United States Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-K
☑Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
Commission file number 001-00035
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
(Mark One)
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☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2016 |
or
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☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ___________to ___________ |
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Commission file number 001-00035 |
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General Electric Company
(Exact name of registrant as specified in 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 | | (617) 443-3000 |
(Address of principal executive offices) | | (Zip Code) | | (Telephone No.) |
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(Registrant’s telephone number, including area code)(617) 443-3000
Securities Registered Pursuant to Section 12(b) of the Act: |
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.06 per share | GE | New York Stock Exchange |
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 |
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Securities Registered Pursuant to Section 12(g) of the Act: |
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(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☑þ No ☐¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐¨No☑þ
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑þ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10‑K. ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company” and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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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 Act). Yes ☐ No ☑þ
The aggregate market value of the outstanding common equity of the registrant not held by affiliates as of the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter was at least $279.3$90.1 billion. There were 8,724,783,0008,740,232,000 shares of voting common stock with a par value of $0.06 outstanding at January 31, 2017.2020.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant'sregistrant’s Annual Meeting of Shareowners,Shareholders, to be held April 26, 2017,May 5, 2020, is incorporated by reference into Part III to the extent described therein.
FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements" – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast" or "target."
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our announced plan to combine our Oil & Gas business with Baker Hughes, including projected revenue and cost synergies, impact on our earnings per share, and the timing and structure of the proposed transaction; the completion of our announced plan to reduce the size of our financial services businesses, including expected cash and non-cash charges associated with this plan and earnings per share of GE Capital's retained businesses (Verticals); expected income; earnings per share, including our 2018 target; revenues; organic growth; growth and productivity associated with our Digital business; margins; cost structure and plans to reduce costs; restructuring charges; transaction-related synergies and gains; cash flows, including the impact of pension funding contributions; returns on capital and investment; capital expenditures; capital allocation, including dividends, share repurchases and acquisitions; or capital structure, including leverage.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
· | our ability to complete incremental asset sales as we complete our announced plan to reduce the size of our financial services businesses and our ability to reduce costs as we execute that plan; |
· | changes in law, economic and financial conditions, including interest and exchange rate volatility, commodity and equity prices and the value of financial assets; |
· | the impact of conditions in the financial and credit markets on the availability and cost of GE Capital Global Holdings, LLC's (GE Capital) funding, and GE Capital's exposure to counterparties; |
· | pending and future mortgage loan repurchase claims and other litigation claims and investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates; |
· | our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; |
· | the amount and timing of our cash flows and earnings and other conditions, which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels; |
· | GE Capital's ability to pay dividends to GE at the planned level, which may be affected by GE Capital's cash flows and earnings, financial services regulation and oversight, claims and investigations relating to WMC and other factors; |
· | our ability to launch new products in a cost-effective manner; |
· | our ability to increase margins through restructuring and other cost reduction measures; |
· | our ability to convert pre-order commitments/wins into orders/bookings; |
· | the price we realize on orders/bookings since commitments/wins are stated at list prices; |
· | customer actions or developments such as early aircraft retirements or reduced energy demand, changes in economic conditions, including oil prices, and other factors that may affect the level of demand and financial performance of the major industries and customers we serve; |
· | the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom investigative and legal proceedings; |
· | our capital allocation plans, as such plans may change including with respect to the timing and size of share repurchases, acquisitions, joint ventures, dispositions and other strategic actions; |
· | our success in completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced transactions, such as our announced plans and transactions to combine our Oil & Gas business with Baker Hughes, to reduce the size of our financial services businesses, and to acquire LM Wind Power; |
· | our success in integrating acquired businesses and operating joint ventures, including Baker Hughes; |
· | our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and Baker Hughes; |
· | the impact of potential information technology or data security breaches; and |
· | the other factors that are described in the Risk Factors section of this Form 10-K report. |
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.
OUR BUSINESS AND HOW WE TALK ABOUT IT
We are a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. With products and services ranging from aircraft engines, power generation and oil and gas production equipment to medical imaging, financing and industrial products, we serve customers in approximately 180 countries and employ approximately 295,000 people worldwide. Since our incorporation in 1892, we have developed or acquired new technologies and services that have considerably broadened and changed the scope of our activities.
OUR INDUSTRIAL OPERATING SEGMENTS
| Power | | Aviation | | Energy Connections & Lighting(a)
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| Renewable Energy |
TABLE OF CONTENTS | |
| HealthcarePage |
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About General Electric | |
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Capital Resources and Liquidity | |
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Non-GAAP Financial Measures | |
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Risk Factors | |
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Management and Auditor's Reports | |
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Statement of Earnings (Loss) | |
Statement of Financial Position | |
Statement of Cash Flows | |
Statement of Comprehensive Income (Loss) | |
Statement of Changes in Shareholders' Equity | |
Note 1 Basis of Presentation and Summary of Significant Accounting Policies | |
Note 2 Businesses Held for Sale and Discontinued Operations | |
Note 3 Investment Securities | |
Note 4 Current and Long-term Receivables | |
Note 5 Financing Receivables and Allowances | |
Note 6 Inventories | |
Note 7 Property, Plant and Equipment and Operating Leases | |
Note 8 Goodwill and Other Intangible Assets | |
Note 9 Contract and Other Deferred Assets & GasProgress Collections and Deferred Income | |
Note 10 All Other Assets | |
Note 11 Borrowings | |
Note 12 Insurance Liabilities and Annuity Benefits | |
Note 13 Postretirement Benefit Plans | |
Note 14 Current and All Other Liabilities | |
Note 15 Income Taxes | |
Note 16 Shareholders’ Equity | |
Note 17 Share-Based Compensation | |
Note 18 Earnings Per Share Information | |
Note 19 Other Income | |
Note 20 Fair Value Measurements | |
Note 21 Financial Instruments | |
Note 22 Variable Interest Entities | |
Note 23 Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
Note 24 Cash Flows Information | |
Note 25 Intercompany Transactions | |
Note 26 Operating Segments | |
Note 27 Guarantor Financial Information | |
Note 28 Baker Hughes Summarized Financial Information | |
Note 29 Quarterly Information (unaudited) | |
Forward-Looking Statements | |
Directors, Executive Officers and Corporate Governance | |
Exhibits and Financial Statement Schedules | Transportation |
Form 10-K Cross Reference Index | |
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OUR FINANCIAL SERVICES OPERATING SEGMENT
ABOUT GENERAL ELECTRIC
(a) | Beginning in the third quarter of 2016, the former Energy Connections and Appliances & Lighting segments are presented as one reporting segment called Energy Connections & Lighting. This segment includes historical results of the Appliances business prior to its sale in June 2016. |
Business, operationGeneral 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 overviewsservices 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 and military 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 operating segments are provided inrun-off insurance operations. See the Segment OperationsConsolidated Results section within the Management'sof Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section.and Note 2 to the consolidated financial statements for information regarding our recent business portfolio actions.
COMPETITIVE CONDITIONS AND ENVIRONMENTWe serve customers in over 170 countries. Manufacturing and service operations are carried out at 94 manufacturing plants located in 30 states in the United States and Puerto Rico and at 190 manufacturing plants located in 37 other countries.
In all of our global business activities, we encounter aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development. With respect to manufacturing operations, we believe that, in general, we are one of the leading firms in most of the major industries in which we participate. The businesses in which GE Capital engages are subject to competition from various types of financial institutions, including commercial banks, investment banks, leasing companies, independent finance companies, finance companies associated with manufacturers and insurance and reinsurance companies.institutions.
As a diverse global company, we are affected by world economies, instability in certain regions, commodity prices, such as the price of oil, and foreign currency volatility.volatility and policies regarding trade and imports. See the Segment Operations section within Management's Discussion and Analysis (MD&A) for further information. Other factors impacting our business include:
· | product development cycles for many of our products are long and product quality and efficiency are critical to success, |
· | research and development expenditures are important to our business, and |
· | many of our products are subject to a number of regulatory standards. |
many of our products are subject to a number of regulatory standards and
changing end markets, including shifts in energy sources and demand and the impact of technology changes.
These factors are discussed throughout MD&A.
OUR EMPLOYEES AND EMPLOYEE RELATIONS
At year-end 2016,2019, General Electric Company and consolidated affiliates employed approximately 295,000 persons,205,000 people, of whom approximately 104,00070,000 were employed in the United States. For further information about employees, see the Other Financial Data section within the MD&A.Our Power, Renewable Energy, Aviation, Healthcare, and Capital segments employed approximately 38,000, 43,000, 52,000, 56,000 and 2,000 people, respectively. Our Corporate business employed approximately 13,000 employees.
Approximately 9,3006,750 GE and GE affiliate manufacturing and service employees in the United States (U.S.)are represented for collective bargaining purposes by one of 9 unions (approximately 48 different locals within such unions).a union. A majority of such employees are represented by union locals that are affiliated with the IUE-CWA, The Industrial Division of the Communication Workers of America, AFL-CIO, CLC. In June 2015, we negotiatedAugust 2019, most of GE's U.S. unions, including the IUE-CWA, ratified new four-year collective bargaininglabor agreements with most of our U.S unions. These agreements continue to provide employees with good wages and benefits while addressing competitive realities facingreplace the Company.current agreements.
Other GE affiliates are parties to labor contracts with various labor unions, also with varying terms and expiration dates that cover approximately 1,700 employees.
PROPERTIES
Manufacturing operations are carried out at 184 manufacturing plants located in 38 states in the United States and Puerto Rico and at 325 manufacturing plants located in 40 other countries.
CORPORATE INFORMATION AND WEBSITES
General Electric'sElectric’s address is 1 River Road, Schenectady, NY 12345-6999; we also maintain executive offices at 41 Farnsworth5 Necco Street, Boston, MA 02210.
GE'sGE’s Internet address atat www.ge.com,, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com,, as well as GE'sGE’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.
Additional information on non-financial matters, including environmental and social matters and our integrity policies, is available at www.ge.com/sustainability. Website references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this report.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available, without charge, on our website, www.ge.com/investor-relations/events-reports,, as soon as reasonably practicable after they are filed electronically with the U.S. Securities and Exchange Commission (SEC). Copies are also available, without charge, from GE Corporate Investor Communications, 41 Farnsworth Street, Boston, MA 02210.
Communications. Reports filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.www.sec.gov.
GE 2016 FORM 10-K 19
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
PRESENTATION
The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE)GE with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital 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 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. For Financial Services)purposes of the financial statement display of sales and its predecessor, General Electric Capital Corporation.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. 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.
We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. Because of the diversity in our businesses, we present our financial statements in a three-column format, which allows investors to see our GE industrial operations separately from our Financial Servicesfinancial services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use thethese terms to mean the following:
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• | General Electric or the CompanyConsolidated – the parent company, General Electric Company.adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present consolidated results in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
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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. TransactionsAs GE presents the continuing operations of GE Capital on a one-line basis, any intercompany profits resulting from transactions between GE and GE Capital have not beenare eliminated at the GE level. We present the results of GE in the center column of our consolidated statementsStatements of earnings, financial positionEarnings (Loss), Financial Position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).Cash Flows. |
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• | General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
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· | GE Capital Global Holdings, LLC or GECGH – the adding together of all affiliates of GECGH, giving effect to the elimination of transactions among such affiliates.
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· | GE Capital or Financial Services – refers to GECGH, or its predecessor GECC, and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated statementsStatements of earnings, financial positionEarnings (Loss), Financial Position and cash flows.Cash Flows.
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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, financial position and cash flows. |
· | Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of an Industrial metric is Industrial CFOA (Non-GAAP), which is GE CFOA excluding the effects of dividends from GE Capital. |
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• | Industrial segment – the sum of our sevenfour industrial reportingreportable segments, without giving effect to the elimination of transactions among such segments andor between these segments and our Financial Servicesfinancial services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth. |
· | Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.
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· | Verticals or GE Capital Verticals – the adding together of GE Capital businesses that we expect to retain, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Industrial Finance (which includes Healthcare Equipment Finance, Working Capital Solutions and Industrial Financing Solutions)—that relate to the Company's core industrial domain and other operations, including our run-off insurance activities, and allocated corporate costs.
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We integrate acquisitions as quickly as possible. Revenues and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses.
Discussion of GE Capital's total assets includes deferred income tax liabilities, which are presented within assets for purposes of our consolidated statement of financial position presentations for this filing.
Amounts reported in billions in graphs within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Discussions throughout this MD&A are based on continuing operations unless otherwise noted.
The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.
OTHER TERMS USED BY GE
· | Backlog – unfilled customer orders for products and product services (expected life of contract sales for product services).
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· | Borrowings as a percentage of total capital invested – for GE, the sum of borrowings and mandatorily redeemable preferred stock, divided by the sum of borrowings, mandatorily redeemable preferred stock, redeemable noncontrolling interest, noncontrolling interests and total shareowners' equity.
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· | Continuing earnings – unless otherwise indicated, we refer to the caption "earnings from continuing operations attributable to GE common shareowners" as continuing earnings or simply as earnings.
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· | Continuing earnings per share (EPS) – unless otherwise indicated, when we refer to continuing earnings per share, it is the diluted per-share amount of "earnings from continuing operations attributable to GE common shareowners".
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· | Digital revenues – revenues related to internally developed software (including PredixTM) and associated hardware, and software solutions that improve our customers' asset performance. In 2016, we reassessed the span of our digital product offerings, which now excludes software-enabled product upgrades. These revenues are largely generated from our operating businesses and are included in their segment results.
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· | Ending Net Investment (ENI) (Non-GAAP) – the total capital we have invested in the Financial Services business. It is the sum of short-term borrowings, long-term borrowings and equity (excluding noncontrolling interests) adjusted for unrealized gains and losses on investment securities and hedging instruments. Alternatively, it is the amount of assets of continuing operations less the amount of non-interest-bearing liabilities.
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· | Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.
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· | Free cash flow (Non-GAAP) – GE's cash from operating activities (continuing operations) less GE additions to property, plant and equipment, plus GE dispositions of property, plant and equipment, which are included in cash flows from investing activities.
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· | GE Capital Exit Plan – our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
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· | Global Growth Organization (GGO) – organization that provides operational processes through a shared services structure for the enabling functions: commercial, enterprise data management, finance, HR, IT, legal, supply chain and tax through a partnership with the businesses and global functions.
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· | Growth markets – consist of countries/regions which are expected to grow at above average world GDP rates over the long term and typically are resource rich and/or have large infrastructure needs. They encompass the following: Australasia; Canada; Latin America; Middle East, North Africa and Turkey; Russia and CIS; Sub-Saharan Africa; Greater China; South Asia; South East Asia (ASEAN).
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· | Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by Industrial revenues.
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· | Industrial operating profit margin (Non-GAAP) – Industrial segment profit plus corporate items and eliminations (excluding gains, restructuring, and pre-tax non-operating pension costs) divided by industrial segment revenues plus corporate items and eliminations (excluding gains and GE-GE Capital eliminations).
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· | Industrial return on total capital (Industrial ROTC) (Non-GAAP) – earnings from continuing operations attributable to GE common shareowners less GE Capital earnings from continuing operations plus GE after-tax interest, divided by average Industrial shareholders' equity, less average GE Capital's shareholders' equity, plus average debt and other, net.
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· | Industrial segment gross margin – industrial segment sales less industrial segment cost of sales.
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· | Industrial shareholders' equity and GE Capital shareholders' equity – for purposes of the Industrial ROTC calculation excludes the effects of discontinued operations and is calculated on an annual basis using a five-point average.
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· | Net earnings – unless otherwise indicated, we refer to the caption "net earnings attributable to GE common shareowners" as net earnings.
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· | Net earnings per share (EPS) – unless otherwise indicated, when we refer to net earnings per share, it is the diluted per-share amount of "net earnings attributable to GE common shareowners".
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· | Non-operating pension cost (Non-GAAP) – comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial gain (loss) amortization for our principal pension plans.
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· | Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension costs.
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· | Operating earnings per share (Non-GAAP) – unless otherwise indicated, when we refer to operating earnings per share, it is the diluted per-share amount of "operating earnings".
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· | Operating pension cost (Non-GAAP) – comprises the service cost of benefits earned, prior service cost amortization and curtailment gain (loss) for our principal pension plans.
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· | Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
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· | Product services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings, "goods" is required by SEC regulations to include all sales of tangible products, and "services" must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of "product services," which is an important part of our operations. We refer to "product services" simply as "services" within the MD&A.
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· | Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Oil & Gas, Aviation and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer's power plant.
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· | Revenues – unless otherwise indicated, we refer to captions such as "revenues and other income" simply as revenues.
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· | Segment profit – refers to the operating profit of the industrial segments and the net earnings of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
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· | Shared Services – sharing of business processes in order to standardize and consolidate services to provide value to the businesses in the form of simplified processes, reduced overall costs and increased service performance.
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NON-GAAP FINANCIAL MEASURES
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered "non-GAAP financial measures" under the SEC rules. Specifically, we have referred, in various sections of this report, to:
· | Industrial segment organic revenues and industrial segment organic revenues excluding Oil & Gas |
· | Industrial segment organic operating profit |
· | Oil & Gas organic revenue and operating profit growth |
· | Operating and non-operating pension cost |
· | Adjusted corporate costs (operating) |
· | GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates, and the reconciliation of the U.S. federal statutory income tax rate to GE effective tax rate, excluding GE Capital earnings |
· | Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS |
· | Industrial operating + Verticals earnings and EPS |
· | Industrial operating profit and operating profit margin (excluding certain items) |
· | Industrial operating profit + Verticals |
· | Industrial segment gross margin (excluding Alstom) |
· | Industrial segment operating profit and operating margin (excluding Alstom) |
· | Average GE shareowners' equity, excluding effects of discontinued operations |
· | Average GE Capital shareowners' equity, excluding effects of discontinued operations |
· | Industrial return on total capital (Industrial ROTC) |
· | Industrial cash flows from operating activities (Industrial CFOA) and Industrial CFOA excluding taxes related to business sales and principal pension plan funding |
· | GE cash flows from operating activities (GE CFOA) excluding taxes related to business sales and principal pension plan funding |
· | Free cash flow (FCF) and FCF plus dispositions |
· | Ratio of adjusted debt to equity at GE Capital, net of liquidity |
· | Capital ending net investment (ENI), excluding liquidity |
· | 2017 operating framework including 2017 Industrial operating + Verticals EPS target |
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the Supplemental Information section within the MD&A. Non-GAAP financial measures referred to in this report are either labeled as "non-GAAP" or designated as such with an asterisk (*).
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars)
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| | | GE Capital Dividend
Industrial CFOA*
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(a) Including the results of Alstom for November and December of both 2015 and 2016 | | (a) Industrial CFOA was $12.2 billion excluding deal taxes of $(0.2) billion related to the sale of our Signaling business
(b) Industrial CFOA was $11.6 billion excluding deal taxes of $(1.4) billion related to the sale of our Appliances business and $(0.3) billion of pension funding
(c) Included $(0.3) billion related to Alstom in both 2015 and 2016
|
| | |
| Equipment
Services
| | | Equipment
Services
|
(a) Included $2.5 billion related to Alstom
(b) Included $17.4 billion related to Alstom
| | (a) Included $29.2 billion related to Alstom
(b) Included $31.2 billion related to Alstom
|
| | INDUSTRIAL OPERATING PROFIT MARGINS (NON-GAAP)(a)
|
| | |
(a) 12.0%, excluding (7.9)% related to Alstom*
(b) 12.1%, excluding 5.9% related to Alstom*
| | (a) Excluded gains, non-operating pension costs, restructuring and other, noncontrolling interests, GE Capital preferred stock dividends, as well as the results of Alstom |
*Non-GAAP Financial Measure
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars; attributable to GE common shareowners)
| | NET EARNINGS (LOSS) PER SHARE
|
| | |
OPERATING EARNINGS (NON-GAAP)
| | OPERATING EARNINGS PER SHARE (NON-GAAP)
|
| | |
INDUSTRIAL OPERATING +
VERTICALS EARNINGS (NON-GAAP)
| | INDUSTRIAL OPERATING +
VERTICALS EPS (NON-GAAP)
|
| | |
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars)
SHAREHOLDER INFORMATION |
RETURNED $30.5 BILLION TO
SHAREOWNERS IN 2016
Dividends $8.5 billion
Stock buyback $22.0 billion
| ANNUAL MEETING
General Electric's 2017 Annual Meeting of
Shareowners will be held on April 26, 2017,
in Asheville, NC
|
FIVE-YEAR PERFORMANCE GRAPH
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|
The annual changes for the five-year period shown in the graph on this page are based on the assumption that $100 had been invested in General Electric common stock, the Standard & Poor's 500 Stock Index (S&P 500) and the Dow Jones Industrial Average (DJIA) on December 31, 2011, and that all quarterly dividends were reinvested. The cumulative dollar returns shown on the graph represent the value that such investments would have had on December 31 for each year indicated.
STOCK PRICE RANGE AND DIVIDENDS |
|
With respect to "Market Information," in the United States, General Electric common stock is listed on the New York Stock Exchange (its principal market). General Electric common stock is also listed on the London Stock Exchange, Euronext Paris, the SIX Swiss Exchange and the Frankfurt Stock Exchange. The chart above shows trading prices, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape.
As of January 31, 2017, there were approximately 440,000 shareowner accounts of record.
On February 10, 2017, our Board of Directors approved a quarterly dividend of $0.24 per share of common stock, which is payable April 25, 2017, to shareowners of record at close of business on February 27, 2017.
CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS IN 2016 |
Our consolidated results for 2016 were significantly affected by recent portfolio changes, including the 2015 acquisition of Alstom, the disposal of financial services businesses under the GE Capital Exit Plan initiated in 2015 and the 2016 sale of our Appliances business.
|
ALSTOM
In 2016, Alstom contributed revenues of $13.0 billion and an operating loss of $0.3 billion, of which $0.8 billion of profit is included in the segment results and $1.0 billion of charges is included in Corporate, primarily related to purchase accounting and acquisition related charges. Including the effects of tax benefits of $0.8 billion, net earnings were $0.4 billion for the year ended December 31, 2016. In addition, Alstom used cash flows from operating activities of $0.3 billion for the year ended December 31, 2016.
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GE CAPITAL EXIT PLAN
As of December 31, 2016, we have signed agreements with buyers for $197 billion of GE Capital ending net investment (ENI), excluding liquidity (as originally reported at December 31, 2014), of which $190 billion have closed by the end of 2016.
In June 2016, we received approval of our request to the Financial Stability Oversight Council (FSOC) for rescission of GE Capital's designation as a nonbank Systemically Important Financial Institution (SIFI).
|
2016 SIGNIFICANT TRANSACTIONS
Transactions completed in 2016 included the following.
·The June 2016 sale of our Appliances business to Qingdao Haier Co., Ltd. (Haier) for $5.6 billion (including $0.8 billion from sale of receivables originated in our Appliances business and sold from GE Capital to Haier) on which we recognized an after-tax gain of $1.8 billion.
·Acquisition of the remaining 74% of software developer Meridium Inc. in September 2016, for $0.4 billion to enhance and accelerate our asset performance-management capabilities across our industrial businesses.
·The acquisitions of a 76.2% interest in Arcam AB for $0.5 billion and a 75% interest in Concept Laser GmbH for $0.6 billion, two European 3-D printing companies that print metal parts for aircraft and other industrial components, to expand our additive manufacturing capabilities.
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PLANNED TRANSACTIONS
We also announced a number of strategic transactions during 2016 that we expect to complete in 2017, including the following.
·In October 2016, we announced an agreement with Baker Hughes Incorporated (Baker Hughes) to combine our Oil & Gas business and Baker Hughes to create a new entity in which GE will hold a 62.5% interest and existing Baker Hughes shareholders will have a 37.5% interest. Baker Hughes shareholders will also receive a cash dividend funded by a $7.4 billion cash contribution by GE. The transaction is subject to the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions.
·In October 2016, we announced a plan to acquire LM Wind Power, one of the world's largest wind turbine blade manufacturers for $1.7 billion, subject to customary closing conditions.
·In October 2016, we also announced our plan to sell our Water & Process Technologies business and in December 2016, we announced our plan to sell our Industrial Solutions business.
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|
(Dollars in billions)
| | |
| | |
| | | | FINANCIAL SERVICES REVENUES
| |
| | | | | |
(a)Includes $2.0 billion related to Alstom
(b)Includes $13.0 billion related to Alstom
| | (a)Includes $2.0 billion related to Alstom
(b)Includes $13.0 billion related to Alstom
| | | |
| | CONTINUING EARNINGS
PER SHARE(a)
| | | |
| | | | | |
(a)Attributable to GE common shareowners
| | |
CONSOLIDATED RESULTS
(Dollars in billions)
REVENUE COMMENTARY: 2016 – 2015
| | EARNINGS COMMENTARY: 2016 – 2015
|
Consolidated revenues increased $6.3 billion, or 5%, primarily driven by increased Industrial revenues of $6.6 billion and increased Financial Services revenues of $0.1 billion, partially offset by an increase in eliminations between Industrial and Financial Services of $0.4 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.3 billion.
·Industrial revenues increased $6.6 billion, or 6% due to increased industrial segment revenues of $4.4 billion, or 4%, as increases at Power, Renewable Energy, Aviation and Healthcare were partially offset by decreases at Oil & Gas, Transportation and Energy Connections & Lighting. This increase in industrial segment revenues was primarily driven by the net effects of acquisitions of $11.2 billion, offset by the net effects of dispositions of $5.6 billion and the effects of a stronger U.S. dollar of $0.8 billion. Excluding the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues* decreased $0.5 billion.
Industrial revenues increased an additional $2.2 billion at Corporate as current year gains were $1.9 billion higher than 2015 gains.
·Financial Services revenues increased $0.1 billion, or 1%, primarily due to lower impairments, higher gains and the effects of acquisitions, partially offset by organic revenue declines, the effects of dispositions and the effects of translational currency exchange.
| | Consolidated continuing earnings increased $7.5 billion, primarily driven by decreased Financial Services losses of $6.7 billion, increased Industrial continuing earnings of $0.5 billion and a net decrease of $0.2 billion resulting from income taxes, and interest and other financial charges. The overall foreign currency impact on consolidated earnings was a decrease of $0.3 billion.
·Industrial earnings increased $0.5 billion due to increased earnings at Corporate of $0.8 billion, or 17%, as current year gains were $1.9 billion higher and pension costs were $0.7 billion lower than 2015. These increases to earnings were partially offset by $1.8 billion of higher restructuring and other charges.
Industrial earnings decreased due to decreased industrial segment earnings of $0.4 billion, or 2%, as decreases at Oil & Gas, Energy Connections & Lighting, and Transportation were partially offset by increases at Aviation, Power, Healthcare and Renewable Energy. This decrease in industrial segment earnings, was primarily driven by decreases in organic operating profit* of $0.8 billion and the net effect of dispositions of $0.5 billion, partially offset by the net effect of acquisitions of $0.9 billion.
·Financial Services losses decreased $6.7 billion, or 84%, primarily due to the absence of the 2015 charges associated with the GE Capital Exit Plan.
·In addition to the effects on net earnings described above, earnings per share amounts were also positively impacted by the reduction in number of outstanding common shares compared to 2015. The average number of shares outstanding used to calculate 2016 earnings per share amounts was 9% lower than 2015, primarily due to the 2015 Synchrony Financial share exchange and ongoing share buyback activities funded in large part by dividends from GE Capital.
|
*Non-GAAP Financial Measure
CONSOLIDATED RESULTS
2019SIGNIFICANT DEVELOPMENTS.In October 2019, we announced changes to the U.S. GE Pension Plan and the U.S. GE Supplementary Plan. As a result of these actions, we recognized a pre-tax increase in non-operating benefit costs of $0.6 billion in the fourth quarter of 2019. See Note 13 to the consolidated financial statements for further information.
(Dollars
We performed this year’s premium deficiency testing in billions)the aggregate across our run-off insurance portfolio in the third quarter of 2019. 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. See the Other Items - Insurance section within MD&A and Note 12 to the consolidated financial statements for further information.
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 fees and other costs associated with the tender). See Note 11 to the consolidated financial statements for further information.
In September 2019, we sold a total of 144.1 million shares in Baker Hughes for $3.0 billion in cash (net of certain deal related costs) which reduced our ownership interest 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 recorded a loss of $8.7 billion ($8.2 billion after-tax) in discontinued operations. See Notes 2 and 3 to the consolidated financial statements for further information.
In the second and third quarters of 2019, we recognized non-cash pre-tax impairment charges of $0.7 billion and $0.7 billion related to goodwill at our Grid Solutions equipment and services reporting unit and at our Hydro reporting unit, respectively, both within our Renewable Energy segment. These charges were recorded within earnings from continuing operations at Corporate. See Note 8 to the consolidated financial statements for further information.
REVENUE COMMENTARY: 2015 – 2014
| | EARNINGS COMMENTARY: 2015 – 2014
|
Consolidated revenues increased $0.2 billion, primarily driven by increased Industrial revenues of $0.4 billion and a decrease in eliminations between Industrial and Financial Services of $0.4 billion, partially offset by decreased Financial Services revenues of $0.5 billion. The overall foreign currency impact on consolidated revenues was a decrease of $4.9 billion.
·Industrial revenues increased $0.4 billion due an increase at Corporate of $1.3 billion, or 75%, as 2015 gains were $1.4 billion higher than 2014 year gains.
This was offset by decreases in industrial segment revenues of $0.9 billion, or 1%, as decreases at Oil & Gas, Healthcare and Renewable Energy were partially offset by increases at Power, Aviation, Energy Connections & Lighting and Transportation. The $0.9 billion decrease in industrial segment revenues was primarily driven by the translational effects of a stronger U.S. dollar of $4.8 billion and the net effects of dispositions of $1.1 billion, partially offset by the net effects of acquisitions of $2.2 billion. Excluding the effects of acquisitions, dispositions and currency exchange, industrial segment organic revenues* increased by $2.8 billion, or 3%.
·Financial Services revenues decreased $0.5 billion, or 5%, primarily due to organic revenue declines, primarily resulting from lower ending net investment (ENI), lower gains and higher impairments, partially offset by the effects of acquisitions and dispositions.
| | Consolidated continuing earnings decreased $7.9 billion, or 83%, primarily driven by decreased Financial Services net earnings of $9.2 billion, partially offset by an increase in Industrial continuing earnings of $1.3 billion. The overall foreign currency impact on consolidated earnings was a decrease of $0.6 billion.
·Industrial earnings increased 1.3 billion, or 11%, due to increased industrial segment earnings of $0.2 billion, or 1%, as increases at Aviation, Energy Connections & Lighting, Transportation and Power were partially offset by decreases at Oil & Gas, Renewable Energy and Healthcare. This increase in industrial segment earnings was primarily driven by increases in organic operating profit* of $1.2 billion, partially offset by the translational currency exchange effects of a stronger U.S. dollar of $0.7 billion, net acquisitions of $0.1 billion and net dispositions of $0.2 billion.
Industrial earnings at Corporate increased an additional $1.1 billion, or 18%, as 2015 gains were $1.4 billion higher than 2014 gains, partially offset by $0.5 billion of higher Principal retirement plan costs in 2015.
·Financial Services net earnings decreased $9.2 billion, primarily due to 2015 charges associated with the GE Capital Exit Plan.
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MD&A | CONSOLIDATED RESULTS |
In February 2019, we completed the spin-off and subsequent merger of our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. 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. Total proceeds from the sale of the business, including the sale of Wabtec common stock during 2019 were $6.2 billion. See Segment ResultsNotes 2 and Corporate Items & Eliminations sections within3 to the MD&Aconsolidated financial statements for morefurther information.
Also seein 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. Correspondingly, we classified BioPharma as a business held for sale. We expect to complete the Other sale in the first quarter of 2020, subject to regulatory approval, providing us flexibility and optionality with respect to our remaining Healthcare businesses. See Note 2 to the consolidated financial statements for further information.
SUMMARY OF 2019 RESULTS. Consolidated Informationrevenues were $95.2 billion, down $1.8 billion (2%) for the year primarily driven by decreased Corporate revenues of $1.0 billion, largely attributable to the sale of our Current business in November 2018 and decreased GE Capital revenues of $0.8 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.4 billion. Industrial segment organic revenues* increased $4.6 billion (5.5%) driven by our Aviation, Renewable Energy and Healthcare segments, partially offset by our Power segment.
Continuing earnings per share was $(0.01). Excluding non-operating benefit costs, gains (losses) on business dispositions, restructuring and other charges, goodwill impairments, unrealized gains (losses) on investments, BioPharma deal taxes, debt extinguishment costs, U.S. tax reform enactment and an insurance premium deficiency test charge, Adjusted earnings per share* was $0.65.
For the year ended December 31, 2019, GE Industrial profit was $1.8 billion and profit margins were 2.1%, up $22.4 billion, driven by decreased non-cash goodwill impairment charges of $20.6 billion, decreased restructuring and other costs of $1.5 billion and decreased interest and other financial charges of $0.3 billion, partially offset by increased non-operating benefit costs of $0.1 billion. Industrial segment profit increased $0.8 billion (8%) primarily due to higher results within our Power, Healthcare and Aviation segments, partially offset by the performance of our Renewable Energy segment. Industrial segment organic profit* increased $1.0 billion (11%).
GE cash flows from operating activities (CFOA) from continuing operations was $4.6 billion and $0.7 billion for the years ended December 31, 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 $2.3 billion and $4.3 billion for the years ended December 31, 2019 and 2018, respectively. The decrease was primarily due to higher cash used for working capital compared to 2018, partially offset by lower net disbursements for equipment project costs compared to 2018. See the Capital Resources and Liquidity - Statement of Cash Flows section withinfor further information.
Orders are contractual commitments with customers to provide specified goods or services for an agreed upon price. Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services).
|
| | | | | | | | | |
(In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 79.0 |
| $ | 77.1 |
| $ | 75.1 |
|
Services | 325.6 |
| 273.5 |
| 256.8 |
|
Total backlog | $ | 404.6 |
| $ | 350.6 |
| $ | 331.9 |
|
|
| | | | | | | | | |
Equipment | $ | 45.0 |
| $ | 49.3 |
| $ | 48.8 |
|
Services | 45.3 |
| 45.5 |
| 46.5 |
|
Total orders | $ | 90.3 |
| $ | 94.8 |
| $ | 95.3 |
|
As of December 31, 2019, backlog increased $53.9 billion (15%) from the MD&A forprior year due to an increase in services backlog of $48.4 billion at Aviation and $1.9 billion at Renewable Energy and an increase in equipment backlog of $1.9 billion at Renewable Energy.
For the year ended December 31, 2019, orders decreased $4.5 billion (5%) on a discussionreported basis and increased $0.6 billion (1%) organically driven by an increase in services orders of postretirement benefit plans costs, income taxes$1.5 billion primarily at Aviation, partially offset by Renewable Energy, and geographic data.a decrease in equipment orders of $0.9 billion, primarily at Power and Aviation, partially offset by Renewable Energy.
As of December 31, 2018, backlog increased $18.8 billion (6%), primarily due to an increase in services backlog of $16.7 billion primarily at Aviation and an increase in equipment backlog of $2.1 billion, also primarily at Aviation.
For the year ended December 31, 2018, orders decreased $0.5 billion (1%) on a reported basis and increased $2.9 billion (3%) organically driven by an increase in equipment orders of $2.5 billion, primarily at Aviation, partially offset by Power and Renewable Energy, and an increase in services orders of $0.5 billion, primarily at Aviation and Renewable Energy, partially offset by Power.
*Non-GAAP Financial Measure
GE 2016 FORM 10-K 30
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 26 to the consolidated financial statements for further information.GE CAPITAL |
| | | | | | | | | |
December 31, 2019 (In billions) | Equipment |
| Services |
| Total |
|
| | | |
Backlog | $ | 79.0 |
| $ | 325.6 |
| $ | 404.6 |
|
Adjustments | (30.5 | ) | (128.7 | ) | (159.1 | ) |
Remaining performance obligation | $ | 48.5 |
| $ | 196.9 |
| $ | 245.4 |
|
GE Capital results include continuing operations,Adjustments to reported backlog of $159.1 billion as of December 31, 2019 are largely driven by adjustments of $149.5 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 inbacklog are expected to be satisfied beyond one year.
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| | | | | | | | | |
(In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Consolidated revenues | $ | 95.2 |
| $ | 97.0 |
| $ | 99.3 |
|
| | | |
Equipment | 42.9 |
| 42.4 |
| 48.0 |
|
Services | 43.9 |
| 44.4 |
| 41.7 |
|
Industrial segment revenues | $ | 86.8 |
| $ | 86.8 |
| $ | 89.8 |
|
Corporate items and Industrial eliminations | 0.9 |
| 2.3 |
| 2.5 |
|
GE Industrial revenues | $ | 87.7 |
| $ | 89.0 |
| $ | 92.2 |
|
GE Capital revenues | $ | 8.7 |
| $ | 9.6 |
| $ | 9.1 |
|
For the Capital segment (see Segment discussion), and discontinued operations (see Discontinued Operations section and Note 2).
THE GE CAPITAL EXIT PLAN
On April 10, 2015, the Company announced a plan (the GE Capital Exit Plan)year ended December 31, 2019, consolidated revenues decreased $1.8 billion (2%) primarily driven by decreased Corporate revenues of $1.0 billion, largely attributable to create a simple, more valuable company by reducing the size of its financial services businesses through the sale of most of the assets ofour Current business in November 2018, and decreased GE Capital overrevenues of $0.8 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.4 billion.
Industrial segment revenues remained flat as a decrease at Power was offset by increases at Aviation, Renewable Energy and Healthcare. This was driven by the following 24 months net effects of dispositions of $3.3 billion, primarily attributable to the sales of Industrial Solutions, Value-Based Care and aligningDistributed Power in 2018 and the effects of a smallerstronger U.S. dollar of $1.4 billion, partially offset by the net effects of acquisitions of $0.1 billion. Industrial segment organic revenues* (excluding the effects of acquisitions, dispositions and foreign currency) increased $4.6 billion (5.5%).
GE Capital revenues decreased $0.8 billion (8%), primarily due to volume declines and lower gains, partially offset by lower impairments.
For the year ended December 31, 2018, consolidated revenues decreased $2.3 billion (2%), primarily driven by decreased industrial segment revenues of $3.0 billion, partially offset by increased GE Capital revenues of $0.5 billion. The overall foreign currency impact on consolidated revenues was $0.5 billion.
Industrial segment revenues decreased $3.0 billion (3%) as a decrease at Power was partially offset by increases at Healthcare and Aviation. This decrease was driven in part by the net effects of dispositions of $3.5 billion, partially offset by the effects of a weaker U.S. dollar of $0.5 billion. Industrial segment organic revenues* remained flat.
GE Capital revenues increased $0.5 billion (5%) primarily due to lower impairments and volume growth, partially offset by lower gains.
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| | | | | | | | | |
(In billions; per-share amounts in dollars and diluted) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Continuing earnings (loss) attributable to GE common shareholders | $ | — |
| $ | (21.4 | ) | $ | (8.7 | ) |
Continuing earnings (loss) per share | $ | (0.01 | ) | $ | (2.47 | ) | $ | (1.00 | ) |
For the year ended December 31, 2019, consolidated continuing losses decreased $21.4 billion, due to decreased GE goodwill impairment charges of $20.6 billion, increased GE Industrial segment profit of $0.8 billion, decreased corporate items and eliminations of $0.6 billion and decreased GE interest and other financial charges of $0.3 billion, partially offset by increased provision for GE Industrial income taxes of $0.8 billion and increased GE non-operating benefit costs of $0.1 billion.
GE Industrial segment profit increased $0.8 billion (8%) with GE'shigher profit at Power, Aviation and Healthcare partially offset by lower profit at Renewable Energy. Industrial segment profit was also 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 2018, 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 businesses.segment organic profit* increased $1.0 billion (11%). Corporate items and eliminations decreased $0.6 billion primarily attributable to decreased restructuring and other costs of $1.6 billion, increased net unrealized gains on investments of $0.8 billion, partially offset by decreased net gains from disposed or held for sale businesses of $1.4 billion and increased adjusted Corporate operating costs* of $0.4 billion.
Under the *Non-GAAP Financial Measure
GE Capital Exit Plan,continuing losses were flat primarily due to a $1.0 billion pre-tax charge identified through the Company is retaining certain GE Capital businesses, principally its vertical financing businesses—completion of our annual insurance premium deficiency review, lower gains, lower tax benefits and volume declines, offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.7 billion and $0.8 billion in 2019 and 2018, respectively, which primarily related to sales of GE Capital Aviation Services (GECAS), aircraft and engines resulting in gains of $0.4 billion and $0.3 billion in 2019 and 2018, respectively, as well as the sale of equity method investments resulting in gains of $0.2 billion in 2019 at Energy Financial Services (EFS) and the sale of EFS’ debt origination business and equity investments resulting in gains of $0.4 billion in 2018.
For the year ended December 31, 2018, consolidated continuing losses increased $12.7 billion driven by increased GE goodwill impairment charges of $21.0 billion, decreased GE Industrial Finance (which includes Healthcare Equipment Finance, Workingsegment profit of $1.8 billion and increased GE non-operating benefit costs of $0.3 billion, partially offset by decreased GE Capital Solutionslosses of $6.3 billion, decreased provision for GE Industrial income taxes of $3.0 billion, decreased corporate items and eliminations of $1.0 billion and decreased GE interest and other financial charges of $0.1 billion.
GE Industrial segment profit decreased $1.8 billion (16%) with decreases at Power and Renewable Energy, partially offset by higher earnings at Aviation and Healthcare. Industrial segment profit was also driven in part by the net effects of dispositions of $0.4 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Financing Solutions)—that relateSolutions following its sale in the second quarter of 2018. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $1.4 billion. Corporate items and eliminations decreased $1.0 billion primarily attributable to higher net gains from disposed or held for sale businesses of $0.4 billion, decreased adjusted Corporate operating costs* of $0.4 billion and decreased restructuring and other costs of $0.1 billion.
GE Capital continuing losses decreased $6.3 billion (93%) primarily due to the Company's core industrial domain and other operations, including our run-off insurance activities, and allocated corporate costs (together referred to asnonrecurrence of the 2017 charges associated with the GE Capital Verticalsinsurance premium deficiency review and EFS strategic actions, partially offset by the nonrecurrence of 2017 tax benefits.
GEOGRAPHIC INFORMATION.Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provisioning of financial services within these regional economies. Thus, when countries or Verticals)regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new opportunities that include, among other things, expansion of industrial activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs.
Financial results of our non-U.S. activities reported in U.S. dollars are affected by currency exchange. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Such principal currencies are the euro, the pound sterling, the Brazilian real and the Chinese renminbi.
Revenues are classified according to the region to which products and services are sold. For purposes of this analysis, the U.S. is presented separately from the remainder of the Americas.
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| | | | | | | | | | | | | | |
| | | | V% |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
| 2019-2018 | | 2018-2017 |
| | | | | | |
U.S. | $ | 39.4 |
| $ | 40.0 |
| $ | 41.5 |
| (2) | % | | (4) | % |
Non-U.S. | | | | | | |
Europe | 19.1 |
| 19.8 |
| 18.7 |
| | | |
Asia | 20.2 |
| 19.3 |
| 18.3 |
| | | |
Americas | 6.3 |
| 7.9 |
| 7.8 |
| | | |
Middle East and Africa | 10.3 |
| 10.1 |
| 13.0 |
| | | |
Total Non-U.S. | $ | 55.8 |
| $ | 57.1 |
| $ | 57.8 |
| (2) | % | | (1) | % |
Total geographic revenues | $ | 95.2 |
| $ | 97.0 |
| $ | 99.3 |
| (2) | % | | (2) | % |
Non-U.S. revenues as a % of consolidated revenues | 59 | % | 59 | % | 58 | % | | | |
The decrease in non-U.S. revenues in 2019 was primarily due to a decrease of 20% in Americas, partially offset by an increase of 4% in Asia.
The decrease in non-U.S. revenues in 2018 was primarily due to a decrease of 22% in Middle East and Africa, partially offset by increases of 6% in Europe and 5% in Asia.
The effects of currency fluctuations on reported results were as follows:
Decreased revenues by $1.4 billion in 2019, primarily driven by the euro ($0.7 billion), the Chinese renminbi ($0.2 billion), the Brazilian real ($0.1 billion), the pound sterling ($0.1 billion), and the Australian dollar ($0.1 billion).
Increased revenues by $0.5 billion in 2018, primarily driven by the euro ($0.3 billion).
*Non-GAAP Financial Measure
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. During the second quarter of 2019, Boeing announced a temporary reduction in the 737 MAX production rate, and CFM reduced its production rate for the LEAP-1B to meet Boeing's revised aircraft build rate. In December 2019, Boeing announced that it would temporarily suspend production of the 737 MAX beginning in January 2020. CFM is working closely with Boeing to align production rates for 2020 and ensure a successful reentry into service, with a strong commitment to safety while navigating near-term industry disruption. As a result of the 737 MAX grounding, GE Capital Exit Plan dispositions, GE Capital has paid $24.4 billion in dividends to GE in 2015 and 2016 ($4.3 billion and $20.1 billion, respectively). We expect GE Capital to release additional dividends of up toCFOA was adversely affected by approximately $10 billion through the remainder of the plan. In January 2017, GE received an additional $2.0 billion of common dividends from GE Capital. As of December 31, 2016, we are ahead of our plan, having signed agreements with buyers for $197 billion of ending net investment (ENI), excluding liquidity (as originally reported at December 31, 2014), of which $190 billion has closed. As of December 31, 2016, we have substantially completed the dispositions related to the GE Capital Exit Plan. In addition, as part of our initiative to reduce the size of our financial services businesses, we completed the split-off of our remaining interest in GE Capital's North American Retail Finance business, Synchrony Financial, to holders of GE common stock, which resulted in a $20.4 billion buyback of GE common stock (671.4 million shares) in 2015. In connection with the GE Capital Exit Plan, we completed a legal reorganization of GE Capital that included a merger of GE Capital into GE, a guarantee by GE of GE Capital debt, and an exchange of $36 billion of GE Capital debt for new notes guaranteed by GE. The result of all these actions reduced GE Capital's total assets by 63% from $500 billion at December 31, 2014 to $183 billion at December 31, 2016. From inception of plan through December 31, 2016, we incurred charges of $22.0 billion. Due to anticipated tax benefits and gains, we do not expect total after-tax charges through the completion of the GE Capital Exit Plan to exceed our initial $23 billion estimate.
On March 31, 2016, GE filed its request to the Financial Stability Oversight Council (FSOC) for rescission of GE Capital's designation as a nonbank Systemically Important Financial Institution (SIFI). On June 28, 2016, the FSOC rescinded GE Capital's designation as a nonbank SIFI.
SALES AGREEMENTS
During 2016, GE signed agreements to sell approximately $40 billion of ENI, excluding liquidity (as originally reported at December 31, 2014), of which approximately $19 billion, $21 billion and less than $1 billion related to our Commercial Lending and Leasing (CLL), Consumer and Real Estate businesses, respectively.
Sales representing approximately $86 billion of ENI, excluding liquidity (as originally reported at December 31, 2014) closed during 2016, including approximately $70 billion, $16 billion and less than $1 billion related to our CLL, Consumer and Real Estate businesses, respectively.
AFTER-TAX CHARGES RELATED TO THE GE CAPITAL EXIT PLAN
During 2016, GE recorded less than $0.1 billion of after-tax charges related to the GE Capital Exit Plan of which $0.7 billion of net benefits were recorded in continuing operations and $0.7 billion of after-tax charges were recorded in discontinued operations. A description of these after-tax charges for 2016 is provided below.
· | $1.3 billion of net loss primarily related to the completed and planned dispositions of Consumer and most of the CLL businesses, which was recorded in discontinued operations under the caption "Earnings (loss) from discontinued operations, net of taxes" in the Statement of Earnings. |
· | $0.3 billion of charges associated with the preferred equity exchange that was completed in January 2016, which was recorded in continuing operations and reported in GE Capital's corporate component under the caption "Preferred stock dividends" in the Statement of Earnings. |
· | These charges were offset by tax benefits of $1.4 billion primarily related to increased tax efficiency of planned cash repatriations through increased foreign tax credit utilization of $0.8 billion and an IRS tax settlement of $0.6 billion. Of these benefits $1.1 billion was recorded in continuing operations and reported in GE Capital's corporate component under the caption "Benefit (provision) for income taxes" in the Statement of Earnings and $0.2 billion was recorded in discontinued operations under the caption "Earnings (loss) from discontinued operations, net of taxes" in the Statement of Earnings. |
For additional information about the GE Capital Exit Plan 2015 sales agreements and after-tax charges, refer to our Form 8-K filed on June 3, 2016 related to the Annual Report on Form 10-K for the year ended December 31, 2015.2019, which primarily represents the growth in receivables, net of progress collections, and lower collections on new purchase orders. Within Aviation, this effect was more than offset by: higher commercial aftermarket earnings and higher long-term service agreement billings of $0.6 billion; cash receipts from contract modifications of $0.3 billion; a new spare parts distribution deal for a legacy engine program of $0.3 billion; and lower customer allowance payments of $0.4 billion. Other Aviation working capital cash flows, excluding the impact of the 737 MAX grounding, largely offset. Any impact to GE CFOA in 2020 is dependent on the timing of the 737 MAX return to service and engine production rates.
At December 31, 2019, GECAS owned 29 737 MAX aircraft, 26 of which are contracted for lease to airlines that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to the above charges, during the year endedBoeing related to 144 of these aircraft on order and has made financing commitments to acquire a further 18 aircraft under purchase and leaseback contracts with airlines.
As of December 31, 2016,2019, we have incurred other costs related to our ongoing liability management actions, including $0.6approximately $2.5 billion of pre-tax lossesnet assets ($4.8 billion of assets and $2.3 billion of liabilities) related to the repurchase of $12.5 billion of long-term unsecured debt737 MAX program that primarily comprise accounts receivable, pre-delivery payments and subordinated debentures whichowned aircraft subject to lease offset by progress collections. No impairment charges were recordedincurred related to the 737 MAX aircraft and related balances in continuing operations.2019 as we continue to believe these assets are fully recoverable. We continue to monitor these developments with our airline customers, lessees and Boeing.
GE 2016 FORM 10-K 32LEAP continues to be a strong engine program for us, and we delivered 1,736 LEAP engines for Boeing and Airbus platforms in the year.
SEGMENT OPERATIONS
SEGMENT CHANGES
· | Beginning in the third quarter of 2016, the former Energy Connections and Appliances & Lighting segments are presented as one reporting segment called Energy Connections & Lighting. This segment includes historical results of the Appliances business prior to its sale in June 2016. |
REVENUES AND PROFIT
OPERATIONS.Segment revenues include revenuessales of products and other income related toservices by the segment.
Segment Industrial segment profit is determined based on internal performance measures used by theour Chief Operating Decision Maker (CODM), who is our Chief Executive Officer (CEO), to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring;impairments, restructuring, rationalization and other similar expenses;expenses, acquisition costs and other related charges; technology and product development costs;charges, certain gains and losses from acquisitions or dispositions;dispositions, and certain litigation settlements or other charges,settlements. See the GE Corporate Items and Eliminations section within MD&A for which responsibility preceded the current management team. For additional information about costs excluded from segment profit, see Corporate Items and Eliminations section within this MD&A.profit.
Segment profit excludes results reported as discontinued operations and material accounting changes. Segment profit also excludes the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributable to our share of the consolidated earnings or loss of consolidated subsidiaries.
Segment profit excludes or includes interestInterest and other financial charges, and income taxes accordingand non-operating benefit costs are excluded in determining segment profit for the industrial segments. Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to how a particular segment's managementas net earnings) for the Capital segment. Other income is measured:included in segment profit for the industrial segments.
· | Interest and other financial charges, income taxes and GE preferred stock dividends are excluded in determining segment profit (which we sometimes refer to as "operating profit") for the industrial segments. |
· | Interest and other financial charges, income taxes and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as "net earnings") for the Capital segment. |
Certain corporate costs, such as 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'ssegment’s relative net cost of operations.
With respect to the segment revenue and profit walks, the overall effect of foreign exchange is included within multiple captions as follows:GE2019 FORM 10-K 8
· |
| The translational foreign exchange impact is included within Foreign Exchange. | |
MD&A | SEGMENT OPERATIONS | |
· | The transactional impact of foreign exchange hedging is included in operating cost within Productivity and in other income within Other. |
GE 2016 FORM 10-K 33 |
| | | | | | | | | |
SUMMARY OF REPORTABLE SEGMENTS (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Power | $ | 18,625 |
| $ | 22,150 |
| $ | 29,426 |
|
Renewable Energy | 15,337 |
| 14,288 |
| 14,321 |
|
Aviation | 32,875 |
| 30,566 |
| 27,013 |
|
Healthcare | 19,942 |
| 19,784 |
| 19,017 |
|
Total industrial segment revenues | 86,778 |
| 86,789 |
| 89,776 |
|
Capital | 8,741 |
| 9,551 |
| 9,070 |
|
Total segment revenues | 95,519 |
| 96,339 |
| 98,847 |
|
Corporate items and eliminations | (305 | ) | 673 |
| 433 |
|
Consolidated revenues | $ | 95,214 |
| $ | 97,012 |
| $ | 99,279 |
|
| | | |
Power | $ | 386 |
| $ | (808 | ) | $ | 1,894 |
|
Renewable Energy | (666 | ) | 292 |
| 728 |
|
Aviation | 6,820 |
| 6,466 |
| 5,370 |
|
Healthcare | 3,896 |
| 3,698 |
| 3,488 |
|
Total industrial segment profit | 10,436 |
| 9,647 |
| 11,479 |
|
Capital | (530 | ) | (489 | ) | (6,765 | ) |
Total segment profit | 9,906 |
| 9,158 |
| 4,714 |
|
Corporate items and eliminations | (2,212 | ) | (2,837 | ) | (3,798 | ) |
GE goodwill impairments | (1,486 | ) | (22,136 | ) | (1,165 | ) |
GE interest and other financial charges | (2,115 | ) | (2,415 | ) | (2,538 | ) |
GE non-operating benefit costs | (2,828 | ) | (2,740 | ) | (2,409 | ) |
GE benefit (provision) for income taxes | (1,309 | ) | (467 | ) | (3,493 | ) |
Earnings (loss) from continuing operations attributable to GE common shareholders | (44 | ) | (21,438 | ) | (8,689 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,335 | ) | (1,363 | ) | (312 | ) |
Less net earnings (loss) attributable to noncontrolling interests, discontinued operations | 60 |
| 1 |
| (81 | ) |
Earnings (loss) from discontinued operations, net of taxes and noncontrolling interests | (5,395 | ) | (1,364 | ) | (231 | ) |
Consolidated net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) |
POWER
SIGNIFICANT SEGMENT DEVELOPMENTSProducts & Services. Power serves power generation, industrial, government and other customers worldwide with products and services related to energy production. Our products and technologies harness resources such as oil, gas, fossil, diesel, nuclear and water to produce electric power and include gas and steam turbines, full balance of plant, upgrade and service solutions, as well as data-leveraging software.
ALSTOM ACQUISITION
On November 2, 2015,In 2019, we reorganized the businesses within our Power segment into Gas Power and Power Portfolio, and we completed the acquisitionreorganization of Alstom's Thermal, Renewablesour Grid Solutions equipment and Grid businesses, resulting in two months of activity in 2015 results and a full year of activity in 2016 results. The completion of the transaction followed the regulatory approval of the deal in over 20 countries and regions including the EU, U.S., China, India, Japan and Brazil. The cash purchase price was €9.2 billion (approximately $10.1 billion), net of cash acquired. The acquisition and alliances with Alstom affectedservices business into our Power, Energy Connections & Lighting and Renewable Energy segments,segment and our Grid Solutions software and Power Digital businesses into Corporate for all periods presented. Power Portfolio's 2018 and 2017 results also include our former Industrial Solutions and Distributed Power businesses which were sold in June 2018 and November 2018, respectively.
Gas Power –offers a wide spectrum of heavy-duty and aeroderivative gas turbines for utilities, independent power producers and numerous industrial applications, ranging from small, mobile power to a lesser extent our Oil &utility scale power plants. Gas segment.
At year-end 2015, our preliminary allocation of purchase price resulted in recognition of approximately $13.5 billion of goodwill, $5.2 billion of intangiblePower also delivers maintenance, service and upgrade solutions across total plant assets and $1.1 billion of unfavorable customer contract liabilities. The preliminary fair value of the associated noncontrolling interestover their operational lifecycle. Our gas turbine installed base was approximately $3.6 billion. As7,700 units as of the end of 2016, the amount of goodwill, intangible assets and unfavorable customer contract liabilities recognized was adjusted to approximately $17.3 billion, $4.4 billion, and $2.7 billion, respectively. The adjustments reflected revisions in estimates primarily related to cash flows and other valuation assumptions for customer contracts, increases to legal reserves, and other fair value adjustments related to acquired assets and liabilities. Deferred taxes, unrecognized tax benefits and other tax uncertainties were also adjusted under applicable accounting rules. We finalized our purchase accounting analysis in the fourth quarter of 2016. See Note 8 to the consolidated financial statements for further information.
For the year ended December 31, 2016, Alstom contributed revenues2019.
Power Portfolio –offers steam power technology for fossil and nuclear applications including boilers, generators, steam turbines and Air Quality Control Systems (AQCS) to help efficiently produce power and provide performance over the life of $13.0 billiona power plant. Power Portfolio also applies the science and an operating losssystems of $0.3 billion, of which $0.8 billion of profit is included in the segment resultspower conversion to provide motors, generators, automation and $1.0 billion of charges is included in Corporate, primarily related to purchase accountingcontrol equipment and acquisition related charges. Including the effects of tax benefits of $0.8 billion, net earnings were $0.4 billiondrives for the year ended December 31, 2016. In addition, Alstom used cash flows from operating activities of $0.3 billionenergy intensive industries such as marine, oil and gas, renewable energy, mining, rail, metals, test systems and water. It also offers advanced reactor technologies solutions, including reactors, fuels and support services for the year ended December 31, 2016. Alstom related revenuesboiling water reactors, through joint ventures with Hitachi and operating profit are presented separately in the segment revenues and profit walks that follow.Toshiba for nuclear fleets.
SALE OF APPLIANCES
On January 15, 2016, we announced the signing of an agreement to sell our Appliances business to Haier. On June 6, 2016, we completed the sale for proceeds of $5.6 billion (including $0.8 billion from the sale of receivables originated in our Appliances business and sold from GE Capital to Haier) and recognized an after-tax gain of $1.8 billion in 2016.
SUMMARY OF OPERATING SEGMENTS |
| | | | | | | | | | | | | | |
| General Electric Company and consolidated affiliates |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | |
Power | $ | 26,827 | | $ | 21,490 | | $ | 20,580 | | $ | 19,315 | | $ | 20,364 |
Renewable Energy | | 9,033 | | | 6,273 | | | 6,399 | | | 4,824 | | | 7,373 |
Oil & Gas | | 12,898 | | | 16,450 | | | 19,085 | | | 17,341 | | | 15,539 |
Aviation | | 26,261 | | | 24,660 | | | 23,990 | | | 21,911 | | | 19,994 |
Healthcare | | 18,291 | | | 17,639 | | | 18,299 | | | 18,200 | | | 18,290 |
Transportation | | 4,713 | | | 5,933 | | | 5,650 | | | 5,885 | | | 5,608 |
Energy Connections & Lighting | | 15,133 | | | 16,351 | | | 15,724 | | | 15,907 | | | 15,379 |
Total industrial segment revenues | | 113,156 | | | 108,796 | | | 109,727 | | | 103,383 | | | 102,548 |
Capital | | 10,905 | | | 10,801 | | | 11,320 | | | 11,267 | | | 11,268 |
Total segment revenues | | 124,061 | | | 119,597 | | | 121,047 | | | 114,650 | | | 113,816 |
Corporate items and eliminations | | (368) | | | (2,211) | | | (3,863) | | | (1,405) | | | (1,228) |
Consolidated revenues | $ | 123,693 | | $ | 117,386 | | $ | 117,184 | | $ | 113,245 | | $ | 112,588 |
| | | | | | | | | | | | | | |
Segment profit | | | | | | | | | | | | | | |
Power | $ | 4,979 | | $ | 4,502 | | $ | 4,486 | | $ | 4,328 | | $ | 4,368 |
Renewable Energy | | 576 | | | 431 | | | 694 | | | 485 | | | 914 |
Oil & Gas | | 1,392 | | | 2,427 | | | 2,758 | | | 2,357 | | | 2,064 |
Aviation | | 6,115 | | | 5,507 | | | 4,973 | | | 4,345 | | | 3,747 |
Healthcare | | 3,161 | | | 2,882 | | | 3,047 | | | 3,048 | | | 2,920 |
Transportation | | 1,064 | | | 1,273 | | | 1,130 | | | 1,166 | | | 1,031 |
Energy Connections & Lighting | | 311 | | | 944 | | | 677 | | | 491 | | | 442 |
Total industrial segment profit | | 17,598 | | | 17,966 | | | 17,764 | | | 16,220 | | | 15,487 |
Capital | | (1,251) | | | (7,983) | | | 1,209 | | | 401 | | | 1,245 |
Total segment profit | | 16,347 | | | 9,983 | | | 18,973 | | | 16,621 | | | 16,731 |
Corporate items and eliminations | | (4,226) | | | (5,108) | | | (6,225) | | | (6,002) | | | (4,719) |
GE interest and other financial charges | | (2,026) | | | (1,706) | | | (1,579) | | | (1,333) | | | (1,353) |
GE provision for income taxes | | (967) | | | (1,506) | | | (1,634) | | | (1,667) | | | (2,013) |
Earnings from continuing operations | | | | | | | | | | | | | | |
attributable to GE common shareowners | | 9,128 | | | 1,663 | | | 9,535 | | | 7,618 | | | 8,646 |
Earnings (loss) from discontinued | | | | | | | | | | | | | | |
operations, net of taxes | | (954) | | | (7,495) | | | 5,855 | | | 5,475 | | | 5,047 |
Less net earnings (loss) attributable to | | | | | | | | | | | | | | |
noncontrolling interests, discontinued operations | | (1) | | | 312 | | | 157 | | | 36 | | | 53 |
Earnings (loss) from discontinued operations, | | | | | | | | | | | | | | |
net of taxes and noncontrolling interests | | (952) | | | (7,807) | | | 5,698 | | | 5,439 | | | 4,995 |
Consolidated net earnings (loss) | | | | | | | | | | | | | | |
attributable to GE common shareowners | $ | 8,176 | | $ | (6,145) | | $ | 15,233 | | $ | 13,057 | | $ | 13,641 |
| | | | | | | | | | | | | | |
SEGMENT RESULTS
(Dollars in billions)
INDUSTRIAL SEGMENT EQUIPMENT
& SERVICES REVENUES
| | INDUSTRIAL SEGMENT PROFIT
| |
| Equipment(a)
Services(b)
| | | |
(a)In 2015, $59.8 billion, excluding $1.1 billion related to Alstom.* In 2016, $52.7 billion, excluding $8.1 billion related to Alstom*
(b)In 2015, $47.1 billion, excluding $0.8 billion related to Alstom.* In 2016, $47.5 billion, excluding $4.9 billion related to Alstom*
| | (a)$18.1 billion, excluding $(0.2) billion related to Alstom*
(b)$16.8 billion, excluding $0.8 billion related to Alstom*
| |
2016 – 2015 COMMENTARY
|
·Industrial segment revenues increased $4.4 billion, or 4%, primarily driven by increases at Power and Renewable Energy, mainly due to the effects of the Alstom acquisition, and an organic increase at Renewable Energy. This increase in industrial segment revenues was partially offset by lower revenues at Oil & Gas and Transportation, including the effects of foreign currency exchange of $0.3 billion at Oil & Gas.
·Industrial segment acquisition revenues, driven by Alstom, also positively affected Energy Connections & Lighting, however, this was mostly offset by the effects of disposition revenues related to the sale of Appliances in the second quarter of 2016 and sales of Meters, Intelligent Platforms Embedded Systems Products and Signaling businesses in 2015.
·Industrial segment profit decreased $0.4 billion, or 2%, mainly driven by lower earnings organically at Oil & Gas and Energy Connections & Lighting, as well as an unfavorable impact of foreign exchange, partially offset by higher earnings at Aviation, Power, Healthcare and Renewable Energy.
·Industrial segment operating profit margin decreased 90 bps to 15.6%, primarily driven by the effects of Alstom results. Excluding Alstom*, industrial segment operating profit margin was 16.8%, compared with 17.0% in 2015, reflecting core decreases at Power, Oil & Gas and Energy Connections & Lighting, that more than offset increases at Aviation, Healthcare and Transportation.
|
2015 – 2014 COMMENTARY |
·Industrial segment revenues decreased $0.9 billion, or 1%, primarily driven by decreases at Oil & Gas, mainly related to the effects of foreign currency exchange and a decrease at Oil & Gas organically. This decrease was partially offset by higher revenues at Power, Energy Connections & Lighting, and Aviation, mainly as a result of organic increases, as well as the effects of the Alstom acquisition at Power and Energy Connections & Lighting, partially offset by the effects of dispositions related to the sale of Intelligent Platforms Embedded Systems Products and Wayne in 2015.
·Industrial segment profit increased $0.2 billion, or 1%, mainly driven by higher earnings at Aviation, Energy Connections & Lighting and Transportation, partially offset by lower earnings at Oil & Gas and Renewable Energy, as well as an unfavorable impact of foreign exchange.
· Industrial segment operating profit margin increased 30 bps to 16.5% primarily driven by Aviation and Transportation, partially offset by the effects of the Alstom acquisition. Excluding Alstom*, industrial segment operating profit margin was 17.0%, compared with 16.2% in 2014, reflecting core increases at Power and Energy Connections & Lighting.
|
| |
*Non-GAAP Financial Measure
POWER
BUSINESS OVERVIEW
Leader: Steve Bolze
| | Headquarters & Operations
|
| ·Senior Vice President, GE and President & CEO, GE Power
·Over 20 years of service with General Electric
| | | ·22% of segment revenues
·24% of industrial segment revenues
·28% of industrial segment profit
·Headquarters: Schenectady, NY
·Serving customers in 140+ countries
·Employees: approximately 57,000
|
Products & Services |
| Power serves power generation, industrial, government and other customers worldwide with products and services related to energy production and water reuse. Our products and technologies harness resources such as oil, gas, coal, diesel, nuclear and water to produce electric power and include gas and steam turbines, full balance of plant, upgrade and service solutions, as well as data-leveraging software.
|
· | Gas Power Systems – offers a wide spectrum of heavy-duty and aeroderivative gas turbines for utilities, independent power producers and numerous industrial applications, ranging from small, mobile power to utility scale power plants.
|
· | Steam Power Systems– offers steam power technology for coal and nuclear applications including boilers, generators, steam turbines, and Air Quality Control Systems (AQCS) to help efficiently produce power and provide performance over the life of a power plant.
|
· | Power Services – delivers maintenance, service and upgrade solutions across total plant assets and over their operational lifecycle, leveraging the Industrial Internet to improve the performance of such solutions.
|
· | Distributed Power – provides technology-based products and services to generate reliable and efficient power at or near the point of use. The product portfolio features highly efficient, fuel flexible industrial gas engines, including Jenbacher and Waukesha engines, that generate power for numerous industries globally.
|
· | Water & Process Technologies– provides comprehensive chemical and equipment solutions and services to help manage and optimize water resources across numerous industries and municipalities, including water treatment, wastewater treatment and process system solutions.
|
· | GE Hitachi Nuclear– offers advanced reactor technologies solutions, including reactors, fuels and support services for boiling water reactors, and is offered through joint ventures with Hitachi and Toshiba, for safety, reliability and performance for nuclear fleets.
|
Competition & Regulation. Worldwide competition for power generation products and services is intense. Demand for power generation is global, and as a result, is sensitive to the economic and political environments of each country in which we do business. Our products and services sold to end customers are often subject to many regulatory requirements and performance standards under different federal, state, foreign and energy industry standards.
Significant Trends & Developments. The power market as well as its operating environment continue to be challenging. Over the past several quarters, our outlook for Power was driven by the significant overcapacity in the industry, increased price pressure from competition on servicing the installed base, and the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. Market factors such as increasing energy efficiency and renewable energy penetration, the growth in global supply of liquefied natural gas, as well as the cost-competitiveness of different sources of power generation continue to impact how we evaluate long-term market demand.
GE 20162019 FORM 10-K 37 9
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 26.8 BILLION | | ORDERS |
| | | | Equipment
Services
|
MD&A | (a) Includes $1.0 billion related to Alstom
(b) Includes $10.0 billion related to Alstom
|
| 2016 SUB-SEGMENT REVENUES
| | |
| (a) Includes Water & Process Technologies, Distributed Power and GE Hitachi Nuclear
| | | Equipment
Services
|
| (a) Includes $15.5 billion related to Alstom
(b) Includes $18.3 billion related to Alstom
|
| EQUIPMENT/SERVICES REVENUES
| | |
| | | |
| Services Equipment
|
SIGNIFICANT TRENDS & DEVELOPMENTSSEGMENT OPERATIONS | |
We have and will continue to take actions to right size our business for the current market conditions and our long-term outlook, including restructuring our operations to dispose of non-core businesses, resizing our remaining businesses to better align with market demand and driving these businesses with an operational rigor and discipline that is focused on our customers’ lifecycle experience. We are building a cost structure to support an average 25 to 30 gigawatt new unit gas turbine market; however, actual orders in 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 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, including upgrades, as these are critical to our customers and the long-term strategy of the business.
|
| | | | | | | | | |
| Orders | | Sales |
(In units) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
GE Gas Turbines | 74 |
| 52 |
| | 53 |
| 59 |
|
Heavy-Duty Gas Turbines(a) | 63 |
| 43 |
| | 38 |
| 42 |
|
HA-Turbines(b) | 18 |
| 10 |
| | 11 |
| 12 |
|
Aeroderivatives(a) | 11 |
| 9 |
| | 15 |
| 17 |
|
GE Gas Turbine Gigawatts(c) | 13.6 |
| 8.0 |
| | | |
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines. (b) HA-Turbines are a subset of Heavy-Duty Gas Turbines. (c) Gigawatts reported associated with financial orders in the periods presented. |
|
| | | | | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 17.7 |
| $ | 18.8 |
| $ | 19.3 |
|
Services | 67.6 |
| 66.2 |
| 70.4 |
|
Total backlog | $ | 85.3 |
| $ | 85.0 |
| $ | 89.7 |
|
| | | |
Equipment | $ | 5.2 |
| $ | 9.3 |
| $ | 13.0 |
|
Services | 11.7 |
| 13.3 |
| 17.0 |
|
Total orders | $ | 16.9 |
| $ | 22.6 |
| $ | 30.0 |
|
|
| | | | | | | | | |
Gas Power | $ | 13.1 |
| $ | 13.3 |
| $ | 17.1 |
|
Power Portfolio | 5.5 |
| 8.9 |
| 12.3 |
|
Total segment revenues | $ | 18.6 |
| $ | 22.1 |
| $ | 29.4 |
|
|
| | | | | | | | | |
U.S. | $ | 6.0 |
| $ | 7.5 |
| $ | 9.9 |
|
Non-U.S. | | | |
Europe | 3.1 |
| 4.5 |
| 5.1 |
|
Asia | 4.0 |
| 4.1 |
| 5.0 |
|
Americas | 1.9 |
| 2.5 |
| 2.6 |
|
Middle East and Africa | 3.6 |
| 3.5 |
| 6.8 |
|
Total Non-U.S. | $ | 12.6 |
| $ | 14.7 |
| $ | 19.5 |
|
Total segment revenues | $ | 18.6 |
| $ | 22.1 |
| $ | 29.4 |
|
Non-U.S. revenues as a % of segment revenues | 68 | % | 66 | % | 66 | % |
|
| | | | | | | | | |
Equipment | $ | 6.2 |
| $ | 8.1 |
| $ | 12.9 |
|
Services | 12.4 |
| 14.1 |
| 16.5 |
|
Total segment revenues(a) | $ | 18.6 |
| $ | 22.1 |
| $ | 29.4 |
|
| | | |
Segment profit(b) | $ | 0.4 |
| $ | (0.8 | ) | $ | 1.9 |
|
Segment profit margin | 2.1 | % | (3.6 | )% | 6.4 | % |
(a) Power segment revenues represent 21% and 19% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2019.
(b) Power segment profit represents 4% of total industrial segment profit for the year ended December 31, 2019.
· |
| The integration of Alstom's Thermal business has yielded significant efficiencies in supply chain, service infrastructure, new product development and SG | |
MD&A costs. | SEGMENT OPERATIONS | |
· | We announced our plan to sell our Water & Process Technologies business that will further position the business for long-term growth. |
· | We expanded our capabilities surrounding the manufacturing and supply of power plant equipment by acquiring Metem Corporation and a unit of South Korea's Doosan Engineering and Construction Company, which provides Heat Steam Recovery Generators. |
· | Digital offerings have been developed to further complement our equipment and services business and drive value and better outcomes for our customers. |
· | The business continues to invest in new product development, such as our new HA-Turbine, reciprocating engines and advanced upgrades, to expand our equipment and services offerings. |
· | Excess capacity in developed markets, continued pressure in oil and gas applications and macroeconomic and geopolitical environments result in uncertainty for the industry and business. |
GE 2016 FORM 10-K 38
For the year ended December 31, 2019, segment orders were down $5.7 billion (25%), segment revenues were down $3.5 billion (16%) and segment profit was up $1.2 billion.Backlog as of December 31, 2019 increased $0.3 billion from December 31, 2018, primarily due to an increase in services backlog of $1.4 billion attributable to Gas Power, partially offset by a decrease in equipment backlog of $1.1 billion from both Gas Power and Power Portfolio.FINANCIAL OVERVIEWOrders decreased $2.5 billion (13%) organically mainly due to a decrease in Steam orders at Power Portfolio, partially offset by 20 more heavy duty gas turbine orders.
(DollarsRevenues decreased $0.2 billion (1%) organically* primarily due to a decrease in billions)services revenue at Power Portfolio.
Profit increased $1.4 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.
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
For the year ended December 31, 2018, segment orders were down $7.4 billion (25%), segment revenues were down $7.3 billion (25%) and segment profit was down $2.7 billion. Backlog as of December 31, 2018 decreased $4.7 billion (5%) primarily due to a reduction in services backlog of $4.2 billion attributable to Gas Power and due to the absence of our Distributed Power and Industrial Solutions businesses in Power Portfolio. Orders decreased $4.0 billion (15%) organically mainly due to Gas Power lower gas turbine and services orders. Revenues decreased $4.5 billion (17%) organically*. Equipment revenues decreased primarily at Gas Power, due to lower unit sales, including 60 fewer gas turbines, 26 fewer Heat Recovery Steam Generators and 23 fewer aeroderivative units. Services revenues also decreased primarily due to 27 fewer AGP upgrades. Profit decreased $2.4 billion organically* due to negative variable cost productivity driven by warranty, project cost updates as well as liquidated damages, and various assumption updates for unfavorable pricing, lower utilization, and cost updates on our long-term service agreements recognized by Gas Power.
(a) $20.6 billion, excluding $0.9 billion related to Alstom*
(b) $20.6 billion, excluding $6.3 billion related to Alstom*
| Equipment
Services
| (a) $4.6 billion, excluding $(0.1) billion related to Alstom*
(b) $4.4 billion, excluding $0.6 billion related to Alstom*
| | (a) 22.3%, excluding (8.7)% related to Alstom*
(b) 21.5%, excluding 9.0% related to Alstom*
|
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues up $5.3 billion (25%); Segment profit up $0.5 billion (11%) as a result of: · The increase in revenues was driven primarily by the effects of the Alstom acquisition, including higher sales at Steam Power Systems, as well as higher volume at Power Services, partially offset by the impact of a stronger U.S. dollar and lower other income. Core revenues were flat. · The increase in profit was mainly driven by the effects of the Alstom acquisition, as well as material deflation, partially offset by lower cost productivity and an unfavorable business mix, driven by HA-Turbine shipments in the current year. |
| Revenues | Profit |
2015 | $ | 21.5 | $ | 4.5 |
Volume | | 0.1 | | - |
Price | | - | | - |
Foreign Exchange | | (0.1) | | - |
(Inflation)/Deflation | | N/A | | 0.1 |
Mix | | N/A | | (0.1) |
Productivity | | N/A | | (0.1) |
Other | | (0.1) | | (0.1) |
Alstom | | 5.3 | | 0.6 |
2016 | $ | 26.8 | $ | 5.0 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues up $0.9 billion (4%); Segment profit was flat as a result of: · The increase in revenues was mainly driven by higher volume, primarily at Power Services, as well as the effects of the Alstom acquisition, partially offset by the impact of a stronger U.S. dollar. · Profit was flat as higher volume, the effects of deflation, higher prices, and favorable business mix were offset by lower productivity, including an increase in SG&A cost, the impact of a stronger U.S. dollar, and the effects of the Alstom acquisition. |
| Revenues | Profit |
2014 | $ | 20.6 | $ | 4.5 |
Volume | | 0.8 | | 0.2 |
Price | | 0.1 | | 0.1 |
Foreign Exchange | | (0.8) | | (0.1) |
(Inflation)/Deflation | | N/A | | 0.2 |
Mix | | N/A | | 0.1 |
Productivity | | N/A | | (0.4) |
Other | | - | | - |
Alstom | | 0.9 | | (0.1) |
2015 | $ | 21.5 | $ | 4.5 |
| | | | | |
*Non-GAAP Financial Measure
RENEWABLE ENERGY
BUSINESS OVERVIEW
Leader: Jérôme Pécresse
| | Headquarters & Operations
|
| ·Senior Vice President, GE and President & CEO, GE Renewable Energy
·Former Alstom Renewable Power Executive Vice President
| | | ·7% of segment revenues
·8% of industrial segment revenues
·3% of industrial segment profit
·Headquarters: Paris, France
·Serving customers in 80+ countries
·Employees: approximately 12,000
|
Products & Services
|
| GE Renewable Energy makes renewable power sources affordable, accessible, and reliable for the benefit of people everywhere. With one of the broadest technology portfolios in the industry, Renewable Energy creates value for customers with solutions from onshore and offshore wind, hydro, and emerging low carbon technologies. With operations in 40+ countries around the world, Renewable Energy can deliver solutions to where its customers need them most.
|
· | Onshore Wind – provides technology and services for the onshore wind power industry by providing wind turbine platforms and hardware and software to optimize wind resources. Wind services help customers improve availability and value of their assets over the lifetime of the fleet. Digital Wind Farm is a site level solution, creating a dynamic, connected and adaptable ecosystem that improves our customers' fleet operations.
|
· | Offshore Wind– offers its high-yield offshore wind turbine, Haliade 150-6MW, which is compatible with bottom fixed and floating foundations. It uses the innovative pure torque design and the Advanced High Density direct-drive Permanent Magnet Generator. Wind services support customers over the lifetime of their fleet.
|
· | Hydro – provides a full range of solutions, products and services to serve the hydropower industry from initial design to final commissioning, from Low Head / Medium / High Head hydropower plants to pumped storage hydropower plants, small hydropower plants, concentrated solar power plants, geothermal power plants and biomass power plants.
|
Products & Services. Renewable Energy engineers and manufactures energy is now mainstreamequipment and projects, grid solutions and digital services that create industry-leading value for our customers globally. Combining onshore and offshore wind, blades, hydro and grid solutions, as well as hybrid renewables and digital services offerings, we have installed more than 400 gigawatts of clean renewable energy equipment and more ablethan 90 percent of utilities worldwide with our grid solutions.
Onshore Wind –delivers technology and services for the onshore wind power industry by providing smart turbines that are uniquely situated for a variety of wind environments. Wind services help customers improve availability and value of their assets over the lifetime of the fleet. The Digital Wind Farm is a site level solution, creating a dynamic, connected and adaptable ecosystem that improves our customers’ fleet operations. Our Onshore Wind turbine installed base was approximately 45,000 units as of December 31, 2019.
Offshore Wind–leads the industry in offshore wind power technologies to competebe used in offshore wind farm development with other sourcesthe Haliade X-12MW prototype, the most powerful offshore wind turbine in the world.
Grid Solutions Equipment and Services (Grid) – equips power utilities and industries worldwide to bring power reliably and efficiently from the point of generation to end customers through offering products, such as high voltage equipment, power generation. electronics, automation and protection equipment, and servicing the generation, transmission, distribution, oil and gas, telecommunication, mining and water industries. In the second quarter of 2019, we completed the reorganization of our Grid business into our Renewable Energy segment for all periods presented.
Hydro – represents more than 25 percent of the total installed hydropower capacity worldwide through a portfolio of solutions and services, including the design, management, construction, installation, maintenance and operation of both large hydropower plants and small hydropower solutions, as well as offering a comprehensive asset management program to hydro power plant operators.
Competition & Regulation. While many factors, including government incentives and specific market rules, affect how renewable energy can deliver outcomes for customers in a given region, the point is the same: renewable energy is increasingly able to compete with fossil fuels. That isfuels in large part due to technology. New innovationsterms of levelized cost of electricity. However, continued competitive pressure from other wind and hydro turbine manufacturers as well as from other energy sources, such as solar photovoltaic, reinforced by a general move to electricity auction mechanisms, have increased price pressure and the digitization of renewable energyneed for innovation.
We continue to drive down costs. We are also helping to make renewable energy more competitive throughinvest in exploring new ways of further improving the efficiency and flexibility of our hydropower technology with digital solutions and in generating wind turbine product improvements, including larger rotors, taller towers and higher nameplate ratings that continue to drive down the cost of wind energy. As industry models continue to evolve, our digital strategy and investments in technical innovation will position us to add value for customers looking for clean, renewable energy.
GE 2016 FORM 10-K 40Significant Trends & Developments. Renewable energy is in a rapid transition period and now competing in the marketplace against existing and new conventional energy sources. Wind energy is currently the second-largest contributor to renewable capacity growth with hydropower projected to remain the largest renewable electricity source through 2023.
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 9.0 BILLION | | ORDERS |
| | | | Equipment
Services
|
| (a) Includes $0.5 billion related to Alstom
(b) Includes $1.8 billion related to Alstom
|
| 2016 SUB-SEGMENT REVENUES
| | |
| | | | Equipment
Services
|
| (a) Includes $5.3 billion related to Alstom
(b) Includes $5.5 billion related to Alstom
|
| EQUIPMENT/SERVICES REVENUES
| | |
| | | |
| Services Equipment |
SIGNIFICANT TRENDS & DEVELOPMENTS
| |
· | Renewable energy has experienced a surge of development in the last decade. Renewable energy capacity additions account for approximately half of all power plant additions worldwide. |
· | The market to "repower" existing wind turbines – i.e., upgrade units that have been in service for a number of years to increase their efficiency and performance – is growing as the existing Onshore Wind turbine fleet is aging. Repowering allows customers to increase the annual energy output of their installed base, provide more competitively priced energy, and extend the life of their assets. |
· | New Product Introductions continue to be a key lever as our customers show a willingness to invest in new technology that decreases the levelized cost of energy. |
· | The $1.7 billion planned acquisition of LM Wind Power will bolster the ability of the GE Onshore and Offshore wind businesses to add value for customers while in-sourcing production and also better serve the customers of LM Wind Power. |
· | In 2016, we introduced new software applications suite for the Digital Wind Farm. The new apps, which streamline wind farm operations, are compatible with the company's latest 2 and 3 MW wind turbine platforms and GE's broader Predix software and diagnostics platform. The new applications can reduce maintenance costs by up to 10 percent and deliver one-to-three percent of additional revenue per site. |
· | The Offshore Wind business supported its customer, Deepwater Wind, in bringing the first ever offshore wind farm – the 30MW Block Island Wind Farm near Rhode Island – into commercial operation in the U.S. |
· | Continued competitive pressure from other wind turbine producers, as well as from other energy sources such as primarily solar photovoltaic, reinforced by a general move to auction mechanisms, increases price pressure and the need for innovation in the wind market. |
FINANCIAL OVERVIEW
(Dollars in billions)
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
(a) $6.2 billion, excluding $0.1 billion related to Alstom*
(b) $7.9 billion, excluding $1.2 billion related to Alstom*
| Equipment
Services
| (a) $0.5 billion, excluding $(0.1) billion related to Alstom*
(b) $0.5 billion, excluding an insignificant amount related to Alstom*
| | (a) 8.1%, excluding (79.3)% related to Alstom*
(b) 6.9%, excluding 2.6% related to Alstom*
|
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues up $2.8 billion (44%); Segment profit up $0.1 billion (34%) as a result of: · The increase in revenues was due to higher volume, mainly driven by higher core equipment sales at Onshore Wind as a result of shipping 420 more onshore wind turbines than in the prior year, as well as higher sales at Hydro, driven by the effects of the Alstom acquisition. The increase was partially offset by lower other income, including negative foreign exchange transactional hedge impacts, and lower prices. · The increase in profit was due to material deflation and higher volume, driven primarily by Onshore Wind, partially offset by lower other income, including negative foreign exchange transactional hedge impacts, lower prices and an unfavorable business mix, driven by low margin projects with higher services margins. |
| Revenues | Profit |
2015 | $ | 6.3 | $ | 0.4 |
Volume | | 2.0 | | 0.1 |
Price | | (0.1) | | (0.1) |
Foreign Exchange | | (0.1) | | - |
(Inflation)/Deflation | | N/A | | 0.2 |
Mix | | N/A | | (0.1) |
Productivity | | N/A | | - |
Other | | (0.1) | | (0.1) |
Alstom | | 1.1 | | 0.1 |
2016 | $ | 9.0 | $ | 0.6 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues down $0.1 billion (2%); Segment profit down $0.3 billion (38%) as a result of: · The decrease in revenues was primarily driven by the effects of a stronger U.S. dollar, partially offset by higher volume, driven by the sale of 2 MW onshore units, higher prices, the effects of the Alstom acquisition and other income. · The decrease in profit was due to lower productivity, primarily driven by a shift to new products and technology, the effects of inflation, the effects of the Alstom acquisition and negative business mix, partially offset by higher prices and other income. |
| Revenues | Profit |
2014 | $ | 6.4 | $ | 0.7 |
Volume | | 0.3 | | - |
Price | | 0.1 | | 0.1 |
Foreign Exchange | | (0.6) | | - |
(Inflation)/Deflation | | N/A | | (0.1) |
Mix | | N/A | | (0.1) |
Productivity | | N/A | | (0.1) |
Other | | 0.1 | | 0.1 |
Alstom | | 0.1 | | (0.1) |
2015 | $ | 6.3 | $ | 0.4 |
| | | | | |
*Non-GAAP Financial Measure
|
| | |
MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
During 2019, the onshore wind market in the U.S. continued to see the 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 stabilized in 2019 due to demand caused by the progressive phase-down of PTCs in the U.S. starting in 2020 and auction stabilization in international markets. The phase-down of PTCs in the U.S. has recently been extended by a year such that certain projects completed through 2024 could qualify for these credits and we expect to continue high levels of production for 2020 deliveries at Onshore Wind. We will continue to closely monitor our execution during this period including risks of delivery delays due to customer site readiness issues and possible project postponements.
We expect additional opportunities to repower existing wind turbines. Repowering allows customers to increase the annual energy output of their installed base, provides more competitively priced energy and extends the life of their assets. The repower market remains robust, and we expect continued strong demand in 2020 and beyond.
The grid market continues to be challenging as we have experienced current year order declines in the High Voltage Direct Current (HVDC) and High Voltage (HV) product lines. Given price pressure, the need for grid flexibility to accommodate more renewable energy, and the diversification of energy players, the hydropower industry continues to maximize value with new small-scale and pumped storage projects to support both wind and solar expansion. The Grid and Hydro businesses are executing their turnaround plans and we are expecting improvements in contribution margin in 2020.
New product introductions continue to be 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 continue 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 2019, we signed our largest Cypress order to date, and were selected as the preferred supplier for two Offshore wind projects in the U.S. and United Kingdom (U.K.), an important commercial milestone for the Haliade-X. In October 2019, the prototype for the Haliade-X was successfully installed with final certification expected by the middle of 2020.
|
| | | | | | | | | |
| Orders | | Sales |
(In units) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Wind Turbines | 4,325 |
| 3,198 |
| | 3,424 |
| 2,491 |
|
Wind Turbine Megawatts | 12,758 |
| 8,591 |
| | 9,525 |
| 6,823 |
|
Repower | 1,269 |
| 1,621 |
| | 1,057 |
| 1,160 |
|
|
| | | | | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 16.3 |
| $ | 14.4 |
| $ | 15.0 |
|
Services | 11.2 |
| 9.3 |
| 7.4 |
|
Total backlog | $ | 27.5 |
| $ | 23.7 |
| $ | 22.5 |
|
| | | |
Equipment | $ | 14.0 |
| $ | 11.8 |
| $ | 12.8 |
|
Services | 2.9 |
| 3.5 |
| 2.6 |
|
Total orders | $ | 16.9 |
| $ | 15.3 |
| $ | 15.4 |
|
|
| | | | | | | | | |
Onshore Wind | $ | 10.4 |
| $ | 8.2 |
| $ | 8.1 |
|
Grid Solutions equipment and services | 4.1 |
| 4.8 |
| 5.1 |
|
Other | 0.9 |
| 1.3 |
| 1.1 |
|
Total segment revenues | $ | 15.3 |
| $ | 14.3 |
| $ | 14.3 |
|
|
| | | | | | | | | |
U.S. | $ | 7.4 |
| $ | 4.9 |
| $ | 5.6 |
|
Non-U.S. | | | |
Europe | 2.9 |
| 3.2 |
| 3.0 |
|
Asia | 2.7 |
| 2.9 |
| 2.1 |
|
Americas | 1.1 |
| 2.2 |
| 2.4 |
|
Middle East and Africa | 1.2 |
| 1.1 |
| 1.2 |
|
Total Non-U.S. | $ | 7.9 |
| $ | 9.4 |
| $ | 8.7 |
|
Total segment revenues | $ | 15.3 |
| $ | 14.3 |
| $ | 14.3 |
|
| | | |
Non-U.S. revenues as a % of segment revenues | 52 | % | 66 | % | 61 | % |
GE 20162019 FORM 10-K 42 12
|
| | |
MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
OIL & GAS
BUSINESS OVERVIEW
|
| | | | | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 12.3 |
| $ | 11.4 |
| $ | 14.0 |
|
Services | 3.1 |
| 2.9 |
| 0.4 |
|
Total segment revenues(a) | $ | 15.3 |
| $ | 14.3 |
| $ | 14.3 |
|
Segment profit(b) | $ | (0.7 | ) | $ | 0.3 |
| $ | 0.7 |
|
Segment profit margin | (4.3 | )% | 2.0 | % | 5.1 | % |
| Leader: Lorenzo Simonelli
| | Headquarters & Operations
|
(a) | | ·Senior Vice President, GE and President & CEO, GE Oil & Gas
·Over 20 years of service with General Electric
| | | ·10% ofRenewable Energy segment revenues
·11% represent 18% and 16% of total industrial segment revenues
·8% and total segment revenues, respectively, for the year ended December 31, 2019.
|
| |
(b) | Renewable Energy segment profit represents (6)% of total industrial segment profit ·Headquarters: London, UK
·Serving customers in 140+ countries
·Employees: approximately 34,000
|
Products & Services
|
| | Oil & Gas serves all segments of for the oil and gas industry, from drilling, completion, production and oil field operations, to transportation via liquefied natural gas (LNG) and pipelines. In addition, Oil & Gas provides industrial power generation and compression solutions to the refining and petrochemicals segments. Oil & Gas also delivers pipeline integrity solutions and a wide range of sensing, inspection and monitoring technologies. Oil & Gas exploits technological innovation from other GE segments, such as Aviation and Healthcare, to continuously improve oil and gas industry performance, output and productivity.year ended December 31, 2019. |
· | Turbomachinery Solutions (TMS)– provides equipment and related services for mechanical-drive, compression and power-generation applications across the oil and gas industry. Our designs deliver high capacities and efficiencies, increase product flow and decrease both operational and environmental risks in the most extreme conditions, pressures and temperatures. Our portfolio includes drivers (aero-derivative gas turbines, heavy-duty gas turbines and synchronous and induction electric motors), compressors (centrifugal and axial, direct drive high speed, integrated, subsea compressors and turbo expanders), and turn-key solutions (industrial modules and waste heat recovery).
|
For the year ended December 31, 2019, segment orders were up $1.6 billion (10%), segment revenues were up $1.0 billion (7%) and segment profit was down $1.0 billion.· | Subsea Systems & Drilling (SS&D)– provides a broad portfolio of subsea products and services required to facilitate the safe and reliable flow of hydrocarbons from the subsea wellhead to the surface. In addition, the sub-segment designs and manufactures onshore and offshore drilling and productionBacklog as of December 31, 2019 increased $3.9 billion (16%) primarily driven by increases at Onshore Wind of $3.0 billion due to increased demand in anticipation of the U.S. PTC phase-down, increased services backlog due to the larger installed equipment base and a large scale 6MW turbine order in Offshore Wind.
Orders increased $1.9 billion (12%) organically due to increased demand in domestic and international Onshore Wind markets, partially offset by lower repower unit orders and lower orders at Grid and Hydro. Revenues increased $1.6 billion (11%) organically*. Equipment revenues increased due to 933 more wind turbine units shipped, or 40% more megawatts, than in the prior year, partially offset by decreases in Offshore Wind due to the nonrecurrence of a project completed in the prior year and due to lower HVDC and Automated Control Systems (ACS) project revenues and HV product shipments at Grid. Services revenues increased primarily due to an increase in repower units pricing and volume at Onshore Wind. Profit decreased $1.0 billion organically* due to $0.3 billion higher losses in Grid, Hydro and Offshore Wind resulting from no longer allocating losses to noncontrolling interest holders following the buy-out of those joint venture interests from Alstom in the fourth quarter of 2018. The lower profit was also due to $0.2 billion related to project execution challenges, primarily on legacy contracts as well as price pressure and execution challenges at Grid, increased research and development spend, depreciation on capitalized expenditures for Haliade-X and Cypress and the impact of U.S.-China tariffs.
For the year ended December 31, 2018, segment orders were down $0.1 billion (1%), segment revenues were flat and segment profit was down $0.4 billion (60%). Backlog increased $1.2 billion (5%) primarily driven by Onshore Wind due to increased demand associated with U.S. PTCs, partially offset by a decrease in Grid ACS and HVDC and non-repeat of a 6MW turbine order in Offshore Wind. Orders decreased $0.2 billion (1%) organically due to lower ACS and HVDC orders at Grid, partially offset by an increase in Onshore Wind due to the U.S. PTC cycle compared to the prior year. Revenues were flat organically*. Services volume increased due to a larger installed base and more repower units than in the prior year. Equipment volume decreased driven by lower Grid ACS and HVDC activity. Profit decreased $0.4 billion (60%) organically* due to pricing pressure, unfavorable business mix as well as liquidated damages related to partner execution and project delays, and higher losses in Hydro and Offshore as we began fully consolidating these entities in the fourth quarter, partially offset by materials deflation and positive base cost productivity.
AVIATION Products & Services. Aviation designs and produces commercial and military aircraft engines, integrated digital components, electric power and mechanical aircraft systems. We also provide aftermarket services to support our products.
Commercial – manufactures jet engines for commercial airframes. Our commercial engines power aircraft in all categories; regional, narrowbody and widebody. We also produce and market engines through joint ventures with Safran Group of France and United Technologies Corporation. Commercial provides maintenance, component repair and overhaul services (MRO), including sales of replacement parts. Our commercial engine installed base was approximately 37,800 units as of December 31, 2019. Military – manufactures jet engines for military airframes. Our military engines power a wide variety of military aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft, as well as marine applications. We provide maintenance, component repair and overhaul services, including sales of replacement parts. Our military engine installed base was approximately 26,600 units as of December 31, 2019. Systems& Other – provides engines components, systems and equipment for floating production platforms and provides a full range of services related to onshore and offshore drilling activities. |
· | Digital Solutions (DS)– provides equipment and services for a wide range of industries, including oil & gas, power generation, aerospace, metals, and transportation. The offerings include sensor-based measurement; non-destructive testing and inspection; turbine, generator and plant controls and condition monitoring, as well as pipeline integrity solutions.
|
· | Surface – provides products and services for onshore oil & gas wells and manufactures artificial lift equipment for extracting crude oil and other fluids from wells. Specific products include downhole tools for well integrity, dry trees and surface wellheads, electric submersible pumps, surface wellheads, wireline logging, artificial lift technologies, drilling pressure control equipment.
|
· | Downstream Technology Solutions (DTS) – provides products and services to serve the downstream segments of the industry including refining, petrochemical, distributed gas, flow and process control and other industrial applications. Products include steam turbines, reciprocating and centrifugal compressors, pumps, valves, and compressed natural gas (CNG) and small-scale LNG solutions used primarily for shale oil and gas field development.
|
Demand for oil and gas equipment and services is globalfor commercial and asmilitary segments. This includes engines and components for business and general aviation segments, along with avionics systems, aviation electric power systems, flight efficiency and intelligent operation services, aircraft structures and Avio Aero. Additionally, we provide a result, is sensitive to the economicwide variety of products and political environment of each country in which we do business. We are subject to the regulatory bodies of the countries in which we operate. Our products are subject to regulation by U.S.services including additive machines from Concept Laser and non-U.S. energy policies.Arcam EBM, additive materials (including metal powders from AP&C), and additive engineering services through our consultancy brand AddWorksTM.
