 approved a settlement agreement reached by the parties, but the settlement remains subject to appeal to the Supreme Court of Israel.
Shareholder and related lawsuits. In December 2018, a putative class action (the Varga case) was filed in the U.S. District Court for the Northern District of New York naming GE and a former GE executive officer as defendants in connection with the oversight of the GE RSP. It alleges that the defendants breached fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) by failing to advise GE RSP participants that GE Capital insurance subsidiaries were allegedly under-reserved and continued to retain a GE stock fund as an investment option in the GE RSP. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from January 1, 2010 through January 19, 2018 or later. In March 2020 the court granted GE’s motion to dismiss the case, and in April 2020 the plaintiffs filed an appeal with the Second Circuit.
In August 2019, a putative class action (the Tri-State case) was filed in the Delaware Court of Chancery naming as defendants GE and the former Board of Directors of Baker Hughes Incorporated (BHI). It alleges fraud, aiding and abetting breaches of fiduciary duty, and aiding and abetting breaches of duty of disclosure by GE based on allegations regarding financial statements that GE provided the former BHI board, management and shareholders in connection with BHI’s merger with GE’s Oil and Gas Business in July 2017. The plaintiff seeks damages on behalf of BHI shareholders during the period between October 7, 2016 and July 5, 2017. In October 2019, the City of Providence filed a complaint containing allegations substantially similar to those in the Tri-State complaint. The cases were consolidated in November 2019, and in December 2019, the plaintiffs filed an amended consolidated complaint which is similar to the prior complaints but does not include fraud claims against GE. In February 2020, GE and the other defendants filed a motion to dismiss the amended consolidated complaint.
These cases are at an early stage; we believe we have defenses to the claims and are responding accordingly.
Bank BPH.As previously reported, GE Capital’s subsidiary Bank BPH, along with other Polish banks, has been subject to ongoing litigation in Poland related to its portfolio of floating rate residential mortgages, with cases brought by individual borrowers seeking relief related to their foreign currency-denominated mortgages in various courts throughout Poland. Approximately 86% of the Bank BPH portfolio is indexed to or denominated in foreign currencies (primarily Swiss francs), and the total portfolio had a carrying value of $2.4 billion at March 31, 2020. In October 2019, the European Court of Justice (ECJ) issued a decision about the approach to remedy in a case involving another Polish bank’s foreign currency loans, and in January 2020, a pending case involving a Bank BPH loan was referred to the ECJ. While there remains significant uncertainty as to how the prior ECJ decision, or a future decision on the Bank BPH case, will influence the Polish courts as they consider individual cases, we are observing an increase in the number of lawsuits brought against Bank BPH and other banks in Poland with similar portfolios that may continue in future reporting periods. We have observed more findings of liability and more severe remedies being ordered against Polish banks. We also believe there is a potential for unifying rules of decision to emerge regarding both the finding of liability and approach to remedy that could change our estimate of the potential effects of borrower litigation. Future adverse developments in the potential for legislative relief or in litigation across the Polish banking industry as a result of ECJ decisions or otherwise could result in losses related to these loans in future reporting periods.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. Welaws and nuclear decommissioning regulations. Additionally, like many other industrial companies, we and our subsidiaries are involveddefendants in numerous remediation actionsvarious lawsuits related to clean upalleged worker exposure to asbestos or other hazardous wastes as required by federal and state laws, as well as litigation involving asbestos and other environmental, health and safety-related claims.materials. Liabilities for environmental remediation, costsnuclear decommissioning and worker exposure claims exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range.recoveries. It is reasonably possible that our exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual matters,sites and lawsuits, such amounts are not reasonably estimable. For further information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
7454 2019 3Q2020 1Q FORM 10-Q
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20. CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.
Amounts reported in the “Proceeds from sales of discontinued operations” and “Proceeds from principal business dispositions” lines in our consolidated Statement of Cash Flows are net of cash transferred and included certain deal-related costs. Amounts reported in the “Net cash from (payments for) principal businesses purchased” line are net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions.
|
| | | | | | |
GE | Nine months ended September 30 |
(In millions) | 2019 |
| 2018 |
|
| | |
Increase (decrease) in employee benefit liabilities | $ | (373 | ) | $ | 41 |
|
Other gains on investing activities | 232 |
| (434 | ) |
Restructuring and other charges(a) | 763 |
| 1,651 |
|
Restructuring and other cash expenditures | (854 | ) | (975 | ) |
Increase (decrease) in equipment project accruals | (76 | ) | (785 | ) |
Baker Hughes Class B dividends received | 282 |
| 399 |
|
Other(b) | 580 |
| (434 | ) |
All other operating activities | $ | 554 |
| $ | (537 | ) |
Derivative settlements, net | $ | 9 |
| $ | (490 | ) |
Investments in intangible assets, net | (17 | ) | (472 | ) |
Sales of retained ownership interests in Wabtec | 3,383 |
| — |
|
Other(c) | 29 |
| 138 |
|
All other investing activities | $ | 3,404 |
| $ | (824 | ) |
Disposition of Baker Hughes noncontrolling interests | $ | — |
| $ | 638 |
|
Acquisition of noncontrolling interests | (28 | ) | (240 | ) |
Other(d) | (320 | ) | 34 |
|
All other financing activities | $ | (348 | ) | $ | 432 |
|
| |
(a) | Excludes non-cash adjustments reflected as "Depreciation and amortization of property, plant and equipment" or "Amortization of intangible assets" in our consolidated Statement of Cash Flows. |
| |
(b) | Included other adjustments to net income, such as write-downs of assets and the impacts of acquisition accounting and changes in other assets and other liabilities classified as operating activities, such as the timing of payments of customer allowances. |
| |
(c) | Other included net activity related to settlements between our continuing operations and discontinued operations.