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 12.9 BILLION | | ORDERS |
| | | | Equipment
Services
|
| (a) Includes $0.1 billion related to Alstom |
| 2016 SUB-SEGMENT REVENUES | | BACKLOG |
| | | | Equipment
Services
|
| (a) Previously referred to as Measurement & Controls (M&C)
| (a) Includes $0.1 billion related to Alstom |
| EQUIPMENT/SERVICES REVENUES
| | | | |
| | | | | |
| ServicesEquipment
| | | |
SIGNIFICANT TRENDS & DEVELOPMENTS | |
· | In October 2016, we announced that our Oil & Gas business would combine with Baker Hughes to create a world-leading oilfield technology provider with mix of service and equipment. The combined businesses will be a leading equipment, technology and services provider in the oil and gas industry. The transaction is subject to the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions. |
· | Lower oil prices leading to reductions in customers' forecasted capital expenditures create industry challenges, the effects of which are uncertain. |
· | We are impacted by volatility in foreign currency exchange rates mainly due to a high concentration of non-U.S. dollar denominated business as well as long-term contracts denominated in multiple currencies. |
· | In 2015, a portion of the Distributed Power business that provides turbines for oil and gas applications was realigned from the Power segment to the Oil & Gas segment.
|
· | We continue to take significant cost reduction actions in response to the weakening oil & gas market. |
FINANCIAL OVERVIEW
(Dollars in billions)
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
(a) $12.8 billion, excluding $0.1 billion related to Alstom*
| Equipment
Services
| (a) $1.4 billion, excluding an insignificant amount related to Alstom*
| | (a) 10.8%, excluding 6.5% related to Alstom*
|
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues down $3.6 billion (22%); Segment profit down $1.0 billion (43%) as a result of: · The decrease in revenues was mainly due to lower core volume across all sub-segments, primarily Surface and SS&D, due to lower oil prices, as well as the effects of a stronger U.S. dollar, and lower other income, including negative foreign exchange transactional hedge impacts, partially offset by the effects of the Alstom acquisition. · The decrease in profit was primarily market driven, mainly due to lower core volume across all sub-segments due to lower oil prices, which, despite the effects of restructuring actions, drove lower cost productivity. Profit was also adversely impacted by unfavorable foreign exchange transactional hedge impacts in the year. These decreases were partially offset by material deflation. Operating profit excluding the effects of foreign exchange of $0.1 billion was $1.5 billion (down 37% compared with prior year).* |
| Revenues | Profit |
2015 | $ | 16.5 | $ | 2.4 |
Volume | | (3.0) | | (0.4) |
Price | | (0.3) | | (0.3) |
Foreign Exchange | | (0.3) | | - |
(Inflation)/Deflation | | N/A | | 0.2 |
Mix | | N/A | | - |
Productivity | | N/A | | (0.5) |
Other | | (0.1) | | - |
Alstom | | 0.1 | | - |
2016 | $ | 12.9 | $ | 1.4 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues down $2.6 billion (14%); Segment profit down $0.3 billion (12%) as a result of: · The decrease in revenues was primarily due to the impact of a stronger U.S. dollar and lower volume at Surface and SS&D, driven by lower oil prices. Organic revenues* were down 5% compared with prior year. · The decrease in profit was primarily due to the impact of a stronger U.S. dollar and lower volume at Surface and SS&D, driven by lower oil prices, partially offset by the effects of deflation and cost productivity. Organic profit* increased 1% compared with prior year. |
| Revenues | Profit |
2014 | $ | 19.1 | $ | 2.8 |
Volume | | (1.0) | | (0.1) |
Price | | - | | - |
Foreign Exchange | | (1.6) | | (0.3) |
(Inflation)/Deflation | | N/A | | 0.1 |
Mix | | N/A | | - |
Productivity | | N/A | | 0.1 |
Other | | - | | - |
Alstom | | - | | - |
2015 | $ | 16.5 | $ | 2.4 |
| | | | | |
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 45 13
AVIATION
BUSINESS OVERVIEW
| Leader: David Joyce
| | Headquarters & Operations
|
| | ·Vice Chairman, GE and President & CEO, GE Aviation
·Over 30 years of service with General Electric
| | | ·21% of segment revenues
·23% of industrial segment revenues
·35% of industrial segment profit
·Headquarters: Cincinnati, OH
·Serving customers in 120+ countries
·Employees: approximately 45,000
|
MD&A | SEGMENT OPERATIONS | |
| | Aviation designs and produces commercial and military aircraft engines, integrated digital components, electric power and mechanical aircraft systems. We also provide aftermarket services to support our products.
|
· | Commercial Engines – manufactures jet engines and turboprops for commercial airframes. Our commercial engines power aircraft in all categories; regional, narrowbody and widebody. We also manufacture engines and components for business and general aviation segments.
|
· | Commercial Services – provides maintenance, component repair and overhaul services (MRO), including sales of replacement parts.
|
· | Military – manufactures jet engines for military airframes. Our military engines power a wide variety of military aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft, as well as marine applications. We provide maintenance, component repair and overhaul services, including sales of replacement parts.
|
· | Systems – provides components, systems and services for commercial and military segments. This includes avionics systems, aviation electric power systems, flight efficiency and intelligent operation services, aircraft structures and Avio Aero.
|
· | Additive– provides machines for metal additive manufacturing for industry and comprises our existing technologies as well as two new acquisitions, enabling the design and manufacture of complex parts and leverage of technology for improved cost and performance.
|
· | We also produce and market engines through CFM International, a company jointly owned by GE and Snecma, a subsidiary of SAFRAN of France, and Engine Alliance, LLC, a company jointly owned by GE and the Pratt & Whitney division of United Technologies Corporation. New engines are also being designed and marketed in a joint venture with Honda Aero, Inc., a division of Honda Motor Co., Ltd. |
Competition & Regulation. The global businesses for aircraft jet engines, maintenance component repair and overhaul services (including parts sales) are highly competitive. Both U.S. and non-U.S. markets are important to the growth and success of the business. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures are important in this business, as are focused intellectual property strategies and protection of key aircraft engine design, manufacture, repair and product upgrade technologies. Aircraft engine orders and systems tend to follow civil air travel and demand and military procurement cycles.
Our product, services and activities are subject to a number of regulators such as by the U.S. Federal Aviation Administration (FAA), European Aviation Safety Agency (EASA) and other regulatory bodies.
Significant Trends & Developments. Global passenger air travel continued to grow (measured in revenue passenger kilometers (RPK)) at 4.2%* 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 the installed base of commercial engines 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 and slowing global trade.
As it relates to the military environment, the U.S. Department of Defense has increased its budget and foreign governments have increased spending to upgrade and modernize their existing fleets, creating future opportunities. Military shipments grew to 717 engines in 2019 from 674 engines in 2018. In 2019, the United States Army awarded Aviation a contract for its T901 engine as the replacement engine for the Army's Apache and Black Hawk helicopters, and in 2018 the United States Air Force selected Boeing as the contractor to produce 351 new advanced T-7A Red Hawk trainer aircraft powered by Aviation's F404 engine.
The installed base continues to grow with new product launches. We announced record commercial wins at the Paris Air Show in June 2019, some of which contributed to backlog growth of 22% from December 31, 2018. We continue to expect future orders as a result of these wins. In 2018, we shipped the first Passport engines, powering the Bombardier Global 7000 business jet. We are also continuing development on the Advanced Turbo Prop program and the GE9X engine, incorporating the latest technologies for application in the widebody aircraft space.
Total engineering, comprised of both company and customer funded spending, remained consistent with 2018. 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. Our digital initiatives, including analytics on flight operations, technical operations, and advanced manufacturing, are enabling our customers, internal operations and suppliers to reduce costs, cycle time and improve quality.
LEAP continues to be a strong engine program for us, and we delivered 1,736 LEAP engines for Boeing and Airbus platforms in the year.
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.
|
| | | | | | | | | | | |
| Orders | | Sales |
(In units, except where noted) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Commercial Engines | 2,390 |
| 4,772 |
| | 2,863 |
| 2,825 |
|
GEnx Engines(a) | 164 |
| 407 |
| | 296 |
| 251 |
|
LEAP Engines(a) | 1,568 |
| 3,637 |
| | 1,736 |
| 1,118 |
|
Military Engines | 801 |
| 751 |
| | 717 |
| 674 |
|
Spares Rate(b) | | | | $ | 31.0 |
| $ | 27.5 |
|
(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) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 39.1 |
| $ | 37.8 |
| $ | 34.1 |
|
Services | 234.1 |
| 185.7 |
| 166.1 |
|
Total backlog | $ | 273.2 |
| $ | 223.5 |
| $ | 200.2 |
|
| | | |
Equipment | $ | 14.5 |
| $ | 15.3 |
| $ | 10.6 |
|
Services | 22.3 |
| 20.2 |
| 18.5 |
|
Total orders | $ | 36.7 |
| $ | 35.5 |
| $ | 29.1 |
|
|
| | | | | | | | | |
Commercial | $ | 24.2 |
| $ | 22.7 |
| $ | 19.7 |
|
Military | 4.4 |
| 4.1 |
| 4.0 |
|
Systems & Other | 4.3 |
| 3.7 |
| 3.3 |
|
Total segment revenues | $ | 32.9 |
| $ | 30.6 |
| $ | 27.0 |
|
* Based on the latest available information from the International Air Transport Association
GE 20162019 FORM 10-K 46 14
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 26.3 BILLION | | ORDERS |
| | | | Equipment
Services
|
MD&A | 2016 SUB-SEGMENT REVENUES | | BACKLOG |
| | | | Equipment
Services
|
| EQUIPMENT/SERVICES REVENUES | | UNIT SALES |
| | | (a)GEnx and LEAP engines are a subset of commercial engines
(b)Commercial spares shipment rate in millions of dollars per day
|
| Services Equipment |
SIGNIFICANT TRENDS & DEVELOPMENTS SEGMENT OPERATIONS | |
· | The installed base continues to grow with new product launches. In 2016, through our CFM joint venture, we successfully launched the LEAP engine for application on the Airbus A320 NEO. Another variant of the engine, applied to the Boeing 737 MAX aircraft, is expected to enter in service in 2017. We are also continuing development on the Advanced Turbo Prop program, and the GE9X engine incorporating the latest technologies for application in the widebody aircraft space. |
· | During the fourth quarter of 2016, Aviation completed its acquisition of a 75% stake in Concept Laser GmbH, a German company specializing in powder bed based laser metal printing, and a 76.2% stake in Arcam AB, a Swedish company specializing in electron beam melting systems. We expect both of these investments in the additive manufacturing space to open a new market segment and also realize manufacturing efficiencies for GE. |
· | Our digital industrial business is providing insights and operational value for our customers, unlocking opportunities to deliver more productivity beyond our traditional services and becoming a better partner as we work on solving our customers' toughest operational problems. Our digital factory initiatives, including digital design tools, advanced and automated inspection, and advanced manufacturing analytics are enabling our operations, partners and suppliers to dramatically reduce cycle time while improving quality. |
· | We expect an uptick in military shipments and continue to advance our next generation science and technology programs, two of which were awarded contracts in 2016. |
GE 2016 FORM 10-K 47
|
| | | | | | | | | |
(Dollars in billions) | 2019 | 2018 | 2017 |
| | | |
U.S. | $ | 13.4 |
| $ | 12.5 |
| $ | 10.8 |
|
Non-U.S. | | | |
Europe | 7.5 |
| 7.0 |
| 6.3 |
|
Asia | 6.6 |
| 5.8 |
| 5.2 |
|
Americas | 1.6 |
| 1.5 |
| 1.1 |
|
Middle East and Africa | 3.8 |
| 3.8 |
| 3.6 |
|
Total Non-U.S. | $ | 19.5 |
| $ | 18.0 |
| $ | 16.3 |
|
Total segment revenues | $ | 32.9 |
| $ | 30.6 |
| $ | 27.0 |
|
| | | |
Non-U.S. revenues as a % of segment revenues | 59 | % | 59 | % | 60 | % |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | | | | | | |
Equipment | $ | 12.8 |
| $ | 11.5 |
| $ | 10.2 |
|
Services | 20.1 |
| 19.1 |
| 16.8 |
|
Total segment revenues(a) | $ | 32.9 |
| $ | 30.6 |
| $ | 27.0 |
|
Segment profit(b) | $ | 6.8 |
| $ | 6.5 |
| $ | 5.4 |
|
Segment profit margin | 20.7 | % | 21.2 | % | 19.9 | % |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
(a) | Equipment
Services
| | | |
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues up $1.6 billion (6%); Segment profit up $0.6 billion (11%) as a result of: · The increase in revenues was primarily due to higher services volume and LEAP engine shipments, partially offset by lower equipment volume driven by lower Military shipments. Revenues also increased as a result of higher engines and services pricing. Prices increased in response to higher material and conversion costs. · The increase in profit was mainly due to higher cost productivity, driven by higher services volume and prices. These increases were partially offset by the effects of inflation, an unfavorable business mix driven by LEAP shipments, and lower other income. |
| Revenues | Profit |
2015 | $ | 24.7 | $ | 5.5 |
Volume | | 1.5 | | 0.3 |
Price | | 0.2 | | 0.2 |
Foreign Exchange | | - | | - |
(Inflation)/Deflation | | N/A | | (0.2) |
Mix | | N/A | | (0.1) |
Productivity | | N/A | | 0.5 |
Other | | - | | (0.1) |
2016 | $ | 26.3 | $ | 6.1 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues up $0.7 billion (3%); Segment profit up $0.5 billion (11%) as a result of: · The increase in revenues was due to higher prices in Commercial Engines and higher services volume, partially offset by decreased equipment sales. · The increase in profit was mainly due to higher prices, favorable business mix and higher cost productivity, partially offset by the effects of inflation and lower other income. |
| Revenues | Profit |
2014 | $ | 24.0 | $ | 5.0 |
Volume | | 0.1 | | - |
Price | | 0.5 | | 0.5 |
Foreign Exchange | | - | | - |
(Inflation)/Deflation | | N/A | | (0.2) |
Mix | | N/A | | 0.2 |
Productivity | | N/A | | 0.1 |
Other | | - | | (0.1) |
2015 | $ | 24.7 | $ | 5.5 |
| | | | | |
HEALTHCARE
BUSINESS OVERVIEW
| Leader: John L. Flannery
| | Headquarters & Operations
|
| | ·Senior Vice President, GE and President & CEO, GE Healthcare
·Over 25 years of service with General Electric
| | | ·15% ofAviation segment revenues
·16% represent 38% and 34% of total industrial segment revenues
·18% and total segment revenues, respectively, for the year ended December 31, 2019.
|
| |
(b) | Aviation segment profit represents 65% of total industrial segment profit for the year ended December 31, 2019. |
For the year ended December 31, 2019, segment orders were up $1.2 billion (3%), segment revenues were up $2.3 billion (8%) and segment profit was up $0.4 billion (5%).
Backlog as of December 31, 2019 increased $49.7 billion (22%) primarily due to an increase in long-term service agreements.
Orders increased $1.4 billion (4%) organically primarily driven by $1.9 billion of orders in the fourth quarter of 2019 for our newly formed Aeroderivatives joint venture between GE Power and Baker Hughes. Excluding the Aeroderivatives orders, total orders decreased $0.9 billion mainly due to a decline in LEAP engine orders as a result of the 737 MAX grounding, partially offset by services orders with continued strength in materials.
Revenues increased $2.6 billion (9%) organically*. Equipment revenues increased primarily due to 43 more military engine shipments and 38 more commercial units, including 618 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 revenues on long-term service agreements.
Profit increased $0.4 billion (6%) organically* mainly due to services increased volume and increased price on commercial spare parts, and increased profitability on long-term service agreements. Profit also increased due to higher volume of commercial spares engines, including LEAP 1-B spare 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 commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments. Additionally, we recorded a charge during the year related to the uncertainty of collection for an airline customer in a challenging financial position.
For the year ended December 31, 2018, segment orders were up $6.4 billion (22%), segment revenues were up $3.6 billion (13%) and segment profit was up $1.1 billion (20%).
Backlog as of December 31, 2018 increased $23.4 billion (12%) primarily due to an increase in services backlog of $19.6 billion.
Orders increased $6.4 billion (22%) organically mainly due to an increase in commercial and military equipment orders of $4.7 billion.
Revenues increased $3.5 billion (13%) organically*. Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price. Equipment revenues increased primarily due to 57 more military engine shipments and 195 more commercial units, including 659 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM and GE90 product lines.
Profit increased $1.1 billion (21%) organically* mainly due to increased price, increased volume, higher spare engine shipments and product and base cost productivity. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin as well as higher overhaul shop costs due to increased volume and mix.
*Non-GAAP Financial Measure
·Headquarters: Chicago, IL
·Serving customers in 140+ countries
·Employees: approximately 54,000
|
Products & Services | | |
MD&A | | Healthcare provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging, digital solutions, patient monitoring and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions. Products and services are sold worldwide primarily to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market. SEGMENT OPERATIONS | |
· | Healthcare Systems – provides a wide range of technologies and services that include diagnostic imaging and clinical systems. Diagnostic imaging systems such as X-ray, digital mammography, computed tomography (CT), magnetic resonance (MR), surgical and interventional imaging and molecular imaging technologies allow clinicians to see inside the human body more clearly. Clinical systems such as ultrasound, electrocardiography (ECG), bone densitometry, patient monitoring, incubators and infant warmers, respiratory care, and anesthesia management that enable clinicians to provide better care for patients every day – from wellness screening to advanced diagnostics to life-saving treatment. Healthcare systems also offers product services that include remote diagnostic and repair services for medical equipment manufactured by GE and by others.
|
· | Life Sciences – delivers products, services and manufacturing solutions for drug discovery, the biopharmaceutical industry and cellular technologies, so scientists and specialists discover new ways to predict, diagnose and treat disease. It also researches, manufactures and markets innovative imaging agents used during medical scanning procedures to highlight organs, tissue and functions inside the human body, to aid physicians in the early detection, diagnosis and management of disease through advanced in-vivo diagnostics.
|
· | Healthcare Digital – provides medical technologies, software, analytics, cloud solutions, implementation and services to drive increased access, enhanced quality and more affordable healthcare around the world. By combining digital and industrial, software and hardware, Healthcare Digital delivers integrated digital solutions that improve outcomes.
|
HEALTHCARE
Products & Services. Healthcare provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging, digital solutions, patient monitoring and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions that are the building blocks of precision health. Products and services are sold worldwide primarily to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market.
Healthcare Systems – develops, manufactures, markets and services a broad suite of products and solutions used in the diagnosis, treatment and monitoring of patients that is encompassed in imaging, ultrasound, life care solutions and enterprise software and solutions. Imaging includes magnetic resonance, computed tomography, molecular imaging, x-ray systems and complementary software and services, for use in general diagnostics, Women’s Health and image-guided therapies. Ultrasound includes high-frequency soundwave systems, and complementary software and services, for use in diagnostics tailored to a wide range of clinical settings. Life Care Solutions (LCS) includes clinical monitoring and acute care systems, and complementary software and services, for use in intensive care, anesthesia delivery, diagnostic cardiology and perinatal care. Enterprise Software & Solutions (ESS) includes enterprise digital, consulting and healthcare technology management offerings designed to improve efficiency in healthcare delivery and expand global access to advanced health care.
Life Sciences – delivers products, services and manufacturing solutions for drug discovery, the biopharmaceutical industry, and cellular and gene therapy technologies, so that scientists and specialists can discover new ways to predict, diagnose and treat disease. It also researches, manufactures and markets innovative imaging agents used during medical scanning procedures to highlight organs, tissue and functions inside the human body, to aid physicians in the early detection, diagnosis and management of disease through advanced in-vivo diagnostics.
Competition & Regulation. Healthcare competes with a variety of U.S. and non-U.S. manufacturers and services providers. Customers require products and services that allow them to provide better access to healthcare, improve the affordability of care and improve the quality of patient outcomes. Technology and solution innovation to provide products that meet these customer requirements and competitive pricing are among the key factors affecting competition for these products and services. New technologies and solutions could make our products and services obsolete unless we continue to develop new and improved products and services.offerings.
Our products are subject to regulation by numerous government agencies, including the U.S. Food and Drug Administration (U.S. FDA), as well as various laws and regulations that apply to claims submitted under Medicare, Medicaidvarious reimbursement schemes or other government funded healthcare programs.
Significant Trends & Developments. In February 2019, we announced an agreement to sell our BioPharma business 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 flexibility and optionality with respect to our remaining Healthcare businesses.
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.
The global healthcare market has continued to expand, driven by macro trends relating to growing and aging populations, increasing chronic and lifestyle-related disease, accelerating demand for healthcare in emerging markets, increasing demand for biologic drugs and insulin, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in a more cost-effective manner has also driven growth across each of our global markets.
The China market was a source of growth in 2018 in both the public market and private markets. Dynamics related to tariffs tempered this 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. In the U.S., the underlying market remains stable, with a trend toward customers looking for more complete solutions that offer greater capacity and productivity. However, the market continues to face uncertainties driven by the increasing cost of providing healthcare that has led to a trend of increasing hospital and provider consolidation.
The Healthcare Systems equipment market 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 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.
The Life Sciences market, which encompasses Bioprocess and Pharmaceutical diagnostics, continues to be strong. The Bioprocess market is growing at a high single-digit rate, driven by growth in biologic drugs. The Pharmaceutical diagnostics business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhancement of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians.
GE 20162019 FORM 10-K 49 16
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 18.3 BILLION | | ORDERS |
| | | | Equipment
Services
|
MD&A | 2016 SUB-SEGMENT REVENUES | | BACKLOG |
| | | | Equipment
Services
|
| EQUIPMENT/SERVICES REVENUES | | |
| | | |
| Services Equipment
|
SIGNIFICANT TRENDS & DEVELOPMENTSSEGMENT OPERATIONS | |
· | We continue to lead in technology innovation with greater focus on productivity based technology, services, and IT/cloud-based solutions as healthcare providers seek greater productivity and efficiency. |
· | The U.S. market is facing uncertainty regarding the future of the Affordable Care Act. Emerging markets are expected to grow long-term with short-term volatility. The China market was more robust in 2016 and is expected to be a source of growth. |
· | Life Sciences is expanding its business through bioprocess market growth and enterprise solutions. |
We continue focusing on creating new products and solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. We strive to introduce technology innovation that enables our customers to improve their patient and operational outcomes as they diagnose, treat and monitor an increasing number of medical conditions and patients. GE Senographe Pristina with Dueta was named to TIME magazine’s list of 2019’s Best Inventions for its patient-assisted mammography exam feature. Additionally, we launched Revolution Maxima CT, the latest addition to the GE Revolution family of intelligent CT scanners during the quarter. Designed to maximize productivity in the CT workflow, Revolution Maxima offers a variety of applications and services to improve efficiency, including its new, AI-based Auto Positioning solution (cleared for sale in all planned major worldwide markets in January 2020).GE 2016 FORM 10-K 50
|
| | | | | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Equipment | $ | 7.0 |
| $ | 6.3 |
| $ | 6.4 |
|
Services | 11.5 |
| 11.2 |
| 11.7 |
|
Total backlog | $ | 18.5 |
| $ | 17.4 |
| $ | 18.1 |
|
| | | |
Equipment | $ | 13.0 |
| $ | 12.6 |
| $ | 12.2 |
|
Services | 8.2 |
| 8.3 |
| 8.2 |
|
Total orders | $ | 21.2 |
| $ | 20.9 |
| $ | 20.4 |
|
FINANCIAL OVERVIEW |
| | | | | | | | | |
Healthcare Systems | $ | 14.6 |
| $ | 14.9 |
| $ | 14.5 |
|
Life Sciences | 5.3 |
| 4.9 |
| 4.6 |
|
Total segment revenues | $ | 19.9 |
| $ | 19.8 |
| $ | 19.0 |
|
|
| | | | | | | | | |
U.S. | $ | 8.5 |
| $ | 8.6 |
| $ | 8.4 |
|
Non-U.S. | | | |
Europe | 4.1 |
| 4.2 |
| 3.9 |
|
Asia | 5.4 |
| 5.2 |
| 4.9 |
|
Americas | 1.1 |
| 1.0 |
| 1.0 |
|
Middle East and Africa | 0.8 |
| 0.8 |
| 0.9 |
|
Total Non-U.S. | $ | 11.4 |
| $ | 11.2 |
| $ | 10.6 |
|
Total segment revenues | $ | 19.9 |
| $ | 19.8 |
| $ | 19.0 |
|
| | | |
Non-U.S. revenues as a % of segment revenues | 57 | % | 57 | % | 56 | % |
|
| | | | | | | | | |
Equipment | $ | 11.6 |
| $ | 11.4 |
| $ | 10.8 |
|
Services | 8.4 |
| 8.4 |
| 8.2 |
|
Total segment revenues(a) | $ | 19.9 |
| $ | 19.8 |
| $ | 19.0 |
|
Segment profit(b) | $ | 3.9 |
| $ | 3.7 |
| $ | 3.5 |
|
Segment profit margin | 19.5 | % | 18.7 | % | 18.3 | % |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
(a) | Equipment
Services
| | | |
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues up $0.7 billion (4%); Segment profit up $0.3 billion (10%) as a result of: · The increase in revenues was primarily due to higher volume in Life Sciences and Healthcare Systems, as well as higher other income, partially offset by lower prices at Healthcare Systems and the effects of a stronger U.S. dollar. · The increase in profit was primarily driven by higher cost productivity, including the effects of previous restructuring actions and strong volume growth, partially offset by lower prices at Healthcare Systems. |
| Revenues | Profit |
2015 | $ | 17.6 | $ | 2.9 |
Volume | | 1.0 | | 0.2 |
Price | | (0.3) | | (0.3) |
Foreign Exchange | | (0.1) | | - |
(Inflation)/Deflation | | N/A | | - |
Mix | | N/A | | - |
Productivity | | N/A | | 0.4 |
Other | | 0.1 | | - |
2016 | $ | 18.3 | $ | 3.2 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues down $0.7 billion (4%); Segment profit down $0.2 billion (5%) as a result of: · The decrease in revenues was primarily due to the effects of a stronger U.S. dollar, as well as lower prices, mainly at Healthcare Systems, partially offset by higher volume in Life Sciences and Healthcare Systems. · The decrease in profit was primarily due to lower prices, mainly in Healthcare Systems, the effects of inflation and the impact of a stronger U.S. dollar, partially offset by higher productivity, as increased R&D and related costs were more than offset by higher cost productivity, and higher volume. |
| Revenues | Profit |
2014 | $ | 18.3 | $ | 3.0 |
Volume | | 0.8 | | 0.1 |
Price | | (0.3) | | (0.3) |
Foreign Exchange | | (1.1) | | (0.1) |
(Inflation)/Deflation | | N/A | | (0.2) |
Mix | | N/A | | - |
Productivity | | N/A | | 0.3 |
Other | | (0.1) | | - |
2015 | $ | 17.6 | $ | 2.9 |
| | | | | |
TRANSPORTATION
BUSINESS OVERVIEW
Leader: Jamie S. Miller
| | Headquarters & Operations
|
| ·Senior Vice President, GE and President & CEO, GE Transportation
·8 years of service with General Electric
| | | ·4% ofHealthcare segment revenues
·4% represent 23% and 21% of total industrial segment revenues
·6% and total segment revenues, respectively, for the year ended December 31, 2019.
|
| |
(b) | Healthcare segment profit represents 37% of total industrial segment profit ·Headquarters: Chicago, IL
·Serving customers in 60+ countries
·Employees: approximately 10,000 for the year ended December 31, 2019. |
Products & Services | |
| | Transportation is a global technology leader and supplier to the railroad, mining, marine, stationary power and drilling industries. Products and services offered by Transportation include: |
· | Locomotives – we provide freight and passenger locomotives as well as rail services to help solve rail challenges. We manufacture high-horsepower, diesel-electric locomotives including the Evolution SeriesTM, which meets or exceeds the U.S. Environmental Protection Agency's (EPA) Tier 4 requirements for freight and passenger applications.
|
For the year ended December 31, 2019, segment orders were up $0.3 billion (1%), segment revenues were up $0.2 billion (1%) and segment profit was up $0.2 billion (5%).· | Services – we develop partnerships that support advisory services, parts, integrated software solutions and data analytics. Our comprehensive offerings include tailored service programs, high-quality parts for GE and other locomotive platforms, overhaul, repair and upgrade services, and wreck repair. Our portfolio provides the people, partnerships and leading software to optimize operations and asset utilization.
|
· | Digital Solutions– we offer a suite of software-enabled solutions to help our customers lower operational costs, increase productivity and improve service quality and reliability.
|
· | Mining – we provide mining equipment and services. The portfolio includes drive systems for off-highway vehicles, mining equipment, mining power and productivity.
|
· | Marine, Stationary & Drilling – we offer marine diesel engines and stationary power diesel engines and motors for land and offshore drilling rigs.
|
The competitive environment for locomotives and mining equipment and services consistsBacklog as of large global competitors. A number of smaller competitors compete in a limited-size product range and geographic regions. North America will remain a focus of the industry,December 31, 2019 increased $1.0 billion (6%) primarily due to an increase in equipment backlog of $0.7 billion primarily driven by Healthcare Systems.
Orders increased $0.9 billion (4%) organically, primarily attributable to continued strength in Life Sciences.
Revenues increased $0.7 billion (3%) 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 (7%) organically* primarily driven by volume growth and cost productivity due to cost reduction actions, including sourcing and logistic initiatives, design engineering and restructuring actions. These increases were partially offset by inflation, the EPA Tier 4 emissions standard that went into effectimpact of U.S.-China tariffs, and investments in 2015.programs including digital product innovations and Healthcare Systems new product introductions.
OPERATIONAL OVERVIEW
(Dollars in billions)
| 2016 GEOGRAPHIC REVENUES: $ 4.7 BILLION | | ORDERS |
| | | | Equipment
Services
|
| 2016 SUB-SEGMENT REVENUES | | BACKLOG |
| (a) Includes Digital Solutions and Marine, Stationary & Drilling
| | | Equipment
Services
|
| EQUIPMENT/SERVICES REVENUES
| | |
| | | |
| Services Equipment
|
SIGNIFICANT TRENDS & DEVELOPMENTS | |
· | Rail carload volumes, especially in North America, continue to decline and the number of parked locomotives remained high throughout 2016. |
· | Demand for natural resources remains low, driving a decline in the overall mining industry. |
· | Global locomotive deliveries were down from 985 units in 2015 to 749 units in 2016, due to a lower need for power across the railroad industry. |
· | The Signaling business was sold to Alstom on November 2, 2015 for approximately $0.8 billion, on which we recognized a pre-tax gain of $0.6 billion, which was reported in Corporate. |
FINANCIAL OVERVIEW
(Dollars in billions)
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
| Equipment
Services
| | | |
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues down $1.2 billion (21%); Segment profit down $0.2 billion (16%) as a result of: · The decrease in revenues was primarily driven by lower equipment volume, driven by 236 fewer locomotive shipments than in the prior year, as well as lower services volume due to higher parked locomotives. The decrease in revenues was also impacted by the Signaling business disposition in November 2015. · The decrease in profit was primarily driven by lower volume, partially offset by material deflation and higher cost productivity, as well as the effects of restructuring actions. |
| Revenues | Profit |
2015 | $ | 5.9 | $ | 1.3 |
Volume | | (1.2) | | (0.2) |
Price | | - | | - |
Foreign Exchange | | - | | - |
(Inflation)/Deflation | | N/A | | 0.1 |
Mix | | N/A | | - |
Productivity | | N/A | | - |
Other | | - | | - |
2016 | $ | 4.7 | $ | 1.1 |
| | | | |
| | |
2015 – 2014 | 2015 – 2014 |
| | | | Segment revenues up $0.3 billion (5%); Segment profit up $0.1 billion (13%) as a result of: · The increase in revenues was primarily due to higher volume driven by Tier 4 locomotive sales, partially offset by the Signaling disposition. · The increase in profit was primarily due to higher productivity, including a reduction in SG&A cost, and higher volume driven by Tier 4 locomotive sales, partially offset by negative business mix. |
| Revenues | Profit |
2014 | $ | 5.7 | $ | 1.1 |
Volume | | 0.3 | | 0.1 |
Price | | - | | - |
Foreign Exchange | | - | | - |
(Inflation)/Deflation | | N/A | | - |
Mix | | N/A | | (0.2) |
Productivity | | N/A | | 0.2 |
Other | | - | | - |
2015 | $ | 5.9 | $ | 1.3 |
| | | | | |
ENERGY CONNECTIONS & LIGHTING
BUSINESS OVERVIEW
Leaders: Russell Stokes, William Lacey & Maryrose Sylvester
| | Headquarters & Operations
|
| ·Senior Vice President, GE and President & CEO, GE Energy Connections
·Over 20 years of service with General Electric
·Vice President, GE and President & CEO, GE Lighting
·25 years of service with General Electric
·Vice President, GE and President & CEO, Current, powered by GE
·Over 25 years of service with General Electric
| | | ·12% of segment revenues
·13% of industrial segment revenues
·2% of industrial segment profit
·Energy Connections HQ: Atlanta, GA
·GE Lighting HQ: East Cleveland, OH
·Current, powered by GE HQ: Boston, MA
·Serving customers in 150+ countries
·Employees: approximately 53,000
|
Products & Services
| |
| GE Energy Connections designs and deploys industry-leading technologies that transport, convert, automate and optimize energy to ensure safe, efficient and reliable electrical power. Combining all the resources and scale of the world's digital industrial company, we connect brilliant machines, grids, and systems to power utility, oil & gas, marine, mining and renewables customers, that keep our world running.
Lighting includes the GE Lighting business, which is primarily focused on consumer lighting applications in the U.S., and Current, powered by GE (Current), which is focused on providing energy efficiency and productivity solutions for commercial and industrial customers.
| |
Energy Connections
· | Industrial Solutions – creates advanced technologies that safely, reliably and efficiently distribute and control electricity to protect people, property and equipment. We provide high performance software and control solutions and offer products such as circuit breakers, relays, arresters, switchgear, panel boards and repair for the commercial, data center, healthcare, mining, renewable energy, oil & gas, water and telecommunication markets.
|
· | Grid Solutions – a GE and Alstom joint venture, equips 90% of power utilities worldwide to bring power from the point of generation to end consumers. With over 200 years combined experience in providing advanced energy solutions, our products and services enable more resilient, efficient and reliable power systems. Our products and services, such as high voltage equipment, power electronics, automation and protection equipment, software solutions, in addition to our robust projects and services capabilities modernize the grid. We serve industries such as generation, transmission, distribution, oil & gas, telecommunication, mining and water and our strategic partnership ventures, primarily in Mexico and China, allow us to support our customers through various product and service offerings.
|
· | Power Conversion – applies the science and systems of power conversion to help drive the electric transformation of the world's energy infrastructure. Our product portfolio includes motors, generators, automation and control equipment and drives for energy intensive industries such as marine, oil & gas, renewable energy, mining, rail, metals, test systems and water.
|
· | Automation & Controls – serves as the Controls Center of Excellence for GE and is leading the next chapter in GE's digital industrial journey and transformation. In partnership with GE Digital, the Global Research Center, and GE businesses around the world, we are focused on the future of control solutions – helping customers become more productive and efficient. Each year $21 billion of GE equipment is sold with controls inside of them. Controls are critical to keeping industry running and connected. They are the brains of industrial equipment, connecting data and machines.
|
Lighting
· | GE Lighting – focused on driving innovation and growth in light emitting diode (LED) and connected home technology. The business offers LEDs in a variety of shapes, sizes, wattages and color temperatures. It's also investing in the growing smart home category, building a suite of connected lighting products with simple connection points that offer new opportunities to do more at home.
|
· | Current – delivers energy efficiency and productivity solutions for commercial and industrial customers. We combine infrastructure technology like LED and solar with new sensor-enabled data networks and Predix-based digital applications to help our customers reduce energy costs, better predict spend and gain business productivity insights. We partner with a wide variety of digital companies to help expand our application catalog, and we offer flexible financing solutions that help our customers achieve faster payback periods and better long-term value.
|
Energy Connections & Lighting faces competition from businesses operating with global presence and with deep energy domain expertise. Our products and services sold to end customers are often subject to a number of regulatory specification and performance standards under different federal, state, foreign and energy industry standards. The potential combination of energy technologies like lighting and solar with sensor-based data networks is unlocking new Internet of Things (IoT) capabilities for the commercial and industrial market in which Current operates and introducing new competitors.
SIGNIFICANT TRENDS & DEVELOPMENTS
|
Energy Connections
· | We are continuing to see growth in renewable energy industries, specifically wind & solar industries, which is driving demand in our Power Conversion business for equipment and services. This growth is offset by the decline in the oil & gas industry. |
· | We see soft demand in the North American and European electrical distribution market, and continued soft demand in other parts of the developed world. There are signs of market improvements in China, but the Asia Pacific region has mixed results. |
· | The U.S. electrical grid capacity is high and load growth is expected to be slow in the near term; spending by utilities in the U.S. continues to be focused more heavily on sustaining operations versus capital investment. |
· | Integrating large shares of renewables will require strengthening of the grid and ensuring the availability of power plants to dispatch at short notice; these system integration tools may present further business opportunities, and will be needed to pave the way for further decarbonization. |
· | In December 2016, we announced our plan to sell our Industrial Solutions business. |
· | The Intelligent Platforms Embedded Systems Products business of Automation & Control was sold in December 2015 for approximately $0.5 billion and the Electricity Meters business of Grid Solutions was sold in December 2015 for approximately $0.2 billion. |
Lighting
· | In the last decade, the lighting industry has seen a major technology pivot away from traditional lighting products, including incandescent, halogen and specialty linear fluorescent lamps to energy-saving LEDs. That shift has been supported by the U.S. government phasing out incandescent bulbs and declining prices overall for LEDs. We estimate half of all residential sockets in the U.S. will convert to LED by 2020. This shift aligns with our LED focus. |
· | In 2016, GE Lighting and Current both made strategic organizational changes to help reduce costs, focus on key markets and simplify the businesses. |
Appliances
· | In June 2016, we completed the sale of our Appliances business to Haier for $5.6 billion (including $0.8 billion from the sale of receivables originated in our Appliances business and sold from GE Capital to Haier), on which we recognized an after-tax gain of $1.8 billion, which is reported in Corporate.
|
OPERATIONAL OVERVIEW
(Dollars in billions)
2016 GEOGRAPHIC REVENUES: $ 15.1 BILLION | | ORDERS |
| | | Equipment
Services
|
(a) Includes $1.1 billion related to Alstom
(b) Included $5.5 billion related to Alstom
|
2016 SUB-SEGMENT REVENUES
| | |
| | | Equipment
Services
|
(a) Includes Current, powered by GE
(b) Reflects historical results of Appliances prior to its sale in June 2016
| (a) Included $8.4 billion related to Alstom
(b) Included $7.9 billion related to Alstom
|
EQUIPMENT/SERVICES REVENUES
| | |
| | |
Services Equipment |
FINANCIAL OVERVIEW
(Dollars in billions)
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
(a) $15.4 billion, excluding $1.0 billion related to Alstom* (b) $9.7 billion, excluding $5.5 billion related to Alstom*, and $7.1 billion, excluding $8.1 billion related to Alstom and Appliances* | Equipment Services | (a) $0.9 billion, excluding an insignificant amount related to Alstom* (b) $0.1 billion, excluding $0.2 billion related to Alstom*, and $(0.1) billion, excluding $0.4 billion related to Alstom and Appliances* | | (a) 6.2%, excluding (0.5)% related to Alstom* (b) 1.5%, excluding 3.1% related to Alstom*, and (1.6)%, excluding 5.3% related to Alstom and Appliances* |
SEGMENT REVENUES & PROFIT WALK: | | COMMENTARY: |
2016 – 2015 | 2016 – 2015 |
| | | | Segment revenues down $1.2 billion (7%); Segment profit down $0.6 billion (67%) as a result of: · Energy Connections revenues increased driven by the effects of Alstom, including higher equipment sales at Grid, partially offset by core decreases at Industrial Solutions and Power Conversion. The increase in revenues was partially offset by lower prices, the effects of a stronger U.S. dollar, and lower other income, including the negative foreign exchange transactional hedge impacts. Lighting revenues decreased primarily due to lower traditional lighting sales and were partially offset by increases in LED revenues and non-lighting product sales in Current, as well as lower prices. Revenues also decreased as a result of the sale of Appliances in June 2016. · Energy Connections profit decreased primarily as a result of lower cost productivity, driven by core volume decreases, as well as lower other income, including negative foreign exchange transactional hedge impacts, and an unfavorable business mix, partially offset by the effects of Alstom. Lighting profit decreased as a result of the investment in Current, lower other income and lower prices, partially offset by material deflation. Profit also decreased due to the sale of Appliances in June 2016. |
| Revenues | Profit |
2015 | $ | 16.4 | $ | 0.9 |
Volume | | (1.7) | | (0.1) |
Price | | (0.1) | | (0.1) |
Foreign Exchange | | (0.2) | | - |
(Inflation)/Deflation | | N/A | | - |
Mix | | N/A | | (0.1) |
Productivity | | N/A | | (0.2) |
Other | | (0.1) | | (0.1) |
Alstom | | 4.5 | | 0.2 |
Appliances | | (3.7) | | (0.3) |
2016 | $ | 15.1 | $ | 0.3 |
| | | | |
| | |
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 58
2015 – 2014 | | 2015 – 2014 |
| | | | Segment revenues up $0.6 billion (4%); Segment profit up $0.3 billion (39%) as a result of: · Energy Connections revenues increased primarily due to higher sales at Grid Solutions, driven by the effects of the Alstom acquisition, and a gain on the sale of a meters business, partially offset by the impact of a stronger U.S. dollar and lower volume at Industrial Solutions. Appliance revenues increased as a result of higher volume, partially offset by lower prices. Lighting revenues decreased as lower traditional lighting sales were partially offset by increases in LED revenues, lower prices and the impact of a stronger U.S. dollar, partially offset by gains on asset sales. · Energy Connections profit increased primarily due to higher productivity, including a reduction in SG&A, partially offset by the impact of a stronger U.S. dollar. Appliances profit increased due to improved productivity, including the effects of classifying Appliances as a business held for sale, partially offset by lower prices. Lighting profit decreased as a result of lower prices, partially offset by material deflation. |
| Revenues | Profit |
2014 | $ | 15.7 | $ | 0.7 |
Volume | | - | | - |
Price | | (0.1) | | (0.1) |
Foreign Exchange | | (0.7) | | (0.1) |
(Inflation)/Deflation | | N/A | | 0.1 |
Mix | | N/A | | - |
Productivity | | N/A | | 0.1 |
Other | | - | | - |
Alstom | | 1.0 | | - |
Appliances | | 0.4 | | 0.3 |
2015 | $ | 16.4 | $ | 0.9 |
| | | | | |
CAPITAL
BUSINESS OVERVIEW
Leader: Richard Laxer
|
| | |
MD&A | SEGMENT OPERATIONS | | Headquarters & Operations
|
| ·Senior Vice President, GE and Chairman & CEO, GE Capital
·Over 30 years of service with General Electric
| | | ·9% of segment revenues
·Headquarters: Norwalk, CT
·Employees: approximately 6,000
|
Products & Services |
Capital is the financial services division of GE focused on customers and markets aligned with GE's industrial businesses, whether in developed economies or emerging markets. We provide financial products and services around the globe that are geared to utilize GE's industry specific expertise in aviation, energy, infrastructure, and healthcare to capitalize on market-specific opportunities. In addition, we continue to operate our run-off insurance activities as part of our continuing operations. Our expertise, domain knowledge, and deep relationships create an environment for new hospitals to obtain necessary equipment, cities to function more safely, and transportation networks to deliver people, goods, and services on time. We are the Capital in the GE Store. Products and services include:
|
· | Industrial Finance (IF) – provides exclusive equipment financing solutions globally for the GE industrial businesses. In addition, its Working Capital Solutions business provides critical working capital services to GE to help optimize cash management.
|
· | Energy Financial Services (EFS) – a global energy investor that provides world class financial solutions and underwriting capabilities for Power, Renewable Energy, and Oil & Gas to meet rising demand and sustainability imperatives. EFS invests in long-lived, capital intensive energy projects and companies by providing structured equity, debt, leasing, partnership financing, project finance and broad-based commercial finance.
|
· | GE Capital Aviation Services (GECAS) – offers commercial aircraft leasing, financing, services, and consulting with the industry's broadest range of business solutions.
|
For the year ended December 31, 2018, segment orders were up $0.5 billion (2%), segment revenues were up $0.8 billion (4%) and segment profit was up $0.2 billion (6%).
As a result of the GE Capital Exit Plan, GE Capital's Real Estate business, Consumer business and most of its Commercial Lending and Leasing (CLL) business are classifiedBacklog as discontinued operations and are no longer reported as part of the Capital segment. As such, all comparative prior period information has been reclassified to reflect Real Estate, Consumer and most of CLL as discontinued operations. As of December 31, 2016, we have substantially completed2018 decreased $0.7 billion (4%), primarily due to a decrease in services backlog of $0.5 billion.
Orders increased $0.6 billion (3%) organically, primarily due to Life Sciences up 8%, while Healthcare Systems was up 1%.
Revenues increased $0.9 billion (5%) organically* due to higher volume in Healthcare Systems, attributable to global growth in Imaging and Ultrasound in both developed regions such as the dispositions relatedU.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Pharmaceutical Diagnostics, partially offset by price pressure at Healthcare Systems.
Profit increased $0.3 billion (8%) organically*, primarily driven by volume growth and cost productivity due to cost reduction actions, including sourcing and logistic initiatives, design engineering and restructuring actions. These increases were partially offset by price pressure at Healthcare Systems, inflation, investments in programs including digital product innovations and Healthcare Systems new product introductions and the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences.
CAPITAL
Products & Services. Capital is the financial services division of GE focused on customers and markets aligned with GE’s industrial businesses across developed and emerging markets. We provide financial products and services around the globe that build on GE’s industry specific expertise in aviation, power, renewables, healthcare and other activities to capitalize on market-specific opportunities. While there are customer benefits and knowledge sharing advantages linking GE’s industrial and capital businesses, the financial and operational relationships are maintained with arms-length terms as though the businesses were independent.
GE Capital Aviation Services (GECAS) - is an aviation lessor and financier with over 50 years of experience. GECAS provides a wide range of assets including narrow- or widebody aircraft, regional jets, turboprops, freighters, engines, helicopters, financing and materials. GECAS offers a broad array of financing products and services on these assets including operating leases, sale-leasebacks, asset trading and servicing, and airframe parts management. GECAS owns, services or has on order more than 1,700 aircraft and serves approximately 225 customers in 75 countries from a network of 20 offices around the world.
Energy Financial Services (EFS) - a global energy investor that provides financial solutions and underwriting capabilities for Power and Renewable Energy to meet rising demand and sustainability imperatives.
Industrial Finance (IF) - its Working Capital Solutions (WCS) business provides working capital services to GE and through December 31, 2018, it also provided healthcare equipment financing.
Insurance -Refer to the GE Capital Exit Plan.Other Items - Insurance section within MD&A for a detailed business description.
Competition & Regulation. The businesses in which we engage are highly competitive and are subject to competition from various types of financial institutions including commercial banks, investment banks,equity investors, leasing companies, independent finance companies, finance companies associated with manufacturers and insurance and reinsurance companies. For our GECAS operations, competition is based on lease rate financing terms, aircraft delivery dates, condition and availability, as well as available capital demand for financing. For our EFS operations, competition is primarily based on deal structure and terms. As we compete globally, EFS’ success is sensitive to project execution and merchant electricity prices, as well as the economic and political environment of each country in which we do business.
The businesses in which we engage are subject to a variety of U.S. federal and state laws and regulations. Our insurance operations are regulated by the insurance departments in the states in which they are domiciled or licensed, with the Kansas Insurance Department (KID) being our primary state regulator.
Significant Trends & Developments. 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 EFS and IF businesses. With respect to this announcement, we completed $15 billion of asset reductions during 2018 and approximately $12 billion of asset reductions during 2019, including approximately $8 billion during the rescissionfourth quarter of its designation2019. 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 and we completed the sale of a substantial portion of the business for a small premium in the fourth quarter of 2019. We expect to complete the sale of the remaining assets in the first half of 2020. 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.
GE Capital received $1.5 billion and $2.5 billion in capital contributions from GE in the second quarter and fourth quarter of 2019, respectively.
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. We performed this year's testing in the third quarter of 2019, and, as a nonbank SIFIresult, identified a premium deficiency resulting in June 2016, GE Capital's activities are no longer subjecta $1.0 billion pre-tax ($0.8 billion after-tax) charge to earnings. See the Other Items - Insurance section within MD&A and Note 12 to the consolidated supervisionfinancial statements for further information.
GE Capital made capital contributions to its insurance subsidiaries of the Federal Reserve or subject to the enhanced prudential standards set forth$2.0 billion and $1.9 billion in the Dodd Frank Wall Street Reformfirst quarters of 2020 and Consumer Protection Act2019, respectively, and its implementing regulations, including minimum regulatoryexpects to provide further capital contributions of approximately $7 billion through 2024. See the Capital Resources and liquidity requirements, submission of annual resolution plans, the Volcker Rule and regulatory reporting requirements.Liquidity section within MD&A for further information.
GE Capital's international operations are consolidated under GE Capital International Holdings Limited, a wholly owned subsidiary of GE Capital. GE Capital International Holdings Limited continues to maintain its own capital structure and is supervised on a consolidated basis by the U.K. Prudential Regulation Authority (PRA). The PRA's supervision includes capital and liquidity standards that could impact GE Capital's ability to pay dividends to GE. We expect to exit the PRA's consolidated supervision in 2017.*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 60 18
OPERATIONAL OVERVIEW
(Dollars in billions)
2016 GEOGRAPHIC REVENUES: $10.9 BILLION | | 2016 SUB-SEGMENT REVENUES |
| | |
ENDING NET INVESTMENT, EXCLUDING LIQUIDITY*MD&A | SUB-SEGMENT ASSET ALLOCATION AS OF DECEMBER 31, 2016 |
| |
(a) $166 billion including discontinued operations
(b) $93 billion including discontinued operations SEGMENT OPERATIONS | |
Effective January 1, 2019, the HEF business was transferred from our Capital segment to our Healthcare segment.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results within MD&A for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
|
| | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
|
| | |
GECAS | $ | 38.0 |
| $ | 41.7 |
|
EFS | 1.8 |
| 3.0 |
|
IF and WCS | 9.0 |
| 15.8 |
|
Insurance | 46.3 |
| 40.3 |
|
Other continuing operations | 22.5 |
| 18.6 |
|
Total segment assets | $ | 117.5 |
| $ | 119.3 |
|
|
| | |
GE Capital debt to equity ratio | 3.86:1 | 5.74:1 |
|
| | | | | | | | | |
(In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GECAS | $ | 4.9 |
| $ | 4.9 |
| $ | 5.1 |
|
EFS | 0.1 |
| 0.1 |
| (0.5 | ) |
IF and WCS | 0.8 |
| 1.5 |
| 1.5 |
|
Insurance | 2.9 |
| 2.9 |
| 2.9 |
|
Other continuing operations | — |
| 0.1 |
| — |
|
Total segment revenues(a) | $ | 8.7 |
| $ | 9.6 |
| $ | 9.1 |
|
| | | |
GECAS | $ | 1.0 |
| $ | 1.2 |
| $ | 2.1 |
|
EFS | 0.1 |
| 0.1 |
| (1.5 | ) |
IF and WCS | 0.2 |
| 0.3 |
| 0.5 |
|
Insurance | (0.6 | ) | (0.2 | ) | (7.2 | ) |
Other continuing operations(b) | (1.3 | ) | (1.9 | ) | (0.7 | ) |
Total segment profit | $ | (0.5 | ) | $ | (0.5 | ) | $ | (6.8 | ) |
SIGNIFICANT TRENDS & DEVELOPMENTS | |
(a) | Capital segment revenues represent 9% of total segment revenues for the year ended December 31, 2019. |
· | The GE Capital Exit Plan – As
|
(b) | Other continuing operations primarily comprised excess interest costs from debt previously allocated to assets that have been sold as part of the GE Capital Exit Plan, progresses, we will continue to incur interest on non-Verticals borrowings, restructuringpreferred stock dividend costs and GE andinterest costs not allocated to GE Capital headquarterssegments, which are driven by GE Capital’s interest allocation process. Interest costs that are in excessallocated to GE Capital segments based on the tenor of thosetheir 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 Verticals. Theseremaining GE Capital segments. Substantially all preferred stock dividend costs will become a GE obligation in January 2021. See Note 16 to the consolidated financial statements for further information. The excess interest costs from debt previously allocated to assets that have been sold are recorded within other continuing operations within Capital. |
*Non-GAAP Financial Measure
FINANCIAL OVERVIEW
(Dollars in billions)
SEGMENT REVENUES | | SEGMENT PROFIT (LOSS)(a) | |
| Total Capital
Other Continuing
Verticals
| | Total Capital
Verticals
Other Continuing
|
| | (a)Interest and other financial charges and income taxes areincluded in determining segment profit for the Capital segment. | expected to run off by 2020. In addition, we anticipate unallocated interest costs to gradually decline as debt matures and/or is refinanced. |
|
| | | | | | | | | |
(Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
U.S. | $ | 4.1 |
| $ | 5.3 |
| $ | 4.4 |
|
Non-U.S. | | | |
Europe | 1.6 |
| 1.4 |
| 1.5 |
|
Asia | 1.5 |
| 1.4 |
| 1.4 |
|
Americas | 0.7 |
| 0.6 |
| 0.8 |
|
Middle East and Africa | 0.8 |
| 0.9 |
| 1.0 |
|
Total Non-U.S. | 4.6 |
| 4.3 |
| 4.7 |
|
Total segment revenues | $ | 8.7 |
| $ | 9.6 |
| $ | 9.1 |
|
| | | |
Non-U.S. revenues as a % of segment revenues | 53 | % | 45 | % | 52 | % |
For the year ended December 31, 2019, segment revenues decreased $0.8 billion (8%) and segment losses were flat.
Capital revenues decreased primarily due to volume declines and lower gains, partially offset by lower impairments. Capital losses were flat primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review, lower gains, lower tax benefits and volume declines, offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.7 billion and $0.8 billion in 2019 and 2018, respectively, which primarily related to sales of certain GECAS aircraft and engines resulting in gains of $0.4 billion and $0.3 billion in 2019 and 2018, respectively, as well as the sale of equity method investments resulting in gains of $0.2 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.
|
COMMENTARY: 2016 – 2015 | | |
MD&A | SEGMENT OPERATIONS | |
For the year ended December 31, 2018, segment revenues increased $0.5 billion (5%) and segment losses decreased $6.3 billion (93%).
Capital revenues increased $0.1 billion, or 1%, primarily due to lower impairments higher gains and the effects of acquisitions,volume growth, partially offset by organic revenue declines, the effects of dispositions and the effects of currency exchange.
· | Within Capital, Verticals revenueslower gains. Capital losses decreased by $0.2 billion, or 2%, as a result of organic revenue declines ($0.6 billion) and the effects of dispositions ($0.2 billion), partially offset by higher gains ($0.3 billion), lower impairments ($0.2 billion), and the effects of acquisitions.
|
· | Other Capital revenues increased $0.3 billion, or 99%, as a result of lower impairments ($0.2 billion) and organic revenue growth ($0.2 billion) partially offset by the effects of currency exchange ($0.1 billion). |
Capital net loss decreased by $6.7 billion, or 84%, primarily due to the absencenonrecurrence of the 20152017 charges associated with the GE Capital Exit Plan.
· | Within Capital, Verticals net earnings increased by $0.2 billion, or 14%, as a result of higher gains ($0.2 billion) and lower impairments ($0.2 billion), partially offset by the effects of dispositions ($0.1 billion) and core decreases ($0.1 billion). |
· | Other Capital net loss decreased by $6.5 billion, or 67%, primarily as a result of: |
· | Lower tax expenses of $6.2 billion primarily related to the absence of the 2015 charges for repatriation of foreign earnings and write-off of deferred tax assets related to the GE Capital Exit Plan. |
· | 2016 tax benefits of $1.1 billion primarily related to increased tax efficiency of planned cash repatriations through increased foreign tax credit utilization of $0.8 billion and an IRS tax settlement of $0.3 billion. |
· | Lower impairment expenses of $0.8 billion resulting from the 2015 impairment of a coal-fired power plant in the U.S. |
· | Higher treasury operation expenses of $1.3 billion reflecting excess interest expense, costs associated with the February and May 2016 debt tenders and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities. We expect to continue to have excess interest costs in 2017. We may engage in liability managementinsurance premium deficiency review and EFS strategic actions, such as buying back debt, based on market and economic conditions. |
· | Charges of $0.3 billion associated with the preferred equity exchange that was completed in January 2016. |
· | Higher restructuring expenses of $0.2 billion. |
Capital revenues decreased by $0.5 billion, or 5%, primarily as a result of organic revenue declines, primarily due to lower ENI, lower gains and higher impairments, partially offset by the effectsnonrecurrence of acquisitions and dispositions.2017 tax benefits.
· Within Capital, Verticals revenues decreased by $0.7 billion, or 6%, as a result of organic revenue declines ($0.9 billion), lower gains ($0.2 billion) and higher impairments ($0.1 billion), partially offset by the effects of acquisitions and dispositions ($0.5 billion).
Capital net earnings decreased by $9.2 billion primarily due to charges associated with the GE Capital Exit Plan.· | Within Capital, Verticals net earnings increased by $0.1 billion, or 4%, as a result of lower equipment leased to others (ELTO) impairments ($0.1 billion) related to our operating lease portfolio of commercial aircraft and the effects of acquisitions and dispositions ($0.2 billion), partially offset by lower gains ($0.1 billion) and core decreases ($0.1 billion). |
· | Other Capital net earnings decreased by $9.3 billion primarily as a result of the GE Capital Exit Plan as follows: |
· | Higher tax expenses of $7.0 billion primarily related to expected repatriation of foreign earnings and write-off of deferred tax assets related to the GE Capital Exit Plan. |
· | Higher treasury operation expenses of $1.0 billion reflecting excess interest expense, including costs associated with the debt exchange completed in October 2015 and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities. |
· | The 2015 $0.8 billion impairment of a coal-fired power plant in the U.S. related to a decision in the fourth quarter to exit the investment over time. |
GE CORPORATE ITEMS AND ELIMINATIONS
GE ELIMINATIONS. Corporate Items and Eliminations is a caption used in the Segment Operations – Summary of Operating SegmentReportable Segments table to reconcile the aggregated results of our segments to the consolidated results of the Company. As such, it includes corporate activities, including certain GE Digital activities, and the elimination of inter-segment activities. Specifically, the GEThe Corporate Items and Eliminations amounts related to revenues and earnings include the results of disposed businesses, certain amounts not included in GE industrial operating segment results because they are excluded from measurement of their operating performance for internal and external purposes and the elimination of inter-segment activities. In addition, the GE Corporate Items and Eliminations amounts related to earnings include certain costs of our principal retirement plans, restructuring and other costs reported in Corporate, and the unallocated portion of certain corporate costs (such as research and development spending and costs related to our Global Growth Organization).
Corporate items and eliminations includes the results of our Lighting segment and GE Digital business for all periods presented.
REVENUES AND OPERATING PROFIT (COST) | | | | | | | | |
| | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | |
Revenues | | | | | | | | |
| Gains (losses) on disposals(a) | $ | 3,444 | | $ | 1,047 | | $ | 91 |
| NBCU settlement | | - | | | 450 | | | - |
| Eliminations and other | | (3,812) | | | (3,708) | | | (3,954) |
Total Corporate Items and Eliminations | $ | (368) | | $ | (2,211) | | $ | (3,863) |
| | | | | | | | | |
Operating profit (cost) | | | | | | | | |
| Gains (losses) on disposals(a) | $ | 3,444 | | $ | 1,047 | | $ | 91 |
| NBCU settlement | | - | | | 450 | | | - |
| Principal retirement plans(b) | | (2,044) | | | (2,760) | | | (2,313) |
| Restructuring and other charges | | (3,578) | | | (1,734) | | | (1,788) |
| Eliminations and other | | (2,048) | | | (2,111) | | | (2,215) |
Total Corporate Items and Eliminations | $ | (4,226) | | $ | (5,108) | | $ | (6,225) |
| | | | | | | | | |
CORPORATE COSTS | | | | | | | | |
| | | | | |
(In millions) | | 2016 | | 2015 | | | 2014 |
| | | | | | | | | |
Total Corporate Items and Eliminations | $ | (4,226) | | $ | (5,108) | | $ | (6,225) |
Less non-operating pension cost* | | (2,052) | | | (2,764) | | | (2,120) |
Total Corporate costs (operating)* | $ | (2,175) | | $ | (2,344) | | $ | (4,105) |
| | | | | | | | | |
Less, restructuring and other charges, gains and NBCU settlement | | (134) | | | (237) | | | (1,697) |
Adjusted Corporate costs (operating)* | $ | (2,040) | | $ | (2,107) | | $ | (2,408) |
| | | | | | | | | |
(a) | Included gains (losses) on disposed or held for sale businesses. |
|
| | | | | | | | | |
(In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Revenues | | | |
Corporate revenues | $ | 1,791 |
| $ | 2,783 |
| $ | 2,897 |
|
Eliminations and other | (2,096 | ) | (2,110 | ) | (2,464 | ) |
Total Corporate Items and Eliminations | $ | (305 | ) | $ | 673 |
| $ | 433 |
|
| | | |
Operating profit (cost) | | | |
Gains (losses) on disposals and held for sale businesses | $ | 4 |
| $ | 1,370 |
| $ | 926 |
|
Restructuring and other charges | (1,315 | ) | (2,952 | ) | (3,023 | ) |
Unrealized gains (losses)(a) | 793 |
| — |
| — |
|
Goodwill impairments (Note 8) | (1,486 | ) | (22,136 | ) | (1,165 | ) |
Adjusted total corporate operating costs (Non-GAAP) | (1,693 | ) | (1,255 | ) | (1,701 | ) |
Total Corporate Items and Eliminations (GAAP) | $ | (3,698 | ) | $ | (24,973 | ) | $ | (4,963 | ) |
Less: gains (losses), impairments and restructuring & other | (2,004 | ) | (23,719 | ) | (3,262 | ) |
Adjusted total corporate operating costs (Non-GAAP) | $ | (1,693 | ) | $ | (1,255 | ) | $ | (1,701 | ) |
(b) | Included non-operating pension cost* of $2.1 billion, $2.8 billion and $2.1 billion in 2016, 2015 and 2014, respectively, which includes expected return on plan assets, interest costs and non-cash amortization of actuarial gains and losses. |
(a) Related to mark-to-market impact on our Baker Hughes shares for 2019. See Notes 2, 3 and 19 to the consolidated financial statements for further information. |
| | | | | | | | | |
Functions & operations | $ | (1,252 | ) | $ | (1,362 | ) | $ | (2,007 | ) |
Eliminations | (184 | ) | (61 | ) | 9 |
|
Environmental, health & safety (EHS) and other items | (258 | ) | $ | 169 |
| $ | 297 |
|
Adjusted total corporate operating costs (Non-GAAP) | $ | (1,693 | ) | $ | (1,255 | ) | $ | (1,701 | ) |
Adjusted total corporate operating costs* excludes gains (losses) on disposals and held for sale businesses, restructuring and other charges, 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.
For the year ended December 31, 2019, revenues decreased by $1.0 billion, primarily as the result of the sale of our Current business in April 2019.
Corporate costs decreased by $21.3 billion primarily as the result of $20.6 billion lower goodwill impairment charges (see Note 8 to the consolidated financial statements). Corporate costs also decreased due to $0.8 billion of higher net unrealized gains primarily due to our mark-to-market impact on our Baker Hughes shares in 2019 and $1.6 billion of lower restructuring costs in 2019. These decreases were partially offset by $1.4 billion of lower net gains from disposed or held for sale businesses, which was primarily related to a $0.7 billion gain from the sale of our Value-Based Care business in 2018, a $0.7 billion gain from the sale of our Distributed Power business in 2018, $0.3 billion gain from the sale of our Industrial Solutions business in 2018 and a $0.2 billion gain from the sale of our Pivotal Software investment in 2018. These realized gains were partially offset by $0.3 billion of lower held for sale losses in 2019 primarily related to our Lighting and Aviation segments and a $0.2 billion gain from the sale of our Digital ServiceMax business in 2019.
Adjusted total corporate operating costs* increased by $0.4 billion in 2019 primarily as a result of a $0.2 billion increase in costs associated with existing environmental, health and safety matters in 2019 and $0.2 billion due to the non-recurrence of gains associated with the sale of intangible assets in 2018. In addition, there was $0.1 billion of higher intercompany profit eliminations primarily as the result of $0.2 billion higher volume of spare LEAP 1-B engines sold from our Aviation segment to our GECAS business to provide an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification. These increases were partially offset by $0.1 billion of lower costs due to restructuring and cost out actions in our functions and operating businesses.
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 64 20
2016 – 2015 COMMENTARY
Revenues and other income increased $1.8 billion, primarily a result of:
· |
| $2.4 billion of higher net gains from disposed and held for sale businesses, which included a $3.1 billion gain from the sale of our Appliances business to Haier and a $0.4 billion gain from the sale of GE Asset Management to State Street Corporation in 2016, partially offset by a $0.1 billion impairment charge related to a potential sale of a non-strategic platform in our Aviation business in 2016. Gains on disposed or held for sale businesses in 2015 included a $0.6 billion gain from the sale of our Signaling business, and a $0.2 billion break-up fee paid by Electrolux AB due to the termination of the agreement to acquire the GE Appliances business. | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
These increases to
For the year ended December 31, 2018, revenues and other income was partially offsetincreased by the following:
· | $0.5 billion lower other income from a settlement related to the NBCU transaction in 2015, and |
· | $0.4 billion of higher inter-segment eliminations. |
Operating costs decreased $0.9$0.2 billion, primarily as a result of:
· | $2.4 billion of higher net gains from disposed and held for sale businesses, which included a $3.1 billion gain from the sale of our Appliances business to Haier and a $0.4 billion gain from the sale of GE Asset Management to State Street Corporation in 2016, partially offset by a $0.1 billion impairment charge related to a potential sale of a non-strategic platform in our Aviation business in 2016. Gains in 2015 included a $0.6 billion gain from the sale of our Signaling business, and a $0.2 billion break-up fee paid by Electrolux AB due to the termination of the agreement to acquire the GE Appliances business, and |
· | $0.7 billion of lower costs associated with our principal retirement plans including the effects of higher discount rates. |
These decreases to operating costs wereof a $0.4 billion decrease in inter-segment eliminations partially offset by the following:a $0.1 billion decrease in Corporate revenues primarily related to our Current & Lighting segment.
· | $1.8 billion higher restructuring and other charges, which included $0.7 billion of higher restructuring and other charges associated with the Alstom acquisition, and |
· | $0.5 billion lower other income due to a non-repeat of a settlement related to the NBCU transaction in the second quarter of 2015. |
2015 – 2014 COMMENTARY
Revenues and other incomeCorporate costs increased $1.7 billion, primarily a result of:
· | $1.0 billion of higher gains from disposed or held for sale businesses, which included a $0.2 billion break-up fee paid by Electrolux AB due to the termination of the agreement to acquire the GE Appliances business,
|
· | $0.5 billion higher other income from a settlement related to the NBCU transaction in 2015, and |
· | $0.2 billion of lower eliminations and other, which was driven by $0.4 billion of lower inter-segment eliminations, partially offset by $0.2 billion lower licensing, GE Asset Management fees and other income. |
Operating costs decreased $1.1by $20.0 billion, primarily as a result of:
· | $1.0 billion of higher gains from disposed businesses, which included a $0.2 billion break-up fee paid by Electrolux AB due to termination of the agreement to acquire the GE Appliances business,
|
· | $0.5 billion higher other income from a settlement related to the NBCU transaction in 2015, and |
· | Lower headquarter functional costs offset by higher investment in Information Technology (IT) growth initiatives.
|
of $21.0 billion of higher goodwill impairment charges (see Note 8 to the consolidated financial statements). These decreases to operating costsincreases were partially offset by $0.4 billion of higher costs associated withnet gains from disposed or held for sale businesses, which is primarily related to the $0.7 billion gain from the sale of our principal retirement plans includingDistributed Power business in 2018, a $0.7 billion gain from the effectssale of our Value-Based Care business in 2018, a $0.3 billion gain from the sale of our Industrial Solutions business in 2018, a $0.2 billion gain from the sale of our Pivotal Software investment in 2018 and $0.4 billion of lower discount ratesheld for sales losses in 2018 primarily related to our Lighting and updated mortality assumptions.Aviation segments. These realized gains were partially offset by a $1.9 billion gain from the sale of our Water business in 2017. Corporate costs further decreased due to $0.1 billion of lower restructuring and other charges.
RESTRUCTURING.Restructuring actions are an essential component ofto our cost improvement efforts tofor both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of recent acquisitions, including Alstom, and certain other asset write-downs.write-downs such as those associated with product line exits. We continue to closely monitor the economic environment and mayexpect to undertake further restructuring actions to more closely align our cost structure with earnings goals.
RESTRUCTURING & OTHER CHARGES | | | | | | | | |
| | | | | | | | |
(In billions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Workforce reductions | $ | 1.3 | | $ | 0.4 | | $ | 0.5 |
Plant closures & associated costs and other asset write-downs | | 1.3 | | | 0.6 | | | 0.7 |
Acquisition/disposition net charges | | 0.7 | | | 0.4 | | | 0.4 |
Other | | 0.3 | | | 0.3 | | | 0.1 |
Total | $ | 3.6 | | $ | 1.7 | | $ | 1.8 |
| | | | | | | | |
|
| | | | | | | | | |
(In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Workforce reductions | $ | 0.8 |
| $ | 0.9 |
| $ | 1.0 |
|
Plant closures & associated costs and other asset write-downs | 0.3 |
| 1.4 |
| 1.5 |
|
Acquisition/disposition net charges | 0.2 |
| 0.6 |
| 0.5 |
|
Other | — |
| — |
| 0.1 |
|
Total restructuring and other charges | $ | 1.3 |
| $ | 3.0 |
| $ | 3.0 |
|
|
| | | | | | | | | |
Cost of product/services | $ | 0.4 |
| $ | 1.1 |
| $ | 1.8 |
|
Selling, general and administrative expenses | 1.0 |
| 1.7 |
| 1.2 |
|
Other income | — |
| 0.1 |
| 0.1 |
|
Total restructuring and other charges | $ | 1.3 |
| $ | 3.0 |
| $ | 3.0 |
|
|
| | | | | | | | | |
Power | $ | 0.4 |
| $ | 1.3 |
| $ | 0.9 |
|
Renewable Energy | 0.2 |
| 0.3 |
| 0.3 |
|
Aviation | — |
| — |
| 0.1 |
|
Healthcare | 0.2 |
| 0.2 |
| 0.3 |
|
Corporate | 0.6 |
| 1.1 |
| 1.5 |
|
Total restructuring and other charges by business | $ | 1.3 |
| $ | 3.0 |
| $ | 3.0 |
|
Cash expenditures for restructuring and other charges were $3.6 billion of which approximately $2.3 billion was reported in cost of products/services and $1.2 billion, was reported in other costs$1.5 billion and expenses (SG&A). These activities were primarily at Power, Oil & Gas$1.5 billion for the years ended December 31, 2019, 2018 and Energy Connections & Lighting. Cash expenditures for restructuring were approximately $1.0 billion in 2016.2017, respectively.
For 2015, restructuring and other charges were $1.7 billion of which approximately $1.0 billion was reported in cost of products/services and $0.6 billion was reported in other costs and expenses (SG&A). These activities were primarily at Oil & Gas, Corporate and Energy Connections & Lighting. Cash expenditures for restructuring were approximately $0.4 billion in 2015.
For 2014, restructuring and other charges were $1.8 billion of which approximately $1.0 billion was reported in cost of products/services and $0.5 billion was reported in other costs and expenses (SG&A). These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring were approximately $0.6 billion in 2014.
COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS
RESULTS.As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial operating segment results because they are excluded from measurement of their operating performance for internal and external purposes. The amount ofThese costs relate primarily to goodwill impairment charges, restructuring and gains (losses) not included in segment results follows.acquisition and disposition activities.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Costs | | Gains (Losses) |
(In billions) | 2019 |
| | 2018 |
| | 2017 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | | |
Power | $ | 0.4 |
| | $ | 20.5 |
| | $ | 2.0 |
| | $ | — |
| | $ | 1.0 |
| | $ | 1.9 |
|
Renewable Energy | 1.7 |
| | 3.3 |
| | 0.3 |
| | — |
| | — |
| | — |
|
Aviation | — |
| | — |
| | 0.1 |
| | — |
| | (0.1 | ) | | (0.3 | ) |
Healthcare | 0.2 |
| | 0.2 |
| | 0.3 |
| | — |
| | 0.8 |
| | — |
|
Total segments | $ | 2.2 |
| | $ | 24.0 |
| | $ | 2.7 |
| | $ | — |
| | $ | 1.7 |
| | $ | 1.6 |
|
Corporate Items and Eliminations | 0.6 |
| | 1.1 |
| | 1.5 |
| | 0.8 |
| | (0.3 | ) | | (0.7 | ) |
Total Industrial | $ | 2.8 |
| | $ | 25.1 |
| | $ | 4.2 |
| | $ | 0.8 |
| | $ | 1.4 |
| | $ | 0.9 |
|
COSTS | | | | | | | | |
| | | | | | | | |
(In billions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Power | $ | 1.2 | | $ | 0.3 | | $ | 0.5 |
Renewable Energy | | 0.3 | | | 0.2 | | | 0.1 |
Oil & Gas | | 0.8 | | | 0.5 | | | 0.3 |
Aviation | | 0.1 | | | - | | | 0.3 |
Healthcare | | 0.5 | | | 0.3 | | | 0.5 |
Transportation | | 0.2 | | | 0.1 | | | - |
Energy Connections & Lighting | | 0.6 | | | 0.3 | | | 0.3 |
Total | $ | 3.7 | | $ | 1.7 | | $ | 2.1 |
| | | | | | | | |
GAINS (LOSSES) | | | | | | | | |
| | | | | | | | |
(In billions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Power | $ | - | | $ | - | | $ | - |
Renewable Energy | | - | | | - | | | - |
Oil & Gas | | - | | | - | | | 0.1 |
Aviation | | (0.2) | (a) | | - | | | - |
Healthcare | | - | | | 0.1 | (c) | | - |
Transportation | | - | | | 0.6 | (d) | | - |
Energy Connections & Lighting | | 3.1 | (b) | | 0.1 | (e) | | - |
Total | $ | 3.0 | | $ | 0.9 | | $ | 0.1 |
| | | | | | | | |
*Non-GAAP Financial Measure
(a) |
| Largely due to impairment related to a potential sale of a non-strategic platform in our Aviation business. | |
MD&A | OTHER CONSOLIDATED INFORMATION |
(b) | Related to the sale of our Appliances business in the second quarter of 2016. |
(c) | Related to the Clarient business disposition in 2015. |
(d) | Related to the Signaling business disposition in 2015. |
(e) | Related to the Intelligent Platforms Embedded Systems Products business disposition in 2015. |
DISCONTINUED OPERATIONS
Discontinued operations primarily relate to our financial services businesses as a result of the GE Capital Exit Plan and include our Consumer business, most of our CLL business, our Real Estate business and U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.
We have entered into Transitional Service Agreements (TSA) with and provided certain indemnifications to buyers of GE Capital's assets. Under the TSAs, GE Capital provides various services for terms generally between 12 and 24 months and receives a level of cost reimbursement from the buyers.
At December 31, 2016, we provided specific indemnifications to buyers of GE Capital's assets that amounted to $2.6 billion, for which we have recognized related liabilities of $0.3 billion. 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.
As part of the GE Capital Exit Plan, we entered into hedges (on an after-tax basis) of our net investment in businesses that we plan to dispose. These derivatives are treated as standalone hedges and the mark-to-market valuation changes on the derivatives are recorded in earnings of discontinued operations.
Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS |
| | | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (954) | | $ | (7,495) | | $ | 5,855 |
| | | | | | | | |
The 2016 loss from discontinued operations, net of taxes, primarily reflected the following:
· | $1.1 billion after-tax loss at our CLL business (including $0.9 billion after-tax loss on planned disposals), and |
· | $0.1 billion after-tax loss at our Consumer business (including $0.3 billion after-tax loss on planned disposals). |
· | 2016 losses were partially offset by a $0.2 billion tax benefit related to an IRS tax settlement in our discontinued insurance operations. |
The 2015 loss from discontinued operations, net of taxes, primarily reflected the following:
· | $7.9 billion after-tax loss at our CLL business (including $8.7 billion after-tax loss on planned disposals), |
· | $2.0 billion after-tax loss at our Real Estate business (including $2.0 billion after-tax loss on planned disposals), and |
· | $0.1 billion after-tax effect of incremental reserves related to retained representation and warranty obligations to repurchase previously sold loans on the 2007 sale of WMC. |
· | 2015 losses were partially offset by $2.5 billion after-tax earnings at our Consumer business, primarily $3.4 billion after-tax gain on the split-off of Synchrony Financial, $0.5 billion after-tax gain on other transactions closed, partially offset by $0.8 billion after-tax loss on disposals and $0.6 billion after-tax loss from operations. |
The 2014 earnings from discontinued operations, net of taxes, primarily reflected the following:
· | $3.2 billion of after-tax earnings from operations at our Consumer business, |
· | $1.8 billion of after-tax earnings from operations at our CLL business, |
· | $1.0 billion of after-tax earnings from operations at our Real Estate business, and |
· | $0.1 billion tax benefit related to the extinguishment of our loss-sharing arrangement for excess interest claims associated with the 2008 sale of GE Money Japan. |
· | 2014 earnings were partially offset by a $0.2 billion after-tax loss on incremental reserves related to retained representation and warranty obligations to repurchase previously sold loans on the 2007 sale of WMC. |
See Note 2 to the consolidated financial statements for additional information related to discontinued operations.
OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES |
| | | | | | | | | |
INTEREST AND OTHER FINANCIAL CHARGES (In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE | $ | 2.1 |
| $ | 2.4 |
| $ | 2.5 |
|
GE Capital | 2.5 |
| 3.0 |
| 3.1 |
|
Consolidated | $ | 4.2 |
| $ | 4.8 |
| $ | 4.7 |
|
Interest on borrowingsThe decrease in GE interest and other financial charges amountedfor the year ended December 31, 2019 was driven primarily by lower expenses on sales of GE current and long-term receivables as well as the reversal of $0.1 billion of accrued interest on tax liabilities due to $5.0the completion of the 2012-2013 Internal Revenue Service (IRS) audit in June 2019, partially offset by the $0.3 billion $3.5loss resulting from the completion of a tender offer to purchase GE senior notes (including fees and other costs associated with the tender). 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 $1.3 billion and $2.7$1.5 billion in 2016, 2015were recorded at Corporate and 2014, respectively. The majority of our borrowings are in Financial Services, where interest expense was $3.8 billion, $2.3$0.8 billion and $1.6$0.9 billion were recorded by GE segments for the years ended December 31, 2019 and 2018, respectively.
The decrease in 2016, 2015GE Capital interest and 2014, respectively. Includedother financial charges for the year ended December 31, 2019 were 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 within MD&A for an explanation of assumed debt and right-of-offset loans), partially offset by an increase in average interest expense were $0.6 billion, $0.2 billion and an insignificant amount of debt extinguishment costsrates due to changes in 2016, 2015 and 2014, respectively.market rates. GE Capital average borrowings were $145.0$61.8 billion, $216.8$78.7 billion and $266.7$103.8 billion in 2016, 20152019, 2018 and 2014,2017, respectively. The GE Capital average composite effective interest rate (including interest allocated to discontinued operations) was 3.0%4.2%, 3.9% and 3.1% in 2016, 2.6% in 20152019, 2018 and 2.6% in 2014. The rate increase from 2015 to 2016 was primarily driven by debt extinguishment costs. Excluding the effect of debt extinguishment costs, the GE Capital average composite effective interest rate (including interest allocated to discontinued operations) was 2.6% in 2016, 2015 and 2014. In 2016, GE Capital average assets continued to decrease in line with the GE Capital Exit Plan. See the Liquidity and Borrowings section within the MD&A for a discussion of liquidity, borrowings and interest rate risk management.2017, respectively.
It is our policy to allocate Capital interest expense that is either directly attributable or related to discontinued operations. The allocation is based on a market based leverage ratio, taking into consideration the underlying characteristics of the assets for the specific discontinued operations. Interest expense that is associated with debt that is not assumed by the buyer or required to be repaid as a result of the disposal transaction is reflected in other continuing operations after the disposal occurs.
POSTRETIREMENT BENEFIT PLANS
(Dollars in billions)
| | PRINCIPAL PENSION PLANS |
BENEFIT PLANS COST | | DISCOUNT RATES (December 31)
| | EXPECTED RATE OF RETURN |
| | | | |
2016 – 2015 COMMENTARY
· | Postretirement benefit plans cost decreased $0.9 billion, primarily because of the effects of higher discount rates, lower service cost resulting from fewer active principal pension plans participants and lower loss amortization related to our principal pension plans. |
· | We updated our mortality assumptions at December 31, 2016 based on guidance issued by the Society of Actuaries to reflect updated rates and methodology for future mortality improvements. The new mortality assumptions decreased our principal pension plans obligations by $0.6 billion at year-end 2016. |
2015 – 2014 COMMENTARY
· | Postretirement benefit plans cost increased $0.2 billion, primarily because of the effects of lower discount rates and new mortality assumptions, which were partially offset by lower loss amortization related to our principal pension plans and by changes to principal retiree benefit plans. |
· | In 2015, we amended our principal retiree benefit plans affecting post-65 retiree health and retiree life insurance for certain production participants. These plan amendments reduced our principal postretirement benefit obligations by approximately $3.3 billion. |
Looking forward, our key assumptions affecting 2017 postretirement benefits costs are as follows:
· | Discount rate at 4.11% for our principal pension plans, reflecting current long-term interest rates. |
· | Assumed long-term return on our principal pension plan assets of 7.5%. |
We expect 2017 postretirement benefit plans cost to be about the same as 2016.
PENSION COSTS
GAAP AND NON-GAAP PENSION COSTS | | | | | | | | |
| | | | | | | | |
(In billions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
GAAP principal pension plans' cost | $ | 3.6 | | $ | 4.5 | | $ | 3.6 |
Non-GAAP operating pension cost* | | 1.6 | | | 1.7 | | | 1.5 |
| | | | | | | | |
Our operating pension cost for our principal pension plans includes only those components that relate to benefits earned by active employees during the period (service cost, prior service cost amortization and curtailment loss). Non-operating pension cost elements such as interest cost, expected return on plan assets and non-cash amortization of actuarial gains and losses are excluded from this measure. We expect operating pension cost to be approximately $1.4 billion in 2017.
The table below presents the funded status of our benefit plans. The funded status represents the fair value of plan assets less benefit obligations.
FUNDED STATUS | | | | | |
| | | | | |
(In billions) | | 2016 | | | 2015 |
| | | | | |
GE Pension Plan | $ | (19.1) | | $ | (16.9) |
GE Supplementary Pension Plan | | (6.5) | | | (6.1) |
Other pension plans | | (5.5) | | | (4.3) |
Principal retiree benefit plans | | (5.7) | | | (6.1) |
| | | | | |
2016 – 2015 COMMENTARY
· | The GE Pension Plan deficit increased in 2016 primarily due to the growth in pension liabilities and lower discount rates, partially offset by investment performance and changes in mortality assumptions. |
· | The increase in the underfunding of our other pension plans was primarily attributable to lower discount rates and liability growth, partially offset by investment performance and employer contributions. |
· | The decrease in principal retiree benefit plans deficit was primarily attributable to employer contributions and lower costs from new healthcare supplier contracts, partially offset by the growth in retiree benefit liabilities. |
PLANS.The Employee Retirement Income Security Act (ERISA) determines minimum pension funding requirements in the U.S. We made a $0.3$6.0 billion contributionin contributions to the GE Pension Plan in 2016. We did not contribute to the GE Pension Plan in 2015.2018. On an ERISA basis, our preliminary estimate is that the GE Pension Plan was approximately 95%93% funded at January 1, 2017.2020. The ERISA funded status is higher than the GAAP funded status (71%(81% funded) primarily because the ERISA prescribed interest rate is calculated using an average interest rate. As a result, the ERISA interest rate is higher than the year-end GAAP discount rate. The higher ERISA interest rate lowers pension liabilities for ERISA funding purposes. Our current estimate projects $1.72018 contributions satisfied our minimum ERISA funding requirement of $1.5 billion of pensionand the remaining $4.5 billion was a voluntary contribution to the plan. This voluntary contribution is sufficient to satisfy our minimum ERISA funding contributionsrequirement for 2019 and 2020. In October 2019, we announced our intent to contribute approximately $4 to $5 billion to the GE Pension Plan in 2017 and2020. We expect this amount to equal our estimated future minimum ERISA funding requirements at least through 2022.
We expect 2020 postretirement benefit plans cost to be about $3.2 billion, which is a decrease of approximately $1.6$0.6 billion in 2018.from 2019.
*Non-GAAP Financial Measure
We expect to contribute $0.9in 2020 approximately $0.5 billion and $0.4 billion to our other pension plans in 2017, as compared to $0.8 billion in 2016 and $0.5 billion in 2015. GE Capital is a member of certain GE pension plans. As a result of the GE Capital Exit Plan, GE Capital will have additional funding obligations for these pension plans. These obligations do not relate to the Verticals and are recognized as an expense in GE Capital's other continuing operations when they become probable and estimable. See the Intercompany Transactions between GE and GE Capital section within the MD&A for further information.
We also expect to contribute $0.5 billion to our principal retiree benefit plans, in 2017 as compared to $0.4 billion in 2016 and $0.5 billion in 2015.respectively.
The funded status of our postretirement benefit plans and future effects on operating results depend on economic conditions, interest rates and investment performance. See the Critical Accounting Estimates section within the MD&A and Notes 12 and 29Note 13 to the consolidated financial statements for further information about our benefit plans, pension actions and the effects of this activity on our financial statements.
|
| | | | | | | | | |
CONSOLIDATED (Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Effective tax rate (ETR) | 63.2 | % | (0.4 | )% | 24.8 | % |
Provision (benefit) for income taxes | $ | 0.7 |
| $ | 0.1 |
| $ | (2.8 | ) |
Cash income taxes paid(a) | 2.2 |
| 1.9 |
| 2.4 |
|
(a) Included taxes paid related to discontinued operations.
For the year endedDecember 31, 2019, the consolidated income tax provision was $0.7 billion. The increase in the tax provision for 2019 was primarily due to tax expense associated with the preparatory internal restructuring for the planned BioPharma sale and the effect of higher pre-tax income excluding non-deductible impairment charges, partially offset by the benefit from the completion of the IRS audit of the 2012-2013 consolidated U.S. income tax returns.
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 pays the income taxes it owes in every country in which it does business. While GErecorded $0.4 billion of tax benefits and $0.1 billion of net interest benefits, and GE Capital filerecorded 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 15 to the consolidated U.S. federalfinancial statements for further information.
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
For the year ended December 31, 2018, the consolidated income tax return, many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in approximately 180 countries and more than half of our revenue is earned outside the U.S., often in countries with lower tax rates than in the U.S. We reinvest most of our foreign earnings overseas to be able to fund our active non-U.S. business operations. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, 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.
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group.provision was $0.1 billion. The effective tax rate reflects the benefit of thesewas negative for 2018 reflecting a tax reductionsexpense on a consolidated pre-tax loss. The increase in the consolidated return. GE makes cash paymentsprovision for income taxes for 2018 was primarily attributable to GE Capitalthe decrease in benefit from global operations including an increase in valuation allowances on non-U.S. deferred tax assets and the decrease in pre-tax loss (excluding non-deductible goodwill impairments) with a tax benefit above the average tax rate. Partially offsetting this increase was the decrease in the consolidated provision for income taxes attributable to an insignificant charge in 2018 to adjust the provisional estimate of the impact of the 2017 enactment of U.S. tax reductions and GE Capital paysreform compared to the $4.5 billion charge in 2017 for tax increases at the time GE's tax payments are due.estimated impact of enactment.
CONSOLIDATED
(Dollars in billions)
EFFECTIVE TAX RATE (ETR)
| | PROVISION (BENEFIT) FOR INCOME TAXES | | CASH INCOME TAXES PAID(a)
|
| | | | |
(a) | Includes taxes paid related to discontinued operations. |
2016 – 2015 COMMENTARY
· | The consolidated income tax rate for 2016 was (5.1)%. The effective tax rate was negative largely because of increased tax benefits from global operations including benefits from the repatriation of GE non-U.S. earnings, benefits of integrating our existing services business with Alstom's services business and foreign tax credit planning at GE Capital to reduce the tax cost of anticipated repatriations of foreign cash. |
· | The decrease in the consolidated provision for income tax was attributable to the increased benefit from global operations and the non-repeat of the 2015 charges associated with the GE Capital Exit Plan. |
· | As discussed in Note 14 to the consolidated financial statements, in 2015 in conjunction with the GE Capital Exit Plan, we incurred tax expense of $6.3 billion related to expected repatriation of foreign earnings and write-off of deferred tax assets. |
· | The consolidated tax provision includes $1.5 billion and $1.0 billion for GE (excluding GE Capital) for 2015 and 2016, respectively. |
2015 – 2014 COMMENTARY
· | The consolidated income tax rate for 2015 was greater than 35% due to charges associated with the GE Capital Exit Plan. |
· | The increase in the income tax expense is primarily due to the tax expense incurred as part of the GE Capital Exit Plan. |
· | The consolidated tax provision includes $1.6 billion and $1.5 billion for GE (excluding GE Capital) for 2014 and 2015, respectively. |
BENEFITS FROM GLOBAL OPERATIONS
Absent the effects of the GE Capital Exit Plan,U.S. tax reform and non-U.S. losses without a tax benefit, our consolidated income tax provision is lowergenerally reduced because of the benefits of lower-taxed global operations. ThereThe benefit from non-U.S. rates below the U.S. statutory rate was significant prior to the decrease in the U.S. statutory rate to 21% beginning in 2018. While reduced, there is still generally a benefit from global operations as certain non-U.S. income is subject to local country tax rates that are significantly below the 35%new U.S. statutory tax rate. These non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations.
The rate of tax on our indefinitely reinvestedprofitable non-U.S. earnings is below the 35% U.S. statutory tax rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GE funds certain non-U.S. operations through foreign companies that are subject to low foreign taxes. Most of these earnings have been reinvested in active non-U.S. business operations and as of December 31, 2019, we have not decided to repatriate these earnings to the U.S. Given U.S. tax reform, substantially all of our prior unrepatriated earnings were subject to U.S. tax and accordingly we expect to have the ability to repatriate available non-U.S. cash without additional U.S. federal tax cost and any foreign withholding taxes on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.
A substantial portion of the benefit for lower-taxed non-U.S. earnings related to business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate is derived from our GECAS aircraft leasing operations located in Ireland where the earnings are taxed at 12.5%, from our Power operations located in Switzerland where the earnings are taxed at between 9% and Hungary,18.6%, and our Healthcare operations in Europe.Europe where tax deductions are allowed for certain intangible assets and earnings are taxed below the historic U.S. statutory rate.
We expect our ability toThe rate of tax on non-U.S. operations is increased, however, because we also incur losses in foreign jurisdictions where it is not likely that the losses can be utilized and no tax benefit from non-U.S. income taxed at less thanis provided for those losses and valuation allowances against loss carryforwards are provided when it is no longer likely that the losses can be utilized. In addition, as part of U.S. tax reform, the U.S. ratehas enacted a tax on “base eroding” payments from the U.S. We are continuing to continue, subjectundertake restructuring actions to changes inmitigate the impact from this provision. The U.S. orhas also enacted a minimum tax on foreign law. In addition, since this benefit depends on management's intention to indefinitely reinvest amountsearnings (global intangible low tax income). Because we have tangible assets outside the U.S., and pay significant foreign taxes, we generally do not expect a significant increase in tax liability from this new U.S. minimum tax. Overall, these newly enacted provisions increase the rate of tax on our non-U.S. operations.
|
| | | | | | | | | |
BENEFIT/(EXPENSE) FROM GLOBAL OPERATIONS (In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Benefit/(expense) of foreign tax rate difference on non-U.S. earnings | $ | — |
| $ | (0.3 | ) | $ | 0.5 |
|
Benefit of audit resolutions | 0.1 |
| 0.2 |
| — |
|
Other | (1.1 | ) | (0.9 | ) | 2.9 |
|
Total benefit/(expense) | $ | (1.0 | ) | $ | (1.0 | ) | $ | 3.4 |
|
The amounts reported above exclude the impact of U.S. tax provision will increasereform which is reported as a separate line in the reconciliation of the U.S. federal statutory income tax rate to the extent we no longer indefinitely reinvest foreign earnings.actual tax rate in Note 15 to the consolidated financial statements.
BENEFITS FROM LOWER-TAXED GLOBAL OPERATIONS |
| | | | | | | | |
(In billions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Benefit of lower foreign tax rate on indefinitely reinvested non-U.S. earnings | $ | 0.9 | | $ | 1.1 | | $ | 1.2 |
GE Capital Exit Plan | | - | | | (6.1) | | | - |
Benefit of audit resolutions | | 0.1 | | | 0.2 | | | 0.1 |
Other | | 1.1 | | | 0.4 | | | 0.5 |
Total | $ | 2.1 | | $ | (4.4) | | $ | 1.8 |
2016 – 2015 COMMENTARY
Our benefitFor the year ended December 31, 2019, the increase in expense from lower-taxed global operations increased in 2016 because of the non-repeat of the 2015 tax expense associated with the GE Capital Exit Plan and because of benefits from the repatriation of GE non-U.S. earnings, benefits of integrating our existing services business with Alstom's services business and foreign tax credit planning at GE Capital to reduce the tax cost of anticipated repatriations of foreign cash, all of which are included in "other" in the table above.
2015 – 2014 COMMENTARY
Our benefits from lower-taxed global operations decreased in 2015 because ofreflects the tax expense associated with the GE Capital Exit Plan.
OTHER INFORMATION
Topreparatory internal restructuring for the extentplanned BioPharma sale and an increase in valuation allowances on non-U.S. operating income increases, we would expect tax benefits to increase, subject to management's intention to indefinitely reinvest those earnings. Included in 2015 is a tax expense of $6.1 billion related to the expected repatriation of foreign earnings and write-off of deferred tax assets offset by a benefit from change in conjunction with the GE Capital Exit Plan.
Theforeign rate and by a tax benefit from non-U.S. income taxed at a local country rate rather thanadditional guidance on provisions enacted as part of U.S. tax reform.
For the year ended December 31, 2018, the decrease in benefit from lower-taxed global operations reflects the lower U.S. statutory tax rate is reportedand losses without tax benefit. The decrease in other benefits reflects increases in incremental valuation allowances on non-U.S. deferred tax assets and for 2018 newly enacted taxes on non-U.S. earnings and the caption "Tax on global activities including exports" in the effective tax rate reconciliation in Note 14 to the consolidated financial statements.nonrecurrence of 2017 benefits associated with repatriation of foreign earnings.
A more detailed analysis of differences between the U.S. federal statutory rate and the consolidated effective rate, as well as other information about our income tax provisions, is provided in the Critical Accounting Estimates section within the MD&A and Note 1415 to the consolidated financial statements. The nature of business activities and associated income taxes differ for GE and for GE Capital; therefore, a separate analysis of each is presented in the paragraphs that follow.
GE EFFECTIVE TAX RATE (EXCLUDING GE CAPITAL EARNINGS)2019 FORM 10-K 23
(Dollars in billions)
We believe that the GE effective tax rate and provision for income taxes are best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. For further information on this calculation, see the Supplemental Information section within the MD&A.
GE ETR, EXCLUDING GE CAPITAL EARNINGS*
| | GE PROVISION FOR INCOME TAXES
|
| | |
2016 – 2015 COMMENTARY
·MD&A | The GE provision for income taxes decreased in 2016 because of increased benefits from lower-taxed global operations ($0.3 billion), including benefits from the repatriation of GE non-U.S. earnings and benefits of integrating our existing services business with Alstom's services business.OTHER CONSOLIDATED INFORMATION |
· | The GE provision for income taxes also decreased due to increases in the benefit from deductible stock losses ($0.4 billion). |
· | Partially offsetting these decreases was a lower benefit of audit resolutions ($0.1 billion) shown below. |
2015 – 2014 COMMENTARY
· | The GE provision for income taxes decreased in 2015 because of increased benefits from lower-taxed global operations ($0.2 billion), including benefits from integrating our existing services business with Alstom's services business. |
· | The GE provision for income taxes also decreased due to increases in the benefit of audit resolutions ($0.2 billion) shown below and deductible stock losses ($0.2 billion). |
· | Partially offsetting these decreases was an increase in income taxed at rates above the average tax rate ($0.5 billion). |
Resolution of audit matters reduced |
| | | | | | | | | |
GE EFFECTIVE TAX RATE (EXCLUDING GE CAPITAL EARNINGS) (Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE ETR, excluding GE Capital earnings* | 72.7 | % | (2.3 | )% | 271.0 | % |
GE provision for income taxes | $ | 1.3 |
| $ | 0.5 |
| $ | 3.5 |
|
For the year ended December 31, 2019, the GE provision for income taxes by $0.2 billion, $0.3 billion and $0.1 billion in 2016, 2015 and 2014, respectively. The effects of such resolutions are included in the following captions in Note 14increased compared to the consolidated financial statements.
AUDIT RESOLUTIONS - EFFECT ON GE TAX RATE, EXCLUDING GE CAPITAL EARNINGS | |
| | | | | | |
| 2016 | | 2015 | | 2014 | |
| | | | | | |
Tax on global activities including exports | (1.4) | % | (1.5) | % | (0.2) | % |
U.S. business credits | - | | (0.5) | | - | |
All other - net | (0.4) | | (0.3) | | (0.7) | |
Total | (1.8) | % | (2.3) | % | (0.9) | % |
| | | | | | |
GE CAPITAL EFFECTIVE TAX RATE
(Dollars in billions)
GE CAPITAL ETR
| | GE CAPITAL PROVISION (BENEFIT) FOR
INCOME TAXES
| |
| | |
2016 – 2015 COMMENTARY
· | The decrease in the income tax expense for GE Capital from an expense of $5.0 billion to a benefit of $1.4 billion is primarily due to the non-recurrence of the $6.3 billion tax expense, discussed in Note 14 to the consolidated financial statements, related to the GE Capital Exit Plan. |
· | The GE Capital tax expense also decreased in 2016 due to higher benefits from global operations including foreign tax credit planning to reduce the tax cost of anticipated repatriations of foreign cash. |
2015 – 2014 COMMENTARY
· | The increase in the income tax expense from a benefit of $0.9 billion for 2014 to an expense of $5.0 billion for 2015 is primarily due to the tax expense, discussed in Note 14 to the consolidated financial statements, related to the GE Capital Exit Plan. |
GEOGRAPHIC DATA
Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provision of financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new opportunities that include, among other things, expansion of industrial activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs.
Financial results of our non-U.S. activities reported in U.S. dollars are affected by currency exchange. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Such principal currencies are the euro, the pound sterling, the Brazilian real and the Chinese renminbi.
REVENUES
Revenues are classified according to the region to which products and services are sold. For purposes of this analysis, the U.S. is presented separately from the remainder of the Americas.
GEOGRAPHIC REVENUES | | | | |
| | | | | | | | | | V% |
(Dollars in billions) | | 2016 | | | 2015 | | | 2014 | | 2016-2015 | | 2015-2014 |
| | | | | | | | | | | | |
U.S. | $ | 53.3 | | $ | 53.2 | | $ | 51.1 | | -% | | 4 % |
Non-U.S. | | | | | | | | | | | | |
Europe | | 21.6 | | | 16.8 | | | 18.4 | | | | |
Asia | | 20.4 | | | 19.3 | | | 20.2 | | | | |
Americas | | 10.5 | | | 12.0 | | | 11.8 | | | | |
Middle East and Africa | | 17.8 | | | 16.0 | | | 15.6 | | | | |
Total Non-U.S. | | 70.4 | | | 64.1 | | | 66.0 | | 10 % | | (3)% |
Total | $ | 123.7 | | $ | 117.4 | | $ | 117.2 | | 5 % | | -% |
| | | | | | | | | | | | |
Non-U.S. Revenues as a % of Consolidated Revenues | | 57% | | | 55% | | | 56% | | | | |
NON-U.S. REVENUES AND EARNINGS
The increase in non-US. revenues in 2016 was2018 primarily due to increasestax expense associated with the preparatory internal restructuring for the planned BioPharma sale and the effect of 32% in Europe (primarily due to Alstom), 12% in Middle East, North Africa and Turkey (MENAT) and 35% in India,higher pre-tax income excluding non-deductible impairment charges, partially offset by a decrease of 10% in Latin America.
The decrease in non-U.S. revenues in 2015 was primarily due to decreases in growth markets of 11% in Canada and 29% in Australia & New Zealand (ANZ), partially offset by an increase of 2% in Middle East, North Africa and Turkey (MENAT) and 1% in China.
The effects of currency fluctuations on reported results were as follows:
· | Decreased revenues by $1.3 billion in 2016, primarily driven by the Brazilian real ($0.2 billion), pound sterling ($0.2 billion), euro ($0.1 billion) and the Chinese renminbi ($0.1 billion). |
· | Decreased revenues by $4.9 billion in 2015, primarily driven by the euro ($2.6 billion), the Brazilian real ($0.9 billion) and the Canadian dollar ($0.2 billion). |
The effects of foreign currency fluctuations decreased earnings by $0.3 billion in 2016. The effects of foreign currency fluctuations decreased earnings in 2015 by $0.7 billion.
ASSETS
We classify certain assets that cannot meaningfully be associated with specific geographic areas as "Other Global" for this purpose.
TOTAL ASSETS (CONTINUING OPERATIONS) | | | | | |
| | | | | |
December 31 (In billions) | | 2016 | | | 2015 |
| | | | | |
U.S. | $ | 179.0 | | $ | 176.7 |
Non-U.S. | | | | | |
Europe | | 110.8 | | | 141.9 |
Asia | | 24.0 | | | 22.0 |
Americas | | 20.6 | | | 17.5 |
Other Global | | 15.8 | | | 14.0 |
Total Non-U.S. | | 171.4 | | | 195.4 |
Total | $ | 350.4 | | $ | 372.1 |
The decrease in total assets of non-U.S. operations on a continuing basis reflected a decrease primarily in Europe driven by the strengtheningbenefit from the completion of the U.S. dollar against the euro and pound sterling, coupled with a decrease in time deposits in line with debt maturities at GE Capital.
FOREIGN CURRENCY EXPOSURE
As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies are the euro, the pound sterling, the Brazilian real and the Chinese renminbi. The results of operating entities reported in currencies other than U.S. dollar are translated to the U.S. dollar at the applicable exchange rate for inclusion in the financial statements. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. The foreign currency effect arising from operating activities outsideIRS audit of the 2012-2013 consolidated U.S., including the remeasurement of derivatives, can result in significant transactional foreign currency fluctuations at points in time, but will generally be offset as the underlying hedged item is recognized in earnings. The effects of foreign currency fluctuations, excluding the earnings impact of the underlying hedged item, decreased net earnings for income tax returns.
For the year ended December 31, 20162018, the GE provision for income taxes decreased compared to 2017 because of the nonrecurrence of the $4.9 billion charge for the provisional charge associated with the enactment of U.S. tax reform. Excluding the 2017 charge associated with U.S. tax reform, the GE tax provision increased by $0.3$1.9 billion. The increase was primarily due to the decrease in benefit from global operations including an increase in valuation allowances on non-U.S. deferred tax assets partially offset by the effect of lower pretax income excluding non-deductible impairment charges.
On June 23, 2016, a referendum |
| | | | | | | | | |
GE CAPITAL EFFECTIVE TAX RATE (Dollars in billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE Capital ETR | 89.3 | % | 99.7 | % | 49.9 | % |
GE Capital provision (benefit) for income taxes | $ | (0.6 | ) | $ | (0.4 | ) | $ | (6.3 | ) |
For the year ended December 31, 2019,the increase in the United Kingdom (U.K.) was approved to withdrawtax benefit at GE Capital from the European Union. The referendum was advisory and the termsa benefit of any withdrawal are subject$0.4 billion in 2018 to a negotiation period that could last for two years afterbenefit of $0.6 billion in 2019 is primarily due to a benefit from additional guidance on the U.K. government initiatestransition tax on historic foreign earnings enacted as part of U.S. tax reform, compared to a charge associated with the withdrawal process. The approvalenactment of U.S. tax reform during 2018.
For the year ended December 31, 2018, the decrease in the tax benefit at GE Capital from a benefit of $6.3 billion in 2017 to a benefit of $0.4 billion in 2018 is primarily due to the decrease in the pre-tax loss with a tax benefit above the average tax rate including the nonrecurrence of the referendum had,one-time charge to revalue insurance reserves.
RESEARCH AND DEVELOPMENT.We conduct research and may continuedevelopment (R&D) activities to have,continually enhance our existing products and services, develop new products and services to meet our customers’ changing needs and requirements, and address new market opportunities. R&D expenses are classified in cost of goods and services sold in our consolidated Statement of Earnings (Loss). In addition, R&D funding from customers, principally the U.S. government, is recorded as an impact on foreign currency exchange rates, among other things. We actively manageoffset to such costs.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GE funded | Customer and Partner funded(b) | Total R&D |
(In millions) | 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 |
|
| | | | | | | | | |
Power | $ | 310 |
| $ | 407 |
| $ | 641 |
| $ | 16 |
| $ | 7 |
| $ | 35 |
| $ | 327 |
| $ | 414 |
| $ | 676 |
|
Renewable Energy | 522 |
| 413 |
| 448 |
| 9 |
| 11 |
| 3 |
| 531 |
| 424 |
| 451 |
|
Aviation | 906 |
| 950 |
| 907 |
| 911 |
| 564 |
| 586 |
| 1,817 |
| 1,514 |
| 1,492 |
|
Healthcare | 994 |
| 968 |
| 908 |
| 25 |
| 23 |
| 26 |
| 1,019 |
| 991 |
| 934 |
|
Corporate(a) | 382 |
| 675 |
| 1,271 |
| 89 |
| 48 |
| 65 |
| 471 |
| 722 |
| 1,336 |
|
Total | $ | 3,115 |
| $ | 3,414 |
| $ | 4,175 |
| $ | 1,049 |
| $ | 652 |
| $ | 715 |
| $ | 4,164 |
| $ | 4,065 |
| $ | 4,890 |
|
(a) Includes Global Research Center and Digital.
(b) Customer funded is principally U.S. Government funded in our exposureAviation segment. R&D funded through consolidated partnerships was immaterial for all periods presented.
DISCONTINUED OPERATIONS.Discontinued operations primarily include our Baker Hughes and Transportation segments, our mortgage portfolio in Poland, residual assets and liabilities related to our exited U.S. mortgage business (WMC), as discussed in Notes 2 and 23 to the U.K.consolidated financial statements, and do not anticipatetrailing liabilities associated with the sale of our GE Capital businesses.
In September 2019, we sold a material economic impacttotal of 144.1 million shares in Baker Hughes for $3.0 billion in cash (net of certain deal related costs) which reduced our ownership interest from 50.2% to 36.8%. As a result, we have deconsolidated our currency exposureBaker Hughes segment and reclassified its 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 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 recent decisionspin-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.
*Non-GAAP Financial Measure
|
| | |
MD&A | OTHER CONSOLIDATED 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 and Note 15 to the consolidated financial statements for further information.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.K.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. See Note 23 to exit the European Union.consolidated financial statements for further information.
The mortgage portfolio in Poland (Bank BPH) comprises floating rate residential mortgages, with approximately 86% of the portfolio indexed to or denominated in foreign currencies (primarily Swiss francs) and the remaining 14% denominated in the local currency in Poland. At December 31, 2019, the total portfolio had a carrying value of $2.5 billion with a 1.4% 90-day delinquency rate and an average loan to value ratio of approximately 65%. The portfolio is recorded at fair value less cost to sell and includes a $0.3 billion impairment, which reflects our best estimate of the effects of potential legislative relief to borrowers and of ongoing litigation in Poland related to foreign currency-denominated mortgages. Future adverse developments in the potential for legislative relief or in litigation across the Polish banking industry could result in further impairment or other losses related to these loans in future reporting periods. See Note 23 to the consolidated financial statements for further information.
|
| | | | | | | | | |
FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS (In billions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Earnings (loss) of discontinued operations, net of taxes | $ | 0.3 |
| $ | (1.4 | ) | $ | (0.4 | ) |
Gain (loss) on disposal, net of taxes | (5.7 | ) | — |
| 0.1 |
|
Earnings (loss) from discontinued operations, net of taxes | $ | (5.3 | ) | $ | (1.4 | ) | $ | (0.3 | ) |
See Notes 20 and 29Note 2 to the consolidated financial statements for further information aboutfor our risk exposures,businesses in discontinued operations.
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*-to-EBITDA ratio of less than 2.5x and a dividend in line with our use of derivatives, and the effects of this activity on our financial statements.
peers over time, as well as a less than 4-to-1 debt-to-equity ratio for GE 2016 FORM 10-K 76
STATEMENT OF FINANCIAL POSITION
BecauseCapital. Both GE and GE Capital share certain significant elementsare on track to meet their respective leverage goals in 2020. In 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 their Statements of Financial Position,measures to ensure we are operating the following discussion addresses significant captions in the consolidated statement. Within the following discussions, however, we distinguish between GECompany based on a strong balance sheet. We will evaluate additional potential actions based on deleveraging impact, economics, risk mitigation and GE Capital activities in order to permit meaningful analysis of each individual consolidating statement.target capital structure while also monitoring key risks.
MAJOR CHANGES IN OUR FINANCIAL POSITION DURING 2016
· | Cash and equivalents decreased $22.4 billion. GE Cash and equivalents increased $0.2 billion due to continuing cash flows from operating activities of $30.0 billion (including common dividends from GE Capital of $20.1 billion), proceeds from the sale of our Appliances business of $4.8 billion and a short-term loan from GE Capital of $1.3 billion. This is partially offset by treasury stock net purchases of $21.4 billion (cash basis), including $11.4 billion paid under ASR agreements, common dividends of $8.5 billion, net PP&E additions of $2.7 billion, business acquisitions of $2.3 billion and software spend of $0.7 billion. GE Capital Cash and equivalents decreased $22.5 billion primarily driven by $58.8 billion net repayments of debt, $20.4 billion in payments of dividends to shareowners and a short-term loan to GE of $1.3 billion, partially offset by $59.9 billion in proceeds from business dispositions and $0.8 billion in proceeds from the sale of receivables originated in our Appliances business and sold to Haier. See the Statement of Cash Flows section of MD&A for additional information.
|
· | Investment securities increased $12.3 billion, primarily driven by investing excess cash in longer term investments to achieve higher yield at GE Capital. See Note 3 to the consolidated financial statements for additional information.
|
· | All other assets decreased $9.6 billion, primarily due to maturities of time deposits in line with debt maturities at GE Capital. See Note 9 to the consolidated financial statements for additional information.
|
· | Assets of discontinued operations decreased $106.1 billion, primarily due to the disposition of CLL businesses of $89.2 billion at GE Capital. See Note 2 to the consolidated financial statements for additional information.
|
· | Borrowings decreased $61.4 billion, primarily due to net repayment of debt at GE Capital. See Note 10 to the consolidated financial statements for additional information.
|
· | Liabilities of discontinued operations decreased $42.3 billion, primarily driven by the disposition of CLL businesses of $34.7 billion at GE Capital. See Note 2 to the consolidated financial statements for additional information.
|
· | Common stock held in treasury increased $19.5 billion, primarily due to treasury stock purchases of $22.0 billion (book basis), including $11.4 billion repurchased under ASR agreements. This was partially offset by treasury stock issuances of $2.6 billion. See Note 15 to the consolidated financial statements for additional information.
|
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY AND BORROWINGS
POLICY.We maintain a strong focus on liquidity.liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At both GE and GE Capital, we manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations, throughout business cycles.
Our liquidity and borrowing plans for GE and GE Capital are established within the context of our annual financial and strategic planning processes. At GE, our liquidity and funding plans take into account the liquidity necessary to fund our operating commitments, which include primarily purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also take into account ouras well as capital allocation and growth objectives, including paying dividends, repurchasing shares, investingthroughout business cycles.
CONSOLIDATED LIQUIDITY.Following is a summary of cash, cash equivalents and restricted cash at December 31, 2019.
|
| | | | | | | | |
(In billions) | December 31, 2019 |
| | | December 31, 2019 |
|
| | | | |
GE | $ | 17.6 |
| | U.S. | $ | 14.9 |
|
GE Capital | 18.8 |
| | Non-U.S. | 21.4 |
|
Consolidated | $ | 36.4 |
| | Consolidated | $ | 36.4 |
|
Cash held in researchnon-U.S. entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, developmentif there is a change in reinvestment, we would expect to be able to repatriate available cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.
Following is an overview of the primary sources of liquidity for GE and acquiring industrial businesses. At GE we rely primarily onCapital. See the Statement of Cash Flows section within MD&A for information regarding GE and GE Capital cash generated throughflow results.
GE LIQUIDITY.GE's primary sources of liquidity consist of cash and cash equivalents, free cash flows from our operating activities, any dividendbusinesses, 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 from on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions.
GE Capital, and also have historically maintainedhas available short-term borrowing facilities to fund its operations, including a commercial paper program, that we regularly use to fund operations in the U.S., principallyrevolving credit facilities and short-term intercompany loans from GE Capital, which are generally repaid within the quarters.same quarter. See the Borrowings section for details of our credit facilities and borrowing activity in our external short-term borrowing facilities.
*Non-GAAP Financial Measure
During 2017,
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE plans to incur new long-term debt to refinance existing unsecured term debt, finance the Baker Hughes transaction,cash, cash equivalents and for other corporate purposes. This new debt may consist of new unsecured term debt issued by GE or intercompany arrangements between GE and GE Capital utilizing GE Capital's excess unsecured term debt. GE maintains a commercial paper program with a balance of $1.5restricted cash totaled $17.6 billion at December 31, 2016.2019, including $2.6 billion of cash held in countries with currency control restrictions and $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 comprised collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
GE realized a total of approximately $10.3 billion of disposition proceeds for the year ended December 31, 2019, comprising $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.
In the first quarter of 2020, GE expects to receive approximately $20 billion of proceeds from the sale of our BioPharma business within our Healthcare segment, subject to regulatory approval. GE expects to use these proceeds as well as existing liquidity to repay the remaining $12.2 billion of intercompany loans from GE Capital, to contribute approximately $4 to $5 billion to the GE Pension Plan, which will equal our future minimum ERISA funding requirements through at least 2022, and to execute additional deleveraging actions of approximately $5 billion. Additionally, GE expects to receive proceeds from an orderly sale 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. Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2019. GE Capital's global commercial paper issuances total $5.0 billion at December 31, 2016. GE Capital mainly relies on excess cash positions, cash generated through dispositions, and the cash flow from our Verticals to fund our debt maturities, including current portion of long-term debt ($18.2 billion at December 31, 2016), and our operating and interest costs. GE Capital's liquidity position is targeted to meet its obligations under both normal and stressed conditions.least 2021. We expect to maintain an elevatedadequate liquidity position to fund our insurance obligations and debt maturities primarily as we generatea 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 $18.8 billion at December 31, 2019, including $0.9 billion which was subject to regulatory restrictions, primarily in insurance entities.
GE Capital generated proceeds of approximately $12 billion from asset sales, returningreductions for the year ended December 31, 2019, including $3.6 billion from the sale of a substantial portion of the assets and liabilities of PK AirFinance in the fourth quarter of 2019, exceeding our plan to more normalizedexecute total asset reductions of approximately $10 billion in 2019 and our overall $25 billion target, and completing our asset reduction plan. GE Capital also received an additional capital contribution of $2.5 billion from GE in the fourth quarter of 2019, totaling $4.0 billion for 2019.
GE Capital provided capital contributions to its insurance subsidiaries of $2.0 billion, $1.9 billion and $3.5 billion in the first quarters of 2020, 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $7 billion through 2024. These contributions are subject to ongoing monitoring by 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 in 2019. During this periodat these insurance subsidiaries under capital maintenance agreements. Going forward, we expect to continue to have excess interest costs asanticipate funding any capital needs for insurance through a combination of GE Capital liquidity, GE Capital asset sales, have outpaced ourGE Capital future earnings and capital contributions from GE.
BORROWINGS.Consolidated total borrowings were $90.9 billion and $103.6 billion at December 31, 2019 and December 31, 2018, respectively. The reduction was driven primarily by completion of a tender offer to purchase GE long-term debt maturities. While we maintain elevated liquidity levels, we may engage in liability management actions, such as buying backof $4.8 billion and net repayments of GE Capital debt based on market and economic conditions in order to reduce our excess interest costs. In 2016, we repurchased $6.7of $9.5 billion (including $9.3 billion of long-term unsecured debt and $5.8maturities), partially offset by an increase of $0.8 billion of subordinated debentures, resulting in a pre-tax loss of $0.6 billion.
We maintain a detailed liquidity policyfair value adjustments for GE Capital that defines debt in fair value hedge relationships as a result of lower interest rates.
GE Capital's liquidity risk tolerance under stress based on its liquidity sources,Industrial net debt* was $47.9 billion and $55.1 billion at December 31, 2019 and 2018, respectively. The reduction was driven primarily by the completion of a comprehensive framework for managing liquidity risk including metricstender offer to identifypurchase GE long-term debt of $4.8 billion in the third quarter of 2019 and monitor liquidity risk and procedures to escalate and address potential issues.
On December 2, 2015, $87.7total repayments of $1.5 billion of intercompany loans from GE Capital, as well as a higher ending cash balance.
In 2015, senior unsecured notes and $4.9 billion of commercial paper waswere assumed by GE upon its merger with GE Capital. OnUnder the GE balance sheet,conditions of the 2015 assumed debt is presentedagreement, GE Capital agreed to continue making required principal and interest payments on behalf of GE, resulting in borrowings withthe establishment of an offsettingintercompany receivable fromand payable between GE and GE Capital. On theIn addition, GE Capital balance sheet,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 is reflectedintercompany receivable and payable between GE and GE Capital, as annoted in the table below.
*Non-GAAP Financial Measure
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
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 payableloans: |
| | | | | | | | | |
December 31, 2019 (In billions) | GE |
| GE Capital |
| Consolidated(a) |
|
| | | |
Total short- and long-term borrowings | $ | 52.1 |
| $ | 39.9 |
| $ | 90.9 |
|
| | | |
Debt assumed by GE from GE Capital | (31.4 | ) | 31.4 |
| — |
|
Intercompany loans with right of offset | 12.2 |
| (12.2 | ) | — |
|
Total intercompany payable (receivable) between GE and GE Capital | (19.1 | ) | 19.1 |
| — |
|
| | | |
Total borrowings adjusted for assumed debt and intercompany loans | $ | 32.9 |
| $ | 59.0 |
| $ | 90.9 |
|
| |
(a) | Included elimination of other GE borrowings from GE Capital, primarily related to timing of cash settlements associated with GE receivables monetization programs. |
When measuring the individual financial positions of GE presented in borrowings (see Note 10 for additional information).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 totalthe primary components of GE and GE Capital externalborrowings, adjusted for assumed debt and debt assumed by GE as of December 31, 2016.intercompany loans.
|
| | | | | | | | | | | | | | |
GE (In billions) | December 31, 2019 |
| December 31, 2018 |
| | GE Capital (In billions) | December 31, 2019 |
| December 31, 2018 |
|
Commercial paper | $ | 3.0 |
| $ | 3.0 |
| | Commercial paper | $ | — |
| $ | — |
|
GE senior notes | 15.5 |
| 20.4 |
| | Senior and subordinated notes | 36.5 |
| 39.1 |
|
Intercompany loans from GE Capital | 12.2 |
| 13.7 |
| | Senior and subordinated notes assumed by GE | 31.4 |
| 36.3 |
|
Other GE borrowings | 2.2 |
| 2.6 |
| | Intercompany loans to GE | (12.2 | ) | (13.7 | ) |
| | | | Other GE Capital borrowings(a) | 3.4 |
| 3.9 |
|
| | | | Total GE Capital | | |
Total GE adjusted borrowings | $ | 32.9 |
| $ | 39.7 |
| | adjusted borrowings | $ | 59.0 |
| $ | 65.5 |
|
December 31, 2016 (In billions) | | | GE | | | GE Capital | | | Consolidated(a) |
| | | | | | | | | |
External debt | | $ | 79.3 | | $ | 58.5 | | $ | 136.2 |
Debt assumed by GE from GE Capital | | | (58.8) | | | 58.8 | | | - |
Debt adjusted for assumed debt | | | 20.5 | | | 117.3 | | | 136.2 |
| | | | | | | | | |
(a)Includes $1.6 Included $1.7 billion elimination of intercompany borrowings between GE and GE Capital.
LIQUIDITY SOURCES
In addition to GE cash of $10.5$1.9 billion at December 31, 2016,2019 and December 31, 2018, respectively, of non-recourse borrowings of consolidated securitization entities where GE Capital maintained liquidity sourceshas securitized financial assets as an alternative source of $50.5 billion that consistedfunding.
The intercompany loans from GE Capital to GE bear the right of cashoffset against amounts owed by GE Capital to GE under the assumed debt agreement and equivalentscan 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 $37.6 billion, high-quality investments3.5% and term of $11.5 billion and cash and equivalents of $1.4 billion classified as discontinued operations. Additionally,approximately 11.7 years at December 31, 2016, we have2019. In 2019, GE repaid a total of $1.5 billion of intercompany loans from GE Capital.
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) | December 31, 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 of committed unusedback-up revolving syndicated credit linesfacility extended by 36 banks, expiring in a2021, and an unused $14.8 billion revolving syndicated credit facility agreement.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.
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
The amount committed and available under the syndicated credit facility expiring on December 31, 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. Pursuant to an amendment entered into in the first quarter 2019, further commitment reductions (other than those related to incremental debt issuances or equity issuances) are deferred until the earlier of the closing of the BioPharma transaction or September 30, 2020. If the BioPharma transaction closes prior to June 30, 2020, the commitments under the facility are reduced by the greater of $7.4 billion or the calculated commitment reductions through the BioPharma closing date (including all deferred reductions). If the BioPharma transaction closes on or after June 30, 2020, the commitments under the facility are reduced by the greater of $9.9 billion or the calculated commitment reductions through the BioPharma closing date (including all deferred reductions). 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 suchall credit linesfacilities except the syndicated facility expiring on December 31, 2020 and transfer the proceeds as loans to GE Capital.
CASH AND EQUIVALENTS |
| | | | | | | |
(In billions) | | December 31, 2016 | | | | | December 31, 2016 |
| | | | | | | |
GE(a) | $ | 10.5 | | | U.S. | $ | 9.6 |
GE Capital(b) | | 37.6 | | | Non-U.S.(c) | | 38.6 |
| | | | | | | |
(a) | At December 31, 2016, $3.5 billion of GE cash and equivalents was held in countries with currency controls that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. These funds are available to fund operations and growth in these countries and we do not currently anticipate a need to transfer these funds to the U.S. |
(b) | At December 31, 2016, GE Capital cash and equivalents of about $0.5 billion was primarily in insurance entities and was subject to regulatory restrictions. |
(c) | Of this amount at December 31, 2016, $3.3 billion is held outside of the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis through short-term loans, without being subject to U.S. tax. Under the Internal Revenue Code, these loans are permitted to be outstanding for 30 days or less and the total of all such loans is required to be outstanding for less than 60 days during the year. If we were to repatriate this cash, we would be subject to additional U.S. income taxes and foreign withholding taxes. |
There were no new senior unsecured debt issuances in 2016.
COMMERCIAL PAPER |
| | | | | |
(In billions) | GE | | GE Capital |
| | | | | |
Average commercial paper borrowings during the fourth quarter of 2016 | $ | 13.9 | | $ | 5.0 |
Maximum commercial paper borrowings outstanding during the fourth quarter of 2016 | | 19.5 | | | 5.1 |
| | | | | |
Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital commercial paper maturities have historically been funded principally through new commercial paper issuances and at GE are substantially repaid before quarter-end using indefinitely reinvested overseas cash, which as discussed above, is available for usehas not exercised this right.
The following table provides a summary of the activity in the U.S. on aprimary external sources of short-term basis without being subject to U.S. tax.
We securitize financial assets as an alternative source of funding. At December 31, 2016, consolidated non-recourse securitization borrowings were $0.4 billion.
We have two deposit-taking banks outside of the U.S., which are classified as discontinued operations, and neither deposit-taking platform will be retained after the planned completion of the remainingfor GE Capital Exit Plan dispositions in Europe in 2017. On April 18, 2016, we completed the sale of the deposit-taking bank in the U.S., GE Capital Bank, an industrial bank.fourth quarters of 2019 and 2018.
EXCHANGE RATE AND INTEREST RATE RISKS |
| | | | | | | | | |
(In billions) | GE Commercial Paper |
| Revolving Credit Facilities |
| Total |
|
| | | |
2019 | | | |
Average borrowings during the fourth quarter | $ | 3.0 |
| $ | 1.3 |
| $ | 4.3 |
|
Maximum borrowings outstanding during the fourth quarter | 3.2 |
| 1.5 |
| 4.7 |
|
Ending balance at December 31 | 3.0 |
| — |
| 3.0 |
|
| | | |
2018 | | | |
Average borrowings during the fourth quarter | $ | 7.9 |
| $ | 2.5 |
| $ | 10.4 |
|
Maximum borrowings outstanding during the fourth quarter | 10.7 |
| 5.1 |
| 14.8 |
|
Ending balance at December 31 | 3.0 |
| — |
| 3.0 |
|
Exchange rateTotal average and interest rate risksmaximum borrowings in the table above are managed with a variety of techniques, including match funding and selective use of derivatives. We use derivatives to mitigate or eliminate certain financial and market risks because we conduct business in diverse markets around the world and local funding is not always efficient. In addition, we use derivatives to adjust the debt we are issuing to match the fixed or floating nature of the assets we are originating. We apply strict policies to manage each of these risks, including prohibitions on speculative activities. Following is an analysis of the potential effects of changes in interest rates and currency exchange rates using so-called "shock" tests that seek to model the effects of shifts in rates. Such tests are inherently limitedcalculated based on the assumptions used (described further below) and should not be viewed as a forecast; actual effects would depend on many variables, including market factors and the compositiondaily outstanding balance of the Company's assetssum of commercial paper and liabilities at that time.revolving credit facilities.
The reduction in total GE 2016 FORM 10-K 79average and maximum short-term borrowings during the fourth quarter of 2019 compared to the fourth quarter of 2018 was driven by holding higher cash balances and improvements in our global funding and cash management operations.
· | It is our policy to minimize exposure to interest rate changes. We fund our financial investments using debt or a combination of debt and hedging instruments so that the interest rates of our borrowings match the expected interest rate profile on our assets. To test the effectiveness of our hedging actions, we assumed that, on January 1, 2016, interest rates decreased by 100 basis points across the yield curve (a "parallel shift" in that curve) and further assumed that the decrease remained in place for the next 12 months. Based on the year-end 2016 portfolio and holding all other assumptions constant, we estimated that our consolidated net earnings for the next 12 months, starting in January 2016, would decline by less than $0.1 billion as a result of this parallel shift in the yield curve. |
In addition to its external liquidity sources, GE may from time to time enter into short-term intercompany loans from GE Capital to utilize GE Capital’s excess cash as an efficient source of liquidity. These loans are repaid within the same quarter. No such loans were made in 2019. GE Capital did not issue any commercial paper or draw on any revolving credit facilities in 2019.· | It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the protection of hedge strategies. We analyzed year-end 2016 consolidated currency exposures, including derivatives designated and effective as hedges, to identify assets and liabilities denominated in other than their relevant functional currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in exchange rates between those currencies and the U.S. dollar, holding all other assumptions constant. This analysis indicated that our 2016 consolidated net earnings would decline by less than $0.3 billion as a result of such a shift in exchange rates. This analysis excludes any translation impact from changes in exchange rates on our financial results and any offsetting effect from the forecasted future transactions that are economically hedged. |
DEBT AND DERIVATIVE INSTRUMENTS, GUARANTEES AND COVENANTS
AND CONDITIONS.We have relied, and may continue to rely, on the short-termshort- and long-term debt capital markets to fund, among other things, a significant portion of our operations and significant acquisitions.operations. The cost and availability of debt financing is influenced by our credit ratings.
On September 23, 2016, Moody’s Investors Service (Moody’s), Standard and Poor'sPoor’s Global Ratings (S&P) lowered GE's and GE Capital's long-term unsecured debt ratings to AA- from AA+. The A-1+ short-term funding rating from S&P remained unchanged. On October 31, 2016, GE announced an agreement with Baker Hughes as previously discussed in the Consolidated Results section of MD&A. Moody's, S&P, and Fitch Ratings (Fitch) affirmed GE's creditcurrently issue ratings following the announcement. Fitch has published credit ratings foron GE and GE Capital since August 2, 2016.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 | Stable | Stable | Negative |
Short term | P-2 | A-2 | F2 |
Long term | Baa1 | BBB+ | BBB+ |
GE Capital | | | |
Outlook | Stable | Stable | Negative |
Short term | P-2 | A-2 | F2 |
Long term | Baa1 | BBB+ | BBB+ |
There were no changes in GE or GE Capital ratings from the end of the first quarter of 2019 through the date of this filing.
We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Although we currently do not expect a downgrade in the credit ratings, ourOur 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 "Risk Factors –the Financial Risks - Funding access/costs - Failuresection of Risk Factors in this report.
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
The following table provides a summary of the estimated potential liquidity impact in the event of further downgrades with regards to maintain ourthe most significant contractual credit ratings or conditions of the Company based on their proximity to our current ratings.
|
| | | | |
(In billions) | Triggers Below | At December 31, 2019 |
|
| | |
Derivatives | | |
Terminations | BBB/Baa2 | $ | (0.2 | ) |
Cash margin posting | BBB/Baa2 | (0.5 | ) |
Receivables Sales Programs | | |
Loss of cash commingling | A-2/P-2/F2 | $ | (0.3 | ) |
Alternative funding sources | A-2/P-2/F2 | (1.1 | ) |
The timing within the quarter of the potential liquidity impact of these areas may differ, as described in the financial andfollowing sections which provide additional details regarding the significant credit markets, could adversely affectrating conditions of the Company.
DEBT CONDITIONS.Substantially all of our debt agreements do not contain material credit rating covenants. If our short-term credit ratings were to fall below A-2/P-2/F2, it is possible that we would lose all or part of our access to capitalthe tier-2 commercial paper markets, funding costs and related margins, liquidity and competitive position."
GE's and GE Capital's ratings are set forthwhich would reduce our borrowing capacity in the table below.
| Moody's | | S&P | | Fitch |
| | | | | |
GE | | | | | |
Outlook | Stable | | Stable | | Stable |
Short term | P-1 | | A-1+ | | F1+ |
Long term | A1 | | AA- | | AA- |
| | | | | |
GE Capital | | | | | |
Outlook | Stable | | Stable | | Stable |
Commercial paper | P-1 | | A-1+ | | F1+ |
Senior notes | A1 | | AA- | | AA- |
| | | | | |
PRINCIPAL DEBT AND DERIVATIVE CONDITIONS
Certainthose markets. This may result in increased utilization of our derivative instruments can be terminated if specifiedrevolving credit ratings are not maintained and certain debt and derivatives agreements of other consolidated entities have provisions that are affected by these credit ratings.facilities to fund our intra-quarter operations.
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 standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the net exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
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 long-term credit ratings of the applicable GE entity were to fall below A-/A3 or otherspecified ratings levels agreed upon with the counterparty. 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 $0.2 billion at December 31, 2019. This excludes exposure related to embedded derivatives, which are not subject to these provisions.
In addition, certain of these master agreements, the counterparty also has the abilityour derivatives, primarily interest rate swaps, are subject to require terminationadditional cash margin posting requirements if the short-termour credit ratings of the applicable GE entity were to fall below A-1/P-1.BBB/Baa2. The net derivative liability after considerationamount of netting arrangements, outstanding interest paymentsadditional margin will vary based on, among other factors, market movements and collateral posted by us under these master agreements was estimated to be $0.4 billion atchanges in our positions. At December 31, 2016.
2019, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.5 billion.
See Notes 20 and 29Note 21 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
OTHER CONDITIONS.Where we provide servicing for third-party investors under certain of our receivable sales programs, GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicitis contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-2/P-2/F2. In the event any of our ratings were to fall below such levels, we may be required to segregate certain of these cash collections owed to third-party investors into restricted bank accounts and explicit supportwould lose the short-term liquidity benefit of commingling with respect to such collections. The financial impact to our intra-quarter liquidity would vary based on collections activity for a given quarter and may result in increased utilization of our revolving credit facilities. The loss of cash commingling would have resulted in an estimated maximum reduction of approximately $0.3 billion to GE Capital through commitments, capital contributionsintra-quarter liquidity during the fourth quarter of 2019.
In addition, we have relied, and operating support. Atmay continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of liquidity generated by these programs could be adversely impacted. In the fourth quarter of 2019, the estimated maximum reduction to our ending liquidity had our credit ratings fallen below these levels was approximately $1.1 billion.
FOREIGN EXCHANGE AND INTEREST RATE RISKS.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 Australian dollar, 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, $0.3 billion, and $0.1 billion for the years ended December 31, 2016, GE debt assumed 2019, 2018 and 2017, respectively. This analysis excludes any offsetting effect from the forecasted future transactions that are economically hedged.
GE Capital2019 FORM 10-K 29
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
Exchange rate and interest rate risks are managed with a variety of techniques, including selective use of derivatives. We apply policies to manage each of these risks, including prohibitions on speculative activities. Following is an analysis of the potential effects of changes in interest rates and currency exchange rates.
| |
• | It is our policy to minimize exposure to interest rate changes and their impact to interest and other financial charges. We fund our financial investments using a combination of debt and hedging instruments so that the interest rates of our borrowings match the expected interest rate profile on our assets. It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the protection of hedge strategies. To test the effectiveness of our hedging actions, for interest rate risk we assumed that, on January 1, 2020, interest rates decreased by 100 basis points and the decrease remained in place for the next 12 months and for currency risk of assets and liabilities denominated in other than their functional currencies, we evaluated the effect of a 10% shift in exchange rates against the U.S. dollar. The analyses indicated that our 2019 consolidated net earnings would decline by less than $0.1 billion for interest rate risk and approximately $0.1 billion for foreign exchange risk. |
LIBOR REFORM.In connection with the mergerpotential transition away from the use of the London interbank offered rate (LIBOR) as an interest rate benchmark, we are currently in the process of identifying and managing the potential impact to the Company. The majority of the Company’s exposure to LIBOR relates to debt securities issued by GE Capital, intofor which contractual fallback language exists, as well as preferred stock issued by GE, was $58.8 billion,substantially all of which converts to LIBOR in January 2021. Additionally, with respect to our derivatives portfolio, we will review industry-wide LIBOR reform efforts and expect that such efforts will provide guidance on how to manage the transition from LIBOR for derivatives.
STATEMENT OF CASH FLOWS – OVERVIEW FROM 2017 THROUGH 2019. We manage the cash flow performance of our industrial and financial services businesses separately. We therefore believe it is useful to report separate GE and GE guaranteed $47.5 billionCapital columns in our Statement of Cash Flows because it enables us and our investors to evaluate the cash from operating activities of our industrial businesses (the principal source of cash generation for our industrial businesses) separately from the cash flows of our financial services business, as well as to evaluate the cash flows between our industrial businesses and GE Capital debt.Capital.
In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the effects of currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 2824 to the consolidated financial statements for further information onregarding All other operating activities, All other investing activities and All other financing activities for both GE and GE Capital.
The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in 2019: the guarantor 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.
ACCELERATED SHARE REPURCHASE AGREEMENT
During 2016, we repurchased $22.0 billion of our common stock, including $11.4 billion repurchased under accelerated share repurchase (ASR) agreements.
In December 2016, we entered into an ASR agreement with a financial institution that allowed us to repurchaseSee the Intercompany Transactions between GE common stock at a price below its volume weighted-average price during a given period. During the fourth quarter, we paid $2.2 billion and received and classified as treasury shares an initial delivery of 59,177,215 shares based on then-current market prices. The payment was recorded as a reduction to shareowners' equity, consisting of a $1.9 billion increase in treasury stock, which reflects the value of the shares received upon initial delivery, and a $0.3 billion decrease in other capital, which reflects the value of the stock held back pending final delivery.
We accounted for the ASR as two separate transactions: (i) 59,177,215 shares of common stock initially delivered to GE and $1.9 billion was accounted for as a treasury stock transaction and (ii) the unsettled contract of $0.3 billion was determined to be a forward contract indexed to GE's own common stock. The initial delivery of 59,177,215 shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. GE has determined that the forward contract, indexed to its own common stock, met all the criteria for equity classification.
In the first quarter of 2017, we received the remaining 10,773,050 shares based on the final volume weighted-average price less the negotiated discount.
STATEMENT OF CASH FLOWS – OVERVIEW FROM 2014 THROUGH 2016
CONSOLIDATED CASH FLOWS
We evaluate our cash flows performance by reviewing our industrial (non-GE Capital) businesses and GE Capital businesses separately. Cash from operating activities (CFOA) issection within MD&A and Notes 4 and 25 to the principal source of cash generationconsolidated financial statements for further information regarding certain transactions affecting our industrial businesses.
GE CASH FLOWS
(Dollars in billions)
OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | | | |
| | | | |
2014 | 2015 | 2016 | | 2014 | 2015 | 2016 | | 2014 | 2015 | 2016 |
With respect to GE CFOA, we believe that it is useful to supplement our GEconsolidated Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.Flows.
GE CASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities, contribute to post retirement plans and pay others for a wide range of material, services and services. Dividendstaxes.
GE measures itself on a GE Industrial free cash flows* basis. This metric includes GE CFOA plus investments in property, plant and equipment and additions to internal-use software; this metric excludes any dividends received from GE Capital representand any cash received from dispositions of property, plant and equipment. We believe that investors may also 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 better allows management and investors to evaluate the capacity of our industrial operations to generate free cash flows.
*Non-GAAP Financial Measure
|
| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2019 CFOA (GAAP) AND FREE CASH FLOWS (FCF) BY SEGMENT (NON-GAAP) | | | |
(In millions) | | Power | | Renewable Energy | | Aviation | | Healthcare | | Corporate & Eliminations | | GE Industrial |
| | | | | | | | | | | | |
CFOA (GAAP) | | $ | (1,200 | ) | | $ | (512 | ) | | $ | 5,552 |
| | $ | 3,024 |
| | $ | (2,250 | ) | | $ | 4,614 |
|
Add: gross additions to property, plant and equipment | | (277 | ) | | (455 | ) | | (1,031 | ) | | (395 | ) | | (59 | ) | | (2,216 | ) |
Add: gross additions to internal-use software | | (46 | ) | | (14 | ) | | (107 | ) | | (79 | ) | | (28 | ) | | (274 | ) |
Less: GE Pension Plan funding | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: taxes related to business sales | | — |
| | — |
| | — |
| | — |
| | (198 | ) | | (198 | ) |
Free cash flows (Non-GAAP) | | $ | (1,523 | ) | | $ | (980 | ) | | $ | 4,415 |
| | $ | 2,550 |
| | $ | (2,139 | ) | | $ | 2,322 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
2018 CFOA (GAAP) AND FREE CASH FLOWS (FCF) BY SEGMENT (NON-GAAP) | | | |
(In millions) | | Power | | Renewable Energy | | Aviation | | Healthcare | | Corporate & Eliminations | | GE Industrial |
| | | | | | | | | | | | |
CFOA (GAAP) | | $ | (1,849 | ) | | $ | 406 |
| | $ | 5,373 |
| | $ | 3,485 |
| | $ | (6,714 | ) | | $ | 701 |
|
Add: gross additions to property, plant and equipment | | (358 | ) | | (297 | ) | | (1,070 | ) | | (378 | ) | | (131 | ) | | (2,234 | ) |
Add: gross additions to internal-use software | | (66 | ) | | (11 | ) | | (73 | ) | | (90 | ) | | (67 | ) | | (306 | ) |
Less: GE Pension Plan funding | | — |
| | — |
| | — |
| | — |
| | (6,000 | ) | | (6,000 | ) |
Less: taxes related to business sales | | — |
| | — |
| | — |
| | — |
| | (180 | ) | | (180 | ) |
Free cash flows (Non-GAAP) | | $ | (2,273 | ) | | $ | 98 |
| | $ | 4,230 |
| | $ | 3,018 |
| | $ | (731 | ) | | $ | 4,341 |
|
GE cash from operating activitieswas $4.6 billion in 2019 compared with $0.7 billion in 2018 (including $0.3 billion and $0.5 billion cash received for Baker Hughes Class B shareholder dividends in 2019 and 2018, respectively). The $3.9 billion increase was primarily due to: the nonrecurrence of GE Pension Plan contributions of $6.0 billion in 2018 (which are excluded from GE Industrial free cash flows*); a decrease in payments of equipment project cost accruals of $0.6 billion; a net decrease in payments of Aviation-related customer allowance accruals of $0.4 billion; and an increase in cash generated from contract & other deferred assets of $0.1 billion, primarily due to higher billings on our long-term service agreements, partially offset by lower liquidations of deferred inventory.
These increases in cash were partially offset by: an increase in cash used for working capital of $2.6 billion; and an increase in cash paid for income taxes of $0.6 billion.
The increase in cash used for working capital was due to: an increase in cash used for current receivables of $2.9 billion, primarily driven by lower sales of receivables and receivables growth resulting from the 737 MAX grounding; a decrease in cash from accounts payable of $0.9 billion; and higher inventory build of $0.5 billion, mainly as a result of the expected timing of deliveries in 2020. These increases in cash used for working capital were partially offset by higher progress collections of $1.8 billion, mainly as a result of higher utilization of collections in 2018, including the impact of the timing of progress collections received in the fourth quarter of 2017.
As discussed in the Aviation and GECAS 737 MAX section within the Consolidated Results section of MD&A, the 737 MAX grounding had an adverse net effect on GE CFOA of approximately $1.4 billion in 2019. Within Aviation, this effect was more than offset by: higher commercial aftermarket earnings and higher long-term service agreement billings of $0.6 billion; cash receipts from contract modifications of $0.3 billion; a new spare parts distribution deal for a legacy engine program of $0.3 billion; and lower customer allowance payments of $0.4 billion as discussed above. Other Aviation working capital cash flows, excluding the impact of the 737 MAX grounding, largely offset.
GE cash from investing activities was $4.1 billion in 2019 compared with $3.1 billion in 2018. The $0.9 billion increase was primarily due to: 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 total proceeds of $6.0 billion in 2018, primarily from the sale of businesses at Power and Healthcare; a decrease in net cash paid for settlements of derivative hedges of $0.9 billion; the nonrecurrence of the purchase of an aviation technology joint venture of $0.6 billion in 2018; partially offset by the 2019 capital contribution to GE Capital retained earnings,of $4.0 billion; business acquisitions of $0.4 billion, primarily related to the transfer of the HEF business from GE Capital to our Healthcare segment in 2019; and are distinct froman increase in cash fromused related to net settlements between our continuing operations within theand discontinued operations of $0.4 billion. Cash used for additions to property, plant and equipment and internal-use software, which is a component of GE Capital businesses.Industrial free cash flows*, was $2.5 billion in both 2019 and 2018.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net income including those related to taxes, interest, pension, contract assets and gains (losses) on principal business dispositions. See Note 26 to the consolidated financial statements for further information.
See the Intercompany Transactions between GE and GE Capital section within the MD&A and Notes 4, 22 and 24 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 82 31
2016 – 2015 COMMENTARY – CONTINUING OPERATIONS:
GE cash from operating activities-continuing operations increased $13.6 billion, primarily due to the following:
· |
| GE Capital paid common dividends totaling $20.1 billion and $4.3 billion to GE in 2016 and 2015, respectively. | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
· | Improvement of working capital of $3.6 billion, primarily due to increases in progress collections and accounts payable, partially offset by an increase in inventory build. |
· | These increases were partially offset by the following decreases: |
· | $1.0 billion increase in income tax payments, including $1.4 billion in taxes related to the 2016 sale of our Appliances business to Haier. |
· | Higher restructuring and interest payments of $0.6 billion and $0.4 billion, respectively, when compared to 2015. |
· | $0.5 billion of 2016 incentive compensation payments due to long-term performance awards. No such payments were made in 2015. |
· | 2016 GE Pension Trust funding of $0.3 billion representing net sale proceeds associated with the July 1, 2016 sale of GE Asset Management (GEAM) to State Street Corporation. |
· | The nonrecurrence of settlements related to the NBCU transaction of $0.5 billion and an Electrolux break-up fee of $0.2 billion received in 2015. |
· | See Note 26 to the consolidated financial statements for further information regarding cash sources and uses as well as non-cash adjustments to net income reported as All other operating activities. |
GE cash used for investing activities-continuing operations decreased $10.8 billion, primarily due to the following:
· | Higher proceeds from principal business dispositions of $3.6 billion, primarily driven by the sale of our Appliances business to Haier for proceeds of $4.8 billion and the sale of GEAM for proceeds of $0.4 billion in 2016, compared to $1.7 billion of total proceeds from principal business dispositions in 2015. |
· | A decrease in business acquisition activity of $8.1 billion, primarily driven by the acquisition of Alstom for $10.1 billion in 2015. |
· | These decreases were partially offset by the funding of joint ventures of $0.4 billion in 2016, principally related to our Aviation business (reflected in All other investing activities). |
GE cash used for financing activities-continuing operations increased $19.2activities was $7.7 billion in 2019 compared with cash from financing activities of $1.5 billion in 2018. The $9.1 billion increase in cash used was primarily due to: the nonrecurrence of intercompany loans from GE Capital to GE of $6.5 billion in 2018 (including $6.0 billion to fund contributions to the following: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 $4.4 billion in 2018; the repayment of GE Capital intercompany loans by GE of $1.5 billion in 2019; partially offset by a decrease in common dividends paid to shareholders of $3.8 billion; and the nonrecurrence of the acquisition of Alstom's interest in grid technology, renewable energy, and global nuclear and French steam power joint ventures for $3.1 billion in 2018.
· | Net purchases of GE treasury shares of $21.4 billion, including $11.4 billion paid under ASR agreements compared to $1.1 billion in 2015. |
· | This increase in cash usage was partially offset by the following decreases: |
· | A net increase in borrowings of $0.8 billion, primarily driven by a short-term loan from GE Capital to GE with remaining principal of $1.3 billion in 2016 (the loan was fully repaid in January 2017). |
· | Lower dividends paid to shareowners of $0.8 billion due to lower shares outstanding in 2016 because of on-going repurchases of GE treasury shares. |
2015 – 2014 COMMENTARY – CONTINUING OPERATIONS:
GE cash from operating activities-continuing operations increasedactivities was $0.7 billion in 2018 compared with $11.5 billion in 2017 (including $0.5 billion and $0.3 billion cash received for Baker Hughes Class B shareholder dividends in 2018 and 2017, respectively). The $10.8 billion decrease was primarily due to: an increase in GE Pension Plan contributions (which are excluded from GE Industrial free cash flows*) of $4.3 billion; the nonrecurrence of common dividends received from GE Capital (which are excluded from GE Industrial free cash flows*) of $4.0 billion in 2017; an increase in cash used for working capital of $3.4 billion; and an increase in payments of equipment project cost accruals of $0.7 billion.
These decreases in cash were partially offset by: a decrease in cash used for contract & other deferred assets of $1.2 billion, primarily due to the following:timing of revenue recognized relative to the timing of billings and collections on our long-term equipment agreements and lower cash used for deferred inventory; and a decrease in cash paid for income taxes of $0.8 billion.
· | GE Capital paid common dividends totaling $4.3 billion and $3.0 billion to GE in 2015 and 2014, respectively. |
· | Improvement of working capital of $0.6 billion, primarily related to increased collections on current receivables, partially offset by a decrease in accounts payable and progress collections. |
The increase in cash used for working capital was due to: lower progress collections of $2.4 billion, mainly as a result of net utilization in 2018, including the impact of the timing of progress collections received in the fourth quarter of 2017; an increase in cash used for current receivables of $2.0 billion, primarily driven by lower sales of receivables; and higher inventory build of $0.7 billion, mainly as a result of expected deliveries in 2019. These increases in cash used for working capital were partially offset by an increase in cash from accounts payable of $1.6 billion, primarily driven by inventory build and improved payment terms.· | Settlements related to the NBCU transaction of $0.5 billion and an Electrolux break-up fee of $0.2 billion received in 2015. |
· | These increases were partially offset by a $0.3 billion increase in income tax payments. |
GE cash from investing activities was $3.1 billion in 2018 compared with cash used for investing activities of $11.7 billion in 2017. The increase in cash of $14.9 billion was primarily due to: a decrease in cash used related to net settlements between our continuing operations and discontinued operations of $6.6 billion, primarily related to funding in the first half of 2017 in order to complete the Baker Hughes acquisition; an increase in proceeds from business dispositions (net of cash transferred) of $3.0 billion, primarily from the sale of businesses at Power and Healthcare; a decrease in cash used for business acquisitions (net of cash acquired) of $2.7 billion, primarily driven by the acquisitions of LM Wind Power and ServiceMax in 2017; lower cash used for additions to property, plant and equipment and internal-use software (which is a component of GE Industrial free cash flows*) of $1.3 billion; and the provision of a promissory note to Baker Hughes in the third quarter of 2017 of $1.1 billion; partially offset by the purchase of an aviation technology joint venture of $0.6 billion in 2018.· | See Note 26 to the consolidated financial statements for further information regarding cash sources and uses as well as non-cash adjustments to net income reported as All other operating activities. |
GE 2016 FORM 10-K 83cash from financing activities was $1.5 billion in 2018 compared with $1.9 billion in 2017. The $0.4 billion decrease was primarily due to: a decrease in net borrowings of $7.9 billion, mainly as a result of the issuance of long-term euro debt, primarily to fund acquisitions in 2017; and the acquisition of Alstom's interest in grid technology, renewable energy, and global nuclear and French steam power joint ventures for $3.1 billion in 2018. These decreases in cash were partially offset by: a decrease in common dividends paid to shareholders of $4.2 billion; an increase in dispositions of noncontrolling interests in Baker Hughes of $4.1 billion; and a decrease in net repurchases of GE treasury shares of $2.5 billion.
GE CASH FLOWS FROM DISCONTINUED OPERATIONS.GE cash used for operating activities of discontinued operations was an insignificant amount in 2019 compared with cash generated of $2.1 billion in 2018. The $2.1 billion decrease was primarily as a result of the dispositions of Baker Hughes in the third quarter of 2019 and our Transportation segment in the first quarter of 2019, due to the nonrecurrence of operating cash generated in 2018, primarily in the fourth quarter.
GE cash used for investing activities-continuingactivitiesof discontinued operations increased $6.9 was $3.4 billion in 2019 compared with $0.7 billion in 2018. The $2.8 billion increase in cash used was primarily due to the following: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.
· | Higher business acquisition activity of $8.3 billion primarily driven by the 2015 acquisition of Alstom for $10.1 billion. This compares to the 2014 acquisitions of certain Thermo Fisher Scientific Inc. life-sciences business for $1.1 billion, Cameron's Reciprocating Compression Division for $0.6 billion and API Healthcare (API) for $0.3 billion. Partially offset by; |
· | Higher proceeds from principal business dispositions of $1.1 billion in 2015, primarily relating to Signaling of $0.8 billion and Intelligent Platforms Embedded Systems Products of $0.5 billion in 2015, compared to $0.6 billion of proceeds from principal business dispositions in 2014. |
GE cash used for financing activities-continuingactivitiesof discontinued operations increased $1.5 was $0.4 billion in 2019 compared with $4.5 billion in 2018. The $4.1 billion decrease of cash used was primarily due to: the nonrecurrence of Baker Hughes share repurchases of $2.5 billion in 2018; and an increase in Baker Hughes borrowings of $0.3 billion in 2019 compared with net repayments of Baker Hughes borrowings of $1.1 billion in 2018.
GE cash from operating activities of discontinued operations was $2.1 billion in 2018 compared with cash used of $0.2 billion in 2017. The $2.2 billion increase in cash was primarily as a result of better operating performance at Baker Hughes.
GE cash used for investing activitiesof discontinued operations was $0.7 billion in 2018 compared with cash generated of $2.3 billion in 2017. The $3.0 billion increase in cash used was primarily due to: a decrease in net cash received from continuing operations of $6.6 billion, primarily duerelated to funding in the following:first half of 2017 in order to complete the Baker Hughes acquisition; partially offset by the nonrecurrence of net cash paid for the Baker Hughes acquisition of $3.4 billion in 2017.
*Non-GAAP Financial Measure
· |
| The 2015 repayment of $2.0 billion of GE unsecured notes, partially offset by; | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
· | The 2015 issuance of unsecured notes of $3.4 billion compared to $3.0 billion in 2014. |
GE cash used for financing activitiesof discontinued operations was $4.5 billion in 2018 compared with cash generated of $3.5 billion in 2017. The $8.0 billion increase in cash used was primarily due to: net repayments of Baker Hughes borrowings of $1.1 billion in 2018 compared with net new debt of $4.7 billion in 2017, including the issuance of long-term debt of $4.0 billion and a promissory note received from GE of $1.1 billion; and an increase in Baker Hughes share repurchases of $2.0 billion.
GE CAPITAL CASH FLOWS
(Dollars in billions)
OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | | | |
| | | | |
2014 | 2015 | 2016 | | 2014 | 2015 | 2016 | | 2014 | 2015 | 2016 |
2016 – 2015 COMMENTARY
FROM CONTINUING OPERATIONS.GE Capital cash from operating activities decreased $3.1 was $1.9 billion in 2019 compared with $1.6 billion in 2018. The increase of $0.3 billion was primarily due to the following:to: a net increase in cash collateral received and settlements paid from counterparties on derivative contracts of $2.0 billion; partially offset by a general decrease in cash generated from earnings (loss) from continuing operations.
· | Higher net income tax payments of $2.6 billion. |
· | Higher cash paid for interest reflecting excess interest expense, and costs associated with the February and May 2016 debt tenders. |
· | These decreases were partially offset by a net increase in cash collateral received from counterparties on derivative contracts of $1.7 billion. |
· | See Note 26 to the consolidated financial statements regarding All other operating activities. |
GE Capital cash from investing activities decreased $12.2 was $9.5 billion in 2019 compared with $11.8 billion in 2018. The decrease of $2.3 billion was primarily due to: lower collections of financing receivables of $6.6 billion; an increase of net purchases of investment securities of $4.2 billion; lower net sales of equity investments of $3.1 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 $2.4 billion; partially offset by the following:nonrecurrence of intercompany loans from GE Capital to GE of $6.5 billion in 2018; an increase in cash related to our current receivables and supply chain finance programs with GE of $4.4 billion; higher proceeds from business dispositions $1.9 billion; and the repayment of GE Capital intercompany loans by GE of $1.5 billion in 2019.
· | Net proceeds from the sales of our CLL, Consumer and Real Estate businesses of $59.9 billion compared to $79.6 billion in 2015. |
· | Liquidity investments of $11.5 billion purchased in 2016. |
· | Net cash received from derivative settlements of $0.4 billion compared to $4.4 billion in 2015. |
· | An increase in net financing receivables of $1.5 billion, including $4.3 billion in additions, partially offset by $2.1 billion received from the refinancing of our Receivables Facility and proceeds from the sale of receivables purchased from our Appliances business of $0.8 billion in 2016. |
· | A short-term loan from GE Capital to GE with remaining principal of $1.3 billion in 2016 (the loan was fully repaid in January 2017). |
· | These decreases were partially offset by the following increases: |
· | Investment and maturity of $20.8 billion related to high quality interest bearing deposits reflecting an investment of $10.4 billion in 2015 that matured in 2016. |
· | Other investing activities of $3.9 billion, primarily due to a reduction in net additions to property, plant & equipment of $1.6 billion and an increase in aircraft deposits received of $1.5 billion. |
· | The 2015 acquisition of Milestone Aviation Group resulting in net cash paid of $1.7 billion. |
GE Capital cash used for financing activities increased $15.0 was $7.0 billion in 2019 compared with $23.9 billion in 2018. The decrease of $16.9 billion was primarily due to the following:lower net repayments of borrowings of $11.4 billion; a capital contribution from GE to GE Capital of $4.0 billion; and lower cash settlements on derivatives hedging foreign currency debt of $1.4 billion.
· | GE Capital paid common dividends to GE totaling $20.1 billion compared to $4.3 billion in 2015, partially offset by; |
· | Lower net repayments of borrowings of $58.8 billion compared to $59.3 billion in 2015, reflecting $2.1 billion of repayments resulting from the refinancing of our Receivables Facility in 2016. |
2015 – 2014 COMMENTARY
GE Capital cash from operating activities decreased $4.7was $1.6 billion in 2018 compared with $2.4 billion in 2017. The decrease of $0.8 billion was primarily due to:a net increase in cash collateral and settlements paid to the following:counterparties on derivative contracts of $1.5 billion; partially offset by a general increase in cash generated from earnings (loss) from continuing operations.
· | Net decrease in cash collateral received from counterparties on derivative contracts of $3.0 billion. |
· | A decrease in accounts payable of $0.4 billion. |
· | See Note 26 to the consolidated financial statements regarding All other operating activities. |
GE Capital cash from investing activities increased $49.1was $11.8 billion in 2018 compared with $8.2 billion in 2017. The increase of $3.5 billion was primarily due to: higher collections of financing receivables of $7.1 billion and proceeds from the sales of EFS' debt origination business and EFS equity investments of $6.1 billion in 2018; partially offset by a decrease in net investment securities of $4.6 billion: $2.5 billion in 2018 compared with $7.1 billion in 2017; an increase in net additions to the following:property, plant and equipment of $1.6 billion; net proceeds from sales of discontinued operations of an insignificant amount in 2018 compared with $1.5 billion in 2017; an increase in net intercompany loans from GE Capital to GE of $6.5 billion in 2018 compared with $5.9 billion in 2017 and a general reduction in funding related to discontinued operations.
· | In 2015, we closed the sales of certain of our CLL, Real Estate and Consumer businesses for proceeds of $35.2 billion, $27.7 billion and $16.7 billion, respectively. |
· | These increases were partially offset by the following decreases: |
· | 2015 investment of $10.4 billion in high quality interest bearing deposits (with a maturity date of April 2016). |
· | Aircraft deposits received of $0.1 billion compared to $2.3 billion in 2014. |
· | The net cash payment of $1.7 billion for the 2015 acquisition of Milestone Aviation Group. |
· | Net activity from equity method investments of $1.4 billion compared to $0.3 billion in 2014. |
GE Capital cash used for financing activities increased $27.7was $23.9 billion in 2018 compared with $23.6 billion in 2017. The increase of $0.3 billion was primarily due to the following:
· | Higher net repayments of borrowings of $25.7to: higher net repayments of borrowings of $21.1 billion primarily driven by an increase in short-term and long-term debt maturities of $59.3 billion compared to $33.6 billion in 2014. |
· | GE Capital paid higher common dividends to GE totaling $4.3 billion compared to $3.0 billion in 2014. |
GE CAPITAL DISCONTINUED OPERATIONS CASH FLOWS
(Dollars in billions)
OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | | | |
| | | | |
2014 | 2015 | 2016 | | 2014 | 2015 | 2016 | | 2014 | 2015 | 2016 |
2016 – 2015 COMMENTARY – DISCONTINUED OPERATIONS:
2018 compared with $19.0 billion in 2017 and a net increase in derivative cash settlements paid of $2.0 billion partially offset by no GE Capital cash from operating activities-discontinued operations decreased $14.3common dividends paid to GE in 2018 compared with $4.0 billion primarily due to the following:in 2017.
· | Lower cash generated as a result of certain dispositions in our CLL business of $9.9 billion and Consumer business of $5.9 billion (primarily resulting from the 2015 split-off of Synchrony Financial), partially offset by our Real Estate business of $2.4 billion. In connection with the GE Capital Exit Plan, we closed a vast majority of our Consumer business and substantially all of our CLL and Real Estate business dispositions in 2015 and 2016. |
· | Lower cash paid for interest, partially offset by higher net income tax payments that are included in the above. |
GE Capital cash used for investing activities-discontinued operations increased $11.4 billion, primarily due to the following:
· | The sale of bank deposits for $16.5 billion in net cash paid in conjunction with the sale of GE Capital Bank's U.S. online deposit platform during 2016. |
· | The sale of bank deposits and other investments for $1.1 billion in net cash paid related to our Consumer platform during 2016. |
· | These increases were partially offset by Other investing activities of $6.2 billion, primarily higher net cash received on investment securities of $3.5 billion (including the sale of investment securities resulting from the split-off of Synchrony Financial) and cash generated from 2015 collections of financing receivables and other investing assets prior to disposition of the underlying business. |
GE Capital cash used for financing activities-discontinued operations decreased $7.3 billion, primarily due to the following:
· | Lower repayments of borrowings of $9.3 billion as a result of certain dispositions in our Consumer (including the 2015 split-off of Synchrony Financial), CLL and Real Estate businesses, partially offset by; |
· | Other financing activities of $2.1 billion primarily newly issued debt of $1.5 billion in 2016. |
2015 – 2014 COMMENTARY – DISCONTINUED OPERATIONS:
GE Capital cash from operating activities-discontinued operations decreased $3.6 billion, primarily due to the following:
· | Lower cash generated as a result of certain dispositions in our Consumer business of $2.4 billion, CLL business of $1.2 billion and our Real Estate business of $0.3 billion. In connection with the GE Capital Exit Plan, we closed a vast majority of our Real Estate business dispositions in 2015 and split-off of Synchrony Financial in 2015. |
· | Included in the above were lower net income tax payments of $1.0 billion. |
GE Capital cash used for investing activities-discontinued operations decreased $22.1 billion, primarily due to the following:
· | A decrease in net investing activities of $20.0 billion primarily related to decreased financing receivables, a reduction in net additions to property, plant and equipment and decreased investment in other assets (including the 2015 split-off of Synchrony Financial) as a result of certain dispositions in connection with the GE Capital Exit Plan in 2015. |
· | Lower cash used for purchases of investment securities of $2.1 billion. |
GE Capital cash from financing activities-discontinued operations decreased $30.4 billion, primarily due to the following:
· | Higher net repayments of borrowings of $17.5 billion as a result of certain 2015 dispositions in our Consumer (including the 2015 split-off of Synchrony Financial), CLL and Real Estate businesses in connection with the GE Capital Exit Plan. |
· | Cash proceeds from bank deposits of $0.5 billion compared to $10.5 billion in 2014 (including the 2015 split-off of Synchrony Financial). |
· | Proceeds from the initial public offering of Synchrony Financial in 2014 of $2.8 billion. |
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
We are repositioning GE to be the world's best infrastructure and technology company, with a smaller financial services division. Our focus is on driving infrastructure leadership, investing in innovation and achieving a culture of simplification to better serve our customers around the world. Over the last decade, we have made significant strides in transforming our portfolio and focusing on our industrial leadership. We have grown our infrastructure platforms with major portfolio moves, investing in adjacencies and pursuing opportunities that are closelyCAPITAL.Transactions between related to our core.
In parallel, we have made a concentrated effort to reduce the size of our GE Capital business and align its growth with Industrial earnings. As a result, GE Capital vertical businesses are now focused on investing financial, human and intellectual capital to promote growth for our industrial businesses and their customers. GE Capital accomplishes this in part through related party transactions with GE thatcompanies are made on an arms-length basisarm's length terms and are reported in the GE and GE Capital columns of our financial statements, but are eliminated in derivingwhich we believe provide useful supplemental information to our consolidated financial statements. These transactions include, but are not limitedSee Note 25 to the following:consolidated financial statements for further information.
· | GE Capital dividends to GE, |
· | GE Capital working capital solutions to optimize GE cash management, |
· | GE Capital enabled GE industrial orders, and |
· | Aircraft engines, power equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment. |
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
· | Expenses related to parent-subsidiary pension plans, |
· | Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions, |
· | Information technology (IT) and other services sold to GE Capital by GE, and |
· | Various investments, loans and allocations of GE corporate overhead costs. |
CASH FLOWS
GE Capital paid $20.1 billion, $4.3 billion and $3.0 billionSales of common dividends to GE in the years ended December 31, 2016, 2015 and 2014, respectively. In January 2017, GE received an additional $2.0 billion of common dividends from GE Capital.
Receivables. In order to manage short-term liquidity and credit exposure, GE sellsmay sell current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale ofcustomer receivables to GE Capital and other third parties. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE CapitalThese transactions are made on an arm's length basis. The incremental amountterms and any discount related to time value of cash received from sales of receivables representsmoney, is recognized within the cash generated or usedrespective GE Industrial business in the period relating to this activity. The incremental cash generated in GE CFOA from currentthese receivables were sold to GE Capital including current receivables subsequently sold toor third parties, increased GE's CFOA by $2.1 billion, $2.1 billion and $1.6 billion in 2016, 2015 and 2014, respectively.
As of December 31, 2016, GE Capital had approximately $12.3 billion recorded on its balance sheet related to current receivables purchased from GE. Of these amounts, approximately half had been sold by GE to GE Capital with recourse (i.e., the GE business retains the risk of default). The evaluation of whether recourse transactions qualify for accounting derecognition is based, in part, upon the legal jurisdiction of the sale; as such, the majority of recourse transactions outside the U.S. qualify for sale treatment. Claims by GE Capital on receivables sold with recourse to GE have not been significant for the years ended December 31, 2016, 2015 and 2014.
In December 2016, GE Capital entered into a Receivables Facility with members of a bank group, designed to provide extra liquidity to GE. The Receivables Facility allows us to sell eligible current receivables on a non-recourse basis for cash and a deferred purchase price to members of the bank group. The purchase commitment of the bank group at December 31, 2016 was $3.0 billion.parties. See Note 224 to the consolidated financial statements for further information.
ENABLED ORDERSSupply Chain Finance Programs. GE facilitates voluntary supply chain finance programs with third parties which provide participating GE suppliers the opportunity to sell their GE receivables to third parties at the sole discretion of both the suppliers and the third parties. The terms of these programs do not alter GE’s obligations to its suppliers which arise from 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. GE has guaranteed the program providers that its participating affiliates will pay their supplier invoices on the terms originally negotiated with their suppliers.
Enabled orders representAt December 31, 2019 and 2018, included in GE's accounts payable is $2.4 billion and $0.4 billion, respectively, of supplier invoices that are subject to the act of introducing, elevatingthird-party programs. GE accounts for all payments made under the programs as reductions to CFOA. Total GE supplier invoices paid through these third-party programs were $1.4 billion and influencing customersan insignificant amount for the years ended December 31, 2019 and prospects2018, respectively.
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| | |
MD&A | CAPITAL RESOURCES AND LIQUIDITY |
Previously, GE Capital operated a supply chain finance program for suppliers to GE’s industrial businesses. Under that resultprogram, GE Capital may settle GE’s industrial businesses supplier invoices early in an industrial sale, potentially coupledreturn for early pay discounts. In turn, GE settled invoices with programmatic captive financing or driving incremental products or services acrossGE Capital in accordance with the original supplier payment terms. On February 28, 2019, GE Store. DuringCapital sold the program platform to MUFG Union Bank, N.A. (MUFG) and is transitioning GE’s suppliers to a MUFG supply chain finance program. Information for suppliers which have already transitioned from GE Capital to MUFG is included within the third-party supply chain finance program data presented above. For the year ended December 31, 2016,2019, there was not a significant effect on GE CFOA related to the MUFG transition.
The GE funded participation in the GE Capital enabled $13.4program will continue to be settled following the original invoice payment terms with an expectation that the transition be completed by the end of 2020. The GE liability associated with the funded participation in the program is presented as accounts payable and amounted to $2.1 billion of and $4.4 billion at December 31, 2019 and 2018, respectively.
GE industrial orders, primarily with our Power ($6.9 billion), Renewable Energy ($4.8 billion) and Healthcare ($0.9 billion) businesses.
AVIATION
Capital Finance Transactions. During the years ended December 31, 20162019 and 2015,2018, GE Capital acquired 44from third parties 51 aircraft (list price totaling $6.5 billion) and 56 aircraft (listwith a list price totaling $6.4 billion),billion and 64 aircraft with a list price totaling $7.8 billion, respectively, from third parties that will be leased to others whichand are powered by engines that were manufactured by GE Aviation and affiliates. GE Capital also made payments to GE Aviation and affiliates related to spare engines and engine parts of $0.7 billion and $0.4 billion, which included $0.6 billion and $0.2 billion to CFM International, during the years ended December 31, 2019 and 2018, respectively. Additionally, GE Capital had $1.5$2.0 billion and $1.1$1.2 billion of net book value of engines, originally manufactured by GE Aviation and affiliates and subsequently leased back to GE Aviation and affiliates at December 31, 20162019 and 2015,2018, respectively.
PENSIONS
GE Capital is a member of certain GE Pension Plans. As a result of the GE Capital Exit Plan, GE Capital will have additional funding obligations for these pension plans. These obligations do not relate to the Verticals and are recognized as an expense in GE Capital's other continuing operations when they become probable and estimable. The additional funding obligations recognized by GE Capital were $0.6 billion and $0.2 billion forAlso, during the years ended December 31, 20162019 and 2015, respectively.2018, GE recognized equipment revenues of $1.6 billion and $1.0 billion, respectively, from customers within our Power and Renewable Energy segments in which GE Capital has been an investee or is committed to be an investee in the underlying projects.
Certain of this additional funding is recorded as a contra expense for GE and GE's related future pension obligations will be paid by GE Capital. For certain other pension plan funding obligations triggered by the GE Capital Exit Plan, GE agreed to assume the funding obligation that would have been triggered by GE Capital at the date of exit from the plan in exchange for an assumption fee that GE recorded as Other income. The total cash transferred to GE for the assumption of these GE Capital funding obligations was $0.2 billion and $0.1 billion for the years ended December 31, 2016 and 2015, respectively.
On a consolidated basis, the additional required pension funding and any related assumption fees do not affect current period earnings. Any additional required pension funding will be reflected as a reduction of the pension liability when paid.
GE GUARANTEE OF GE CAPITAL THIRD-PARTY TRANSACTIONS
In certain instances, GE provides guarantees to GE Capital transactions with third parties primarilyinvestments, in connection with enabled orders. In order to meet its underwriting criteria, GE Capital may obtain a direct guarantee from GE related to the performance of the third party. GE guarantees can take many forms and may include but not be limited to, direct performance or payment guarantees, return on investment guarantees and asset value guarantees and loss pool arrangements.guarantees. As of December 31, 2016,2019, GE had outstanding guarantees to GE Capital on $1.8$0.9 billion of funded exposure and $0.5$1.0 billion of unfunded commitments.commitments, which included guarantees issued by industrial businesses. The recorded amount ofcontingent liability for these contingent liabilitiesguarantees was $0.1 billioninsignificant as of December 31, 20162019 and is dependent uponbased on individual transaction level defaults, losses and/or returns.
GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicit and explicit support to GE Capital through commitments, capital contributions and operating support. As previously discussed, GE debt assumed from GE Capital in connection with the merger of GE Capital into GE was $58.8 billion, and GE guaranteed $47.5 billion of GE Capital debt at December 31, 2016. See Note 24 to the consolidated financial statements for additional information about the eliminations of intercompany transactions between GE and GE Capital.
CONTRACTUAL OBLIGATIONS
OBLIGATIONS.As defined by reporting regulations, our contractual obligations for estimated future payments as of December 31, 2016,2019, follow.
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| | | | | | | | | | | | | | | |
(In billions) | Total |
| 2020 |
| 2021-2022 |
| 2023-2024 |
| Thereafter |
|
| | | | | |
Borrowings (Note 11) | $ | 90.9 |
| $ | 23.6 |
| $ | 15.9 |
| $ | 8.4 |
| $ | 42.9 |
|
Interest on borrowings | 24.8 |
| 2.5 |
| 3.9 |
| 3.1 |
| 15.3 |
|
Purchase obligations(a)(b) | 57.8 |
| 18.4 |
| 20.2 |
| 15.1 |
| 4.2 |
|
Insurance liabilities (Note 12) | 39.7 |
| 2.4 |
| 4.1 |
| 4.1 |
| 29.0 |
|
Operating lease obligations (Note 7) | 3.7 |
| 0.8 |
| 1.2 |
| 0.8 |
| 0.9 |
|
Other liabilities(c) | 45.3 |
| 10.1 |
| 6.7 |
| 5.1 |
| 23.4 |
|
Contractual obligations of discontinued operations(d) | 0.6 |
| 0.3 |
| 0.1 |
| 0.1 |
| 0.1 |
|
| Payments due by period |
| | | | | | | | | | | | | | 2022 and |
(In billions) | | Total | | | 2017 | | | 2018-2019 | | | 2020-2021 | | | thereafter |
| | | | | | | | | | | | | | |
Borrowings (Note 10) | $ | 136.2 | | $ | 32.6 | | $ | 21.5 | | $ | 24.9 | | $ | 57.2 |
Interest on borrowings | | 42.5 | | | 3.7 | | | 5.9 | | | 4.8 | | | 28.1 |
Purchase obligations(a)(b) | | 56.8 | | | 21.3 | | | 12.8 | | | 13.5 | | | 9.2 |
Insurance liabilities (Note 11)(c) | | 11.1 | | | 1.3 | | | 1.9 | | | 1.5 | | | 6.4 |
Operating lease obligations (Note 27) | | 4.2 | | | 0.8 | | | 1.3 | | | 1.0 | | | 1.1 |
Other liabilities(d) | | 78.9 | | | 11.3 | | | 11.2 | | | 8.7 | | | 47.7 |
Contractual obligations of discontinued operations(e) | | 4.2 | | | 4.2 | | | - | | | - | | | - |
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(a) | Included all take-or-pay arrangements, capital expenditures, contractual commitments to purchase equipment that will be leased to others, software acquisition/license commitments, contractual minimum programming commitments and any contractually required cash payments for acquisitions.other purchase commitments. |
| |
(b) | Excluded funding commitments entered into in the ordinary course of business. See Notes 20 and 23 to the consolidated financial statements for further information on these commitments and other guarantees. |
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(c) | Included contracts with reasonably determinable cash flows such as structured settlements, guaranteed investment contracts, and certain property and casualty contracts, and excluded long-term care, variable annuity and other life insurance contracts. |
(d) | Included an estimate of future expected funding requirements related to our postretirement benefit plans and included liabilities for unrecognized tax benefits. Because their future cash outflows are uncertain, the following non-current liabilities are excluded from the table above: derivatives, deferred revenueincome and other sundry items. See Notes 14, 2013, 15 and 2921 to the consolidated financial statements for further information on certain of these items. |
(e) | |
(d) | Included payments for other liabilities. |
CRITICAL ACCOUNTING ESTIMATES
ESTIMATES.Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. Many of these estimates include determining fair value. All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also seeSee Note 1 to the consolidated financial statements which discussesfor further information on our most significant accounting policies.
REVENUE RECOGNITION ON LONG-TERM PRODUCT SERVICES AGREEMENTS
Revenue recognitionAGREEMENTS.We have long-term service agreements with our customers predominately within our Power and Aviation segments that require us to maintain the customers’ assets over the contract terms, which generally range from 5 to 25 years. However, contract modifications that extend or revise contracts are not uncommon. We recognize revenue as we perform under the arrangements using the percentage of completion method which is based on long-term product services agreementsour costs incurred to date relative to our estimate of total expected costs. This requires us to make estimates of profitscustomer payments expected to be received over the multiple-year termscontract term as well as the costs to perform required maintenance services.
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
Customers generally pay us based on the utilization of such agreements, considering factorsthe asset (per hour of usage for example) or upon the occurrence of a major event within the contract such as an overhaul. As a result, a significant estimate in determining expected revenues of a contract is estimating how customers will utilize their assets over the frequencyterm of the agreement. The estimate of utilization, which can change over the contract life, impacts both the amount of customer payments we expect to receive and our estimate of future contract costs. Customers’ asset utilization will influence the timing and extent of overhauls and other service events over the life of the contract. We generally use a combination of both historical utilization trends as well as forward-looking information such as market conditions and potential asset retirements in developing our revenue estimates.
To develop our cost estimates, we consider the timing and extent of future monitoring, maintenance and overhaul events;events, including the amount and cost of personnel,labor, spare parts and other resources required to perform the services;services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future billing rate, cost changes and customers' utilization of assets. estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.
We routinely review estimates under productlong-term services agreements and regularly revise them to adjust for changes in outlook. These revisions are based on objectively verifiable information that is available at the time of the review. Contract modifications that change the rights and obligations, as well as the nature, timing and extent of future cash flows, are evaluated for potential price concessions, contract asset impairments and significant financing to determine if adjustments of earnings are required before effectively accounting for modified contract as a new contract.
We also regularly assess expected billings adjustments and customer credit risk inherent in the carrying amounts of receivables and contract costs and estimated earnings,assets, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods. Revisions may affect a productlong-term services agreement'sagreement’s total estimated profitability resulting in an adjustment of earnings; such adjustments increased earningsearnings.
On December 31, 2019, our net long-term service agreements balance of $5.1 billion represents approximately 2.9% of our total estimated life of contract billings of $176.7 billion. Our contracts (on average) are approximately 22.2% complete based on costs incurred to date and our estimate of future costs. Revisions to our estimates of future billings or costs that increase or decrease total estimated contract profitability by $2.2 billion, $1.4one percentage point would increase or decrease the long-term service agreements balance by $0.4 billion. Cash billings collected on these contracts were $11.5 billion and $1.0$10.2 billion in 2016, 2015during the years ended December 31, 2019 and 2014,2018, respectively. We provide for probable losses when they become evident.
See Notes 1 and 9 to the consolidated financial statements for further information.
ASSET IMPAIRMENT
Asset impairment assessment involves various estimates and assumptions as follows:
INVESTMENTS
We regularly review investment securities for impairment using both quantitative and qualitative criteria. For debt securities, if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows. For equity securities, our criteria include the length of time and magnitude of the amount that each security is in an unrealized loss position. Our other-than-temporary impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research capabilities of our internal and third-party asset managers. See Note 1 to the consolidated financial statements, which discusses the determination of fair value of investment securities.
See Notes 1 and 3 to the consolidated financial statements for further information about actual and potential impairment losses.
LONG-LIVED ASSETS
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans. To determine fair value, we use quoted market prices when available, our internal cash flow estimates discounted at an appropriate discount rate and independent appraisals, as appropriate.
Our operating lease portfolio of commercial aircraft is a significant concentration of assets in Capital, and is particularly subject to market fluctuations. Therefore, we test recoverability of each aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when aircraft are re-leased, current lease terms have changed or a specific lessee's credit standing changes. We consider market conditions, such as global demand for commercial aircraft. Estimates of future rentals and residual values are based on historical experience and information received routinely from independent appraisers. Estimated cash flows from future leases are reduced for expected downtime between leases and for estimated costs required to prepare aircraft to be redeployed. Fair value used to measure impairment is based on management's best estimates which are benchmarked against third-party appraiser current market values for aircraft of similar type and age.
See Notes 7 and 23 to the consolidated financial statements for further information on impairment losses and our exposure to the commercial aviation industry.
OF GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS
We test. During 2019, and in order to improve alignment of our annual goodwill for impairment annually intesting and strategic planning process, we changed our annual testing date from the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one,to 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 itsfourth quarter. We determine 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 9.5%8.9% to 16.5%22.0%.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results.results, internal forecasts, market observable pricing multiples of similar businesses and comparable transactions, possible control premiums, determining the appropriate discount rate and long-term growth rate assumptions, and, if multiple approaches are being used, determining the appropriate weighting applied to each approach. It is reasonably possible that the judgments and estimates described above could change in future periods.
During the third quarter of 2016, we performed our annual impairment test of goodwill for all of our reporting units. Based on the results of our step one testing, the fair values of each of the GE reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed for any of our reporting units and no goodwill impairment was recognized.
We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss has occurred requires comparing the carrying amountuse of our internal forecast to the sum of undiscountedestimate future cash flows expected to be generated byand the asset. We test intangible assets with indefinite lives annually for impairment using auseful life over which these cash flows will occur. To determine fair value, method such aswe use our internal cash flow estimates discounted cash flows. For our insurance activities remaining in continuing operations, we periodically test for impairment our deferred acquisition costs and present value of future profits.at an appropriate discount rate.
See Notes 1 and 8 to the consolidated financial statements for further information.
BUSINESSESGE2019 FORM 10-K 35
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
INSURANCE AND ASSETS HELD FOR SALE
Businesses and assets heldINVESTMENT CONTRACTS.Refer to the Other Items - Insurance section within MD&A for sale represent components that meetfurther discussion of the accounting requirements to be classified as held for saleestimates and are presented as single asset and liability amountsassumptions in our insurance reserves and their sensitivity to change. Also see Notes 1 and 12 to the consolidated financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment must be classified as assets heldfurther information.
PENSION ASSUMPTIONS. Our defined benefit pension plans are accounted for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new coston an actuarial basis, at the date of transfer.
The determination of fair value for businesses and assets held for sale involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions, negotiations with third party purchasers, etc. Such factors bear directly on the range of potential fair values andwhich requires the selection of the best estimates. Keyvarious assumptions, were developed based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use inincluding a hypothetical transaction.
We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.
PENSION ASSUMPTIONS
Pension assumptions are significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions – discount rate, andan expected return on assets, – are important elementsmortality rates of plan expenseparticipants and asset/liability measurement.expectation of mortality improvement. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
Projected benefit obligations are measured as the present value of expected payments. We discount those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and generally increase subsequent-year pension expense; higher discount rates decrease present values and generally reduce subsequent-year pension expense.
Our discount rates for principal pension plans at December 31, 2016, 20152019, 2018 and 20142017 were 4.11%3.36%, 4.38%4.34% and 4.02%3.64%, respectively, reflecting market interest rates.
To determine the expected long-term rate of return on pension plan assets, we consider current and targetour asset allocations,allocation, as well as historical and expected returns on various categories of plan assets. In developing future long-term return expectations for our principal benefit plans'plans’ assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations.our asset allocation. Assets in our principal pension plans earned 6.5%17.8% in 2016,2019, and had average annualannualized returns of 7.8%6.3%, 4.0%,7.7% and 8.0% per year8.2% in the 5-, 10- and 25-year periods ended December 31, 2016,2019, respectively. The average historical 10- and 25- year returns were significantly affected by investment losses in 2008. Based on our analysis of future expectations of asset performance, past return results, and our current and target asset allocations,allocation, we have assumed a 7.5%6.25% long-term expected return on those assets for cost recognition in 20172020, as compared to 6.75% in 2019 and 2018.
The Society of Actuaries issued new base and improvement mortality tables in 2019 and we updated mortality assumptions in the same as 2016U.S. accordingly. These changes in assumptions decreased the December 31, 2019 U.S. pension and 2015.retiree benefit plans' obligations by $0.5 billion.
Changes in key assumptions for our principal pension plans would have the following effects.
Discount rate – A 25 basis point decrease in discount rate would increase pension cost in the following year by about $0.2 billion and would increase the pension benefit obligation at year-end by about $2.3 billion.
· | Discount rate – A 25 basis point increase in discount rate would decrease pension cost in the following year by $0.2 billion and would decrease the pension benefit obligation at year-end by about $2.2 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. · | Expected return on assets – A 50 basis point decrease in the expected return on assets would increase pension cost in the following year by $0.2 billion.
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See Other Consolidated Information – Postretirement Benefit Plans section within the MD&A and Notes 12 and 29Note 13 to the consolidated financial statements for further information on our pension plans.information.
INCOME TAXES
TAXES.Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rate on our global operations. In addition to local country tax laws and regulations, this rate dependscan depend on the extent earnings are indefinitely reinvested outside the United States.U.S. Historically U.S. taxes were due upon repatriation of foreign earnings. Due to the enactment of U.S. tax reform, most repatriations of foreign earnings will be free of U.S. federal income tax but may incur withholding or state taxes. Indefinite reinvestment is determined by management'smanagement’s judgment about and intentions concerning the future operations of the Company. At December 31, 2016 and 2015, approximately $82 billion and $104 billion of earnings, respectively, have been indefinitely reinvested outside the United States. Most of these earnings have been reinvested in active non-U.S. business operations, andoperations. At December 31, 2019, we dohave not intend to repatriate these earnings to fund U.S. operations. Becausechanged our indefinite reinvestment decision as a result of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely outside the United States.reform but will reassess this on an ongoing basis.
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and our short- and long-range business forecasts to provide insight. Further, our global and diversified business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. Amounts recorded for deferred tax assets related to non-U.S. net operating losses, net of valuation allowances, were $3.1$2.2 billion and $5.1$3.1 billion at December 31, 20162019 and 2015,2018, including $0.3$0.2 billion related to held for sale assets at December 31, 2019 and $0.2 billion and $0.8$0.5 billion at December 31, 20162019 and 2015,2018, respectively, of deferred tax assets, net of valuation allowances, associated with losses reported in discontinued operations, primarily related to our Real Estate and Consumerlegacy financial services businesses and for 2018, our loss on the sale of GE Money Japan.Baker Hughes segment. Such year-end 20162019 amounts are expected to be fully recoverable within the applicable statutory expiration periods. To the extent we do not consider it more likely than not that a deferred tax asset will not be recovered, a valuation allowance is established.
See Other Consolidated Information – Income Taxes section within the MD&A and Note 1415 to the consolidated financial statements for further information on income taxes.information.
DERIVATIVES AND HEDGING
We use derivatives to manage a variety of risks, including risks related to interest rates, foreign exchange and commodity prices. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The rules and interpretations related to derivatives accounting are complex. Failure to apply this complex guidance correctly will result in all changes in the fair value of the derivative being reported in earnings, without regard to the offsetting changes in the fair value of the hedged item.
In evaluating whether a particular relationship qualifies for hedge accounting, we test effectiveness at inception and each reporting period thereafter by determining whether changes in the fair value of the derivative offset, within a specified range, changes in the fair value of the hedged item. If fair value changes fail this test, we discontinue applying hedge accounting to that relationship prospectively. Fair values of both the derivative instrument and the hedged item are calculated using internal valuation models incorporating market-based assumptions, subject to third-party confirmation, as applicable.
See Notes 1, 9, 20 and 29 to the consolidated financial statements for further information about our use of derivatives.
FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value every reporting period include investments in debt and equity securities and derivatives. Other assets and liabilities are subject to fair value measurements only in certain circumstances, including purchase accounting applied to assets and liabilities acquired in a business combination, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired. Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and integrate the acquisition as soon as practicable. The size, scope and complexity of an acquisition will affect the time it takes to obtain the necessary information to record the acquired assets and liabilities at fair value. It may take up to one year to finalize the initial fair value estimates used in the preliminary purchase accounting. Accordingly, it is reasonably likely that our initial estimates will be subsequently revised, which could affect carrying amounts of goodwill, intangibles and potentially other assets and liabilities in our financial statements. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.
A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to our asset being valued.
See Notes 1, 3, 8, 19, 20 and 29 to the consolidated financial statements for further information on fair value measurements and related matters.
OTHER LOSS CONTINGENCIES
Other lossCONTINGENCIES.Loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to, environmental obligations, litigation, regulatory investigations and proceedings, product quality and losses resulting from other events and developments.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and negotiations with or decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. WhenDisclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, disclosure is provided.
Disclosure also is providedand when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.
See Note 23 to the consolidated financial statements for further information.
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 of our insurance contracts, primarily on long-term care insurance policies.
Our run-off 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. The insurance liabilities and annuity benefits amounted to $39.8 billion and $35.6 billion and primarily relate to individual long-term care insurance reserves of $21.0 billion and $20.0 billion and structured settlement annuities and life insurance reserves of $11.1 billion and $11.2 billion, at December 31, 2019 and December 31, 2018, respectively. The increase in insurance liabilities and annuity benefits of $4.2 billion from December 31, 2018 to December 31, 2019, is primarily due to an adjustment of $3.4 billion resulting from an increase in unrealized gains on investment securities that would result in a premium deficiency should those gains be realized and a $1.0 billion adjustment arising from the annual premium deficiency testing completed in third quarter 2019, as discussed further below.
In addition to NALH, Electric Insurance Company (EIC) is a property and casualty insurance company primarily providing insurance to GE and its employees with net claim reserves of $0.3 billion at December 31, 2019.
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.
Key Portfolio Characteristics
Long-term care insurance contracts. The long-term care insurance contracts we reinsure provide coverage at varying levels of benefits to policyholders and may include attributes that could result in claimants being on claim for longer periods or at higher daily claim costs, or alternatively limiting the premium paying period, compared to contracts with a lower level of benefits. For example, policyholders with a lifetime benefit period could receive coverage up to the specified daily maximum as long as the policyholder is claim eligible and receives care for covered services; inflation protection options increase the daily maximums to protect the policyholder from the rising cost of care with some options providing automatic annual increases of 3% to 5% or policyholder elected inflation-indexed increases for increased premium; joint life policies provide coverage for two lives which permit either life under a single contract to receive benefits at the same time or separately; and premium payment options may limit the period over which the policyholder pays premiums while still receiving coverage after premium payments cease, which may limit the impact of our benefit from future premium rate increases.
The ERAC long-term care insurance portfolio comprises more than two-thirds of our total long-term care insurance reserves and is assumed from approximately 30 ceding companies through various types of reinsurance and retrocession contracts having complex terms and conditions. Compared to the overall long-term care insurance block, it has a lower average attained age with a larger number of policies (and covered lives, as over one-third of the policies are joint life policies), with lifetime benefit periods and/or with inflation protection options which may result in a higher potential for future claims.
The UFLIC long-term care insurance block comprises the remainder of our total long-term care insurance reserves and is more mature with policies that are more uniform, as it is assumed from a single ceding company, Genworth, and has fewer policies with lifetime benefit periods, no joint life policies and slightly more policies with inflation protection options.
Long-term care insurance policies allow the issuing insurance entity to increase premiums, or alternatively allow the policyholder the option to decrease benefits, with approval by state regulators, should actual experience emerge worse than what was projected when such policies were initially underwritten. As a reinsurer, we are unable to directly or unilaterally pursue long-term care insurance premium rate increases. However, we engage actively with our ceding company clients in pursuing allowed long-term care insurance premium rate increases. The amount of times that rate increases have occurred varies by ceding company.
As further described within the Premium Deficiency Testing section below, we reconstructed our future claim cost projections in 2017 utilizing trends observed in our emerging experience for older claimant ages and later duration policies. Also described within that section are key assumption changes in 2019.
Presented in the table below are GAAP and statutory reserve balances and key attributes of our long-term care insurance portfolio.