|
| |
(d) | Other included debt tender expenditures of $(244) million incurred to purchase GE long-term debt in the third quarter of 2019. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 21. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. These transactions are eliminated in consolidation and may include, but are not limited to, the following: GE Capital working capital services to GE, including current receivables and supply chain finance programs; GE Capital finance transactions, including related GE guarantees to GE Capital; GE Capital financing of GE long-term receivables; and aircraft engines, power equipment and renewable energy equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following: expenses related to parent-subsidiary pension plans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions; information technology (IT) and other services sold to GE Capital by GE; settlements of tax liabilities; and various investments, loans and allocations of GE corporate overhead costs.
Presented below is a walk of intercompany eliminations from the combined GE and GE Capital totals to the consolidated cash flows.
| | | Nine months ended September 30 | Three months ended March 31 |
(In millions) | 2019 |
| 2018 |
| 2020 |
| 2019 |
|
| Combined GE and GE Capital cash from (used for) operating activities - continuing operations | $ | 1,311 |
| $ | (3,962 | ) | $ | (385 | ) | $ | (557 | ) |
GE current receivables sold to GE Capital | 508 |
| (161 | ) | (997 | ) | 538 |
|
GE long-term receivables sold to GE Capital | 340 |
| 851 |
| 135 |
| 174 |
|
Supply chain finance programs | 1,062 |
| 152 |
| |
Supply chain finance programs(a) | | 884 |
| 310 |
|
Other reclassifications and eliminations | 201 |
| (1,214 | ) | 216 |
| (45 | ) |
Total cash from (used for) operating activities - continuing operations | $ | 3,423 |
| $ | (4,334 | ) | |
Consolidated cash from (used for) operating activities - continuing operations | | $ | (148 | ) | $ | 420 |
|
Combined GE and GE Capital cash from (used for) investing activities - continuing operations | $ | 9,680 |
| $ | 7,209 |
| $ | 19,991 |
| $ | 6,048 |
|
GE current receivables sold to GE Capital | (1,167 | ) | (1,016 | ) | 945 |
| (1,306 | ) |
GE long-term receivables sold to GE Capital | (340 | ) | (851 | ) | (135 | ) | (174 | ) |
GE Capital long-term loans to GE | (480 | ) | 6,479 |
| |
Supply chain finance programs | (1,062 | ) | (152 | ) | |
Capital contribution from GE to GE Capital | 1,500 |
| — |
| |
Supply chain finance programs(a) | | (884 | ) | (310 | ) |
Other reclassifications and eliminations | (1,043 | ) | 460 |
| (695 | ) | (562 | ) |
Total cash from (used for) investing activities - continuing operations | $ | 7,087 |
| $ | 12,129 |
| |
Consolidated cash from (used for) investing activities - continuing operations | | $ | 19,221 |
| $ | 3,696 |
|
Combined GE and GE Capital cash from (used for) financing activities - continuing operations | $ | (14,201 | ) | $ | (17,677 | ) | $ | (8,451 | ) | $ | (4,837 | ) |
GE current receivables sold to GE Capital | 659 |
| 1,177 |
| 52 |
| 768 |
|
GE Capital long-term loans to GE | 480 |
| (6,479 | ) | |
Capital contribution from GE to GE Capital | (1,500 | ) | — |
| |
Other reclassifications and eliminations | 842 |
| 755 |
| 480 |
| 607 |
|
Total cash from (used for) financing activities - continuing operations | $ | (13,721 | ) | $ | (22,224 | ) | |
Consolidated cash from (used for) financing activities - continuing operations | | $ | (7,919 | ) | $ | (3,461 | ) |
| |
(a) | Represents the reduction of the GE liability associated with the funded participation in a supply chain finance program with GE Capital, primarily as a result of GE Capital's sale of the program platform to MUFG Union Bank, N.A. (MUFG) in 2019. |
GE current receivables sold to GE Capital excludes $268 million and $3,905 million related to cashCash payments received on the Receivable facility deferred purchase price in the nine months ended September 30, 2019 and 2018 respectively, which are reflected as "CashCash from investing activities"activities in the GE Capital and the GEConsolidated columns of our consolidated Statement of Cash Flows. Sales of current and long-termcustomer receivables from GE to GE Capital are classified as "CashCash from operating activities"activities in the GE column of our Statement of Cash Flows. See Note 4 for further information.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 22.21. GUARANTOR FINANCIAL INFORMATION