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December 31, 2019 (Dollars in billions, except where noted) | ERAC | UFLIC | Total |
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Gross GAAP future policy benefit reserves and claim reserves | $ | 15.2 |
| $ | 5.8 |
| $ | 21.0 |
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Gross statutory future policy benefit reserves and claim reserves(a) | 23.7 |
| 7.1 |
| 30.8 |
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Number of policies in force | 196,000 |
| 67,000 |
| 263,000 |
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Number of covered lives in force | 261,000 |
| 67,000 |
| 328,000 |
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Average policyholder attained age | 75 |
| 83 |
| 77 |
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Gross GAAP future policy benefit reserve per policy (in actual dollars) | $ | 66,500 |
| $ | 56,000 |
| $ | 64,000 |
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Gross GAAP future policy benefit reserve per covered life (in actual dollars) | 50,000 |
| 56,000 |
| 51,000 |
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Gross statutory future policy benefit reserve per policy (in actual dollars)(a) | 109,000 |
| 74,000 |
| 100,000 |
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Gross statutory future policy benefit reserve per covered life (in actual dollars)(a) | 81,000 |
| 74,000 |
| 80,000 |
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Percentage of policies with: | | | |
Lifetime benefit period | 70 | % | 35 | % | 61 | % |
Inflation protection option | 81 | % | 91 | % | 84 | % |
Joint lives | 34 | % | — | % | 25 | % |
Percentage of policies that are premium paying | 73 | % | 82 | % | 75 | % |
Policies on claim | 10,700 |
| 9,300 |
| 20,000 |
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(a) | Statutory balances reflect recognition of the estimated remaining statutory increase in reserves of approximately $7 billion through 2023 under the permitted accounting practice discussed further below and in Note 12 to our consolidated financial statements. |
Structured settlement annuities and life insurance contracts.We reinsure approximately 31,000 structured settlement annuities with an average attained age of 52. These structured settlement annuities were primarily underwritten on impaired lives (i.e., shorter-than-average life expectancies) at origination and have projected payments extending decades into the future. Our primary risks associated with these contracts include mortality (i.e., life expectancy or longevity), mortality improvement (i.e., assumed rate that mortality is expected to reduce over time), which may extend the duration of payments on life contingent contracts beyond our estimates, and reinvestment risk (i.e., a low interest rate environment may reduce our ability to achieve our targeted investment margins). Unlike long-term care insurance, structured settlement annuities offer no ability to require additional premiums or reduce benefits.
Our life reinsurance business typically covers the mortality risk associated with various types of life insurance policies that we reinsure from approximately 150 ceding company relationships where we pay a benefit based on the death of a covered life. Across our U.S. and Canadian life insurance blocks, we reinsure approximately $100 billion of net amount at risk (i.e., difference between the death benefit and any accrued cash value) from approximately 2.2 million policies with an average attained age of 58. In 2019, our incurred claims were approximately $0.5 billion with an average individual claim of approximately $48,000. The largest product types covered are 20-year level term policies which represent approximately 40% of the net amount at risk and are anticipated to lapse (i.e., the length of time a policy will remain in force) over the next 2 to 4 years as the policies reach the end of their 20-year level premium period.
Investment portfolio and other adjustments. Our insurance liabilities and annuity benefits are primarily supported by investment securities of $38.0 billion and $32.9 billion and commercial mortgage loans of $1.9 billion and $1.7 billion at December 31, 2019 and 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, of which $2.0 billion was received in the first quarter of 2020. Our investment securities are classified as available-for-sale and comprise mainly investment-grade debt securities. The portfolio includes $5.7 billion of net unrealized gains that are recorded within Other comprehensive income, net of applicable taxes and other adjustments.
In calculating our future policy benefit reserves, we are required to consider the impact of net unrealized gains and 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 adjustment is recorded to increase future policy benefit reserves with an after-tax offset to Other comprehensive income. At December 31, 2019, the entire $5.7 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 in 2018 to $5.7 billion in 2019 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.
We manage the investments in our run-off insurance operations under strict investment guidelines, including limitations on asset class concentration, single issuer exposures, asset-liability duration variances, and other factors to meet credit quality, yield, liquidity and diversification requirements associated with servicing our insurance liabilities under reasonable circumstances. Investing in these assets exposes us to both credit risk (i.e., debtor’s ability to make timely payments of principal and interest) and interest rate risk (i.e., market price, cash flow variability, and reinvestment risk due to changes in market interest rates). We regularly review investment securities for impairment using both quantitative and qualitative criteria.
Additionally, our run-off insurance operations have approximately $0.7 billion of assets held by states or other regulatory bodies in statutorily required deposit accounts, and approximately $28.6 billion of assets held in trust accounts associated with reinsurance contracts in place between either ERAC or UFLIC as the reinsuring entity and a number of ceding insurers. Assets in these reinsurance trusts are held by an independent trustee for the benefit of the ceding insurer, and are subject to various investment guidelines as set forth in the respective reinsurance contacts.
We have studied and analyzed various options, along with several external investment advisors, to improve our investment yield subject to maintaining our ability to satisfy insurance liabilities when due, as well as considering our risk-based capital requirements, regulatory constraints, and tolerance for surplus volatility. With the expected capital contributions from GE Capital through 2024, we intend to add new asset classes to further diversify our portfolio, including private equity, senior secured loans and infrastructure debt, among others. We also hired a new Chief Investment Officer in 2018 to oversee our entire investment process and will be adding further investment managers.
Critical Accounting Estimates. Our insurance reserves include the following key accounting estimates and assumptions described below.
Future policy benefit reserves. Future policy benefit reserves represent the present value of future policy benefits less the present value of future gross premiums based on actuarial assumptions including, but not limited to, morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates); morbidity improvement (i.e., assumed rate of improvement in morbidity in the future); mortality (i.e., life expectancy or longevity); mortality improvement (i.e., assumed rate that mortality is expected to reduce over time); policyholder persistency or lapses (i.e., the length of time a policy will remain in force); anticipated premium increases or benefit reductions associated with future in-force rate actions, including actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated on 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 a premium deficiency develops.
Claim reserves. Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the present value of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the 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 earnings in the period in which they are determined.
Reinsurance recoverables. We cede insurance risk to third-party reinsurers for a portion of our insurance contracts, primarily on long-term care insurance policies, and record receivables 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 December 31, 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 in a lower discount rate and a higher present value of future policy benefit reserves.
Future long-term care premium rate increases. As a reinsurer, we rely upon the primary insurers that issued the underlying policies to file proposed premium rate increases on those policies with the relevant state insurance regulators, 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 canceled 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. We performed 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, 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 significant decline in market interest rates we observed this year, which has resulted in a lower discount rate and adversely impacted our reserve margin by $1.3 billion, and 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.
Our discount rate assumption for purposes of performing 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 prospective expected returns on higher yielding assets classes introduced with our 2018 strategic initiatives, and slightly lower actual yields on our investment security portfolio.
As noted above, our observed claim experience in the period since the 2017 reconstruction of our future long-term care claim cost projections has been consistent with those projections. Based on the application of professional actuarial judgment to the factors discussed above, we have made no substantial change to our assumptions concerning morbidity, morbidity improvement, mortality, mortality improvement, or terminations in 2019.
As with all assumptions underlying our premium deficiency testing, we will continue to monitor these factors, which may result in future changes in our assumptions. See Note 12 to the consolidated financial statements for further information on the results of our 2019 premium deficiency testing.
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 reserves 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 will 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 of our insurance legal entities.
Statutory accounting practices are set forth by the National Association of Insurance Commissioners (NAIC) as well as state laws, regulation and general administrative rules and differ in certain respects from GAAP. Under statutory accounting practices, base formulaic reserve assumptions typically do not change unless approved by our primary regulator, KID. In addition to base reserves, statutory accounting practices require additional actuarial reserves (AAR) be established based on results of asset adequacy testing reflecting moderately adverse conditions (i.e., assumptions include a provision for adverse deviation (PAD) rather than current assumptions without a PAD as required for premium deficiency testing under GAAP). As a result, our statutory asset adequacy testing assumptions reflect less long-term care insurance morbidity improvement and for shorter durations, restrictions on future long-term care insurance premium rate increases, no life insurance mortality improvement and a lower discount rate. As a result, several of the sensitivities described in the table above would be less impactful on our statutory reserves.
The adverse impact on our statutory AAR arising from our revised assumptions in 2017, including the collectability of reinsurance recoverables, is expected to require GE Capital to contribute approximately $14.5 billion additional capital, to its run-off insurance operations in 2018-2024. For statutory accounting purposes, KID approved our request for a permitted accounting practice to recognize the 2017 AAR increase over a seven-year period. GE Capital provided capital contributions to its insurance subsidiaries of $2.0 billion, $1.9 billion and $3.5 billion in the first quarter of 2020, 2019 and 2018, respectively. GE Capital expects to provide further capital contributions of approximately $7 billion through 2024, subject to ongoing monitoring by KID. GE is a party to capital maintenance agreements with ERAC and UFLIC whereby GE will maintain their minimum statutory capital levels at 300% of their year-end Authorized Control Level risk-based capital requirements as defined from time to time by the NAIC.
If our future policy benefit reserves established under GAAP are realized over the estimated remaining life of our run-off insurance obligations, we would expect the $14.5 billion of capital contributed to the run-off insurance operations over the 2018 to 2024 period to be considered statutory capital surplus at the end of the period with no additional charge to GAAP earnings. However, should the more conservative statutory assumptions be realized, we would be required to record the difference between GAAP assumptions and statutory assumptions as a charge to GAAP earnings in the future periods.
See Other Items - New Accounting Standards within MD&A and Notes 1 and 12 to the consolidated financial statements for further information.
NEW ACCOUNTING STANDARDS
ASU NO. 2016-16, ACCOUNTING FOR INCOME TAXES: INTRA-ENTITY ASSET TRANSFERS OF ASSETS OTHER THAN INVENTORY
STANDARDS.In October 2016,August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-16, 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than InventoryLong-Duration Contracts. The ASU eliminatesIn October 2019, the deferral ofFASB affirmed its decision to defer the tax effects of intra-entity asset transfers other than inventory. As a result,effective date to periods beginning after December 31, 2021, with an election to adopt early. We are evaluating the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The 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 (e.g., single A) fixed-income instrument yield reflecting the duration characteristics of the standard will depend onliability and is required to be updated in each reporting period with changes recorded in other comprehensive income. In measuring the nature and amount of future transactions.
ASU NO. 2016-02, LEASES
In February 2016,insurance liabilities under the FASB issued ASU No. 2016-02, Leases. The new standard, establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases willcontracts shall not be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presentedgrouped together from different issue years. These changes result in the financial statements, with certain practical expedients available.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 maywill materially affect our Statementfinancial statements. As the ASU is only applicable to the measurements of Financial Position.our long-duration insurance liabilities under GAAP, it will not affect the accounting for our insurance reserves or the levels of capital and surplus under statutory accounting practices.
ASU NO. 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS
BACKGROUND
In May 2014,June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU introduces a new comprehensive setaccounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of revenuecredit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition principles (ASU No. 2014-09, Revenue from Contracts with Customers)of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that supersedes most existing U.S. GAAP revenue recognition guidance (including ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts).a loss be incurred before it is recognized. The new standard will becomealso applies to receivables arising from revenue transactions such as contract assets and accounts receivables, as well as reinsurance recoverables at GE Capital's run-off insurance operations and is effective for annual reporting periodsfiscal years beginning after December 15, 2017. We2019. The standard will adoptbe applied prospectively with an adjustment to retained earnings. As we finalize our process, we expect the standard on January 1, 2018, will apply it retrospectively to all periods presented and will elect the practical expedient for contract modifications. Since the issuanceadoption of the new standard by the FASB, weASU to have engaged in a collaborative process with our industry peers and worked with standard setters on important interpretive matters with the objective of ensuring consistency in the application of the standard.
TRANSITION METHOD FOR APPLYING THE NEW STANDARD
Companies can use either a full retrospective or modified retrospective method to adopt the standard. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to 2016 will be recorded to retained earnings as of January 1, 2016. Under the modified retrospective approach, prior periods are not updated to be presented on an accounting basis that is consistent with 2018. Rather, a cumulative adjustment for effects of applying the new standard to periods prior to 2018 is recorded to retained earnings as of January 1, 2018. Because only 2018 revenues reflect application of the new standard, incremental disclosures are required to present the 2018 revenues under the prior standard.
As noted above, we have elected to apply the full retrospective approach. We chose that approach because we believe that it is the most helpful to our investors. First and foremost, when we adopt the standard in 2018 we will provide investors with a consistent view of historical trends, as 2016 and 2017 will be on a basis consistent with 2018.
CHANGE IN TIMING AND PRESENTATION, NO IMPACT TO CASH OR ECONOMICS
The new standard requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result, we expect significant changes in the presentation of our financial statements, including: (1) timing of revenue recognition, and (2) changes in classification between revenue and costs. The new standard will have no cash impact and, as such, does not affect the economics of our underlying customer contracts. The effect of applying the new guidance to our existing book of contracts will result in lower reported earnings in 2018 (and comparative periods previously reported) and in the early years after adoption. However, we expect to experience an increase in reported earnings, on that existing book of contracts, as they mature. The new standard will provide for a better alignment of cash and earnings for the affected long-term customer contracts and we expect that it will enhance comparability across industry peers.
SPECIFIC EFFECT ON GE BUSINESSES
Power and Aviation Service Agreements - For our long-term product service agreements, primarily in our Power and Aviation businesses, we expect to continue to recognize revenue based on costs incurred plus an estimated margin rate (over time model). However, the new standard provides prescriptive guidance tied to several factors for determining what constitutes the proper scope of a customer contract for accounting purposes. These factors include optional purchases, contract modifications, and termination clauses. For example, under the new standard contract modifications will be accounted for prospectively by recognizing the financial effect of the modification over the remaining life of the contract. Under existing accounting guidance revisions to estimated margin rates resulting from modifications were reflected as cumulative effect adjustments to earnings in the current period.
Aviation Commercial Engines - Consistent with industry peers, the financial presentation of our Aviation Commercial engines business will be significantly affected as they will be accounted for as of a point in time, which is a change from our current long-term contract accounting process. Our current process applies contract-specific estimated margin rates, which include the effect of estimated cost improvements, to costs incurred. This change is required because our commercial engine contracts do not transfer control to the customer during the manufacturing process. Each install and spare engine will be accounted for as a separate performance obligation, reflecting the actual price and manufacturing costs of such engines. We expect that the most significant effect of this change will be reflected when we have new engine launches, where the cost of earlier production units is higher than the cost of later production units because of cost improvements.
All Other Large Equipment - For the remainder of our equipment businesses, the new revenue standard requires emphasis on transfer of control rather than risks and rewards, which may accelerate timing of revenue recognition versus our current practices. For example, in our Renewable Energy business we wait for risk of loss to be assumed by the customer before recognizing revenue, which generally occurs later than when control is transferred.
CURRENT RANGE OF FINANCIAL STATEMENT EFFECT
We will adopt the new standard as of January 1, 2018. When we report our 2018 results, the comparative results for 2017 and 2016 will be updated to reflect the application of the requirements of the new standard to these periods. Based on our assessment and best estimates to date, we expect a non-cash charge to our January 1, 2016 retained earnings balance of approximately $4 billion. We estimate that the charge will comprise approximately $1 billion related to commercial aircraft engines and $3 billion related primarily to our Services businesses (predominately in Power and Aviation). Beyond those effects, we expect application of the new guidance will result in increases and decreases in revenue within our segments, which will largely offset overall and will be immaterial at a total company level. We estimate that our 2016 restated earnings per share will be lower by approximately $0.10. We anticipate that 2018 earnings per share will be lower by approximately $0.05 compared to what our results would be under existing revenue recognition guidance. These amounts include significant estimates and will remain subject to change as we complete our evaluation of the new standard and reflect actual activity for 2017.
To summarize, we will adopt the new standard in 2018, at which time we will update prior periods to be presented on a consistent basis. As discussed above, we anticipate the dilutive effect of the new standard in the year of adoption to be approximately $0.05 EPS and the effect will be less dilutive for years after initial adoption. However, this expectation is based on many variables, which are subject to change. Importantly, application of the new guidance has no effect on the cash we expect to receive nor the economics of these contracts. Rather, it will simply more closely align revenue with cash, which we believe will be helpful to our investors.
In late 2015, we created GE Digital, whose activities are focused on assisting in the market development of our digital product offerings through software design, fulfillment and product management, while also interfacing with our customers. Digital revenues include internally developed software (including Predix) and associated hardware, and software solutions that improve our customers' asset performance. These revenues are largely generated from our operating businesses and are included in their segment results.
GE Digital revenues of $3.6 billion increased $0.5 billion, or 16%, in 2016 and were principally driven by expansion of our Digital offerings in GE's Power, Energy Connections & Lighting and Oil & Gas segments.
GE Digital orders of $4.0 billion increased $0.7 billion, or 22%, in 2016 principally driven by expansion of our Digital offerings in GE's Power, Energy Connections & Lighting, Oil & Gas segments and in Digital Core, partially offset by a market-driven slowdown in Transportation.
One aspect of our Digital transformation includes an initiative to digitize the operations of GE. These investments include applications and analytics that improve the productivity of our internal processes across engineering, services, sourcing, and commercial – collectively referred to as the Digital Thread. During 2016, we internally invested $0.4 billion through various digitally-driven productivity initiatives, yielding $0.7 billion of gross productivity, principally related to our services businesses. Costs associated with revenue-generating activities are recorded within the results of our segments and at Corporate and are reflected in their respective margin rates.
In addition, we made several acquisitions to further enhance and expand our digital capabilities:
· | On January 10, 2017, we completed the acquisition of ServiceMax, a leader in cloud-based field service management (FSM) solutions, for $0.9 billion. This acquisition is expected to provide enhanced capabilities to advance our Industrial Internet vision, enabling customers to immediately gain more value from their assets and find greater efficiency in their field service processes. |
· | On November 9, 2016, we acquired the remaining 89% of Bit Stew, a software company specializing in gathering data from connected devices in complex industrial systems to help companies plan predictive maintenance and optimize productivity, for $0.1 billion. |
· | On October 26, 2016, we acquired Wise.io, a leading machine learning and intelligent systems company, for less than $0.1 billion. This acquisition is expected to further accelerate development of advanced machine learning and data science offerings in the Predix platform. |
· | On September 14, 2016, we acquired the remaining 74% of the software developer Meridium Inc. for $0.4 billion. The acquisition is expected to enhance and accelerate our Asset Performance Management capabilities across our industrial businesses. |
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934.
Under Section 13(r) of the Securities Exchange Act of 1934, enacted in 2012, GE is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in business activities relating to Iran, even if those activities are conducted in accordance with authorizations subsequently issued by the U.S. Government. Reportable activities include investments that significantly enhance Iran's ability to develop petroleum resources valued at $20 million or more in the aggregate during a twelve-month period. Reporting is also required for transactions related to Iran's domestic production of refined petroleum products or Iran's ability to import refined petroleum products valued at $5 million or more in the aggregate during a twelve-month period.
In January 2016, the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) issued General License H authorizing U.S.-owned or controlled foreign entities to engage in transactions with Iran if these entities meet the requirements of the general license. Pursuant to this authorization, a non-U.S. affiliate of GE's Power business received a purchase order during the third quarter of 2016 for the sale of spare parts to an Iranian entity to provide electricity and steam to an area of Iran that includes certain oil refineries. During the fourth quarter of 2016, the non-U.S. affiliate received purchase orders directly from one of the end users for €7.1 million ($7.9 million) of the work contemplated under the original purchase order. As a result, the original purchase order will be revised. As of December 31, 2016, gross revenues attributable to these purchase orders was €0.9 million ($1.0 million), and net profits attributable to these transactions was €0.5 million ($0.6 million). The non-U.S. affiliate intends to continue this activity.
Another non-U.S. affiliate of GE's Oil & Gas business received four purchase orders during the fourth quarter of 2016 for the sale of goods pursuant to General License H that could potentially enhance Iran's ability to develop petroleum resources. The purchase orders cover the sale of spare parts for gas turbine equipment for ultimate end use by an Iranian company in gas production projects in Iran and have a total value of €16.8 million ($17.6 million). The non-U.S. affiliate has also begun operational activities related to previously reported contracts. A second non-U.S. affiliate of GE's Oil & Gas business received a purchase order pursuant to General License H valued at €0.2 million ($0.2 million) during the fourth quarter of 2016 for the sale of services associated with the commissioning of gas compressors in Iran. As of December 31, 2016, these non-US affiliates have not recognized any revenue, but have incurred €2.7 million ($2.9 million) in costs. The non-U.S. affiliates intend to continue this activity.
For additional information on business activities related to Iran, please refer to the Other Items section within MD&A of our Form 10-Q for the quarter ended September 30, 2016.
ENVIRONMENTAL MATTERS
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $0.2 billion $0.3 billion and $0.4 billion for the years 2016, 2015 and 2014, respectively. We presently expect that such remediation actions will require average annual expenditures of about $0.2 billion in 2017 and about $0.1 billion in 2018.
to retained earnings.
As previously reported, in 2000, GE and the Environmental Protection Agency (EPA) entered into a consent decree relating to PCB cleanup of the Housatonic River in Massachusetts. Following EPA's release in September 2015 of an intended final remediation decision, GE and EPA engaged in mediation and the first step of the dispute resolution process contemplated by the consent decree. In October 2016, EPA issued its final remediation decision pursuant to the consent decree. GE and several other interested parties have appealed that decision to EPA's Environmental Appeals Board. A decision of the Board can ultimately be appealed to the United States Court of Appeals for the First Circuit. EPA may not implement any remedy until all appeals are exhausted. As of December 31, 2016, and based on its assessment of current facts and circumstances and its defenses, GE believes that it has recorded adequate reserves to cover future obligations associated with an expected final remedy.
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Total R&D | $ | 5,466 | | $ | 5,278 | | $ | 5,273 |
Less customer funded R&D (principally the U.S. Government) | | (611) | | | (803) | | | (721) |
Less partner funded R&D | | (73) | | | (226) | | | (319) |
GE funded R&D | $ | 4,782 | | $ | 4,249 | | $ | 4,233 |
| | | | | | | | |
Of the total Research and Development, the segments with the most significant expenditures for the years ended December 31, 2016, 2015 and 2014 were: Aviation $1,595 million, $1,893 million and $1,965 million, respectively; Healthcare $938 million, $905 million, and $817 million, respectively; and Power $695 million, $721 million and $641 million, respectively. The remaining segments and Corporate, including Global Research Center, had combined expenditures of $2,238 million, $1,759 million and $1,850 million, for the years ended December 31, 2016, 2015 and 2014 respectively.
OTHER
OTHER.We own, or hold licenses to use, numerous patents. New patents are continuously being obtained through our research and development activities as existing patents expire. Patented inventions are used both within the Company and are licensed to others.
GE is a trademark and service mark of General Electric Company.
Because of the diversity of our products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the wide variety of raw materials needed for our operations. We have not been adversely affected by our inability to obtain raw materials.
Sales of goodsNON-GAAP FINANCIAL MEASURES. We believe that presenting non-GAAP financial measures provides management and servicesinvestors useful measures to agenciesevaluate performance and trends of the U.S. Government as a percentage of revenues follow.
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.
| 2016 | | | 2015 | | | 2014 | |
| | | | | | | | |
Total sales to U.S. Government agencies | 3 | % | | 3 | % | | 3 | % |
Aviation segment defense-related sales | 2 | | | 2 | | | 3 | |
| | | | | | | | |
|
FINANCIAL MEASURES THAT SUPPLEMENT U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES MEASURES (NON-GAAP FINANCIAL MEASURES)
We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered "non-GAAP financial measures"In addition, management recognizes that certain non-GAAP terms may be interpreted differently by other companies under U.S. Securities and Exchange Commission rules. Specifically, we have referred, indifferent circumstances. In various sections of this report to:
· | Industrial segment organic revenues and industrial segment organic revenues excluding Oil & Gas |
· | Industrial segment organic operating profit |
· | Oil & Gas organic revenue and operating profit growth |
· | Operating and non-operating pension cost |
· | Adjusted corporate costs (operating) |
· | GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates, and the reconciliation of the U.S. federal statutory income tax rate to GE effective tax rate, excluding GE Capital earnings |
· | Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS |
· | Industrial operating + Verticals earnings and EPS |
· | Industrial operating profit and operating profit margin (excluding certain items) |
· | Industrial operating profit + Verticals |
· | Industrial segment gross margin (excluding Alstom) |
· | Industrial segment operating profit and operating margin (excluding Alstom) |
· | Average GE shareowners' equity, excluding effects of discontinued operations |
· | Average GE Capital shareowners' equity, excluding effects of discontinued operations |
· | Industrial return on total capital (Industrial ROTC) |
· | Industrial cash flows from operating activities (Industrial CFOA) and Industrial CFOA excluding taxes related to business sales and principal pension plan funding |
· | GE cash flows from operating activities (GE CFOA) excluding taxes related to business sales and principal pension plan funding |
· | Free cash flow (FCF) and FCF plus dispositions |
· | Ratio of adjusted debt to equity at GE Capital, net of liquidity |
· | Capital ending net investment (ENI), excluding liquidity |
· | 2017 operating framework including 2017 Industrial operating + Verticals EPS target |
we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically GE Industrial segment organic revenues; and GE Industrial organic revenues, (2) profit, specifically GE Industrial segment organic profit; Adjusted GE Industrial profit and profit margin; Adjusted GE Industrial organic profit and profit margin; Adjusted earnings (loss); and Adjusted earnings (loss) per share (EPS), (3) taxes, specifically GE effective tax rates, excluding GE Capital earnings; and reconciliation of U.S. federal statutory income tax rate to GE effective tax rate excluding GE Capital earnings, (4) cash flows, specifically GE Industrial free cash flows (FCF), and (5) 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.
GE 20162019 FORM 10-K 101 43
INDUSTRIAL SEGMENT ORGANIC REVENUES AND INDUSTRIAL SEGMENT ORGANIC REVENUES EXCLUDING OIL & GAS |
| | | | | | | | |
(Dollars in millions) | | 2016 | | | 2015 | | | V% |
| | | | | | | | |
Industrial segment revenues (GAAP) | $ | 113,156 | | $ | 108,796 | | | 4% |
Adjustments: | | | | | | | | |
Acquisitions | | 13,207 | | | 1,961 | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 1,256 | | | 6,838 | | | |
Currency exchange rates | | (808) | | | - | | | |
Industrial segment organic revenues (Non-GAAP) | $ | 99,501 | | $ | 99,997 | | | -% |
Adjustment: Plus Alstom November and December(a) | | 3,202 | | | 1,812 | | | |
Industrial segment organic revenues including Alstom results for November and December | | | | | | | | |
of both 2015 and 2016 (Non-GAAP) | $ | 102,702 | | $ | 101,809 | | | 1% |
| | | | | | | | |
Oil & Gas revenues (GAAP) | $ | 12,898 | | $ | 16,450 | | | (22)% |
Adjustments: | | | | | | | | |
Acquisitions | | 140 | | | - | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | - | | | 57 | | | |
Currency exchange rates | | (290) | | | - | | | |
Oil & Gas organic revenues (Non-GAAP) | $ | 13,048 | | $ | 16,394 | | | (20)% |
Adjustment: Plus Alstom November and December(a) | | 28 | | | - | | | |
Oil & Gas organic revenues including Alstom results for November and December | | | | | | | | |
of both 2015 and 2016 (Non-GAAP) | $ | 13,075 | | $ | 16,394 | | | (20)% |
Industrial segment organic revenues including Alstom results for November and December | | | | | | | | |
of both 2015 and 2016 and excluding Oil & Gas (Non-GAAP) | $ | 89,627 | | $ | 85,416 | | | 5% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(Dollars in millions) | | 2015 | | | 2014 | | | V% |
| | | | | | | | |
Industrial segment revenues (GAAP) | $ | 108,796 | | $ | 109,727 | | | (1)% |
Adjustments: | | | | | | | | |
Acquisitions | | 2,204 | | | 46 | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 108 | | | 1,224 | | | |
Currency exchange rates | | (4,791) | | | - | | | |
Industrial segment organic revenues (Non-GAAP) | $ | 111,276 | | $ | 108,457 | | | 3% |
| | | | | | | | |
Oil & Gas revenues (GAAP) | $ | 16,450 | | $ | 19,085 | | | (14)% |
Adjustments: | | | | | | | | |
Acquisitions | | 145 | | | 30 | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 25 | | | 319 | | | �� |
Currency exchange rates | | (1,597) | | | - | | | |
Oil & Gas organic revenues (Non-GAAP) | $ | 17,878 | | $ | 18,735 | | | (5)% |
Industrial segment organic revenues excluding Oil & Gas (Non-GAAP) | $ | 93,398 | | $ | 89,723 | | | 4% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(Dollars in millions) | | 2014 | | | 2013 | | | V% |
| | | | | | | | |
Industrial segment revenues (GAAP) | $ | 109,727 | | $ | 103,383 | | | 6% |
Adjustments: | | | | | | | | |
Acquisitions | | 2,170 | | | 463 | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 246 | | | 1,712 | | | |
Currency exchange rates | | (545) | | | - | | | |
Industrial segment organic revenues (Non-GAAP) | $ | 107,856 | | $ | 101,208 | | | 7% |
| | | | | | | | |
Oil & Gas revenues (GAAP) | $ | 18,676 | | $ | 16,975 | | | 10% |
Adjustments: | | | | | | | | |
Acquisitions | | 1,221 | | | 319 | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 109 | | | 726 | | | |
Currency exchange rates | | (67) | | | - | | | |
Oil & Gas organic revenues (Non-GAAP) | $ | 17,413 | | $ | 15,930 | | | 9% |
Industrial segment organic revenues excluding Oil & Gas (Non-GAAP) | $ | 90,443 | | $ | 85,279 | | | 6% |
| | | | | | | | |
(a) |
| Alstom was acquired in November 2015. This adjustment results in the inclusion of Alstom revenues from November and December of both 2015 and 2016 in the adjusted organic revenue growth measure as described below. | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
Organic revenue growth measures revenue growth excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting organic revenue growth separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenue growth" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends. |
| | | | | | | | | | | | | | | | | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| Revenues | | Segment profit (loss) | | Profit margin |
(Dollars in millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V pts |
| | | | | | | | | | | |
Power (GAAP) | $ | 18,625 |
| $ | 22,150 |
| (16 | )% | | $ | 386 |
| $ | (808 | ) | F |
| | 2.1 | % | (3.6 | )% | 5.7pts |
Less: acquisitions | 25 |
| — |
| | | (1 | ) | — |
| | | | | |
Less: business dispositions | 10 |
| 2,805 |
| | | (2 | ) | 237 |
| | | | | |
Less: foreign currency effect | (508 | ) | — |
| | | 47 |
| — |
| | | | | |
Power organic (Non-GAAP) | $ | 19,098 |
| $ | 19,345 |
| (1 | )% | | $ | 342 |
| $ | (1,046 | ) | F |
| | 1.8 | % | (5.4 | )% | 7.2pts |
| | | | | | | | | | | |
Renewable Energy (GAAP) | $ | 15,337 |
| $ | 14,288 |
| 7 | % | | $ | (666 | ) | $ | 292 |
| U |
| | (4.3 | )% | 2.0 | % | (6.3)pts |
Less: acquisitions | 3 |
| — |
| | | 6 |
| — |
| | | | | |
Less: business dispositions | — |
| — |
| | | — |
| (2 | ) | | | | | |
Less: foreign currency effect | (532 | ) | — |
| | | 60 |
| — |
| | | | | |
Renewable Energy organic (Non-GAAP) | $ | 15,866 |
| $ | 14,288 |
| 11 | % | | $ | (731 | ) | $ | 294 |
| U |
| | (4.6 | )% | 2.1 | % | (6.7)pts |
| | | | | | | | | | | |
Aviation (GAAP) | $ | 32,875 |
| $ | 30,566 |
| 8 | % | | $ | 6,820 |
| $ | 6,466 |
| 5 | % | | 20.7 | % | 21.2 | % | (0.5)pts |
Less: acquisitions | — |
| — |
| | | — |
| — |
| | | | | |
Less: business dispositions | 25 |
| 317 |
| | | 6 |
| 39 |
| | | | | |
Less: foreign currency effect | (24 | ) | — |
| | | 30 |
| — |
| | | | | |
Aviation organic (Non-GAAP) | $ | 32,874 |
| $ | 30,250 |
| 9 | % | | $ | 6,784 |
| $ | 6,427 |
| 6 | % | | 20.6 | % | 21.2 | % | (0.6)pts |
| | | | | | | | | | | |
Healthcare (GAAP) | $ | 19,942 |
| $ | 19,784 |
| 1 | % | | $ | 3,896 |
| $ | 3,698 |
| 5 | % | | 19.5 | % | 18.7 | % | 0.8pts |
Less: acquisitions | 83 |
| — |
| | | (19 | ) | — |
| | | | | |
Less: business dispositions | 2 |
| 235 |
| | | (27 | ) | 22 |
| | | | | |
Less: foreign currency effect | (359 | ) | — |
| | | (1 | ) | — |
| | | | | |
Healthcare organic (Non-GAAP) | $ | 20,216 |
| $ | 19,549 |
| 3 | % | | $ | 3,944 |
| $ | 3,676 |
| 7 | % | | 19.5 | % | 18.8 | % | 0.7pts |
| | | | | | | | | | | |
GE Industrial segment (GAAP) | $ | 86,778 |
| $ | 86,789 |
| — | % | | $ | 10,436 |
| $ | 9,647 |
| 8 | % | | 12.0 | % | 11.1 | % | 0.9pts |
Less: acquisitions | 111 |
| — |
| | | (15 | ) | — |
| | | | | |
Less: business dispositions(a) | 38 |
| 3,357 |
| | | (24 | ) | 295 |
| | | | | |
Less: foreign currency effect(b) | (1,424 | ) | — |
| | | 136 |
| — |
| | | | | |
GE Industrial segment organic (Non-GAAP) | $ | 88,053 |
| $ | 83,432 |
| 5.5 | % | | $ | 10,338 |
| $ | 9,351 |
| 11 | % | | 11.7 | % | 11.2 | % | 0.5pts |
| | | | | | | | | | | |
(a) Dispositions impact in 2018 primarily related to our Industrial Solutions and Distributed Power businesses within our Power segment, with revenues of $1,257 million and $1,274 million, respectively, and Value-Based Care within our Healthcare segment, with revenues of $222 million. |
(b) Primarily the euro, Japanese yen and Brazilian real. |
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. |
When comparing revenues and profit growth between periods excluding the effects of acquisitions, business dispositions and currency exchange rates, those effects are different when comparing results for different periods. Revenues and profit from acquisitions are considered inorganic from the date we complete an acquisition through the end of the fourth quarter following the acquisition and are therefore reflected as adjustments to reported revenues and profit to derive organic revenues* and organic profit* for the period following the acquisition. In subsequent periods, the revenues and profit from the acquisition become organic as these revenues and profit are included for all periods presented. |
We integrate acquisitions as soon as possible. Revenues from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such business for purposes of calculating organic revenue. As such, organic revenue excludes Alstom revenues from November 3, 2015 through December 31, 2016. However, because of the significance of Alstom to our results and the exclusion of Alstom revenues for more than 12 months in calculating organic revenue growth, we believe investors would also find it helpful to see the revenue growth of the industrial segments adjusted to include Alstom's November and December revenues in an organic measure. As a result, we have also presented an adjusted organic revenue growth measure on that basis.
We also believe that variability in the revenue of our Oil & Gas business may obscure underlying trends of our other industrial businesses. As a result, we have also presented our organic revenue growth measure excluding the revenues of our Oil & Gas business.
INDUSTRIAL SEGMENT ORGANIC OPERATING PROFIT |
| | | | | | | | |
(Dollars in millions) | | 2016 | | | 2015 | | | V% |
| | | | | | | | |
Industrial segment profit (GAAP) | $ | 17,598 | | $ | 17,966 | | | (2)% |
Adjustments: | | | | | | | | |
Acquisitions | | 739 | | | (151) | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 181 | | | 649 | | | |
Currency exchange rates | | (33) | | | - | | | |
Industrial segment organic operating profit (Non-GAAP) | $ | 16,712 | | $ | 17,469 | | | (4)% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(Dollars in millions) | | 2015 | | | 2014 | | | V% |
| | | | | | | | |
Industrial segment profit (GAAP) | $ | 17,966 | | $ | 17,764 | | | 1% |
Adjustments: | | | | | | | | |
Acquisitions | | (132) | | | (1) | | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 3 | | | 195 | | | |
Currency exchange rates | | (670) | | | - | | | |
Industrial segment organic operating profit (Non-GAAP) | $ | 18,766 | | $ | 17,570 | | | 7% |
| | | | | | | | |
Industrial segment organic operating profit growth measures Industrial segment profit excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting industrial segment organic operating profit growth separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "Industrial segment organic operating profit growth" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.
OIL & GAS ORGANIC REVENUE GROWTH |
| | | | | | | |
| |
(Dollars in millions) | | 2015 | | | 2014 | | V% |
| | | | | | | |
Oil & Gas segment revenue (GAAP) | $ | 16,450 | | $ | 19,085 | | (14)% |
Adjustments: | | | | | | | |
Acquisitions | | 145 | | | 30 | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 25 | | | 319 | | |
Currency exchange rates | | (1,597) | | | - | | |
Oil & Gas organic revenue (Non-GAAP) | $ | 17,878 | | $ | 18,735 | | (5)% |
| | | | | | | |
OIL & GAS ORGANIC OPERATING PROFIT GROWTH |
| | | | | | | |
| |
(Dollars in millions) | | 2015 | | | 2014 | | V% |
| | | | | | | |
Oil & Gas segment profit (GAAP) | $ | 2,427 | | $ | 2,758 | | (12)% |
Adjustments: | | | | | | | |
Acquisitions | | 8 | | | - | | |
Business dispositions (other than dispositions of businesses acquired for investment) | | 1 | | | 18 | | |
Currency exchange rates | | (349) | | | - | | |
Oil & Gas organic profit (Non-GAAP) | $ | 2,768 | | $ | 2,739 | | 1% |
| | | | | | | |
Organic revenue and operating profit growth measure revenue and profit excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that 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 currency exchange, which activities are subject to volatility and can obscure underlying trends. Management recognizes that the terms "organic revenue growth" and "organic operating profit growth" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the Oil & Gas business and may therefore be a useful tool in assessing period-to-period performance trends.
OPERATING AND NON-OPERATING PENSION COST |
| | | | | | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
Service cost for benefits earned | $ | 1,237 | | $ | 1,424 | | $ | 1,205 | | $ | 1,535 |
Prior service cost amortization | | 303 | | | 205 | | | 214 | | | 246 |
Curtailment loss | | 31 | | | 105 | | | 65 | | | - |
Operating pension cost (Non-GAAP) | | 1,571 | | | 1,734 | | | 1,484 | | | 1,781 |
| | | | | | | | | | | |
Expected return on plan assets | | (3,336) | | | (3,302) | | | (3,190) | | | (3,500) |
Interest cost on benefit obligations | | 2,939 | | | 2,778 | | | 2,745 | | | 2,460 |
Net actuarial loss amortization | | 2,449 | | | 3,288 | | | 2,565 | | | 3,664 |
Non-operating pension cost (Non-GAAP) | | 2,052 | | | 2,764 | | | 2,120 | | | 2,624 |
Total principal pension plans cost (GAAP) | $ | 3,623 | | $ | 4,498 | | $ | 3,604 | | $ | 4,405 |
| | | | | | | | | | | |
We have provided the operating and non-operating components of cost for our principal pension plans. Operating pension cost comprises the service cost of benefits earned, prior service cost amortization and curtailment loss for our principal pension plans. Non-operating pension cost comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial loss amortization for our principal pension plans. We believe that the operating components of pension cost better reflect the ongoing service-related cost of providing pension benefits to our employees. We believe that the operating and non-operating components of cost for our principal pension plans, considered along with the corresponding GAAP measure, provide management and investors with additional information for comparison of our pension plan cost and operating results with the pension plan cost and operating results of other companies.
ADJUSTED CORPORATE COSTS (OPERATING) | | | | | | | | | | | |
| | | | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
Total Corporate Items and Eliminations (GAAP) | $ | (4,226) | | $ | (5,108) | | $ | (6,225) | | $ | (6,002) |
Less: non-operating pension cost (Non-GAAP) | | (2,052) | | | (2,764) | | | (2,120) | | | (2,624) |
Total Corporate costs (operating) (Non-GAAP) | $ | (2,175) | | $ | (2,344) | | $ | (4,105) | | $ | (3,378) |
Less: restructuring and other charges, gains (losses), | | | | | | | | | | | |
NBCU settlement and NBCU LLC | | (134) | | | (237) | | | (1,697) | | | (17) |
Adjusted total corporate costs (operating) (Non-GAAP) | $ | (2,040) | | $ | (2,107) | | $ | (2,408) | | $ | (3,361) |
| | | | | | | | | | | |
Operating corporate costs exclude non-service-related pension costs of our principal pension plans, which comprise interest costs, expected return on plan assets and amortization of actuarial gains/losses. Service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating corporate costs. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. Accordingly, we believe that our measure of operating corporate costs provides management and investors with a useful measure of the operational costs incurred outside of our businesses. We believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating corporate costs to the operating corporate costs of other companies.
We also believe that adjusting operating corporate costs to exclude the effects of items that are not closely associated with ongoing corporate operations, such as earnings of previously divested businesses, gains and losses on disposed and held for sale businesses, restructuring and other charges, a settlement and NBCU LLC provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
GE PRE-TAX EARNINGS FROM CONTINUING OPERATIONS, EXCLUDING GE CAPITAL EARNINGS (LOSS) FROM |
CONTINUING OPERATIONS AND THE CORRESPONDING EFFECTIVE TAX RATES |
| | | | | | |
(Dollars in millions) | | 2016 | | 2015 | | 2014 |
| | | | | | |
GE earnings from continuing operations before income taxes (GAAP) | $ | 9,815 | $ | 3,252 | $ | 11,119 |
Less: GE Capital earnings (loss) from continuing operations | | (1,251) | | (7,672) | | 1,532 |
Total | $ | 11,066 | $ | 10,924 | $ | 9,587 |
| | | | | | |
GE provision for income taxes (GAAP) | $ | 967 | $ | 1,506 | $ | 1,634 |
GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | | 8.7 % | | 13.8 % | | 17.0 % |
| | | | | | |
| | | | | | |
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO GE EFFECTIVE TAX RATE, | |
EXCLUDING GE CAPITAL EARNINGS | |
| | | | | | |
| 2016 | | 2015 | | 2014 | |
| | | | | | |
U.S. federal statutory income tax rate | 35.0 % | | 35.0 % | | 35.0 % | |
Reduction in rate resulting from: | | | | | | |
Tax on global activities including exports | (18.5) | | (15.8) | | (13.9) | |
U.S. business credits | (0.8) | | (1.2) | | (1.1) | |
All other – net | (7.0) | | (4.2) | | (3.0) | |
| (26.3) | | (21.2) | | (18.0) | |
GE effective tax rate, excluding GE Capital earnings | 8.7 % | | 13.8 % | | 17.0 % | |
| | | | | | |
We believe that the GE effective tax rate is best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. Management believes that in addition to the Consolidated and GE Capital tax rates shown in Note 14 to the consolidated financial statements, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses.
INDUSTRIAL OPERATING EARNINGS AND GE CAPITAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND EPS |
| | | | | | | | | | | |
(Dollars in millions; except per share amounts) | | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
Consolidated earnings from continuing operations attributable | | | | | | | | | | | |
to GE common shareowners (GAAP) | $ | 9,128 | | $ | 1,663 | | $ | 9,535 | | $ | 7,618 |
Non-operating pension cost (pre-tax) | | 2,052 | | | 2,764 | | | 2,120 | | | 2,624 |
Tax effect on non-operating pension cost(a) | | (718) | | | (967) | | | (742) | | | (919) |
Adjustment: non-operating pension cost (net of tax) | | 1,334 | | | 1,797 | | | 1,378 | | | 1,705 |
Operating earnings (Non-GAAP) | $ | 10,462 | | $ | 3,460 | | $ | 10,913 | | $ | 9,323 |
| | | | | | | | | | | |
Adjustment: GE Capital earnings (loss) from continuing operations | | | | | | | | | | | |
attributable to GE common shareowners | | (1,251) | | | (7,983) | | | 1,209 | | | 401 |
Industrial operating earnings (Non-GAAP) | $ | 11,713 | | $ | 11,443 | | $ | 9,705 | | $ | 8,922 |
| | | | | | | | | | | |
Earnings (loss) per share (EPS) - diluted(b) | | | | | | | | | | | |
Consolidated EPS from continuing operations | | | | | | | | | | | |
attributable to GE common shareowners (GAAP) | $ | 1.00 | | $ | 0.17 | | $ | 0.94 | | $ | 0.74 |
Adjustment: non-operating pension cost (net of tax) | | 0.15 | | | 0.18 | | | 0.14 | | | 0.17 |
Operating EPS (Non-GAAP) | | 1.14 | | | 0.35 | | | 1.08 | | | 0.90 |
GE Capital EPS from continuing operations | | | | | | | | | | | |
attributable to GE common shareowners (GAAP) | | (0.14) | | | (0.80) | | | 0.12 | | | 0.04 |
Industrial operating EPS (Non-GAAP) | $ | 1.28 | | $ | 1.14 | | $ | 0.96 | | $ | 0.87 |
| | | | | | | | | | | |
(a) | The tax effect of non-operating pension costs was calculated using a 35% U.S. federal statutory tax rate, based on its applicability to such cost. |
(b) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
Operating earnings excludes non-service-related pension costs of our principal pension plans comprising interest cost, expected return on plan assets and amortization of actuarial gains/losses. The service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating earnings. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. As such, we believe that our measure of operating earnings provides management and investors with a useful measure of the operational results of our business. Other components of GAAP pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Neither GAAP nor operating pension costs are necessarily indicative of the current or future cash flow requirements related to our pension plans. We also believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating results to the operating results of other companies. We believe that presenting operating earnings separately for our industrial 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.
INDUSTRIAL OPERATING + VERTICALS EARNINGS AND EPS | | | | | | |
| | | | | | | | | | | |
(Dollars in millions; except per share amounts) | | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
GE Capital earnings (loss) from continuing operations attributable | | | | | | | | | | | |
to GE common shareowners (GAAP) | $ | (1,251) | | $ | (7,983) | | $ | 1,209 | | $ | 401 |
Adjustment: GE Capital other continuing earnings (loss) (Other Capital) | | (3,143) | | | (9,649) | | | (399) | | | (1,009) |
Verticals earnings(a) | | 1,892 | | | 1,666 | | | 1,608 | | | 1,410 |
| | | | | | | | | | | |
Industrial operating earnings (Non-GAAP) | $ | 11,713 | | $ | 11,443 | | $ | 9,705 | | $ | 8,922 |
Verticals earnings(a) | | 1,892 | | | 1,666 | | | 1,608 | | | 1,410 |
Industrial operating earnings + Verticals earnings (Non-GAAP) | $ | 13,605 | | $ | 13,109 | | $ | 11,313 | | $ | 10,332 |
Adjustment: Non-operating pension cost and other Capital | | (4,477) | | | (11,446) | | | (1,777) | | | (2,714) |
Earnings (loss) from continuing operations | | | | | | | | | | | |
attributable to GE common shareowners (GAAP) | $ | 9,128 | | $ | 1,663 | | $ | 9,535 | | $ | 7,618 |
| | | | | | | | | | | |
Earnings (loss) per share - diluted(b) | | | | | | | | | | | |
Industrial operating EPS (Non-GAAP) | $ | 1.28 | | $ | 1.14 | | $ | 0.96 | | $ | 0.87 |
Verticals EPS | | 0.21 | | | 0.17 | | | 0.16 | | | 0.14 |
Industrial operating + Verticals EPS (Non-GAAP) | $ | 1.49 | | $ | 1.31 | | $ | 1.12 | | $ | 1.00 |
Adjustment: Non-operating pension cost and other Capital | | (0.49) | | | (1.14) | | | (0.18) | | | (0.27) |
EPS from continuing operations (GAAP) | $ | 1.00 | | $ | 0.17 | | $ | 0.94 | | $ | 0.74 |
| | | | | | | | | | | |
(a) | Verticals include businesses expected to be retained (GECAS, Energy Financial Services, Industrial Finance and run-off insurance activities), including allocated corporate costs of $100 million, $133 million, $233 million and $233 million after tax for the years ended December 31, 2016, 2015, 2014 and 2013, respectively. |
(b) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
As described above, Verticals represents the GE Capital businesses that we expect to retain. We believe that presenting Industrial operating + Verticals earnings-per-share amounts provides management and investors with a useful measure to evaluate the performance of the businesses we expect to retain after the disposition of most of our financial services business.
See below for a graphic presentation of the reconciliation between GAAP EPS from continuing operations to the Industrial operating + Verticals EPS.
INDUSTRIAL OPERATING + VERTICALS EARNINGS AND EPS(a) | |
| Industrial operating & Verticals $1.49 Non-operating pension & other Capital $(0.49) | | Industrial operating & Verticals $1.31 Non-operating pension & other Capital $(1.14) |
GAAP Continuing EPS | $1.00 | | | $0.17 | |
| Industrial operating & Verticals $1.12 Non-operating pension & other Capital $(0.18) | | Industrial operating & Verticals $1.00 Non-operating pension & other Capital $(0.27) |
GAAP Continuing EPS | $0.94 | | | $0.74 | |
(a) | Earnings-per-share amounts are computed independently. As a result, the sum of per share amounts may not equal the total.
|
INDUSTRIAL OPERATING PROFIT AND OPERATING PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) |
| | | | | | | | | | | | | | |
(Dollars in millions) | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | | |
GE total revenues and other income | $ | 113,676 | | $ | 100,700 | | $ | 109,546 | | $ | 104,599 | | $ | 104,900 |
Less: GE Capital earnings (loss) from | | | | | | | | | | | | | | |
continuing operations | | (1,251) | | | (7,672) | | | 1,532 | | | 699 | | | 1,368 |
GE revenues and other income excluding GE Capital | | | | | | | | | | | | | | |
earnings (loss) (Industrial revenues) (GAAP) | $ | 114,927 | | $ | 108,371 | | $ | 108,014 | | $ | 103,900 | | $ | 103,532 |
| | | | | | | | | | | | | | |
Less: gains | | 3,444 | | | 1,497 | | | 91 | | | 453 | | | 186 |
Less: NBCU | | - | | | - | | | - | | | 1,528 | | | 1,615 |
Adjusted Industrial revenues (Non-GAAP) | $ | 111,483 | | $ | 106,874 | | $ | 107,923 | | $ | 101,919 | | $ | 101,731 |
Less: Alstom revenues | | 13,015 | | | 1,956 | | | - | | | - | | | - |
Adjusted Industrial revenues ex. Alstom (Non-GAAP) | $ | 98,468 | | $ | 104,918 | | $ | 107,923 | | $ | 101,919 | | $ | 101,731 |
| | | | | | | | | | | | | | |
Costs | | | | | | | | | | | | | | |
GE total costs and expenses | $ | 103,860 | | $ | 97,447 | | $ | 98,427 | | $ | 95,068 | | $ | 94,081 |
Less: GE interest and other financial charges | | 2,026 | | | 1,706 | | | 1,579 | | | 1,333 | | | 1,353 |
Industrial costs excluding interest and other | | | | | | | | | | | | | | |
financial charges (GAAP) | $ | 101,834 | | $ | 95,741 | | $ | 96,848 | | $ | 93,735 | | $ | 92,728 |
| | | | | | | | | | | | | | |
Less: gains (cost basis) | | - | | | - | | | - | | | 6 | | | - |
Less: non-operating pension cost (pre-tax) | | 2,052 | | | 2,764 | | | 2,120 | | | 2,624 | | | 2,132 |
Less: restructuring and other charges | | 3,578 | | | 1,734 | | | 1,788 | | | 1,992 | | | 732 |
Less: noncontrolling interests and 2015 GE Capital | | | | | | | | | | | | | | |
preferred stock dividends | | 279 | | | 229 | | | 372 | | | 53 | | | (37) |
Adjusted Industrial costs (Non-GAAP) | $ | 95,925 | | $ | 91,015 | | $ | 92,567 | | $ | 89,060 | | $ | 89,901 |
Less: Alstom costs and expenses | | 12,243 | | | 2,110 | | | - | | | - | | | - |
Adjusted Industrial costs ex. Alstom (Non-GAAP) | $ | 83,682 | | $ | 88,905 | | $ | 92,567 | | $ | 89,060 | | $ | 89,901 |
| | | | | | | | | | | | | | |
Industrial profit (GAAP) | $ | 13,093 | | $ | 12,630 | | $ | 11,166 | | $ | 10,165 | | $ | 10,804 |
Industrial margins (GAAP) | | 11.4% | | | 11.7% | | | 10.3% | | | 9.8% | | | 10.4% |
| | | | | | | | | | | | | | |
Industrial operating profit (Non-GAAP) | $ | 15,558 | | $ | 15,859 | | $ | 15,356 | | $ | 12,859 | | $ | 11,831 |
Industrial operating profit margins (Non-GAAP) | | 14.0% | | | 14.8% | | | 14.2% | | | 12.6% | | | 11.6% |
| | | | | | | | | | | | | | |
Industrial operating profit ex. Alstom (Non-GAAP) | $ | 14,786 | | $ | 16,013 | | $ | 15,356 | | $ | 12,859 | | $ | 11,830 |
Industrial operating profit margins ex. Alstom (Non-GAAP) | | 15.0% | | | 15.3% | | | 14.2% | | | 12.6% | | | 11.6% |
| | . | | | | | | | | | | | | |
We have presented our Industrial operating profit and operating profit margin excluding gains, non-operating pension costs (pre-tax), restructuring and other, noncontrolling interests, GE Capital preferred stock dividends, as well as the results of Alstom. We believe that Industrial operating profit and operating profit margin adjusted for these items are meaningful measures because they increase the comparability of period-to-period results.
INDUSTRIAL OPERATING PROFIT + VERTICALS |
| | | | | | | | | | | |
(Dollars in millions) | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
Industrial operating profit (Non-GAAP)(a) | $ | 15,558 | | $ | 15,859 | | $ | 15,356 | | $ | 12,859 |
Vertical earnings(b) | | 1,892 | | | 1,666 | | | 1,606 | | | 1,410 |
Industrial operating profit + Verticals (Non-GAAP) | $ | 17,450 | | $ | 17,525 | | $ | 16,962 | | $ | 14,269 |
| | | | | | | | | | | |
| | . | | | | | | | | | |
(a) | See Industrial Operating Profit and Operating Profit Margin reconciliation above for computation. |
(b) | See Industrial Operating + Verticals earnings and EPS reconciliation above for computation. |
We have presented our measure of Industrial operating profit and Vertical earnings, which is the sum of the Industrial operating profit used in measuring the operating margins of our industrial businesses and the net earnings of our Verticals businesses. See the reconciliations for these measures for additional information about the basis for the measures and explanation of why we believe these individual measures are helpful to management and our investors. We also believe that this measure, which combines an industrial business measure with the results of our Vertical financial services business provides management and investors with a measure that is aligned with the way in which we manage these businesses.
INDUSTRIAL SEGMENT GROSS MARGIN (EXCLUDING ALSTOM) | | | | | |
| | | | | |
(Dollars in millions) | | 2016 | | | 2015 |
| | | | | |
Industrial Sales | $ | 110,835 | | $ | 106,206 |
Less: Corporate sales and eliminations | | (2,071) | | | (1,858) |
Industrial segment sales | | 112,906 | | | 108,064 |
Less: Alstom sales | | 13,096 | | | 1,953 |
Industrial segment sales excluding Alstom | $ | 99,810 | | $ | 106,111 |
| | | | | |
Industrial cost of sales | $ | 85,712 | | $ | 80,828 |
Less: Corporate cost of sales and eliminations | | 3,315 | | | 2,026 |
Industrial segment cost of sales | | 82,397 | | | 78,802 |
Less: Alstom cost of sales | | 10,364 | | | 1,730 |
Industrial segment cost of sales excluding Alstom | $ | 72,033 | | $ | 77,072 |
| | | | | |
Industrial segment gross margin | $ | 30,509 | | $ | 29,262 |
Industrial segment gross margin percentage | | 27.0% | | | 27.1% |
| | | | | |
Industrial segment gross margin excluding Alstom | $ | 27,777 | | $ | 29,039 |
Industrial segment gross margin percentage excluding Alstom | | 27.8% | | | 27.4% |
| | | | | |
We have presented our segment gross margin excluding the results of our fourth quarter 2015 Alstom power and grid acquisition. We believe that industrial segment gross margin adjusted for the Alstom impacts is a meaningful measure because it increases the comparability of period-to-period results.
INDUSTRIAL SEGMENT OPERATING PROFIT AND OPERATING PROFIT MARGIN (EXCLUDING ALSTOM) |
| | | | | | | | | | | | | |
(Dollars in millions) | 2016 | | | 2015 | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | |
Revenues | | | | | | | | | | | | | |
Total industrial segment revenues (GAAP) | $ | 113,156 | | $ | 108,796 | $ | 109,727 | | $ | 103,383 | | $ | 102,548 |
Less: Alstom revenues | | 13,015 | | | 1,956 | | - | | | - | | | - |
Total industrial segment operating | | | | | | | | | | | | | |
revenues excluding Alstom (Non-GAAP) | $ | 100,141 | | $ | 106,840 | $ | 109,727 | | $ | 103,383 | | $ | 102,548 |
| | | | | | | | | | | | | |
Segment profit (loss) | | | | | | | | | | | | | |
Total industrial segment operating profit (GAAP) | $ | 17,598 | | $ | 17,966 | $ | 17,764 | | $ | 16,220 | | $ | 15,487 |
Total industrial segment operating profit margin (GAAP) | | 15.6% | | | 16.5% | | 16.2% | | | 15.7% | | | 15.1% |
| | | | | | | | | | | | | |
Less: Alstom profit (loss) | $ | 772 | | $ | (154) | $ | - | | $ | - | | $ | - |
Total industrial segment operating profit | | | | | | | | | | | | | |
excluding Alstom (Non-GAAP) | $ | 16,826 | | $ | 18,120 | $ | 17,764 | | $ | 16,220 | | $ | 15,487 |
Total industrial segment operating profit margin | | | | | | | | | | | | | |
excluding Alstom (Non-GAAP) | | 16.8% | | | 17.0% | | 16.2% | | | 15.7% | | | 15.1% |
| | . | | | | | | | | | | | |
We have presented our segment gross margin excluding the results of our fourth quarter 2015 Alstom power and grid acquisition. We believe that industrial segment gross margin adjusted for the Alstom impacts is a meaningful measure because it increases the comparability of period-to-period results.
We have also presented results of our Power, Renewable Energy and Energy Connections & Lighting segments excluding the effects of the fourth quarter Alstom power and grid acquisition. These measurements included revenues, operating profit and margin excluding Alstom, the reconciliations for which are included in the segment sections within MD&A. We believe that metrics adjusted for the Alstom impacts are meaningful measures because they increase the comparability of period-to-period results.
AVERAGE GE SHAREOWNERS' EQUITY, EXCLUDING EFFECTS OF DISCONTINUED OPERATIONS(a) |
| | | | | | | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | |
Average GE shareowners' equity(a) (GAAP) | $ | 86,412 | | $ | 111,140 | | $ | 131,914 | | $ | 124,501 | | $ | 120,401 |
Less the effects of the average net investment | | | | | | | | | | | | | | |
in discontinued operations | | 2,854 | | | 27,910 | | | 45,455 | | | 44,948 | | | 41,399 |
Average GE shareowners' equity, excluding | | | | | | | | | | | | | | |
effects of discontinued operations(b) (Non-GAAP) | $ | 83,558 | | $ | 83,230 | | $ | 86,459 | | $ | 79,553 | | $ | 79,002 |
| | | | | | | | | | | | | | |
(a) | On an annual basis, calculated using a five-point average. |
(b) | Used for computing Industrial return on total capital (ROTC). |
Our Industrial ROTC calculation excludes earnings (losses) of discontinued operations from the numerator because GAAP requires us to display those earnings (losses) in the Statement of Earnings. Those earnings (losses) from discontinued operations include an allocation of interest expense either directly attributable or related to discontinued operations. Net investment in discontinued operations is calculated as assets of discontinued operations less liabilities of discontinued operations, including an allocation of GE Capital debt. Our calculation of average GE shareowners' equity may not be directly comparable to similarly titled measures reported by other companies. We believe that it is a clearer way to measure the ongoing trend in return on total capital for the continuing operations of our businesses given the extent that discontinued operations have affected our reported results. We believe that this results in a more relevant measure for management and investors to evaluate performance of our continuing operations, on a consistent basis, and to evaluate and compare the performance of our continuing operations with the ongoing operations of other businesses and companies.
Definitions indicating how the above-named ratios are calculated using average GE shareowners' equity, excluding effects of discontinued operations, can be found in the Other Items and Measures section within the MD&A.
AVERAGE GE CAPITAL SHAREOWNERS' EQUITY, EXCLUDING EFFECTS OF DISCONTINUED OPERATIONS(a) | |
| | | | | | | | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | | | |
Average GE Capital shareowners' equity(a) (GAAP) | $ | 34,382 | | $ | 67,930 | | $ | 85,370 | | $ | 83,358 | | $ | 79,873 | |
Less the effects of the average net | | | | | | | | | | | | | | | |
investment in discontinued operations | | 2,955 | | | 28,028 | | | 45,589 | | | 45,023 | | | 41,504 | |
| | | | | | | | | | | | | | | |
Average GE Capital shareowners' equity, | | | | | | | | | | | | | | | |
excluding effects of discontinued operations(b) (Non-GAAP) | $ | 31,427 | | $ | 39,902 | | $ | 39,781 | | $ | 38,335 | | $ | 38,369 | |
| | | | | | | | | | | | | | | |
(a) | On an annual basis, calculated using a five-point average. |
(b) | Used for computing Industrial return on total capital (ROTC). |
Our Industrial ROTC calculation excludes earnings (losses) of discontinued operations from the numerator because GAAP requires us to display those earnings (losses) in the Statement of Earnings. Our calculation of average GE Capital shareowners' equity may not be directly comparable to similarly titled measures reported by other companies. We believe that it is a clearer way to measure the ongoing trend in return on total capital for the continuing operations of our businesses given the extent that discontinued operations have affected our reported results. We believe that this results in a more relevant measure for management and investors to evaluate performance of our continuing operations, on a consistent basis, and to evaluate and compare the performance of our continuing operations with the ongoing operations of other businesses and companies.
INDUSTRIAL RETURN ON TOTAL CAPITAL (INDUSTRIAL ROTC) |
| | | | | | | | | | | | | | |
(Dollars in millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | |
Earnings from continuing operations (GAAP) | $ | 9,494 | | $ | 1,700 | | $ | 9,490 | | $ | 7,881 | | $ | 8,816 |
Less: GE Capital earnings (loss) from continuing operations | | (606) | | | (7,718) | | | 1,537 | | | 716 | | | 1,378 |
Plus: GE after-tax interest | | 1,499 | | | 1,262 | | | 1,026 | | | 865 | | | 880 |
Adjusted Industrial return (Non-GAAP) | $ | 11,599 | | $ | 10,680 | | $ | 8,979 | | $ | 8,030 | | $ | 8,318 |
| | | | | | | | | | | | | | |
Average GE shareholders' equity, excluding effects | | | | | | | | | | | | | | |
of discontinued operations(a) | $ | 83,558 | | $ | 83,230 | | $ | 86,459 | | $ | 79,553 | | $ | 79,002 |
Less: average GE Capital's shareholders' equity, | | | | | | | | | | | | | | |
excluding effects of discontinued operations(a) | | 31,427 | | | 39,902 | | | 39,781 | | | 38,335 | | | 38,369 |
Average Industrial shareholders' equity, excluding | | | | | | | | | | | | | | |
effects of discontinued operations | | 52,131 | | | 43,328 | | | 46,678 | | | 41,218 | | | 40,633 |
Plus: average debt(a) | | 21,491 | | | 18,411 | | | 15,724 | | | 13,652 | | | 12,899 |
Plus: other, net(b) | | 1,924 | | | 1,486 | | | 1,743 | | | 1,367 | | | (1,106) |
Adjusted Industrial capital (Non-GAAP) | $ | 75,546 | | $ | 63,225 | | $ | 64,145 | | $ | 56,237 | | $ | 52,426 |
| | | | | | | | | | | | | | |
Industrial ROTC | | 15.4 % | | | 16.9 % | | | 14.0 % | | | 14.3 % | | | 15.9 % |
| | | | | | | | | | | | | | |
(a) | On an annual basis, calculated using a five-point average. |
(b) | Includes average noncontrolling interests, calculated using a five-point average partially offset by the estimated value of assets held by GE to support GE Capital. |
Our Industrial ROTC calculation excludes earnings (losses) of discontinued operations from the numerator. We believe that this is a clearer way to measure the ongoing trend in return on Industrial capital for the continuing operations of the business to the extent that discontinued operations have affected our reported results. Our Industrial shareowners' equity used in the denominator is adjusted for debt, redeemable noncontrolling interests and noncontrolling interests. We believe that these adjustments provide a more meaningful denominator in measuring the return on our industrial businesses. Industrial ROTC was 15.4% in 2016 versus 16.9% in 2015 and 14.0% in 2014. In 2016, an 8.6% increase in the adjusted Industrial return was combined with a 19.5% increase in the adjusted Industrial capital. This increase in capital was principally driven by increased debt and effects from Alstom redeemable noncontrolling interests. Our calculation of the return on Industrial capital may not be directly comparable to similarly titled measures reported by other companies. We believe that the adjustments described above result in a more relevant measure for management and investors to evaluate performance of our Industrial continuing operations, on a consistent basis, and to evaluate and compare the performance of our Industrial continuing operations with the continuing operations of other businesses and companies.
INDUSTRIAL CASH FLOWS FROM OPERATING ACTIVITIES (INDUSTRIAL CFOA) AND INDUSTRIAL CFOA |
EXCLUDING TAXES RELATED TO BUSINESS SALES AND PRINCIPAL PENSION PLAN FUNDING |
| | | | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
Cash from GE's operating activities (continuing operations), | | | | | | | | | | | |
as reported (GAAP) | $ | 29,960 | | $ | 16,354 | | $ | 15,171 | | $ | 14,255 |
Adjustment: dividends from GE Capital | | 20,095 | | | 4,300 | | | 3,000 | | | 5,985 |
Industrial CFOA (Non-GAAP) | $ | 9,865 | | $ | 12,054 | | $ | 12,171 | | $ | 8,270 |
Adjustment: taxes related to business sales | | 1,398 | | | 184 | | | - | | | 3,184 |
Adjustment: Principal pension plan funding | | 347 | | | - | | | - | | | - |
Industrial CFOA excluding deal-related taxes and | | | | | | | | | | | |
Principal pension plan funding (Non-GAAP) | $ | 11,610 | | $ | 12,238 | | $ | 12,171 | | $ | 11,454 |
| | | | | | | | | | | |
GE CASH FLOWS FROM OPERATING ACTIVITIES (GE CFOA) EXCLUDING TAXES RELATED TO BUSINESS SALES |
AND PRINCIPAL PENSION PLAN FUNDING |
| | | | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 |
| | | | | | | | | | | |
Cash from GE's operating activities (continuing operations), | | | | | | | | | | | |
as reported (GAAP) | $ | 29,960 | | $ | 16,354 | | $ | 15,171 | | $ | 14,255 |
Adjustment: taxes related to business sales | | 1,398 | | | 184 | | | - | | | 3,184 |
Adjustment: Principal pension plan funding | | 347 | | | - | | | - | | | - |
GE CFOA excluding deal-related taxes and | | | | | | | | | | | |
Principal pension plan funding (Non-GAAP) | $ | 31,705 | | $ | 16,538 | | $ | 15,171 | | $ | 17,439 |
| | | | | | | | | | | |
We define "Industrial CFOA" as GE's cash from operating activities (continuing operations) less the amount of dividends received by GE from GE Capital. This reflects the effects of intercompany transactions, which include, but are not limited to, the following: GE Capital working capital solutions to optimize GE cash management; GE Capital enabled GE industrial orders; aircraft engines, power equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment; expenses related to parent-subsidiary pension plans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions; information technology (IT) and other services sold to GE Capital by GE; and various investments, loans and allocations of GE corporate overhead costs.
We believe that investors may find it useful to compare GE's operating cash flows without the effect of GE Capital dividends, since these dividends are not representative of the operating cash flows of our industrial businesses and can vary from period to period based upon the results of the financial services businesses. We also believe that investors may find it useful to compare Industrial CFOA and GE CFOA excluding the effects of taxes paid related to the sales of the Appliances, Signaling and NBCU LLC businesses and contributions to our principal pension plans. Management recognizes that these measures may not be comparable to cash flow results of companies which contain both industrial and financial services businesses, but believes that this comparison is aided by the provision of additional information about the amounts of dividends paid by our financial services business and the separate presentation in our financial statements of the GE Capital cash flows. We believe that our measure of Industrial CFOA, and both Industrial CFOA and GE CFOA excluding such sale-related taxes and pension contributions (representing net sale proceeds associated with the July 1, 2016 sale of GEAM to State Street Corporation) provides management and investors with useful measures to compare the capacity of our industrial operations to generate operating cash flow with the operating cash flow of other non-financial businesses and companies and as such provides useful measures to supplement the reported GAAP CFOA measure.
FREE CASH FLOW (FCF) AND FCF PLUS DISPOSITIONS |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Cash from GE's operating activities (continuing operations) (GAAP) | $ | 29,960 | | $ | 16,354 | | $ | 15,171 |
Less: GE additions to property, plant and equipment | | 3,758 | | | 3,785 | | | 3,970 |
Plus: GE dispositions of property, plant and equipment | | 1,080 | | | 939 | | | 615 |
Free cash flow (Non-GAAP) | | 27,282 | | | 13,508 | | | 11,816 |
Plus: GE proceeds from principal business dispositions | | 5,357 | | | 1,725 | | | 602 |
Free cash flow plus dispositions (Non-GAAP) | | 32,639 | | | 15,233 | | | 12,418 |
| | | | | | | | |
We define free cash flow as GE's cash from operating activities (continuing operations) less GE additions to property, plant and equipment and plus GE dispositions of property, plant and equipment, which are included in cash flows from investing activities. We believe that free cash flow is a useful financial metric to assess our ability to pursue opportunities to enhance our growth. We also believe that presenting free cash flow plus proceeds from business dispositions provides investors with useful information about the company's actual performance against performance targets. Management recognizes that the term free cash flow may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.
RATIO OF ADJUSTED DEBT TO EQUITY AT GE CAPITAL, NET OF LIQUIDITY |
| | | | | | | | | | | | | | |
December 31 (Dollars in millions) | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 |
| | | | | | | | | | | | | | |
GE Capital debt | $ | 117,303 | | $ | 180,178 | | $ | 245,252 | | $ | 283,820 | | $ | 315,172 |
Plus: debt of businesses held for sale | | | | | | | | | | | | | | |
and discontinued operations | | 2,076 | | | 31,075 | | | 105,687 | | | 86,546 | | | 81,229 |
Adjusted GE Capital debt | | 119,379 | | | 211,253 | | | 350,939 | | | 370,366 | | | 396,401 |
Less: liquidity(a) | | 49,100 | | | 70,497 | | | 54,109 | | | 65,492 | | | 52,810 |
Less: cash of businesses held for | | | | | | | | | | | | | | |
sale and discontinued operations | | 1,429 | | | 20,395 | | | 22,243 | | | 9,617 | | | 9,308 |
| $ | 68,849 | | $ | 120,361 | | $ | 274,587 | | $ | 295,256 | | $ | 334,283 |
| | | | | | | | | | | | | | |
GE Capital equity | $ | 24,677 | | $ | 46,227 | | $ | 87,499 | | $ | 82,694 | | $ | 81,889 |
| | | | | | | | | | | | | | |
Ratio | | 2.79:1 | | | 2.6:1 | | | 3.14:1 | | | 3.57:1 | | | 4.08:1 |
| | | | | | | | | | | | | | |
(a) | Liquidity includes cash and equivalents and $11.5 billion of high quality investments at December 31, 2016. |
We have provided the GE Capital ratio of debt to equity on a basis that reflects the use of liquidity as a reduction of debt. For purposes of this ratio, we have also adjusted cash and debt balances to include amounts classified as assets and liabilities of businesses held for sale and discontinued operations. We believe that this is a useful comparison to a GAAP-based ratio of debt to equity because liquidity balances may be used to reduce debt. The usefulness of this supplemental measure may be limited, however, as the total amount of liquidity at any point in time may be different than the amount that could practically be applied to reduce outstanding debt. Despite this potential limitation, we believe that this measure, considered along with the corresponding GAAP measure, provides investors with additional information that may be more comparable to other financial institutions and businesses.
CAPITAL ENDING NET INVESTMENT (ENI), EXCLUDING LIQUIDITY |
| | | | | | |
December 31 (In billions) | 2016 | | 2015 | | 2014(a) |
| | | | | | | | |
GE Capital total assets (GAAP) | $ | 183.0 | | $ | 311.5 | | $ | 500.2 |
Less: assets of discontinued operations | | 14.8 | | | 120.9 | | | 1.2 |
Less: non-interest bearing liabilities | | 37.4 | | | 38.8 | | | 60.5 |
Capital ENI (Non-GAAP) | | 130.7 | | | 151.8 | | | 438.5 |
Less: liquidity(b) | | 49.1 | | | 70.5 | | | 75.5 |
Capital ENI, excluding liquidity (Non-GAAP) | $ | 81.6 | | $ | 81.3 | | $ | 363.0 |
Plus: Discontinued operations ENI | | 11.2 | | | 84.9 | | | (0.1) |
Total ENI (excluding liquidity) including discontinued operations (Non-GAAP) | $ | 92.8 | | $ | 166.2 | | $ | 362.9 |
| | | | | | | | |
(a) | As originally reported. |
(b) | Liquidity includes cash and equivalents and $11.5 billion of high quality investments at December 31, 2016. |
We use ENI to measure the size of our Capital segment. We believe that this measure is a useful indicator of the capital (debt or equity) required to fund a business as it adjusts for non-interest bearing current liabilities generated in the normal course of business that do not require a capital outlay. We also believe that by excluding liquidity, we provide a meaningful measure of assets requiring capital to fund our Capital segment as a substantial amount of liquidity resulted from debt issuances to pre-fund future debt maturities and will not be used to fund additional assets. Liquidity consists of cash and equivalents and certain high quality investments. As a general matter, investments included in liquidity are expected to be highly liquid, giving us the ability to readily convert them to cash. Providing this measure will help investors measure how we are performing against our previously communicated goal to reduce the size of our financial services segment.
2017 OPERATING FRAMEWORK INCLUDING 2017 INDUSTRIAL OPERATING + VERTICALS EPS TARGET |
2017 Industrial operating + Verticals EPS Target$1.60-1.70
Items not included in non-GAAP metric:
1)Non-operating pension cost, which we estimate to be approximately $(0.16) – (0.17) per share.
2)Capital Other continuing earnings (excluding Verticals), which we estimate to be approximately $(0.03) – (0.12) per share. This amount is affected by, among other things:
• The timing of when, and the amount by which, the Company pays down GE Capital's outstanding debt; and
• The timing and magnitude of the remaining costs associated with GE Capital's Exit Plan.
|
Note: The company cannot provide an equivalent GAAP EPS guidance range without unreasonable effort because of the uncertainty of the amount and timing of events affecting earnings as we execute the GE Capital Exit Plan. Although we have attempted to estimate GE Capital's Other continuing earnings for the purpose of explaining the probable significance of this component, as described under number 2, this calculation involves a number of unknown variables, resulting in a GAAP range that we believe is too large and variable to be meaningful.
It is also impractical to provide a reconciliation for our organic revenue, Industrial operating margin expansion and Free Cash Flow plus Dispositions targets as these involve a number of unknown variables including the effects of future acquisitions, dispositions, restructuring activities, property plant and equipment purchases and dispositions and currency exchange.
OTHER FINANCIAL DATA
(Dollars in millions; per-share amounts in dollars) | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | |
General Electric Company and Consolidated Affiliates | | | | | | | | | | | | | | | |
Revenues and other income | $ | 123,693 | | $ | 117,386 | | $ | 117,184 | | $ | 113,245 | | $ | 112,588 | |
Earnings from continuing operations attributable to the Company | | 9,784 | | | 1,681 | | | 9,535 | | | 7,618 | | | 8,646 | |
Earnings (loss) from discontinued operations, net of taxes, | | | | | | | | | | | | | | | |
attributable to the Company | | (952) | | | (7,807) | | | 5,698 | | | 5,439 | | | 4,995 | |
Net earnings (loss) attributable to the Company | | 8,831 | | | (6,126) | | | 15,233 | | | 13,057 | | | 13,641 | |
Dividends declared(a) | | 9,054 | | | 9,161 | | | 8,948 | | | 8,060 | | | 7,372 | |
Return on average GE shareowners' equity | | 10.9 | % | | 1.6 | % | | 10.8 | % | | 9.5 | % | | 10.9 | % |
Per common share | | | | | | | | | | | | | | | |
Earnings from continuing operations – diluted | $ | 1.00 | | $ | 0.17 | | $ | 0.94 | | $ | 0.74 | | $ | 0.82 | |
Earnings (loss) from discontinued operations – diluted | | (0.10) | | | (0.78) | | | 0.56 | | | 0.53 | | | 0.47 | |
Net earnings (loss) – diluted | | 0.89 | | | (0.61) | | | 1.50 | | | 1.27 | | | 1.29 | |
Earnings from continuing operations – basic | | 1.01 | | | 0.17 | | | 0.95 | | | 0.74 | | | 0.82 | |
Earnings (loss) from discontinued operations – basic | | (0.11) | | | (0.78) | | | 0.57 | | | 0.53 | | | 0.47 | |
Net earnings (loss) – basic | | 0.90 | | | (0.62) | | | 1.51 | | | 1.28 | | | 1.29 | |
Dividends declared | | 0.93 | | | 0.92 | | | 0.89 | | | 0.79 | | | 0.70 | |
Stock price range | 33.00 -27.10 | | 31.49 -19.37 | | 27.94-23.69 | | 28.09-20.68 | | 23.18-18.02 | |
Year-end closing stock price | | 31.60 | | | 31.15 | | | 25.27 | | | 28.03 | | | 20.99 | |
Cash and equivalents | | 48,129 | | | 70,483 | | | 70,025 | | | 79,175 | | | 68,225 | |
Total assets of continuing operations | | 350,368 | | | 372,120 | | | 330,637 | | | 332,998 | | | 338,675 | |
Total assets | | 365,183 | | | 493,071 | | | 653,931 | | | 662,202 | | | 690,415 | |
Long-term borrowings | | 105,080 | | | 144,659 | | | 185,832 | | | 216,640 | | | 228,443 | |
Common shares outstanding – average (in thousands) | 9,025,479 | | 9,944,179 | | 10,044,995 | | 10,222,198 | | 10,522,922 | |
Common shareowner accounts – average | | 450,000 | | | 470,000 | | | 490,000 | | | 512,000 | | | 537,000 | |
Employees at year end | | | | | | | | | | | | | | | |
United States | | 104,000 | | | 125,000 | | | 136,000 | | | 135,000 | | | 134,000 | |
Other countries | | 191,000 | | | 208,000 | | | 169,000 | | | 172,000 | | | 171,000 | |
Total employees(c) | | 295,000 | | | 333,000 | | | 305,000 | | | 307,000 | | | 305,000 | |
GE data | | | | | | | | | | | | | | | |
Short-term borrowings(d) | $ | 20,482 | | $ | 19,792 | | $ | 3,872 | | $ | 1,841 | | $ | 6,041 | |
Long-term borrowings(d) | | 58,810 | | | 83,309 | | | 12,421 | | | 11,484 | | | 11,393 | |
Redeemable noncontrolling interests | | 3,025 | | | 2,972 | | | 98 | | | 176 | | | 183 | |
Noncontrolling interests | | 1,378 | | | 1,378 | | | 825 | | | 835 | | | 777 | |
GE shareowners' equity | | 75,828 | | | 98,274 | | | 128,159 | | | 130,566 | | | 123,026 | |
Total capital invested | $ | 159,523 | | $ | 205,725 | | $ | 145,375 | | $ | 144,903 | | $ | 141,420 | |
Industrial return on total capital(b)* | | 15.4 | % | | 16.9 | % | | 14.0 | % | | 14.3 | % | | 15.9 | % |
Borrowings as a percentage of total capital invested(b) | | 49.7 | % | | 50.1 | % | | 11.2 | % | | 9.2 | % | | 12.3 | % |
GE Capital data | | | | | | | | | | | | | | | |
Revenues | $ | 10,905 | | $ | 10,801 | | $ | 11,320 | | $ | 11,267 | | $ | 11,268 | |
Earnings (loss) from continuing operations attributable to GE Capital | | (595) | | | (7,654) | | | 1,532 | | | 699 | | | 1,368 | |
Earnings (loss) from discontinued operations, net of taxes, | | | | | | | | | | | | | | | |
attributable to GE Capital | | (954) | | | (7,485) | | | 5,860 | | | 5,540 | | | 4,901 | |
Less net earnings (loss) attributable to noncontrolling interests, | | | | | | | | | | | | | | | |
discontinued operations | | (1) | | | 312 | | | 157 | | | 36 | | | 53 | |
Net earnings (loss) attributable to GE Capital | | (1,548) | | | (15,450) | | | 7,234 | | | 6,204 | | | 6,216 | |
Net earnings (loss) attributable to GE Capital common shareowner | | (2,204) | | | (15,780) | | | 6,912 | | | 5,906 | | | 6,092 | |
GE Capital shareowners' equity | | 24,677 | | | 46,227 | | | 87,499 | | | 82,694 | | | 81,889 | |
Total borrowings(e) | | 117,303 | | | 180,178 | | | 245,252 | | | 283,820 | | | 315,172 | |
Ratio of debt to equity at GE Capital(f) | | 4.75:1 | | | 3.90:1 | | | 2.80:1 | | | 3.43:1 | | | 3.85:1 | |
Total assets(g) | $ | 182,970 | | $ | 311,508 | | $ | 499,614 | | $ | 517,717 | | $ | 538,802 | |
Transactions between GE and GE Capital have been eliminated from the consolidated information.
(a) | Included $656 million and $18 million of preferred stock dividends in 2016 and 2015, respectively. |
(b) | Indicated terms are defined in the Other Terms used by GE section within the MD&A. |
(c) | For 2015, includes 55,500 employees as a result of the Alstom acquisition. |
(d) | Excluding assumed debt of GE Capital, GE total borrowings is $20,512 million at December 31, 2016. |
(e) | Included $58,780 million of GE Capital debt assumed by GE and maintained as intercompany payable to GE at December 31, 2016. |
(f) | Ratios of 2.79:1, 2.6:1, 3.14:1, 3.57:1, and 4.08:1 for 2016, 2015, 2014, 2013 and 2012, respectively, net of liquidity*. For purposes of these ratios, cash and debt balances have been adjusted to include amounts classified as assets and liabilities of businesses held for sale and discontinued operations. |
(g) | GE Capital's total assets includes deferred income tax liabilities, which are presented within assets for purposes of our consolidating balance sheet presentation. |
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 116 44
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
| | | | | | | | | | |
| | | | | | Approximate | |
| | | | | | dollar value | |
| | | | Total number | | of shares that | |
| | | | of shares | | may yet be | |
| | | | purchased | | purchased | |
| | | | as part of | | under our | |
| Total number | Average | | our share | | share | |
| of shares | price paid | | repurchase | | repurchase | |
Period | purchased(a) | per share | | program(b) | | program(b) | |
(Shares in thousands) | | | | | | | | | | |
| | | | | | | | | | |
2016 | | | | | | | | | | |
October | | 32,338 | $ | 27.39 | | 32,265 | | | | |
November | | 20,805 | | 30.16 | | 20,791 | | | | |
December(c) | | 74,390 | | 31.60 | | 74,390 | | | | |
Total | | 127,533 | $ | 30.30 | | 127,446 | $ | 24.7 | billion | |
| | | | | | | | | | |
(a) |
| This category included 87 thousand shares repurchased from our various benefit plans. | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| Revenues | | Segment profit (loss) | | Profit margin |
(Dollars in millions) | 2018 |
| 2017 |
| V% |
| | 2018 |
| 2017 |
| V% |
| | 2018 |
| 2017 |
| V pts |
| | | | | | | | | | | |
Power (GAAP) | $ | 22,150 |
| $ | 29,426 |
| (25 | )% | | $ | (808 | ) | $ | 1,894 |
| U |
| | (3.6 | )% | 6.4 | % | (10)pts |
Less: acquisitions | 70 |
| 9 |
| | | (2 | ) | — |
| | | | | |
Less: business dispositions | 125 |
| 3,359 |
| | | 4 |
| 291 |
| | | | | |
Less: foreign currency effect | 368 |
| — |
| | | (11 | ) | — |
| | | | | |
Power organic (Non-GAAP) | $ | 21,587 |
| $ | 26,058 |
| (17 | )% | | $ | (799 | ) | $ | 1,602 |
| U |
| | (3.7 | )% | 6.1 | % | (9.8)pts |
| | | | | | | | | | | |
Renewable Energy (GAAP) | $ | 14,288 |
| $ | 14,321 |
| — | % | | $ | 292 |
| $ | 728 |
| (60 | )% | | 2.0 | % | 5.1 | % | (3.1)pts |
Less: acquisitions | 143 |
| 80 |
| | | 45 |
| 1 |
| | | | | |
Less: business dispositions | — |
| — |
| | | — |
| — |
| | | | | |
Less: foreign currency effect | (75 | ) | — |
| | | (41 | ) | — |
| | | | | |
Renewable Energy organic (Non-GAAP) | $ | 14,220 |
| $ | 14,242 |
| — | % | | $ | 288 |
| $ | 727 |
| (60 | )% | | 2.0 | % | 5.1 | % | (3.1)pts |
| | | | | | | | | | | |
Aviation (GAAP) | $ | 30,566 |
| $ | 27,013 |
| 13 | % | | $ | 6,466 |
| $ | 5,370 |
| 20 | % | | 21.2 | % | 19.9 | % | 1.3pts |
Less: acquisitions | 4 |
| 2 |
| | | (1 | ) | — |
| | | | | |
Less: business dispositions | — |
| — |
| | | — |
| — |
| | | | | |
Less: foreign currency effect | 28 |
| — |
| | | (29 | ) | — |
| | | | | |
Aviation organic (Non-GAAP) | $ | 30,534 |
| $ | 27,010 |
| 13 | % | | $ | 6,496 |
| $ | 5,370 |
| 21 | % | | 21.3 | % | 19.9 | % | 1.4pts |
| | | | | | | | | | | |
Healthcare (GAAP) | $ | 19,784 |
| $ | 19,017 |
| 4 | % | | $ | 3,698 |
| $ | 3,488 |
| 6 | % | | 18.7 | % | 18.3 | % | 0.4pts |
Less: acquisitions | 6 |
| 1 |
| | | (4 | ) | (2 | ) | | | | | |
Less: business dispositions | 13 |
| 267 |
| | | (1 | ) | 123 |
| | | | | |
Less: foreign currency effect | 152 |
| — |
| | | 52 |
| — |
| | | | | |
Healthcare organic (Non-GAAP) | $ | 19,613 |
| $ | 18,748 |
| 5 | % | | $ | 3,650 |
| $ | 3,367 |
| 8 | % | | 18.6 | % | 18.0 | % | 0.6pts |
| | | | | | | | | | | |
GE Industrial segment (GAAP) | $ | 86,789 |
| $ | 89,776 |
| (3 | )% | | $ | 9,647 |
| $ | 11,479 |
| (16 | )% | | 11.1 | % | 12.8 | % | (1.7)pts |
Less: acquisitions(a) | 224 |
| 92 |
| | | 38 |
| (1 | ) | | | | | |
Less: business dispositions(b) | 138 |
| 3,626 |
| | | 3 |
| 414 |
| | | | | |
Less: foreign currency effect(c) | 473 |
| — |
| | | (29 | ) | — |
| | | | | |
GE Industrial segment organic (Non-GAAP) | $ | 85,955 |
| $ | 86,059 |
| — | % | | $ | 9,634 |
| $ | 11,066 |
| (13 | )% | | 11.2 | % | 12.9 | % | (1.7)pts |
| | | | | | | | | | | |
(a) Acquisition impact primarily related to LM Wind within our Renewable Energy segment, with $142 million and $80 million of revenues in 2018 and 2017, respectively. |
(b) Dispositions impact in 2017 primarily related to Industrial Solutions, Distributed Power and Water businesses within our Power segment, with $1,368 million, $408 million and $1,516 million of revenues, respectively, and Value-Based Care within our Healthcare segment, with $213 million of revenues. |
(c) Primarily the Brazilian real and the Euro. |
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. |
When comparing revenues and profit growth between periods excluding the effects of acquisitions, business dispositions and currency exchange rates, those effects are different when comparing results for different periods. Revenues and profit from acquisitions are considered inorganic from the date we complete an acquisition through the end of the fourth quarter following the acquisition and are therefore reflected as adjustments to reported revenues and profit to derive organic revenues* and organic profit* for the period following the acquisition. In subsequent periods, the revenues and profit from the acquisition become organic as these revenues and profit are included for all periods presented. |
*Non-GAAP Financial Measure
(b) |
| Shares were repurchased through the 2015 GE Share Repurchase Program (the Program). As of December 31, 2016, we were authorized to repurchase up to $50.0 billion of our common stock through 2018 and we had repurchased a total of approximately $25.3 billion under the Program. The Program is flexible and shares will be acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. The total amount remaining under our share repurchase program excludes an unsettled amount of $0.3 billion under an accelerated share repurchase (ASR) agreement. | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
|
| | | | | | | | | |
ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN (Dollars in millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE total revenues (GAAP) | $ | 87,719 |
| $ | 89,038 |
| $ | 92,229 |
|
| | | |
GE total costs and expenses (GAAP) | 88,118 |
| 111,967 |
| 92,834 |
|
Less: GE interest and other financial charges | 2,115 |
| 2,415 |
| 2,538 |
|
Less: non-operating benefit costs | 2,828 |
| 2,740 |
| 2,409 |
|
Less: restructuring & other(a) | 1,351 |
| 2,832 |
| 2,914 |
|
Less: goodwill impairments(b) | 1,486 |
| 22,136 |
| 1,165 |
|
Add: noncontrolling interests | 6 |
| (130 | ) | (280 | ) |
Adjusted GE Industrial costs (Non-GAAP) | 80,343 |
| 81,714 |
| 83,527 |
|
| | | |
GE other income (GAAP) | 2,200 |
| 2,317 |
| 1,893 |
|
Less: unrealized gains (losses)(c) | 793 |
| — |
| — |
|
Less: restructuring & other | 36 |
| (120 | ) | (109 | ) |
Less: gains (losses) and impairments for disposed or held for sale businesses(c) | 4 |
| 1,370 |
| 926 |
|
Adjusted GE other income (Non-GAAP) | 1,367 |
| 1,068 |
| 1,076 |
|
| | | |
GE Industrial profit (GAAP) | $ | 1,801 |
| $ | (20,612 | ) | $ | 1,288 |
|
GE Industrial profit margin (GAAP) | 2.1 | % | (23.1 | )% | 1.4 | % |
| | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 8,743 |
| $ | 8,392 |
| $ | 9,778 |
|
Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 9.4 | % | 10.6 | % |
| | | |
(a) See the GE Corporate Items and Eliminations - Restructuring section within MD&A for further information. |
(b) Related to our Renewable Energy segment in 2019, Power and Renewable Energy segments in 2018 and our Power segment in 2017. See Note 8 to the consolidated financial statements for further information. |
(c) See the Corporate Items and Eliminations section within MD&A for further information. |
We believe 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. |
|
| | | | | | | | |
GE INDUSTRIAL ORGANIC REVENUES (NON-GAAP) (Dollars in millions) | 2019 |
| 2018 |
| V% |
|
| | | |
GE total revenues (GAAP) | $ | 87,719 |
| $ | 89,038 |
| (1 | )% |
Adjustments: |
|
|
|
Less: acquisitions | 111 |
| — |
|
|
Less: business dispositions(a) | 45 |
| 4,233 |
|
|
Less: foreign currency effect(b) | (1,442 | ) | — |
|
|
GE Industrial organic revenues (Non-GAAP) | $ | 89,004 |
| $ | 84,805 |
| 5 | % |
| | | |
| 2018 |
| 2017 |
| V% |
|
| | | |
GE total revenues (GAAP) | $ | 89,038 |
| $ | 92,229 |
| (3 | )% |
Adjustments: | | | |
Less: acquisitions(c) | 245 |
| 106 |
| |
Less: business dispositions(d) | 138 |
| 3,815 |
| |
Less: foreign currency effect(e) | 479 |
| — |
| |
GE Industrial organic revenues (Non-GAAP) | $ | 88,177 |
| $ | 88,308 |
| — | % |
| | | |
(a) Dispositions impact in 2018 primarily related to our Industrial Solutions and Distributed Power businesses within our Power segment, with revenues of $1,257 million and $1,274 million, respectively, and Value-Based Care within our Healthcare segment, with revenues of $222 million, and Current with revenues of $727 million. |
(b) Primarily the euro, Japanese yen and Brazilian real. |
(c) Acquisitions in 2018 primarily related to LM Wind within our Renewable Energy segment, which was acquired in 2017 and contributed $142 million in revenues. |
(d) Dispositions impact in 2017 primarily related to Industrial Solutions, Distributed Power and Water businesses within our Power segment, with $1,368 million, $408 million and $1,516 million of revenues, respectively, Value-Based Care within our Healthcare segment with $213 million of revenues, and Current with $189 million of revenues. |
(e) Primarily the Brazilian real and the Euro. |
We believe 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. |
(c) |
| Includes 59,177 thousand shares repurchased at an average price of $31.60 per share pursuant to an ASR agreement. | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
|
| | | | | | | | |
ADJUSTED GE INDUSTRIAL ORGANIC PROFIT (NON-GAAP) (Dollars in millions) | 2019 |
| 2018 |
| V% |
|
| | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 8,743 |
| $ | 8,392 |
| 4 | % |
Adjustments: |
|
|
|
Less: acquisitions | (15 | ) | — |
|
|
Less: business dispositions | (32 | ) | 284 |
|
|
Less: foreign currency effect | 144 |
| — |
|
|
Adjusted GE Industrial organic profit (Non-GAAP) | $ | 8,646 |
| $ | 8,107 |
| 7 | % |
| | | |
Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 9.4 | % | 0.6 | pts |
Adjusted GE Industrial organic profit margin (Non-GAAP) | 9.7 | % | 9.6 | % | 0.1 | pts |
| | | |
| 2018 |
| 2017 |
| V% |
|
| | | |
Adjusted GE Industrial profit (Non-GAAP) | $ | 8,392 |
| $ | 9,778 |
| (14 | )% |
Adjustments: | | | |
Less: acquisitions | 49 |
| (19 | ) | |
Less: business dispositions | (3 | ) | 420 |
| |
Less: foreign currency effect | (64 | ) | — |
| |
Adjusted GE Industrial organic profit (Non-GAAP) | $ | 8,410 |
| $ | 9,377 |
| (10 | )% |
| | | |
Adjusted GE Industrial profit margin (Non-GAAP) | 9.4 | % | 10.6 | % | (1.2 | )pts |
Adjusted GE Industrial organic profit margin (Non-GAAP) | 9.5 | % | 10.6 | % | (1.1 | )pts |
| | | |
We believe 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 EFFECTIVE TAX RATES, EXCLUDING GE CAPITAL EARNINGS (NON-GAAP) (Dollars in millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE earnings (loss) from continuing operations before income taxes (GAAP) | $ | 1,271 |
| $ | (21,101 | ) | $ | (5,476 | ) |
Less: GE Capital earnings (loss) from continuing operations | (530 | ) | (489 | ) | (6,765 | ) |
Total | $ | 1,801 |
| $ | (20,612 | ) | $ | 1,289 |
|
| | | |
GE provision for income taxes (GAAP) | $ | 1,309 |
| $ | 467 |
| $ | 3,493 |
|
GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | 72.7 | % | (2.3) | % | 271.0 | % |
|
| | | | | | |
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO | | | |
GE EFFECTIVE TAX RATE EXCLUDING GE CAPITAL EARNINGS (NON-GAAP) | 2019 |
| 2018 |
| 2017 |
|
U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | 35.0 | % |
Reduction in rate resulting from: | | | |
Tax on global activities including exports | 61.0 |
| (5.1 | ) | (146.9 | ) |
U.S. business credits | (6.4 | ) | 0.4 |
| (6.4 | ) |
Goodwill impairments | 16.6 |
| (21.9 | ) | 31.1 |
|
Tax Cuts and Jobs Acts enactment | 5.6 |
| 0.5 |
| 380.5 |
|
All other – net | (25.1 | ) | 2.8 |
| (22.3 | ) |
| 51.7 |
| (23.3 | ) | 236.0 |
|
GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | 72.7 | % | (2.3) | % | 271.0 | % |
| | | |
We believe the GE effective tax rate, excluding GE Capital earnings*, is best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. Management believes in addition to the Consolidated and GE Capital tax rates shown in Note 15 to the consolidated financial statements, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses. |
*Non-GAAP Financial Measure
GE 20162019 FORM 10-K 117 47
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
|
| | | | | | | | | | | | | | | | | | |
ADJUSTED EARNINGS (LOSS) AND ADJUSTED EPS | 2019 | 2018 | 2017 |
(NON-GAAP) (In millions, per-share amounts in dollars) | Earnings |
| EPS |
| Earnings |
| EPS |
| Earnings |
| EPS |
|
| | | | | | |
Consolidated earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | $ | (44 | ) | $ | (0.01 | ) | $ | (21,438 | ) | $ | (2.47 | ) | $ | (8,689 | ) | $ | (1.00 | ) |
Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | (530 | ) | (0.06 | ) | (489 | ) | (0.06 | ) | (6,765 | ) | (0.78 | ) |
GE Industrial earnings (loss) (Non-GAAP) | 486 |
| 0.06 |
| (20,949 | ) | (2.41 | ) | (1,924 | ) | (0.22 | ) |
Non-operating benefits costs (pre-tax) (GAAP) | (2,828 | ) | (0.32 | ) | (2,740 | ) | (0.32 | ) | (2,409 | ) | (0.28 | ) |
Tax effect on non-operating benefit costs | 594 |
| 0.07 |
| 575 |
| 0.07 |
| 843 |
| 0.10 |
|
Less: non-operating benefit costs (net of tax) | (2,234 | ) | (0.26 | ) | (2,165 | ) | (0.25 | ) | (1,566 | ) | (0.18 | ) |
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)(a) | 4 |
| — |
| 1,370 |
| 0.16 |
| 926 |
| 0.11 |
|
Tax effect on gains (losses) and impairments for disposed or held for sale businesses | 34 |
| — |
| (380 | ) | (0.04 | ) | (62 | ) | (0.01 | ) |
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 39 |
| — |
| 990 |
| 0.11 |
| 864 |
| 0.10 |
|
Restructuring & other (pre-tax)(b) | (1,315 | ) | (0.15 | ) | (2,952 | ) | (0.34 | ) | (3,024 | ) | (0.35 | ) |
Tax effect on restructuring & other | 277 |
| 0.03 |
| 338 |
| 0.04 |
| 893 |
| 0.10 |
|
Less: restructuring & other (net of tax) | (1,039 | ) | (0.12 | ) | (2,614 | ) | (0.30 | ) | (2,131 | ) | (0.25 | ) |
Goodwill impairments (pre-tax)(c) | (1,486 | ) | (0.17 | ) | (22,136 | ) | (2.55 | ) | (1,165 | ) | (0.13 | ) |
Tax effect on goodwill impairments | (55 | ) | (0.01 | ) | (235 | ) | (0.03 | ) | 9 |
| — |
|
Less: goodwill impairments (net of tax) | (1,541 | ) | (0.18 | ) | (22,371 | ) | (2.57 | ) | (1,156 | ) | (0.13 | ) |
Unrealized gains (losses) (pre-tax) | 793 |
| 0.09 |
| — |
| — |
| — |
| — |
|
Tax effect on unrealized gains (losses) | (114 | ) | (0.01 | ) | — |
| — |
| — |
| — |
|
Less: unrealized gains (losses) (net of tax) | 679 |
| 0.08 |
| — |
| — |
| — |
| — |
|
Debt extinguishment costs | (255 | ) | (0.03 | ) | — |
| — |
| — |
| — |
|
Tax effect on debt extinguishment costs | 53 |
| 0.01 |
| — |
| — |
| — |
| — |
|
Less: Debt extinguishment costs (net of tax) | (201 | ) | (0.02 | ) | — |
| — |
| — |
| — |
|
BioPharma deal expense (pre-tax) | — |
| — |
| — |
| — |
| — |
| — |
|
Tax on BioPharma deal expense | (647 | ) | (0.07 | ) | — |
| — |
| — |
| — |
|
Less: BioPharma deal expense (net of tax) | (647 | ) | (0.07 | ) | — |
| — |
| — |
| — |
|
Less: GE Industrial U.S. tax reform enactment adjustment | (101 | ) | (0.01 | ) | (38 | ) | — |
| (4,905 | ) | (0.56 | ) |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 5,531 |
| $ | 0.63 |
| $ | 5,249 |
| $ | 0.60 |
| $ | 6,970 |
| $ | 0.80 |
|
| |
|
| |
|
| | |
GE Capital earnings (loss) from continuing operations attributable to GE common shareholders (GAAP) | (530 | ) | (0.06 | ) | (489 | ) | (0.06 | ) | (6,765 | ) | (0.78 | ) |
Insurance charges and EFS impairments (pre-tax) | (972 | ) | (0.11 | ) | — |
| — |
| (11,444 | ) | (1.32 | ) |
Tax effect on insurance charges and EFS impairments | 204 |
| 0.02 |
| — |
| — |
| 3,501 |
| 0.40 |
|
Less: Insurance charges and EFS impairments (net of tax) | (768 | ) | (0.09 | ) | — |
| — |
| (7,943 | ) | (0.91 | ) |
Less: GE Capital U.S. tax reform enactment adjustment | 99 |
| 0.01 |
| (173 | ) | (0.02 | ) | 206 |
| 0.02 |
|
Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | 139 |
| $ | 0.02 |
| $ | (316 | ) | $ | (0.04 | ) | $ | 972 |
| $ | 0.11 |
|
|
|
|
|
|
|
|
|
| | |
Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 5,531 |
| $ | 0.63 |
| $ | 5,249 |
| $ | 0.60 |
| $ | 6,970 |
| $ | 0.80 |
|
Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | 139 |
| 0.02 |
| (316 | ) | (0.04 | ) | 972 |
| 0.11 |
|
Adjusted earnings (loss) (Non-GAAP) | $ | 5,671 |
| $ | 0.65 |
| $ | 4,933 |
| $ | 0.57 |
| $ | 7,942 |
| $ | 0.91 |
|
| | | | | | |
(a) See the Corporate Items and Eliminations section within MD&A for further information. |
(b) See the GE Corporate Items and Eliminations - Restructuring section within MD&A for further information. |
(c) Related to our Renewable Energy segment in 2019, Power and Renewable Energy segments in 2018 and our Power segment in 2017. See Note 8 to the consolidated financial statements for further information. |
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 2019. 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. |
*Non-GAAP Financial Measure
|
| | |
MD&A | NON-GAAP FINANCIAL MEASURES | |
|
| | | | | | | | | |
GE INDUSTRIAL FREE CASH FLOWS (FCF) (NON-GAAP) (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE CFOA (GAAP) | $ | 4,614 |
| $ | 701 |
| $ | 11,479 |
|
Add: gross additions to property, plant and equipment | (2,216 | ) | (2,234 | ) | (3,403 | ) |
Add: gross additions to internal-use software | (274 | ) | (306 | ) | (423 | ) |
Less: common dividends from GE Capital | — |
| — |
| 4,016 |
|
Less: GE Pension Plan funding | — |
| (6,000 | ) | (1,717 | ) |
Less: taxes related to business sales | (198 | ) | (180 | ) | (229 | ) |
GE Industrial free cash flows (Non-GAAP) | $ | 2,322 |
| $ | 4,341 |
| $ | 5,582 |
|
| | | |
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 and contributions to the GE Pension Plan. We believe this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. |
|
| | | | | | |
GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions) | December 31, 2019 |
| December 31, 2018 |
|
| | |
Total GE short- and long-term borrowings (GAAP) | $ | 52,059 |
| $ | 62,212 |
|
Less: GE Capital short- and long-term debt assumed by GE | 31,368 |
| 36,262 |
|
Add: intercompany loans from GE Capital | 12,226 |
| 13,749 |
|
Total adjusted GE borrowings | $ | 32,917 |
| $ | 39,700 |
|
Total pension and principal retiree benefit plan liabilities (pre-tax)(a) | 27,773 |
| 26,836 |
|
Less: taxes at 21% | 5,832 |
| 5,636 |
|
Total pension and principal retiree benefit plan liabilities (net of tax) | $ | 21,941 |
| $ | 21,200 |
|
GE operating lease liabilities | 3,369 |
| 3,868 |
|
GE preferred stock | 5,738 |
| 5,573 |
|
Less: 50% of GE preferred stock | 2,869 |
| 2,787 |
|
50% of preferred stock | $ | 2,869 |
| $ | 2,787 |
|
Deduction for total GE cash, cash equivalents and restricted cash | (17,613 | ) | (16,632 | ) |
Less: 25% of GE cash, cash equivalents and restricted cash | (4,403 | ) | (4,158 | ) |
Deduction for 75% of GE cash, cash equivalents and restricted cash | $ | (13,210 | ) | $ | (12,474 | ) |
Total GE Industrial net debt (Non-GAAP) | $ | 47,886 |
| $ | 55,081 |
|
| | |
(a) Represents the total net deficit status of principal pension plans, other pension plans and retiree benefit plans. See Note 13 to the consolidated financial statements for further information. |
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. |
OTHER FINANCIAL DATA
|
| | | | | | | | | | | | | | | |
General Electric Company (In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
|
| | | | | |
Revenues | $ | 95,214 |
| $ | 97,012 |
| $ | 99,279 |
| $ | 103,297 |
| $ | 94,494 |
|
Earnings (loss) from continuing operations attributable to the Company | 416 |
| (20,991 | ) | (8,253 | ) | 7,454 |
| (7 | ) |
Earnings (loss) from discontinued operations, net of taxes, attributable to the Company | (5,395 | ) | (1,364 | ) | (231 | ) | 47 |
| (5,068 | ) |
Net earnings (loss) attributable to the Company | (4,979 | ) | (22,355 | ) | (8,484 | ) | 7,500 |
| (5,074 | ) |
Dividends declared | 810 |
| 3,669 |
| 7,741 |
| 9,054 |
| 9,161 |
|
Preferred stocks dividends | 460 |
| 447 |
| 436 |
| 656 |
| 18 |
|
Per common share: | | | | | |
Earnings (loss) from continuing operations – diluted | $ | (0.01 | ) | $ | (2.47 | ) | $ | (1.00 | ) | $ | 0.74 |
| $ | (0.13 | ) |
Earnings (loss) from discontinued operations – diluted | (0.62 | ) | (0.16 | ) | (0.03 | ) | — |
| (0.51 | ) |
Net earnings (loss) – diluted | (0.62 | ) | (2.62 | ) | (1.03 | ) | 0.75 |
| (0.64 | ) |
Earnings (loss) from continuing operations – basic | (0.01 | ) | (2.47 | ) | (1.00 | ) | 0.75 |
| (0.13 | ) |
Earnings (loss) from discontinued operations – basic | (0.62 | ) | (0.16 | ) | (0.03 | ) | 0.01 |
| (0.51 | ) |
Net earnings (loss) – basic | (0.62 | ) | (2.62 | ) | (1.03 | ) | 0.76 |
| (0.64 | ) |
Dividends declared | 0.04 |
| 0.37 |
| 0.84 |
| 0.93 |
| 0.92 |
|
Total assets | 266,048 |
| 311,072 |
| 371,099 |
| 361,014 |
| 491,109 |
|
Short-term borrowings | 22,072 |
| 12,776 |
| 23,087 |
| 30,519 |
| 49,540 |
|
Non-recourse borrowings of consolidated securitization entities | 1,655 |
| 1,875 |
| 1,980 |
| 417 |
| 3,083 |
|
Long-term borrowings | 67,155 |
| 88,949 |
| 102,263 |
| 105,192 |
| 144,594 |
|
A disciplined approach to risk is important
*Non-GAAP Financial Measure
|
|
FIVE-YEAR PERFORMANCE GRAPH |
|
The annual changes for the five-year period shown in a diversified organization like ours to ensurethe above graph are based on the assumption that we are executing according to our strategic objectives$100 had been invested in General Electric common stock, the Standard & Poor’s 500 Stock Index (S&P 500) and the Dow Jones Industrial Average (DJIA) on December 31, 2014, and that we only accept risk for which we are adequately compensated. We evaluate risk at the individual transaction level, and evaluate aggregated risk at the customer, industry, geographic and collateral-type levels, where appropriate.
RESPONSIBILITIES
GE BOARD OF DIRECTORS
all quarterly dividends were reinvested. The GE Board of Directors (Board) has oversight for risk management with a focuscumulative dollar returns shown on the most significant risks facinggraph represent the Company, including strategic, operational, financial and legal and compliance risks. Throughoutvalue that such investments would have had on December 31 for each year indicated.
With respect to “Market Information,” in the year,United States, General Electric common stock is listed on the BoardNew York Stock Exchange under the ticker symbol "GE" (its principal market). General Electric common stock is also listed on the London Stock Exchange, Euronext Paris, the SIX Swiss Exchange and the committees to which it has delegated responsibility dedicate a portionFrankfurt Stock Exchange.
As of their meetings to review and discuss specific risk topics in greater detail.
January 31, 2020, there were approximately 379,000 shareholder accounts of record.
COMMITTEES
The Board has delegated responsibility forPURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.GE did not repurchase any equity securities during the oversight of specific risks to Board committees as follows:
THE AUDIT COMMITTEE oversees the policies, processes and risks relating to the financial statements, financial reporting processes, regulatory, compliance and litigation risks and auditing. The Audit Committee discusses with management the Company's risk assessment and risk management practices and, when reviewing and approving the annual audit plan for the Company's internal audit function, prioritizes audit focus areas based on their potential risk. The Audit Committee also oversees the Company's financial risk exposures related to GE Capital, following the dissolution of the GE Capital Committee effectivethree months ended December 31, 2016.2019, and no repurchase program has been authorized.
THE GOVERNANCE & PUBLIC AFFAIRS COMMITTEE oversees risk related to the Company's governance structure and processes and risks arising from related-person transactions. It also reviews and discusses with management risks related to GE's public policy initiatives and activities and positions on corporate social responsibilities, and it oversees the Company's environmental, health and safety compliance and related risks.
THE MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE oversees risk associated with management resources and structure, succession planning and management development and selection processes, and it reviews executive compensation practices at GE to confirm that pay arrangements incentivize leaders to improve the Company's competitive position without encouraging excessive risk taking. The Management Development and Compensation Committee reviews and discusses, at least annually, the relationship between risk management policies and practices, corporate strategy and senior executive compensation.
THE TECHNOLOGY & INDUSTRIAL RISK COMMITTEE oversees the Company's overall strategic direction and investment in research and development and technological and scientific initiatives. It also reviews and identifies specific technology, science and innovation matters and risks, including industrial, product, market and cybersecurity risk, that could have a significant impact on Company operations.
SENIOR MANAGEMENT
The GE Board's risk oversight process builds upon management's risk assessment and mitigation processes, which include standardized reviews of long-term strategic and operational planning; executive development and evaluation; compliance under the Company's The Spirit & The Letter, laws and regulations; the Company's integrity programs; health, safety and environmental compliance; financial reporting and controllership; and information technology and cybersecurity programs.
OPERATING REVIEWS
CORPORATE AUDIT STAFF is responsible for reviewing the governance, processes, controls and accuracy of GE's financial reporting and, in concert with GE's Global Law & Policy function, GE's compliance reporting.
COMPLIANCE RISK REVIEWS are performed by the Policy Compliance Review Board, a management-level committee that assists in assessing and mitigating compliance risk. Members of the Policy Compliance Review Board, which include the Company's general counsel as chair, the Chief Financial Officer and other senior-level functional leaders, participated in ten compliance operating reviews in 2016.
GE BLUEPRINT REVIEWSare integrated business planning reviews across GE that evaluate strategic objectives, operating and organizational performance, and enterprise risks. Blueprint reviews are held at least four times per year and include the most senior GE business leaders.
RISK MANAGERS
Risk assessment and risk management are the responsibility of management and are carried out through risk managers who are operationally integrated into each of our businesses. These risk managers bring deep domain expertise to the businesses' operations and core processes. Both risk managers and the business leadership teams have specific, enterprise risk focused goals and objectives that are aligned with our overall risk framework.
RISK MITIGATION & COMMUNICATION
Risks identified through our risk management processes are prioritized and, depending on the probability and severity of the risk, escalated as appropriate. Senior management discusses these risks periodically and assigns responsibility for them to the businesses. The assigned owners continually monitor, evaluate and report on risks for which they bear responsibility. Enterprise risk leaders within each business and corporate function are responsible to present risk assessments and key risks to senior management at least annually.
Depending on the nature of the risk involved and the particular business or function affected, we use a wide variety of risk mitigation strategies, including delegations of authority, standardized processes and strategic planning reviews, operating reviews, insurance, and hedging. As a matter of policy, we generally hedge the risk of fluctuations in foreign currency exchange rates, interest rates and commodity prices. Our service businesses employ a comprehensive tollgate process leading up to and through the execution of a contractual service agreement to mitigate legal, financial and operational risks. Furthermore, we centrally manage some risks by purchasing insurance, the amount of which is determined by balancing the level of risk retained or assumed with the cost of transferring risk to others. We manage the risk of fluctuations in economic activity and customer demand by monitoring industry dynamics and responding accordingly, including by adjusting capacity, implementing cost reductions and engaging in mergers, acquisitions, dispositions and restructuring.
RISK FACTORS
The following discussion of risk factors contains "forward-looking statements," as discussed in the Forward-Looking Statements section. These risk factors may be important to understanding any statement in this Annual Report on Form 10-K report or elsewhere. The risks described below should not be considered a complete list of potential risks that we may face. The following information should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)MD&A section and the consolidated financial statements and related notes.
We leverage the risk framework The risks we describe in eachthis Form 10-K report or in our other SEC filings could have a material adverse effect on our business, reputation, financial position and results of our businesses, which have adopted approaches that correspond to the Company's overall risk policies, guidelinesoperations, and review mechanisms. Our risk framework operates at the business and functional levels and is designed to identify, evaluate and mitigate risks within each of the risk categories below.
Our businesses routinely encounter and address risks, some of which willthey could cause our future results to be different – sometimes materially different – than we presently anticipate. Below, we describe certain important strategic, operational, financial, and legal and compliance risks. Our reactions to material future developments as well as our competitors' reactions to those developments will affect our future results.
STRATEGIC RISKS
RISKS. Strategic risk relates to the Company's future business plans and strategies, including the risks associated with: the global macro-environment in which we operate; mergersmacro-environment; our portfolio of businesses and capital allocation decisions; dispositions, acquisitions, joint ventures and restructuring activity; intellectual property; and other risks, includingcompetitive threats, the demand for our products and services competitive threats,and the success of our investments in our Digital business, technology and innovation; intellectual property; and other product and service innovations, and public policy.risks.
Global macro-environment - Our growth is subject to global economic, political and politicalgeopolitical risks.
We operate in virtually every part of the world, and serve customers in approximately 180 countries. In 2016, 57%over 170 countries and received 59% of our revenue was attributable to activitiesrevenues for 2019 from outside the United States. Our operations and the execution of our business plans and strategies are subject to the effects of global economic trends, competition and geopolitical risks.risks and demand or supply shocks from war, natural disaster, a health pandemic or other events. They are also affected by local and regional economic environments and policies in the U.S. and other markets that we serve, including low interest rates, monetary policy, inflation, economic growth, recession, commodity prices, currency volatility, currency controls or other limitations on the ability to expatriate cash, debt levels and actual or anticipated defaultdefaults on sovereign debt. For example, changes in local economic conditions or outlooks, such as lower rates of investment or economic growth in China, Europe or other key markets, affect the demand for or profitability of our products and services outside the U.S., and the impact on the Company could be significant given the extent of our activities outside the United States. Political changes and trends such as populism, protectionism, economic nationalism and sentiment toward multinational companies and resulting changes to trade, tax or other laws and policies (including tariffs) have been and may continue to be disruptive and costly to our businesses, and can interfere with our global operating model, our supply chain, production costs, customer relationships and competitive position. Further escalation of specific trade tensions, such as those between the U.S. and China, or in global trade conflict more broadly could lead to a significant deterioration of global growth, and related decreases in confidence or investment activity in the global markets would adversely affect our customersbusiness performance. We also do business in many emerging market jurisdictions where economic, political and all of our activities in a particular location.legal risks are heightened. While some globaltypes of these economic and political risks can be hedged using derivatives or other financial instruments and some are insurable, such attempts to mitigate these risks are costly and not always successful and our ability to engage in such mitigation may decrease or become even more costly as a result of more volatile market conditions..
M&A/restructuringPortfolio strategy execution - TheOur success of our business depends on achieving our strategic and financial objectives, including through acquisitionsdispositions. We are pursuing a variety of dispositions, including the planned sale of our BioPharma business within our Healthcare segment and exiting our remaining equity ownership position in Baker Hughes. The proceeds that we expect to receive from such actions are an important source of cash flow for the Company as part of our strategic and financial planning. As we seek to sell certain businesses, equity interests or assets, we may encounter difficulty in finding buyers, managing interdependencies across multiple transactions and other Company initiatives or implementing separation plans, which could delay or prevent the accomplishment of our strategic and financial objectives, including our goal of reducing the Company’s leverage to targeted levels over time. In particular, some of the disposition strategies that we are considering or may consider depend on favorable conditions in the capital markets or private acquisition financing markets for execution, and declines in the values of equity interests (such as our remaining interest in Baker Hughes) or other assets that we sell can diminish the cash proceeds that we realize. We may dispose of businesses or assets at a price or on terms that are less favorable than we had anticipated, or with purchase price adjustments or the exclusion of assets or liabilities that must be divested, managed or run off separately. We are also subject to limitations in the form of regulatory or governmental approvals that may prevent certain prospective purchasers from completing transactions with us or delay us from executing transactions on our preferred timeline, or arising from our debt or other contractual obligations that limit our ability to complete certain business integrations, joint ventures,or asset dispositions. Moreover, recent and planned dispositions have the effects of reducing the Company’s cash flow and restructurings.earnings capacity, resulting in a less diversified portfolio of businesses and increasing our dependency on remaining businesses for our financial results from ongoing operations. Executing on these transactions can divert senior management time and resources from other pursuits. Dispositions or other business separations also often involve continued financial involvement in the divested business, such as through continuing equity ownership, retained assets or liabilities, transition services agreements, commercial agreements, guarantees, indemnities or other current or contingent financial obligations or liabilities. Under these arrangements, performance by the divested businesses or other conditions outside our control could materially affect our future financial results.
With respect to acquisitions, joint ventures and restructuring actions,business integrations, we may not achieve expected returns and other benefits as a result of various factors, including changes in strategy or separation/integration and collaboration challenges such asrelated to personnel, and technology. Restructuring actionsIT systems or other factors. In addition, in connection with acquisitions or otherwise may also give riseover time, we have recorded significant goodwill and other intangible assets on our balance sheet, and if we are not able to reputational risk, or such actions may not achieve anticipated cost savings and may result in lower margin rates. For example, our anticipated returns from mergers and acquisitions such asrealize the Alstom acquisition in 2015 or the combinationvalue of our Oil & Gas business with Baker Hughes that was announced in October 2016 include cost and growth synergy benefits over a multi-year period thatthese assets, we may not fully realize.be required to incur charges relating to the impairment of these assets. We also participate in a number of joint ventures with other companies or government enterprises in various markets around the world, including joint ventures where we may have a lesser degree of control over the business operations, which may expose us to additional operational, financial, legal or compliance risks.risks.
Competitive environment - We are dependent on the maintenance of existing product lines and service relationships, market acceptance of new product and service introductions and technology and innovation leadership for revenue and earnings growth. The markets in which we operate are highly competitive in terms of pricing, product and service quality, product development and introduction time, customer service, financing terms and shifts in market demand, and competitors are increasingly offering services for our installed base. Our long-term operating results and competitive position depend substantially upon our ability to continually develop, introduce, and market new and innovative products, services and platforms, to modify existing products and services, to customize products and services, to increase our productivity as we perform on long-term service agreements, and to anticipate and respond to market and technological changes driven by trends such as increased digitization or automation or by developments such as climate change that present both risks and opportunities for our businesses. A failure to appropriately plan for future customer demand and industry trends may adversely affect our delivery of products, services and outcomes in line with our projected financial performance or cost estimates, and ultimately may result in excess costs, build-up of inventory that becomes obsolete, lower profit margins and an erosion of our competitive position. For example, the significant decreases in recent years in the levelized cost of renewable sources of power generation (such as wind and solar), along with ongoing changes in investor and consumer preferences and considerations related to climate change, affect the demand for and the competitiveness of our products and services related to fossil fuel-based power generation and further changes over time could have a material adverse effect on the performance of those businesses and our consolidated results. These trends and the relative competitiveness of different types of product and service offerings will continue to be impacted in ways that are uncertain by factors such as the pace of technological developments and related cost considerations, the levels of economic growth in different markets around the world and the adoption of climate change-related policies (such as carbon taxes, cap and trade regimes, increased efficiency standards or incentives or mandates for particular types of energy) at the national and sub-national levels or by private actors.
Our businesses are also subject to technological change and require us to continually attract and retain skilled talent. The introduction of innovative and disruptive technologies in the markets in which we operate also poses risks in the form of new competitors (including new entrants from outside our traditional industries), market consolidation, substitutions of existing products, services or solutions, niche players, new business models and competitors that are faster to market with new or more cost-effective products or services. Because the research and development cycle involved in bringing products in our businesses to market is often lengthy, it is inherently difficult to predict the economic conditions and competitive dynamics that will exist when any new product is complete, and our investments may generate weaker returns than we anticipated at the outset. Our capacity to invest in research and development efforts to pursue advancement in a wide range of technologies, products and services also depends on the financial resources that we have available for such investment relative to other capital allocation priorities, and under-investment could lead to the loss of sales of our products and services. The amounts that we do invest in research and development divert resources from other potential investments in our businesses, and our efforts may not lead to the development of new technologies or products on a timely basis or meet the needs of our customers as fully as competitive offerings.
Restructuring & personnel - We have been sellingundertaking extensive cost reduction and restructuring efforts; these efforts may have adverse effects on our operations, employee retention, results and reputation and may not achieve the expected benefits. We continue undertaking restructuring actions that include workforce reductions, global facility consolidations and other cost reduction initiatives. These actions are a central component of our ongoing efforts to improve operational and financial assetsperformance. The extent of change across our organizational structure, senior leadership, culture, functional alignment, outsourcing and businessesother areas poses risks in numerous transactions in connectionthe form of personnel capacity constraints and institutional knowledge loss that could lead to missed performance or financial targets, loss of key personnel and harm to our reputation. The risk of capacity constraints is also heightened with the GE Capital Exit Plan,number of interdependent and transformational business portfolio and internal actions that we also continuehave been undertaking during a period of significant restructuring and cost reduction across the Company. Moreover, if we do not successfully manage our restructuring and other transformational activities, the anticipated operational improvements, efficiencies and other benefits might be delayed or not realized, and our operations and business could be disrupted. Risks associated with these actions include unforeseen delays in implementation of workforce reductions, additional unexpected costs, adverse effects on employee morale, loss of key employees or other retention issues, inability to evaluateattract and hire talented professionals or the potential dispositionfailure to meet operational targets due to the loss of other assets and businesses that may no longer help us meet our objectives. When we decide to sell assetsemployees or a business, we may encounter difficulty in finding buyers or executing alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishmentwork stoppages, any of our strategic objectives. Alternatively, we may dispose of a business at a price or on terms that are less favorable than we had anticipated, or with the exclusion of assets that must be divested or run off separately. After reaching an agreement with a buyer or seller for the acquisition or disposition of a business, such as the proposed combination of our Oil & Gas business with Baker Hughes, the transaction remains subject to necessary regulatory and governmental approvals on acceptable terms as well as the satisfaction of pre-closing conditions, which may prevent us from completing the transaction. Dispositionsimpair our ability to achieve anticipated cost reductions or may also involve continuedotherwise harm our business or reputation and have an adverse effect on our competitive position or financial involvement in the divested business, such as through continuing equity ownership, transition service agreements, guarantees, indemnities or other current or contingent financial obligations. Under these arrangements, performance by the divested businesses or other conditions outside our control could affect our future financial results..
Intellectual property - Our intellectual property portfolio may not prevent competitors from independently developing products and services similar to or duplicative to ours, and the value of our intellectual property may be negatively impacted by external dependencies.
Our patents and other intellectual property may not prevent competitors from independently developing or selling products and services similar to or duplicative of ours, and there can be no assurance that the resources invested by us to protect our intellectual property will be sufficient or that our intellectual property portfolio will adequately deter misappropriation or improper use of our technology. Trademark licenses of the GE brand in connection with dispositions may negatively impact the overall value of the brand in the future. As a result of increased numbers of employee exits due to restructuring activities or otherwise, we also face heightened risks related to the loss or unauthorized use of the Company’s intellectual property or other protected data. We could also face competition in some countries where we have not invested in an intellectual property portfolio. If we are not able to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected. We also face attempts to gain unauthorized access to our IT systems or products for the purpose of improperly acquiring our trade secrets or confidential business information. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development. In addition, we may beare subject to the target of enforcement of patents or other intellectual property by third parties, including aggressive and opportunistic enforcement claims by non-practicing entities. Regardless of the merit of such claims, responding to infringement claims can be expensive and time-consuming. If GE is found to infringe any third-party rights, we could be required to pay substantial damages or we could be enjoined from offering some of our products and services. The value of, or our ability to use, our intellectual property may also be negatively impacted by dependencies on third parties, such as our ability to obtain or renew on reasonable terms licenses that we need in the future, or our ability to secure or retain ownership or rights to use data in certain software analytics or services offerings.offerings.
OPERATIONAL RISKS
RISKS. Operational risk relates to risks arising from systems, processes, people and external events that affect the operation of our businesses. It includes risks related to product life cycleand service lifecycle and execution; product safety and performance; information management and data protection and security, including cybersecurity; and supply chain and business disruption; and other risks, including human resources and reputation.disruption.
OperationsOperational execution - We may face operationalOperational challenges that could have a material adverse effect on our business, reputation, financial position and results of operations, and we are dependentoperations. The Company’s financial results depend on the maintenancesuccessful execution of existing product lines, market acceptanceour businesses’ operating plans across all steps of newthe product and service introductionslifecycle. For example, we continue working to improve the operations and execution of our Power and Renewable Energy businesses, and our ability to effect the desired operational turnarounds will be a significant factor in determining the financial performance of the Company as a whole. In addition, we have dependency on the continued strength and successful operating plan execution of our other businesses, particularly Aviation, during this period of operational improvement. Operational failures that result in quality problems or potential product, environmental, health or safety risks, could have a material adverse effect on our business, reputation, financial position and service innovationsresults of operations. In addition, a portion of our business, particularly within our Power and Renewable Energy businesses, involves large projects where we take on, or are members of a consortium responsible for, continued revenuethe full scope of engineering, procurement, construction or other services. These types of projects often pose unique risks related to their location, scale, complexity, duration and earnings growth.pricing or payment structure. Performance issues or schedule delays can arise due to inadequate technical expertise, unanticipated project modifications, developments at project sites, environmental, health and safety issues, execution by or coordination with suppliers, subcontractors or consortium partners, financial difficulties of our customers or significant partners or compliance with government regulations, and these can lead to cost overruns, contractual penalties, liquidated damages and other adverse consequences. Where GE is a member of a consortium, we are typically subject to claims based on joint and several liability, and claims can extend to aspects of the project or costs that are not directly related or limited to GE’s scope of work. Operational, quality or other issues at large projects, or across our projects portfolio more broadly, can adversely affect GE’s business, reputation or results of operations.
Product safety - Our products and services are highly sophisticated and specialized, and a major failure or similar event affecting our products or third-party products with which our products are integrated can adversely affect our business, reputation, financial position and results of operations. We produce highly sophisticated products and provide specialized services for both our own and third-party products that incorporate or use complex or leading-edge technology, including both hardware and software. Many of our products and services involve complex industrial machinery or infrastructure projects, such as commercial jet engines, gas turbines, onshore and offshore oil and gas drillingwind turbines or nuclear power generation, and accordingly the impact of a catastrophic product failure or similar event could be significant. In particular, actual or perceived design or production issues related to new product introductions or relatively new product lines can result in significant reputational harm to our businesses, in addition to direct warranty, maintenance and other costs that may arise. A significant product issue resulting in injuries or death, widespread outages, a fleet grounding or similar systemic consequences could have a material adverse effect on our business, reputation, financial position and results of operations. We may also incur increased costs, delayed payments or lost equipment or services revenue in connection with a significant issue with a third party’s product with which our products are integrated. For example, the LEAP-1B engine that our Aviation business develops, produces and sells through CFM is the exclusive engine for the Boeing 737 MAX, which has been subject to a global fleet grounding since March 2019 following two fatal crashes that were unrelated to the LEAP engine. The 737 MAX grounding had an adverse effect on GE CFOA in 2019, and uncertainties related to the timing for the 737 MAX return to service and future engine production rates pose material risk for our Aviation business and GE’s overall financial outlook and results. For further information regarding the effect of the 737 MAX grounding on GE CFOA, see the Aviation and GECAS 737 MAX section in Consolidated Results within MD&A. While we have built extensive operational processes to ensure that our product design, manufacture, performance and servicing and other services that we provide, meet the most rigorous quality standards, there can be no assurance that we or our customers or other third parties will not experience operational process or product failures orand other problems, including through cyber attacks andmanufacturing or design defects, process or other failures of contractors or third-party suppliers, cyber-attacks or other intentional acts, that could result in potential product, safety, quality, regulatory or environmental risks. Despite the existence of crisis management or business continuity plans, operational failures or quality issues, including as a result of organizational changes, attrition or labor relations, could have a material adverse effect on our business, reputation, financial position and results of operations. For projects where we take on the full scope of engineering, procurement, construction or other services, the potential risk is greater that operational, quality or other issues at particular projects could adversely affect GE's results of operations. The markets in which we operate are also subject to technological change and require skilled talent. Our long-term operating results and competitive position depend substantially upon our ability to continually develop, introduce, and market new and innovative products and services, to modify existing products and services, to customize products and services, to anticipate and respond to market and technological changes driven by emerging risks and opportunities such as increased digitization or climate change and to deliver products, services and outcomes in line with our projected performance and/or cost estimates.
Cybersecurity - Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, solutions, services and data.
Increased global cybersecurity vulnerabilities, threats, computer viruses and more sophisticated and targeted cyber-related attacks, as well as cybersecurity failures resulting from human error and technological errors, pose a risk to the security of GE's and its customers', partners', suppliers' and third-party service providers' infrastructure, products, systems and networks and the confidentiality, availability and integrity of GE's and its customers' data. As the perpetrators of such attacks become more capable (including sophisticated state or state-affiliated actors), and as critical infrastructure is increasingly becoming digitized, the risks in this area continue to grow. While we attempt to mitigate these risks by employing a number of measures, including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, we remain potentially vulnerable to additional known or unknown threats.threats, and there is no assurance that the impact from such threats will not be material. In addition to existing risks, the adoption of new technologies in the future may also increase our exposure to cybersecurity breaches and failures. We also may have access to sensitive, confidential or personal data or information in certain of our businesses that is subject to privacy and security laws, regulations or customer-imposed controls. Despite our effortsuse of reasonable and appropriate controls to protect our systems and sensitive, confidential or personal data or information, we may be vulnerablehave vulnerability to material security breaches, theft, misplaced, lost or lostcorrupted data, programming errors, employee errors and/or malfeasance (including misappropriation by departing employees) that could potentially lead to thematerial compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions. Data privacy and protection laws are evolving, can vary significantly by country and present increasing compliance challenges, which increase our costs, affect our competitiveness and can expose us to substantial fines or other penalties. In addition, a significant cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.
Supply chain - Significant raw material shortages, supplier capacity constraints, supplier or customer production disruptions, supplier quality and sourcing issues or price increases couldcan increase our operating costs and adversely impact the competitive positions of our products.
Our reliance on third-party suppliers, contract manufacturers and service providers, and commodity markets to secure raw materials, parts, components and sub-systems used in our products exposes us to volatility in the prices and availability of these materials, parts, components, systems and services. SomeAs our supply chains extend into many different countries and regions around the world, we are also subject to global economic and geopolitical dynamics and risks associated with exporting components manufactured in particular countries for incorporation into finished products completed in other countries. In addition, some of theseour suppliers or their sub-suppliers are limited- or sole-source suppliers. A disruptionWe also have internal dependencies on certain key GE manufacturing or other facilities. Disruptions in deliveries from a key GE facility or from our third-party suppliers, contract manufacturers or outsourced or other service providers, capacity constraints, production disruptions up- or down-stream, price increases, or decreased availability of raw materials or commodities, including as a result of catastrophicwar, natural disaster, health pandemic or other business continuity events, could have an adverse effectadversely affect our operations and, depending on the length and severity of the disruption, can limit our ability to meet our commitments to customers or increasesignificantly impact our operating costs.profit or cash flows. For example, we are monitoring the impact across our businesses of the recent coronavirus outbreak, which has already caused disruption to production facilities and activities in China, and the severity of the operational and financial impact will depend on how long and widespread the disruption proves to be. Quality, capability, compliance and sourcing issues experienced by third-party providers can also adversely affect our costs, margin rates and the quality and effectiveness of our products and services and result in liability and reputational harm. In addition, while we require our suppliers to implement and maintain reasonable and appropriate controls to protect information we provide to them, they may be the victim of a cyber-related attack that could lead to the compromise of the Company’s intellectual property, personal data or other confidential information, or to production downtimes and operational disruptions that could have an adverse effect on our ability to meet our commitments to customers.
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FINANCIAL RISKS
RISKS. Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including volatility in foreign currency exchange rates and interest rates and commodity prices; credit risk;funding and liquidity risk, includingrisks, such as risk related to our credit ratings and our availability and cost of funding. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations. We facefunding; credit riskrisk; and volatility in our industrial businesses, as well as in our GE Capital investing, lendingforeign currency exchange rates, interest rates and leasing activities and derivative financial instruments activities.commodity prices. Liquidity risk refers to the potential inability to meet contractual or contingent financial obligations (whether on- or off-balance sheet) as they arise, and could potentially impact an institution's financial condition or overall safety and soundness. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations, and we face credit risk arising from both our industrial businesses and from GE Capital.
Economy/Leverage & borrowings - Our indebtedness levels could limit the flexibility of our businesses, and we could face further constraints as a result of failing to decrease our leverage over time, further downgrades of our credit ratings or adverse market conditions. Our ability to decrease our leverage as planned is dependent on the proceeds that we generate from business and asset dispositions, as well as our cash flows from operations. De-leveraging and servicing our debt will require a significant amount of cash, and if we are unable to generate cash flows in accordance with our plans we may be required to adopt one or more alternatives such as increasing borrowing under credit lines, further reducing or delaying investments or capital expenditures, selling other businesses or assets, refinancing debt or raising additional equity capital. In particular, we have significant pension and run-off insurance liabilities that are sensitive to numerous factors and assumptions that we use in our pension liability, GAAP insurance reserve and insurance statutory calculations. For example, the impact of low or declining market interest rates on the discount rates that we use to calculate these long-term liabilities (holding other variables constant) can adversely affect our earnings and cash flows, as well as the pace of progress toward our leverage goals for GE and for GE Capital. Lower than expected disposition proceeds or cash generation by our businesses over time could also adversely affect our progress toward our leverage goals. Our indebtedness could put us at a competitive disadvantage compared to competitors with lower debt levels that may have greater financial flexibility to secure additional funding for their operations, pursue strategic acquisitions, finance long-term projects or take other actions. Continuing to have substantial indebtedness could also have the consequence of increasing our vulnerability to general economic conditions, such as slowing economic growth or recession. It could also increase our vulnerability to adverse industry-specific conditions or to increases in the capital or liquidity needs at the GE or GE Capital levels, and it could limit our flexibility in planning for, or reacting to, changes in the economy and the industries in which we compete.
In addition, our existing levels of indebtedness may impair our ability to obtain additional debt financing on favorable terms in the future, particularly if coupled with further downgrades of our credit ratings or a deterioration of capital markets conditions more generally. External conditions in the financial and credit markets may limit the availability of funding at particular times or increase the cost of funding, which could adversely affect our business, financial position and results of operations. Factors that may affect the availability of funding or cause an increase in our funding costs include market disruptions arising in the United States, Europe, China, emerging markets or other markets, currency movements or other factors.
Liquidity - Failure to meet our cash flow targets, or additional credit downgrades, could adversely affect our liquidity, funding costs and related margins. We rely on cash from operations and proceeds from business and asset dispositions, as well as access to the short- and long-term debt markets, to fund our operations, maintain a contingency buffer of liquidity and meet our financial obligations and capital allocation priorities. If we do not meet our cash flow objectives, through both improved cash performance in our businesses or successful execution of business and asset dispositions, our financial condition could be adversely affected. Our access to the debt markets, and to the commercial paper markets in particular, depends on our credit ratings. As a result of ratings actions by Moody’s, S&P and Fitch in 2018, GE transitioned to a tier-2 commercial paper issuer, which reduced our borrowing capacity in the commercial paper markets that we historically relied on significantly to fund our operations on an intra-quarter basis. To accommodate GE’s short-term liquidity needs, we have been increasing utilization of our revolving credit facilities as a substitute for commercial paper borrowings, which results in an overall increase to our cost of funds.
There can also be no assurance that we will not face additional credit downgrades as a result of factors such as our progress in decreasing our leverage, the performance of our businesses, the failure to execute on dispositions or changes in rating application or methodology. 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. For example, 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, and therefore our borrowing capacity in the commercial paper markets would likely be further reduced. Further, we have relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of liquidity generated by these programs could be adversely affected. In addition, in certain securitization transactions where we provide servicing for third-party investors, we are contractually permitted to commingle cash collected from customers on financing receivables sold or pledged to third-party investors with our own cash prior to making required payments to third-party investors, provided our short-term credit rating does not fall below A-2/P-2/F2. In the event our ratings were to fall below such levels, we would 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. In addition, under various debt and derivative instruments, guarantees and covenants, we could be required to post additional capital or collateral in the event of a ratings downgrade, which would increase the impact of a ratings downgrade on our liquidity and capital position. 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. For additional discussion about our current credit ratings and related considerations, refer to the Capital Resources and Liquidity - Credit Ratings and Conditions section within MD&A.
Economy, customers & counterparties - A deterioration ofDeterioration in conditions in the global economy, the major industries we serve or the financial markets, or in the soundness of financial institutions, and governments or customers we deal with, maycan adversely affect our business and results of operations.
The business and operating results of our industrial businesses have been, and will continue to be, affected by worldwide economic conditions, including conditions in the air and rail transportation, power generation, oil and gas, renewables,renewable energy, healthcare and other major industries we serve. Existing or potential customers may delay or cancel plans to purchase our products and services, including large infrastructure projects, and may not be able to fulfill their obligations to us in a timely fashion as a result of business deterioration, cash flow shortages low oil prices or difficulty obtaining financing for particular projects or due to slow global economic growth andmacroeconomic conditions, geopolitical disruptions, changes in law or other challenges affecting the strength of the global economy. The airline industry, for example, is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and international economies. An extended perioddisruption of slow growthregional or international travel, such as a disruption in the U.S.connection with a terrorist incident, health pandemic or internationallyrecessionary economic environment that results in the loss of business and leisure traffic, could have a material adverse effect on our airline customers, and the viability of their business. Service contract cancellations or customer dynamicsbusiness and their demand for our products and services. Such effects would be particularly significant for GE in the current environment, in which we have dependency on the continued strength of our Aviation business as we execute on planned dispositions and continue working to improve the operations and execution of other GE businesses. Secular, cyclical and competitive pressures facing customers across our energy businesses can also have a significant impact on the operating results and outlooks for our businesses. These include pressures such as early aircraft retirements, reduced electricitylower demand in our Power business than in the past as a result of increased cost competitiveness and Renewable Energy businessesmarket penetration by renewable sources of power generation; the effects of changes in production or declinesother tax credits for wind energy projects, and significant price competition among wind equipment manufacturers and consolidation in orders, project commencement delaysthe industry; and pricing pressures on our Oil & Gas business from low oil prices could affectshifts in the availability of financing for certain types of projects as investors, governments, regulators and other market participants develop plans for addressing climate change. In particular, our ability to fully recovereffect an operational turnaround in our contract costsPower business will be more challenging to the extent that markets for our products and estimated earnings.services remain lower for longer than expected. Further, our vendors may be experiencingexperience similar conditions, which may impact their ability to fulfill their obligations to us. We may also at times face greater challenges collecting on receivables with customers that are sovereign governments or located in emerging markets. If slow growth in the global economy continues for a significant period or there is significant deterioration in the global economy, our results of operations, financial position and cash flows could be materially adversely affected.affected.
GE Capital - A smaller GE Capital continues to have exposure to insurance, credit and other risks and, in the event of future adverse developments, may not be able to meet its business and financial objectives without further actions at GE Capital or additional capital contributions by GE.To fund the statutory capital contributions that it expects to make to its insurance subsidiaries over the next several years, as well as to meet its debt maturities and other obligations, GE Capital expects to rely on its existing liquidity, cash generated from asset reductions, cash flows from its businesses, GE repayments of intercompany loans and capital contributions from GE. However, as GE Capital’s excess liquidity from past disposition proceeds runs off, and as its future earnings are reduced as a result of business and asset sales, there is a risk that future adverse developments could cause liquidity or funding stress for GE Capital. For example, it is possible that future requirements for capital contributions to the insurance subsidiaries will be greater than currently estimated or could be accelerated by regulators. Our annual testing of insurance reserves is subject to a variety of assumptions, including assumptions about the discount rate (which is sensitive to changes in market interest rates), morbidity, mortality and future long-term care premium increases. Any future adverse changes to these assumptions (to the extent not offset by any favorable changes to these assumptions) could result in an increase to future policy benefit reserves and, potentially, to the amount of capital we are required to contribute to the insurance subsidiaries (as discussed in the Other Items - Insurance section within MD&A). We also anticipate that the new insurance accounting standard scheduled to be effective after 2021 (as discussed in the Other Items - New Accounting Standards section within MD&A) will significantly change the accounting for measurements of our long-duration insurance liabilities under GAAP and will materially affect our financial statements. In addition, we continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital. Some of these options could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements. It is also possible that contingent liabilities and loss estimates from GE Capital’s continuing or discontinued operations (see the Other Consolidated Information - Discontinued Operations section within MD&A) will need to be recognized or increase in the future and will become payable. If GE Capital's credit ratings are downgraded because of inadequate increases in its capital levels over time, changes in rating application or methodology or other factors, GE Capital may also face increased interest costs and limitations on its ability to access external funding in the future.
GE Capital also has exposure to many different industries and counterparties, including sovereign governments, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients. Many of these transactions expose GE Capital to credit risk in the event of default of its counterparty or client. If conditions in the financial markets deteriorate, they may adversely affect the business and results of operations of GE Capital, as well as the soundness of financial institutions, governments and other counterparties we deal with. In addition, GE Capital's credit risk may be increased when the value of collateral held cannot be realized through sale or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to it. GE Capital also has exposure to these financial institutions in the form of cash on deposit and unsecured debt instruments held in its investment portfolios. GE Capital has policies relating to credit rating requirements and to exposure limits to counterparties (as described in Notes 20 and 29 to the consolidated financial statements), which are designed to limit credit and liquidity risk. There can be no assurance however, that anyfuture liabilities, losses or impairments to the carrying value of financial assets would not materially and adversely affect GE Capital's business, financial position, results of operations orand capacity to provide financing to support orders from GE's industrial businesses.
businesses, or that factors causing sufficiently severe stress at GE 2016 FORM 10-K 123
Funding access/costs - FailureCapital would not require GE to maintain our credit ratings, or conditionsmake larger than expected capital contributions to GE Capital in the financial and credit markets, could adversely affect our access to capital markets, funding costs and related margins, liquidity and competitive position.future.
The major debt rating agencies routinely evaluate our debt. This evaluation is based on a number of factors, which include financial strength as well as transparency with rating agencies and timeliness of financial reporting. As of December 31, 2016, GE and GE Capital's long-term unsecured debt credit rating from both Standard and Poor's Ratings Service (S&P) and from Fitch Ratings Service (Fitch) was AA- (the fourth highest of 22 rating categories) with a stable outlook. The long-term unsecured debt credit rating from Moody's Investors Service (Moody's) for GE and for GE Capital was A1 (the fifth highest of 21 credit ratings), both with stable outlooks. As of December 31, 2016, GE and GE Capital's short-term credit rating from S&P was A-1+ (the highest rating category of six categories), from Fitch was F1+ (the highest rating category of six categories) and from Moody's was P-1 (the highest rating category of four categories). There can be no assurance that we will be able to maintain our credit ratings and failure to do so could adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets. In addition, various debt and derivative instruments, guarantees and covenants would require posting additional capital or collateral in the event of a ratings downgrade, which, depending on the extent of the downgrade, could have a material adverse effect on our liquidity and capital position.
Furthermore, to the extent that we rely on the availability of the unsecured debt markets to access funding for term and commercial paper maturities for 2017 and beyond, external conditions in the financial and credit markets may limit the availability of funding at particular times or increase the cost of funding, which could affect our overall profitability. Factors that may affect the availability of funding or cause an increase in our funding costs include decreased capacity and increased competition among commercial paper issuers, and potential impacts arising in the United States, Europe or China from developments in sovereign debt situations, currency movements or other potential market disruptions. If GE or GE Capital's cost of funding were to increase, it may adversely affect our competitive position and result in lower net interest margins, earnings and cash flows as well as lower returns on shareowners' equity and invested capital.
Social costsPostretirement benefit plans - Sustained increasesIncreases in pension and healthcare benefits obligations and costs may reducecan adversely affect our profitability.
earnings, cash flows and progress toward our leverage goals.Our results of operations may be positively or negatively affected by the amount of income or expense we record for our defined benefit pension plans. GAAP requires that we calculate income or expense for the plans using actuarial valuations. These valuations, which reflect assumptions about financial marketmarkets, interest rates and other economic conditions which may change based on changes in key economic indicators. The most significant year-end assumptions we use to estimate pension expense for 2017 aresuch as the discount rate and the expected long-term rate of return on the plan assets. In addition, weWe are also required to make an annual measurement of plan assets and liabilities, which may result in a significant reduction or increase to equity. AtThe factors that impact our pension calculations are subject to changes in key economic indicators, and future decreases in the end of 2016, the GE Pension Plan was underfunded,discount rate or low returns on a GAAP basis, by $19.1 billion,plan assets can increase our funding obligations and the GE Supplementary Pension Plan, an unfunded plan, had a projected benefit obligation of $6.5 billion. Althoughadversely impact our financial results. In addition, although GAAP expense and pension funding contributions are not directly related, key economic factors that affect GAAP expense would also likely affect the amount of cash we would be required to contribute to pension plans as required under the Employee Retirement Income Security Act (ERISA).ERISA. Failure to achieve expected returns on plan assets driven by various factors, which could include a continued environment of low interest rates or sustained market volatility, could also result in an increase to the amount of cash we would be required to contribute to pension plans. In addition, there may be upward pressure on the cost of providing healthcare benefits to current employees and retirees. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce our profitability. For a discussion regarding how our financial statements have been and can be affected by our pension and healthcare benefit obligations, see the Other Consolidated Information –- Postretirement Benefit Plans section and Notes 12the Critical Accounting Estimates - Pension Assumptions sections within MD&A and 29Note 13 to the consolidated financial statements. See also the Critical Accounting Estimates – Pension Assumptions section for a discussion regarding how our financial statements can be affected by our pension plan accounting policies..
LEGAL & COMPLIANCE RISKS
RISKS. Legal and compliance risk relates to risks arising from the government and regulatory environment and action and from legal proceedings and compliance with integrity policies and procedures, including those relating to financial reporting and environmental, health and safety.safety matters. Government and regulatory risk includes the risk that the government or regulatory actions will impose additional cost on us or require us to make adverse changes to our business models or practices.
Regulatory - We are subject to a wide variety of laws, regulations and government policies that may change in significant ways.
Our businesses are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies. There can be no assurance that laws, regulations and policies will not be changed in ways that will require us to modify our business models and objectives or affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright. In particular, recent trends globally toward increased protectionism, import and export controls and the use of tariffs and other trade barriers can result in actions by governments around the world that have been and may continue to be disruptive and costly to our businesses, and can interfere with our global operating model and weaken our competitive position. Other legislative and regulatory or other actionsareas of significance for our businesses that U.S. and non-U.S. governments have undertaken or are considering in areas suchfocused and continue to focus on include cybersecurity, data privacy and sovereignty, improper payments, competition law, compliance with complex economic sanctions, climate change and greenhouse gas emissions, foreign exchange intervention in response to currency volatility and currency controls that could restrict the movement of liquidity from particular jurisdictions, trade controls or tariffs on imports and exports injurisdictions. Potential further changes to tax laws, including additional guidance concerning the enactment of the recent U.S. or other countries, complex economic sanctions and tax reform, may have an effect on GE's, GE Capital's or other regulated subsidiaries' structure, operations, sales, liquidity, capital requirements, effective tax rate and performance. For example, legislative or regulatory measures by states or non-U.S. governments in response to the recent U.S. federal tax reform or otherwise, or rules, interpretations or audits under the new or existing tax laws, could increase our costs or tax rate. In addition, efforts by public and private sectors to control the growth of healthcare costs may lead to lower reimbursements and increased utilization controls related to the use of our products by healthcare providers. ContinuedRegulation or government scrutiny including reviews of the U.S. Food and Drug Administration (U.S. FDA) medical device pre-market authorization and post-market surveillance processes, may impact the requirements for marketing our products and slow our ability to introduce new products, resulting in an adverse impact on our business. Furthermore, we have been, and expect to continue, participating in U.S. and international governmental programs, which require us to comply with strict governmental regulations. Inability to comply with these regulations could adversely affect our status in these projects and could have collateral consequences such as debarment. Debarment, depending on the entity involved and length of time, can limit our ability to participate in other projects involving multilateral development banks and adversely affect our results of operations, financial position and cash flows.flows.
Legal proceedings - We are subject to legal proceedings, investigations and legal compliance risks.
risks, including trailing liabilities from businesses that we dispose of or that are inactive. We are subject to a variety of legal proceedings, legal compliance risks and legalenvironmental, health and safety compliance risks in virtually every part of the world, including the matters described in the Legal Proceedings section.world. We, our representatives, and the industries in which we operate are subject to continuing scrutiny by regulators, and other governmental authorities and private sector entities or individuals in the U.S., the European Union, China and other jurisdictions, which have led or may, in certain circumstances, lead to enforcement actions, adverse changes to our business practices, fines and penalties, required remedial actions such as contaminated site clean-up or the assertion of private litigation claims, and damages that could be material. For example, in connection withfollowing 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.period, and payments for settlements, judgments, penalties or other liabilities in connection with those matters will result in cash outflows. In addition, since late 2017 we have been subject to a range of shareholder lawsuits and inquiries from governmental authorities related to the Company's financial performance, accounting and disclosure practices and related matters. We have observed that these proceedings related to claims about past financial performance and reporting pose particular reputational risks for the Company that can cause new allegations about past or current misconduct, even if unfounded, to have a more significant impact on our discontinued U.S. mortgage business, WMC, is a defendant in 11 civil lawsuits arising out of its originationreputation and sale of mortgages from 2005 through 2007,how we are viewed by investors, customers and we learned in December 2015 that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice is investigating potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and its affiliates.others than they otherwise would. We have established reserves for these and other legal matters when and as appropriate; however, the estimation of legal reserves or possible losses involves significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations, and the actual losses arising from particular matters may exceed our current estimates and adversely affect our results of operations. Additionally, we and our subsidiaries are subject to remedial actions to clean up contaminated sites as required by federal and state laws, such as the anticipated remediation for a stretch of the Housatonic River in Massachusetts, as described in the Environmental Matters section. While we believe that we have adopted appropriate risk management and compliance programs, the global and diverse nature of our operations and the current enforcement environment mean that legal and compliance risks will continue to exist with respect to our continuingoperations, and discontinued operations, andwe are also subject to material trailing legal liabilities from businesses that we dispose of or that are inactive. We also expect that additional legal proceedings and other contingencies the outcome of which cannot be predicted with certainty, will arise from time to time. Moreover, we are increasingly sellingsell products and services in growth markets where claims arising from a catastrophic product failure, alleged violations of law, product failures or other incidents involving our products and services may beare adjudicated within legal systems that are less developed and less reliable than those of the U.S. or other more developed markets, and this can create additional uncertainty about the outcome of proceedings before courts or other governmental bodies in such markets. See the Legal Proceedings section and Note 23 to the consolidated financial statements for additionalfurther information about legal proceedings and other loss contingencies.
contingencies. LEGAL PROCEEDINGS
WMC. There are 11 lawsuitsRefer to Legal Matters and Environmental, Health and Safety Matters in which our discontinued U.S. mortgage business, WMC, is a party. The adverse parties in 10 of these cases are securitization trustees or parties claiming to act on their behalf. While the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase) and/or monetary damages. Beginning in the fourth quarter 2013, WMC entered into settlements that reduced its exposure on claims asserted in certain securitizations, and the claim amounts reported herein reflect the effect of these settlements.
Five WMC cases are pending in the United States District Court for the District of Connecticut. Four of these cases were initiated in 2012, and one was initiated in the third quarter 2013. Deutsche Bank National Trust Company (Deutsche Bank) is the adverse party in four cases, and Law Debenture Trust Company of New York (Law Debenture) is the adverse party in one case. The Deutsche Bank complaints assert claims on approximately $4,300 million of mortgage loans and seek to recover damages in excess of approximately $1,800 million. The Law Debenture complaint asserts claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of approximately $425 million. In September, WMC and Deutsche Bank agreed to settle all claims arising out of the four securitizations at issue in the Connecticut lawsuits, subject to judicial approvals. In October, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructions that Deutsche Bank's entry into the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust's governing documents.
Four cases are pending against WMC in New York State Supreme Court, all of which were initiated by securitization trustees or securities administrators. These cases involve, in the aggregate, claims involving approximately $4,559 million of mortgage loans. One of these lawsuits was initiated by Deutsche Bank in the second quarter 2013 and names as defendants WMC and Barclays Bank PLC. It involves claims against WMC on approximately $1,000 million of mortgage loans and does not specify the amount of damages sought. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the two securitizations at issue in this lawsuit, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructions that Deutsche Bank's entry into the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust's governing documents. The second case, in which the plaintiff is The Bank of New York Mellon (BNY), was initiated in the fourth quarter 2012 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $650 million. The third case was initiated by BNY in November 2013 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. In this case, BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $600 million. On September 18, 2015, the court granted defendants' motion to dismiss this case on statute of limitations grounds, and the plaintiff filed a notice of appeal on October 21, 2015. The fourth case was filed in October 2014 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. The plaintiff, BNY, asserts claims on approximately $959 million of mortgage loans and seeks to recover damages in excess of $475 million.
One case is pending against WMC in the United States District Court for the Southern District of New York. The case was initiated by the Federal Housing Finance Agency (FHFA) in the fourth quarter 2012. In the second quarter 2013, Deutsche Bank, in its role as securitization trustee, intervened as a plaintiff and filed a complaint relating to approximately $1,300 million of loans and alleging losses in excess of approximately $100 million. In December 2013, the District Court issued an order denying WMC's motion to dismiss but, on its own motion, ordered re-briefing on several issues raised by WMC's motion to dismiss in February 2015. On July 10, 2015, the District Court entered an order dismissing the lawsuit as time-barred under the applicable statute of limitations. Deutsche Bank filed a notice of appeal from this order of dismissal on August 13, 2015, and the United States Court of Appeals for the Second Circuit heard oral argument on June 10, 2016. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the securitization at issue in this lawsuit, subject to judicial approval. In October 2016, Deutsche Bank filed a petition for instruction in California state court seeking judicial instructions that Deutsche Bank's entry into the settlement agreement was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of the trust's governing documents. The court has scheduled the initial hearing on this petition, and the other petitions filed by Deutsche Bank referenced above, for April 2017.
The amounts of the claims at issue in these cases (discussed above) reflect the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. All of the mortgage loans involved in these lawsuits are included in WMC's reported claims at December 31, 2016. See Note 23 to the consolidated financial statements for additional information.information relating to legal proceedings.
On January 23, 2017, the ResCap Liquidating Trust, as successor to Residential Funding Company, LLC (RFC), filed a lawsuit seeking unspecified damages against WMC in the United States District Court
MANAGEMENT AND AUDITOR’S REPORTS
MANAGEMENT’S DISCUSSION OF FINANCIAL RESPONSIBILITY.Management is responsible for the Districtpreparation of Minnesota arising from alleged breaches in representations and warranties made by WMC in connection with the sale of approximately $840 million in loans to RFC over a period of time preceding RFC's filing for bankruptcy protection in May 2012.
In December 2015, we learned that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice is investigating potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and its affiliates arising out of the origination, purchase or sale of residential mortgage loans between January 1, 2005 and December 31, 2007. The Justice Department subsequently issued subpoenas to WMC and GE Capital, and we are cooperating with the Justice Department's investigation.
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 23 to the consolidated financial statements for additional information. As previously reported, 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 civil actions in 2013 seeking damages of approximately $950 million and $600 million, respectively, related to the alleged conduct underlying the decisioninformation that are pending before the Central District Courtpresented in Israel. In December 2016, all parties agreed in principle to participate in a formal mediation in 2017 with the goal of reaching a global settlement of the two civil actions.
Environmental matters. As previously reported, in 2000, GE and the Environmental Protection Agency (EPA) entered into a consent decree relating to PCB cleanup of the Housatonic River in Massachusetts. Following EPA's release in September 2015 of an intended final remediation decision, GE and EPA engaged in mediation and the first step of the dispute resolution process contemplated by the consent decree. In October 2016, EPA issued its final remediation decision pursuant to the consent decree. GE and several other interested parties have appealed that decision to EPA's Environmental Appeals Board. A decision of the Environmental Appeals Board can ultimately be appealed to the United States Court of Appeals for the First Circuit. EPA may not implement any remedy until all appeals are exhausted. As of December 31, 2016, andthis report. The consolidated financial statements, which include amounts based on its assessmentmanagement’s estimates and judgments, have been prepared in conformity with U.S generally accepted accounting principles.
The Company designs and maintains accounting and internal control systems to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing consolidated financial statements and maintaining accountability for assets. These systems are enhanced by policies and procedures, an organizational structure providing division of current factsresponsibilities, careful selection and circumstancestraining of qualified personnel, and its defenses, GE believes that it has recorded adequate reservesa program of internal audits.
The Company engaged KPMG LLP, an independent registered public accounting firm, to cover future obligations associated withaudit and render an expected final remedy. See Note 23 toopinion on the consolidated financial statements for additional information.
MANAGEMENT AND AUDITOR'S REPORTS
MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY
We believe that great companies are built on a foundation of reliableand internal control over financial information and compliancereporting in accordance with the spirit and letterstandards of the law. For General ElectricPublic Company Accounting Oversight Board (PCAOB). In March 2019, the PCAOB announced the effectiveness of a new requirement for auditors to communicate critical audit matters (CAMs) in the audit opinion, and the KPMG audit opinion that foundationfollows includes rigorous management oversightthis discussion of andCAMs. In December 2018, we announced our intention to conduct an unyielding dedication to, controllership. The financial disclosures in this report are one product of our commitment to high-quality financial reporting. In addition, we make every effort to adopt appropriate accounting policies, we devote our full resources to ensuring that those policies are applied properly and consistently and we do our best to fairly present our financial results in a manner thatauditor tender process, which is complete and understandable.currently underway.
Members of our corporate leadership team review each of our businesses routinely on matters that range from overall strategy and financial performance to staffing and compliance. Our business leaders monitor financial and operating systems, enabling us to identify potential opportunities and concerns at an early stage and positioning us to respond rapidly. OurThe Board of Directors, oversees management's business conduct, and ourthrough its Audit Committee, which consists entirely of independent directors, oversees ourmeets periodically with management, internal control over financial reporting. We continually examine our governance practices in an effort to enhance investor trustauditors, and improve the Board's overall effectiveness. The Board and its committees annually conduct a performance self-evaluation and recommend improvements. Our lead director chaired four meetings of our independent directors this year, helping us sharpen our full Board meetings to better cover significant topics. Compensation policies for our executives are aligned with the long-term interests of GE investors.
We strive to maintain a dynamic system of internal controls and procedures—including internal control over financial reporting—designed to ensure reliable financial recordkeeping, transparent financial reporting and disclosure, and protection of physical and intellectual property. We recruit, develop and retain a world-class financial team. Our internal audit function, including members of our Corporate Audit Staff, conducts thousands of financial, compliance and process improvement audits each year. Our Audit Committee oversees the scope and evaluates the overall results of these audits, and in 2016, members of that Committee regularly attended GE Capital Board of Directors, Corporate Audit Staff and Controllership Council meetings. Our global integrity policies—"The Spirit & The Letter"—require compliance with law and policy, and pertain to such vital issues as upholding financial integrity and avoiding conflicts of interest. These integrity policies are available in 35 languages, and are provided to all of our employees, holding each of them accountable for compliance. Our strong compliance culture reinforces these efforts by requiring employees to raise any compliance concerns and by prohibiting retribution for doing so. To facilitate open and candid communication, we have designated ombudspersons throughout the Company to act as independent resources for reporting integrity or compliance concerns. We hold our directors, consultants, agents and independent contractors to the same integrity standards.
We are keenly aware of the importance of full and open presentation of our financial position and operating results, and rely for this purpose on our disclosure controls and procedures, including our Disclosure Committee, which comprises senior executives with detailed knowledge of our businesses and the related needs of our investors. We ask this committee to review our compliance with accounting and disclosure requirements, to evaluate the fairness of our financial and non-financial disclosures, and to report their findings to us. In 2016, we further ensured strong disclosure by holding approximately 140 analyst and investor meetings with GE leadership present.
We welcome the strong oversight of our financial reporting activities by our independent registered public accounting firm to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. KPMG LLP engaged by and reporting directlythe internal auditors each have full and free access to the Audit Committee. U.S. legislation requires management to report on internal control over financial reporting and for auditors to render an opinion on such controls. Our report and the KPMG LLP report for 2016 follow.
MANAGEMENT'SMANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORTING.Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2016,2019, based on the framework and criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2016.2019.
Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting. Their report follows.
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/s/ Jeffrey R. ImmeltH. Lawrence Culp, Jr. | | /s/ JeffreyJamie S. BornsteinMiller |
Jeffrey R. ImmeltH. Lawrence Culp, Jr.
| | JeffreyJamie S. BornsteinMiller |
Chairman of the Board and Chief Executive Officer February 24, 2017
| | Senior Vice President and Chief Financial Officer |
February 24, 2020 | | |
DISCLOSURE CONTROLS
CONTROLS.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 our disclosure controls and procedures were effective as of December 31, 2016.
Other than as explained below, there2019. There have been no changes in the Company'sCompany’s internal control over financial reporting during the quarter ended December 31, 2016,2019, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
On November 2, 2015, we closed the acquisition of Alstom's Thermal, Renewable, and Grid businesses. During 2016, we completed our purchase price allocations and transitioned the acquired businesses to our accounting and reporting policies. We also commenced integrating their systems and processes into our framework of internal controls over financial reporting. As part of this process, we have enhanced and augmented the internal controls of the acquired businesses to raise them to a level that meets U.S. requirements. Efforts to further improve those controls are continuing.
GE 2016 FORM 10-K 129
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Board of Directors and Shareowners
of General Electric Company:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying statementconsolidated statements of financial position of General Electric Company and consolidated affiliates (the "Company")Company) as of December 31, 20162019 and 2015, and2018, the related consolidated statements of earnings (loss), comprehensive income (loss), changes in shareowners'shareowners’ equity and cash flows for each of the years in the three-year period ended December 31, 2016.2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company'sCompany’s internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company'sCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on the Company'sCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
Our audits of the consolidated financial statements were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. Accompanying Supplemental Information
The accompanying consolidating information appearing on pages 133, 137,63, 65, and 13967 (the supplemental information) has been subjected to audit procedures performed in conjunction with the audit of the Company’s consolidated financial statements. The supplemental information is presented for purposesthe responsibility of additional analysis ofthe Company’s management. Our audit procedures included determining whether the supplemental information reconciles to the consolidated financial statements rather thanor the underlying accounting and other records, as applicable, and performing procedures to presenttest the financial position, results of operations,completeness and cash flowsaccuracy of the individual entities. The consolidating information has been subjected to the auditing procedures appliedpresented in the audits ofsupplemental information. In our opinion, the consolidated financial statements and, in our opinion,supplemental information is fairly stated, in all material respects, in relation to the consolidated financial statements taken as a whole.
KPMG LLP
Boston, Massachusetts
February 24, 2017
GE 20162019 FORM 10-K 130 59
AUDITED FINANCIAL STATEMENTS AND NOTES
Statement of Earnings | 132 |
Consolidated Statement of Comprehensive Income (Loss) | 134 |
Consolidated Statement of Changes in Shareowners' Equity | 135 |
Statement of Financial Position | 136 |
Statement of Cash Flows | 138 |
Notes to Consolidated Financial Statements | |
| 1 | | Basis of Presentation and Summary of Significant Accounting Policies | 140 |
| 2 | | Businesses Held for Sale and Discontinued Operations | 149 |
| 3 | | Investment Securities | 153 |
| 4 | | Current Receivables | 155 |
| 5 | | Inventories | 156 |
| 6 | | GE Capital Financing Receivables and Allowance for Losses on Financing Receivables | 156 |
| 7 | | Property, Plant and Equipment | 157 |
| 8 | | Acquisitions, Goodwill and Other Intangible Assets | 158 |
| 9 | | Contract Assets and All Other Assets | 164 |
| 10 | | Borrowings | 165 |
| 11 | | Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits | 167 |
| 12 | | Postretirement Benefit Plans | 167 |
| 13 | | All Other Liabilities | 172 |
| 14 | | Income Taxes | 172 |
| 15 | | Shareowners' Equity | 176 |
| 16 | | Other Stock-related Information | 181 |
| 17 | | Other Income | 184 |
| 18 | | Earnings Per Share Information | 184 |
| 19 | | Fair Value Measurements | 185 |
| 20 | | Financial Instruments | 189 |
| 21 | | Variable Interest Entities | 195 |
| 22 | | Receivables Facility | 197 |
| 23 | | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | 198 |
| 24 | | Intercompany Transactions | 202 |
| 25 | | Operating Segments | 203 |
| 26 | | Cash Flows Information | 205 |
| 27 | | Cost Information | 207 |
| 28 | | Guarantor Financial Information | 208 |
| 29 | | Supplemental Information | 215 |
| 30 | | Quarterly Information (unaudited) | 221 |
| | | | |
FINANCIAL STATEMENTS
| | | | | | | | |
STATEMENT OF EARNINGS |
| | General Electric Company |
| | and consolidated affiliates |
For the years ended December 31 (In millions; per-share amounts in dollars) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Revenues and other income | | | | | | | | |
Sales of goods | $ | 75,414 | | $ | 74,510 | | $ | 76,568 |
Sales of services | | 34,976 | | | 31,298 | | | 30,190 |
Other income (Note 17) | | 4,005 | | | 2,227 | | | 778 |
GE Capital earnings (loss) from continuing operations | | - | | | - | | | - |
GE Capital revenues from services | | 9,297 | | | 9,350 | | | 9,648 |
Total revenues and other income | | 123,693 | | | 117,386 | | | 117,184 |
| | | | | | | | |
Costs and expenses (Note 27) | | | | | | | | |
Cost of goods sold | | 62,440 | | | 59,905 | | | 61,257 |
Cost of services sold | | 25,043 | | | 22,788 | | | 22,447 |
Selling, general and administrative expenses | | 18,377 | | | 17,831 | | | 16,848 |
Interest and other financial charges | | 5,025 | | | 3,463 | | | 2,723 |
Investment contracts, insurance losses and | | | | | | | | |
insurance annuity benefits | | 2,797 | | | 2,605 | | | 2,530 |
Other costs and expenses | | 982 | | | 2,608 | | | 1,115 |
Total costs and expenses | | 114,663 | | | 109,200 | | | 106,921 |
| | | | | | | | |
Earnings from continuing operations | | | | | | | | |
before income taxes | | 9,030 | | | 8,186 | | | 10,263 |
Benefit (provision) for income taxes (Note 14) | | 464 | | | (6,485) | | | (773) |
Earnings from continuing operations | | 9,494 | | | 1,700 | | | 9,490 |
Earnings (loss) from discontinued operations, | | | | | | | | |
net of taxes (Note 2) | | (954) | | | (7,495) | | | 5,855 |
Net earnings (loss) | | 8,540 | | | (5,795) | | | 15,345 |
Less net earnings (loss) attributable to noncontrolling interests | | (291) | | | 332 | | | 112 |
Net earnings (loss) attributable to the Company | | 8,831 | | | (6,126) | | | 15,233 |
Preferred stock dividends | | (656) | | | (18) | | | - |
Net earnings (loss) attributable to GE common shareowners | $ | 8,176 | | $ | (6,145) | | $ | 15,233 |
| | | | | | | | |
Amounts attributable to GE common shareowners | | | | | | | | |
Earnings from continuing operations | $ | 9,494 | | $ | 1,700 | | $ | 9,490 |
Less net earnings (loss) attributable to | | | | | | | | |
noncontrolling interests, continuing operations | | (290) | | | 19 | | | (45) |
Earnings from continuing operations attributable | | | | | | | | |
to the Company | | 9,784 | | | 1,681 | | | 9,535 |
Preferred stock dividends | | (656) | | | (18) | | | - |
Earnings from continuing operations attributable | | | | | | | | |
to GE common shareowners | | 9,128 | | | 1,663 | | | 9,535 |
Earnings (loss) from discontinued operations, net of taxes | | (954) | | | (7,495) | | | 5,855 |
Less net earnings (loss) attributable to | | | | | | | | |
noncontrolling interests, discontinued operations | | (1) | | | 312 | | | 157 |
Net earnings (loss) attributable to GE common shareowners | $ | 8,176 | | $ | (6,145) | | $ | 15,233 |
| | | | | | | | |
Per-share amounts (Note 18) | | | | | | | | |
Earnings from continuing operations | | | | | | | | |
Diluted earnings per share | $ | 1.00 | | $ | 0.17 | | $ | 0.94 |
Basic earnings per share | $ | 1.01 | | $ | 0.17 | | $ | 0.95 |
| | | | | | | | |
Net earnings (loss) | | | | | | | | |
Diluted earnings (loss) per share | $ | 0.89 | | $ | (0.61) | | $ | 1.50 |
Basic earnings (loss) per share | $ | 0.90 | | $ | (0.62) | | $ | 1.51 |
| | | | | | | | |
Dividends declared per common share | $ | 0.93 | | $ | 0.92 | | $ | 0.89 |
| | | | | | | | |
Amounts may not add due to rounding.
See Note 3 for other-than-temporary impairment amounts on investment securities.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
STATEMENT OF EARNINGS (CONTINUED) |
| | | | | | | | | | | | | | | | | |
For the years ended December 31 | GE(a) | | Financial Services (GE Capital) |
(In millions; per-share amounts in dollars) | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | | |
Revenues and other income | | | | | | | | | | | | | | | | | |
Sales of goods | $ | 75,580 | | $ | 74,565 | | $ | 76,715 | | $ | 115 | | $ | 79 | | $ | 121 |
Sales of services | | 35,255 | | | 31,641 | | | 30,594 | | | - | | | - | | | - |
Other income (Note 17) | | 4,092 | | | 2,165 | | | 707 | | | - | | | - | | | - |
GE Capital earnings (loss) from continuing operations | | (1,251) | | | (7,672) | | | 1,532 | | | - | | | - | | | - |
GE Capital revenues from services | | - | | | - | | | - | | | 10,790 | | | 10,722 | | | 11,199 |
Total revenues and other income | | 113,676 | | | 100,700 | | | 109,546 | | | 10,905 | | | 10,801 | | | 11,320 |
| | | | | | | | | | | | | | | | | |
Costs and expenses (Note 27) | | | | | | | | | | | | | | | | | |
Cost of goods sold | | 62,628 | | | 59,970 | | | 61,420 | | | 93 | | | 69 | | | 104 |
Cost of services sold | | 23,084 | | | 20,858 | | | 20,456 | | | 2,238 | | | 2,273 | | | 2,394 |
Selling, general and administrative expenses | | 16,123 | | | 14,914 | | | 14,972 | | | 2,947 | | | 3,512 | | | 2,689 |
Interest and other financial charges | | 2,026 | | | 1,706 | | | 1,579 | | | 3,790 | | | 2,301 | | | 1,638 |
Investment contracts, insurance losses and | | | | | | | | | | | | | | | | | |
insurance annuity benefits | | - | | | - | | | - | | | 2,861 | | | 2,737 | | | 2,660 |
Other costs and expenses | | - | | | - | | | - | | | 1,013 | | | 2,647 | | | 1,159 |
Total costs and expenses | | 103,860 | | | 97,447 | | | 98,427 | | | 12,942 | | | 13,539 | | | 10,645 |
| | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | | | | | | | | | | | | | | | |
before income taxes | | 9,815 | | | 3,252 | | | 11,119 | | | (2,037) | | | (2,739) | | | 676 |
Benefit (provision) for income taxes (Note 14) | | (967) | | | (1,506) | | | (1,634) | | | 1,431 | | | (4,979) | | | 861 |
Earnings (loss) from continuing operations | | 8,849 | | | 1,746 | | | 9,485 | | | (606) | | | (7,718) | | | 1,537 |
Earnings (loss) from discontinued operations, | | | | | | | | | | | | | | | | | |
net of taxes (Note 2) | | (952) | | | (7,807) | | | 5,698 | | | (954) | | | (7,485) | | | 5,860 |
Net earnings (loss) | | 7,896 | | | (6,061) | | | 15,182 | | | (1,560) | | | (15,202) | | | 7,397 |
Less net earnings (loss) attributable to noncontrolling interests | | (279) | | | 83 | | | (50) | | | (12) | | | 248 | | | 162 |
Net earnings (loss) attributable to the Company | | 8,176 | | | (6,145) | | | 15,233 | | | (1,548) | | | (15,450) | | | 7,234 |
Preferred stock dividends | | - | | | - | | | - | | | (656) | | | (330) | | | (322) |
Net earnings (loss) attributable to GE common shareowners | $ | 8,176 | | $ | (6,145) | | $ | 15,233 | | $ | (2,204) | | $ | (15,780) | | $ | 6,912 |
| | | | | | | | | | | | | | | | | |
Amounts attributable to GE common shareowners: | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 8,849 | | $ | 1,746 | | $ | 9,485 | | $ | (606) | | $ | (7,718) | | $ | 1,537 |
Less net earnings (loss) attributable to | | | | | | | | | | | | | | | | | |
noncontrolling interests, continuing operations | | (279) | | | 83 | | | (50) | | | (10) | | | (64) | | | 5 |
Earnings (loss) from continuing operations attributable | | | | | | | | | | | | | | | | | |
to the Company | | 9,128 | | | 1,663 | | | 9,535 | | | (595) | | | (7,654) | | | 1,532 |
Preferred stock dividends | | - | | | - | | | - | | | (656) | | | (330) | | | (322) |
Earnings (loss) from continuing operations attributable | | | | | | | | | | | | | | | | | |
to GE common shareowners | | 9,128 | | | 1,663 | | | 9,535 | | | (1,251) | | | (7,983) | | | 1,209 |
Earnings (loss) from discontinued operations, net of taxes | | (952) | | | (7,807) | | | 5,698 | | | (954) | | | (7,485) | | | 5,860 |
Less net earnings (loss) attributable to | | | | | | | | | | | | | | | | | |
noncontrolling interests, discontinued operations | | - | | | - | | | - | | | (1) | | | 312 | | | 157 |
Net earnings (loss) attributable to GE common shareowners | $ | 8,176 | | $ | (6,145) | | $ | 15,233 | | $ | (2,204) | | $ | (15,780) | | $ | 6,912 |
| | | | | | | | | | | | | | | | | |
(a) |
| Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. | |
REPORTS | | |
Amounts may
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not add duealter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to rounding.which they relate.
In the consolidating data
Evaluation of revenue recognition on this page, "GE" means the basis of consolidation as describedcertain long-term service agreements
As discussed in Note 1 to the consolidated financial statements; "GE Capital" means GE Capital Global Holdings, LLC (GECGH)statements, the Company enters into long-term service agreements with some of its customers. Certain long-term service agreements require the Company to provide maintenance services that may include levels of assurance regarding asset performance and its predecessor General Electric Capital Corporation (GECC)uptime throughout the contract period. Revenue for such long-term service agreements is recognized using the percentage of completion method, based on costs incurred relative to total expected costs.
We identified the evaluation of revenue recognition on certain long-term service agreements as a critical audit matter because of the complex auditor judgment required in evaluating some of the long-term estimates in such arrangements. Such estimates include the amount of customer payments expected to be received over the contract term, which are generally based on a combination of both historical customer utilization of the covered assets as well as forward-looking information such as market conditions. In addition, these estimates include the total costs expected to be incurred to perform required maintenance services over the contract term and allinclude estimates of their affiliates and associated companies. Separate information is shown for "GE" and "Financial Services (GE Capital)." Transactions between GE and GE Capitalexpected cost improvements when such cost improvements are supported by actual results or have been eliminated fromproven effective. Further, contract modifications that extend or revise contract terms are not uncommon and require judgment in evaluating the "General Electric Companyrelated revisions of the long-term estimates.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s revenue recognition process for long-term service agreements, including controls related to estimating customer payments and consolidated affiliates" columnscosts expected to be incurred to perform required maintenance services over the contract term. We evaluated the estimated customer payments by comparing the estimated customer utilization of the covered assets to historical utilization and industry utilization data, where available. We evaluated the estimated costs expected to be incurred to perform required maintenance services over the contract term by:
comparing estimated labor and part costs to historical labor and parts costs,
comparing the estimated useful life, which is referred to as part life, of certain component parts to historical data and regulatory limits on part life, where applicable,
inspecting evidence underlying the prior page.inclusion of cost improvements in estimated costs, including regulatory and engineering approvals and actual reductions in production costs to date, and
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES | | | | | | | | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) | | | |
| | | | | | | | |
For the years ended December 31 (In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Net earnings (loss) | $ | 8,540 | | $ | (5,795) | | $ | 15,345 |
Less net earnings (loss) attributable to noncontrolling interests | | (291) | | | 332 | | | 112 |
Net earnings (loss) attributable to the Company | $ | 8,831 | | $ | (6,126) | | $ | 15,233 |
| | | | | | | | |
Other comprehensive income (loss) | | | | | | | | |
Investment securities | $ | 203 | | $ | (553) | | $ | 708 |
Currency translation adjustments | | (1,311) | | | (3,137) | | | (2,730) |
Cash flow hedges | | 93 | | | 99 | | | 234 |
Benefit plans | | (1,068) | | | 5,165 | | | (7,278) |
Other comprehensive income (loss) | | (2,083) | | | 1,575 | | | (9,066) |
Less other comprehensive income (loss) attributable to noncontrolling interests | | (14) | | | (69) | | | (13) |
Other comprehensive income (loss) attributable to the Company | $ | (2,069) | | $ | 1,644 | | $ | (9,053) |
| | | | | | | | |
Comprehensive income (loss) | $ | 6,457 | | $ | (4,220) | | $ | 6,278 |
Less comprehensive income (loss) attributable to noncontrolling interests | | (305) | | | 263 | | | 99 |
Comprehensive income (loss) attributable to the Company | $ | 6,762 | | $ | (4,483) | | $ | 6,180 |
| | | | | | | | |
Amounts presented net of taxes. See Note 15 for further information about other comprehensive income (loss) and noncontrolling interests.
Amounts may not add due to rounding.
See accompanying notes.
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES | | | | | | | | | |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY | | | |
| | | | | | | | | |
(In millions) | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | |
GE shareowners' equity balance at January 1 | | $ | 98,274 | | $ | 128,159 | | $ | 130,566 |
Net earnings (loss) attributable to the Company | | | 8,831 | | | (6,126) | | | 15,233 |
Dividends and other transactions with shareowners | | | (9,054) | | | (9,155) | | | (8,948) |
Redemption value adjustment for redeemable noncontrolling interests | | | (266) | | | (25) | | | (2) |
Other comprehensive income (loss) attributable to the Company | | | (2,069) | | | 1,644 | | | (9,053) |
Net sales (purchases) of shares for treasury(a)(b) | | | (19,499) | | | (20,946) | | | (32) |
Changes in other capital | | | (389) | | | 4,724 | | | 396 |
Ending balance at December 31 | | | 75,828 | | | 98,274 | | | 128,159 |
Noncontrolling interests | | | 1,663 | | | 1,864 | | | 8,674 |
Total equity balance at December 31 | | $ | 77,491 | | $ | 100,138 | | $ | 136,833 |
| | | | | | | | | |
(a) | 2015 included $(20,383) million related to the split-off of Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial. |
(b) | 2016 included $(11,370) million of GE shares purchased under accelerated share repurchase (ASR) agreements. |
Amounts may not add due to rounding.
See Note 15 for further information about changes in shareowners' equity.
See accompanying notes.
STATEMENT OF FINANCIAL POSITION |
| General Electric Company |
| and consolidated affiliates |
December 31 (In millions, except share amounts) | 2016 | | 2015 |
| | | | | |
Assets | | | | | |
Cash and equivalents | $ | 48,129 | | $ | 70,483 |
Investment securities (Note 3) | | 44,313 | | | 31,973 |
Current receivables (Note 4) | | 24,076 | | | 27,022 |
Inventories (Note 5) | | 22,354 | | | 22,515 |
Financing receivables – net (Note 6) | | 12,242 | | | 12,052 |
Other GE Capital receivables | | 5,944 | | | 6,782 |
Property, plant and equipment – net (Note 7) | | 50,518 | | | 54,095 |
Receivable from GE Capital (debt assumption) | | - | | | - |
Investment in GE Capital | | - | | | - |
Goodwill (Note 8) | | 70,438 | | | 65,526 |
Other intangible assets – net (Note 8) | | 16,436 | | | 17,797 |
Contract assets (Note 9) | | 25,162 | | | 21,156 |
All other assets (Note 9) | | 27,176 | | | 36,797 |
Deferred income taxes (Note 14) | | 1,833 | | | 3,105 |
Assets of businesses held for sale (Note 2) | | 1,745 | | | 2,818 |
Assets of discontinued operations (Note 2) | | 14,815 | | | 120,951 |
Total assets(a) | $ | 365,183 | | $ | 493,071 |
| | | | | |
Liabilities and equity | | | | | |
Short-term borrowings (Note 10) | $ | 30,714 | | $ | 49,860 |
Accounts payable, principally trade accounts | | 14,435 | | | 13,680 |
Progress collections and price adjustments accrued | | 16,760 | | | 15,776 |
Dividends payable | | 2,107 | | | 2,167 |
Other GE current liabilities | | 17,564 | | | 23,597 |
Non-recourse borrowings of consolidated securitization entities (Note 10) | | 417 | | | 3,083 |
Long-term borrowings (Note 10) | | 105,080 | | | 144,659 |
Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | | 26,086 | | | 25,692 |
Non-current compensation and benefits | | 43,780 | | | 40,487 |
All other liabilities (Note 13) | | 22,912 | | | 23,611 |
Liabilities of businesses held for sale (Note 2) | | 656 | | | 861 |
Liabilities of discontinued operations (Note 2) | | 4,158 | | | 46,487 |
Total liabilities(a) | | 284,668 | | | 389,961 |
| | | | | |
Redeemable noncontrolling interests (Note 15) | | 3,025 | | | 2,972 |
| | | | | |
Preferred stock (5,944,250 shares outstanding at both December 31, 2016 | | | | | |
and December 31, 2015) | | 6 | | | 6 |
Common stock (8,742,614,000 and 9,379,288,000 shares outstanding | | | | | |
at December 31, 2016 and December 31, 2015, respectively) | | 702 | | | 702 |
Accumulated other comprehensive income (loss) – net attributable to GE(b) | | | | | |
Investment securities | | 674 | | | 460 |
Currency translation adjustments | | (6,816) | | | (5,499) |
Cash flow hedges | | 12 | | | (80) |
Benefit plans | | (12,469) | | | (11,410) |
Other capital | | 37,224 | | | 37,613 |
Retained earnings | | 139,532 | | | 140,020 |
Less common stock held in treasury | | (83,038) | | | (63,539) |
Total GE shareowners' equity | | 75,828 | | | 98,274 |
Noncontrolling interests(c) (Note 15) | | 1,663 | | | 1,864 |
Total equity (Note 15) | | 77,491 | | | 100,138 |
Total liabilities, redeemable noncontrolling interests and equity | $ | 365,183 | | $ | 493,071 |
| | | | | |
(a) | Our consolidated assets at December 31, 2016 included total assets of $6,332 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets included current receivables and net financing receivables of $1,722 million and investment securities of $982 million within continuing operations and assets of discontinued operations of $692 million. Our consolidated liabilities at December 31, 2016 included liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities included non-recourse borrowings of consolidated securitization entities (CSEs) of $(417) million within continuing operations. See Note 21. |
(b) | The sum of accumulated other comprehensive income (loss) (AOCI) attributable to the Company was $(18,598) million and $(16,529) million at December 31, 2016 and December 31, 2015, respectively. |
(c) | Included AOCI attributable to noncontrolling interests of $(278) million and $(264) million at December 31, 2016 and December 31, 2015, respectively. |
Amounts may not add due to rounding.
See accompanying notes.
STATEMENT OF FINANCIAL POSITION (CONTINUED) |
| | | | | | | | | | | |
| GE(a) | | Financial Services (GE Capital) |
December 31 (In millions, except share amounts) | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | |
Assets | | | | | | | | | | | |
Cash and equivalents | $ | 10,525 | | $ | 10,372 | | $ | 37,604 | | $ | 60,111 |
Investment securities (Note 3) | | 137 | | | 151 | | | 44,180 | | | 31,827 |
Current receivables (Note 4) | | 12,715 | | | 14,707 | | | - | | | - |
Inventories (Note 5) | | 22,263 | | | 22,449 | | | 91 | | | 66 |
Financing receivables – net (Note 6) | | - | | | - | | | 26,041 | | | 25,003 |
Other GE Capital receivables | | - | | | - | | | 15,576 | | | 15,455 |
Property, plant and equipment – net (Note 7) | | 19,103 | | | 20,145 | | | 32,225 | | | 34,781 |
Receivable from GE Capital (debt assumption) | | 58,780 | | | 84,704 | | | - | | | - |
Investment in GE Capital | | 24,677 | | | 46,227 | | | - | | | - |
Goodwill (Note 8) | | 68,070 | | | 63,157 | | | 2,368 | | | 2,370 |
Other intangible assets – net (Note 8) | | 16,131 | | | 17,365 | | | 305 | | | 435 |
Contract assets (Note 9) | | 25,162 | | | 21,156 | | | - | | | - |
All other assets (Note 9) | | 12,007 | | | 12,813 | | | 14,608 | | | 25,081 |
Deferred income taxes (Note 14) | | 6,666 | | | 7,666 | | | (4,833) | | | (4,561) |
Assets of businesses held for sale (Note 2) | | 1,629 | | | 2,818 | | | - | | | - |
Assets of discontinued operations (Note 2) | | 9 | | | 9 | | | 14,806 | | | 120,942 |
Total assets | $ | 277,874 | | $ | 323,737 | | $ | 182,970 | | $ | 311,508 |
| | | | | | | | | | | |
Liabilities and equity | | | | | | | | | | | |
Short-term borrowings(b) (Note 10) | $ | 20,482 | | $ | 19,792 | | $ | 23,443 | | $ | 48,617 |
Accounts payable, principally trade accounts | | 20,876 | | | 19,250 | | | 1,605 | | | 1,745 |
Progress collections and price adjustments accrued | | 16,838 | | | 15,776 | | | - | | | - |
Dividends payable | | 2,107 | | | 2,167 | | | - | | | - |
Other GE current liabilities | | 17,564 | | | 23,595 | | | - | | | - |
Non-recourse borrowings of consolidated securitization entities (Note 10) | | - | | | - | | | 417 | | | 3,083 |
Long-term borrowings(b) (Note 10) | | 58,810 | | | 83,309 | | | 93,443 | | | 128,478 |
Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | | - | | | - | | | 26,546 | | | 26,155 |
Non-current compensation and benefits | | 42,770 | | | 39,472 | | | 1,001 | | | 1,006 |
All other liabilities (Note 13) | | 17,506 | | | 16,217 | | | 7,430 | | | 9,351 |
Liabilities of businesses held for sale (Note 2) | | 656 | | | 1,409 | | | - | | | - |
Liabilities of discontinued operations (Note 2) | | 35 | | | 128 | | | 4,123 | | | 46,359 |
Total liabilities | | 197,644 | | | 221,115 | | | 158,008 | | | 264,795 |
| | | | | | | | | | | |
Redeemable noncontrolling interests (Note 15) | | 3,025 | | | 2,972 | | | - | | | - |
| | | | | | | | | | | |
Preferred stock (5,944,250 shares outstanding at both December 31, 2016 | | | | | | | | | | | |
and December 31, 2015) | | 6 | | | 6 | | | 6 | | | 6 |
Common stock (8,742,614,000 and 9,379,288,000 shares outstanding | | | | | | | | | | | |
at December 31, 2016 and December 31, 2015, respectively) | | 702 | | | 702 | | | - | | | - |
Accumulated other comprehensive income (loss) – net attributable to GE | | | | | | | | | | | |
Investment securities | | 674 | | | 460 | | | 656 | | | 456 |
Currency translation adjustments | | (6,816) | | | (5,499) | | | (740) | | | (898) |
Cash flow hedges | | 12 | | | (80) | | | 43 | | | (112) |
Benefit plans | | (12,469) | | | (11,410) | | | (622) | | | (540) |
Other capital | | 37,224 | | | 37,613 | | | 12,669 | | | 12,326 |
Retained earnings | | 139,532 | | | 140,020 | | | 12,664 | | | 34,988 |
Less common stock held in treasury | | (83,038) | | | (63,539) | | | - | | | - |
Total GE shareowners' equity | | 75,828 | | | 98,274 | | | 24,677 | | | 46,227 |
Noncontrolling interests (Note 15) | | 1,378 | | | 1,378 | | | 285 | | | 486 |
Total equity (Note 15) | | 77,205 | | | 99,651 | | | 24,962 | | | 46,713 |
Total liabilities, redeemable noncontrolling interests and equity | $ | 277,874 | | $ | 323,737 | | $ | 182,970 | | $ | 311,508 |
| | | | | | | | | | | |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
(b) | On December 2, 2015, senior unsecured notes and commercial paper was assumed by GE upon its merger with GE Capital resulting in an intercompany payable to GE. The short-term borrowings were $11,696 million (which includes a loan amount of $1,329 million from GE Capital to GE) and $17,642 million and the long-term borrowings were $47,084 million and $67,062 million at December 31, 2016 and December 31, 2015, respectively. See Note 10 for additional information. |
Amounts may not add due to rounding.
In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in testing certain cost estimates, including assessing statistical models used by the consolidating data on this page, "GE" meansCompany to estimate the basispart life of consolidation as describedcertain component parts of the covered assets.
Evaluation of premium deficiency testing to assess the adequacy of future policy benefit reserves
As discussed in NoteNotes 1 and 12 to the consolidated financial statements; "GE Capital" means GE Capital Global Holdings, LLC (GECGH)statements, the Company performs premium deficiency testing to assess the adequacy of future policy benefit reserves. This testing is performed on an annual basis, or whenever events and its predecessor General Electric Capital Corporation (GECC)changes in circumstances indicate that a premium deficiency event may have occurred. Significant uncertainties exist in testing cash flow projections in the premium deficiency testing for these insurance contracts, including consideration of a wide range of possible outcomes of future events over the life of the underlying contracts that can extend for long periods of time.
We identified the evaluation of premium deficiency testing to assess the adequacy of future policy benefit reserves as a critical audit matter. Specifically, the evaluation of the following key assumptions in the premium deficiency testing required subjective auditor judgment and allspecialized skills and knowledge: long-term care morbidity and mortality, long-term care morbidity improvement and mortality improvement, discount rates, and long-term care premium rate increases.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s premium deficiency testing process, including controls to develop the key assumptions described above. In addition, we involved actuarial professionals with specialized skills and knowledge, who assisted in:
challenging the Company’s key assumptions and results by evaluating the relevance, reliability, and consistency of their affiliatesthe assumptions with each other, the underlying data, relevant historical data, and associated companies. Separate information is shownindustry data,
assessing the summary experience data and the corresponding actuarial assumptions for "GE"conformity with generally accepted actuarial principles,
performing recalculations to assess that the key assumptions were reflected in the cash flow projections, and "Financial Services (GE Capital)." Transactions between GE
comparing the current year and GE Capital have been eliminated fromprior year cash flow projections to analyze the "General Electric Company and consolidated affiliates" columns onimpact of the prior page.updated key assumptions to the cash flows.