GE Capital International Funding Company Unlimited Company (the Issuer) previously issued senior unsecured registered notes that are fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (each a Guarantor, and together, the Guarantors). The Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities, specifically Condensed Consolidating Statements of Earnings and Comprehensive Income, Condensed Consolidating Statements of Financial Position and Condensed Consolidating Statements of Cash Flows for:
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE THREE MONTHS ENDED MARCH 31, 2020 (UNAUDITED) |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 6,217 |
| $ | — |
| $ | — |
| $ | 29,404 |
| $ | (16,806 | ) | $ | 18,814 |
|
GE Capital revenues from services | — |
| 238 |
| 2 |
| 1,983 |
| (513 | ) | 1,709 |
|
Total revenues | 6,217 |
| 238 |
| 2 |
| 31,386 |
| (17,319 | ) | 20,524 |
|
| | | | | | |
Interest and other financial charges | 295 |
| 258 |
| 313 |
| 337 |
| (409 | ) | 794 |
|
Other costs and expenses | 6,898 |
| — |
| — |
| 32,294 |
| (19,068 | ) | 20,124 |
|
Total costs and expenses | 7,192 |
| 258 |
| 313 |
| 32,631 |
| (19,477 | ) | 20,918 |
|
Other income (loss) | 705 |
| — |
| — |
| 18,294 |
| (12,129 | ) | 6,869 |
|
Equity in earnings (loss) of affiliates | 6,615 |
| — |
| 278 |
| 17,098 |
| (23,991 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | 6,344 |
| (20 | ) | (34 | ) | 34,148 |
| (33,963 | ) | 6,475 |
|
Benefit (provision) for income taxes | 20 |
| 2 |
| — |
| 421 |
| (506 | ) | (63 | ) |
Earnings (loss) from continuing operations | 6,363 |
| (17 | ) | (34 | ) | 34,568 |
| (34,469 | ) | 6,412 |
|
Earnings (loss) from discontinued operations, net of taxes | (164 | ) | — |
| (15 | ) | — |
| 1 |
| (178 | ) |
Net earnings (loss) | 6,199 |
| (17 | ) | (49 | ) | 34,568 |
| (34,468 | ) | 6,233 |
|
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| 1 |
| 33 |
| 34 |
|
Net earnings (loss) attributable to the Company | 6,199 |
| (17 | ) | (49 | ) | 34,567 |
| (34,501 | ) | 6,199 |
|
Other comprehensive income (loss) | 913 |
| — |
| (12 | ) | (823 | ) | 835 |
| 913 |
|
Comprehensive income (loss) attributable to the Company | $ | 7,113 |
| $ | (17 | ) | $ | (61 | ) | $ | 33,744 |
| $ | (33,666 | ) | $ | 7,113 |
|
|
| | |
•FINANCIAL STATEMENTS | General Electric Company (the Parent Company Guarantor) – prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations; NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
• | GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary that issued the guaranteed notes for debt;
|
| |
• | GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor) – prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting;
|
| |
• | Non-Guarantor Subsidiaries – prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows;
|
| |
• | Consolidating Adjustments – adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries and in the comparative periods, this category includes the impact of new accounting policies adopted as described in Note 1; and
|
| |
• | Consolidated – prepared on a consolidated basis.
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE THREE MONTHS ENDED MARCH 31, 2019 (UNAUDITED) |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 4,580 |
| $ | — |
| $ | — |
| $ | 38,456 |
| $ | (22,779 | ) | $ | 20,257 |
|
GE Capital revenues from services | — |
| 233 |
| 75 |
| 2,580 |
| (943 | ) | 1,945 |
|
Total revenues | 4,580 |
| 233 |
| 75 |
| 41,035 |
| (23,722 | ) | 22,202 |
|
| | | | | | |
Interest and other financial charges | 379 |
| 231 |
| 379 |
| 577 |
| (501 | ) | 1,065 |
|
Other costs and expenses | 8,494 |
| — |
| — |
| 38,880 |
| (26,512 | ) | 20,862 |
|
Total costs and expenses | 8,873 |
| 231 |
| 380 |
| 39,457 |
| (27,013 | ) | 21,927 |
|
Other income (loss) | (6,743 | ) | — |
| — |
| 16,963 |
| (9,372 | ) | 847 |
|
Equity in earnings (loss) of affiliates | 14,929 |
| — |
| 375 |
| 11,013 |
| (26,318 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | 3,893 |
| 3 |
| 71 |
| 29,555 |
| (32,399 | ) | 1,122 |
|
Benefit (provision) for income taxes | (335 | ) | — |
| — |
| (658 | ) | 854 |
| (140 | ) |
Earnings (loss) from continuing operations | 3,558 |
| 2 |
| 71 |
| 28,896 |
| (31,545 | ) | 983 |
|
Earnings (loss) from discontinued operations, net of taxes | 30 |