GE 20162019 FORM 10-K 137 60
STATEMENT OF CASH FLOWS |
| General Electric Company |
| and consolidated affiliates |
For the years ended December 31 (In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Cash flows – operating activities | | | | | | | | |
Net earnings (loss) | $ | 8,540 | | $ | (5,795) | | $ | 15,345 |
Less net earnings (loss) attributable to noncontrolling interests | | (291) | | | 332 | | | 112 |
Net earnings (loss) attributable to the Company | | 8,831 | | | (6,126) | | | 15,233 |
(Earnings) loss from discontinued operations | | 954 | | | 7,495 | | | (5,855) |
Adjustments to reconcile net earnings attributable to the | | | | | | | | |
Company to cash provided from operating activities: | | | | | | | | |
Depreciation and amortization of property, | | | | | | | | |
plant and equipment | | 4,997 | | | 4,847 | | | 4,953 |
Earnings from continuing operations retained by GE Capital | | - | | | - | | | - |
Deferred income taxes | | 814 | | | 383 | | | (882) |
Decrease (increase) in GE current receivables | | 1,514 | | | (52) | | | (1,913) |
Decrease (increase) in inventories | | (1,389) | | | (314) | | | (872) |
Increase (decrease) in accounts payable | | 1,198 | | | (541) | | | 565 |
Increase (decrease) in GE progress collections | | 1,836 | | | (996) | | | (515) |
All other operating activities | | (12,655) | | | 7,160 | | | 5,318 |
Cash from (used for) operating activities – continuing operations | | 6,099 | | | 11,856 | | | 16,033 |
Cash from (used for) operating activities – discontinued operations | | (6,343) | | | 8,034 | | | 11,676 |
Cash from (used for) operating activities | | (244) | | | 19,891 | | | 27,709 |
| | | | | | | | |
Cash flows – investing activities | | | | | | | | |
Additions to property, plant and equipment | | (7,199) | | | (7,309) | | | (7,134) |
Dispositions of property, plant and equipment | | 4,424 | | | 3,020 | | | 2,923 |
Net decrease (increase) in GE Capital financing receivables | | 200 | | | 1,043 | | | 1,260 |
Proceeds from sale of discontinued operations | | 59,890 | | | 79,615 | | | 232 |
Proceeds from principal business dispositions | | 5,357 | | | 2,283 | | | 630 |
Net cash from (payments for) principal businesses purchased | | (2,271) | | | (12,027) | | | (2,091) |
All other investing activities | | 2,212 | | | (5,013) | | | 23,410 |
Cash from (used for) investing activities – continuing operations | | 62,613 | | | 61,613 | | | 19,229 |
Cash from (used for) investing activities – discontinued operations | | (13,412) | | | (2,125) | | | (24,263) |
Cash from (used for) investing activities | | 49,202 | | | 59,488 | | | (5,034) |
| | | | | | | | |
Cash flows – financing activities | | | | | | | | |
Net increase (decrease) in borrowings (maturities of | | | | | | | | |
90 days or less) | | (1,135) | | | (24,459) | | | (6,409) |
Newly issued debt (maturities longer than 90 days) | | 1,492 | | | 13,951 | | | 14,629 |
Repayments and other reductions (maturities longer than 90 days) | | (58,768) | | | (47,038) | | | (38,410) |
Net dispositions (purchases) of GE shares for treasury | | (21,429) | | | (1,099) | | | (1,218) |
Dividends paid to shareowners | | (8,806) | | | (9,295) | | | (8,852) |
All other financing activities | | (1,274) | | | (1,605) | | | (652) |
Cash from (used for) financing activities – continuing operations | | (89,920) | | | (69,547) | | | (40,912) |
Cash from (used for) financing activities – discontinued operations | | 789 | | | (6,507) | | | 23,956 |
Cash from (used for) financing activities | | (89,131) | | | (76,054) | | | (16,956) |
Effect of currency exchange rate changes on cash and equivalents | | (1,146) | | | (3,464) | | | (3,492) |
Increase (decrease) in cash and equivalents | | (41,319) | | | (138) | | | 2,224 |
Cash and equivalents at beginning of year | | 90,879 | | | 91,017 | | | 88,792 |
Cash and equivalents at end of year | | 49,558 | | | 90,879 | | | 91,017 |
Less cash and equivalents of discontinued operations | | | | | | | | |
at end of year | | 1,429 | | | 20,395 | | | 20,991 |
Cash and equivalents of continuing operations at end of year | $ | 48,129 | | $ | 70,483 | | $ | 70,025 |
Supplemental disclosure of cash flows information | | | | | | | | |
Cash paid during the year for interest | $ | (5,779) | | $ | (8,764) | | $ | (9,539) |
Cash recovered (paid) during the year for income taxes | | (7,469) | | | (2,486) | | | (2,955) |
| | | | | | | | |
Amounts may not add due to rounding.
See accompanying notes.
STATEMENT OF CASH FLOWS (CONTINUED) | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| GE(a) | | Financial Services (GE Capital) |
For the years ended December 31 (In millions) | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | | |
Cash flows – operating activities | | | | | | | | | | | | | | | | | |
Net earnings (loss) | $ | 7,896 | | $ | (6,061) | | $ | 15,182 | | $ | (1,560) | | $ | (15,202) | | $ | 7,397 |
Less net earnings (loss) attributable to noncontrolling interests | | (279) | | | 83 | | | (50) | | | (12) | | | 248 | | | 162 |
Net earnings (loss) attributable to the Company | | 8,176 | | | (6,145) | | | 15,233 | | | (1,548) | | | (15,450) | | | 7,234 |
(Earnings) loss from discontinued operations | | 952 | | | 7,807 | | | (5,698) | | | 954 | | | 7,485 | | | (5,860) |
Adjustments to reconcile net earnings attributable to the | | | | | | | | | | | | | | | | | |
Company to cash provided from operating activities: | | | | | | | | | | | | | | | | | |
Depreciation and amortization of property, | | | | | | | | | | | | | | | | | |
plant and equipment | | 2,597 | | | 2,473 | | | 2,508 | | | 2,384 | | | 2,436 | | | 2,529 |
Earnings from continuing operations retained by GE Capital(b) | | 21,345 | | | 12,284 | | | 1,625 | | | - | | | - | | | - |
Deferred income taxes | | 1,107 | | | (1,800) | | | (476) | | | (293) | | | 2,183 | | | (406) |
Decrease (increase) in GE current receivables | | 929 | | | 666 | | | (473) | | | - | | | - | | | - |
Decrease (increase) in inventories | | (1,337) | | | (282) | | | (877) | | | (10) | | | (14) | | | 27 |
Increase (decrease) in accounts payable | | 1,716 | | | 276 | | | 884 | | | 17 | | | (189) | | | 258 |
Increase (decrease) in GE progress collections | | 1,913 | | | (1,010) | | | (528) | | | - | | | - | | | - |
All other operating activities | | (7,438) | | | 2,083 | | | 2,973 | | | (3,054) | | | 5,087 | | | 2,480 |
Cash from (used for) operating activities – continuing operations | | 29,960 | | | 16,354 | | | 15,171 | | | (1,552) | | | 1,537 | | | 6,263 |
Cash from (used for) operating activities – discontinued operations | | (90) | | | (12) | | | (2) | | | (6,253) | | | 8,046 | | | 11,678 |
Cash from (used for) operating activities | | 29,870 | | | 16,342 | | | 15,169 | | | (7,805) | | | 9,583 | | | 17,941 |
| | | | | | | | | | | | | | | | | |
Cash flows – investing activities | | | | | | | | | | | | | | | | | |
Additions to property, plant and equipment | | (3,758) | | | (3,785) | | | (3,970) | | | (3,769) | | | (4,237) | | | (3,818) |
Dispositions of property, plant and equipment | | 1,080 | | | 939 | | | 615 | | | 3,637 | | | 2,526 | | | 2,331 |
Net decrease (increase) in GE Capital financing receivables | | - | | | - | | | - | | | (1,279) | | | 226 | | | (161) |
Proceeds from sale of discontinued operations | | - | | | - | | | - | | | 59,890 | | | 79,615 | | | 232 |
Proceeds from principal business dispositions | | 5,357 | | | 1,725 | | | 602 | | | - | | | 532 | | | - |
Net cash from (payments for) principal businesses purchased | | (2,271) | | | (10,350) | | | (2,091) | | | - | | | (1,677) | | | - |
All other investing activities | | (2,392) | | | (1,308) | | | (1,062) | | | 1,639 | | | (4,690) | | | 24,574 |
Cash from (used for) investing activities – continuing operations | | (1,984) | | | (12,779) | | | (5,906) | | | 60,118 | | | 72,295 | | | 23,158 |
Cash from (used for) investing activities – discontinued operations | | 90 | | | 12 | | | 2 | | | (13,501) | | | (2,137) | | | (24,263) |
Cash from (used for) investing activities | | (1,894) | | | (12,767) | | | (5,905) | | | 46,617 | | | 70,158 | | | (1,105) |
| | | | | | | | | | | | | | | | | |
Cash flows – financing activities | | | | | | | | | | | | | | | | | |
Net increase (decrease) in borrowings (maturities of | | | | | | | | | | | | | | | | | |
90 days or less) | | 1,595 | | | 603 | | | 243 | | | (1,655) | | | (24,834) | | | (7,078) |
Newly issued debt (maturities longer than 90 days) | | 5,307 | | | 3,560 | | | 3,084 | | | 1,174 | | | 10,391 | | | 11,545 |
Repayments and other reductions (maturities longer than 90 days) | | (4,156) | | | (2,190) | | | (323) | | | (58,285) | | | (44,848) | | | (38,087) |
Net dispositions (purchases) of GE shares for treasury | | (21,429) | | | (1,099) | | | (1,218) | | | - | | | - | | | - |
Dividends paid to shareowners | | (8,474) | | | (9,289) | | | (8,851) | | | (20,427) | | | (4,620) | | | (3,322) |
All other financing activities | | (273) | | | 203 | | | 346 | | | (1,127) | | | (1,362) | | | (679) |
Cash from (used for) financing activities – continuing operations | | (27,430) | | | (8,211) | | | (6,719) | | | (80,320) | | | (65,273) | | | (37,621) |
Cash from (used for) financing activities – discontinued operations | | - | | | - | | | - | | | 789 | | | (6,507) | | | 23,956 |
Cash from (used for) financing activities | | (27,430) | | | (8,211) | | | (6,719) | | | (79,531) | | | (71,780) | | | (13,665) |
Effect of currency exchange rate changes on cash and equivalents | | (392) | | | (908) | | | (312) | | | (754) | | | (2,556) | | | (3,180) |
Increase (decrease) in cash and equivalents | | 153 | | | (5,544) | | | 2,234 | | | (41,473) | | | 5,406 | | | (9) |
Cash and equivalents at beginning of year | | 10,372 | | | 15,916 | | | 13,682 | | | 80,506 | | | 75,100 | | | 75,109 |
Cash and equivalents at end of year | | 10,525 | | | 10,372 | | | 15,916 | | | 39,033 | | | 80,506 | | | 75,100 |
Less cash and equivalents of discontinued operations | | | | | | | | | | | | | | | | | |
at end of year | | - | | | - | | | - | | | 1,429 | | | 20,395 | | | 20,991 |
Cash and equivalents of continuing operations at end of year | $ | 10,525 | | $ | 10,372 | | $ | 15,916 | | $ | 37,604 | | $ | 60,111 | | $ | 54,109 |
Supplemental disclosure of cash flows information | | | | | | | | | | | | | | | | | |
Cash paid during the year for interest | $ | (1,753) | | $ | (1,327) | | $ | (1,248) | | $ | (4,982) | | $ | (8,047) | | $ | (8,910) |
Cash recovered (paid) during the year for income taxes | | (2,612) | | | (1,636) | | | (1,337) | | | (4,857) | | | (850) | | | (1,618) |
| | | | | | | | | | | | | | | | | |
(a) |
| Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. | |
REPORTS | | |
(b) | Represents GE Capital earnings/loss from continuing operations attributable to the Company, net of GE Capital dividends paid to GE. |
We evaluated projected future long-term premium rate increases by comparing the proposed, attained, denied, and approved premium rate increases to underlying source documentation. We also compared the current year premium rate increase projection to actual historical rate increase experience.Amounts may not add due to rounding.
Evaluation of projected revenue and operating profit used in the assessment of the carrying value of goodwill in the Grid Solutions equipment and services and Hydro reporting unitsIn the consolidating data on this page, "GE" means the basis of consolidation as describedAs discussed in Note 18 to the consolidated financial statements; "GE Capital" meansstatements, the Company performs a goodwill impairment test on an annual basis or whenever events or changes in circumstances indicate that the carrying value of a reporting unit might exceed its fair value. Projected revenue and operating profit are important elements of the estimated future cash flows used by the Company in determining the fair value of each reporting unit and the amount of related goodwill impairment losses.
In the second quarter of 2019, the Company reorganized its Grid Solutions reporting unit to separate the Grid Solutions software business and the Grid Solutions equipment and services business. As a result of this reorganization, the Company allocated goodwill to the Grid Solutions businesses based on their relative fair values, and performed a goodwill impairment test. The goodwill allocated to the Grid Solutions equipment and services business was determined to be impaired, and an impairment loss of $744 million was recorded. In the third quarter of 2019, the Company performed its annual goodwill impairment test, and recorded an impairment loss of $742 million in its Hydro reporting unit.
We identified the evaluation of projected revenue and operating profit used in the assessment of the carrying value of goodwill, including the determination of related goodwill impairment losses, for the Grid Solutions equipment and services and Hydro reporting units as a critical audit matter. Specifically, the evaluation of projected revenue and operating profit required the application of subjective auditor judgment because these projections involve assumptions about future events.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s goodwill impairment process, including controls over the development of projected financial information, and the Company’s review of the projections and comparison to historical results. We evaluated the projected revenue and operating profit assumptions by comparing the projected amounts to the past performance of the reporting units, including historical results and growth rates, and relevant and reliable industry benchmark data related to future events. We also considered evidence obtained in other areas of the audit, including information that might be contrary to the assumptions used by the Company in preparing its projections. We evaluated the Company’s ability to accurately prepare projections by comparing the projected revenues and operating profit to actual results for the same period. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
comparing the projected amounts to industry benchmark data, and
evaluating sensitivity analyses related to key inputs, including long-term revenue growth rates and projected operating profit.
Evaluation of the effects of particular tax positions
As discussed in Note 15 to the consolidated financial statements, the Company’s annual tax rate is based on the Company’s income, statutory tax rates, and the effects of tax positions taken in the various jurisdictions in which the Company operates. Tax laws are complex and subject to different interpretations by taxpayers and respective government taxing authorities.
We identified the evaluation of the effects of particular tax positions as a critical audit matter. Complex auditor judgment was involved in evaluating the Company’s interpretation of applicable tax laws and regulations for these tax positions, including the evaluation of income tax uncertainties related to the tax positions.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s income tax process for particular tax positions, including controls related to the Company’s interpretation of applicable tax laws and regulations and the evaluation of income tax uncertainties. We inspected relevant documentation related to particular tax positions, including correspondence between the Company and taxing authorities. In addition, we involved tax professionals with specialized skills and knowledge, who assisted in:
evaluating the Company’s interpretation and application of relevant tax laws and regulations related to the tax positions, including income tax uncertainties, and
assessing the Company’s computation of the effects of the tax positions.
|
|
/s/ KPMG LLP |
KPMG LLP
We have served as the Company's auditor since 1909.
Boston, Massachusetts |
February 24, 2020 |
FINANCIAL STATEMENTS
|
| | | | | | | | | |
STATEMENT OF EARNINGS (LOSS) | Consolidated |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Sales of goods | $ | 58,949 |
| $ | 60,148 |
| $ | 62,709 |
|
Sales of services | 28,538 |
| 28,792 |
| 29,233 |
|
GE Capital revenues from services | 7,728 |
| 8,072 |
| 7,337 |
|
Total revenues (Note 26) | 95,214 |
| 97,012 |
| 99,279 |
|
| | | |
Cost of goods sold | 48,406 |
| 50,244 |
| 52,483 |
|
Cost of services sold | 21,622 |
| 22,574 |
| 23,110 |
|
Selling, general and administrative expenses | 13,949 |
| 14,643 |
| 14,257 |
|
Interest and other financial charges | 4,227 |
| 4,766 |
| 4,655 |
|
Insurance losses and annuity benefits (Note 12) | 3,294 |
| 2,790 |
| 12,168 |
|
Goodwill impairments (Note 8) | 1,486 |
| 22,136 |
| 2,550 |
|
Non-operating benefit costs | 2,844 |
| 2,753 |
| 2,423 |
|
Other costs and expenses | 458 |
| 414 |
| 1,060 |
|
Total costs and expenses | 96,287 |
| 120,320 |
| 112,707 |
|
| | | |
Other income (Note 19) | 2,222 |
| 2,321 |
| 2,083 |
|
GE Capital earnings (loss) from continuing operations | — |
| — |
| — |
|
| | | |
Earnings (loss) from continuing operations before income taxes | 1,149 |
| (20,987 | ) | (11,345 | ) |
Benefit (provision) for income taxes (Note 15) | (726 | ) | (93 | ) | 2,808 |
|
Earnings (loss) from continuing operations | 423 |
| (21,080 | ) | (8,536 | ) |
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (5,335 | ) | (1,363 | ) | (312 | ) |
Net earnings (loss) | (4,912 | ) | (22,443 | ) | (8,849 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 66 |
| (89 | ) | (365 | ) |
Net earnings (loss) attributable to the Company | (4,979 | ) | (22,355 | ) | (8,484 | ) |
Preferred stock dividends | (460 | ) | (447 | ) | (436 | ) |
Net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) |
| | | |
Amounts attributable to GE common shareholders | | | |
Earnings (loss) from continuing operations | $ | 423 |
| $ | (21,080 | ) | $ | (8,536 | ) |
Less net earnings (loss) attributable to noncontrolling interests, continuing operations | 7 |
| (90 | ) | (283 | ) |
Earnings (loss) from continuing operations attributable to the Company | 416 |
| (20,991 | ) | (8,253 | ) |
Preferred stock dividends | (460 | ) | (447 | ) | (436 | ) |
Earnings (loss) from continuing operations attributable to GE common shareholders | (44 | ) | (21,438 | ) | (8,689 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,335 | ) | (1,363 | ) | (312 | ) |
Less net earnings (loss) attributable to noncontrolling interests, discontinued operations | 60 |
| 1 |
| (81 | ) |
Net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) |
| | | |
Per-share amounts (Note 18) | | | |
Earnings (loss) from continuing operations | | | |
Diluted earnings (loss) per share | $ | (0.01 | ) | $ | (2.47 | ) | $ | (1.00 | ) |
Basic earnings (loss) per share | $ | (0.01 | ) | $ | (2.47 | ) | $ | (1.00 | ) |
| | | |
Net earnings (loss) | | | |
Diluted earnings (loss) per share | $ | (0.62 | ) | $ | (2.62 | ) | $ | (1.03 | ) |
Basic earnings (loss) per share | $ | (0.62 | ) | $ | (2.62 | ) | $ | (1.03 | ) |
| | | |
Dividends declared per common share | $ | 0.04 |
| $ | 0.37 |
| $ | 0.84 |
|
|
| | | | | | | | | | | | | | | | | | | |
STATEMENT OF EARNINGS (LOSS) (CONTINUED) | GE(a) | | GE Capital |
(In millions) | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | |
Sales of goods | $ | 59,138 |
| $ | 60,147 |
| $ | 62,786 |
| | $ | 79 |
| $ | 121 |
| $ | 130 |
|
Sales of services | 28,581 |
| 28,891 |
| 29,443 |
| | — |
| — |
| — |
|
GE Capital revenues from services | — |
| — |
| — |
| | 8,662 |
| 9,430 |
| 8,940 |
|
Total revenues (Note 26) | 87,719 |
| 89,038 |
| 92,229 |
| | 8,741 |
| 9,551 |
| 9,070 |
|
| | | | | | | |
Cost of goods sold | 48,620 |
| 50,265 |
| 52,588 |
| | 61 |
| 95 |
| 102 |
|
Cost of services sold | 19,665 |
| 20,611 |
| 21,062 |
| | 2,019 |
| 2,089 |
| 2,196 |
|
Selling, general and administrative expenses | 13,404 |
| 13,851 |
| 13,094 |
| | 931 |
| 1,341 |
| 1,662 |
|
Interest and other financial charges | 2,115 |
| 2,415 |
| 2,538 |
| | 2,532 |
| 2,982 |
| 3,145 |
|
Insurance losses and annuity benefits (Note 12) | — |
| — |
| — |
| | 3,353 |
| 2,849 |
| 12,213 |
|
Goodwill impairments (Note 8) | 1,486 |
| 22,136 |
| 1,165 |
| | — |
| — |
| 1,386 |
|
Non-operating benefit costs | 2,828 |
| 2,740 |
| 2,409 |
| | 16 |
| 12 |
| 14 |
|
Other costs and expenses | — |
| (51 | ) | (22 | ) | | 480 |
| 558 |
| 986 |
|
Total costs and expenses | 88,118 |
| 111,967 |
| 92,834 |
| | 9,392 |
| 9,926 |
| 21,703 |
|
| | | | | | | |
Other income (Note 19) | 2,200 |
| 2,317 |
| 1,893 |
| | — |
| — |
| — |
|
GE Capital earnings (loss) from continuing operations | (530 | ) | (489 | ) | (6,765 | ) | | — |
| — |
| — |
|
| | | | | | | |
Earnings (loss) from continuing operations before income taxes | 1,271 |
| (21,101 | ) | (5,476 | ) | | (652 | ) | (375 | ) | (12,633 | ) |
Benefit (provision) for income taxes (Note 15) | (1,309 | ) | (467 | ) | (3,493 | ) | | 582 |
| 374 |
| 6,302 |
|
Earnings (loss) from continuing operations | (38 | ) | (21,568 | ) | (8,970 | ) | | (69 | ) | (1 | ) | (6,331 | ) |
Earnings (loss) from discontinued operations, net of taxes (Note 2) | (5,335 | ) | (1,363 | ) | (319 | ) | | 192 |
| (1,670 | ) | (312 | ) |
Net earnings (loss) | (5,373 | ) | (22,931 | ) | (9,288 | ) | | 123 |
| (1,672 | ) | (6,643 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 66 |
| (129 | ) | (368 | ) | | 1 |
| 40 |
| 4 |
|
Net earnings (loss) attributable to the Company | (5,439 | ) | (22,802 | ) | (8,920 | ) | | 122 |
| (1,712 | ) | (6,647 | ) |
Preferred stock dividends | — |
| — |
| — |
| | (460 | ) | (447 | ) | (436 | ) |
Net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) | | $ | (338 | ) | $ | (2,159 | ) | $ | (7,083 | ) |
| | | | | | | |
Amounts attributable to GE common shareholders: | | | | | | | |
Earnings (loss) from continuing operations | $ | (38 | ) | $ | (21,568 | ) | $ | (8,970 | ) | | $ | (69 | ) | $ | (1 | ) | $ | (6,331 | ) |
Less net earnings (loss) attributable to noncontrolling interests, continuing operations | 6 |
| (130 | ) | (280 | ) | | 1 |
| 40 |
| (3 | ) |
Earnings (loss) from continuing operations attributable to the Company | (44 | ) | (21,438 | ) | (8,689 | ) | | (70 | ) | (42 | ) | (6,328 | ) |
Preferred stock dividends | — |
| — |
| — |
| | (460 | ) | (447 | ) | (436 | ) |
Earnings (loss) from continuing operations attributable to GE common shareholders | (44 | ) | (21,438 | ) | (8,689 | ) | | (530 | ) | (489 | ) | (6,765 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,335 | ) | (1,363 | ) | (319 | ) | | 192 |
| (1,670 | ) | (312 | ) |
Less net earnings (loss) attributable to noncontrolling interests, discontinued operations | 60 |
| 1 |
| (88 | ) | | — |
| — |
| 6 |
|
Net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) | | $ | (338 | ) | $ | (2,159 | ) | $ | (7,083 | ) |
(a) Represents the adding together of all GE Capital Global Holdings, LLC (GECGH) and its predecessor General Electric Capital Corporation (GECC) and all of theirIndustrial affiliates and associated companies. Separate information is shown for "GE" and "Financial Services (GE Capital)." Transactions between GE and GE Capital have been eliminated from the "Consolidated" columns and are discussed incontinuing operations on a one-line basis. See Note 24.1.
|
| | | | | | |
STATEMENT OF FINANCIAL POSITION | Consolidated |
December 31 (In millions, except share amounts) | 2019 |
| 2018 |
|
| | |
Cash, cash equivalents and restricted cash | $ | 36,394 |
| $ | 31,124 |
|
Investment securities (Note 3) | 48,521 |
| 33,508 |
|
Current receivables (Note 4) | 16,769 |
| 14,645 |
|
Financing receivables – net (Note 5) | 3,134 |
| 7,699 |
|
Inventories (Note 6) | 14,104 |
| 13,803 |
|
Other GE Capital receivables | 7,144 |
| 7,143 |
|
Property, plant and equipment – net (Note 7) | 43,290 |
| 43,611 |
|
Operating lease assets (Note 7) | 2,896 |
| — |
|
Receivable from GE Capital | — |
| — |
|
Investment in GE Capital | — |
| — |
|
Goodwill (Note 8) | 26,734 |
| 33,974 |
|
Other intangible assets – net (Note 8) | 10,653 |
| 12,178 |
|
Contract and other deferred assets (Note 9) | 16,801 |
| 17,431 |
|
All other assets (Note 10) | 16,461 |
| 18,357 |
|
Deferred income taxes (Note 15) | 9,889 |
| 12,117 |
|
Assets of businesses held for sale (Note 2) | 9,149 |
| 1,629 |
|
Assets of discontinued operations (Note 2) | 4,109 |
| 63,853 |
|
Total assets | $ | 266,048 |
| $ | 311,072 |
|
|
|
|
Short-term borrowings (Note 11) | $ | 22,072 |
| $ | 12,776 |
|
Short-term borrowings assumed by GE (Note 11) | — |
| — |
|
Accounts payable, principally trade accounts | 15,926 |
| 13,826 |
|
Progress collections and deferred income (Note 9) | 20,508 |
| 18,983 |
|
Other GE current liabilities (Note 14) | 15,753 |
| 14,866 |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | 1,655 |
| 1,875 |
|
Long-term borrowings (Note 11) | 67,155 |
| 88,949 |
|
Long-term borrowings assumed by GE (Note 11) | — |
| — |
|
Operating lease liabilities (Note 7) | 3,162 |
| — |
|
Insurance liabilities and annuity benefits (Note 12) | 39,826 |
| 35,562 |
|
Non-current compensation and benefits | 31,687 |
| 31,928 |
|
All other liabilities (Note 14) | 16,583 |
| 20,839 |
|
Liabilities of businesses held for sale (Note 2) | 1,658 |
| 708 |
|
Liabilities of discontinued operations (Note 2) | 203 |
| 19,281 |
|
Total liabilities | 236,187 |
| 259,591 |
|
|
|
|
Preferred stock (5,939,875 shares outstanding at both December 31, 2019 and December 31, 2018) | 6 |
| 6 |
|
Common stock (8,738,434,000 and 8,702,227,000 shares outstanding at December 31, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
|
Accumulated other comprehensive income (loss) – net attributable to GE | (11,732 | ) | (14,414 | ) |
Other capital | 34,405 |
| 35,504 |
|
Retained earnings | 87,732 |
| 93,109 |
|
Less common stock held in treasury | (82,797 | ) | (83,925 | ) |
Total GE shareholders’ equity | 28,316 |
| 30,981 |
|
Noncontrolling interests (Note 16) | 1,545 |
| 20,500 |
|
Total equity | 29,861 |
| 51,481 |
|
Total liabilities and equity | $ | 266,048 |
| $ | 311,072 |
|
GE 20162019 FORM 10-K 139 64
|
| | | | | | | | | | | | | |
STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) |
| GE Capital |
December 31 (In millions, except share amounts) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Cash, cash equivalents and restricted cash | $ | 17,613 |
| $ | 16,632 |
|
| $ | 18,781 |
| $ | 14,492 |
|
Investment securities (Note 3) | 10,008 |
| 187 |
|
| 38,514 |
| 33,393 |
|
Current receivables (Note 4) | 13,883 |
| 10,262 |
|
| — |
| — |
|
Financing receivables – net (Note 5) | — |
| — |
|
| 6,979 |
| 13,628 |
|
Inventories (Note 6) | 14,104 |
| 13,803 |
|
| — |
| — |
|
Other GE Capital receivables | — |
| — |
|
| 11,767 |
| 15,361 |
|
Property, plant and equipment – net (Note 7) | 14,370 |
| 14,828 |
|
| 29,649 |
| 29,510 |
|
Operating lease assets (Note 7) | 3,077 |
| — |
| | 237 |
| — |
|
Receivable from GE Capital | 19,142 |
| 22,513 |
|
| — |
| — |
|
Investment in GE Capital | 15,299 |
| 11,412 |
|
| — |
| — |
|
Goodwill (Note 8) | 25,895 |
| 33,070 |
|
| 839 |
| 904 |
|
Other intangible assets – net (Note 8) | 10,461 |
| 11,942 |
|
| 192 |
| 236 |
|
Contract and other deferred assets (Note 9) | 16,833 |
| 17,431 |
|
| — |
| — |
|
All other assets (Note 10) | 8,399 |
| 8,578 |
|
| 8,648 |
| 9,869 |
|
Deferred income taxes (Note 15) | 8,189 |
| 10,176 |
|
| 1,700 |
| 1,936 |
|
Assets of businesses held for sale (Note 2) | 8,626 |
| 1,524 |
|
| 241 |
| — |
|
Assets of discontinued operations (Note 2) | 202 |
| 59,169 |
|
| 3,907 |
| 4,610 |
|
Total assets | $ | 186,100 |
| $ | 231,526 |
|
| $ | 121,454 |
| $ | 123,939 |
|
|
|
|
|
|
|
Short-term borrowings (Note 11) | $ | 5,606 |
| $ | 5,147 |
| | $ | 12,030 |
| $ | 4,999 |
|
Short-term borrowings assumed by GE (Note 11) | 5,473 |
| 4,207 |
| | 2,104 |
| 2,684 |
|
Accounts payable, principally trade accounts | 17,702 |
| 17,579 |
|
| 886 |
| 1,171 |
|
Progress collections and deferred income (Note 9) | 20,694 |
| 19,239 |
|
| — |
| — |
|
Other GE current liabilities (Note 14) | 16,833 |
| 16,444 |
|
| — |
| — |
|
Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
|
| 1,655 |
| 1,875 |
|
Long-term borrowings (Note 11) | 15,085 |
| 20,804 |
| | 26,175 |
| 36,154 |
|
Long-term borrowings assumed by GE (Note 11) | 25,895 |
| 32,054 |
| | 17,038 |
| 19,828 |
|
Operating lease liabilities (Note 7) | 3,369 |
| — |
| | 238 |
| — |
|
Insurance liabilities and annuity benefits (Note 12) | — |
| — |
|
| 40,232 |
| 35,994 |
|
Non-current compensation and benefits | 31,208 |
| 31,461 |
|
| 472 |
| 459 |
|
All other liabilities (Note 14) | 12,787 |
| 14,881 |
|
| 5,040 |
| 7,562 |
|
Liabilities of businesses held for sale (Note 2) | 1,620 |
| 748 |
|
| 52 |
| — |
|
Liabilities of discontinued operations (Note 2) | 106 |
| 17,481 |
|
| 97 |
| 1,800 |
|
Total liabilities | 156,379 |
| 180,045 |
|
| 106,016 |
| 112,527 |
|
|
|
|
|
|
|
Preferred stock (5,939,875 shares outstanding at both December 31, 2019 and December 31, 2018) | 6 |
| 6 |
|
| 6 |
| 6 |
|
Common stock (8,738,434,000 and 8,702,227,000 shares outstanding at December 31, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
|
| — |
| — |
|
Accumulated other comprehensive income (loss) – net attributable to GE | (11,732 | ) | (14,414 | ) |
| (852 | ) | (783 | ) |
Other capital | 34,405 |
| 35,504 |
|
| 17,001 |
| 12,883 |
|
Retained earnings | 87,732 |
| 93,109 |
|
| (857 | ) | (694 | ) |
Less common stock held in treasury | (82,797 | ) | (83,925 | ) |
| — |
| — |
|
Total GE shareholders’ equity | 28,316 |
| 30,981 |
|
| 15,299 |
| 11,412 |
|
Noncontrolling interests (Note 16) | 1,406 |
| 20,499 |
|
| 139 |
| 1 |
|
Total equity | 29,721 |
| 51,480 |
|
| 15,438 |
| 11,412 |
|
Total liabilities and equity | $ | 186,100 |
| $ | 231,526 |
|
| $ | 121,454 |
| $ | 123,939 |
|
(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 CASH FLOWS | Consolidated |
For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Net earnings (loss) | $ | (4,912 | ) | $ | (22,443 | ) | $ | (8,849 | ) |
(Earnings) loss from discontinued operations | 5,335 |
| 1,363 |
| 312 |
|
Adjustments to reconcile net earnings (loss) to cash provided from operating activities: | | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 4,026 |
| 4,419 |
| 4,332 |
|
Amortization of intangible assets (Note 8) | 1,569 |
| 2,163 |
| 1,862 |
|
Goodwill impairments (Note 8) | 1,486 |
| 22,136 |
| 2,550 |
|
(Earnings) loss from continuing operations retained by GE Capital | — |
| — |
| — |
|
(Gains) losses on purchases and sales of business interests (Note 19) | (53 | ) | (1,522 | ) | (1,024 | ) |
Principal pension plans cost (Note 13) | 3,878 |
| 4,226 |
| 3,687 |
|
Principal pension plans employer contributions (Note 13) | (298 | ) | (6,283 | ) | (1,978 | ) |
Other postretirement benefit plans (net) (Note 13) | (1,228 | ) | (1,033 | ) | (888 | ) |
Provision (benefit) for income taxes (Note 15) | 726 |
| 93 |
| (2,808 | ) |
Cash recovered (paid) during the year for income taxes | (1,950 | ) | (1,404 | ) | (1,924 | ) |
Decrease (increase) in contract and other deferred assets | 62 |
| (81 | ) | (1,243 | ) |
Decrease (increase) in GE current receivables | (2,851 | ) | (358 | ) | (3,902 | ) |
Decrease (increase) in inventories | (1,109 | ) | (356 | ) | 324 |
|
Increase (decrease) in accounts payable | 2,977 |
| 1,545 |
| 169 |
|
Increase (decrease) in GE progress collections | 1,373 |
| (571 | ) | 1,912 |
|
All other operating activities | 1,388 |
| 1,317 |
| 13,308 |
|
Cash from (used for) operating activities – continuing operations | 10,419 |
| 3,210 |
| 5,840 |
|
Cash from (used for) operating activities – discontinued operations | (1,647 | ) | 1,768 |
| 714 |
|
Cash from (used for) operating activities | 8,772 |
| 4,978 |
| 6,554 |
|
| | | |
Additions to property, plant and equipment | (5,813 | ) | (6,627 | ) | (6,642 | ) |
Dispositions of property, plant and equipment | 3,718 |
| 4,093 |
| 5,530 |
|
Additions to internal-use software | (282 | ) | (320 | ) | (454 | ) |
Net decrease (increase) in GE Capital financing receivables | 1,117 |
| 1,796 |
| 805 |
|
Proceeds from sale of discontinued operations | 5,864 |
| 29 |
| 1,464 |
|
Proceeds from principal business dispositions | 4,683 |
| 8,425 |
| 3,208 |
|
Net cash from (payments for) principal businesses purchased | (68 | ) | (1 | ) | (2,722 | ) |
Capital contribution from GE to GE Capital | — |
| — |
| — |
|
All other investing activities | 1,466 |
| 11,530 |
| 5,538 |
|
Cash from (used for) investing activities – continuing operations | 10,684 |
| 18,925 |
| 6,728 |
|
Cash from (used for) investing activities – discontinued operations | (1,745 | ) | (645 | ) | (1,349 | ) |
Cash from (used for) investing activities | 8,939 |
| 18,280 |
| 5,379 |
|
| | | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | 280 |
| (4,343 | ) | 1,699 |
|
Newly issued debt (maturities longer than 90 days) | 2,185 |
| 3,120 |
| 10,879 |
|
Repayments and other reductions (maturities longer than 90 days) | (16,567 | ) | (20,319 | ) | (25,220 | ) |
Capital contribution from GE to GE Capital | — |
| — |
| — |
|
Net dispositions (purchases) of GE shares for treasury | 29 |
| (17 | ) | (2,550 | ) |
Dividends paid to shareholders | (649 | ) | (4,474 | ) | (8,650 | ) |
All other financing activities | (1,043 | ) | (1,312 | ) | (85 | ) |
Cash from (used for) financing activities – continuing operations | (15,764 | ) | (27,345 | ) | (23,927 | ) |
Cash from (used for) financing activities – discontinued operations | (368 | ) | (4,462 | ) | 5,443 |
|
Cash from (used for) financing activities | (16,133 | ) | (31,807 | ) | (18,484 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (50 | ) | (628 | ) | 891 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | 1,529 |
| (9,176 | ) | (5,659 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 35,548 |
| 44,724 |
| 50,384 |
|
Cash, cash equivalents and restricted cash at end of year | 37,077 |
| 35,548 |
| 44,724 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at end of year | 638 |
| 4,424 |
| 7,901 |
|
Cash, cash equivalents and restricted cash of continuing operations at end of year | $ | 36,439 |
| $ | 31,124 |
| $ | 36,823 |
|
Supplemental disclosure of cash flows information | | | |
Cash paid during the year for interest | $ | (3,816 | ) | $ | (4,409 | ) | $ | (4,211 | ) |
|
| | | | | | | | | | | | | | | | | | | |
STATEMENT OF CASH FLOWS (CONTINUED) | GE(a) | | GE Capital |
For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | |
Net earnings (loss) | $ | (5,373 | ) | $ | (22,931 | ) | $ | (9,288 | ) | | $ | 123 |
| $ | (1,672 | ) | $ | (6,643 | ) |
(Earnings) loss from discontinued operations | 5,335 |
| 1,363 |
| 319 |
| | (192 | ) | 1,670 |
| 312 |
|
Adjustments to reconcile net earnings (loss) to cash provided from operating activities: | | | | | | | |
Depreciation and amortization of property, plant and equipment (Note 7) | 2,001 |
| 2,290 |
| 2,050 |
| | 2,026 |
| 2,110 |
| 2,277 |
|
Amortization of intangible assets | 1,512 |
| 2,109 |
| 1,796 |
| | 57 |
| 53 |
| 65 |
|
Goodwill impairments (Note 8) | 1,486 |
| 22,136 |
| 1,165 |
| | — |
| — |
| 1,386 |
|
(Earnings) loss from continuing operations retained by GE Capital | 530 |
| 489 |
| 10,781 |
| | — |
| — |
| — |
|
(Gains) losses on purchases and sales of business interests (Note 19) | (3 | ) | (1,234 | ) | (1,024 | ) | | (50 | ) | (288 | ) | — |
|
Principal pension plans cost (Note 13) | 3,878 |
| 4,226 |
| 3,687 |
| | — |
| — |
| — |
|
Principal pension plans employer contributions (Note 13) | (298 | ) | (6,283 | ) | (1,978 | ) | | — |
| — |
| — |
|
Other postretirement benefit plans (net) (Note 13) | (1,213 | ) | (1,015 | ) | (865 | ) | | (15 | ) | (18 | ) | (23 | ) |
Provision (benefit) for income taxes (Note 15) | 1,309 |
| 467 |
| 3,493 |
| | (582 | ) | (374 | ) | (6,302 | ) |
Cash recovered (paid) during the year for income taxes | (1,904 | ) | (1,343 | ) | (2,188 | ) | | (46 | ) | (61 | ) | 264 |
|
Decrease (increase) in contract and other deferred assets | 62 |
| (81 | ) | (1,243 | ) | | — |
| — |
| — |
|
Decrease (increase) in GE current receivables | (3,904 | ) | (966 | ) | 1,040 |
| | — |
| — |
| — |
|
Decrease (increase) in inventories | (877 | ) | (364 | ) | 339 |
| | — |
| — |
| — |
|
Increase (decrease) in accounts payable | 684 |
| 1,595 |
| (46 | ) | | (44 | ) | 2 |
| (75 | ) |
Increase (decrease) in GE progress collections | 1,317 |
| (433 | ) | 1,938 |
| | — |
| — |
| — |
|
All other operating activities (Note 24) | 72 |
| 676 |
| 1,504 |
| | 605 |
| 158 |
| 11,114 |
|
Cash from (used for) operating activities – continuing operations | 4,614 |
| 701 |
| 11,479 |
| | 1,881 |
| 1,582 |
| 2,374 |
|
Cash from (used for) operating activities – discontinued operations | (49 | ) | 2,051 |
| (195 | ) | | (1,917 | ) | (415 | ) | (968 | ) |
Cash from (used for) operating activities | 4,565 |
| 2,752 |
| 11,284 |
| | (35 | ) | 1,166 |
| 1,407 |
|
| | | | | | | |
Additions to property, plant and equipment | (2,216 | ) | (2,234 | ) | (3,403 | ) | | (3,830 | ) | (4,569 | ) | (3,680 | ) |
Dispositions of property, plant and equipment | 371 |
| 271 |
| 1,186 |
| | 3,348 |
| 3,853 |
| 4,579 |
|
Additions to internal-use software | (274 | ) | (306 | ) | (423 | ) | | (8 | ) | (14 | ) | (31 | ) |
Net decrease (increase) in GE Capital financing receivables (Note 24) | — |
| — |
| — |
| | 3,389 |
| 9,986 |
| 2,897 |
|
Proceeds from sale of discontinued operations | 5,864 |
| — |
| — |
| | — |
| 29 |
| 1,464 |
|
Proceeds from principal business dispositions | 1,083 |
| 6,047 |
| 3,086 |
| | 3,938 |
| 2,011 |
| — |
|
Net cash from (payments for) principal businesses purchased | (447 | ) | (1 | ) | (2,722 | ) | | — |
| — |
| — |
|
Capital contribution from GE to GE Capital | (4,000 | ) | — |
| — |
| | — |
| — |
| — |
|
All other investing activities (Note 24) | 3,675 |
| (640 | ) | (9,439 | ) | | 2,617 |
| 482 |
| 3,013 |
|
Cash from (used for) investing activities – continuing operations | 4,056 |
| 3,138 |
| (11,715 | ) | | 9,453 |
| 11,777 |
| 8,242 |
|
Cash from (used for) investing activities – discontinued operations | (3,449 | ) | (698 | ) | 2,312 |
| | 2,023 |
| 186 |
| (1,784 | ) |
Cash from (used for) investing activities | 607 |
| 2,439 |
| (9,403 | ) | | 11,476 |
| 11,964 |
| 6,458 |
|
| | | | | | | |
Net increase (decrease) in borrowings (maturities of 90 days or less) | (595 | ) | (987 | ) | 1,808 |
| | (256 | ) | (4,308 | ) | 69 |
|
Newly issued debt (maturities longer than 90 days) | 31 |
| 6,570 |
| 16,267 |
| | 2,154 |
| 3,045 |
| 1,909 |
|
Repayments and other reductions (maturities longer than 90 days) | (6,458 | ) | (1,023 | ) | (5,579 | ) | | (11,632 | ) | (19,836 | ) | (21,007 | ) |
Capital contribution from GE to GE Capital | — |
| — |
| — |
| | 4,000 |
| — |
| — |
|
Net dispositions (purchases) of GE shares for treasury (Note 24) | 29 |
| (17 | ) | (2,550 | ) | | — |
| — |
| — |
|
Dividends paid to shareholders | (352 | ) | (4,179 | ) | (8,355 | ) | | (455 | ) | (371 | ) | (4,311 | ) |
All other financing activities (Note 24) | (312 | ) | 1,107 |
| 290 |
| | (819 | ) | (2,408 | ) | (280 | ) |
Cash from (used for) financing activities – continuing operations | (7,658 | ) | 1,470 |
| 1,881 |
| | (7,007 | ) | (23,878 | ) | (23,619 | ) |
Cash from (used for) financing activities – discontinued operations | (368 | ) | (4,462 | ) | 3,534 |
| | (1 | ) | — |
| 1,909 |
|
Cash from (used for) financing activities | (8,026 | ) | (2,992 | ) | 5,415 |
| | (7,008 | ) | (23,878 | ) | (21,710 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (56 | ) | (494 | ) | 444 |
| | 6 |
| (134 | ) | 447 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | (2,911 | ) | 1,706 |
| 7,739 |
| | 4,439 |
| (10,882 | ) | (13,399 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 20,528 |
| 18,822 |
| 11,083 |
| | 15,020 |
| 25,902 |
| 39,301 |
|
Cash, cash equivalents and restricted cash at end of year | 17,617 |
| 20,528 |
| 18,822 |
| | 19,460 |
| 15,020 |
| 25,902 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at end of year | 4 |
| 3,896 |
| 7,144 |
| | 633 |
| 528 |
| 757 |
|
Cash, cash equivalents and restricted cash of continuing operations at end of year | $ | 17,613 |
| $ | 16,632 |
| $ | 11,678 |
| | $ | 18,826 |
| $ | 14,492 |
| $ | 25,145 |
|
Supplemental disclosure of cash flows information | | | | | | | |
Cash paid during the year for interest | $ | (1,975 | ) | $ | (2,201 | ) | $ | (2,347 | ) | | $ | (2,632 | ) | $ | (2,883 | ) | $ | (2,793 | ) |
(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.
|
| | | | | | | | | |
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES | | | |
STATEMENT OF COMPREHENSIVE INCOME (LOSS) For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Net earnings (loss) | $ | (4,912 | ) | $ | (22,443 | ) | $ | (8,849 | ) |
Less net earnings (loss) attributable to noncontrolling interests | 66 |
| (89 | ) | (365 | ) |
Net earnings (loss) attributable to the Company | $ | (4,979 | ) | $ | (22,355 | ) | $ | (8,484 | ) |
| | | |
Investment securities | $ | 100 |
| $ | 64 |
| $ | (776 | ) |
Currency translation adjustments | 1,275 |
| (1,664 | ) | 2,178 |
|
Cash flow hedges | 36 |
| (51 | ) | 51 |
|
Benefit plans | 1,229 |
| 1,416 |
| 2,782 |
|
Other comprehensive income (loss) | 2,641 |
| (235 | ) | 4,236 |
|
Less other comprehensive income (loss) attributable to noncontrolling interests | (40 | ) | (225 | ) | 51 |
|
Other comprehensive income (loss) attributable to the Company | $ | 2,681 |
| $ | (10 | ) | $ | 4,184 |
|
| | | |
Comprehensive income (loss) | $ | (2,272 | ) | $ | (22,678 | ) | $ | (4,613 | ) |
Less comprehensive income (loss) attributable to noncontrolling interests | 26 |
| (314 | ) | (314 | ) |
Comprehensive income (loss) attributable to the Company | $ | (2,297 | ) | $ | (22,364 | ) | $ | (4,300 | ) |
|
| | | | | | | | | | | |
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES |
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In millions) | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | |
Preferred stock issued | $ | 6 |
| | $ | 6 |
| | $ | 6 |
|
Common stock issued | $ | 702 |
| | $ | 702 |
| | $ | 702 |
|
| | | | | |
Beginning balance | (14,414 | ) | | (14,404 | ) | | (18,588 | ) |
Investment securities | 100 |
| | 63 |
| | (777 | ) |
Currency translation adjustments | 1,315 |
| | (1,472 | ) | | 2,145 |
|
Cash flow hedges | 35 |
| | (49 | ) | | 50 |
|
Benefit plans | 1,231 |
| | 1,448 |
| | 2,766 |
|
Accumulated other comprehensive income (loss) ending balance | $ | (11,732 | ) | | $ | (14,414 | ) | | $ | (14,404 | ) |
Beginning balance | 35,504 |
| | 37,384 |
| | 37,224 |
|
Gains (losses) on treasury stock dispositions | (925 | ) | | (759 | ) | | (304 | ) |
Stock-based compensation | 475 |
| | 413 |
| | 358 |
|
Other changes | (649 | ) | | (1,534 | ) | | 106 |
|
Other capital ending balance | $ | 34,405 |
| | $ | 35,504 |
| | $ | 37,384 |
|
Beginning balance | 93,109 |
| | 117,245 |
| | 133,857 |
|
Net earnings (loss) attributable to the Company | (4,979 | ) | | (22,355 | ) | | (8,484 | ) |
Dividends and other transactions with shareholders | (766 | ) | | (4,042 | ) | | (8,130 | ) |
Changes in accounting (Note 1) | 368 |
| | 2,261 |
| | 2 |
|
Retained earnings ending balance | $ | 87,732 |
| | $ | 93,109 |
| | $ | 117,245 |
|
Beginning balance | (83,925 | ) | | (84,902 | ) | | (83,038 | ) |
Purchases | (57 | ) | | (268 | ) | | (3,849 | ) |
Dispositions | 1,186 |
| | 1,244 |
| | 1,985 |
|
Common stock held in treasury ending balance | $ | (82,797 | ) | | $ | (83,925 | ) | | $ | (84,902 | ) |
GE shareholders' equity balance | 28,316 |
| | 30,981 |
| | 56,031 |
|
Noncontrolling interests balance (Note 16) | 1,545 |
| | 20,500 |
| | 17,468 |
|
Total equity balance at December 31(a) | $ | 29,861 |
| | $ | 51,481 |
| | $ | 73,499 |
|
| |
(a) | Total equity balance decreased by $(43,638) million from December 31, 2017, primarily due to non-cash after-tax goodwill impairment charge of $(22,371) million in 2018, reduction of noncontrolling interest balance of $(15,836) million attributable to Baker Hughes Class A shareholders at December 31, 2017 and after-tax loss of $(8,238) million in discontinued operations due to deconsolidation of Baker Hughes in 2019, partially offset by after-tax gain of $2,508 million in discontinued operations due to spin-off and subsequent merger of our Transportation business with Wabtec in 2019. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our financial statements consolidate all of our affiliates – entities in which we have a controlling financial interest, most often because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (VIE) model to the entity, otherwise, the entity is evaluated under the voting interest model.
Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE.
We hold a controlling financial interest in other entities where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights or as a general partner. Where we are a general partner, we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change.
Associated companies are unconsolidated VIEs and other entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Our share of the results of associated companies are presented on a one-line basis. Investments in, and advances to, associated companies are presented on a one-line basis in the caption "All other assets" in our Statement of Financial Position, net of allowance for losses, which represents our best estimate of probable losses inherent in such assets.
FINANCIAL STATEMENT PRESENTATION
PRESENTATION.We have reclassified certain prior-year amounts to conform to the current-year'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.
Upon closing an acquisition, we consolidate the acquired business as soon as practicable. The size, scope and complexity of an acquisition can affect the time necessary to adjust the acquired company's accounting policies, procedures, and books and records to our standards. Accordingly, it is possible that changes will be necessary to the carrying amounts and presentation of assets and liabilities inpresent our financial statements asin 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 acquired company is fully assimilated.
Financial data and related measurements are presented in the following categories:
GE. This represents 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.
GE Capital. This refers to GE Capital Global Holdings, LLC (GECGH), or its predecessor General Electric Capital Corporation (GECC), and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates.
Consolidated. This represents the adding together of GE and GE Capital, giving effect to the elimination ofextent that we have transactions between GE and GE Capital.
Operating Segments. These compriseCapital, these transactions are made on arm's length terms, are reported in the respective columns of our eight businesses, focused on the broad markets they serve: Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation, Energy Connections & Lighting and Capital.
Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. and are eliminated in consolidation. See Note 2.25 for further information.
The effects of translating to U.S. dollars theOur financial statements of non-U.S. affiliates whose functional currency is other than the U.S. dollar are included in shareowners' equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.
Preparing financial statementsprepared 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 conditions and how we expect them to change in theexpected future as appropriate,conditions, it is reasonably possible that actual conditions could be worse than anticipated in those estimates,differ from our expectations, which could materially affect our results of operations and financial position. Among other effects, such changes could result
We have reclassified certain prior-year amounts to conform to the current-year’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 future impairmentsmillions. Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations. Certain of investment securities, goodwill, intangiblesour 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 long-lived assets, incremental losses on financing receivables, establishment of valuation allowances on deferred tax assets, incremental fair value marks on businesses and assetsfinancial results as discontinued operations when the components meet the criteria for held for sale, carried at lower of costare sold, or market, and increased tax liabilities and insurance reserves.spun-off. See Note 2 for further information.
ACCOUNTING PRINCIPLES AND POLICIES
CONSOLIDATION.Our financial statements consolidate all of our affiliates, entities where we have a controlling financial interest, most often because we hold a majority voting interest, or where we are preparedrequired to apply the variable interest entity (VIE) model
because we have the power to direct the most economically significant activities of entities. We reevaluate whether we have a controlling financial interest in conformity with GAAP.all entities when our rights and interests change.
SALESREVENUES FROM THE SALE OF
GOODS AND SERVICESEQUIPMENT
Performance Obligations Satisfied Over Time. We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectability of the fixed or determinable sales price is reasonably assured.
Arrangementsrecognize revenue on agreements for the sale of customized goods including power generation equipment, long-term construction projects and services sometimes include multiple components. Mostmilitary development contracts on an over-time basis as we customize the customer's equipment during the manufacturing or integration process and obtain right to payment for work performed.
We recognize revenue as we perform under the arrangements using the percentage of completion method which is based on our costs incurred to date relative to our estimate of total expected costs. Our estimate of costs to be incurred to fulfill our promise to a customer is based on our history of manufacturing or constructing similar assets for customers and is updated routinely to reflect changes in quantity or pricing of the inputs. We provide for potential losses on these agreements when it is probable that we will incur the loss.
Our billing terms for these over-time contracts are generally based on achieving specified milestones. The differences between the timing of our multiple component arrangements involve the sale of goodsrevenue recognized (based on costs incurred) and servicescustomer billings (based on contractual terms) results in the Healthcare segment. Our arrangements with multiple components usually involve an upfront deliverable of large machinerychanges to our contract asset or contract liability positions. See Note 9 for further information.
Performance Obligations Satisfied at a Point in Time. We recognize revenue on agreements for non-customized equipment including commercial aircraft engines, healthcare equipment and future service deliverables such as installation, commissioning, training orother goods we manufacture on a standardized basis for sale to the futuremarket at the point in time that the customer obtains control of the good, which is generally no earlier than when the customer has physical possession of the product. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of ancillary products. In most cases, the relative valuesother equipment is estimated based on historical averages of the undelivered components are not significant to the overall arrangementin-transit periods (i.e., time between shipment and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e., discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, we use our best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.
delivery).
Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. In arrangements where we sell products that provide the customer with a right of return, we use our accumulated experience to estimate and provide for such returns when we record the sale. In situations whereWhere arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have reliably demonstratedconcluded that all specifiedthe customer has control of the goods and that acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where we provide goods for trial and evaluation purposes, we only recognize revenue after customer acceptance occurs. Unless otherwise noted, weis likely to occur. We do not provide for anticipated losses beforeon point-in-time transactions prior to transferring control of the equipment to the customer.
Our billing terms for these point-in-time equipment contracts generally coincide with delivery to the customer; however, within certain businesses, we record sales.receive progress collections from customers for large equipment purchases, to generally reserve production slots.
REVENUES FROM THE SALE OF SERVICES.Consistent with our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discussion and the way we manage our businesses, we refer to sales under service agreements, which includes 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 sometimes offer our customers financing discounts for the purchase of certain GE products when sold in contemplation of long-term service agreements. These sales are accounted for as financing arrangements when payments for the products are collected through higher usage-based fees from servicing the equipment. See Note 9 for further information.
Performance Obligations Satisfied Over Time. We enter into long-term service agreements with our customers primarily within our Aviation and Power segments. These agreements require us to provide preventative maintenance, overhauls, and standby "warranty-type" services that include certain levels of assurance regarding asset performance and uptime throughout the contract periods, which generally range from 5 to 25 years. We account for items that are integral to the maintenance of the equipment as part of our performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade).
GE 20162019 FORM 10-K 141 69
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts, nuclear fuel assemblies, larger oil drilling equipment projects, aeroderivative unit contracts, military development contracts, locomotive production contracts, and long-term construction projects, using long-term construction and production contract accounting. We estimate total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts, military development contracts and locomotive production contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title toperform under the goods or acceptarrangements using the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize salespercentage of completion method which is based on our progress toward contract completion measured by actual costs incurred in relationto date relative to our estimate of total expected costs. WeThroughout the life of a contract, this measure long-term contract revenues by applyingof progress captures the nature, timing and extent of our contract-specific estimated margin rates to incurred costs. We routinely updateunderlying performance activities as our estimates of future costs for agreements in processstand-ready services often fluctuate between routine inspections and report any cumulative effects of such adjustments in current operations.maintenance, unscheduled service events and major overhauls at pre-determined usage intervals. We provide for any loss that we expect to incurpotential losses on these agreements when it is probable that loss is probable.
we will incur the loss. Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract).
We recognize revenueOur billing terms for these arrangements are generally based on the utilization of the asset (e.g., per hour of usage) or upon delivery for sales of aircraft engines and military propulsion equipment. Delivery of commercial engines and non-U.S. military equipment occurs on shipment; delivery of military propulsion equipment sold to the U.S. government or agencies thereof occurs upon receiptoccurrence of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. We measure sales of commercial aircraft engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future revenues and costs for commercial aircraft engine agreements in process and report any cumulative effects ofmajor maintenance event within the contract, such adjustments in current operations. Significant componentsas an overhaul. The differences between the timing of our revenue recognized (based on costs incurred) and cost estimates include price concessions and performance-related guarantees as well as material, labor and overhead costs. customer billings (based on contractual terms) results in changes to our contract asset or contract liability positions. See Note 9 for further information.
We measure revenue for military propulsion equipment and spare parts not subject toalso enter into long-term product services agreements based on the specific contract on a specifically measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts and services for those engines.
We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Power, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell similar long-term product services in our Healthcare and Renewable Energy segments, where such costs generallysegments. Revenues are expected to be incurred on a straight-line basis. For the Aviation, Power, Oil & Gas and Transportation agreements, we recognize related sales based on the extent of our progress toward completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costsrecognized for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare and Renewable Energy agreements, we recognize revenuesthese arrangements on a straight-line basis consistent with the nature, timing and expense related costsextent of our services, which primarily relate to routine maintenance and as incurred.needed product repairs. We provide for any lossgenerally invoice periodically as services are provided.
Performance Obligations Satisfied at a Point in Time. We sell certain tangible products, largely spare parts, through our services businesses. We recognize revenues and bill our customers at the point in time that the customer obtains control of the good, which is at the point in time we expectdeliver the spare part to incur on anythe customer.
COLLABORATIVE ARRANGEMENTS. Our Aviation business enters into collaborative arrangements and joint ventures with manufacturers and suppliers of components used to build and maintain certain engines. Under these arrangements, GE and its collaborative partners share in the risks and rewards of these agreements when that lossprograms through various revenue, cost and profit sharing payment structures. GE recognizes revenue and costs for these arrangements based on the scope of work GE is probable.responsible for transferring to its customers. GE’s payments to participants are primarily recorded as either cost of services sold ($1,939 million, $1,809 million and $1,884 million for the years ended December 31, 2019, 2018 and 2017, respectively) or as cost of goods sold ($2,974 million, $3,097 million and $2,806 million for the years ended December 31, 2019, 2018 and 2017, respectively). Our most significant collaborative arrangement is with Safran Aircraft engines, a subsidiary of Safran Group of France, which sells LEAP and CFM56 engines through CFM International, a jointly owned company. GE makes substantial sales of parts and services to CFM International based on arm's length terms.
GE CAPITAL REVENUES FROM SERVICES (EARNED INCOME)
SERVICES. We use the interest method to recognize income on loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. Previously recognized interest income that was accrued but not collected from the borrower is reversed, unless the terms of the loan agreement permit capitalization of accrued interest to the principal balance. Payments received on nonaccrual loans are applied to reduce the principal balance of the loan.
We resume accruing interest on nonaccrual non-restructured commercial loans only when (a) payments are brought current according to the loan'sloan’s original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when it is reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans.
We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management's best estimates of the value of the leased asset at the end of the lease term. We use various sources of data in determining these estimates, including information obtained from third parties, which is adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are included within minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices, discounted at an appropriate rate.
We recognize operating lease income on a straight-line basis over the terms of underlying leases.
BUSINESSES AND ASSETS HELD FOR SALE
Businesses and assets held for sale represent components that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment must be classified as assets held for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new cost basis at the date of transfer.
The determination of fair value for businesses and assets held for sale involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions, negotiations with third party purchasers etc. Such factors bear directly on the range of potential fair values and the selection of the best estimates. Key assumptions were developed based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction.
We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.
DEPRECIATION AND AMORTIZATION
The cost of GE manufacturing plant and equipment is generally depreciated on a straight-line basis over its estimated economic life.
The cost of GE Capital equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment.
LOSSES ON FINANCING RECEIVABLES
Our financing receivables portfolio consists of a variety of loans and leases, including both larger-balance, non-homogeneous loans and leases and smaller-balance homogeneous loans and leases. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment.
Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the related financing receivable. Such an estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values, and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that we will experience credit losses that are different from our current estimates. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible and subsequent recoveries are added to the allowance at the time cash is received on a written-off account.
PARTIAL SALES OF BUSINESS INTERESTS IN WHICH WE LOSE CONTROL. Gains or losses on sales of affiliate shares that result in our loss of a controlling financial interest are recorded in earnings. If we retain a noncontrolling interest in our former affiliate, we initially record our investment at fair value, and any subsequent adjustments to the carrying value of the investment are recorded in earnings.
SALES OF BUSINESS INTERESTS IN WHICH WE RETAIN CONTROL. Gains or losses on sales of affiliate shares where we retain a controlling financial interest are recorded in equity. Gains or losses on sales that result in our loss of a controlling financial interest are recorded in earnings along with remeasurement gains or losses on any investments in the entity that we retained.
CASH, CASH EQUIVALENTS AND EQUIVALENTS
RESTRICTED CASH. Debt securities and money market instruments with original maturities of three months or less are included in cash, cash equivalents and restricted cash unless designatedclassified as available-for-sale and classified as investment securities.
Restricted cash primarily comprised collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters and amounted to $589 million and $388 million at December 31, 2019 and December 31, 2018, respectively.
SECURITIES. We report investments in available-for-sale debt and marketable equity securities and certain other equity securities at fair value. See Note 19 for further information on fair value. Unrealized gains and losses on available-for-sale investmentdebt securities are included in shareowners' equity,recorded to other comprehensive income, net of applicable taxes and other adjustments.adjustments related to our insurance liabilities. Unrealized gains and losses on equity securities with readily determinable fair values are recorded to earnings.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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.
We regularly review investment securities for impairment using both quantitative and qualitative criteria.impairment. For debt securities, if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria, such as the financial health of and specific prospects for the issuer, to determine whether we do not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. We also evaluate quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired (OTTI), and we record the difference between the security'ssecurity’s amortized cost basis and its recoverable amount in earnings and the difference between the security'ssecurity’s recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is also considered OTTI, and we recognize the entire difference between the security'ssecurity’s amortized cost basis and its fair value in earnings. For equity securities, we considerSee Note 3 for further information.
CURRENT RECEIVABLES.Amounts due from customers arising from the lengthsales of timeproducts and magnitudeservices are recorded at the outstanding amount, less allowance for losses. We regularly monitor the recoverability of our receivables. See Note 4 for further information.
FINANCING RECEIVABLES. Our financing receivables portfolio consists of a variety of loans and leases, including both larger-balance, non-homogeneous loans and leases and smaller-balance homogeneous loans and leases. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment. Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the amount that each security is in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security's amortized cost basis and its fair value in earnings.
portfolio. See Note 5 for further information.
Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.
INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for a portion of GE U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories isprimarily determined on a first-in, first-out (FIFO) basis. LIFO was usedSee Note 6 for 34%further information.
PROPERTY, PLANT AND EQUIPMENT. The cost of GE inventoriesproperty, plant and equipment is generally depreciated on a straight-line basis over its estimated economic life. The cost of GE Capital equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment. See Note 7 for further information.
LEASE ACCOUNTING. We determine if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified we reevaluate our classification.
Lessee.At lease commencement, we record a lease liability and corresponding right-of-use (ROU) asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. We have elected to include lease and non-lease components in both 2016determining 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 payments based on an index, the lease liability is determined using the index at lease commencement. Lease payments based on increases in the index subsequent to lease commencement are recognized as variable lease expense as they occur. The present value of our 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 2015.are recognized in an amount equal to the lease liability. Over the lease term we use the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to earnings in a manner that results in a straight-line expense recognition in the Statement of Earnings. A ROU asset and lease liability is not recognized for leases with an initial term of 12 months or less and we recognize lease expense for these leases on a straight-line basis over the lease term. We test ROU assets at least annually for impairment or whenever events or changes in circumstance indicate that the asset may be impaired.
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 Statement of Financial Position. Finance lease receivables are tested for impairment as described in the Financing Receivables section above. See Notes 5 and 7 for further information.
GOODWILL AND OTHER INTANGIBLE ASSETS
ASSETS. We do not amortizetest goodwill but test it at least annually for impairment at the reporting unit level. A reporting unit is the operating segment, or one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value and the carrying amount of the reporting unit'sunit’s goodwill exceeds the implied fair value of that goodwill. We use a market approach, when available and appropriate, or the income approach, or a combination of both to establish fair values. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
We amortize the cost of
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
For other intangibles over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets that are not deemed indefinite-lived, cost is generally amortized on a straight-line basis over the asset'sasset’s estimated economic life, except thatfor individually significant customer-related intangible assets that are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to estimated fair value based on either discounted cash flows or appraised values. IntangibleSee Note 8 for further information.
ASSOCIATED COMPANIES. For unconsolidated entities over which we have significant influence and have not elected the fair value option, we account for our interest as equity method investments, and our investments in, and advances to, associated companies are presented on a one-line basis in All other assets with indefinite lives are tested annuallyin our consolidated Statement of Financial Position, net of any impairment. We evaluate our equity method investments for impairment and written downwhenever events or changes in circumstance indicate that the carrying amounts of such investments may not be recoverable. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. Our share of the results of associated companies are presented on a one-line basis in Other income within continuing operations in our consolidated Statement of Earnings (Loss). See Note 10 for further information.
Where we adopt the fair value option for our investment in an associated company, our investment in and any advances to are recorded in Investment securities in our consolidated Statement of Financial Position and any subsequent changes in fair value are recognized in Other income within continuing operations in our consolidated Statement of Earnings (Loss). See Note 3 for further information.
DERIVATIVES AND HEDGING. We use derivatives to manage a variety of risks, including risks related to interest rates, foreign exchange and commodity prices. Accounting for derivatives as required.hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. In evaluating whether a particular relationship qualifies for hedge accounting, we test effectiveness at inception and each reporting period thereafter by determining whether changes in the fair value of the derivative offset, within a specified range, changes in the fair value of the hedged item. If fair value changes fail this test, we discontinue applying hedge accounting to that relationship prospectively. Fair values of both the derivative instrument and the hedged item are calculated using internal valuation models incorporating market-based assumptions, subject to third-party confirmation, as applicable. See Note 21 for further information.
GE 2016 FORM 10-K 144
BUSINESSES AND ASSETS HELD FOR SALE. Businesses and assets held for sale represent components that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment are classified as assets held for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new cost basis at the date of transfer.
The determination of fair value for businesses and assets held for sale involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions and negotiations with third-party purchasers. Such factors bear directly on the range of potential fair values and the selection of the best estimates. Key assumptions were developed based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction. We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values, less cost to sell. See Note 2 for further information.
INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
BENEFITS. Our run-off insurance activitiesoperations include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primaryPrimary product types are provided: traditionalinclude long-term care, structured settlement annuities, life and disability insurance contracts and investment contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks.
For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts, including long-term care, term, whole life and annuities payable for the life of the annuitant, we report premiums as earned incomerevenue when due.
Premiums received on non-traditional long-duration insurance contracts and investment contracts, (includingincluding annuities without significant mortality risk)risk, are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Liabilities for traditional long-duration insurance contracts includes both future policy benefit reserves and claims reserves. Future policy benefit reserves represent the present value of suchfuture policy benefits less the present value of future netgross premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired.actuarial assumptions. Liabilities for investment contracts equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date.
Liabilities for unpaid claimsClaim reserves are established when a claim is incurred or is estimated to have been incurred and estimated claim settlement expenses representrepresents our best estimate of the present value of the ultimate obligations for reportedfuture claim payments and incurred-but-not-reported claimsclaim adjustments expenses.
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 offsetting after-tax reduction to net unrealized gains recorded in other comprehensive income. See Note 12 for further information.
POSTRETIREMENT BENEFIT PLANS. We sponsor a number of pension and retiree health and life insurance benefit plans that we present in three categories, principal pension plans, other pension plans and principal retiree benefit plans. We use a December 31 measurement date for these plans. On our consolidated Statement of Financial Position, we measure our plan assets at fair value and the relatedobligations at the present value of the estimated claim settlement expenses. Liabilitiespayments to plan participants. Participants earn benefits based on their service and pay. Those estimated future payment amounts are determined based on assumptions. Differences between our actual results and what we assumed are recorded in a separate component of equity each period. These differences are amortized into earnings over the remaining average future service of active employees or the expected life of inactive participants, as applicable, who participate in the plan. See Note 13 for unpaid claimsfurther information.
LOSS CONTINGENCIES.Loss contingencies are uncertain and estimated claim settlement expensesunresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are continually reviewednot limited to environmental obligations, litigation, regulatory investigations and adjusted through current operations.proceedings, product quality and losses resulting from other events and developments. When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, and when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. See Note 23 for further information.
SUPPLY CHAIN FINANCE PROGRAMS. We evaluate supply chain finance programs to ensure where we use a third-party intermediary to settle our trade payables, their involvement does not change the nature, existence, amount, or timing of our trade payables and does not provide the Company with any direct economic benefit. If any characteristics of the trade payables change or we receive a direct economic benefit, we reclassify the trade payables as borrowings.
FAIR VALUE MEASUREMENTS
MEASUREMENTS.The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value including certain assets within our pension plans and retiree benefit plans. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These inputs establish a fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Significant inputs to the valuation model are unobservable.
RECURRING FAIR VALUE MEASUREMENTS.For financial assets and liabilities measured at fair value on a recurring basis, primarily investment securities and derivatives, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.See Note 20 for further information.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 – | Quoted prices for identical instruments in active markets. |
Level 2 – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
Level 3 – | Significant inputs to the valuation model are unobservable. |
We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. With regard to Level 3 valuations (including instruments valued by third parties), we perform a variety of procedures to assess the reasonableness of the valuations. Such reviews include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. These reviews are performed within each business by the asset and risk managers. A detailed review of methodologies and assumptions is performed by individuals independent of the business for individual measurements with a fair value exceeding predefined thresholds. This detailed review may include the use of a third-party valuation firm.
RECURRING FAIR VALUE MEASUREMENTS
The following sections describe the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.
Investments in Debt and Equity Securities. When available, we use quoted market prices to determine the fair value of investmentdebt securities and theywhich are included in Level 1. Level 1For our remaining debt securities, primarily include publicly traded equity securities.
For large numbers of investment securities for which market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually (that is, it is difficult to obtain pricing information for each individual investment security at the measurement date), we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendorvendor’s models are derived from market observable sources including:including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our2. Our pricing vendors may also provide us with valuations that are based on significant unobservable inputs, and in those circumstances, we classify the investment securities in Level 3.
Annually, we conduct reviews of our primary pricing vendor to validate that the inputs used in that vendor'svendor’s pricing process are deemed to be market observable as defined in the standard. While we are not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our reviews also include an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We use non-binding broker quotes and other third-party pricing services as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. InvestmentDebt securities priced using non-binding broker quotes and other third-party pricing servicesin this manner are included in Level 3. As is the case
Equity securities with our primary pricing vendor, third-party brokersreadily determinable fair values. These publicly traded equity securities are valued using quoted prices and other third-party pricing services do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct reviews of vendors, as applicable, similar to the reviews performed of our primary pricing vendor. In addition, we conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers and other third-party pricing services are representative of prices that would be received to sell the assets at the measurement date (exit prices).
Derivatives. We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.1.
Derivatives.The majority of our derivatives are valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.
Derivative assets and liabilities included in Level 3 primarily represent equity derivatives and interest rate products that contain embedded optionality or prepayment features.
NON-RECURRING FAIR VALUE MEASUREMENTS
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis and for certain assets within our pension plans and retiree benefit plans at each reporting period, as applicable.
Financing Receivables and Loans Held for Sale. When available, we use observable market data, including pricing on recent closed market transactions, to value loans that are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans may be valued using collateral values (see Long-Lived Assets below).
Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. These investments are generally included in Level 3.
Investments in private equity, real estate and collective funds held within our pension plans. These investments are generally valued using the net asset value (NAV) per share as a practical expedient for fair value provided certain criteria are met. The NAVs are determined based on the fair values of the underlying investments in the funds. On January 1, 2016, we adopted guidance whereby investmentsInvestments that are measured at fair value using the NAV practical expedient are no longernot required to be classified in the fair value hierarchy.
NONRECURRING FAIR VALUE MEASUREMENTS. Certain assets are measured at fair value on a nonrecurring basis. These assets may include loans and long-lived assets reduced to fair value upon classification as held for sale, impaired loans based on the fair value of the underlying collateral, impaired equity securities without readily determinable fair value, equity method investments and long-lived assets, and remeasured retained investments in formerly consolidated subsidiaries upon a change in control that results in the deconsolidation of that subsidiary and retention of a noncontrolling stake in the entity. Assets written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs. See Note 20 for further information.
Equity investments without readily determinable fair value and Associated companies. Equity investments without readily determinable fair value and associated companies are valued using market observable data such as transaction prices when available. When market observable data is unavailable, investments are valued using either a discounted cash flow model, comparative market multiples, third-party pricing sources or a combination of these approaches as appropriate. These investments are generally included in Level 3.
Long-lived Assets.Fair values of long-lived assets, including aircraft, are primarily derived internally and are based on observed sales transactions for similar assets. In other instances for example, collateral types for which we do not have comparable observed sales transaction data, collateral values are developed internally and corroborated by external appraisal information. Adjustments to third-party valuations may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information.information.
Retained Investments in Formerly Consolidated Subsidiaries. Upon a change in control that results in deconsolidation of a subsidiary, the fair value measurement of our retained noncontrolling stake is valued using market observable data such as quoted prices when available, or if not available, an income approach, a market approach, or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium. These investments are generally included in LevelACCOUNTING CHANGES.On January 1, or Level 3, as appropriate, determined at the time of the transaction.
On September 30, 2016,2019, we adopted ASU 2016-09, ImprovementsNo. 2016-02 and related amendments, Leases (Topic 842). Upon adoption, we recorded a $315 million increase to Employee Share-Based Payment Accounting, which was intendedretained earnings, primarily attributable to simplify several aspectsthe release of the accountingdeferred gains on sale-lease back transactions. Our ROU assets and lease liabilities for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
We adopted the standard on a prospective basis with the effect of adoption reflected for the interim periods after the year beginning January 1, 2016 as required by the standard. The primary effects ofoperating leases at adoption were the recognition of excess tax benefits in our provision$3,272 million and $3,459 million, respectively, excluding discontinued operations and businesses held for income taxes rather than paid-in capital and the reclassification of cash flows related to excess tax benefits from a financing activity to an operating activity for the periods beginning January 1, 2016. We will continue to estimate the number of awards that are expected to vest in our determination of the related periodic compensation cost.
As a result ofsale. After the adoption our provision for income taxes decreased by $97 million for the nine months ended September 30, 2016, for the excess tax benefits related to share-based payments in its provision for income taxes. Application of the cash flow presentation requirements from January 1, 2016, resulted in an increase to cashdate, principal collections on financing leases are classified as Cash from operating activities and a decrease to cashin our consolidated Statement of Cash Flows. Previously, such flows were classified as Cash from financinginvesting activities of $137 million for the nine months ended September 30, 2016..
On January 1, 2016,2019, we adopted ASU 2015-16, Simplifying theNo. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Measurement-Period Adjustments, which eliminated the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. See Note 8 for further discussion of the purchase accounting effects of recent acquisitions.
On January 1, 2016, we adoptedHedging Activities. The ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similarcertain changes to the presentation of debt premiumshedge accounting in the financial statements and discounts.some new or modified disclosures. The ASU 2015-03 applies retrospectivelyalso simplifies the application of hedge accounting and does not changeexpands the recognition and measurement requirementsstrategies that qualify for debt issuance costs.hedge accounting. The adoption of ASU 2015-03 resulted in the reclassification of $674 million of unamortized debt issuance costs related to the Company's borrowings from all other assets to short-term and long-term borrowings withinhad an immaterial effect on our consolidated balance sheet as of December 31, 2015.financial statements.
On January 1, 2016, we adopted ASU 2015-02, Amendments to the Consolidation Analysis. The ASU amended the consolidation guidance for VIEs and general partners' investment in limited partnerships and modified the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities.
Upon adoption, we deconsolidated three investment funds managed by GE Asset Management (GEAM) that had been accounted for under the guidance prior to the issuance of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, by virtue of the deferral provided by ASU 2010-10, Amendments for Certain Investment Funds. We concluded that GEAM's management contracts were no longer variable interests in the three investment funds and therefore continued consolidation was not appropriate. We deconsolidated net assets and noncontrolling interests of $123 million, respectively.
In addition, many of the limited partnerships in which Energy Financial Services invests became VIEs because the limited partners have no participating rights or substantive removal rights over the general partners. The general partners continue to control these limited partnerships, however, our disclosed exposure to unconsolidated VIEs in Note 21 increased by $6,110 million as a result.
On January 1, 2014, we adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under the new guidance, an unrecognized tax benefit is required to be presented as a reduction to a deferred tax asset if the disallowance of the tax position would reduce the available tax loss or tax credit carryforward instead of resulting in a cash tax liability. The ASU applies prospectively to all unrecognized tax benefits that exist as of the adoption date and reduced both deferred tax assets and income tax liabilities (including amounts reported in assets and liabilities of discontinued operations) by $1,224 million as of January 1, 2014.
ACCELERATED SHARE REPURCHASE AGREEMENTS
During 2016, we entered into accelerated share repurchase (ASR) agreements to repurchase shares of GE common stock. Under an ASR agreement, the Company pays a specified amount to a financial institution and receives an initial delivery of shares based on the terms of the agreement. Upon settlement of the agreement, the financial institution delivers additional shares, or the Company returns shares, with the final net number of shares calculated based on the volume-weighted average price of GE common stock over the term of the agreement, less an agreed upon discount. When certain conditions are met, the transaction is accounted for as an equity transaction and the shares are included in treasury stock when received, at which time there is an immediate reduction in the weighted- average number of common shares used in calculating earnings per share. See Note 15 for additional information.
NOTE 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
SALE.In August 2019, we announced an agreement to sell PK AirFinance, an aviation lending business within our Capital segment, to Apollo Global Management, LLC and Athene Holding Ltd. The sale of a substantial portion of the assets and liabilities was completed in the fourth quarter for proceeds of 2016,$3,575 million, and we classified our Water business within our Power segment withrecognized a pre-tax gain of $50 million. As of December 31, 2019, we had remaining assets of $1,617$241 million (including Cash, cash equivalents and restricted cash of $45 million) and liabilities of $656$52 million for this business classified as held for sale. We expect to complete athe sale of these remaining assets in the business within the next twelve months.first half of 2020.
In the third quarter of 2016, we classified a business at Aviation with assets of $601 million and liabilities of $58 million, as held for sale and adjusted the carrying value of the business to fair value, which resulted in a $145 million after-tax loss (including a $120 million loss on the planned disposal). In the fourth quarter of 2016, we ceased negotiations with the potential buyer due to economic and strategic reasons, and concluded that a sale of the business within the next twelve months was no longer probable. As a result, we reclassified the business to held and used and reversed through income approximately $50 million of the after-tax loss recorded in the third quarter of 2016 primarily related to allocated goodwill that is not impaired and retained customer contracts.
On March 30, 2016,February 2019, we announced an agreement to sell GE Asset Management (GEAM), GE's asset management arm with assets under managementour BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $100 billion,$21,400 million, subject to State Street Corporation. On July 1, 2016,certain adjustments. As of December 31, 2019, we completedhad assets of $8,742 million (including goodwill of $5,549 million) and liabilities of $1,372 million for this business classified as held for sale. We expect to complete the sale, for proceeds of $437 million and recognized an after-tax gain of $260 million. Duringsubject to regulatory approval, in the fourthfirst quarter of 2016, net sale proceeds associated with U.S. pension plans of $330 million were deposited into the GE Pension Trust, increasing trust assets used to pay GE Pension Plan benefits.2020.
On January 15, 2016,In 2018, we announced the signing ofsigned an agreement to sell Energy Financial Services' (EFS) debt origination business within our Appliances businessCapital segment, to Qingdao Haier Co., Ltd. (Haier). On June 6, 2016, weStarwood Property Trust, Inc. The sale was completed the sale for proceeds of $5,568$2,011 million (including $773and we recognized a pre-tax gain of $288 million.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In November 2017, the Company announced its intention to exit approximately $20 billion of industrial assets. Since this announcement, we have classified various businesses across our Power, Aviation, and Healthcare segments, and Corporate as held for sale. In 2019, we closed certain of these transactions within Corporate and our Power and Aviation segments for total net proceeds of $1,070 million from, recognized a pre-tax gain of $214 million in Other income in our consolidated Statement of Earnings (Loss) and liquidated $548 million of our previously recorded valuation allowance. These transactions are subject to customary working capital and other post-close adjustments. In addition, we recorded an additional valuation allowance of $254 million for the remaining businesses in held for sale. As of December 31, 2019, we have closed the sale of receivables originatedsubstantially all of these assets in our Appliances business and sold from GE Capital to Haier) and recognized an after-tax gain of approximately $1,825 million in 2016.
FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE |
| | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Assets | | | | | |
Current receivables | $ | 366 | | $ | 79 |
Inventories | | 211 | | | 583 |
Property, plant, and equipment – net | | 632 | | | 1,208 |
Goodwill | | 212 | | | 370 |
Other intangible assets – net | | 123 | | | 162 |
Contract assets | | 125 | | | - |
Other | | 76 | | | 416 |
Assets of businesses held for sale | $ | 1,745 | | $ | 2,818 |
| | | | | |
Liabilities | | | | | |
Accounts payable(a) | $ | 190 | | $ | 503 |
Progress collections and price adjustments accrued | | 141 | | | - |
Other current liabilities | | 133 | | | 325 |
Other | | 192 | | | 33 |
Liabilities of businesses held for sale | $ | 656 | | $ | 861 |
| | | | | |
(a) | Included transactions in our industrial businesses that were made on an arms-length basis with GE Capital, consisting primarily of GE Capital services for material procurement. These intercompany balances included within our held for sale businesses are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. |
accordance with the plan.
NBCU |
| | | | | | |
FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE December 31 (In millions) | 2019 |
| 2018 |
|
| | |
Current receivables | $ | 499 |
| $ | 184 |
|
Inventories | 712 |
| 529 |
|
Financing receivables held for sale | 197 |
| — |
|
Property, plant, and equipment – net and Operating leases | 958 |
| 423 |
|
Goodwill and Other intangible assets - net | 6,286 |
| 884 |
|
Valuation allowance | (719 | ) | (1,013 | ) |
Deferred income taxes | 815 |
| — |
|
All other assets | 400 |
| 622 |
|
Assets of businesses held for sale | $ | 9,149 |
| $ | 1,629 |
|
| | |
Accounts payable & Progress collections and deferred income | $ | 843 |
| $ | 428 |
|
Non-current compensation and benefits | 466 |
| 152 |
|
All other liabilities | 349 |
| 128 |
|
Liabilities of businesses held for sale | $ | 1,658 |
| $ | 708 |
|
As previously disclosed, Comcast Corporation was obligated to share with us potential tax savings associated with its purchase of our interest in NBCU LLC. During the second quarter of 2015, we recognized $450 million of pre-tax income related to the settlement of this obligation.
OPERATIONS.Discontinued operations primarily relate toinclude our Baker Hughes and Transportation segments and certain assets and liabilities from legacy financial services businesses as a result of the GE Capital Exit Plan and include our Consumer business, most of our CLL business, our Real Estate business and our U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.businesses. Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
In September 2019, 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 certain deal related costs), 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 $8,715 million ($8,238 million after-tax). 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 $9,587 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 $706 million. Our investment is recorded in Investment securities in our consolidated Statement of Financial Position and related earnings or loss from subsequent changes in fair value will be recognized in Other income in continuing operations in our consolidated Statement of Earnings (Loss). See Note 3 for further information.
We have entered into Transitional Service Agreements (TSA)continuing involvement with Baker Hughes primarily through our remaining interest, ongoing purchases and provided certain indemnificationssales of products and services, as well as the transition services that we provide to buyers ofBaker Hughes. They also participated in GE Capital's assets. Undersupply chain finance program up to the TSAs, GE Capital provides variousdate of separation. In addition, in the fourth quarter of 2019, we formed an aeroderivative joint venture (JV) with Baker Hughes relating to their respective aeroderivative gas turbine products and services. The JV has total assets net of liabilities of $613 million and is currently consolidated by GE. Since the date of the transaction, we had sales and purchases of products and services with Baker Hughes and affiliates of $312 million and $105 million, respectively. We have collected net cash of $1,016 million from Baker Hughes related to these activities, including $494 million of repayments on the promissory note. In addition, in the fourth quarter of 2019 we received a dividend of $68 million from Baker Hughes.
In February 2019, we completed the spin-off and subsequent merger of our Transportation business with Wabtec, a U.S. rail equipment manufacturer. In the transaction, our shareholders received shares of Wabtec common stock representing an approximate 24.3% ownership interest in Wabtec common stock. We 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, we are entitled to additional cash consideration up to $470 million for terms generally between 12 and 24 months and receives a level of cost reimbursementtax benefits that Wabtec realizes from the buyers. See Note 23 for further information about indemnifications.transaction. We reclassified our Transportation segment to discontinued operations in the first quarter of 2019.
FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | | | |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Operations | | | | | | | | |
Total revenues and other income | $ | 2,968 | | $ | 23,003 | | $ | 31,136 |
| | | | | | | | |
Earnings (loss) from discontinued operations before income taxes | $ | (162) | | $ | 887 | | $ | 6,615 |
Benefit (provision) for income taxes(a) | | 460 | | | (791) | | | (776) |
Earnings (loss) from discontinued operations, net of taxes | $ | 298 | | $ | 96 | | $ | 5,839 |
| | | | | | | | |
Disposals | | | | | | | | |
Gain (loss) on disposals before income taxes | $ | (750) | | $ | (6,612) | | $ | 14 |
Benefit (provision) for income taxes(a) | | (502) | | | (979) | | | 1 |
Gain (loss) on disposals, net of taxes | $ | (1,252) | | $ | (7,591) | | $ | 15 |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes(b)(c) | $ | (954) | | $ | (7,495) | | $ | 5,855 |
| | | | | | | | |
As part of the transaction, we recorded a gain of $3,471 million ($2,508 million after-tax) in discontinued operations and a net after-tax decrease of $852 million in additional paid in capital in connection with the spin-off of approximately 49.4% of Transportation to our shareholders. The decrease in additional paid in capital was net of $940 million of taxes, including $860 million of current taxes (of which $693 million was related to U.S. federal taxes). 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 Investment securities in our consolidated Statement of Financial Position.
(a) |
| GE Capital's total tax benefit (provision) for discontinued operations and disposals included current tax benefit (provision) of $945 million, $(6,834) million and $(925) million for the years ended December 31, 2016, 2015 and 2014, respectively, including current U.S. Federal tax benefit (provision) of $1,224 million, $(6,245) million and $80 million for the years ended December 31, 2016, 2015 and 2014, respectively, and deferred tax benefit (provision) of $(988) million, $5,073 million and $154 million for the years ended December 31, 2016, 2015 and 2014, respectively. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(b) | The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, and GE Capital earnings (loss) from discontinued operations, net of taxes, after adjusting for earnings (loss) attributable to noncontrolling interests related to discontinued operations, is reported within GE industrial earnings (loss) from discontinued operations, net of taxes, on the Consolidated Statement of Earnings (Loss). |
(c) | Earnings (loss) from discontinued operations attributableDiscontinued operations for our financial services businesses primarily relate to the Company, before income taxes, was $(911) million, $(6,038) million, and $6,472 million for the years ended December 31, 2016, 2015, and 2014, respectively. |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Assets | | | |
Cash and equivalents | $ | 1,429 | | $ | 20,395 |
Investment securities | | 2,626 | | | 8,478 |
Financing receivables – net | | - | | | 3,205 |
Other receivables | | 310 | | | 1,221 |
Property, plant and equipment – net | | 274 | | | 7,537 |
Goodwill | | 67 | | | 7,764 |
Other intangible assets - net | | 5 | | | 80 |
Deferred income taxes | | 487 | | | 2,447 |
Financing receivables held for sale | | 8,547 | | | 69,847 |
Valuation allowance on disposal group classified as discontinued operations | | (726) | | | (6,374) |
Other | | 1,797 | | | 6,350 |
Assets of discontinued operations | $ | 14,815 | | $ | 120,951 |
| | | | | |
Liabilities | | | | | |
Short-term borrowings | $ | 3 | | $ | 739 |
Accounts payable | | 164 | | | 2,870 |
Non-recourse borrowings | | 1,519 | | | 3,994 |
Bank deposits | | 529 | | | 25,613 |
Long-term borrowings | | 25 | | | 730 |
All other liabilities | | 1,652 | | | 11,053 |
Deferred income taxes | | 221 | | | 1,437 |
Other | | 45 | | | 52 |
Liabilities of discontinued operations | $ | 4,158 | | $ | 46,487 |
In connection with the GE Capital Exit Plan (our plan, announced on April 10, 2015, to reduce the size of our financial services businesses) and were previously reported in our Capital segment. These discontinued operations primarily comprise our mortgage portfolio in Poland, residual assets and liabilities related to our exited U.S. mortgage business (WMC), and trailing liabilities associated with the sale of our GE Capital businesses.
In January 2019, we announced an agreement in principle with the planned dispositionUnited 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 Earnings (loss) from discontinued operations, net of taxes in our Consumer business (including Synchrony Financial)consolidated Statement of Earnings (Loss), $332 million of tax benefits and classified$46 million of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See Note 15 for further information.
|
| | | | | | | | | | | | | | | |
RESULTS OF DISCONTINUED OPERATIONS For the year ended December 31, 2019 (In millions) | Baker Hughes |
| | Transportation and Other |
| | GE Capital |
| | Total |
|
| | | | | | | |
Sales of goods and services | $ | 16,047 |
| | $ | 550 |
| | $ | — |
| | $ | 16,598 |
|
GE Capital revenues and other income (loss) | — |
| | — |
| | 33 |
| | 33 |
|
Cost of goods and services sold | (13,317 | ) | | (478 | ) | | — |
| | (13,795 | ) |
Other costs and expenses | (2,390 | ) | | (19 | ) | | (240 | ) | | (2,650 | ) |
| | | — |
| | | | |
Earnings (loss) of discontinued operations before income taxes | 340 |
| | 53 |
| | (207 | ) | | 186 |
|
Benefit (provision) for income taxes(b) | (176 | ) | | (15 | ) | | 344 |
| | 153 |
|
Earnings (loss) of discontinued operations, net of taxes(a) | 165 |
| | 39 |
| | 136 |
| | 339 |
|
| | | | | | | |
Gain (loss) on disposal before income taxes | (8,715 | ) | | 3,471 |
| | 61 |
| | (5,183 | ) |
Benefit (provision) for income taxes(b) | 477 |
| | (963 | ) | | (5 | ) | | (491 | ) |
Gain (loss) on disposal, net of taxes | (8,238 | ) | | 2,508 |
| | 56 |
| | (5,675 | ) |
|
| | | | | | — |
|
Earnings (loss) from discontinued operations, net of taxes | $ | (8,074 | ) | | $ | 2,547 |
| | $ | 192 |
| | $ | (5,335 | ) |
|
| | | | | | | | | | | | | | | |
For the year ended December 31, 2018 (In millions) | | | | | | | |
| | | | | | | |
Sales of goods and services | $ | 22,859 |
| | $ | 3,898 |
| | $ | — |
| | $ | 26,757 |
|
GE Capital revenues and other income (loss) | — |
| | — |
| | (1,347 | ) | | (1,347 | ) |
Cost of goods and services sold | (19,198 | ) | | (2,809 | ) | | — |
| | (22,007 | ) |
Other costs and expenses | (3,346 | ) | | (607 | ) | | (407 | ) | | (4,360 | ) |
| | | | | | | |
Earnings (loss) of discontinued operations before income taxes | 315 |
| | 482 |
| | (1,755 | ) | | (958 | ) |
Benefit (provision) for income taxes(b) | (347 | ) | | (143 | ) | | 82 |
| | (408 | ) |
Earnings (loss) of discontinued operations, net of taxes(a) | (33 | ) | | 339 |
| | (1,673 | ) | | (1,366 | ) |
| | | | | | | |
Gain (loss) on disposal before income taxes | — |
| | — |
| | 4 |
| | 4 |
|
Benefit (provision) for income taxes(b) | — |
| | — |
| | (1 | ) | | (1 | ) |
Gain (loss) on disposal, net of taxes | — |
| | — |
| | 3 |
| | 3 |
|
| | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (33 | ) | | $ | 339 |
| | $ | (1,670 | ) | | $ | (1,363 | ) |
|
| | | | | | | | | | | | | | | |
For the year ended December 31, 2017 (In millions) | | | | | | | |
| | | | | | | |
Sales of goods and services | $ | 17,180 |
| | $ | 3,935 |
| | $ | — |
| | $ | 21,115 |
|
GE Capital revenues and other income (loss) | — |
| | — |
| | 174 |
| | 174 |
|
Cost of goods and services sold | (14,450 | ) | | (2,990 | ) | | — |
| | (17,441 | ) |
Other costs and expenses | (2,993 | ) | | (483 | ) | | (910 | ) | | (4,386 | ) |
| | | | | | | |
Earnings (loss) of discontinued operations before income taxes | (264 | ) | | 461 |
| | (735 | ) | | (538 | ) |
Benefit (provision) for income taxes(b) | (59 | ) | | (138 | ) | | 295 |
| | 97 |
|
Earnings (loss) of discontinued operations, net of taxes(a) | (323 | ) | | 323 |
| | (440 | ) | | (441 | ) |
| | | | | | | |
Gain (loss) on disposal before income taxes | — |
| | — |
| | 306 |
| | 306 |
|
Benefit (provision) for income taxes(b) | — |
| | — |
| | (178 | ) | | (178 | ) |
Gain (loss) on disposal, net of taxes | — |
| | — |
| | 128 |
| | 128 |
|
| | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (323 | ) | | $ | 323 |
| | $ | (312 | ) | | $ | (312 | ) |
(a) Earnings (loss) of discontinued operations attributable to the business asCompany after income taxes was $279 million, $(1,367) million and $(360) million for the years ended December 31, 2019, 2018 and 2017, respectively.
(b) Total tax benefit (provision) for discontinued operations. We closed a vast majorityoperations and disposals included current tax benefit (provision) of our Consumer business dispositions (including$1,260 million, $(508) million, and $(704) million, including current U.S. Federal tax benefit (provision) of $1,252 million, $156 million and $(313) million, and deferred tax benefit (provision) of $(1,599) million, $99 million and $624 million for the split-off of Synchrony Financial) in 2015years ended December 31, 2019, 2018, and 2016.2017, respectively.
FINANCIAL INFORMATION FOR CONSUMER | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Operations | | | | | | | | |
Total revenues and other income | $ | 1,168 | | $ | 11,690 | | $ | 15,023 |
| | | | | | | | |
Interest | $ | (180) | | $ | (2,081) | | $ | (2,611) |
Selling, general, and administrative expenses | | (522) | | | (3,940) | | | (4,572) |
Cost of services sold | | - | | | (1) | | | - |
Provision for losses on financing receivables | | 1 | | | (5,029) | | | (3,544) |
Investment contracts, insurance losses and insurance annuity benefits | | (3) | | | (12) | | | (18) |
Other costs and expenses | | (89) | | | (392) | | | (388) |
Earnings (loss) from discontinued operations, | | | | | | | | |
before income taxes | | 375 | | | 236 | | | 3,891 |
Benefit (provision) for income taxes | | (171) | | | (878) | | | (736) |
Earnings (loss) from discontinued operations, net of taxes | $ | 204 | | $ | (642) | | $ | 3,155 |
| | | | | | | | |
Disposals | | | | | | | | |
Gain (loss) on disposals before income taxes | $ | 273 | | $ | 2,739 | | $ | - |
Benefit (provision) for income taxes | | (607) | | | 363 | | | - |
Gain (loss) on disposals, net of taxes | $ | (334) | | $ | 3,102 | | $ | - |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes(a) | $ | (130) | | $ | 2,460 | | $ | 3,155 |
| | | | | | | | |
(a) |
| Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $652 million, $2,670 million, and $3,752 million for the years ended December 31, 2016, 2015, and 2014, respectively. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
COMMERCIAL LENDING AND LEASING |
| | | | | | |
December 31 (In millions) | 2019 |
| 2018 |
|
|
|
|
Cash, cash equivalents and restricted cash | $ | 638 |
| $ | 4,424 |
|
Investment securities | 202 |
| 522 |
|
Current receivables | 81 |
| 6,258 |
|
Inventories | — |
| 5,419 |
|
Financing receivables held for sale (Polish mortgage portfolio) | 2,485 |
| 2,745 |
|
Property, plant and equipment - net | — |
| 7,139 |
|
Goodwill and intangible assets - net | — |
| 31,622 |
|
Deferred income taxes | 264 |
| 1,174 |
|
All other assets | 439 |
| 4,550 |
|
Assets of discontinued operations(a) | $ | 4,109 |
| $ | 63,853 |
|
|
|
|
Accounts payable & Progress collections and deferred income | $ | 40 |
| $ | 6,806 |
|
All other liabilities | 163 |
| 12,476 |
|
Liabilities of discontinued operations(b) | $ | 203 |
| $ | 19,281 |
|
(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.
In connection with(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 All other liabilities of discontinued operations at December 31, 2019 and December 31, 2018 are intercompany tax receivables in the amount of $839 million and $1,141 million, respectively, primarily related to the financial services businesses that were part of the GE Capital Exit Plan, we announced the planned dispositionwhich are offset within All other liabilities of most of our CLL business and classified this portion of the business as discontinued operations. We closed substantially all of our CLL business dispositions in 2015 and 2016.consolidated GE.
FINANCIAL INFORMATION FOR COMMERCIAL LENDING AND LEASING |
| | | | | | | | |
| | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Operations | | | | | | | | |
Total revenues and other income | $ | 1,732 | | $ | 10,580 | | $ | 13,413 |
| | | | | | | | |
Interest | $ | (518) | | $ | (2,365) | | $ | (3,069) |
Selling, general and administrative expenses | | (1,585) | | | (3,576) | | | (3,598) |
Cost of services sold | | - | | | (1,735) | | | (3,859) |
Provision for losses on financing receivables | | (2) | | | (1,753) | | | (456) |
Other costs and expenses | | (89) | | | (127) | | | (135) |
Earnings (loss) from discontinued operations, before income taxes | | (463) | | | 1,024 | | | 2,296 |
Benefit (provision) for income taxes | | 319 | | | (186) | | | (487) |
Earnings (loss) from discontinued operations, net of taxes | $ | (144) | | $ | 838 | | $ | 1,808 |
| | | | | | | | |
Disposals | | | | | | | | |
Gain (loss) on disposals before income taxes | $ | (971) | | $ | (8,013) | | $ | - |
Benefit (provision) for income taxes | | 43 | | | (698) | | | - |
Gain (loss) on disposals, net of taxes | $ | (928) | | $ | (8,711) | | $ | - |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes(a) | $ | (1,072) | | $ | (7,873) | | $ | 1,808 |
| | | | | | | | |
(a) | Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(1,436) million, $(6,996) million, and $2,279 million for the years ended December 31, 2016, 2015, and 2014, respectively. |
REAL ESTATE
In connection with the GE Capital Exit Plan, we announced the planned disposition of our Real Estate business and classified the business as discontinued operations. We closed substantially all of our Real Estate business dispositions in 2015 and 2016.
FINANCIAL INFORMATION FOR REAL ESTATE | | | | | | |
| | | | | | | | |
| | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Operations | | | | | | | | |
Total revenues and other income | $ | 79 | | $ | 911 | | $ | 2,969 |
| | | | | | | | |
Interest | $ | (42) | | $ | (457) | | $ | (1,079) |
Selling, general and administrative | | (112) | | | (444) | | | (484) |
Cost of services sold | | - | | | (5) | | | - |
Provision for losses on financing receivables | | - | | | 5 | | | 86 |
Other costs and expenses | | (3) | | | (158) | | | (712) |
Earnings (loss) from discontinued operations, | | | | | | | | |
before income taxes | | (78) | | | (149) | | | 780 |
Benefit (provision) for income taxes | | 70 | | | 168 | | | 224 |
Earnings (loss) from discontinued operations, net of taxes | $ | (8) | | $ | 19 | | $ | 1,003 |
| | | | | | | | |
Disposals | | | | | | | | |
Gain (loss) on disposals before income taxes | $ | (52) | | $ | (1,338) | | $ | - |
Benefit (provision) for income taxes | | 62 | | | (639) | | | - |
Gain (loss) on disposals, net of taxes | $ | 10 | | $ | (1,977) | | $ | - |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes(a) | $ | 2 | | $ | (1,958) | | $ | 1,003 |
| | | | | | | | |
(a) | Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(130) million, $(1,486) million, and $778 million for the years ended December 31, 2016, 2015, and 2014, respectively. |
NOTE 3. INVESTMENT SECURITIES
Substantially allAll of our investmentdebt securities are classified as available-for-sale and comprise mainlysubstantially all are investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations. We do not have any securities classified as held-to-maturity.
| 2016 | | 2015 |
| | | Gross | | Gross | | | | | | Gross | | Gross | | |
| Amortized | | unrealized | | unrealized | | Estimated | | Amortized | | unrealized | | unrealized | | Estimated |
December 31 (In millions) | cost | | gains | | losses | | fair value | | cost | | gains | | losses | | fair value |
| | | | | | | | | | | | | | | | | | | | | | | |
GE | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | | | | | | | | | | |
U.S. corporate | $ | 1 | | $ | - | | $ | - | | $ | 2 | | $ | 2 | | $ | - | | $ | - | | $ | 3 |
Corporate – non-U.S. | | - | | | - | | | - | | | - | | | 1 | | | - | | | - | | | 1 |
U.S. government and federal | | | | | | | | | | | | | | | | | | | | | | | |
agency | | 49 | | | - | | | - | | | 49 | | | 49 | | | - | | | - | | | 49 |
Equity | | 54 | | | 34 | | | (1) | | | 86 | | | 87 | | | 13 | | | (2) | | | 98 |
| | 104 | | | 34 | | | (1) | | | 137 | | | 139 | | | 14 | | | (2) | | | 151 |
| | | | | | | | | | | | | | | | | | | | | | | |
GE Capital | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | | | | | | | | | | |
U.S. corporate | | 20,048 | | | 3,081 | | | (85) | | | 23,044 | | | 19,971 | | | 2,669 | | | (285) | | | 22,355 |
State and municipal | | 3,916 | | | 412 | | | (92) | | | 4,236 | | | 3,910 | | | 407 | | | (73) | | | 4,245 |
Mortgage and asset-backed | | 2,787 | | | 111 | | | (37) | | | 2,861 | | | 2,995 | | | 157 | | | (35) | | | 3,116 |
Corporate – non-U.S. | | 11,917 | | | 98 | | | (27) | | | 11,987 | | | 759 | | | 96 | | | (9) | | | 846 |
Government – non-U.S. | | 1,137 | | | 127 | | | (2) | | | 1,262 | | | 279 | | | 136 | | | - | | | 415 |
U.S. government and federal | | | | | | | | | | | | | | | | | | | | | | | |
agency | | 656 | | | 33 | | | (25) | | | 664 | | | 623 | | | 104 | | | - | | | 727 |
Equity | | 105 | | | 22 | | | (1) | | | 126 | | | 112 | | | 16 | | | (4) | | | 123 |
| | 40,565 | | | 3,883 | | | (268) | | | 44,180 | | | 28,648 | | | 3,585 | | | (407) | | | 31,827 |
| | | | | | | | | | | | | | | | | | | | | | | |
Eliminations | | (4) | | | - | | | - | | | (4) | | | (4) | | | - | | | - | | | (4) |
Total | $ | 40,665 | | $ | 3,917 | | $ | (269) | | $ | 44,313 | | $ | 28,783 | | $ | 3,599 | | $ | (409) | | $ | 31,973 |
| | | | | | | | | | | | | | | | | | | | | | | |
Our corporate debt portfolio comprises securities issued by public and private corporationsChanges in
various industries, mainly in the U.S. Substantially all of our corporate debt securities are rated investment grade by the major rating agencies.
Mortgage and asset-backed securities substantially comprises commercial and residential mortgage-backed securities. Substantially all of these securities have investment-grade credit ratings. Our commercial mortgage-backed securities (CMBS) portfolio is collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high-quality properties (large loan CMBS). Our residential mortgage-backed securities (RMBS) portfolio is collateralized primarily by pools of individual, direct mortgage loans, of which substantially all are in a senior position in the capital structure of the deals, not by other structured products such as collateralized debt obligations.
The fair value of investment securities increased to $44,313 million at December 31, 2016, from $31,973 million at December 31, 2015, primarily due to higher net purchases of Corporate – non-U.S. debt securities and higher net unrealized gains in U.S. Corporate.
ESTIMATED FAIR VALUE AND GROSS UNREALIZED LOSSES OF AVAILABLE-FOR-SALE INVESTMENT SECURITIES | |
| | | | | | | | | | | | |
| In loss position for | |
| Less than 12 months | | 12 months or more | |
| | | Gross | | | | Gross | |
| Estimated | | unrealized | | Estimated | | unrealized | |
(In millions) | fair value(a) | | losses(a) | | fair value | | losses | |
| | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | |
Debt | | | | | | | | | | | | |
U.S. corporate | $ | 1,692 | | $ | (55) | | $ | 359 | | $ | (30) | |
State and municipal | | 674 | | | (27) | | | 158 | | | (64) | |
Mortgage and asset-backed | | 822 | | | (21) | | | 132 | | | (16) | |
Corporate – non-U.S. | | 5,352 | | | (26) | | | 14 | | | (1) | |
Government - non-U.S. | | 313 | | | (2) | | | - | | | - | |
U.S. government and federal agency | | 236 | | | (25) | | | - | | | - | |
Equity | | 9 | | | (1) | | | - | | | - | |
Total | $ | 9,098 | | $ | (157) | | $ | 663 | | $ | (111) | |
| | | | | | | | | | | | |
December 31, 2015 | | | | | | | | | | | | |
Debt | | | | | | | | | | | | |
U.S. corporate | $ | 2,966 | | $ | (218) | | $ | 433 | | $ | (67) | |
State and municipal | | 494 | | | (20) | | | 155 | | | (53) | |
Mortgage and asset-backed | | 719 | | | (20) | | | 84 | | | (16) | |
Corporate – non-U.S. | | 56 | | | (4) | | | 14 | | | (4) | |
Equity | | 36 | | | (6) | | | - | | | - | |
Total | $ | 4,273 | | $ | (269) | | $ | 686 | | $ | (140) | |
| | | | | | | | | | | | |
(a) | Includes the estimated fair value of and gross unrealized losses on equity securities held by GE. |
Unrealized losses are not indicative of the amount of credit loss that would be recognized and at December 31, 2016 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities
that are
recorded to other comprehensive income. Equity securities with readily determinable fair values are included within this caption and changes in
unrealized loss positionstheir fair value are recorded in earnings. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 |
December 31 (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 | $ | 23,037 |
| $ | 4,636 |
| $ | (11 | ) | $ | 27,661 |
|
| $ | 21,306 |
| $ | 2,257 |
| $ | (357 | ) | $ | 23,206 |
|
Non-U.S. corporate | 2,161 |
| 260 |
| (1 | ) | 2,420 |
|
| 1,906 |
| 53 |
| (76 | ) | 1,883 |
|
State and municipal | 3,086 |
| 598 |
| (15 | ) | 3,669 |
|
| 3,320 |
| 367 |
| (54 | ) | 3,633 |
|
Mortgage and asset-backed | 3,117 |
| 116 |
| (4 | ) | 3,229 |
|
| 3,325 |
| 51 |
| (54 | ) | 3,322 |
|
Government and agencies | 1,391 |
| 126 |
| — |
| 1,516 |
|
| 1,314 |
| 62 |
| (20 | ) | 1,357 |
|
Equity | 10,025 |
| — |
| — |
| 10,025 |
|
| 107 |
| — |
| — |
| 107 |
|
Total | $ | 42,816 |
| $ | 5,736 |
| $ | (31 | ) | $ | 48,521 |
|
| $ | 31,277 |
| $ | 2,792 |
| $ | (561 | ) | $ | 33,508 |
|
The estimated fair values of investment securities at December 31, 2019 increased since December 31, 2018, primarily due to decreases in market yields and believe that it is not more likely than not that we will be required to sell the vast majority of these securities before anticipated recoveryclassification of our amortized cost. The methodologies and significant inputs usedremaining equity interest in Baker Hughes within investment securities. We elected to measure the amount of credit lossaccount for our remaining Baker Hughes interest and a promissory note receivable at fair value. At December 31, 2019, the fair value of our interest in Baker Hughes was $9,888 million.
Net unrealized gains (losses) for equity securities, which are recorded in Other income within continuing operations, were $800 million (including a gain of $793 million related to our interest in Baker Hughes), $(8) million and an insignificant amount for the years ended December 31, 2019, 2018 and 2017, respectively.
Proceeds from debt and equity securities sales, early redemptions by issuers and principal payments on the Baker Hughes promissory note totaled $7,967 million, $3,222 million and $3,240 million for the years ended December 31, 2019, 2018, and 2017, respectively. Gross realized gains on investment securities during 2016were $115 million, $249 million and $243 million, and gross realized losses and impairments were $(203) million, $(41) million and $(24) million for the years ended 2019, 2018 and 2017, respectively. These realized losses included $(132) million related to the Wabtec sale as of December 31, 2019.
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 not changed.been in a loss position for less than 12 months and 12 months or more, respectively, at December 31, 2019. Gross unrealized losses of $(310) million and $(251) million 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.
PRE-TAX, OTHER-THAN-TEMPORARY IMPAIRMENTS ON INVESTMENT SECURITIES |
| | | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Total recognized | $ | 31 | | $ | 64 | | $ | 316 |
Recognized in AOCI | | - | | | - | | | (4) |
Recognized in earnings(a) | $ | 31 | | $ | 64 | | $ | 312 |
| | | | | | | | |
(a) |
| Included equity securities of $11 million, $5 million and $219 million in 2016, 2015 and 2014, respectively. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES |
(EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) |
| | | | | |
| Amortized | | Estimated |
(In millions) | cost | | fair value |
| | | | | |
Due | | | | | |
Within one year | $ | 7,139 | | $ | 7,148 |
After one year through five years | | 7,947 | | | 8,124 |
After five years through ten years | | 4,996 | | | 5,410 |
After ten years | | 17,641 | | | 20,562 |
| | | | | |
Contractual maturities of investments in available-for-sale debt securities (excluding mortgage and asset-backed securities) at December 31, 2019 are as follows: |
| | | | | | |
(In millions) | Amortized cost |
| Estimated fair value |
|
| | |
Due | | |
Within one year | $ | 514 |
| $ | 527 |
|
After one year through five years | 2,615 |
| 2,766 |
|
After five years through ten years | 6,614 |
| 7,599 |
|
After ten years | 19,932 |
| 24,374 |
|
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
In addition to the equity securities described above, we hold $517 million and $542 million of equity securities without readily determinable fair value at December 31, 2019 and December 31, 2018, respectively that are classified in All other assets in our consolidated Statement of Financial Position. We initially recognize these assets at cost and have recorded insignificant fair value increases, net of impairment, to earnings for the years ended December 31, 2019 and 2018, respectively and cumulatively, based on observable transactions.
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
GE 2016 FORM 10-K 154 |
| | | | | | | | | | | | | |
| Consolidated |
| GE |
December 31 (In millions) | 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
|
|
|
|
|
|
|
Power | $ | 4,689 |
| $ | 4,652 |
|
| $ | 3,289 |
| $ | 2,270 |
|
Renewable Energy | 2,306 |
| 1,938 |
|
| 1,749 |
| 1,475 |
|
Aviation(a) | 3,249 |
| 1,483 |
|
| 2,867 |
| 1,145 |
|
Healthcare | 2,105 |
| 2,431 |
|
| 1,379 |
| 1,260 |
|
Corporate | 246 |
| 238 |
|
| 223 |
| 205 |
|
Customer receivables | 12,594 |
| 10,742 |
|
| 9,507 |
| 6,355 |
|
Sundry receivables | 5,049 |
| 4,573 |
|
| 5,247 |
| 4,569 |
|
Allowance for losses | (874 | ) | (670 | ) |
| (872 | ) | (662 | ) |
Total current receivables | $ | 16,769 |
| $ | 14,645 |
|
| $ | 13,883 |
| $ | 10,262 |
|
(a) Increase in Aviation segment is primarily driven by receivables from Boeing due to 737 MAX temporary fleet grounding, with balance of $1,397 million as of December 31, 2019.
GROSS REALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE INVESTMENT SECURITIES | | | |
| | | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
GE | | | | | | | | |
Gains | $ | 11 | | $ | 7 | | $ | 3 |
Losses, including impairments | | (12) | | | (36) | | | (218) |
Net | | (2) | | | (29) | | | (215) |
| | | | | | | | |
GE Capital | | | | | | | | |
Gains | | 50 | | | 121 | | | 87 |
Losses, including impairments | | (43) | | | (51) | | | (104) |
Net | | 7 | | | 70 | | | (16) |
Total | $ | 6 | | $ | 41 | | $ | (231) |
| | | | | | | | |
Although we generally do not have the intentCurrent sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables, certain intercompany balances that eliminate upon consolidation and deferred purchase price. The deferred purchase price represents our retained risk with respect to sell any specific securities at the endcurrent customer receivables sold to third parties through one of the receivable facilities. The balance of the deferred purchase price held by GE Capital at December 31, 2019 and 2018, was $421 million and $468 million, respectively.
Sales of GE current customer receivables.GE sales of customer receivables to GE Capital or third parties are made on arm's length terms and any discount related to time value of money is recognized by GE when the customer receivables are sold. As of December 31, 2019 and 2018, GE sold approximately 51% and 66%, respectively, of its gross customer receivables to GE Capital or third parties. The performance of sold current receivables is similar to the performance of our other GE current receivables; delinquencies are not expected to be significant. Any difference between the carrying value of receivables sold and total cash collected is recognized as financing costs by GE in Interest and other financial charges in our consolidated Statement of Earnings (Loss). Costs of $515 million and $616 million were recognized during the years ended December 31, 2019 and 2018, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Activity related to customer receivables sold by GE is as follows: |
| | | | | | | | | | | | | | | |
(In millions) | GE Capital | | Third Parties | | GE Capital | | Third Parties |
| 2019 | | 2018 |
| | | | | | | |
Balance at January 1 | $ | 4,386 |
| | $ | 7,880 |
| | $ | 9,656 |
| | $ | 5,710 |
|
GE sales to GE Capital | 40,988 |
| | — |
| | 50,318 |
| | — |
|
GE sales to third parties | — |
| | 6,370 |
| | — |
| | 5,481 |
|
GE Capital sales to third parties | (28,073 | ) | | 28,073 |
| | (30,904 | ) | | 30,904 |
|
Collections and other | (14,621 | ) | | (35,567 | ) | | (25,414 | ) | | (34,216 | ) |
Reclassification from long-term customer receivables | 407 |
| | — |
| | 731 |
| | — |
|
Balance at December 31 | $ | 3,087 |
| (a) | $ | 6,757 |
| | $ | 4,386 |
| (a) | $ | 7,880 |
|
(a) At December 31, 2019 and 2018, $539 million and $1,380 million, respectively, of the current receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE cash flows from operating activities (CFOA) of claims by GE Capital on receivables sold with recourse has been insignificant for the years ended December 31, 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 ordinary courseperiod 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 managingselling fewer customer receivables to GE Capital and those subsequently sold by GE Capital to third parties, including the effect of business dispositions, decreased GE’s CFOA by $2,099 million, $3,401 million and $138 million in the years ended December 31, 2019, 2018 and 2017, respectively.
LONG-TERM RECEIVABLES. In certain circumstances, GE provides customers, primarily within our investment securities portfolio,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 three years and are included in All other assets in the consolidated Statement of Financial Position. |
| | | | | | | | | | | | | |
| Consolidated | | GE |
December 31 (In millions) | 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
|
|
|
|
|
|
Long-term customer receivables | $ | 906 |
| $ | 1,442 |
|
| $ | 506 |
| $ | 559 |
|
Long-term sundry receivables | 1,504 |
| 1,180 |
|
| 1,834 |
| 1,519 |
|
Allowance for losses | (128 | ) | (145 | ) |
| (128 | ) | (145 | ) |
Total long-term receivables | $ | 2,282 |
| $ | 2,477 |
|
| $ | 2,212 |
| $ | 1,933 |
|
Long-term sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables and certain intercompany balances that eliminate upon consolidation.
Sales of GE long-term customer receivables.Through the second quarter of 2018, sales of long-term customer receivables were primarily made to GE Capital, while subsequently, GE has sold an insignificant amount to third parties to transfer economic risk during both the years ended December 31, 2019 and 2018. Activity related to long-term customer receivables purchased by GE Capital is as follows:
|
| | | | | | | |
GE Capital December 31 (In millions) | 2019 |
| | 2018 |
|
| | | |
Balance at January 1 | $ | 883 |
| | $ | 1,947 |
|
GE sales to GE Capital | — |
| | 134 |
|
Sales, collections, accretion and other | (75 | ) | | (468 | ) |
Reclassification to current customer receivables | (407 | ) | | (731 | ) |
Balance at December 31(a) | $ | 400 |
| | $ | 883 |
|
(a) At December 31, 2019 and 2018, $312 million and $628 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 years ended December 31, 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 $585 million, $878 million and increased GE's CFOA by $250 million in the years ended December 31, 2019, 2018 and 2017, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
UNCONSOLIDATED RECEIVABLES FACILITIES. GE Capital has 2 revolving receivables facilities, with a total program size of $4,300 million, under which customer receivables purchased from GE are sold to third parties. In one of the facilities, upon the sale of receivables, we may sell securities prior to their maturities for a varietyreceive proceeds of reasons, including diversification, credit quality, yieldcash and liquidity requirementsdeferred purchase price and the fundingCompany’s remaining risk with respect to the sold receivables is limited to the balance of claimsthe deferred purchase price. In December 2018, we renegotiated the terms of this receivables facility. Effective January 2019, sales of receivables to the third-party purchasers and obligationscreation of deferred purchase price occur monthly rather than daily. As a result, both non-cash increases to policyholders.the deferred purchase price and cash payments received on the deferred purchase price declined in 2019. In the other facility, upon the sale of receivables, we receive proceeds of cash only and therefore the Company has no remaining risk with respect to the sold receivables. Activity related to these facilities is included in GE Capital sales to third parties line in the sales of GE current customer receivables table above and is as follows:
|
| | | | | | | |
For the years ended December 31 (In millions) | 2019 |
|
| 2018 |
|
|
|
|
|
Customer receivables sold to receivables facilities | $ | 21,695 |
|
| $ | 23,984 |
|
Total cash purchase price for customer receivables | 21,202 |
|
| 18,040 |
|
Cash collections re-invested to purchase customer receivables | 18,012 |
|
| 15,095 |
|
|
|
|
|
|
Non-cash increases to deferred purchase price | $ | 257 |
|
| $ | 5,272 |
|
Cash payments received on deferred purchase price | 303 |
|
| 5,192 |
|
Proceeds
CONSOLIDATED SECURITIZATION ENTITIES. GE Capital consolidates 3 VIEs that purchased customer receivables and long-term customer receivables from investment securities salesGE. At December 31, 2019 and early redemptions by issuers totaled $1,718 million, $5,7462018, these VIEs held current customer receivables of $2,080 million and $1,898$2,141 million and long-term customer receivables of $375 million and $678 million, respectively that were funded through the issuance of non-recourse debt to third parties. At December 31, 2019 and 2018, the outstanding debt under their respective debt facilities was $1,655 million and $1,875 million, respectively.
NOTE 5. FINANCING RECEIVABLES AND ALLOWANCES
|
| | | | | | | | | | | | | |
| Consolidated | | GE Capital |
December 31 (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Loans, net of deferred income | $ | 1,098 |
| $ | 5,118 |
|
| $ | 4,927 |
| $ | 10,834 |
|
Investment in financing leases, net of deferred income | 2,070 |
| 2,639 |
|
| 2,070 |
| 2,822 |
|
| 3,168 |
| 7,757 |
|
| 6,996 |
| 13,656 |
|
Allowance for losses | (33 | ) | (58 | ) |
| (17 | ) | (28 | ) |
Financing receivables – net | $ | 3,134 |
| $ | 7,699 |
|
| $ | 6,979 |
| $ | 13,628 |
|
Consolidated finance lease income was $173 million, $275 million and $274 million for the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, respectively. In 2016
|
| | | | | | | | | | | | | | | | | | | | |
NET INVESTMENT IN FINANCING LEASES | Total financing leases |
| Direct financing and sales type leases(a) |
| Leveraged leases |
December 31 (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | | | |
Total minimum lease payments receivable | $ | 1,628 |
| $ | 2,719 |
| | $ | 799 |
| $ | 1,421 |
| | $ | 829 |
| $ | 1,298 |
|
Less principal and interest on third-party non-recourse debt | (216 | ) | (474 | ) | | — |
| — |
| | (216 | ) | (474 | ) |
Net minimum lease payments receivable | 1,412 |
| 2,245 |
| | 799 |
| 1,421 |
| | 613 |
| 824 |
|
Less deferred income | (178 | ) | (329 | ) | | (139 | ) | (286 | ) | | (39 | ) | (43 | ) |
Discounted lease receivable | 1,234 |
| 1,916 |
| | 660 |
| 1,135 |
| | 574 |
| 781 |
|
Estimated unguaranteed residual value of leased assets, net of deferred income | 835 |
| 906 |
| | 412 |
| 420 |
| | 423 |
| 486 |
|
Investment in financing leases, net of deferred income(b) | $ | 2,070 |
| $ | 2,822 |
| | $ | 1,072 |
| $ | 1,556 |
| | $ | 997 |
| $ | 1,266 |
|
(a) Included $506 million and 2015,$399 million investment securitiesin sales were principally of U.S. government and federal agency and mortgage and asset-backed securities.
NOTE 4. CURRENT RECEIVABLES
| Consolidated(a)(b) | | GE(c) |
December 31 (In millions) | 2016 | | 2015 | | | 2016 | | 2015 |
| | | | | | | | | | | |
Power | $ | 7,688 | | $ | 6,675 | | $ | 3,632 | | $ | 4,377 |
Renewable Energy | | 1,903 | | | 2,336 | | | 1,293 | | | 1,418 |
Oil & Gas | | 4,259 | | | 4,958 | | | 2,478 | | | 2,764 |
Energy Connections & Lighting | | 2,716 | | | 4,432 | | | 1,675 | | | 2,173 |
Aviation | | 3,542 | | | 4,133 | | | 1,731 | | | 1,876 |
Healthcare | | 3,996 | | | 4,022 | | | 2,068 | | | 1,943 |
Transportation | | 377 | | | 609 | | | 186 | | | 193 |
Corporate items and eliminations | | 454 | | | 372 | | | 499 | | | 464 |
| | 24,935 | | | 27,538 | | | 13,562 | | | 15,209 |
Less Allowance for Losses(d) | | (858) | | | (515) | | | (847) | | | (502) |
Total | $ | 24,076 | | $ | 27,022 | | $ | 12,715 | | $ | 14,707 |
| | | | | | | | | | | |
(a) | Included GE industrial customer receivables sold to a GE Capital affiliate and reported as financing receivables by GE Capital of $12,304 million and $13,041 million at December 31, 2016 and 2015, respectively. The December 31, 2016 total included a deferred purchase price receivable of $483 million from the refinancing of our Receivables Facility described in Note 22. |
(b) | In order to manage credit exposure, the Company sells additional current receivables to third parties outside the Receivables Facility described in Note 22. In connection with certain of these sales, we provide servicing activities and limited recourse to the purchasers. At December 31, 2016 and 2015, GE serviced $2,962 million and $2,167 million, respectively, of these receivables that remain outstanding. Of these balances, $458 million and $378 million at December 31, 2016 and 2015, respectively, were current receivables serviced by GE Capital that GE sold directly to third-parties. At December 31, 2016 and 2015, our maximum exposure to loss under the limited recourse arrangements is $215 million and $154 million, respectively. |
(c) | GE current receivables of $299 million and $251 million at December 31, 2016 and 2015, respectively, arose from sales, principally of Aviation goods and services, on open account to various agencies of the U.S. government. As a percentage of GE revenues, approximately 3% of GE sales of goods and services were to the U.S. government in 2016, compared with 4% in 2015 and 3% in 2014. |
(d) | The 2016 increase in allowance for losses is primarily due to Alstom purchase price adjustments of $263 million. |
GE current receivables balancestype leases at December 31, 20162019 and 2015, before allowance for losses, included $8,927 million and $10,535 million, respectively, from sales of goods and services to customers. The remainder of the balances primarily relates to supplier advances, revenue sharing programs and other non-income based tax receivables.2018, respectively.
| | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Raw materials and work in process | $ | 12,636 | | $ | 13,415 |
Finished goods | | 8,798 | | | 8,265 |
Unbilled shipments | | 536 | | | 628 |
| | 21,971 | | | 22,308 |
Revaluation to LIFO | | 383 | | | 207 |
Total inventories | $ | 22,354 | | $ | 22,515 |
NOTE 6. GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
FINANCING RECEIVABLES – NET |
| | | | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Loans, net of deferred income | $ | 21,101 | | $ | 20,115 |
Investment in financing leases, net of deferred income | | 4,998 | | | 4,969 |
| | 26,099 | | | 25,084 |
Allowance for losses | | (58) | | | (81) |
Financing receivables – net | $ | 26,041 | | $ | 25,003 |
| | | | | |
NET INVESTMENT IN FINANCING LEASES |
| | | | | | | | | | | | | | | | | |
| Total financing leases | | Direct financing leases(a) | | Leveraged leases(b) |
December 31 (In millions) | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | | | | | | |
Total minimum lease payments receivable | $ | 5,466 | | $ | 5,901 | | $ | 3,274 | | $ | 3,251 | | $ | 2,191 | | $ | 2,649 |
Less principal and interest on third-party non-recourse debt | | (1,053) | | | (1,482) | | | - | | | - | | | (1,053) | | | (1,482) |
Net rentals receivable | | 4,412 | | | 4,419 | | | 3,274 | | | 3,251 | | | 1,138 | | | 1,167 |
Estimated unguaranteed residual value of leased assets | | 1,985 | | | 2,057 | | | 927 | | | 928 | | | 1,058 | | | 1,129 |
Less deferred income | | (1,400) | | | (1,507) | | | (909) | | | (913) | | | (491) | | | (593) |
Investment in financing leases, net of deferred income(c) | $ | 4,998 | | $ | 4,969 | | $ | 3,292 | | $ | 3,266 | | $ | 1,706 | | $ | 1,703 |
| | | | | | | | | | | | | | | | | |
(a) | Included $30 million and $24 million of initial direct costs on direct financing leases at December 31, 2016 and 2015, respectively. |
(b) | Included pre-tax income of $74 million and $61 million and income tax of $28 million and $23 million during 2016 and 2015, respectively. Net investment credits recognized on leveraged leases during 2016 and 2015 were insignificant. |
(c)(b) See Note 1415 for deferred tax amounts related to financing leases.
|
| | | | | | | | | | | | | | | | | | | | | |
CONTRACTUAL MATURITIES, DUE IN (In millions) | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| Thereafter |
| Total |
|
| | | | | | | |
Total loans | $ | 3,832 |
| $ | 511 |
| $ | 238 |
| $ | 113 |
| $ | 93 |
| $ | 140 |
| $ | 4,927 |
|
Net minimum lease payments receivable | 303 |
| 270 |
| 194 |
| 281 |
| 198 |
| 166 |
| 1,412 |
|
CONTRACTUAL MATURITIES | | | | | | |
| | | | | | |
| Total | | Net rentals | |
(In millions) | loans | | receivable | |
| | | | | | |
Due in | | | | | | |
2017 | $ | 12,853 | | $ | 851 | |
2018 | | 1,718 | | | 845 | |
2019 | | 2,327 | | | 685 | |
2020 | | 1,149 | | | 528 | |
2021 | | 1,114 | | | 398 | |
2022 and later | | 1,940 | | | 1,106 | |
Total | $ | 21,101 | | $ | 4,412 | |
| | | | | | |
We expect actual maturities to differ from contractual maturities.maturities, primarily as a result of prepayments.
GE 20162019 FORM 10-K 156 80
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We manage our GE Capital financing receivables portfolio using delinquency and nonaccrual data as key performance indicators. At December 31, 2016, $811 million (3.1%)2019, 4.2%, $407 million (1.6%)2.9% and $322 million (1.2%)6.1% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. Ofrespectively, with the $322 millionvast majority of nonaccrual financing receivables at December 31, 2016, the vast majority are secured by collateral and $68 million are currently paying in accordance with the contractual terms.collateral. At December 31, 2015, $622 million (2.5%)2018, 2.4%, $201 million (0.8%)1.8% and $256 million (1.0%)0.9% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively.
The recorded investmentGE Capital financing receivables that comprise receivables purchased from GE are reclassified to either Current receivables or All other assets in impaired loans at December 31, 2016the consolidated Statement of Financial Position. To the extent these receivables are purchased with full or limited recourse, they are excluded from the delinquency and December 31, 2015 was $262 million and $175 million, respectively. The method used to measure impairmentnonaccrual data above. See Note 4 for these loans is primarily based on collateral value. At December 31, 2016, troubled debt restructurings included in impaired loans were $176 million.
further information.
NOTE 6. INVENTORIES
|
| | | | | | |
December 31 (In millions) | 2019 |
| 2018 |
|
| | |
Raw materials and work in process | $ | 8,771 |
| $ | 8,057 |
|
Finished goods | 5,333 |
| 5,746 |
|
Total inventories | $ | 14,104 |
| $ | 13,803 |
|
NOTE 7. PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES
| | Depreciable | | | | | | | | | | | | | |
| | lives-new | | | Original Cost | | Net Carrying Value |
December 31 (Dollars in millions) | (in years) | | | | 2016 | | | 2015 | | | 2016 | | | 2015 |
| | | | | | | | | | | | | | | | |
GE | | | | | | | | | | | | | | | |
| Land and improvements | | 8 | (a) | | $ | 932 | | $ | 888 | | $ | 910 | | $ | 870 |
| Buildings, structures and related equipment | | 8-40 | | | | 9,680 | | | 10,050 | | | 6,016 | | | 5,440 |
| Machinery and equipment | | 4-20 | | | | 24,596 | | | 24,515 | | | 9,369 | | | 9,986 |
| Leasehold costs and manufacturing plant under construction | | 1-10 | | | | 3,407 | | | 4,359 | | | 2,809 | | | 3,849 |
| | | | | | | 38,615 | | | 39,812 | | | 19,103 | | | 20,145 |
| | | | | | | | | | | | | | | | |
GE Capital(b) | | | | | | | | | | | | | | | |
| Land and improvements, buildings, structures and related equipment | | 1-10 | (a) | | | 238 | | | 267 | | | 68 | | | 101 |
| Equipment leased to others | | | | | | | | | | | | | | | |
| Aircraft(c) | | 15-20 | | | | 47,360 | | | 50,339 | | | 31,786 | | | 34,316 |
| All other | | 3-35 | | | | 587 | | | 543 | | | 371 | | | 364 |
| | | | | | | 48,185 | | | 51,149 | | | 32,225 | | | 34,781 |
Eliminations | | | | | | (925) | | | (939) | | | (809) | | | (831) |
Total | | | | | $ | 85,875 | | $ | 90,022 | | $ | 50,518 | | $ | 54,095 |
| | | | | | | | | | | | | | | | |
(a) | Depreciable lives exclude land. |
|
| | | | | | | | | | | | | | |
| Depreciable lives-new | Original Cost |
| Net Carrying Value |
December 31 (Dollars in millions) | (in years) | 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
|
|
|
|
|
|
|
Land and improvements | 8 | $ | 608 |
| $ | 700 |
|
| $ | 596 |
| $ | 673 |
|
Buildings, structures and related equipment | 8-40 | 7,824 |
| 8,455 |
|
| 3,875 |
| 4,083 |
|
Machinery and equipment | 4-20 | 20,082 |
| 19,425 |
|
| 8,360 |
| 8,048 |
|
Leasehold costs and manufacturing plant under construction | 1-10 | 2,165 |
| 2,646 |
|
| 1,539 |
| 2,024 |
|
GE |
| $ | 30,680 |
| $ | 31,225 |
|
| $ | 14,370 |
| $ | 14,828 |
|
|
|
|
|
|
|
|
Land and improvements, buildings, structures and related equipment | 1-40 | 149 |
| $ | 153 |
|
| 29 |
| $ | 32 |
|
Equipment leased to others (ELTO) |
| | |
|
|
|
Aircraft | 15-20 | 35,507 |
| 36,476 |
|
| 21,414 |
| 22,201 |
|
Engines | 15-20 | 4,113 |
| 3,234 |
|
| 3,283 |
| 2,489 |
|
Helicopters | 15-20 | 5,474 |
| 5,230 |
|
| 4,709 |
| 4,660 |
|
All other | 15-35 | 237 |
| 209 |
|
| 214 |
| 128 |
|
GE Capital(a) |
| $ | 45,480 |
| $ | 45,302 |
|
| $ | 29,649 |
| $ | 29,510 |
|
| | | | | | |
Eliminations |
| (972 | ) | (909 | ) |
| (729 | ) | (728 | ) |
Total |
| $ | 75,187 |
| $ | 75,618 |
|
| $ | 43,290 |
| $ | 43,611 |
|
(b) | Included $1,457 million and $1,024 million of original cost of assets leased to GE with accumulated amortization of $147 million and $83 million at December 31, 2016 and 2015, respectively. |
(a) Included $1,539 million and $1,397 million of original cost of assets leased to GE with accumulated amortization of $(251) million and $(241) million at December 31, 2019 and 2018, respectively.(c) | The GECAS business of GE Capital recognized impairment losses of $99 million and $168 million in 2016 and 2015, respectively. These losses are recorded in the caption "Cost of services sold" in the Statement of Earnings to reflect adjustments to fair value based on management's best estimates, which are benchmarked against third-party appraiser current market values for aircraft of similar type and age. |
Consolidated depreciation and amortization related to property, plant and equipment was $4,997$4,026 million, $4,847$4,419 million and $4,953$4,332 million in 2016, 2015for the years ended December 31, 2019, 2018 and 2014,2017, respectively. Amortization of GE Capital equipment leased to othersELTO was $2,231$2,019 million, $2,266$2,089 million and $2,386$2,190 million in 2016, 2015for the years ended December 31, 2019, 2018 and 2014,2017, respectively.
Noncancellable future rentals due from customers for equipment on operating leases at December 31, 2016,2019, are as follows: |
| | | | | | | | | | | | | | | | | | | | | |
(In millions) | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| Thereafter |
| Total |
|
| | | | | | | |
| $ | 2,982 |
| $ | 2,625 |
| $ | 2,258 |
| $ | 1,820 |
| $ | 1,647 |
| $ | 5,652 |
| $ | 16,985 |
|
Operating lease income on our ELTO was $3,804 million, $4,075 million, and $4,144 million for the years ended December 31, 2019, 2018, and 2017, respectively, and comprises fixed lease income of $3,045 million, $3,243 million and $3,395 million and variable lease income of $759 million, $832 million and $748 million, respectively.
Operating Lease Assets and Liabilities. Our ROU assets and lease liabilities for operating leases were $2,896 million and $3,162 million, respectively, as of December 31, 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 (In millions) | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | |
Long-term (fixed) | $ | 834 |
| | $ | 966 |
| | $ | 1,003 |
|
Long-term (variable) | 136 |
| | 177 |
| | 231 |
|
Short-term | 206 |
| | 133 |
| | 131 |
|
Total operating lease expense | $ | 1,176 |
| | $ | 1,276 |
| | $ | 1,365 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(In millions) | | |
| | |
Due in | | |
2017 | $ | 3,684 |
2018 | | 3,307 |
2019 | | 2,912 |
2020 | | 2,575 |
2021 | | 2,144 |
2022 and later | | 6,338 |
Total | $ | 20,961 |
| | |
GE 2016 FORM 10-K 157
|
| | | | | | | | | | | | | | | | | | | | | |
MATURITY OF LEASE LIABILITIES (In millions) | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| Thereafter |
| Total |
|
| | | | | | | |
Undiscounted lease payments | $ | 766 |
| $ | 655 |
| $ | 561 |
| $ | 465 |
| $ | 375 |
| $ | 914 |
| $ | 3,737 |
|
Less: imputed interest | | | | | | | (575 | ) |
Total lease liability as of December 31, 2019 | | | | | | | $ | 3,162 |
|
|
| | | |
SUPPLEMENTAL INFORMATION RELATED TO OPERATING LEASES (Dollars in millions) | |
| |
Operating cash flows used for operating leases for the year ended December 31, 2019 | $ | 888 |
|
Right-of-use assets obtained in exchange for new lease liabilities for the year ended December 31, 2019 | $ | 746 |
|
Weighted-average remaining lease term at December 31, 2019 | 6.9 years |
|
Weighted-average discount rate at December 31, 2019 | 4.9 | % |
NOTE 8. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
ACQUISITIONS
In the fourth quarter of 2016, we acquired two European 3-D printing companies in |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CHANGES IN GOODWILL BALANCES |
|
| 2018 | 2019 |
(In millions) | Balance at December 31, 2017 |
| Dispositions and classifications to held for sale |
| Impairments |
| Currency exchange and other |
| Balance at December 31, 2018 |
| Dispositions and classifications to held for sale |
| Impairments |
| Currency exchange and other |
| Balance at December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power | $ | 20,855 |
| $ | (1,903 | ) | $ | (18,443 | ) | $ | (369 | ) | $ | 139 |
| $ | — |
| $ | — |
| $ | 6 |
| $ | 145 |
|
Renewable Energy | 7,626 |
| (3 | ) | (2,859 | ) | (35 | ) | 4,730 |
| — |
| (1,486 | ) | 46 |
| 3,290 |
|
Aviation | 10,008 |
| (12 | ) | — |
| (158 | ) | 9,839 |
| — |
| — |
| 20 |
| 9,859 |
|
Healthcare | 17,306 |
| (21 | ) | — |
| (58 | ) | 17,226 |
| (5,558 | ) | — |
| 59 |
| 11,728 |
|
Capital(a) | 984 |
| — |
| — |
| (80 | ) | 904 |
| (39 | ) | — |
| (26 | ) | 839 |
|
Corporate(b) | 2,042 |
| (81 | ) | (833 | ) | 9 |
| 1,136 |
| — |
| — |
| (262 | ) | 873 |
|
Total | $ | 58,821 |
| $ | (2,020 | ) | $ | (22,136 | ) | $ | (691 | ) | $ | 33,974 |
| $ | (5,597 | ) | $ | (1,486 | ) | $ | (157 | ) | $ | 26,734 |
|
(a) Capital balance at December 31, 2019 is our GE Capital Aviation segment. On November 17, 2016, we acquired an additional 61.9% of the shares of Arcam AB, a Swedish company specializing in electron beam melting systems, for $422 million to bringServices (GECAS) business.
(b) Corporate balance at December 31, 2019 is our total ownership stake to 76.2%. Upon gaining control, we fair valued the business including our previously held 14.3% equity interest. The preliminary purchase price allocation resulted in goodwill of approximately of $495 million and amortizable intangible assets of approximately $95 million. On December 8, 2016, we acquired 75% of Concept Laser GmbH, a German company specializing in powder-bed based laser metal printing, for $573 million. GE holds a call option on the 25% noncontrolling interest that is exercisable for a one-year period beginning on the third anniversary of the acquisition date. The non-controlling interest holds a put option that is exercisable for a one-year period beginning on the fifth anniversary of the closing date. The preliminary purchase price allocation resulted in goodwill of approximately of $550 million and amortizable intangible assets of approximately $170 million. The allocation of purchase prices will be finalized upon completion of post-closing procedures.Digital business.
On November 9, 2016, we acquired the remaining 89% of Bit Stew, a software company specializing in gathering data from connected devices in complex industrial systems to help companies plan predictive maintenance and optimize productivity, for $129 million. Upon gaining control, we fair valued the business including our previously held 11% equity interest. The preliminary purchase price allocation resulted in goodwill of approximately $110 million and amortizable intangible assets of approximately $50 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
On October 31, 2016, we announced an agreement with Baker Hughes Incorporated (Baker Hughes) to combine GE's Oil & Gas business and Baker Hughes to create a new company. The transaction will be executed using a partnership structure, pursuant to which GE Oil & Gas and Baker Hughes will each contribute their operating assets to a newly formed partnership. GE will have a 62.5% interest in this partnership and existing Baker Hughes shareholders will have a 37.5% interest through a newly NYSE listed corporation. Baker Hughes shareholders will also receive a special one-time cash dividend of $17.50 per share at closing. GE will contribute $7.4 billon to the new partnership to fund the cash dividend to existing Baker Hughes shareholders. The transaction is subject to the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions.
On September 14, 2016, we acquired the remaining 74% of the software developer Meridium Inc. for $370 million. Upon gaining control, we fair valued the business including our previously held 26% equity interest. The preliminary purchase price allocation resulted in goodwill of approximately $350 million and amortizable intangible assets of approximately $165 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
On May 10, 2016, we announced the pending acquisition of the heat recovery steam generator (HRSG) business from Doosan Engineering & Construction (Doosan) for $250 million. On August 16, 2016, we acquired 80% of the HRSG business for approximately $220 million. The remaining 20% of the HRSG business continues to be subject to local regulatory requirements and we expect a staggered close beginning in the first quarter of 2017 through the first half of 2017. The preliminary purchase price allocation resulted in goodwill of approximately $170 million and amortizable intangible assets of approximately $35 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
On January 30, 2015, we acquired Milestone Aviation Group (Milestone Aviation), a helicopter leasing business, for approximately $1,750 million, which is included in our Capital segment. The purchase price allocation resulted in goodwill of approximately $730 million and amortizable intangible assets of approximately $345 million.
On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. The purchase price was €9,200 million ($10,124 million), net of cash acquired of approximately €1,600 million ($1,765 million). In order to obtain approval by the European Commission and the Department of Justice, GE pledged to sell certain of Alstom's gas-turbine assets and its Power Systems Manufacturing subsidiary to Ansaldo Energia SpA (Ansaldo) after the close of the transaction for approximately €120 million. The purchase price will be paid by Ansaldo over a period of five years. The transaction closed on February 25, 2016.
We formed three consolidated joint ventures with Alstom in grid technology, renewable energy, and global nuclear and French steam power. In addition, GE contributed its Digital Energy business to the grid technology joint venture.
Alstom holds redemption rights with respect to its interest in the grid technology and renewable energy joint ventures, which, if exercised, would require us to purchase all of their interest during September 2018 or September 2019. Alstom also holds similar redemption rights for the global nuclear and French steam power joint venture that are exercisable during the first full calendar quarter immediately following the fifth or sixth anniversary of the acquisition date. The redemption price would generally be equal to Alstom's initial investment plus annual accretion of 3% for the grid technology and renewable energy joint ventures and plus annual accretion of 2% for the nuclear and French steam power joint venture, with potential upside sharing based on an EBITDA multiple. Alstom also holds additional redemption rights in other limited circumstances as well as a call option to require GE to sell all of its interests in the renewable energy joint venture at the higher of fair value or Alstom's initial investment plus annual accretion of 3% during the month of May in the years 2016 through 2019 and also upon a decision to IPO the joint venture.
GE holds a call option on Alstom's interest in the global nuclear and French steam power joint venture at the same amount as Alstom's redemption price in the event that Alstom exercises its put option in the grid technology or renewable energy joint ventures. GE also has call options on Alstom's interest in the three joint ventures in other limited circumstances. In addition, the French Government holds a preferred interest in the global nuclear and French steam power joint venture, giving it certain protective rights.
The acquisition and alliances with Alstom will have a significant effect on our Power, Energy Connections and Renewable Energy segments, and to a lesser extent our Oil & Gas segment. The financial impact of acquired businesses on individual segments will be affected by a number of variables, including operating performance, purchase accounting effects and realized synergies. In addition, due to the amount of time that elapsed between signing and closing, the commercial operations of the businesses were negatively affectedGoodwill balances decreased primarily as a result of uncertainty among Alstom customers regardingtransferring 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.
In the executionsecond quarter of 2019, we reorganized our Grid Solutions reporting unit in our Power segment by separating our Grid Solutions software business from the Grid Solutions reporting unit. Our Grid Solutions software business was then moved into Corporate and combined with our Digital business. In addition, the remaining Grid Solutions reporting unit (now referred to as Grid Solutions equipment and services) was moved into our Renewable Energy segment as a separate reporting unit. As a result, we allocated goodwill between Grid Solutions software and the Grid Solutions equipment and services reporting units based on the relative fair values of each business. This resulted in $1,618 million of goodwill transferring from our Power segment to our Renewable Energy segment and our Digital business within Corporate in the amounts of $744 million and $874 million, respectively.
As a consequence of separating the two businesses, the Grid Solutions equipment and services reporting unit’s fair value was below its carrying value. Therefore, we conducted step two of the transaction. This affectedgoodwill impairment test for this reporting unit using a current outlook.
In performing the overall valuationsecond step, we identified unrecognized intangible assets primarily related to internally developed technology and trade name. The combination of the acquired businesses at the time of close and, accordingly, is reflected among the initial and adjusted amounts assignedthese unrecognized intangibles, adjustments to the carrying value of other assets and liabilities, recordedand reduced reporting unit fair value calculated in purchase accounting.
ALSTOM ACQUISITION ACCOUNTING UPDATE
The total consideration for the acquired businesses, at the time of close in November 2015 included our purchase price of $10,124 million (net of cash acquired) and a preliminary valuation of noncontrolling interests, of approximately $3,600 million for a total of approximately $13,700 million. In the fourth quarter of 2015, the preliminary allocation of purchase pricestep one, resulted in goodwill, intangible assets and unfavorable customer contract liabilities of approximately $13,500 million, $5,200 million, and $1,100 million respectively. The amount of goodwill recognized compared with identifiable intangible assets is affected by estimated GE-specific synergies, which are not permitted to be included in the measurement of identifiable intangibles. Such synergies include additional revenue from cross-selling complementary product lines. The preliminaryan implied fair value of goodwill below the associated noncontrolling interests consisted of approximately $2,900 million for Alstom's redeemable noncontrolling interests in the three joint ventures (presented separately from total equity in the consolidated statement of financial position) and $700 million for all other noncontrolling interests.
Through the fourth quarter of 2016, we adjusted the preliminary allocation of purchase price, which has now resulted in goodwill, intangible assets, and unfavorable customer contract liabilities, of $17,304 million, $4,370 million, and $2,720 million, respectively as of the acquisition date. These adjustments, which are necessary to reflect acquired assets and liabilities of the acquired businesses at fair value, reflected revisions in 2016, primarily related to cash flow and other valuation assumptions for customer contracts, increases to legal reserves, and other fair value adjustments related to acquired assets and liabilities. The approximate amounts of significant purchase accounting adjustments recorded since the date of acquisition include a reduction in the bookcarrying value of assets sold to Ansaldogoodwill for the Grid Solutions equipment and services reporting unit. Therefore, we recorded a non-cash goodwill impairment loss of $405$744 million adjustments to the fair valuein Goodwill impairments in our consolidated Statement of derivative contracts of $335 million, decreases in inventory balances of $130 million, increases to legal reserves of $990 million, a reduction in the book value of aged accounts receivable of $175 million and other project related costs such as warranty provisions and liquidating damages of $665 million. In addition, the fair value of all other noncontrolling interests decreased by $55 million.
See Note 23 for further information about legal reserves for Alstom legacy matters.
In addition to purchase price allocation based on the fair value of acquired assets and liabilities, other adjustments were necessary to reflect differences between IFRS and GAAP, as applied to differences in facts and circumstances between those businesses as part of Alstom and as part of GE post acquisition. The table below presents consideration paid, amounts of assets acquired and liabilities assumed as of the acquisition date, inclusive of the purchase accounting adjustments and IFRS to GAAP adjustments recorded as of December 31, 2016, andEarnings (Loss). We determined the fair value of the non-controlling interest.Grid Solutions equipment and services reporting unit using a combination of the market and income approaches. After the impairment charge, there is no 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 was reflected in these segments in the table above.
GE 20162019 FORM 10-K 159 82
ASSETS ACQUIRED AND LIABILITIES ASSUMED AT THE ACQUISITION DATE | | |
| | |
| Balance at |
(In millions) | December 31, 2016 |
| | |
Assets | | |
Cash and equivalents | $ | 1,766 |
Current receivables | | 4,064 |
Inventories | | 4,663 |
Property, plant and equipment | | 2,782 |
Goodwill | | 17,304 |
Other intangible assets | | 4,370 |
All other assets, net(a) | | 3,673 |
Total Assets | $ | 38,622 |
| | |
Liabilities | | |
Accounts payable | $ | 1,908 |
Progress collections | | 2,919 |
Accrued contract liabilities | | 10,714 |
All other liabilities(b) | | 7,658 |
Total Liabilities | $ | 23,199 |
| | |
Redeemable noncontrolling interests | | 2,921 |
| | |
Noncontrolling interest | | 612 |
| | |
Total purchase price | | 11,890 |
Less cash acquired | | 1,766 |
Total purchase price, net of cash acquired | $ | 10,124 |
| | |
(a) |
| Included approximately $156 million of net deferred tax assets, including approximately $52 million of non-U.S. loss carry forwards net of valuation allowances and offsetting liabilities for unrecognized benefits. Also included approximately $76 million of indemnification receivables for liabilities for unrecognized income tax benefits and other tax uncertainties. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(b) | Included approximately $859 million of liabilities for unrecognized income tax benefits and other uncertain taxes and approximately $772 million of pension and other employee related costs.
|
GOODWILL
CHANGES IN GOODWILL BALANCES |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | 2015 |
| | | | | | Dispositions, | | | | | | | | | | Dispositions, | | | |
| | | | | currency | | | | | | | | | | currency | | | |
| Balance at | | | | exchange | | Balance at | | Balance at | | | | exchange | | Balance at |
(In millions) | January 1 | | Acquisitions | | and other | | December 31 | | January 1 | | Acquisitions | | and other | | December 31 |
| | | | | | | | | | | | | | | | | | | | | | | |
Power | $ | 16,736 | | $ | 3,347 | | $ | (268) | | $ | 19,816 | | $ | 7,769 | | $ | 9,582 | | $ | (615) | | $ | 16,736 |
Renewable Energy | | 2,580 | | | (46) | | | (27) | | | 2,507 | | | 984 | | | 1,631 | | | (35) | | | 2,580 |
Oil & Gas | | 10,594 | | | - | | | (231) | | | 10,363 | | | 10,572 | | | 22 | | | - | | | 10,594 |
Aviation | | 8,567 | | | 1,045 | | | (158) | | | 9,455 | | | 8,952 | | | - | | | (385) | | | 8,567 |
Healthcare | | 17,353 | | | 191 | | | (120) | | | 17,424 | | | 17,532 | | | 11 | | | (190) | | | 17,353 |
Transportation | | 851 | | | 41 | | | 6 | | | 899 | | | 887 | | | - | | | (36) | | | 851 |
Energy Connections & Lighting | | 6,441 | | | 846 | | | (420) | | | 6,868 | | | 4,796 | | | 2,314 | | | (669) | | | 6,441 |
Capital | | 2,370 | | | - | | | (1) | | | 2,368 | | | 1,680 | | | 728 | | | (37) | | | 2,370 |
Corporate | | 34 | | | 487 | | | 218 | | | 739 | | | 34 | | | - | | | - | | | 34 |
Total | $ | 65,526 | | $ | 5,911 | | $ | (1,000) | | $ | 70,438 | | $ | 53,207 | | $ | 14,287 | | $ | (1,968) | | $ | 65,526 |
| | | | | | | | | | | | | | | | | | | | | | | |
Goodwill balances increased by $4,912 million in 2016, primarily as a result of the Alstom acquisition purchase accounting adjustments and other acquisitions, partially offset by currency exchange effects of a stronger U.S. dollar against other major currencies.
Goodwill balances increased $12,319 million in 2015, primarily as a result of the Alstom and Milestone Aviation acquisitions, partially offset by currency exchange effects of the stronger U.S. dollar and disposals.
We test goodwill for impairment annually inIn the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit's assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.
Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 9.5% to 16.5%.
During the third quarter of 2016,2019, we performed our annual impairment test of goodwill for all of our reporting units.test. Based on the results of our step one testing,this test, the fair values of each of the GEour reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performedvalues except for any of our reporting units and no goodwill impairment was recognized.
While all of our reporting units passed step one of our annual impairment testing in 2016, we identified four reporting units for which the fair value was not substantially in excess of its carrying value. Due to the continuation of depressed oil and natural gas prices, the fair value of our Energy Financial Services reporting unit, within our Capital operating segment, continues to be impacted and was in excess of its carrying value by approximately 2%. Based on the results of the step one testing, we further substantiated our Energy Financial Services goodwill balance by performing the second step analysis in which the implied fair value of goodwill exceeded its carrying value by approximately $670 million. We continued to monitor the volatility in the oil and gas environment during the fourth quarter and updated our analysis using data as of October 1, 2016. This analysis indicated that the fair value of our Energy Financial Services reporting unit was significantly in excess of its carrying value. The improvement in fair value over its carrying value was driven by higher forecasted investment and return performance, reflecting stabilization in the commodities markets. The estimated fair value of the Energy Financial Services reporting unit is based on a number of assumptions about future business performance and investment, including the performance of our renewable investment portfolio and the expected proceeds and timing of non-strategic investment divestitures. While all reporting units within our Oil & Gas operating segment are significantly in excess of their carrying value, the business continues to experience declines in orders, project commencement delays and pricing pressures, which affect their fair value. While the goodwill of the Energy Financial Services and Oil & Gas reporting units are not currently impaired, we will continue to monitor the oil & gas industry and the impact it may have on these businesses.
In addition, due to a decline in order growth and an increase in the order-to-cash cycle, the fair value of the Power Conversion reporting unit, within our Energy Connections operating segment, was impacted and was in excess of its carrying value by approximately 9%. Due to continued decline in order growth and increase to the order-to-cash cycle, we performed an impairment test in the fourth quarter using data as of December 1, 2016, which resulted in the fair value of our Power Conversion reporting unit to be in excess of its carrying value by approximately 8%. The goodwill associated with our Power Conversion reporting unit was $987 million at December 31, 2016, representing approximately 1% of our total goodwill. While the goodwill of the reporting unit is not currently impaired, there could be an impairment in the future as a result of changes in certain assumptions. For example, the reporting unit's fair value could be adversely affected and result in an impairment of goodwill if actual cash flows are below estimated cash flows, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease.
Finally, two reporting unit fair values were impacted as a result of the Alstom transaction. Subsequent to the close of the acquisition of Alstom, we formed two new reporting units, Grid Solutions and Hydro. The Alstom Grid business was combined with our Digital Energy business, within our Energy Connections operating segment, to create the new Grid Solutions reporting unit and the Alstom Hydro business is a newly created reporting unit within our Renewable Energy operating segment. Since fair values equaled carrying value at the time of acquisition,The Hydro reporting unit continued 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 caused the fair values of these reporting units not to be significantly in excess of their carrying values. As the fair values of these reporting units are not significantly in excess of their carrying values,business. Therefore, we performed impairment tests in the fourth quarter using data as of December 1, 2016,a step two analysis which resulted in a non-cash goodwill impairment loss of $742 million. We determined the fair value of the Hydro reporting unit approximating its carrying value andusing the excessincome approach. We recorded the impairment loss in Goodwill impairments in our consolidated Statement of fair value over carrying value ofEarnings (Loss). After the Grid Solutions reporting unit being approximately 3%. Theimpairment charge, there is 0 remaining goodwill associated with our Hydro and Grid Solutions reporting units was $899 million and $4,405 million, respectively, representing approximately 1% and 6%unit. All of our total goodwill at December 31, 2016. While the goodwill of thesein this reporting units are not currently impaired, there could be an impairment in the futureunit was previously recorded as a result of changesthe Alstom acquisition.
Subsequent to this year's third quarter testing, and in certain assumptions. For example,order to improve alignment of our annual goodwill impairment testing and strategic planning processes, we changed our annual testing date from the third quarter to the fourth quarter. Therefore, we retested the goodwill at each of our reporting units in the fourth quarter of 2019. Based on the results of this test, the fair value of theseall our reporting units could be adversely affectedexceeded their carrying values.
We continue to monitor the operating results and result in impairmentscash flow forecasts of goodwill if expected synergies of the acquisition with Alstom are not realized or if the reporting units were not able to execute on customer opportunities, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease.
As of December 31, 2016, we believe that the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.
In 2015, we identified oneour Additive reporting unit for whichin our Aviation segment as the fair value of this reporting unit was not substantiallysignificantly in excess of its carrying value. Due to the sharp decline experienced in oil prices and the prospect of a continuation of prevailing oil prices, the fair value ofAt December 31, 2019, our Energy Financial ServicesAdditive reporting unit within our Capital operating segment, had been affected and was in excessgoodwill of its carrying value by approximately 13%. Due$1,116 million.
We also continue to evaluate strategic options to accelerate the continued decline in oil prices, we performed an impairment testfurther reduction in the fourth quarter using data assize of December 31, 2015,GE Capital, some of which resulted incould have a material charge depending on the fair valuetiming, negotiated terms and conditions of our Energy Financial Services reporting unit being in excessany agreements, including $839 million of its carrying value by approximately 12%. In the current year, the fair value of the Energy Financial Services reporting unit continues to be impacted by the market conditions within the oil & gas industry as discussed above.goodwill.
In 2015, although not impaired,2018, we recognized a total non-cash goodwill impairment loss of $22,136 million in our Oil & Gas business had also experienced declinesPower Generation, Grid Solutions, and Hydro reporting units in orders, project commencement delaysour Power and pricing pressures, which affected the fair value of our Oil & Gas reporting units. Our Oil & Gas business continues to be affected by the overall market conditions as discussed above.
Renewable Energy segments.
EstimatingDetermining 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.
|
| | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 |
INTANGIBLE ASSETS SUBJECT TO AMORTIZATION December 31 (In millions) | Gross carrying amount |
| Accumulated amortization |
| Net |
|
| Gross carrying amount |
| Accumulated amortization |
| Net |
|
| | | | | | | |
Customer-related(a) | $ | 6,770 |
| $ | (3,070 | ) | $ | 3,701 |
| | $ | 7,107 |
| $ | (2,768 | ) | $ | 4,341 |
|
Patents and technology | 8,180 |
| (3,730 | ) | 4,450 |
| | 9,166 |
| (3,973 | ) | 5,192 |
|
Capitalized software | 5,822 |
| (3,651 | ) | 2,171 |
| | 5,951 |
| (3,643 | ) | 2,308 |
|
Trademarks & other | 737 |
| (406 | ) | 332 |
| | 818 |
| (481 | ) | 337 |
|
Total | $ | 21,510 |
| $ | (10,857 | ) | $ | 10,653 |
| | $ | 23,041 |
| $ | (10,865 | ) | $ | 12,178 |
|
(a) Balance includes payments made to our customers, primarily within our Aviation business.
OTHER INTANGIBLE ASSETS - NET | |
| | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Intangible assets subject to amortization | $ | 16,336 | | $ | 17,688 |
Indefinite-lived intangible assets(a) | | 100 | | | 109 |
Total | $ | 16,436 | | $ | 17,797 |
| | | | | |
(a) | Indefinite-lived intangible assets principally comprise trademarks and in-process research and development. |
INTANGIBLE ASSETS SUBJECT TO AMORTIZATION |
| | | | | | | | | | | | | | | | | |
| 2016 | | 2015 |
| Gross | | | | | | Gross | | | | |
| carrying | | Accumulated | | | | carrying | | Accumulated | | |
December 31 (In millions) | amount | | amortization | | Net | | amount | | amortization | | Net |
| | | | | | | | | | | | | | | | | |
Customer-related | $ | 9,172 | | $ | (2,408) | | $ | 6,764 | | $ | 9,758 | | $ | (2,113) | | $ | 7,645 |
Patents and technology | | 8,693 | | | (3,325) | | | 5,368 | | | 8,543 | | | (3,096) | | | 5,447 |
Capitalized software | | 7,652 | | | (4,538) | | | 3,114 | | | 7,375 | | | (4,136) | | | 3,239 |
Trademarks | | 1,165 | | | (307) | | | 858 | | | 1,337 | | | (282) | | | 1,055 |
Lease valuations | | 143 | | | (59) | | | 84 | | | 167 | | | (22) | | | 145 |
Present value of future profits(a) | | 684 | | | (684) | | | - | | | 651 | | | (651) | | | - |
All other | | 273 | | | (124) | | | 149 | | | 267 | | | (108) | | | 159 |
Total | $ | 27,781 | | $ | (11,444) | | $ | 16,336 | | $ | 28,098 | | $ | (10,408) | | $ | 17,688 |
| | | | | | | | | | | | | | | | | |
(a) | Balances at December 31, 2016 and 2015 reflect adjustments of $241 million and $266 million, respectively, to the present value of future profits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized. |
GEIntangible assets decreased in the fourth quarter of 2019, primarily as a result of amortization, impairments, and the transfer of BioPharma within our Healthcare segment to held for sale of $542 million. Consolidated amortization expense related towas $1,569 million, $2,163 million and $1,862 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Included within amortization expense for the years ended December 31, 2019 and December 31, 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 subject to amortization was $1,704 million, $1,505 millionusing an income approach. These charges were recorded in Selling, general, and $1,386 millionadministrative expenses in 2016, 2015 and 2014, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $131 million, $148 million and $84 million in 2016, 2015 and 2014, respectively. our consolidated Statement of Earnings (Loss).
Estimated GE Consolidated annual pre-tax amortization for intangible assets over the next five calendar years follows.are as follows:
|
| | | | | | | | | | | | | | | |
ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION (In millions) | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
|
| | | | | |
Estimated annual pre-tax amortization | $ | 1,358 |
| $ | 1,274 |
| $ | 1,173 |
| $ | 1,081 |
| $ | 1,107 |
|
ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION | | |
| | | | | | | | | | | | | | |
(In millions) | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 |
| | | | | | | | | | | | | | |
Estimated annual pre-tax amortization | $ | 2,058 | | $ | 1,947 | | $ | 1,846 | | $ | 1,666 | | $ | 1,519 |
| | | | | | | | | | | | | | |
During 20162019, we recorded additions to intangible assets subject to amortization of $2,313 million. The components of finite-lived intangible assets acquired during 2016 and their respective$664 million with a weighted-average amortizable periods follow.period of 5.4 years, including capitalized software of $555 million, with a weighted-average amortizable period of 5.2 years.
COMPONENTS OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED DURING 2016 |
| | | | | |
| | | Weighted-average |
| Gross | | amortizable period |
(In millions) | carrying value | | (in years) |
| | | | | |
Customer-related | $ | 387 | | | 15.3 |
Patents and technology | | 804 | | | 12.4 |
Capitalized software | | 1,107 | | | 5.0 |
Trademarks | | 11 | | | 7.2 |
All other | | 3 | | | 3.0 |
| | | | | |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE 2016 FORM 10-K 163
NOTE 9. CONTRACT
AND OTHER DEFERRED ASSETS
& PROGRESS COLLECTIONS AND
ALL OTHER ASSETSDEFERRED INCOME
Contract and other deferred assets decreased $629 million in 2019. Our long-term service agreements decreased primarily due to billings of $11,508 million and a net unfavorable change in estimated profitability of $124 million at Power and $49 million at Aviation, offset by revenues recognized of $11,082 million.
December 31 (In millions) | | 2016 | | | 2015 |
| | | | | |
GE | | | | | |
Revenue in excess of billings | | | | | |
Long-term product service agreements(a) | $ | 12,752 | | $ | 10,346 |
Long-term equipment contract revenue(b) | | 5,859 | | | 5,645 |
Total revenue in excess of billings | | 18,611 | | | 15,991 |
| | | | | |
Deferred inventory costs(c) | | 3,349 | | | 2,328 |
Non-recurring engineering costs(d) | | 2,185 | | | 1,790 |
Other | | 1,018 | | | 1,048 |
Contract assets | $ | 25,162 | | $ | 21,156 |
| | | | | |
|
| | | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
|
|
|
|
|
|
|
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(c) | 943 |
| 287 |
| 1,677 |
| 359 |
| — |
| 3,267 |
|
Nonrecurring engineering costs(d) | 44 |
| 2,257 |
| 47 |
| 35 |
| 8 |
| 2,391 |
|
Customer advances and other(e) | — |
| 1,165 |
| — |
| — |
| (32 | ) | 1,133 |
|
Contract and other deferred assets | $ | 7,465 |
| $ | 5,384 |
| $ | 2,985 |
| $ | 886 |
| $ | 82 |
| $ | 16,801 |
|
|
| | | | | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of billings | $ | 5,368 |
| $ | 5,412 |
| $ | — |
| $ | — |
| $ | — |
| $ | 10,780 |
|
Billings in excess of revenues | (1,693 | ) | (3,297 | ) | — |
| — |
| — |
| (4,989 | ) |
Long-term service agreements(a) | $ | 3,675 |
| $ | 2,115 |
| $ | — |
| $ | — |
| $ | — |
| $ | 5,790 |
|
Short-term and other service agreements | 167 |
| 272 |
| — |
| 251 |
| — |
| 690 |
|
Equipment contract revenues(b) | 2,761 |
| 80 |
| 1,174 |
| 320 |
| 64 |
| 4,400 |
|
Total contract assets | 6,603 |
| 2,468 |
| 1,174 |
| 571 |
| 64 |
| 10,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred inventory costs(c) | 1,003 |
| 673 |
| 1,267 |
| 360 |
| 5 |
| 3,309 |
|
Nonrecurring engineering costs(d) | 43 |
| 1,916 |
| 85 |
| 34 |
| 17 |
| 2,095 |
|
Customer advances and other(e) | — |
| 1,146 |
| — |
| — |
| — |
| 1,146 |
|
Contract and other deferred assets | $ | 7,650 |
| $ | 6,204 |
| $ | 2,525 |
| $ | 966 |
| $ | 87 |
| $ | 17,431 |
|
(a) | Long-term product |
(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 agreement balances are presented net of related billings in excess of revenues of $3,750agreements, totaling $1,712 million and $2,602$1,562 million atas of December 31, 20162019 and 2015,2018, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to $308 million and $310 million as of December 31, 2019 and 2018, respectively. |
| |
(b) | Reflects revenues earned in excessIncluded are amounts due from customers at Power for the sale of billings on ourservices upgrades, which we collect through incremental fixed or usage-based fees from servicing the equipment under long-term contracts to construct technically complex equipment (suchservice agreements, totaling $909 million and $886 million as gas power systems).of December 31, 2019 and 2018, respectively. |
| |
(c) | Represents cost deferral for shipped goods (such as components for wind turbine assemblyassemblies within our Renewable Energy segment) and labor and overhead costs on time and material service contracts (primarily originating in Power and Aviation) and other costs for which the criteria for revenue recognition has not yet been met. |
| |
(d) | Included costs incurred prior to production (e.g.,(such as requisition engineering) for long-term equipment production contracts, primarily within our Aviation segment, which are allocated ratably to each unit produced. |
Contract assets increased $4,006 million in 2016, which was primarily driven by a change in estimated profitability within our long-term product service agreements resulting in an adjustment of $2,216 million, as well as an increase in deferred inventory costs.
December 31 (In millions) | | 2016 | | | 2015 |
| | | | | |
GE | | | | | |
Investments | | | | | |
Associated companies | $ | 3,574 | | $ | 3,582 |
Other | | 631 | | | 644 |
| | 4,205 | | | 4,226 |
Long-term receivables, including notes | | 2,433 | | | 2,310 |
Derivative instruments | | 313 | | | 733 |
Other(a) | | 5,055 | | | 5,544 |
| | 12,007 | | | 12,813 |
GE Capital | | | | | |
Investments | | | | | |
Associated companies | | 8,124 | | | 8,373 |
Assets held for sale(b) | | 2,361 | | | 857 |
Time deposits(c) | | - | | | 10,386 |
Other | | 122 | | | 97 |
| | 10,607 | | | 19,713 |
Derivative instruments | | 32 | | | 549 |
Advances to suppliers | | 1,632 | | | 1,809 |
Other(d) | | 2,337 | | | 3,010 |
| | 14,608 | | | 25,081 |
Eliminations | | 561 | | | (1,097) |
All Other Assets | $ | 27,176 | | $ | 36,797 |
| | | | | |
(a) | Primarily included $3,320 |
(e) | 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 $986 million and $3,494 million of prepaid insurance, taxes and other expenses and $789 million and $1,030 million of deferred charges at December 31, 2016 and 2015, respectively. |
(b) | Assets were classified as held for sale on the date a decision was made to dispose of them through sale or other means. At December 31, 2016 and 2015, such assets consisted primarily of loans, aircraft and equipment, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell. |
(c) | Balances at December 31, 2015 included $10,386 million of high quality interest bearing deposits with European branches of global banks, predominantly in the U.K., that matured in April 2016. |
(d) | Balances at December 31, 2016 and 2015 included deferred acquisition cost adjustments of $558 million and $544 million, respectively, in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
|
December 31 (Dollars in millions) | | | 2016 | | | | | | 2015 | | | |
| | | | | | | | | | | | |
Short-term borrowings | | | Amount | | Average Rate(a) | | | | Amount | | Average Rate(a) | |
GE | | | | | | | | | | | | |
Commercial paper | | $ | 1,500 | | 0.60 | % | | $ | 500 | | 0.15 | % |
Current portion of long-term borrowings | | | 17,109 | | 3.16 | | | | 17,770 | | 2.10 | |
Other | | | 1,874 | | | | | | 1,522 | | | |
Total GE short-term borrowings(b) | | | 20,482 | | | | | | 19,792 | | | |
| | | | | | | | | | | | |
GE Capital | | | | | | | | | | | | |
Commercial paper | | | | | | | | | | | | |
U.S. | | | 5,002 | | 0.59 | | | | 650 | | 0.46 | |
Non-U.S. | | | - | | - | | | | 4,351 | | 0.01 | |
Current portion of long-term borrowings(c) | | | 6,517 | | 1.64 | | | | 24,969 | | 4.28 | |
Intercompany payable to GE(d) | | | 11,696 | | | | | | 17,642 | | | |
Other | | | 229 | | | | | | 1,005 | | | |
Total GE Capital short-term borrowings | | | 23,443 | | | | | | 48,617 | | | |
| | | | | | | | | | | | |
Eliminations(d) | | | (13,212) | | | | | | (18,549) | | | |
Total short-term borrowings | | $ | 30,714 | | | | | $ | 49,860 | | | |
| | | | | | | | | | | | |
Long-term borrowings | Maturities | | Amount | | Average Rate(a) | | | | Amount | | Average Rate(a) | |
GE | | | | | | | | | | | | |
Senior notes | 2018-2054 | $ | 54,396 | | 3.35 | % | | $ | 72,471 | | 3.23 | % |
Subordinated notes | 2021-2037 | | 2,768 | | 3.73 | | | | 2,940 | | 3.68 | |
Subordinated debentures(e) | 2067 | | 719 | | 6.12 | | | | 6,600 | | 6.14 | |
Other | | | 928 | | | | | | 1,298 | | | |
Total GE long-term borrowings(b) | | | 58,810 | | | | | | 83,309 | | | |
| | | | | | | | | | | | |
GE Capital | | | | | | | | | | | | |
Senior notes | 2018-2039 | | 44,131 | | 2.45 | | | | 59,107 | | 2.54 | |
Subordinated notes | | | 236 | | | | | | 251 | | - | |
Intercompany payable to GE(d) | | | 47,084 | | | | | | 67,062 | | | |
Other(c) | | | 1,992 | | | | | | 2,058 | | | |
Total GE Capital long-term borrowings | | | 93,443 | | | | | | 128,478 | | | |
| | | | | | | | | | | | |
Eliminations(d) | | | (47,173) | | | | | | (67,128) | | | |
Total long-term borrowings | | $ | 105,080 | | | | | $ | 144,659 | | | |
Non-recourse borrowings of | | | | | | | | | | | | |
consolidated securitization entities(f) | 2017-2018 | $ | 417 | | 2.23 | % | | $ | 3,083 | | 1.00 | % |
Total borrowings | | $ | 136,210 | | | | | $ | 197,602 | | | |
| | | | | | | | | | | | |
(a) | Based on year-end balances and year-end local currency effective interest rates, including the effects from hedging. |
(b) | Excluding assumed debt of GE Capital, the total amount of GE borrowings was $20,512 million at December 31, 2016. |
(c) | Included $2,665 million and $2,679 million of funding secured by aircraft and other collateral at December 31, 2016 and December 31, 2015, respectively, of which $1,419 million and $1,534 million is non-recourse to GE Capital at December 31, 2016 and December 31, 2015, respectively. |
(d) | The amount of the intercompany payable to GE was $58,780$950 million as of December 31, 2016, which includes a reduction in the short-term intercompany payable2019 and 2018, respectively. The corresponding discount is recorded within liabilities as Deferred income and amounted to GE for a $(1,329)$256 million loan which bears the rightand $223 million as of offset against amounts owed under the assumed debt agreement. The remaining short-term loan balance was paid in January 2017.December 31, 2019 and 2018, respectively. |
PROGRESS COLLECTIONS & DEFERRED INCOME. Progress collections represent cash received from customers under ordinary commercial payment terms in advance of delivery. Progress collections on equipment contracts primarily comprise milestone payments received from customers 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.
Progress collections and deferred income increased $1,456 million in 2019 primarily due to milestone payments received primarily at Aviation and Renewable Energy. These increases were partially offset by the timing of revenue recognition in excess of new collections received, primarily at Healthcare and Power.
Revenues recognized for contracts included in liability position at the beginning of the year were $11,020 million and $14,960 million for the year ended December 31, 2019 and 2018, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare | Other | Total |
|
|
|
|
|
|
|
Progress collections on equipment contracts | $ | 5,857 |
| $ | 115 |
| $ | 1,268 |
| $ | — |
| $ | — |
| $ | 7,240 |
|
Other progress collections | 413 |
| 4,748 |
| 4,193 |
| 305 |
| 189 |
| 9,849 |
|
Total progress collections | $ | 6,270 |
| $ | 4,863 |
| $ | 5,461 |
| $ | 305 |
| $ | 189 |
| $ | 17,089 |
|
Deferred income(a) | 49 |
| 1,528 |
| 284 |
| 1,647 |
| 98 |
| 3,606 |
|
GE Progress collections and deferred income
| $ | 6,319 |
| $ | 6,391 |
| $ | 5,745 |
| $ | 1,952 |
| $ | 287 |
| $ | 20,694 |
|
|
| | | | | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Progress collections on equipment contracts | $ | 5,536 |
| $ | 114 |
| $ | 1,325 |
| $ | — |
| $ | — |
| $ | 6,975 |
|
Other progress collections | 691 |
| 4,034 |
| 3,557 |
| 299 |
| 201 |
| 8,783 |
|
Total progress collections | $ | 6,227 |
| $ | 4,148 |
| $ | 4,883 |
| $ | 299 |
| $ | 201 |
| $ | 15,758 |
|
Deferred income(a) | 112 |
| 1,338 |
| 260 |
| 1,692 |
| 79 |
| 3,480 |
|
GE Progress collections and deferred income
| $ | 6,339 |
| $ | 5,486 |
| $ | 5,143 |
| $ | 1,991 |
| $ | 280 |
| $ | 19,239 |
|
| |
(a) | Included in this balance are finance discounts associated with customer advances at Aviation of $564 million and $533 million as of December 31, 2019 and 2018, respectively. |
NOTE 10. ALL OTHER ASSETS
|
| | | | | | |
December 31 (In millions) | 2019 |
| 2018 |
|
|
|
|
|
|
Equity method and other investments (Notes 3 and 26) | $ | 4,015 |
| $ | 4,003 |
|
Long-term receivables (Note 4) | 2,212 |
| 1,933 |
|
Prepaid taxes and deferred charges | 1,480 |
| 1,763 |
|
Derivative instruments (Note 21) | 211 |
| 30 |
|
Other | 481 |
| 849 |
|
Total GE | $ | 8,399 |
| $ | 8,578 |
|
|
|
|
Equity method and other investments (Notes 3 and 26) | $ | 2,227 |
| $ | 3,097 |
|
GECAS pre-delivery payments (Note 23) | 2,934 |
| 3,086 |
|
Assets held for sale | 2,294 |
| 2,762 |
|
Derivative instruments (Note 21) | 529 |
| 175 |
|
Other | 664 |
| 748 |
|
Total GE Capital | $ | 8,648 |
| $ | 9,869 |
|
Eliminations | (586 | ) | (90 | ) |
Total Consolidated | $ | 16,461 |
| $ | 18,357 |
|
(e) |
| Included $719 million and $2,587 million of subordinated debentures at December 31, 2016 and December 31, 2015, respectively, which constitute the sole assets of trusts that have issued trust preferred securities and where GE owns 100% of the common securities of the trusts. Obligations associated with these trusts are unconditionally guaranteed by GE. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(f) | Included $320 million and $918 million of current portion of long-term borrowings at December 31, 2016 and December 31, 2015, respectively. See Note 21. |
NOTE 11. BORROWINGS
|
| | | | | | | | | | | |
December 31 (Dollars in millions) | | 2019 |
| | 2018 |
| |
| | | | | |
| | Amount |
| Average Rate |
| Amount |
| Average Rate |
|
Commercial paper | | $ | 3,008 |
| 1.62 | % | $ | 3,005 |
| 1.64 | % |
Current portion of long-term borrowings | | 766 |
| 0.36 |
| 60 |
| 4.02 |
|
Current portion of long-term borrowings assumed by GE | | 5,473 |
| 3.71 |
| 4,207 |
| 3.76 |
|
Other | | 1,832 |
| | 2,081 |
| |
Total GE short-term borrowings | | $ | 11,079 |
| | $ | 9,354 |
| |
| | | | | |
Current portion of long-term borrowings | | 11,226 |
| 3.01 | % | 3,984 |
| 2.00 | % |
Intercompany payable to GE | | 2,104 |
| | 2,684 |
| |
Other | | 804 |
| | 1,015 |
| |
Total GE Capital short-term borrowings | | $ | 14,134 |
| | $ | 7,684 |
| |
| | | | | |
Eliminations | | (3,140 | ) | | (4,262 | ) | |
Total short-term borrowings | | $ | 22,072 |
| | $ | 12,776 |
| |
| | | | | |
| Maturities | Amount |
| Average Rate |
| Amount |
| Average Rate |
|
Senior notes | 2022-2044 | $ | 14,762 |
| 2.11 | % | $ | 20,387 |
| 2.28 | % |
Senior notes assumed by GE | 2021-2054 | 23,024 |
| 4.17 |
| 29,218 |
| 4.30 |
|
Subordinated notes assumed by GE | 2021-2037 | 2,871 |
| 3.68 |
| 2,836 |
| 3.64 |
|
Other | | 324 |
| | 417 |
| |
Total GE long-term borrowings | | $ | 40,980 |
| | $ | 52,858 |
| |
| | | | | |
Senior notes | 2021-2042 | $ | 25,371 |
| 3.66 | % | $ | 35,105 |
| 3.49 | % |
Subordinated notes | | 178 |
| | 165 |
|
|
Intercompany payable to GE | | 17,038 |
| | 19,828 |
| |
Other | | 626 |
| | 885 |
| |
Total GE Capital long-term borrowings | | $ | 43,213 |
| | $ | 55,982 |
| |
| | | | | |
Eliminations | | (17,038 | ) | | (19,892 | ) | |
Total long-term borrowings | | $ | 67,155 |
| | $ | 88,949 |
| |
Non-recourse borrowings of consolidated securitization entities | 2020-2021 | 1,655 |
| 1.34 | % | 1,875 |
| 2.05 | % |
Total borrowings | | $ | 90,882 |
| | $ | 103,599 |
| |
GE 2016 FORM 10-K 165
On June 3, 2016, GE commenced an offering to exchange $19.6 billion of allAt December 31, 2019, the outstanding
unregistered senior notesGE Capital borrowings that
were issuedhad been assumed by GE
as part of the GE Capital
International Funding Company Unlimited Company in a private offering on October 26, 2015,Exit Plan was $31,368 million ($5,473 million short term and $25,895 million long term), for
identical, registered 2.342% Senior Notes due 2020, 3.373% Senior Notes due 2025 and 4.418% Senior Notes due 2035.which GE has an offsetting Receivable from GE Capital of $19,142 million. The
exchange offer was completed on July 8, 2016.
As discussed in Note 1, the adoptiondifference of ASU 2015-03 resulted in the reclassification of $674$12,226 million of unamortized debt issuance costs related to the Company's borrowings, of which $641($3,369 million was reclassified in long-term borrowings and $33 million was reclassified in short-term borrowings within our consolidated balance sheet asand $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. In 2019, GE repaid $1,523 million of maturing intercompany loans from GE Capital.
At December 31, 2015.2019, total GE borrowings of $32,917 million comprised GE-issued borrowings of $20,691 million and intercompany loans from GE Capital to GE of $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. $92,537 million of such debt was assumed by GE on December 2, 2015 upon its merger with GE Capital resulting in an intercompany payable to GE. At December 31, 2016,2019, the amount of the intercompany payable to GE was $58,780 million, which includes a reduction in the short-term intercompany payable to GE for a $(1,329) million loan to GE which bears the right of offset against amounts owed under the assumed debt agreement. The remaining short-term loan balance was paid in January 2017. The Guarantee applies to approximately $47,476$34,683 million of GE Capital debt. Prior
On September 30, 2019, GE completed a tender offer to purchase $4,846 million in aggregate principal amount of certain senior unsecured debt, comprising $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 merger $35,999purchase price, GE paid any accrued and unpaid interest on the purchased notes through the date of purchase.
Non-recourse borrowings of consolidated securitization entities included $1,569 million (representing $31,154and $225 million of outstanding principalcurrent portion of long-term borrowings at December 31, 2019 and $4,846 million of premium) of GE Capital debt was exchanged into a new GE Capital international entity, including $16,372 million, which matured on April 15, 2016.2018, respectively. See Notes 4 and 22 for further information.
See Notes 20 and 29Note 21 for additionalfurther information about borrowings and associated swaps.interest rate swaps.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Liquidity is affected by debt maturities and our ability to repay or refinance such debt.
Long-term debt maturities over the next five years follow.
(In millions) | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 |
| | | | | | | | | | | | | | |
GE(a) | $ | 17,109 | | $ | 7,899 | | $ | 3,787 | | $ | 6,996 | | $ | 4,708 |
GE Capital | | 6,517 | (b) | | 5,578 | | | 4,111 | | | 11,107 | | | 2,131 |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
(In millions) | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
|
| | | | | |
GE excluding assumed debt | $ | 766 |
| $ | 47 |
| $ | 4,994 |
| $ | 1,360 |
| $ | 773 |
|
GE Capital debt assumed by GE(a) | 5,473 |
| 4,685 |
| 1,954 |
| 2,842 |
| 918 |
|
GE Capital other debt | 11,226 | (b) | 1,930 |
| 2,215 |
| 2,418 |
| 117 |
|
| |
(a) | Included borrowings assumed byOf these maturities, $3,369 million, $442 million, 0, 0 and $528 million for 2020, 2021, 2022, 2023 and 2024 respectively, were effectively transferred to GE as partthrough intercompany loans with right of the merger, for which GE has an offsetting amount due from GE Capital, of $13,024 million, $7,709 million, $3,729 million, $6,223 million and $4,672 million in 2017, 2018, 2019, 2020 and 2021, respectively. offset. |
| |
(b) | Fixed and floating rate notes of $498$443 million contain put options with exercise dates in 2017, and2020, which have final maturity beyond 2021.2024. |
NOTE 11. INVESTMENT CONTRACTS,12. INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Investment contracts, insuranceInsurance liabilities and insurance annuity benefits comprise mainly obligations to annuitants and policyholdersinsureds in our run-off insurance operations. |
| | | | | | | | | | | | | | | |
December 31, 2019 (In millions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other contracts | Other adjustments(a) | Total |
|
|
|
|
|
|
Future policy benefit reserves | $ | 16,755 |
| $ | 9,511 |
| $ | 183 |
| $ | 5,655 |
| $ | 32,104 |
|
Claim reserves(b) | 4,238 |
| 252 |
| 1,125 |
|
| 5,615 |
|
Investment contracts(c) | — |
| 1,136 |
| 1,055 |
| — |
| 2,191 |
|
Unearned premiums and other | 30 |
| 196 |
| 96 |
| — |
| 322 |
|
| 21,023 |
| 11,095 |
| 2,459 |
| 5,655 |
| 40,232 |
|
Eliminations | — |
| — |
| (406 | ) | — |
| (406 | ) |
Total | $ | 21,023 |
| $ | 11,095 |
| $ | 2,053 |
| $ | 5,655 |
| $ | 39,826 |
|
December 31 (In millions) | | 2016 | | 2015 |
| | | | | |
Life insurance benefits(a) | $ | 18,741 | | $ | 18,555 |
Investment contracts | | 2,813 | | | 2,955 |
Other(b) | | 4,992 | | | 4,646 |
| | 26,546 | | | 26,155 |
Eliminations | | (460) | | | (463) |
Total | $ | 26,086 | | $ | 25,692 |
| | | | | |
|
| | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
Future policy benefit reserves | $ | 16,029 |
| $ | 9,495 |
| $ | 169 |
| $ | 2,247 |
| $ | 27,940 |
|
Claim reserves(b) | 3,917 |
| 230 |
| 1,178 |
| — |
| 5,324 |
|
Investment contracts(c) | — |
| 1,239 |
| 1,149 |
| — |
| 2,388 |
|
Unearned premiums and other | 34 |
| 205 |
| 103 |
| — |
| 342 |
|
| 19,980 |
| 11,169 |
| 2,599 |
| 2,247 |
| 35,994 |
|
Eliminations | — |
| — |
| (432 | ) | — |
| (432 | ) |
Total | $ | 19,980 |
| $ | 11,169 |
| $ | 2,167 |
| $ | 2,247 |
| $ | 35,562 |
|
| |
(a) | LifeTo the extent that unrealized gains on specific investment securities supporting our insurance benefits are accounted for mainly bycontracts would result in a net-level-premium method using estimated yields generally ranging from 3.0% to 8.5%premium deficiency should those gains be realized, an increase in both 2016 and 2015.future policy benefit reserves is recorded, with an after-tax reduction of net unrealized gains recognized through Other comprehensive income in our consolidated Statement of Earnings (Loss). |
| |
(b) | Substantially all unpaid claimsOther contracts included claim reserves of $342 million and claims adjustment expenses$346 million related to short-duration contracts at Electric Insurance Company, net of eliminations, at December 31, 2019 and unearned premiums.December 31, 2018, respectively. |
| |
(c) | Investment contracts are contracts without significant mortality or morbidity risks. |
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. We performed 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 $972 million non-cash pre-tax charge to earnings in the third quarter 2019.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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. |
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.
Claim reserve activity included incurred claims of $1,873 million, $2,106 million and $2,020 million, of which $(36) million, $(46) million and $135 million related to the recognition of adjustments to prior year claim reserves arising from our periodic reserve evaluation in the years ended December 31, 2019, 2018 and 2017, respectively. Paid claims were $1,626 million, $1,937 million and $1,670 million in the years ended December 31, 2019, 2018 and 2017, respectively. The vast majority of paid claims relate to prior year insured events primarily as a result of the length of time long-term care policyholders remain on claim.
When insurance affiliatescompanies cede insurance risk to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders.policyholders and cedents. When losses on ceded risks give rise to claims for recovery, we establish allowances for probable losses on such receivables from reinsurers as required. The vast majority of our remaining net reinsurance recoverables are secured by assets held in a trust for which we are the beneficiary. Reinsurance recoverables, net of allowances of $1,355 million and $1,090 million, are included in the caption "Other receivables" onOther GE Capital receivables in our Consolidatedconsolidated Statement of Financial Position, and amounted to $2,038$2,416 million and $1,880$2,271 million at December 31, 20162019 and 2015,December 31, 2018, respectively.
We recognize reinsurance recoveries as a reduction of the ConsolidatedInsurance losses and annuity benefits in our consolidated Statement of Earnings caption "Investment contracts, insurance losses and insurance annuity benefits."(Loss). Reinsurance recoveries were $370$362 million, $351$324 million and $228$454 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Statutory accounting practices, not GAAP, determine the required statutory capital levels of our insurance legal entities and, therefore, may affect the amount or timing of capital contributions that may be required from GE Capital to its insurance legal entities. Statutory accounting practices are set forth by the National Association of Insurance Commissioners (NAIC) as well as state laws, regulation and general administrative rules and differ in certain respects from GAAP. The 2018 and 2019 premium deficiency results described above were recorded on a GAAP basis. The adverse impact on our statutory additional actuarial reserves (AAR) arising from our revised assumptions in 2017, including the collectability of reinsurance recoverables, is expected to require GE Capital to contribute approximately $14,500 million additional capital to its run-off insurance operations in 2018-2024. For statutory accounting purposes, the Kansas Insurance Department (KID), approved our request for a permitted accounting practice to recognize the 2017 AAR increase over a seven-year period. GE Capital provided capital contributions to its insurance subsidiaries of $2,000 million, $1,900 million and $3,500 million in 2016, 2015the first quarters of 2020, 2019 and 2014,2018, respectively. GE Capital expects to provide further capital contributions of approximately $7,000 million through 2024 subject to ongoing monitoring by KID. GE is a party to capital maintenance agreements with its run-off insurance subsidiaries whereby GE will maintain their statutory capital levels at 300% of their year-end Authorized Control Level risk-based capital requirements as defined from time to time by the NAIC.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 12.13. POSTRETIREMENT BENEFIT PLANS
ABOUT OUR PLANS
PENSION BENEFITS AND RETIREE HEALTH AND LIFE BENEFITS.
We sponsor a number of pension and retiree health and life insurance benefit plans including our twothat we present in 3 categories, principal pension plans, for certain U.S. employees as well as other affiliate pension plans. Our principal pension plans and principal retiree benefit plans. Smaller pension plans with pension assets or obligations less than $50 million and other retiree benefit plans are not presented. We use a December 31 measurement date for these plans.
Principal pension plans represent the GE Pension Plan and the GE Supplementary Pension Plan, are discussed below. A summary of other postretirement plans is also provided.
Plan. The GE Pension Plan is a defined benefit plan that covers 238,000approximately 245,500 retirees and beneficiaries, 168,000approximately 97,000 vested former employees and 61,000approximately 31,500 active employees. This plan ishas been closed to new participants. participants since 2012.
The GE Supplementary Pension Plan is an unfunded plan that provides supplementary benefits to higher-level, longer-service employees. The GE Supplementary Pension Plan annuity benefit ishas been closed to new participants since 2011 and has been replaced by an installment benefit. We use
Other pension plans in 2019 included 44 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million which cover approximately 57,000 retirees and beneficiaries, approximately 54,000 vested former employees and approximately 22,000 active employees. 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. Principal retiree benefit plans cover approximately 176,000 retirees and dependents.
In October 2019, we approved changes to our principal pension plans. The GE Pension Plan benefits for approximately 20,000 employees with salaried benefits will be frozen effective January 1, 2021, and thereafter these employees will receive increased company contributions in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan. As a result, we recognized a non-cash pre-tax curtailment loss of $298 million in the fourth quarter of 2019 as non-operating benefit costs. In addition, the GE Supplementary Pension Plan benefits for approximately 700 employees who became executives before 2011 will be frozen effective January 1, 2021, and thereafter these employees will accrue the installment benefit currently offered to new executives since 2011. The change in the GE Supplementary Pension Plan reduced the projected benefit obligation by $297 million and has been treated as a plan amendment that is being amortized over future periods.