| — |
| — |
| — |
| 2,632 |
| 2,663 |
|
Net earnings (loss) | 3,588 |
| 2 |
| 71 |
| 28,896 |
| (28,912 | ) | 3,645 |
|
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (1 | ) | 58 |
| 57 |
|
Net earnings (loss) attributable to the Company | 3,588 |
| 2 |
| 71 |
| 28,897 |
| (28,970 | ) | 3,588 |
|
Other comprehensive income (loss) | 929 |
| — |
| (1,082 | ) | (443 | ) | 1,524 |
| 930 |
|
Comprehensive income (loss) attributable to the Company | $ | 4,517 |
| $ | 2 |
| $ | (1,011 | ) | $ | 28,454 |
| $ | (27,446 | ) | $ | 4,517 |
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 7,169 |
| $ | — |
| $ | — |
| $ | 31,413 |
| $ | (17,077 | ) | $ | 21,504 |
|
GE Capital revenues from services | — |
| 245 |
| (18 | ) | 2,107 |
| (477 | ) | 1,856 |
|
Total revenues | 7,169 |
| 245 |
| (18 | ) | 33,519 |
| (17,554 | ) | 23,360 |
|
| | | | | | |
Interest and other financial charges | 634 |
| 272 |
| 356 |
| 148 |
| (132 | ) | 1,279 |
|
Other costs and expenses | 4,945 |
| — |
| (38 | ) | 40,629 |
| (22,048 | ) | 23,488 |
|
Total costs and expenses | 5,580 |
| 272 |
| 318 |
| 40,777 |
| (22,180 | ) | 24,767 |
|
Other income (loss) | 1,320 |
| — |
| — |
| 4,458 |
| (5,619 | ) | 158 |
|
Equity in earnings (loss) of affiliates | (4,476 | ) | — |
| (37 | ) | 31,207 |
| (26,695 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (1,567 | ) | (27 | ) | (373 | ) | 28,406 |
| (27,688 | ) | (1,249 | ) |
Benefit (provision) for income taxes | (386 | ) | 3 |
| — |
| 339 |
| 3 |
| (41 | ) |
Earnings (loss) from continuing operations | (1,953 | ) | (24 | ) | (373 | ) | 28,745 |
| (27,685 | ) | (1,290 | ) |
Earnings (loss) from discontinued operations, net of taxes | 683 |
| — |
| 40 |
| — |
| (8,817 | ) | (8,093 | ) |
Net earnings (loss) | (1,270 | ) | (24 | ) | (333 | ) | 28,745 |
| (36,502 | ) | (9,383 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (7 | ) | 46 |
| 40 |
|
Net earnings (loss) attributable to the Company | (1,270 | ) | (24 | ) | (333 | ) | 28,752 |
| (36,548 | ) | (9,423 | ) |
Other comprehensive income (loss) | 1,491 |
| — |
| (1 | ) | 1,313 |
| (1,312 | ) | 1,491 |
|
Comprehensive income (loss) attributable to the Company | $ | 221 |
| $ | (24 | ) | $ | (334 | ) | $ | 30,064 |
| $ | (37,860 | ) | $ | (7,931 | ) |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION MARCH 31, 2020 (UNAUDITED) |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash, cash equivalents and restricted cash | $ | 27,463 |
| $ | — |
| $ | — |
| $ | 20,390 |
| $ | (567 | ) | $ | 47,286 |
|
Receivables - net | 41,752 |
| 17,970 |
| 84 |
| 56,003 |
| (88,382 | ) | 27,427 |
|
Investment in subsidiaries | 198,819 |
| — |
| 40,645 |
| 441,860 |
| (681,324 | ) | — |
|
All other assets | 27,445 |
| 1,431 |
| — |
| 304,108 |
| (145,676 | ) | 187,308 |
|
Total assets | $ | 295,479 |
| $ | 19,401 |
| $ | 40,729 |
| $ | 822,360 |
| $ | (915,949 | ) | $ | 262,021 |
|
| | | | | | |
Short-term borrowings | $ | 150,985 |
| $ | 6,024 |
| $ | 3,598 |
| $ | 6,511 |
| $ | (148,996 | ) | $ | 18,122 |
|
Long-term and non-recourse borrowings | 37,967 |
| 12,028 |
| 23,954 |
| 31,336 |
| (38,255 | ) | 67,032 |
|
All other liabilities | 64,455 |
| 337 |
| 68 |
| 138,217 |
| (63,069 | ) | 140,008 |
|
Total liabilities | 253,408 |
| 18,390 |
| 27,620 |
| 176,064 |
| (250,320 | ) | 225,162 |
|
| | | | | | |
Total liabilities and equity | $ | 295,479 |
| $ | 19,401 |
| $ | 40,729 |
| $ | 822,360 |
| $ | (915,949 | ) | $ | 262,021 |
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2019 |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash, cash equivalents and restricted cash | $ | 10,591 |
| $ | — |
| $ | — |
| $ | 26,438 |
| $ | (636 | ) | $ | 36,394 |
|
Receivables - net | 47,170 |
| 17,726 |
| 230 |
| 61,026 |
| (99,104 | ) | 27,047 |
|
Investment in subsidiaries | 147,397 |
| — |
| 40,408 |
| 421,613 |
| (609,418 | ) | — |
|
All other assets | 28,377 |
| 236 |
| — |
| 291,995 |
| (118,000 | ) | 202,607 |
|
Total assets | $ | 233,535 |
| $ | 17,961 |
| $ | 40,638 |
| $ | 801,071 |
| $ | (827,158 | ) | $ | 266,048 |
|
| | | | | | |
Short-term borrowings | $ | 135,172 |
| $ | 5,991 |
| $ | 2,981 |
| $ | 9,712 |
| $ | (131,783 | ) | $ | 22,072 |
|
Long-term and non-recourse borrowings | 40,660 |
| 10,780 |
| 24,417 |
| 34,262 |
| (41,310 | ) | 68,809 |
|
All other liabilities | 66,808 |
| 161 |
| 70 |
| 146,972 |
| (68,705 | ) | 145,306 |
|
Total liabilities | 242,640 |
| 16,932 |
| 27,468 |
| 190,946 |
| (241,799 | ) | 236,187 |
|
| | | | | | |
Total liabilities and equity | $ | 233,535 |
| $ | 17,961 |
| $ | 40,638 |
| $ | 801,071 |
| $ | (827,158 | ) | $ | 266,048 |
|
2019 3Q56 2020 1Q FORM 10-Q77
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
|
(in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 7,301 |
| $ | — |
| $ | — |
| $ | 30,387 |
| $ | (16,407 | ) | $ | 21,282 |
|
GE Capital revenues from services | — |
| 237 |
| 300 |
| 2,508 |
| (936 | ) | 2,110 |
|
Total revenues | 7,301 |
| 237 |
| 300 |
| 32,895 |
| (17,342 | ) | 23,392 |
|
| | | | | | |
Interest and other financial charges | 451 |
| 236 |
| 725 |
| 553 |
| (810 | ) | 1,155 |
|
Other costs and expenses | 11,780 |
| — |
| — |
| 25,345 |
| 8,352 |
| 45,478 |
|
Total costs and expenses | 12,231 |
| 236 |
| 725 |
| 25,898 |
| 7,542 |
| 46,633 |
|
Other income (loss) | 1,193 |
| — |
| — |
| 1,217 |
| (2,132 | ) | 279 |
|
Equity in earnings (loss) of affiliates | (11,235 | ) | — |
| 705 |
| 28,378 |
| (17,849 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (14,971 | ) | 2 |
| 281 |
| 36,593 |
| (44,866 | ) | (22,962 | ) |
Benefit (provision) for income taxes | 224 |
| — |
| — |
| (536 | ) | 260 |
| (52 | ) |
Earnings (loss) from continuing operations | (14,748 | ) | 1 |
| 281 |
| 36,057 |
| (44,606 | ) | (23,014 | ) |
Earnings (loss) from discontinued operations, net of taxes | 39 |
| — |
| 18 |
| — |
| 98 |
| 155 |
|
Net earnings (loss) | (14,708 | ) | 1 |
| 298 |
| 36,057 |
| (44,508 | ) | (22,859 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (81 | ) | (9 | ) | (90 | ) |
Net earnings (loss) attributable to the Company | (14,708 | ) | 1 |
| 298 |
| 36,138 |
| (44,498 | ) | (22,769 | ) |
Other comprehensive income (loss) | 203 |
| — |
| 12 |
| (751 | ) | 739 |
| 203 |
|
Comprehensive income (loss) attributable to the Company | $ | (14,505 | ) | $ | 1 |
| $ | 310 |
| $ | 35,387 |
| $ | (43,759 | ) | $ | (22,566 | ) |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2020 (UNAUDITED) |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities | $ | 2,339 |
| $ | 558 |
| $ | (819 | ) | $ | 30,587 |
| $ | (32,879 | ) | $ | (214 | ) |
| | | | | | |
Cash from (used for) investing activities | $ | (584 | ) | $ | (558 | ) | $ | 14 |
| $ | (21,387 | ) | $ | 41,601 |
| $ | 19,086 |
|
| | | | | | |
Cash from (used for) financing activities | $ | 15,117 |
| $ | — |
| $ | 805 |
| $ | (15,188 | ) | $ | (8,653 | ) | $ | (7,919 | ) |
| | | | | | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (256 | ) | — |
| (256 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | 16,872 |
| — |
| — |
| (6,243 | ) | 69 |
| 10,697 |
|
Cash, cash equivalents and restricted cash at beginning of year | 10,591 |
| — |
| — |
| 27,121 |
| (636 | ) | 37,077 |
|
Cash, cash equivalents and restricted cash at March 31 | 27,463 |
| — |
| — |
| 20,878 |
| (567 | ) | 47,774 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at March 31 | — |
| — |
| — |
| 437 |
| — |
| 437 |
|
Cash, cash equivalents and restricted cash of continuing operations at March 31 | $ | 27,463 |
| $ | — |
| $ | — |
| $ | 20,441 |
| $ | (567 | ) | $ | 47,338 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
|
(in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 19,993 |
| $ | — |
| $ | — |
| $ | 95,009 |
| $ | (51,871 | ) | $ | 63,132 |
|
GE Capital revenues from services | — |
| 724 |
| 68 |
| 6,738 |
| (1,685 | ) | 5,845 |
|
Total revenues | 19,993 |
| 724 |
| 68 |
| 101,747 |
| (53,556 | ) | 68,976 |
|
| | | | | | |
Interest and other financial charges | 1,278 |
| 744 |
| 1,068 |
| 899 |
| (716 | ) | 3,272 |
|
Other costs and expenses | 18,377 |
| — |
| — |
| 85,378 |
| (36,458 | ) | 67,296 |
|
Total costs and expenses | 19,654 |
| 744 |
| 1,068 |
| 86,276 |
| (37,174 | ) | 70,568 |
|
Other income (loss) | (1,894 | ) | — |
| — |
| 12,588 |
| (9,524 | ) | 1,170 |
|
Equity in earnings (loss) of affiliates | (4,430 | ) | — |
| 808 |
| 58,383 |
| (54,761 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (5,985 | ) | (20 | ) | (192 | ) | 86,442 |
| (80,667 | ) | (422 | ) |
Benefit (provision) for income taxes | (673 | ) | 3 |
| — |
| 46 |
| 624 |
| 1 |
|
Earnings (loss) from continuing operations | (6,658 | ) | (18 | ) | (192 | ) | 86,489 |
| (80,043 | ) | (421 | ) |
Earnings (loss) from discontinued operations, net of taxes | 951 |
| — |
| 42 |
| — |
| (6,205 | ) | (5,212 | ) |
Net earnings (loss) | (5,707 | ) | (18 | ) | (150 | ) | 86,489 |
| (86,248 | ) | (5,634 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (3 | ) | 76 |
| 73 |
|
Net earnings (loss) attributable to the Company | (5,707 | ) | (18 | ) | (150 | ) | 86,492 |
| (86,324 | ) | (5,707 | ) |
Other comprehensive income (loss) | 3,053 |
| — |
| (1,105 | ) | 870 |
| 235 |
| 3,053 |
|
Comprehensive income (loss) attributable to the Company | $ | (2,654 | ) | $ | (18 | ) | $ | (1,255 | ) | $ | 87,362 |
| $ | (86,089 | ) | $ | (2,654 | ) |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
|
(in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 21,127 |
| $ | — |
| $ | — |
| $ | 94,872 |
| $ | (51,395 | ) | $ | 64,604 |
|
GE Capital revenues from services | — |
| 678 |
| 852 |
| 5,390 |
| (1,011 | ) | 5,909 |
|
Total revenues | 21,127 |
| 678 |
| 852 |
| 100,263 |
| (52,406 | ) | 70,513 |
|
| | | | | | |
Interest and other financial charges | 1,281 |
| 671 |
| 1,889 |
| 2,041 |
| (2,296 | ) | 3,585 |
|
Other costs and expenses | 32,198 |
| — |
| — |
| 89,228 |
| (31,793 | ) | 89,634 |
|
Total costs and expenses | 33,479 |
| 672 |
| 1,889 |
| 91,269 |
| (34,090 | ) | 93,219 |
|
Other income (loss) | 2,450 |
| — |
| — |
| 3,883 |
| (4,945 | ) | 1,388 |
|
Equity in earnings (loss) of affiliates | (11,761 | ) | — |
| 1,199 |
| 28,378 |
| (17,816 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (21,663 | ) | 7 |
| 161 |
| 41,255 |
| (41,078 | ) | (21,318 | ) |
Benefit (provision) for income taxes | 47 |
| (1 | ) | — |
| (1,098 | ) | 592 |
| (460 | ) |
Earnings (loss) from continuing operations | (21,616 | ) | 6 |
| 161 |
| 40,157 |
| (40,486 | ) | (21,777 | ) |
Earnings (loss) from discontinued operations, net of taxes | (1,634 | ) | — |
| (63 | ) | 1 |
| 170 |
| (1,526 | ) |
Net earnings (loss) | (23,250 | ) | 6 |
| 98 |
| 40,158 |
| (40,316 | ) | (23,304 | ) |
Less net earnings (loss) attributable to noncontrolling interests | (134 | ) | — |
| — |
| (202 | ) | 148 |
| (188 | ) |
Net earnings (loss) attributable to the Company | (23,116 | ) | 6 |
| 98 |
| 40,360 |
| (40,464 | ) | (23,116 | ) |
Other comprehensive income (loss) | 1,174 |
| — |
| (42 | ) | (2,381 | ) | 2,424 |
| 1,174 |
|
Comprehensive income (loss) attributable to the Company | $ | (21,941 | ) | $ | 6 |
| $ | 56 |
| $ | 37,978 |
| $ | (38,040 | ) | $ | (21,941 | ) |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION SEPTEMBER 30, 2019 (UNAUDITED) |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash, cash equivalents and restricted cash | $ | 10,001 |
| $ | — |
| $ | — |
| $ | 21,215 |
| $ | (3,406 | ) | $ | 27,810 |
|
Receivables - net | 41,269 |
| 17,841 |
| 34 |
| 61,998 |
| (94,416 | ) | 26,726 |
|
Investment in subsidiaries | 143,127 |
| — |
| 40,179 |
| 699,149 |
| (882,455 | ) | — |
|
All other assets | 31,724 |
| 480 |
| — |
| 316,579 |
| (140,309 | ) | 208,474 |
|
Total assets | $ | 226,120 |
| $ | 18,322 |
| $ | 40,212 |
| $ | 1,098,942 |
| $ | (1,120,586 | ) | $ | 263,009 |
|
| | | | | | |
Short-term borrowings | $ | 130,045 |
| $ | — |
| $ | 1,552 |
| $ | 7,303 |
| $ | (121,854 | ) | $ | 17,046 |
|
Long-term and non-recourse borrowings | 40,901 |
| 17,019 |
| 25,511 |
| 24,676 |
| (31,909 | ) | 76,199 |
|
All other liabilities | 65,166 |
| 275 |
| 219 |
| 136,051 |
| (61,100 | ) | 140,612 |
|
Total liabilities | 236,112 |
| 17,294 |
| 27,282 |
| 168,031 |
| (214,863 | ) | 233,856 |
|
| | | | | | |
Total liabilities and equity | $ | 226,120 |
| $ | 18,322 |
| $ | 40,212 |
| $ | 1,098,942 |
| $ | (1,120,586 | ) | $ | 263,009 |
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2018 |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash, cash equivalents and restricted cash | $ | 9,561 |
| $ | — |
| $ | — |
| $ | 25,975 |
| $ | (4,412 | ) | $ | 31,124 |
|
Receivables - net | 27,868 |
| 17,467 |
| 2,792 |
| 56,256 |
| (74,895 | ) | 29,488 |
|
Investment in subsidiaries | 175,071 |
| — |
| 45,832 |
| 733,535 |
| (954,437 | ) | — |
|
All other assets | 19,165 |
| 12 |
| — |
| 298,493 |
| (67,210 | ) | 250,460 |
|
Total assets | $ | 231,665 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,114,260 |
| $ | (1,100,954 | ) | $ | 311,072 |
|
| | | | | | |
Short-term borrowings | $ | 143,481 |
| $ | — |
| $ | 9,854 |
| $ | 9,653 |
| $ | (150,212 | ) | $ | 12,776 |
|
Long-term and non-recourse borrowings | 50,705 |
| 16,115 |
| 24,341 |
| 47,014 |
| (47,352 | ) | 90,824 |
|
All other liabilities | 45,722 |
| 336 |
| 245 |
| 133,203 |
| (23,514 | ) | 155,992 |
|
Total liabilities | 239,908 |
| 16,452 |
| 34,439 |
| 189,870 |
| (221,078 | ) | 259,591 |
|
| | | | | | |
Total liabilities and equity | $ | 231,665 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,114,260 |
| $ | (1,100,954 | ) | $ | 311,072 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | 9,148 |
| $ | 400 |
| $ | (1,539 | ) | $ | 6,556 |
| $ | (12,531 | ) | $ | 2,033 |
|
| | | | | | |
Cash from (used for) investing activities | $ | 34,181 |
| $ | (400 | ) | $ | 6,072 |
| $ | 108,843 |
| $ | (143,646 | ) | $ | 5,050 |
|
| | | | | | |
Cash from (used for) financing activities | $ | (42,889 | ) | $ | — |
| $ | (4,532 | ) | $ | (120,127 | ) | $ | 153,460 |
| $ | (14,089 | ) |
| | | | | | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (131 | ) | — |
| (131 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | 440 |
| — |
| — |
| (4,859 | ) | (2,717 | ) | (7,136 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 9,561 |
| — |
| — |
| 26,676 |
| (689 | ) | 35,548 |
|
Cash, cash equivalents and restricted cash at September 30 | 10,001 |
| — |
| — |
| 21,817 |
| (3,406 | ) | 28,412 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 602 |
| — |
| 602 |
|
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 10,001 |
| $ | — |
| $ | — |
| $ | 21,215 |
| $ | (3,406 | ) | $ | 27,810 |
|
| |
(a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $(2,382) million. |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | 11,267 |
| $ | (118 | ) | $ | (381 | ) | $ | 24,135 |
| $ | (38,492 | ) | $ | (3,589 | ) |
| | | | | | |
Cash from (used for) investing activities | $ | (625 | ) | $ | 189 |
| $ | (1,052 | ) | $ | (18,293 | ) | $ | 31,417 |
| $ | 11,636 |
|
| | | | | | |
Cash from (used for) financing activities | $ | (11,824 | ) | $ | (70 | ) | $ | 1,445 |
| $ | (16,845 | ) | $ | 2,328 |
| $ | (24,967 | ) |
| | | | | | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (440 | ) | — |
| (440 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | (1,183 | ) | — |
| 12 |
| (11,443 | ) | (4,747 | ) | (17,361 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 3,472 |
| — |
| 3 |
| 41,993 |
| (743 | ) | 44,724 |
|
Cash, cash equivalents and restricted cash at September 30 | 2,289 |
| — |
| 15 |
| 30,550 |
| (5,490 | ) | 27,364 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 5,310 |
| — |
| 5,310 |
|
Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 2,289 |
| $ | — |
| $ | 15 |
| $ | 25,240 |
| $ | (5,490 | ) | $ | 22,054 |
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2019 (UNAUDITED) |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | (6,665 | ) | $ | 611 |
| $ | (1,063 | ) | $ | (22,734 | ) | $ | 29,973 |
| $ | 122 |
|
| | | | | | |
Cash from (used for) investing activities | $ | 7,201 |
| $ | (611 | ) | $ | (61 | ) | $ | 48,313 |
| $ | (51,352 | ) | $ | 3,490 |
|
| | | | | | |
Cash from (used for) financing activities | $ | (555 | ) | $ | — |
| $ | 1,124 |
| $ | (26,436 | ) | $ | 22,133 |
| $ | (3,735 | ) |
| | | | | | |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| 78 |
| — |
| 78 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | (20 | ) | — |
| — |
| (779 | ) | 753 |
| (45 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 9,561 |
| — |
| 1 |
| 30,398 |
| (4,412 | ) | 35,548 |
|
Cash, cash equivalents and restricted cash at March 31 | 9,541 |
| — |
| — |
| 29,620 |
| (3,658 | ) | 35,503 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at March 31 | — |
| — |
| — |
| 3,671 |
| — |
| 3,671 |
|
Cash, cash equivalents and restricted cash of continuing operations at March 31 | $ | 9,541 |
| $ | — |
| $ | — |
| $ | 25,949 |
| $ | (3,658 | ) | $ | 31,832 |
|
| |
(a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $185$(2,984) million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 22. 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 March 31, 2020, the fair value of our interest in Baker Hughes was $4,083 million. Since the date of deconsolidation, we have not sold any shares of Baker Hughes and recognized an unrealized loss of $5,710 million ($4,631 million after-tax) for the three months ended March 31, 2020 based on a share price of $10.50. See Notes 2 and 3 for further information.
Summarized financial information of Baker Hughes is as follows.
|
| | | |
For the three months ended March 31, 2020 (In millions) | |
| |
Revenues | $ | 5,425 |
|
Gross profit | 755 |
|
Net income (loss) | (16,098 | ) |
Net income (loss) attributable to the entity | (10,210 | ) |
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 23. OTHER INCOME
|
| | | | | | |
| Three months ended March 31 |
(In millions) | 2020 |
| 2019 |
|
| | |
Purchases and sales of business interests(a) | $ | 12,372 |
| $ | 253 |
|
Licensing and royalty income | 42 |
| 40 |
|
Associated companies | 39 |
| 39 |
|
Net interest and investment income(b) | (5,632 | ) | 137 |
|
Other items | 53 |
| 384 |
|
GE | 6,874 |
| 852 |
|
Eliminations | (4 | ) | (5 | ) |
Total | $ | 6,869 |
| $ | 847 |
|
| |
(a) | Included a pre-tax gain of $12,292 million on the sale of BioPharma in 2020. Included a pre-tax gain of $224 million on the sale of ServiceMax in 2019. See Note 2 for further information. |
| |
(b) | Included unrealized loss of $(5,710) million related to our interest in Baker Hughes in 2020. See Note 3 for further information. |
58 2019 3Q2020 1Q FORM 10-Q
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| | |
FORWARD LOOKING STATEMENTS | | |
FORWARD-LOOKING STATEMENTS
Our public communications and SEC filings may contain statements related to future, not past, events. These forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range." Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about 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;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 and of businesses’ and governments’ responses to the pandemic on our success in executingoperations and completing, including obtaining regulatory approvalspersonnel, and satisfying other closing conditions for, announced GE Industrialon commercial activity and GE Capitaldemand 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 or asset dispositions or other transactions, includingoperations, financial performance, results of operations, financial position, the planned saleprices of our BioPharma business withinsecurities and the achievement of our Healthcare segmentstrategic objectives;
changes in macroeconomic and plan to exitmarket 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, the timing of closing for those transactionsHughes), oil and other commodity prices and exchange rates, and the expected proceedsimpact of such changes and benefits to GE;volatility on our financial position;
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 thosethe 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;
changesour success in macroeconomicexecuting and market conditions, particularly interest rates, as well as the value of stocks andcompleting asset dispositions or other financial assets (includingtransactions, including our plan to exit our equity ownership positionsposition in Baker Hughes), oilHughes, the timing of closing for such transactions and other commodity pricesthe expected proceeds and exchange rates;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 trade tensions such as those between the U.S. and China;
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 cyclicalcompetitive pressures in our Power business, pricing and other pressures in the renewable energy market, conditions in Chinalevels of demand for air travel and other key markets,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 business, execution by ourand Renewable Energy business,businesses, and the continued strengthperformance 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 orof our products or third-party products with which our customers' 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" insection of this report and of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as such descriptions may be updated or amended in our Quarterly Reports on Form 10-Q.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.
2019 3Q2020 1Q FORM 10-Q 8159
GLOSSARY
FINANCIAL TERMS
| |
• | Continuing earnings – refers to the caption “earnings from continuing operations attributable to GE common shareowners”
|
| |
• | Continuing earnings per share (EPS) – refers to the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.”
|
| |
• | GE Cash Flows from Operating Activities (GE CFOA) – unless otherwise indicated, GE CFOA is from continuing operations.
|
| |
• | Net earnings (loss) – refers to the caption “net earnings (loss) attributable to GE common shareowners”
|
| |
• | Net earnings (loss) per share (EPS) – refers to the diluted per-share amount of “net earnings attributable to GE common shareowners.”
|
| |
• | Segment profit – refers to the profit of the industrial segments and the net earnings of the financial services segment, both of which include other income. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
|
OPERATIONAL TERMS
| |
• | Organic – excludes the effects of acquisitions, dispositions and foreign currency.
|
| |
• | Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, and Aviation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant. See "Revenues from the Sale of Services" section within Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
|
| |
• | Services – for purposes of the financial statement presentation of sales and costs of sales in our consolidated Statement of Earnings (Loss), “sales of goods” per SEC regulations includes all sales of tangible products, and "sales of services" includes all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as "sales of services,” which is an important part of our operations.
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EXHIBITS
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| Three-Year Credit Agreement, dated as of April 17, 2020, among General Electric Company, as the Borrower, JPMorgan Chase, N.A., as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 to GE's Current Report on Form 8-K, dated April 20, 2020 (Commission file number 001-00035)). |
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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, 2019,March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the three and nine months ended September 30,March 31, 2020 and 2019, (ii) Statement of Financial Position at March 31, 2020 and 2018, (ii)December 31, 2019, (iii) Statement of Cash Flows for the three months ended March 31, 2020 and 2019, (iv) Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30,March 31, 2020 and 2019, and 2018, (iii)(v) Statement of Changes in Shareowners'Shareholders' Equity for the three ended March 31, 2020 and nine months ended September 30, 2019, and 2018, (iv) Statement of Financial Position at September 30, 2019 and December 31, 2018, (v) Statement of Cash Flows for the nine months ended September 30, 2019 and 2018, and (vi) Notes to Consolidated Financial Statements. |
| |
Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | |
| * | Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 16 to the Consolidated Financial Statements in this Report. |
FORM 10-Q CROSS REFERENCE INDEX
|
| | | | |
Item Number | | Page(s) |
Part I – FINANCIAL INFORMATION |
Item 1. | | Financial Statements | | 41-80 |
| | | | 30-58 |
Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4-38 |
| | | | 3-28 |
Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | | Not applicable(a) |
| | | | 20-21, 50-52 |
Item 4. | | Controls and Procedures | | 39 |
| | | | 28 |
Part II – OTHER INFORMATION |
Item 1. | | Legal Proceedings | | 39-40 |
| | | | 29 |
Item 1A. | | Risk Factors | | Not applicable(b) |
| | | | 28 |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 39 |
| | | | Not applicable(a) |
Item 3. | | Defaults Upon Senior Securities | | Not applicable |
| | | | |
Item 4. | | Mine Safety Disclosures | | Not applicable |
| | | | |
Item 5. | | Other Information | | Not applicable |
| | | | |
Item 6. | | Exhibits | | 82 |
| | | | 60 |
Signatures | | 8461 |
(a) GE did not repurchase any equity securities during the three months ended March 31, 2020, and no repurchase program has been authorized.
| |
(a) | There have been no material changes to our market risk since December 31, 2018. For a discussion of our exposure to market risk, refer to our Annual Report on Form 10-K for the year ended December 31, 2018. |
| |
(b) | There have been no material changes to our risk factors since June 30, 2019. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019. |
2019 3Q60 2020 1Q FORM 10-Q83
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 30, 2019April 29, 2020 | | /s/ Thomas S. Timko |
Date | | Thomas S. Timko Vice President, Chief Accounting Officer and Controller Principal Accounting Officer |
84 2019 3Q2020 1Q FORM 10-Q61