As result, we remeasured the pension assets and obligations for the principal pension plans as of October 1, 2019, which resulted in a net actuarial loss of $4,735 million, which was recorded in Accumulated other comprehensive income. The net actuarial loss was primarily due to a reduction in the discount rate since December 31, measurement2018, offset by our asset performance up to the remeasurement date for these plans.
On our balance sheet, we measure our plan assets at fair value and the obligations at the present valueimpact of the estimated paymentsfreeze for the GE Pension Plan.
Finally, we offered approximately 100,000 former U.S. employees with a vested benefit in the GE Pension Plan a limited-time option to plan participants. Participants earn benefits based on their service and pay. Those estimated payment amounts are determined based on assumptions. Differences betweentake a lump sum distribution in lieu of future monthly payments. In December 2019, lump sum distributions of $2,657 million were made from the GE Pension Trust.
At December 31, 2019, we completed our actual results and what we assumed areannual year-end measurement of the funded status of the principal pension plans which resulted in a net actuarial gain of $3,898 million which was recorded in a separate componentAccumulated Other Comprehensive Income. The net actuarial gain was primarily due to the impact of equity each period. These differences are amortized into earnings over the remaining average future service of active employees or the expected life of participants, as applicable, who participatelump-sum distributions, an increase in the plan.discount rate since the remeasurement date, asset performance in the fourth quarter and updated mortality assumptions.
For the year ended December 31, 2019, we recognized a net actuarial loss of $837 million which is a result of a $4,735 million net actuarial loss from remeasurement as of October 1, 2019 and a $3,898 million net actuarial gain from our annual year-end measurement.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE 2016 FORM 10-K 167
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COST OF OUR BENEFITS PLANS AND ASSUMPTIONS |
| 2019 | | 2018 | | 2017 |
(Dollars in millions) | Principal pension |
| Other pension |
| Principal retiree benefit |
| | Principal pension |
| Other pension |
| Principal retiree benefit |
| | Principal pension |
| Other pension |
| Principal retiree benefit |
|
| | | | | | | | | | | |
Components of expense (income) | | | | �� | | | | | | | |
Service cost - operating | $ | 654 |
| $ | 246 |
| $ | 58 |
| | $ | 888 |
| $ | 323 |
| $ | 63 |
| | $ | 1,055 |
| $ | 542 |
| $ | 94 |
|
Interest cost | 2,780 |
| 542 |
| 202 |
| | 2,658 |
| 548 |
| 196 |
| | 2,856 |
| 561 |
| 224 |
|
Expected return on plan assets | (3,428 | ) | (1,144 | ) | (21 | ) | | (3,248 | ) | (1,285 | ) | (29 | ) | | (3,390 | ) | (1,176 | ) | (36 | ) |
Amortization of net actuarial loss (gain) | 3,439 |
| 319 |
| (118 | ) | | 3,785 |
| 312 |
| (79 | ) | | 2,812 |
| 418 |
| (80 | ) |
Amortization of prior service cost (credit) | 135 |
| 3 |
| (232 | ) | | 143 |
| (9 | ) | (230 | ) | | 290 |
| (5 | ) | (171 | ) |
Curtailment / settlement loss (gain)(a) | 349 |
| 13 |
| (38 | ) | | 34 |
| 1 |
| — |
| | 64 |
| 24 |
| 4 |
|
Non-operating | 3,275 |
| (267 | ) | (207 | ) | | 3,372 |
| (433 | ) | (142 | ) | | 2,632 |
| (178 | ) | (59 | ) |
Net periodic expense (income) | $ | 3,929 |
| $ | (21 | ) | $ | (149 | ) | | $ | 4,260 |
| $ | (110 | ) | $ | (79 | ) | | $ | 3,687 |
| $ | 364 |
| $ | 35 |
|
Weighted-average assumptions used to determine benefit obligations | | | | | | | | | | | |
Discount rate | 3.36 | % | 1.97 | % | 3.05 | % | | 4.34 | % | 2.75 | % | 4.12 | % | | 3.64 | % | 2.41 | % | 3.43 | % |
Compensation increases | 2.95 |
| 3.16 |
| 3.75 |
| | 3.60 |
| 3.16 |
| 3.60 |
| | 3.55 |
| 3.09 |
| 3.55 |
|
Initial healthcare trend rate(b) | N/A |
| N/A |
| 5.90 |
| | N/A |
| N/A |
| 6.00 |
| | N/A |
| N/A |
| 6.00 |
|
Weighted-average assumptions used to determine benefit cost | | | | | | | | | | | |
Discount rate(c) | 4.07 |
| 2.75 |
| 4.12 |
| | 3.64 |
| 2.41 |
| 3.43 |
| | 4.11 |
| 2.55 |
| 3.75 |
|
Expected rate of return on plan assets | 6.75 |
| 6.76 |
| 7.00 |
| | 6.75 |
| 6.75 |
| 7.00 |
| | 7.50 |
| 6.75 |
| 7.00 |
|
THE COST OF OUR PLANS(a) For 2019, principal pension principally the curtailment loss due to GE Pension Plan freeze announced in October 2019.
(b) For 2019, ultimately declining to 5% for 2030 and thereafter.
(c) Weighted average 2019 discount rate for principal pension was 4.07%. Discount rate was 4.34% for January 1, 2019 through September 30, 2019 and then changed to 3.24% for the remainder of 2019 due to the remeasurement of the plans for the U.S. pension changes announced in October 2019.
The amount we reportcomponents of net periodic benefit costs, other than the service cost component, are included in Non-operating benefit costs in our earnings as pension cost consistsconsolidated Statement of the following components:Earnings (Loss).
· |
| Service cost – the cost of benefits earned by active employees who participate in the plan. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
PLAN FUNDED STATUS AND AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
| 2019 | | 2018 | |
(in millions) | Principal pension |
| | Other pension |
| | Principal retiree benefit |
| | Principal pension |
| | Other pension |
| | Principal retiree benefit |
| |
Change in benefit obligations | | | | | | | | | | | | |
Balance at January 1 | $ | 68,500 |
| | $ | 21,091 |
| | $ | 5,153 |
| | $ | 74,985 |
| | $ | 23,066 |
| | $ | 6,006 |
| |
Service cost | 654 |
| | 246 |
| | 58 |
| | 888 |
| | 323 |
| | 63 |
| |
Interest cost | 2,780 |
| | 542 |
| | 202 |
| | 2,658 |
| | 548 |
| | 196 |
| |
Participant contributions | 77 |
| | 29 |
| | 61 |
| | 90 |
| | 37 |
| | 60 |
| |
Plan amendments | (42 | ) | (a) | (17 | ) | | (23 | ) | | — |
| | 82 |
| | — |
| |
Actuarial loss (gain) | 7,073 |
| (b) | 2,422 |
| (e) | 275 |
| (e) | (6,263 | ) | (e) | (879 | ) | (e) | (593 | ) | (f) |
Benefits paid | (3,788 | ) | | (1,043 | ) | | (533 | ) | | (3,729 | ) | | (1,002 | ) | | (569 | ) | |
Curtailments | (838 | ) | | (32 | ) | | (33 | ) | | — |
| | (11 | ) | | — |
| |
Settlements | (2,657 | ) | (c) | — |
| | — |
| | — |
| | — |
| | — |
| |
Acquisitions (dispositions) / other - net | (3 | ) | | (1,030 | ) | | — |
| | (129 | ) | | (90 | ) | | (10 | ) | |
Exchange rate adjustments | — |
| | 713 |
| | — |
| | — |
| | (983 | ) | | — |
| |
Balance at December 31 | $ | 71,756 |
| (d) | $ | 22,921 |
| | $ | 5,160 |
| (g) | $ | 68,500 |
| (d) | $ | 21,091 |
| | $ | 5,153 |
| (g) |
Change in plan assets | | | | | | | | | | | | |
Balance at January 1 | 50,009 |
| | 17,537 |
| | 362 |
| | 50,361 |
| | 19,306 |
| | 518 |
| |
Actual gain (loss) on plan assets | 8,694 |
| | 2,229 |
| | 57 |
| | (2,996 | ) | | (245 | ) | | (17 | ) | |
Employer contributions | 298 |
| | 716 |
| | 342 |
| | 6,283 |
| | 475 |
| | 370 |
| |
Participant contributions | 77 |
| | 29 |
| | 61 |
| | 90 |
| | 37 |
| | 60 |
| |
Benefits paid | (3,788 | ) | | (1,043 | ) | | (533 | ) | | (3,729 | ) | | (1,002 | ) | | (569 | ) | |
Settlements | (2,657 | ) | (c) | — |
| | — |
| | — |
| | — |
| | — |
| |
Acquisitions (dispositions) / other - net | — |
| | (1,030 | ) | | — |
| | — |
| | (185 | ) | | — |
| |
Exchange rate adjustments | — |
| | 704 |
| | — |
| | — |
| | (849 | ) | | — |
| |
Balance at December 31 | $ | 52,633 |
| | $ | 19,142 |
| | $ | 289 |
| | $ | 50,009 |
| | $ | 17,537 |
| | $ | 362 |
| |
Funded status - deficit(h) | $ | 19,123 |
| | $ | 3,779 |
| | $ | 4,871 |
| | $ | 18,491 |
| | $ | 3,554 |
| | $ | 4,791 |
| |
Amounts recorded in the consolidated Statement of Financial Position | | | | | | | | | | | | |
Non-current assets - other | — |
| | 475 |
| | — |
| | — |
| | 746 |
| | — |
| |
Current liabilities - other | (296 | ) | | (123 | ) | | (355 | ) | | (280 | ) | | (117 | ) | | (378 | ) | |
Non-current liabilities - compensation and benefits | (18,827 | ) | | (4,131 | ) | | (4,516 | ) | | (18,211 | ) | | (4,183 | ) | | (4,413 | ) | |
Net amount recorded | $ | (19,123 | ) | | $ | (3,779 | ) | | $ | (4,871 | ) | | $ | (18,491 | ) | | $ | (3,554 | ) | | $ | (4,791 | ) | |
Amounts recorded in Accumulated other comprehensive income (loss) | | | | | | | | | | | | |
Prior service cost (credit) | 67 |
| | (16 | ) | | (2,376 | ) | | 596 |
| | 7 |
| | (2,584 | ) | |
Actuarial loss (gain) | 7,961 |
| | 4,665 |
| | (833 | ) | | 10,430 |
| | 3,740 |
| | (1,196 | ) | |
Total recorded in Accumulated other comprehensive income (loss) | $ | 8,028 |
| | $ | 4,649 |
| | $ | (3,209 | ) | | $ | 11,026 |
| | $ | 3,747 |
| | $ | (3,780 | ) | |
| |
(a) | GE Supplementary Pension Plan amendment for the U.S. pension changes announced in October 2019 offset by other plan amendments adopted in 2019. |
| |
(b) | Principally associated with discount rate changes offset by impact of the one-time lump sum payments. |
| |
(c) | Payments made to former employees from the GE Pension Trust for the one-time lump sum payments. |
| |
(d) | The PBO for the GE Supplementary Pension Plan, which is an unfunded plan, was $6,691 million and $6,110 million at year-end 2019 and 2018, respectively. |
| |
(e) | Principally associated with discount rate changes. |
| |
(f) | Principally due to discount rate changes and favorable cost trends. |
| |
(g) | The benefit obligation for retiree health plans was $3,306 million and $3,425 million at December 31, 2019 and 2018, respectively. |
| |
(h) | Total unfunded status for principal pension plan, other pension plans and principal retiree benefit plans was $27,773 million and $26,836 million at December 31, 2019 and 2018, respectively. Of these amounts, $14,340 million and $13,292 million at December 31, 2019 and 2018, respectively, related to plans that are not subject to regulatory funding requirements and the benefits for these plans are funded as they become due. |
· |
| Prior service cost amortization – the cost of changes to our benefits plans (plan amendments) related to prior service performed. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
· | Expected return on plan assets – the return we expect to earn on plan investments used to pay future benefits. |
· | Interest cost – the accrual of interest on the pension obligations due to the passage of time. |
· | Net actuarial loss (gain) amortization – differences between our estimates, (for example, discount rate, expected return on plan assets) and our actual experience which are initially recorded in equity and amortized into earnings. |
· | Curtailment loss – earnings effects of amounts previously deferred which have been accelerated because of an event that shortens future service or eliminates benefits (for example, a sale of a business). |
Pension cost components follow.
COST OF PENSION PLANS | | | | | | | | |
| | | | | | | | |
| Principal pension plans |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Service cost for benefits earned | $ | 1,237 | | $ | 1,424 | | $ | 1,205 |
Prior service cost amortization | | 303 | | | 205 | | | 214 |
Expected return on plan assets | | (3,336) | | | (3,302) | | | (3,190) |
Interest cost on benefit obligations | | 2,939 | | | 2,778 | | | 2,745 |
Net actuarial loss amortization | | 2,449 | | | 3,288 | | | 2,565 |
Curtailment loss | | 31 | | | 105 | | | 65 |
Pension cost | $ | 3,623 | | $ | 4,498 | | $ | 3,604 |
| | | | | | | | |
ASSUMPTIONS USED IN PENSION CALCULATIONS
Accounting requirements necessitate the use of assumptions to reflect the uncertainties and the length of time over which the pension obligations will be paid. The actual amount of future benefit payments will depend upon when participants retire, the amount of their benefit at retirement and how long they live. To reflect the obligations in today's dollars, we discount the future payments using a rate that matches the time frame over which the payments will be made. We also need to assume a long-term rate of return that will be earned on investments used to fund these payments.
The assumptions used to measure our pension benefit obligations follow.
ASSUMPTIONS USED TO MEASURE PENSION BENEFIT OBLIGATIONS | | | | | | |
| Principal pension plans |
December 31 | 2016 | | 2015 | | 2014 | |
| | | | | | |
Discount rate | 4.11 | % | 4.38 | % | 4.02 | % |
Compensation increases | 3.80 | | 3.80 | | 4.10 | |
| | | | | | |
The discount rate used to measure the pension obligations at the end of the year is also used to measure pension cost in the following year. The assumptions used to measure pension cost follow.
ASSUMPTIONS USED TO MEASURE PENSION COST | | | | | | |
| Principal pension plans |
December 31 | 2016 | | 2015 | | 2014 | |
| | | | | | |
Discount rate | 4.38 | % | 4.02 | % | 4.85 | % |
Expected return on assets | 7.50 | | 7.50 | | 7.50 | |
| | | | | | |
We evaluate these assumptions annually. We evaluate other assumptions periodically, such as retirement age, mortality and turnover, and update them as necessary to reflect our actual experience and expectations for the future.
CALCULATIONS. We determine the discount rate using the weighted-average yields on high-quality fixed-income securities that have maturities consistent with the timing of benefit payments. Lower discount rates increase the size of the benefit obligation and generally increase pension expense in the following year; higher discount rates reduce the size of the benefit obligation and generally reduce subsequent-year pension expense.
The expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligations. To determine this rate, we consider the current and target composition of plan investments, our historical returns earned, and our expectations about the future.
The compensation assumption is used to estimate the annual rate at which pay of plan participants will grow. If the rate of growth assumed increases, the size of the pension obligations will increase, as will the amount recorded in shareowners' equityAccumulated other comprehensive income (loss) in our consolidated Statement of Financial Position and amortized tointo earnings in subsequent periods.
Further informationThe expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligations. To determine this rate, we consider the composition of our plan investments, our historical returns earned, and our expectations about the future. Based on our pensionanalysis, we have assumed a 6.75% long-term expected return on GE Pension Plan assets for cost recognition in 2019 and 2018. This is a reduction from the 7.50% we assumed in 2017.
The healthcare trend assumptions includingapply to our pre-65 retiree medical plans. Our post-65 retiree plan has a sensitivity analysisfixed subsidy and therefore is not subject to healthcare inflation.
We evaluate these assumptions annually. We evaluate other assumptions periodically, such as retirement age, mortality and turnover, and update them as necessary to reflect our actual experience and expectations for the future. Differences between our actual results and what we assumed are recorded in Accumulated other comprehensive income each period. These differences are amortized into earnings over the remaining average future service of certain assumptions, can be found inactive participating employees or the Critical Accounting Estimates – Pension Assumptions within Management's Discussion and Analysisexpected life of Financial Condition and Results of Operations (MD&A).
inactive participants, as applicable.
FUNDED STATUS | | | | | |
| | | | | |
| Principal pension plans |
December 31 (in millions) | | 2016 | | | 2015 |
| | | | | |
Projected benefit obligations | $ | 71,501 | | $ | 68,722 |
Fair value of plan assets | | 45,893 | | | 45,720 |
Underfunded | $ | 25,608 | | $ | 23,002 |
| | | | | |
PROJECTED BENEFIT OBLIGATIONS (PBO) | | | | | | |
| | | | | | |
| Principal pension plans | |
(In millions) | 2016 | | 2015 | |
| | | | | | |
Balance at January 1 | $ | 68,722 | | $ | 70,735 | |
Service cost for benefits earned | | 1,237 | | | 1,424 | |
Interest cost on benefit obligations | | 2,939 | | | 2,778 | |
Participant contributions | | 115 | | | 155 | |
Plan amendments | | - | | | 902 | |
Actuarial loss (gain) | | 1,874 | (a) | | (4,017) | (b) |
Benefits paid | | (3,386) | | | (3,255) | |
Balance at December 31(c) | $ | 71,501 | | $ | 68,722 | |
| | | | | | |
(a) | Principally associated with discount rate and mortality assumption changes. |
(b) | Principally associated with discount rate changes. |
(c) | The PBO for the GE Supplementary Pension Plan, which is an unfunded plan, was $6,531 million and $6,099 million at year-end 2016 and 2015, respectively. |
THE COMPOSITION OF OUR PLAN ASSETS
ASSETS. The fair value of our pension plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of these assets are described in Note 1 and have been applied consistently.
| Principal pension plans |
December 31 (in millions) | | 2016 | | | 2015 |
| | | | | |
Equity securities | | | | | |
U.S. equity securities(a) | $ | 12,130 | | $ | 12,447 |
Non-U.S. equity securities(a) | | 9,029 | | | 9,088 |
Debt securities | | | | | |
Fixed income and cash investment funds | | 4,897 | | | 3,252 |
U.S. corporate(b) | | 5,252 | | | 5,529 |
Other debt securities(c) | | 5,066 | | | 5,131 |
Private equities(a) | | 4,492 | | | 4,885 |
Real estate(a) | | 3,244 | | | 3,186 |
Other investments(d) | | 1,783 | | | 2,202 |
Total plan assets | $ | 45,893 | | $ | 45,720 |
| | | | | |
|
| | | | | | | | | | | | | | | |
| 2019 | | 2018 |
(In millions) | Principal pension |
| | Other pension |
| | Principal pension |
| | Other pension |
|
| | | | | | | |
Global equity | $ | 6,826 |
| | $ | 3,484 |
| | $ | 6,015 |
| | $ | 4,323 |
|
Debt securities | | | | | | | |
Fixed income and cash investment funds | 4,398 |
| | 8,089 |
| | 2,069 |
| | 6,320 |
|
U.S. corporate(a) | 8,025 |
| | 365 |
| | 8,734 |
| | 397 |
|
Other debt securities(b) | 6,076 |
| | 424 |
| | 5,264 |
| | 472 |
|
Real estate | 2,309 |
| | 140 |
| | 2,218 |
| | 175 |
|
Private equities and other investments | 23 |
| | 452 |
| | 557 |
| | 369 |
|
Total | 27,657 |
| | 12,954 |
| | 24,857 |
| | 12,056 |
|
Plan assets measured at net asset value | | | | | | | |
Global equity | 14,616 |
| | 1,450 |
| | 12,558 |
| | 1,228 |
|
Debt securities | 3,744 |
| | 914 |
| | 6,400 |
| | 883 |
|
Real estate | 1,167 |
| | 1,930 |
| | 1,261 |
| | 1,704 |
|
Private equities and other investments | 5,449 |
| | 1,894 |
| | 4,933 |
| | 1,666 |
|
Total plan assets at fair value | $ | 52,633 |
| | $ | 19,142 |
| | $ | 50,009 |
| | $ | 17,537 |
|
(a) | Included direct investments and investment funds. |
(b)(a) | Primarily represented investment-grade bonds of U.S. issuers from diverse industries. |
(c) | |
(b) | Primarily represented investments in residential and commercial mortgage-backed securities, non-U.S. corporate and government bonds and U.S. government, federal agency, state and municipal debt. |
(d)Substantially all represented hedge fund investments and net unsettled transaction-related investment activity.
GE Pension Plan assets valued using NAV as a practical expedient amounted to $16,894 million and $15,430 million as of December 31, 2016 and 2015, respectively. The percentages of plan assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 12%, 8% and 17% as of December 31, 2016, respectively, and 10%, 7% and 17% as of December 31, 2015, respectively.
Those investments that were measured at fair value using practical expedient were excluded from the fair value hierarchy. The practical expedient was not applied for investments with a fair value of $2,504$2,838 million and $2,492$2,990 million in 20162019 and 2015,2018, respectively, and those investments were classified within Level 3.3 and primarily relate to real estate. The remaining investments were substantially all considered Level 1 and 2.
FAIR VALUE OF PLAN ASSETS | | | | | |
| | | | | |
| Principal pension plans |
(In millions) | 2016 | | 2015 |
| | | | | |
Balance at January 1 | $ | 45,720 | | $ | 48,280 |
Actual gain on plan assets | | 2,892 | | | 307 |
Employer contributions | | 552 | | | 233 |
Participant contributions | | 115 | | | 155 |
Benefits paid | | (3,386) | | | (3,255) |
Balance at December 31 | $ | 45,893 | | $ | 45,720 |
| | | | | |
AMOUNTS INCLUDED IN SHAREOWNERS' EQUITY
Amounts included in shareowners' equity that will be amortized in future reporting periods follow.
| Principal pension plans |
December 31 (in millions) | 2016 | | 2015 |
| | | | | |
Prior service cost | $ | 1,138 | | $ | 1,473 |
Net actuarial loss | | 16,664 | | | 16,795 |
Total | $ | 17,802 | | $ | 18,268 |
| | | | | |
In 2017, we estimate that we will amortize $295 million of prior service cost and $2,840 million of net actuarial loss from shareowners' equity into pension cost. Comparable amounts amortized in 2016 were $303 million and $2,449 million, respectively.
OTHER PENSION AND POSTRETIREMENT PLANS
We also administer other pension plans, including legacy plans that were part of acquisitions. Other pension plans investments with a fair value of $105 million and $116 million in 2016 included 492019 and 2018, respectively, were classified within Level 3. Principal retiree benefit plan investments with a fair value of $289 million and $362 million at December 31, 2019 and 2018, respectively, comprised global equity and debt securities which are considered Level 1 and 2. There were no Level 3 principal retiree benefit plan investments held in 2019 and 2018. Plan assets that were measured at fair value using NAV as practical expedient were excluded from the fair value hierarchy.
|
| | | | | | | | | | | |
ASSET ALLOCATION OF PENSION PLANS | 2019 Target allocation | | 2019 Actual allocation |
| Principal Pension | | | Other Pension (weighted average) | | | Principal Pension | | | Other Pension (weighted average) | |
| | | | | | | | | | | |
Global equity | 30.0 - 47.0 | % | | 23 | % | | 41 | % | | 27 | % |
Debt securities (including cash equivalents) | 21.0 - 65.0 | | | 55 | | | 42 | | | 51 | |
Real estate | 3.5 - 13.5 | | | 9 | | | 7 | | | 11 | |
Private equities & other investments | 6.0 - 16.0 | | | 13 | | | 10 | | | 11 | |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust and oversee its investment allocation, which includes selecting investment managers and setting long-term strategic targets. The primary strategic investment objectives are balancing investment risk and return and monitoring the plan’s liquidity position in order to meet the near-term benefit payment and other cash needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
GE securities represented 0.6% and 0.5% of the GE Pension Trust assets at December 31, 2019 and 2018, respectively. The GE Pension Plan has a broadly diversified portfolio of investments in equities, fixed income, private equities and real estate; these investments are both U.S. and non-U.S. pension plans within nature. The plan utilizes derivatives to implement investment strategies as well as for hedging asset and liability risks. As of December 31, 2019, no sector concentration of assets or obligations greater than $50 million. These other pension plans cover 60,000 retirees and beneficiaries, 59,000 vested former employees and 33,000 active employees. We also sponsor a numberexceeded 15% of postretirement health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans cover approximately 187,000 retirees and dependents.total GE Pension Plan assets.
Summarized information about these plans follows.
COST OF BENEFIT PLANS | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Other pension plans | | Principal retiree benefit plans |
(In millions) | | 2016 | | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | | | | | | | | | | |
Benefit plan cost | $ | 374 | | | $ | 373 | | $ | 412 | | $ | 115 | | $ | 174 | | $ | 789 |
FUNDED STATUS | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | Principal retiree |
| Other pension plans | | benefit plans |
December 31 (In millions) | | 2016 | | | 2015 | | | 2016 | | | 2015 |
| | | | | | | | | | | |
Benefit obligations | $ | 22,543 | | $ | 21,618 | | $ | 6,289 | | $ | 6,757 |
Fair value of plan assets | | 17,091 | | | 17,368 | | | 575 | | | 695 |
Underfunded | $ | 5,452 | | $ | 4,250 | | $ | 5,714 | | $ | 6,062 |
| | | | | | | | | | | |
AMOUNTS INCLUDED IN SHAREOWNERS' EQUITY
Amounts included in shareowners' equity that will be amortized in future reporting periods follow.
| | | | | | | Principal retiree |
| Other pension plans | | benefit plans |
December 31 (In millions) | | 2016 | | | 2015 | | | 2016 | | | 2015 |
| | | | | | | | | | | |
Prior service credit | $ | (88) | | $ | (29) | | $ | (2,975) | | $ | (3,132) |
Net actuarial loss (gain) | | 4,800 | | | 3,080 | | | (682) | | | (464) |
Total | $ | 4,712 | | $ | 3,051 | | $ | (3,657) | | $ | (3,596) |
| | | | | | | | | | | |
In 2017, we estimate that we will amortize $5 million of prior service credit and $520 million of net actuarial loss for the other pension plans from shareowners' equity into pension cost. For principal retiree benefit plans, the estimated prior service credit and net actuarial gain to be amortized in 2017 will be $170 million and $80 million, respectively. Comparable amounts amortized in 2016, respectively, were $1 million of prior service credit and $256 million of net actuarial loss for the other pension plans and $164 million of prior service credit and $50 million of net actuarial gain for the principal retiree benefit plans.
OUR FUNDING POLICY
POLICY. Our policy for funding the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements under employee benefit and tax laws. We may decide to contribute additional amounts beyond this level. We made a contributioncontributions of $330$6,000 million to the GE Pension Plan in 2016. We did not make any2018. Our 2018 contributions satisfied our minimum ERISA funding requirement of $1,500 million and the remaining $4,500 million was a voluntary contribution to the GE Pension Plan in 2015. We expectplan. This voluntary contribution was sufficient to satisfy our minimum ERISA funding requirement for 2019 and 2020. In October 2019, we announced our intent to contribute approximately $1,720$4,000 million to $5,000 million to the GE Pension Plan in 2017.2020. We expect this amount to equal our estimated future minimum ERISA funding requirements at least through 2022.
We expect to pay approximately $250$305 million for benefit payments under our GE Supplementary Pension Plan and administrative expenses of our principal pension plans and expect to contribute approximately $910$500 million to other pension plans in 2017. In 2016, comparative amounts were $222 million and $795 million, respectively.
2020. We fund retiree health benefits on a pay-as-you-go basis and the retiree life insurance trust at our discretion. We expect to contribute approximately $460$360 million in 20172020 to fund such benefits. In 2016, we contributed
|
| | | | | | | | | | | |
EXPECTED FUTURE BENEFIT PAYMENTS OF OUR BENEFIT PLANS (In millions) | Principal pension |
| | Other pension |
| | Principal retiree benefit |
|
| | | | | |
2020 | $ | 3,795 |
| | $ | 1,030 |
| | $ | 495 |
|
2021 | 3,875 |
| | 1,005 |
| | 475 |
|
2022 | 3,930 |
| | 1,015 |
| | 455 |
|
2023 | 3,965 |
| | 1,035 |
| | 435 |
|
2024 | 3,980 |
| | 1,050 |
| | 415 |
|
2025 - 2029 | 19,965 |
| | 5,550 |
| | 1,775 |
|
DEFINED CONTRIBUTION PLAN. We have a defined contribution plan for eligible U.S. employees that provides discretionary contributions. Defined contribution costs were $355 million, $410 million and $460 million for these plans.the years ended December 31, 2019, 2018, and 2017, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | |
For the years ended December 31 | 2019 | | 2018 | | 2017 |
(In millions, pre-tax) | Principal pension |
| Other pension |
| Principal retiree benefit |
| | Principal pension |
| Other pension |
| Principal retiree benefit |
| | Principal pension |
| Other pension |
| Principal retiree benefit |
|
| | | | | | | | | | | |
Cost (income) of postretirement benefit plans | $ | 3,929 |
| $ | (21 | ) | $ | (149 | ) | | $ | 4,260 |
| $ | (110 | ) | $ | (79 | ) | | $ | 3,687 |
| $ | 364 |
| $ | 35 |
|
Changes in other comprehensive income | | | | | | | | | | | |
Prior service cost (credit) - current year | (42 | ) | (17 | ) | (23 | ) | | — |
| 82 |
| — |
| | — |
| — |
| (8 | ) |
Actuarial loss (gain) - current year | 971 |
| 1,252 |
| 240 |
| | (111 | ) | 464 |
| (543 | ) | | 474 |
| (639 | ) | (128 | ) |
Reclassifications out of AOCI | | | | | | | | | | | |
Curtailment / settlement gain (loss) | (353 | ) | (12 | ) | 4 |
| | (45 | ) | (2 | ) | — |
| | (64 | ) | (20 | ) | (4 | ) |
Amortization of net actuarial gain (loss) | (3,439 | ) | (319 | ) | 118 |
| | (3,785 | ) | (312 | ) | 79 |
| | (2,812 | ) | (418 | ) | 80 |
|
Amortization of prior service credit (cost) | (135 | ) | (3 | ) | 232 |
| | (143 | ) | 9 |
| 230 |
| | (290 | ) | 5 |
| 171 |
|
Total changes in other comprehensive income | (2,998 | ) | 901 |
| 571 |
| | (4,084 | ) | 241 |
| (234 | ) | | (2,692 | ) | (1,072 | ) | 111 |
|
Cost of postretirement benefit plans and changes in other comprehensive income | $ | 931 |
| $ | 880 |
| $ | 422 |
| | $ | 176 |
| $ | 131 |
| $ | (313 | ) | | $ | 995 |
| $ | (708 | ) | $ | 146 |
|
See Note 29 for further information about our pension plans and principal retiree benefit plans. |
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE 2016 FORM 10-K 171
NOTE
13.14. CURRENT AND ALL OTHER LIABILITIES
|
| | | | | | |
December 31 (In millions) | 2019 |
| 2018 |
|
|
|
|
Sales allowances, equipment projects and other commercial liabilities | $ | 5,203 |
| $ | 5,255 |
|
Product warranties (Note 23) | 1,371 |
| 1,346 |
|
Employee compensation and benefit liabilities | 5,114 |
| 5,138 |
|
Taxes payable | 1,349 |
| 503 |
|
Environmental, health and safety liabilities (Note 23) | 330 |
| 204 |
|
Due to GE Capital | 1,080 |
| 1,578 |
|
Other | 2,385 |
| 2,422 |
|
Other GE current liabilities | 16,833 |
| 16,444 |
|
Eliminations | (1,080 | ) | (1,578 | ) |
Consolidated other GE current liabilities | $ | 15,753 |
| $ | 14,866 |
|
|
|
|
Sales allowances, equipment projects and other commercial liabilities | 4,422 |
| 5,136 |
|
Product warranties (Note 23) | 793 |
| 846 |
|
Uncertain tax positions and related liabilities | 2,585 |
| 3,404 |
|
Alstom legacy legal matters (Note 23) | 875 |
| 889 |
|
Environmental, health and safety liabilities (Note 23) | 2,154 |
| 1,968 |
|
Redeemable noncontrolling interests (Note 16) | 439 |
| 378 |
|
Derivative instruments (Note 21) | 171 |
| 328 |
|
Other | 1,349 |
| 1,931 |
|
GE all other liabilities | $ | 12,787 |
| $ | 14,881 |
|
|
|
|
Aircraft maintenance reserve, sales deposits and other commercial liabilities | 2,900 |
| 2,585 |
|
Interest payable | 1,189 |
| 1,458 |
|
Uncertain tax positions and other taxes payable | 394 |
| 1,646 |
|
Derivative instruments (Note 21) | 31 |
| 258 |
|
Other | 525 |
| 1,615 |
|
GE Capital other liabilities | $ | 5,040 |
| $ | 7,562 |
|
Eliminations | (1,244 | ) | (1,605 | ) |
Consolidated all other liabilities | $ | 16,583 |
| $ | 20,839 |
|
Total | $ | 32,336 |
| $ | 35,705 |
|
This caption includes liabilities for various items including deferred income, interest on tax liabilities, unrecognized tax benefits, environmental remediation, legal reserves, asset retirement obligations, derivative instruments, product warranties and a variety of sundry items.
See Note 14 for further information on interest on tax liabilities and unrecognized tax benefits. See Notes 20 and 29 for further information on derivative instruments. See Note 23 for further information on environmental matters, legal reserves and product warranties.
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE'sGE’s tax payments are due.
Our businesses are subject to regulation under a wide variety of U.S. federal, state and foreign tax laws, regulations and policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations.
THE GE CAPITAL EXIT PLAN |
| | | | | | | | | |
(BENEFIT) PROVISION FOR INCOME TAXES (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Current tax expense (benefit) | $ | 2,551 |
| $ | 1,743 |
| $ | 2,405 |
|
Deferred tax expense (benefit) from temporary differences | (1,242 | ) | (1,276 | ) | 1,088 |
|
Total GE | 1,309 |
| 467 |
| 3,493 |
|
Current tax expense (benefit) | (720 | ) | 596 |
| (1,008 | ) |
Deferred tax expense (benefit) from temporary differences | 138 |
| (970 | ) | (5,294 | ) |
Total GE Capital | (582 | ) | (374 | ) | (6,302 | ) |
Current tax expense (benefit) | 1,831 |
| 2,339 |
| 1,397 |
|
Deferred tax expense (benefit) from temporary differences | (1,104 | ) | (2,245 | ) | (4,205 | ) |
Total consolidated | $ | 726 |
| $ | 93 |
| $ | (2,808 | ) |
|
| | | | | | | | | |
CONSOLIDATED EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
U.S. earnings | $ | 506 |
| $ | (9,861 | ) | $ | (17,918 | ) |
Non-U.S. earnings | 643 |
| (11,126 | ) | 6,573 |
|
Total | $ | 1,149 |
| $ | (20,987 | ) | $ | (11,345 | ) |
|
| | | | | | | | | |
CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
U.S. Federal | | | |
Current | $ | 146 |
| $ | 1,019 |
| $ | (734 | ) |
Deferred | (1,266 | ) | (3,144 | ) | (3,625 | ) |
Non - U.S. | | | |
Current | 2,008 |
| 1,132 |
| 1,820 |
|
Deferred | 106 |
| 1,197 |
| (429 | ) |
Other | (267 | ) | (111 | ) | 160 |
|
Total | $ | 726 |
| $ | 93 |
| $ | (2,808 | ) |
|
| | | | | | | | | |
INCOME TAXES PAID (RECOVERED) (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
GE | $ | 2,183 |
| $ | 1,803 |
| $ | 2,700 |
|
GE Capital | 45 |
| 65 |
| (264 | ) |
Total(a) | $ | 2,228 |
| $ | 1,868 |
| $ | 2,436 |
|
In conjunction with the GE Capital Exit Plan, GE Capital significantly reduced its non-U.S. assets while continuing to operate appropriately capitalized non-U.S. businesses with substantial assets related to GE Capital's vertical financing businesses, including Energy Financial Services, GECAS and Healthcare Equipment Finance. As a result of the GE Capital Exit Plan, GE Capital recognized a(a) Includes tax expense of $6,327 million in continuing operations during 2015. This primarily consisted of $3,548 million of tax expense related to the repatriation of excess foreign cash and the write-off of deferred tax assets of $2,779 million that will no longer be supported under this plan.
The repatriation of cash included approximately $10 billion of foreign earnings that, prior to the approval of the GE Capital Exit Plan, were indefinitely reinvested in GE Capital's international operations. GE Capital's indefinitely reinvested earnings were also reduced by charges recognized in connection with the disposition of international assets. The remainder of the indefinitely reinvested earnings will continue to be reinvested in the significant international base of assets that will remain after the GE Capital Exit Plan is fully executed. The write-off of deferred tax assets largely related to our Treasury operations in Ireland where it was no longer apparent that the tax benefits would be realized upon implementation of the GE Capital Exit Plan. These charges, which increased the 2015 Consolidated effective tax rate by 77.3 percentage points, arepayments reported in the lines "Tax on global activities including exports", and "All other-net" in the Reconciliation of U.S. federal statutory income tax rate to actual income tax rate."discontinued operations.
|
| | | | | | | | | | | | | | | | | | | | |
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | Consolidated | | GE | | GE Capital |
2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | | | | | |
U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | 35.0 | % | | 21.0 | % | 21.0 | % | 35.0 | % | | 21.0 | % | 21.0 | % | 35.0 | % |
Increase (reduction) in rate resulting from inclusion of after-tax earnings of GE Capital in before-tax earnings of GE | — |
| — |
| — |
| | 8.8 |
| (0.5 | ) | (43.2 | ) | | — |
| — |
| — |
|
Tax on global activities including exports | 91.0 |
| (5.0 | ) | 30.3 |
| | 86.5 |
| (5.0 | ) | 34.6 |
| | 8.1 |
| 3.2 |
| 12.2 |
|
U.S. business credits(a) | (22.5 | ) | 2.6 |
| 4.3 |
| | (9.1 | ) | 0.4 |
| 1.5 |
| | 21.9 |
| 120.0 |
| 3.2 |
|
Goodwill impairments | 26.0 |
| (21.5 | ) | (7.8 | ) | | 23.5 |
| (21.4 | ) | (7.3 | ) | | — |
| — |
| (3.8 | ) |
Tax Cuts and Jobs Act enactment | 0.2 |
| (0.2 | ) | (39.8 | ) | | 7.9 |
| 0.5 |
| (89.6 | ) | | 15.2 |
| (36.5 | ) | 3.1 |
|
All other – net(b)(c)(d) | (52.5 | ) | 2.7 |
| 2.8 |
| | (35.6 | ) | 2.8 |
| 5.2 |
| | 23.1 |
| (8.0 | ) | 0.2 |
|
| 42.2 |
| (21.4 | ) | (10.2 | ) | | 82.0 |
| (23.2 | ) | (98.8 | ) | | 68.3 |
| 78.7 |
| 14.9 |
|
Actual income tax rate | 63.2 | % | (0.4 | )% | 24.8 | % | | 103.0 | % | (2.2 | )% | (63.8 | )% | | 89.3 | % | 99.7 | % | 49.9 | % |
(BENEFIT) PROVISION FOR INCOME TAXES |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
GE | | | | | | | | |
Current tax expense (benefit) | $ | (140) | | $ | 3,307 | | $ | 2,110 |
Deferred tax expense (benefit) from temporary differences | | 1,107 | | | (1,800) | | | (476) |
| | 967 | | | 1,506 | | | 1,634 |
GE Capital | | | | | | | | |
Current tax expense (benefit) | | (1,138) | | | 2,796 | | | (455) |
Deferred tax expense (benefit) from temporary differences | | (293) | | | 2,183 | | | (406) |
| | (1,431) | | | 4,979 | | | (861) |
Consolidated | | | | | | | | |
Current tax expense (benefit) | | (1,278) | | | 6,103 | | | 1,655 |
Deferred tax expense (benefit) from temporary differences | | 814 | | | 383 | | | (882) |
Total | $ | (464) | | $ | 6,485 | | $ | 773 |
| | | | | | | | |
CONSOLIDATED EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
U.S. earnings | $ | 2,145 | | $ | (309) | | $ | 3,176 |
Non-U.S. earnings | | 6,885 | | | 8,495 | | | 7,087 |
Total | $ | 9,030 | | $ | 8,186 | | $ | 10,263 |
| | | | | | | | |
CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES |
| | | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | |
U.S. Federal | | | | | | | | |
| Current | $ | (2,646) | | $ | 1,549 | | $ | (122) |
| Deferred | | (754) | | | 492 | | | 261 |
Non - U.S. | | | | | | | | |
| Current | | 1,730 | | | 4,867 | | | 2,035 |
| Deferred | | 1,239 | | | (121) | | | (982) |
Other | | (33) | | | (302) | | | (419) |
Total | $ | (464) | | $ | 6,485 | | $ | 773 |
| | | | | | | | | |
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | |
| | | | | | | | | | | | | | | | | | |
| Consolidated | | GE | | GE Capital | |
| 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % |
Increase (reduction) in rate resulting from | | | | | | | | | | | | | | | | | | |
inclusion of after-tax earnings of GE Capital in | | | | | | | | | | | | | | | | | | |
before-tax earnings of GE | - | | - | | - | | 4.5 | | 82.4 | | (4.8) | | - | | - | | - | |
Tax on global activities including exports | (23.7) | | 54.1 | | (17.7) | | (20.8) | | (52.8) | | (12.0) | | 4.9 | | (224.5) | | (72.0) | |
U.S. business credits(a) | (4.5) | | (4.7) | | (3.3) | | (0.9) | | (4.1) | | (1.0) | | 15.7 | | 9.2 | | (34.5) | |
All other – net(b) | (11.9) | | (5.2) | | (6.5) | | (7.9) | | (14.2) | | (2.5) | | 14.7 | | (1.5) | | (55.9) | |
| (40.1) | | 44.2 | | (27.5) | | (25.1) | | 11.3 | | (20.3) | | 35.3 | | (216.8) | | (162.4) | |
Actual income tax rate | (5.1) | % | 79.2 | % | 7.5 | % | 9.9 | % | 46.3 | % | 14.7 | % | 70.3 | % | (181.8) | % | (127.4) | % |
| | | | | | | | | | | | | | | | | | |
| |
(a) | U.S. general business credits, primarily the credit for energy produced from renewable sources the advanced energy project credit and the credit for research performed in the U.S. |
| |
(b) | Included, (7.7)% and (7.1)% in consolidated and GE, respectively, related to deductible stock losses in 2016. Included (4.2)% and (10.6)% in consolidated and GE, respectively, related to deductible stock losses in 2015. Also includes, for each period, the expense or (benefit)benefit for "Other"Other taxes reported above in the consolidated (benefit) provision for income taxes, net of 35%21.0% federal effect.effect for the years ended December 31, 2019 and 2018 and 35.0% federal effect for the year ended December 31, 2017. |
| |
(c) | For the year ended December 31, 2019, included (12.5)% and (11.3)% in consolidated and GE, respectively, related to the disposition of the Digital ServiceMax business. For the year ended December 31, 2018, included 2.8% and 2.8% in consolidated and GE, respectively, related to deductible stock losses. Included in 2017 is 5.6% and 11.7% in consolidated and GE, respectively, related to the disposition of the Water business. Also included in 2017 is (3.1)% and (6.4)% in consolidated and GE, respectively, related to losses on planned dispositions. |
| |
(d) | For the year ended December 31, 2019, included (32.9)%, (27.9)% and 3.5% in consolidated, GE and GE Capital, respectively for the resolution of the IRS audit of our consolidated U.S. income tax returns for 2012-2013. |
U.S. TAX REFORM.On December 22, 2017, the U.S. enacted legislation commonly known as the Tax Cuts and Jobs Act (U.S. tax reform) that lowered the statutory tax rate on U.S. earnings to 21%, taxes historic foreign earnings at a reduced rate of tax, establishes a territorial tax system and enacts new taxes associated with global operations.
The impact of enactment of U.S. tax reform was recorded in 2017 on a provisional basis as the legislation provided for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax. This amount was adjusted in both 2018 and 2019 based on guidance issued during each of these years. Additional guidance may be issued after 2019 and any resulting effects will be recorded in the quarter of issuance. Additionally, as part of U.S. tax reform, the U.S. has enacted a minimum tax on foreign earnings (global intangible low tax income). We have not made an accrual for the deferred tax aspects of this provision.
With the enactment of U.S. tax reform, we recorded, for the year ended December 31, 2017, tax expense of $4,512 million to reflect our provisional estimate of both the transition tax on historic foreign earnings ($1,155 million including $2,925 million at GE and $(1,770) million at GE Capital) and the revaluation of deferred taxes ($3,357 million including $1,980 million at GE and $1,377 million at GE Capital). For the year ended December 31, 2018, we finalized our provisional estimate of the enactment of U.S. tax reform and recorded an additional tax expense of $41 million. For the year ended December 31, 2019, we recorded an additional tax expense of $2 million based on the issuance in January 2019 of final regulations on the transition tax on historic foreign earnings. The cash impact of the transition tax on historic foreign earnings was largely offset by accelerated use of deductions and tax credits and was substantially incurred with the filing of the 2017 tax return with no amount subject to the deferred payment provision provided under law.
UNRECOGNIZED TAX POSITIONS
POSITIONS.Annually, we file over 6,0004,100 income tax returns in overalmost 300 global taxing jurisdictions. We are under examination or engaged in tax litigation in many of these jurisdictions. The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2012-2013.2014-2015. In addition, certain otherJune 2019, the IRS completed the audit of our consolidated U.S. income tax deficiency issues and refund claimsreturns for previous years are still unresolved. It is reasonably possible that a portion of the unresolved items could be resolved during the next 12 months,2012-2013, which could resultresulted in a decrease in our balance of "unrecognizedunrecognized tax benefits" – that is,benefits (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements.statements). The IRS had disallowed theCompany recognized a resulting non-cash continuing operations tax loss on our 2003 dispositionbenefit of ERC Life Reinsurance Corporation. We contested the disallowance$378 million plus an additional net interest benefit of this loss. In August 2016, the government approved a final settlement$107 million. Of these amounts, GE recorded $355 million of the case and the balance of unrecognized tax benefits and associated$98 million of net interest was adjustedbenefits and GE Capital recorded $23 million of tax benefits and $9 million of net interest benefits. GE Capital recorded an additional non-cash benefit in discontinued operations of $332 million of tax benefits and $46 million of net interest benefits. See Note 2 for further information. As previously disclosed, the United Kingdom tax authorities disallowed interest deductions claimed by GE Capital for the years 2007-2015 that could result in a potential impact of approximately $1 billion, which includes a possible assessment of tax and reduction of deferred tax assets, not including interest and penalties. We are contesting the disallowance. We comply with all applicable tax laws and judicial doctrines of the United Kingdom and believe that the entire benefit is more likely than not to reflect the agreed settlement. During 2015, the IRS completed the audit of our consolidated U.S. income tax returns for 2010-2011, except for certain issues that were completed in 2016.be sustained on its technical merits. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties. Resolution of audit matters, including the IRS audit of our consolidated U.S. income tax returns for 2010-2011 and the resolution of the ERC Life Reinsurance Corporation case, reduced our 2016 consolidated income tax rate by 5.3 percentage points. Resolution of audit matters, including the IRS audit of our consolidated U.S. income tax returns for 2010-2011, reduced our 2015 consolidated income tax rate by 4.4 percentage points.
The balance of unrecognized tax benefits, the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months were:
|
| | | | | | |
UNRECOGNIZED TAX BENEFITS December 31 (Dollars in millions) | 2019 |
| 2018 |
|
| | |
Unrecognized tax benefits | $ | 4,169 |
| $ | 5,563 |
|
Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 2,701 |
| 4,265 |
|
Accrued interest on unrecognized tax benefits | 722 |
| 934 |
|
Accrued penalties on unrecognized tax benefits | 195 |
| 182 |
|
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months | 0-700 |
| 0-1,300 |
|
Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-650 |
| 0-1,200 |
|
UNRECOGNIZED TAX BENEFITS | |
| | | |
December 31, (In millions) | 2016 | | 2015 |
| | | | | |
Unrecognized tax benefits | $ | 4,692 | | $ | 6,778 |
Portion that, if recognized, would reduce tax expense and effective tax rate(a) | | 2,886 | | | 4,723 |
Accrued interest on unrecognized tax benefits | | 615 | | | 805 |
Accrued penalties on unrecognized tax benefits | | 118 | | | 98 |
Reasonably possible reduction to the balance of unrecognized tax benefits | | | | | |
in succeeding 12 months | | 0-600 | | | 0-700 |
Portion that, if recognized, would reduce tax expense and effective tax rate(a) | | 0-500 | | | 0-200 |
| | | | | |
(a) Some portion of such reduction may be reported as discontinued operations.
|
| | | | | | |
UNRECOGNIZED TAX BENEFITS RECONCILIATION (In millions) | 2019 |
| 2018 |
|
| | |
Balance at January 1 | $ | 5,563 |
| $ | 5,449 |
|
Additions for tax positions of the current year | 403 |
| 300 |
|
Additions for tax positions of prior years | 500 |
| 945 |
|
Reductions for tax positions of prior years(a) | (1,927 | ) | (905 | ) |
Settlements with tax authorities | (155 | ) | (64 | ) |
Expiration of the statute of limitations | (214 | ) | (162 | ) |
Balance at December 31 | $ | 4,169 |
| $ | 5,563 |
|
(a) | Some portion of such reduction may be reported as discontinued operations. |
UNRECOGNIZED TAX BENEFITS RECONCILIATION |
| | | | | |
(In millions) | | 2016 | | | 2015 |
| | | | | |
Balance at January 1 | $ | 6,778 | | $ | 5,619 |
Additions for tax positions of the current year | | 248 | | | 720 |
Additions for tax positions of prior years(a) | | 521 | | | 1,296 |
Reductions for tax positions of prior years | | (2,016) | | | (754) |
Settlements with tax authorities | | (823) | | | (70) |
Expiration of the statute of limitations | | (16) | | | (33) |
Balance at December 31 | $ | 4,692 | | $ | 6,778 |
| | | | | |
(a) | For 2015, the amount shown as "additions for tax positions of prior years" relates primarily ($1,054 million)2019, reductions included $710 million related to the preliminary estimatecompletion of uncertain tax liabilities for acquired Alstom businesses. Of the total 2015 additions for tax positions2012-2013 IRS audit and $442 million related to the deconsolidation of prior years, $445 million relates to amounts that would not affect tax expense if recognized.Baker Hughes. |
We classify interest on tax deficiencies as interest expense; we classify income tax penalties as provision for income taxes. For the years ended December 31, 2016, 20152019, 2018 and 2014, $(105)2017, $(93) million, $48$127 million and $(68)$143 million of interest expense (income), respectively, and $(4)$20 million, $(4)$(7) million and (45)$7 million of tax expense (income) related to penalties, respectively, were recognized in theour consolidated Statement of Earnings.Earnings (Loss).
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.
TAXES.We have not provided U.S. deferred taxes on cumulative net earnings of non-U.S. affiliates and associated companies of approximately $40 billion that have been reinvested indefinitely. TheseGiven U.S. tax reform, substantially all of our prior unrepatriated earnings relatewere subject to ongoing operationsU.S. tax and at December 31, 2016accordingly we expect to have the ability to repatriate available non-U.S. cash without additional federal tax cost, and 2015, were approximately $82 billion and $104 billion, respectively. Mostany foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit. However, because most of these earnings have been reinvested in active non-U.S. business operations, andas of December 31, 2019, we dohave not intenddecided to repatriate these earnings to fundthe U.S. operations. Because of the availability of U.S. foreign tax credits, itIt is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we plan to remit those earnings.
|
| | | | | | |
DEFERRED INCOME TAXES December 31 (In millions) | 2019 |
| 2018 |
|
| | |
GE | $ | 12,807 |
| $ | 14,479 |
|
GE Capital | 5,124 |
| 6,214 |
|
Total assets | 17,931 |
| 20,693 |
|
GE | (4,618 | ) | (4,302 | ) |
GE Capital | (3,424 | ) | (4,278 | ) |
Eliminations | — |
| 4 |
|
Total liabilities | (8,042 | ) | (8,576 | ) |
Net deferred income tax asset (liability) | $ | 9,889 |
| $ | 12,117 |
|
GE 2016 FORM 10-K 174 |
| | | | | | |
COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) December 31 (In millions) | 2019 |
| 2018 |
|
| | |
Principal pension plans | $ | 4,016 |
| $ | 3,883 |
|
Other non-current compensation and benefits | 2,206 |
| 2,431 |
|
Provision for expenses | 1,990 |
| 2,208 |
|
Intangible assets | 1,315 |
| 820 |
|
Retiree insurance plans | 1,023 |
| 1,006 |
|
Non-U.S. loss carryforwards(a) | 602 |
| 1,362 |
|
U.S. credit carryforwards(b) | 74 |
| 74 |
|
Baker Hughes investment | (1,256 | ) | 721 |
|
Contract assets | (1,232 | ) | (1,781 | ) |
Depreciation | (823 | ) | (855 | ) |
Other – net(c) | 274 |
| 307 |
|
GE | 8,189 |
| 10,176 |
|
Operating leases | (2,218 | ) | (2,690 | ) |
Financing leases | (477 | ) | (599 | ) |
Intangible assets | (10 | ) | (16 | ) |
Insurance company loss reserves | 1,715 |
| 1,386 |
|
Non-U.S. loss carryforwards(a) | 1,274 |
| 1,231 |
|
U.S. credit carryforwards(b) | 785 |
| 2,491 |
|
Other – net(c) | 631 |
| 133 |
|
GE Capital | 1,700 |
| 1,936 |
|
Eliminations | — |
| 4 |
|
Net deferred income tax asset (liability) | $ | 9,889 |
| $ | 12,117 |
|
Aggregated deferred income tax amounts are summarized below.
December 31 (In millions) | | 2016 | | | 2015 |
| | | | | |
Assets | | | | | |
GE | $ | 21,106 | | $ | 20,539 |
GE Capital | | 5,093 | | | 4,643 |
| | 26,199 | | | 25,182 |
Liabilities | | | | | |
GE | | (14,440) | | | (12,873) |
GE Capital | | (9,926) | | | (9,204) |
| | (24,366) | | | (22,077) |
Net deferred income tax asset (liability) | $ | 1,833 | | $ | 3,105 |
| | | | | |
COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) |
| | | | | |
December 31 (In millions) | | 2016 | | | 2015 |
| | | | | |
GE | | | | | |
Principal pension plans | $ | 8,963 | | $ | 8,051 |
Other non-current compensation and benefits | | 4,230 | | | 4,133 |
Provision for expenses | | 2,633 | | | 2,827 |
Retiree insurance plans | | 2,000 | | | 2,122 |
Non-U.S. loss carryforwards(a) | | 1,444 | | | 1,940 |
Contract assets | | (6,677) | | | (5,143) |
Intangible assets | | (2,962) | | | (3,192) |
Depreciation | | (1,755) | | | (1,688) |
Investment in global subsidiaries | | (899) | | | (915) |
Other – net | | (311) | | | (469) |
| | 6,666 | | | 7,666 |
GE Capital | | | | | |
Operating leases | | (3,582) | | | (3,863) |
Financing leases | | (1,632) | | | (1,665) |
Energy investments | | (1,410) | | | (1,276) |
Investment in global subsidiaries | | (343) | | | 5 |
Intangible assets | | (125) | | | (103) |
Non-U.S. loss carryforwards(a) | | 1,323 | | | 2,262 |
Other – net | | 936 | | | 79 |
| | (4,833) | | | (4,561) |
Net deferred income tax asset (liability) | $ | 1,833 | | $ | 3,105 |
| | | | | |
| |
(a) | Net of valuation allowances of $2,450$4,801 million and $2,184$3,799 million for GE and $391$201 million and $109$767 million for GE Capital for 2016as of December 31, 2019 and 2015,2018, respectively. Of the net deferred tax asset as of December 31, 2016,2019 of $2,767$1,876 million, $6$3 million relates to net operating loss carryforwards that expire in various years ending from December 31, 20162020 through December 31, 2018; $4722022; $193 million relates to net operating losses that expire in various years ending from December 31, 20202023 through December 31, 20362039 and $2,289$1,680 million relates to net operating loss carryforwards that may be carried forward indefinitely. |
NOTE 15. SHAREOWNERS' EQUITY
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Preferred stock issued | $ | 6 | | $ | 6 | | $ | - |
Common stock issued | $ | 702 | | $ | 702 | | $ | 702 |
Accumulated other comprehensive income (loss) | | | | | | | | |
Balance at January 1 | $ | (16,529) | | $ | (18,172) | | $ | (9,119) |
Other comprehensive income (loss) before reclassifications | | (4,602) | | | (3,312) | | | (12,088) |
Reclassifications from other comprehensive income | | 2,533 | | | 4,956 | | | 3,035 |
Other comprehensive income (loss), net, attributable to GE | | (2,069) | | | 1,644 | | | (9,053) |
Balance at December 31 | $ | (18,598) | | $ | (16,529) | | $ | (18,172) |
Other capital | | | | | | | | |
Balance at January 1 | $ | 37,613 | | $ | 32,889 | | $ | 32,494 |
Gains (losses) on treasury stock dispositions and other(a)(b) | | (389) | | | 4,724 | | | 396 |
Balance at December 31 | $ | 37,224 | | $ | 37,613 | | $ | 32,889 |
Retained earnings | | | | | | | | |
Balance at January 1 | $ | 140,020 | | $ | 155,333 | | $ | 149,051 |
Net earnings (loss) attributable to the Company | | 8,831 | | | (6,126) | | | 15,233 |
Dividends and other transactions with shareowners | | (9,054) | | | (9,161) | | | (8,948) |
Redemption value adjustment on redeemable noncontrolling interests | | (266) | | | (25) | | | (2) |
Balance at December 31 | $ | 139,532 | | $ | 140,020 | | $ | 155,333 |
Common stock held in treasury | | | | | | | | |
Balance at January 1 | $ | (63,539) | | $ | (42,593) | | $ | (42,561) |
Purchases(c)(d) | | (22,073) | | | (23,762) | | | (1,950) |
Dispositions | | 2,574 | | | 2,816 | | | 1,917 |
Balance at December 31 | $ | (83,038) | | $ | (63,539) | | $ | (42,593) |
Total equity | | | | | | | | |
GE shareowners' equity balance at December 31 | $ | 75,828 | | $ | 98,274 | | $ | 128,159 |
Noncontrolling interests balance at December 31 | | 1,663 | | | 1,864 | | | 8,674 |
Total equity balance at December 31 | $ | 77,491 | | $ | 100,138 | | $ | 136,833 |
| | | | | | | | |
(a) | Included $440 million related to the excess of the net proceeds from the Synchrony Financial IPO over the carrying value of the interest sold in 2014. |
(b) | Included $4,949Of the net deferred tax asset as of December 31, 2019 of $859 million related to issuance of new preferred stockfor U.S. credit carryforwards, $74 million expires in exchange for existing GE Capital preferred stockthe years ending December 31, 2030 through 2032 and $785 million expires in 2015.various years ending from December 31, 2036 through December 31, 2039. |
(c) Included valuation allowances related to assets other than non-U.S. loss carryforwards of $1,897 million and $1,002 million for GE and $248 million and $131 million for GE Capital as of December 31, 2019 and 2018, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(c) | Included $(20,383) million related to the split-off of Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial in 2015. |
(d) | Included $(11,370) million of GE shares purchased under accelerated share repurchase (ASR) agreements in 2016. |
NOTE 16. SHAREHOLDERS’ EQUITY
|
| | | | | | | | | | | |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (In millions) | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | |
Beginning balance | $ | (39 | ) | | $ | (102 | ) | | $ | 674 |
|
Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $32, $41 and $(335)(a) | 141 |
| | 87 |
| | (627 | ) |
Reclassifications from OCI – net of deferred taxes of $(11), $(6) and $(81) | (42 | ) | | (23 | ) | | (149 | ) |
Other comprehensive income (loss) | 100 |
| | 64 |
| | (776 | ) |
Less OCI attributable to noncontrolling interests | — |
| | — |
| | 1 |
|
Investment securities ending balance | $ | 61 |
| | $ | (39 | ) | | $ | (102 | ) |
| | | | | |
Beginning balance | $ | (6,134 | ) | | $ | (4,661 | ) | | $ | (6,806 | ) |
OCI before reclassifications – net of deferred taxes of $(98), $29 and $(537) | 41 |
| | (2,076 | ) | | 846 |
|
Reclassifications from OCI – net of deferred taxes of $(9), $89 and $(543)(b) | 1,234 |
| | 412 |
| | 1,333 |
|
Other comprehensive income (loss) | 1,275 |
| | (1,664 | ) | | 2,179 |
|
Less OCI attributable to noncontrolling interests | (40 | ) | | (192 | ) | | 35 |
|
Currency translation adjustments ending balance | $ | (4,818 | ) | | $ | (6,134 | ) | | $ | (4,661 | ) |
| | | | | |
Beginning balance | $ | 13 |
| | $ | 62 |
| | $ | 12 |
|
OCI before reclassifications – net of deferred taxes of $6, $(26) and $31 | (21 | ) | | (149 | ) | | 171 |
|
Reclassifications from OCI – net of deferred taxes of $2, $4 and $(28) | 58 |
| | 98 |
| | (120 | ) |
Other comprehensive income (loss) | 37 |
| | (51 | ) | | 51 |
|
Less OCI attributable to noncontrolling interests | 2 |
| | (2 | ) | | 1 |
|
Cash flow hedges ending balance | $ | 49 |
| | $ | 13 |
| | $ | 62 |
|
| | | | | |
Beginning balance | $ | (8,254 | ) | | $ | (9,702 | ) | | $ | (12,469 | ) |
OCI before reclassifications – net of deferred taxes of $(355), $115 and $32 | (1,820 | ) | | 71 |
| | 550 |
|
Reclassifications from OCI – net of deferred taxes of $852, $2,610 and $1,111 | 3,048 |
| | 1,345 |
| | 2,232 |
|
Other comprehensive income (loss) | 1,228 |
| | 1,416 |
| | 2,782 |
|
Less OCI attributable to noncontrolling interests | (2 | ) | | (32 | ) | | 15 |
|
Benefit plans ending balance | $ | (7,024 | ) | | $ | (8,254 | ) | | $ | (9,702 | ) |
| | | | | |
Accumulated other comprehensive income (loss) at December 31 | $ | (11,732 | ) | | $ | (14,414 | ) | | $ | (14,404 | ) |
(a) Included adjustments of $(2,693) million, $1,825 million and $(1,259) million in 2019, 2018 and 2017, respectively, related to insurance liabilities and annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment security gains been realized. See Note 12 for further information.
(b) Currency translation gains and losses included $1,066 million, 0 and $483 million in 2019, 2018 and 2017, respectively, in earnings (loss) from discontinued operations, net of taxes.
In 2016, we issued $5,694 million of GE 2016 FORM 10-K 176
SHARES OF GE PREFERRED STOCK
At December 31, 2014, GECC had outstanding 50,000 shares of non-cumulative A, B and C Series perpetualD preferred stock, at an average dividend ratewhich are callable on January 21, 2021. In addition to Series D, $250 million of 6.44% with a face value of $5,000 million. In connection with theexisting GE Capital Exit Plan, on December 3, 2015, these shares were converted into a corresponding Series A, B, and C of fixed-to-floating rate non-cumulative perpetual preferred stock issued by GE with face value of $2,778 million, $2,073 million, and $1,094 million, respectively, for a cumulative face value of $5,944 million and an initial average fixed dividend rate of 4.07%. The incremental shares were issued in order to compensate preferred holders for the lower dividend rate. Subsequent to the issuance of the preferred stock on December 3, 2015, in response to investor feedback, GE launched an exchange offer on December 18, 2015 that allowed GE preferred stock investors to exchange their existing Series A, B and C preferred stock into a Series D GE preferred stock. These Series D instruments bear an initial fixed interest rate of 5.00% through January 21, 2021, will bear a floating rate equal to three-month LIBOR plus 3.33% thereafter and are callable on January 21, 2021. On January 20, 2016, $2,687 million of Series A, $2,008 million of Series B and $999 million of Series C were exchanged into $5,694 million Series D GE preferred stock. In addition to interim dividends and accretion of $129 million, a deemed dividend of $232 million was recorded in the year ended December 31, 2016. The deemed dividend included $195 million for the amount by which the fair value of the Series D GE preferred stock exceeded the fair value of the original GECC Series A, B and C preferred stock, and a cash payment of $37 million to the GE Series A and B preferred stockholders who exchanged into the Series D GE preferred stock. Post exchange, $91 million of Series A, $64 million of Series B and $95 million of Series C GE preferred stock remainalso outstanding. The total carrying value of the GE preferred stock at December 31, 20162019 was $5,283$5,738 million and will increase to $5,944 million through periodic accretion toby the respective call dates of each series. Principal and accretion for the preferred stock is recorded in other capital in the consolidated Statement of Financial Position and dividends and accretion are presented under the caption "Preferred stock dividends" in the Statement of Earnings (Loss). 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 $460 million, including cash dividends of $295 million, $447 million, including cash dividends of $295 million, and $436 million, including cash dividends of $295 million, for the years ended December 31, 2019, 2018 and 2017, respectively.
In conjunction with the 2016 exchange of the GE Capital preferred stock into GE preferred stock and the exchange of Series A, B and C preferred stock into Series D preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirrormirrored the GE external preferred stock. In 2018, GE Capital and GE exchanged the existing Series D preferred stock held by external investors ($5,283issued 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 carrying value at December 31, 2016).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.
GE has 50.0 million authorized shares of preferred stock ($1.00 par value). 5,944,250, of which 5,939,875, 5,939,875 and 5,939,875 shares were issued andare outstanding as of December 31, 20162019, 2018 and 2015,2017, respectively. No shares were issued and outstanding as of December 31, 2014.
SHARES OF GE COMMON STOCK
On April 10, 2015, the GE Board has authorized a new repurchase program of up to $50.0 billion in common stock, excluding the Synchrony Financial exchange we completed in 2015. Under our share purchase programs, on a book basis, we repurchased shares of 725.8 million, 109.8 million and 73.6 million for a total of $22,005 million, $3,320 million and $1,901 million for the years ended 2016, 2015, and 2014, respectively. During 2016, we repurchased $11,370 million of our common stock under the accelerated share repurchase (ASR) agreements.
In December 2016, we entered into an ASR agreement with a financial institution which allowed us to repurchase GE common stock at a price below its volume weighted-average price during a given period. During the fourth quarter, we paid $2,200 million and received and classified as treasury shares an initial delivery of 59,177,215 shares based on then-current market prices. The payment was recorded as a reduction to shareowners' equity, consisting of a $1,870 million increase in treasury stock, which reflects the value of the shares received upon initial delivery, and a $330 million decrease in other capital, which reflects the value of the stock held back pending final delivery.
We accounted for the ASR as two separate transactions: (i) 59,177,215 shares of common stock initially delivered to GE and $1,870 million was accounted for as a treasury stock transaction and (ii) the unsettled contract of $330 million was determined to be a forward contract indexed to GE's own common stock. The initial delivery of 59,177,215 shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. GE has determined that the forward contract, indexed to its own common stock, met all the criteria for equity classification.
In the first quarter of 2017, we received the remaining 10,773,050 shares based on the final volume weighted-average price less the negotiated discount.
On November 17, 2015, we completed the split-off of Synchrony Financial through which we acquired 671,366,809 shares of GE common stock from our shareholders in exchange for 705,270,833 shares of Synchrony Financial stock we held.
GE'sGE’s authorized common stock consists of 13,200,000,00013,200 million shares having a par value of $0.06 each.each, with 11,694 million shares issued. Under our share purchase programs we repurchased shares of 1.1 million, and 19.5 million, for a total of $10 million and $235 million for the years ended 2019 and 2018, respectively.
Common shares issued and outstanding are summarized in the following table.
| | | | | | |
December 31 (In thousands) | | 2016 | | 2015 | | 2014 |
| | | | | | |
Issued | | 11,693,841 | | 11,693,841 | | 11,693,841 |
In treasury(a)(b) | | (2,951,227) | | (2,314,553) | | (1,636,461) |
Outstanding | | 8,742,614 | | 9,379,288 | | 10,057,380 |
| | | | | | |
(a) | Included (671,367) thousand shares related to the split-off of Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial in 2015. |
(b) | Included (370,824) thousand GE shares purchased under accelerated share repurchase agreements in 2016. |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | |
| | | | | | | | |
| | | |
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Investment securities | | | | | | | | |
Balance at January 1 | $ | 460 | | $ | 1,013 | | $ | 307 |
Other comprehensive income (loss) (OCI) before reclassifications – | | | | | | | | |
net of deferred taxes of $84, $(270) and $352(a) | | 170 | | | (486) | | | 562 |
Reclassifications from OCI – net of deferred taxes of $30, $(36) and $85 | | 34 | | | (67) | | | 146 |
Other comprehensive income (loss)(b) | | 203 | | | (553) | | | 708 |
Less OCI attributable to noncontrolling interests | | (11) | | | (1) | | | 2 |
Balance at December 31 | $ | 674 | | $ | 460 | | $ | 1,013 |
| | | | | | | | |
Currency translation adjustments (CTA) | | | | | | | | |
Balance at January 1 | $ | (5,499) | | $ | (2,428) | | $ | 283 |
OCI before reclassifications – net of deferred taxes of $719, $1,348 and $(129) | | (1,606) | | | (4,932) | | | (2,600) |
Reclassifications from OCI – net of deferred taxes of $241, $(1,489) and $213 | | 294 | | | 1,794 | | | (129) |
Other comprehensive income (loss)(b) | | (1,311) | | | (3,137) | | | (2,730) |
Less OCI attributable to noncontrolling interests | | 6 | | | (66) | | | (19) |
Balance at December 31 | $ | (6,816) | | $ | (5,499) | | $ | (2,428) |
| | | | | | | | |
Cash flow hedges | | | | | | | | |
Balance at January 1 | $ | (80) | | $ | (180) | | $ | (414) |
OCI before reclassifications – net of deferred taxes of $(41), $(21) and $22 | | (234) | | | (732) | | | (609) |
Reclassifications from OCI – net of deferred taxes of $37, $86 and $34 | | 327 | | | 831 | | | 844 |
Other comprehensive income (loss)(b) | | 93 | | | 99 | | | 234 |
Less OCI attributable to noncontrolling interests | | - | | | - | | | - |
Balance at December 31 | $ | 12 | | $ | (80) | | $ | (180) |
| | | | | | | | |
Benefit plans | | | | | | | | |
Balance at January 1 | $ | (11,410) | | $ | (16,578) | | $ | (9,296) |
Prior service credit (costs) - net of deferred taxes of $46, $859 and $219 | | 128 | | | 1,541 | | | 396 |
Net actuarial gain (loss) – net of deferred taxes of $(1,062), $647 and $(5,332) | | (3,074) | | | 1,227 | | | (9,849) |
Net curtailment/settlement - net of deferred taxes of $12, $(42) and $41 | | 19 | | | (76) | | | 72 |
Prior service cost amortization – net of deferred taxes of $84, $103 and $241 | | 62 | | | 100 | | | 349 |
Net actuarial loss amortization – net of deferred taxes of $870, $1,199 and $859 | | 1,797 | | | 2,373 | | | 1,753 |
Other comprehensive income (loss)(b) | | (1,068) | | | 5,165 | | | (7,278) |
Less OCI attributable to noncontrolling interests | | (9) | | | (3) | | | 3 |
Balance at December 31 | $ | (12,469) | | $ | (11,410) | | $ | (16,578) |
| | | | | | | | |
Accumulated other comprehensive income (loss) at December 31 | $ | (18,598) | | $ | (16,529) | | $ | (18,172) |
(a) | Included adjustments of $57 million, $(611) million and $960 million in 2016, 2015 and 2014, respectively, to deferred acquisition costs, present value of future profits, and investment contracts, insurance liabilities and insurance annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized. |
(b) | Total other comprehensive income (loss) was $(2,083) million, $1,575 million and $(9,066) million in 2016, 2015 and 2014, respectively. |
RECLASSIFICATION OUT OF AOCI | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 | | Statement of earnings caption |
| | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | |
Realized gains (losses) on | | | | | | | | | | |
sale/impairment of securities | $ | (63) | | $ | 103 | | $ | (231) | | Total revenues and other income(a) |
Income taxes | | 30 | | | (36) | | | 85 | | Benefit (provision) for income taxes(b) |
Net of tax | $ | (34) | | $ | 67 | | $ | (146) | | |
Currency translation adjustments | | | | | | | | | | |
Gains (losses) on dispositions | $ | (535) | | $ | (305) | | $ | (85) | | Total revenues and other income(c) |
Income taxes | | 241 | | | (1,489) | | | 213 | | Benefit (provision) for income taxes(d) |
Net of tax | $ | (294) | | $ | (1,794) | | $ | 129 | | |
Cash flow hedges | | | | | | | | | | |
Gains (losses) on interest rate derivatives | $ | (79) | | $ | (130) | | $ | (234) | | Interest and other financial charges |
Foreign exchange contracts | | (247) | | | (801) | | | (666) | | (e) |
Other | | (38) | | | 13 | | | 22 | | (f) |
Total before tax | | (364) | | | (918) | | | (878) | | |
Income taxes | | 37 | | | 86 | | | 34 | | Benefit (provision) for income taxes |
Net of tax | $ | (327) | | $ | (831) | | $ | (844) | | |
Benefit plan items | | | | | | | | | | |
Curtailment gain (loss) | $ | (31) | | $ | 118 | | $ | (113) | | (g) |
Amortization of prior service costs | | (146) | | | (203) | | | (590) | | (g) |
Amortization of actuarial gains (losses) | | (2,667) | | | (3,572) | | | (2,612) | | (g) |
Total before tax | | (2,844) | | | (3,657) | | | (3,315) | | |
Income taxes | | 966 | | | 1,260 | | | 1,141 | | Benefit (provision) for income taxes |
Net of tax | $ | (1,878) | | $ | (2,397) | | $ | (2,174) | | |
| | | | | | | | | | |
Total reclassification adjustments (net of tax) | $ | (2,533) | | $ | (4,956) | | $ | (3,035) | | |
| | | | | | | | | | |
(a) | Included $(70) million, $61 million and an insignificant amount in 2016, 2015 and 2014, respectively, in earnings (loss) from discontinued operations, net of taxes. |
(b) | Included $32 million, $(30) million and $3 million in 2016, 2015 and 2014, respectively, in earnings (loss) from discontinued operations, net of taxes. |
(c) | Included $(453) million, $(224) million and $(51) million in 2016, 2015 and 2014, respectively, in earnings (loss) from discontinued operations, net of taxes. |
(d) | Included $241 million, $(1,506) million and $213 million in 2016, 2015 and 2014, respectively, in earnings (loss) from discontinued operations, net of taxes. |
(e) | Included $(182) million, $(758) million and $(607) million in GE Capital revenues from services and $(65) million, $(43) million and $(59) million in interest and other financial charges in 2016, 2015 and 2014, respectively. |
(f) | Primarily recorded in costs and expenses. |
(g) | Curtailment gain (loss), amortization of prior service costs and actuarial gains and losses reclassified out of AOCI are included in the computation of net periodic pension costs. See Notes 12 and 29 for further information. |
Noncontrolling interests in equity of consolidated affiliates includes common shares in consolidated affiliatesamounted to $1,545 million and preferred stock issued by our affiliates.
Prior$20,500 million, including 0 and $19,239 million attributable to Baker Hughes Class A shareholders at December 31, 2019 and 2018, respectively. See Note 2 for further information related to the fourth quarter of 2015, the preferred stock issued by GECC was classified asBaker Hughes transaction. Net earnings (loss) attributable to noncontrolling interests were $33 million, $203 million and $(47) million in 2019, 2018 and 2017, respectively. Dividends attributable to noncontrolling interests were $(331) million, $(362) million and $(222) million in 2019, 2018 and 2017, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Redeemable noncontrolling interests presented in All other liabilities in our consolidated Statement of Financial Position with dividends presented as noncontrolling interest in our consolidated Statement of Earnings. As discussed previously in this note, this preferred stock was converted to a corresponding series of preferred stock issued by GE and on January 20, 2016 a substantial majority of those shares were exchanged into GE Series D preferred stock. Effective with these changes, the preferred stock issued by GE is reflected in our shareowners' equity and dividends are presented as a reduction of net earnings attributable to GE in the statement of earnings (under the caption "Preferred stock dividends") for the year ended December 31, 2015 and subsequently.
CHANGES TO NONCONTROLLING INTERESTS |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Balance at January 1 | $ | 1,864 | | $ | 8,674 | | $ | 6,217 |
Net earnings (loss) | | (46) | | | 377 | | | 183 |
GECC preferred stock(a) | | - | | | (4,949) | | | - |
GECC preferred stock dividend | | - | | | (311) | | | (322) |
Dividends | | (72) | | | (43) | | | (74) |
Dispositions | | (232) | | | 189 | | | (81) |
Synchrony Financial(b) | | - | | | (2,840) | | | 2,393 |
Other (including AOCI)(c)(d)(e)(f) | | 150 | | | 767 | | | 358 |
Balance at December 31 | $ | 1,663 | | $ | 1,864 | | $ | 8,674 |
| | | | | | | | |
(a) | Included $(4,949) million related to the issuance of GE preferred stock in exchange for existing GECC preferred stock in 2015. GE preferred stock is reflected in shareowners' equity in the consolidated Statement of Financial Position. |
(b) | Related to the split-off of Synchrony Financial from GE in 2015, where GE shares were exchanged for shares of Synchrony Financial; related to the Synchrony Financial IPO in 2014. |
(c) | Included $695 million related to the Alstom acquisition in 2015. |
(d) | Included $155 million related to Arcam AB acquisition in our Aviation segment in 2016. |
(e) | Included $(123) million for deconsolidation of investment funds managed by GE Asset Management (GEAM) upon the adoption of ASU 2015-2, Amendments to the Consolidation Analysis in 2016. See Note 1.
|
(f) | Includes research & development partner funding arrangements, acquisitions and eliminations. |
REDEEMABLE NONCONTROLLING INTERESTS
Redeemable noncontrolling interest presented in our Statement of Financial Position includesinclude common shares issued by our affiliates that are redeemable at the option of the holder of those interests.
As partinterests and amounted to $439 million and $378 million as of December 31, 2019 and 2018, respectively. Net earnings (loss) attributable to redeemable noncontrolling interests was $33 million, $(291) million and $(320) million for the Alstom acquisition,years ended December 31, 2019, 2018 and 2017, respectively. On October 2, 2018, we formed three settled the redeemable noncontrolling interest balance associated with3joint ventures in which the noncontrolling interests hold certain redemption rights. These joint ventures and the associated redemption rights are discussed in Note 8. Our retained earnings will be adjustedwith Alstom for subsequent changes in the redemption value of the noncontrolling interest in these entities to the extent that the redemption value exceeds the carryinga payment amount of the noncontrolling interest.
$3,105 million in accordance with contractual payment terms.
CHANGES TO REDEEMABLE NONCONTROLLING INTERESTS |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Balance at January 1 | $ | 2,972 | | $ | 98 | | $ | 178 |
Net (loss) | | (244) | | | (46) | | | (71) |
Dividends | | (17) | | | (11) | | | (12) |
Redemption value adjustment | | 266 | | | 25 | | | 2 |
Other(a)(b) | | 49 | | | 2,906 | | | 1 |
Balance at December 31 | $ | 3,025 | | $ | 2,972 | | $ | 98 |
| | | | | | | | |
(a) | Included $2,875 million related to joint ventures formed by GE and Alstom as part of the Alstom acquisition in 2015. |
(b) | Included $204 million related to the Concept Laser GmbH acquisition in our Aviation segment in 2016. |
Common dividends from GE Capital to GE totaled $20,1180, 0 and $4,105 million $4,311 million and $3,000 million(including cash dividends of $4,016 million) for the years ended 2016, 2015December 31, 2019, 2018 and 2014,2017, respectively. Dividends on GE preferred stock totaled $656 million and $18 million, including cash dividends of $332 million and $8 million for the years ended 2016 and 2015, respectively. There were no dividends on GE preferred stock in 2014.
NOTE 16. OTHER STOCK-RELATED INFORMATION
17. SHARE-BASED COMPENSATION
We grant stock options, restricted stock units and performance share units to employees under the 2007 Long-Term Incentive Plan. Grants made under all plans must be approved by the Management Development and Compensation Committee of GE'sGE’s Board of Directors, which is composed entirely of independent directors. We record compensation expense for awards expected to vest over the vesting period. We estimate forfeitures based on experience and adjust expense to reflect actual forfeitures. When options are exercised and restricted stock units vest, we issue shares from treasury stock.
STOCK OPTIONS
Under our stock option program, an employee receives an award that providesStock options provide employees the opportunity in the future to purchase GE shares in the future at the market price of our stock on the date the award is granted (the strike price). The options become exercisable in equal amounts over a five-yearthe vesting period (typically three or five years) and expire 10 years from the grant date if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through recording compensation expense and increasing shareowners' equity. We record compensation expense based on the estimated fair value of the awards expected to vest, and that amount is amortized as compensation expense on a straight-line basis over the five-year vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are expected to be forfeited by employees that leave GE prior to vesting. We estimate forfeitures based on our experience and adjust the expense to reflect actual forfeitures over the vesting period. The offset to the expense we record is reflected as an increase in the "Other capital" component of shareowners' equity.
| | | | | | | | |
(In millions, after tax) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Compensation expense | $ | 207 | | $ | 234 | | $ | 215 |
| | | | | | | | |
We estimate the fair value of eachRestricted stock
option award on the date of grant using a Black-Scholes option pricing model. The table below provides the weighted-average grant-date fair values, key assumptions and other inputs into the pricing model. With the exception of the dividend yield assumption, an increase in any individual assumption will increase the estimated fair value of the option, all other things being equal.
| | | | | | | | | |
| 2016 | | 2015 | | 2014 | |
| | | | | | | | | |
Weighted-average grant-date fair value of stock options | $ | 3.61 | | $ | 4.64 | | $ | 5.26 | |
| | | | | | | | | |
Stock Option Valuation Assumptions: | | | | | | | | | |
Risk-free interest rate | | 1.4 | % | | 2.0 | % | | 2.3 | % |
Dividend yield | | 3.4 | % | | 3.4 | % | | 3.1 | % |
Expected volatility | | 20.0 | % | | 25.0 | % | | 26.0 | % |
Expected option life (in years) | | 6.5 | | | 6.8 | | | 7.3 | |
| | | | | | | | | |
Other pricing model inputs: | | | | | | | | | |
Weighted-average grant-date market price of GE stock (strike price) | $ | 29.63 | | $ | 25.79 | | $ | 26.11 | |
| | | | | | | | | |
The table below shows the amount and weighted-average strike price of options granted during 2016, as well as those outstanding and exercisable at year-end 2016.
| | |
As of December 31, 2016 unless, otherwise stated (in thousands, except per-share data) | |
| | |
Stock options granted during 2016 | | 30,948 |
Weighted-average strike price of awards granted in 2016 | $ | 29.63 |
Stock options outstanding | | 420,303 |
Weighted-average strike price of stock options outstanding | $ | 22.29 |
Stock options exercisable | | 301,952 |
Weighted-average strike price of stock options exercisable | $ | 20.73 |
| | |
When an employee exercises an option, we issue treasury shares to satisfy the requirements of the option.
| | | | | | | | | |
| 2016 | | 2015 | | 2014 | |
| | | | | | | | | |
Stock options exercised (in thousands) | | 56,973 | | | 65,764 | | | 30,433 | |
Cash received from stock options exercised (in millions) | $ | 1,037 | | $ | 1,098 | | $ | 439 | |
| | | | | | | | | |
Outstanding stock option awards may be dilutive to earnings per share when they are in the money (the market price of GE stock is greater than the strike price of the option). When an option is dilutive, it increases the number of shares used in the diluted earnings per share calculation, which will decrease earnings per share. However, the effect stock options have on the number of shares added to the diluted earnings per share calculation is not one-for-one. The average amount of unrecognized compensation expense (the portion of the fair value of these option awards not yet amortized) and the market price of GE stock during the reporting period affect how many of these potential shares are included in the calculation. The calculation assumes that the proceeds received from the exercise and the unrecognized compensation expense are used to buy back shares, which reduces the dilutive impact.
As of December 31, 2016, there was $427 million of unrecognized compensation expense related to unvested options, which will be amortized over the remaining vesting period (the weighted-average period is approximately 2 years). Of that total, approximately $118 million, after tax, is estimated to be recorded as compensation expense in 2017.
The dilutive effect of in-the-money options on our earnings per share from continuing operations has been $0.01 or less per share (1% or less) for the last three years. See Note 18 for additional information about earnings per share.
RESTRICTED STOCK
A restricted stock award providesunits (RSU) provide an employee with the right to receive shares of GE stock when the restrictions lapse which occurs in equal amounts over the vesting period. Upon vesting, each unit of restricted stockRSU is converted into GE common stock on a one-for-one basis using treasury1-for-one basis. Performance share units (PSU) provide an employee with the right to receive shares of GE stock shares. The expense to be recognizedbased upon achievement of certain performance or market metrics. Upon vesting (if applicable), each PSU is converted into GE common stock on a restrictedone-for-one basis. We value stock unit is based upon theoptions using a Black-Scholes option pricing model, RSUs using market price on the grant date, (which is its fair value) multiplied byand PSUs using both market price on grant date and a Monte Carlo simulation as needed based on performance metrics.
|
| | | | | | | | | | |
WEIGHTED AVERAGE GRANT DATE FAIR VALUE |
| 2019 |
| 2018 |
| 2017 |
|
| | | | |
Stock Options |
| $ | 3.48 |
| $ | 3.00 |
| $ | 3.81 |
|
RSUs |
| 10.12 |
| 13.96 |
| 24.89 |
|
PSUs |
| 10.73 |
| 4.80 |
| N/A |
|
Key assumptions used in the numberBlack Scholes valuation for stock options include: risk free rates of units2.5%, 2.8%, and 2.3%, dividend yields of 0.4%, 2.3%, and 3.3%, expected to vest. Accordingly, total expense related to the award is reduced byvolatility of 33%, 32%, and 28%, expected lives of 6.0 years, 5.9 years, and 6.3 years, and strike prices of $10.00, $12.13, and $18.97 for 2019, 2018, and 2017, respectively.
|
| | | | | | | | | | | | | | | | | | | |
STOCK-BASED COMPENSATION ACTIVITY | Stock Options |
| RSUs |
Shares (in millions) |
| Weighted average exercise price |
| Weighted average contractual term (in years) | Intrinsic value (in millions) |
|
| Shares (in millions) |
| Weighted average grant date fair value |
| Weighted average contractual term (in years) | Intrinsic value (in millions) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2019 | 466 |
| $ | 19.59 |
|
|
|
| 29 |
| $ | 18.07 |
|
|
|
Spin-off adjustment (a) | 17 |
| N/A |
|
|
|
|
| 1 |
| N/A |
|
|
|
|
Granted | 34 |
| 10.00 |
|
|
|
| 16 |
| 10.12 |
|
|
|
Exercised | (7 | ) | 9.36 |
|
|
|
| (15 | ) | 17.04 |
|
|
|
Forfeited | (11 | ) | 13.66 |
|
|
|
| (3 | ) | 15.40 |
|
|
|
Expired | (41 | ) | 17.24 |
|
|
|
| N/A |
| N/A |
|
|
|
|
Outstanding at December 31, 2019 | 458 |
| $ | 18.66 |
| 4.6 | $ | 185 |
|
| 28 |
| $ | 13.29 |
| 1.4 | $ | 315 |
|
Exercisable at December 31, 2019 | 335 |
| $ | 21.03 |
| 3.1 | $ | — |
|
| N/A |
| N/A |
| N/A | N/A |
|
Expected to vest | 113 |
| $ | 12.36 |
| 8.5 | $ | 165 |
|
| 26 |
| $ | 13.45 |
| 1.3 | $ | 285 |
|
| |
(a) | In connection with the spin-off of GE Transportation and pursuant to the anti-dilution provisions of the 2007 Long Term Incentive Plan, the Company made adjustments to exercise price and the number of shares to preserve the intrinsic value of the awards prior to the separation. The adjustments to the stock-based compensation awards did not result in additional compensation expense. |
Total outstanding PSUs at December 31, 2019 were 12 million shares with a weighted average fair value of restricted stock units that are expected to be forfeited by employees that leave GE prior to lapse$7.39. The intrinsic value and weighted average contractual term of the restrictions. That amount is amortized as compensation expense on a straight-line basis over a five-year vesting period. We estimate forfeitures based on our experiencePSUs outstanding were $128 million and adjust the expense to reflect actual forfeitures over the vesting period. The offset to compensation expense is an increase in the "Other capital" component of shareowners' equity.2.3 years, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | |
(In millions, after tax) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Compensation expense(a) | $ | 90 | | $ | 72 | | $ | 56 |
(a)Included $11 million of compensation expense related to performance share units in 2016.
|
| | | | | | | | | |
(In millions) | 2019 |
| 2018 |
| 2017 |
|
|
|
|
|
Compensation expense (after-tax)(a)(b) | $ | 400 |
| $ | 336 |
| $ | 241 |
|
Cash received from stock options exercised | 69 |
| 24 |
| 528 |
|
Intrinsic value of stock options exercised and RSUs vested
| 154 |
| 83 |
| 493 |
|
The fair value of a restricted stock unit at the grant date is equal to the market price of our stock on the grant date.
| | | | | | | | | |
| 2016 | | 2015 | | 2014 | |
| | | | | | | | | |
Weighted-average grant-date fair value of restricted stock awards | $ | 30.20 | | $ | 26.74 | | $ | 26.08 | |
| | | | | | | | | |
| | |
As of December 31, 2016, unless otherwise stated (in thousands, except per-share data) | |
| | |
Restricted stock units granted during 2016 | | 8,933 |
Non-vested restricted stock units outstanding | | 17,859 |
Weighted-average fair value at grant date of non-vested stock | $ | 27.72 |
| | |
The table below provides information about the units of restricted stock that vested for each of the years presented.
| | | | | | | | |
(In thousands) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Restricted stock units vested during the year ended | | 4,427 | | | 3,899 | | | 3,305 |
| | | | | | | | |
As of December 31, 2016, there was $346 million of total unrecognized compensation expense related to unvested restricted stock units, which will be amortized over the remaining vesting period (the weighted-average period is approximately 2 years). Of that total, approximately $75 million, after tax, is estimated to be recorded as compensation expense in 2017.
OTHER INFORMATION
When options are exercised and restricted stock units vest, we issue shares from treasury stock, which increases shares outstanding. The "Other capital" component of shareowners' equity is adjusted for differences between the strike price of GE stock and the average cost of our treasury stock. We also record the difference between the tax benefits assumed (based on the fair value of the award on the grant date) and the actual tax benefit in our provision for income taxes. Any excess tax benefit is recorded as cash flows from operating activities in our Statement of Cash Flows. The table below provides information about tax benefits related to all share-based compensation arrangements.
| | | | | | | | | |
(In millions) | 2016 | | 2015 | | 2014 | |
| | | | | | | | | |
Income tax benefit recognized in earnings | $ | 274 | | $ | 148 | | $ | 147 | |
Excess of actual tax deductions over amounts assumed recognized in equity(a) | | - | | | 167 | | | 86 | |
| | | | | | | | | |
| |
(a) | We adopted ASU 2016-09 in September 2016. The primary effects of adoption were the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital and the reclassification of cash flowsUnrecognized compensation cost related to excess tax benefits fromunvested equity awards as of December 31, 2019 was $515 million, which will be amortized over a financing activity to an operating activity for the periods beginning January 1, 2016. See Note 1 for further information.weighted average period of 1.1 years. |
| |
(b) | Income tax benefit recognized in earnings was $20 million, $40 million and $138 million in 2019, 2018, and 2017, respectively. |
Share-based compensation programs serve as a means to attract and retain talented employees and are an important element of their total compensation. The intrinsic value of a stock option award is the amount by which the award is in the money and represents the potential value to the employee upon exercise of the option. The intrinsic value of restricted stock units is the value of the shares awarded at the current market price. The table below provides information about the intrinsic value of option and restricted stock awards.
| Aggregate | |
| intrinsic | |
As of December 31, 2016, unless otherwise stated (in millions) | value | |
| | | |
Stock options outstanding | $ | 3,984 | |
Stock options exercised in 2016 | | 723 | |
Non-vested restricted stock units outstanding | | 564 | |
Restricted stock units vested in 2016 | | 137 | |
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
GE | | | | | | | | |
Purchases and sales of business interests(a) | $ | 3,701 | | $ | 1,020 | | $ | 188 |
Licensing and royalty income | | 175 | | | 168 | | | 288 |
Associated companies | | 76 | | | 45 | | | 176 |
Net interest and investment income(b) | | 167 | | | 65 | | | (77) |
Other items(c) | | (27) | | | 868 | | | 132 |
| | 4,092 | | | 2,165 | | | 707 |
Eliminations | | (87) | | | 62 | | | 71 |
Total | $ | 4,005 | | $ | 2,227 | | $ | 778 |
| | | | | | | | |
(a) | Included a pre-tax gain of $3,136 million on the sale of our Appliances business and $398 million on the sale of GE Asset Management in 2016. Included a pre-tax gain of $623 million on the sale of our Signaling business in 2015. See Note 2. |
(b)Included other-than-temporary impairments on investment securities of $(217) million in 2014.
(c) | In 2015, included a $450 million NBCU tax settlement and a $175 million break-up fee from Electrolux. Included net gains on asset sales of $101 million, $90 million and $127 million in 2016, 2015 and 2014, respectively. |
NOTE 18. EARNINGS PER SHARE INFORMATION |
| | | | | | | | | | | | | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
(In millions; per-share amounts in dollars) | Diluted |
| Basic |
|
| Diluted |
| Basic |
|
| Diluted |
| Basic |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations for per-share calculation | $ | 416 |
| $ | 416 |
|
| $ | (20,997 | ) | $ | (20,997 | ) |
| $ | (8,270 | ) | $ | (8,270 | ) |
Preferred stock dividends | (460 | ) | (460 | ) |
| (447 | ) | (447 | ) |
| (436 | ) | (436 | ) |
Earnings (loss) from continuing operations attributable to common shareholders for per-share calculation | $ | (45 | ) | $ | (45 | ) |
| $ | (21,445 | ) | $ | (21,445 | ) |
| $ | (8,706 | ) | $ | (8,706 | ) |
Earnings (loss) from discontinued operations for per-share calculation | (5,396 | ) | (5,396 | ) |
| (1,372 | ) | (1,372 | ) |
| (251 | ) | (251 | ) |
Net earnings (loss) attributable to GE common shareholders for per-share calculation | (5,440 | ) | (5,440 | ) |
| (22,809 | ) | (22,809 | ) |
| (8,944 | ) | (8,944 | ) |
|
|
|
|
|
|
|
|
|
Shares of GE common stock outstanding | 8,724 |
| 8,724 |
|
| 8,691 |
| 8,691 |
|
| 8,687 |
| 8,687 |
|
Employee compensation-related shares (including stock options) and warrants(a) | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
Total average equivalent shares | 8,724 |
| 8,724 |
|
| 8,691 |
| 8,691 |
|
| 8,687 |
| 8,687 |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations | $ | (0.01 | ) | $ | (0.01 | ) |
| $ | (2.47 | ) | $ | (2.47 | ) |
| $ | (1.00 | ) | $ | (1.00 | ) |
Earnings (loss) from discontinued operations | (0.62 | ) | (0.62 | ) |
| (0.16 | ) | (0.16 | ) |
| (0.03 | ) | (0.03 | ) |
Net earnings (loss) | (0.62 | ) | (0.62 | ) |
| (2.62 | ) | (2.62 | ) |
| (1.03 | ) | (1.03 | ) |
|
|
|
|
|
|
|
|
|
Potentially dilutive securities(a) |
| 450 |
|
|
| 420 |
|
|
| 119 |
|
| 2016 | | 2015 | | 2014 |
(In millions; per-share amounts in dollars) | Diluted | | Basic | | Diluted | | Basic | | Diluted | | Basic |
| | | | | | | | | | | | | | | | | |
Amounts attributable to the Company: | | | | | | | | | | | | | | | | | |
Consolidated | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations for | | | | | | | | | | | | | | | | | |
per-share calculation(a)(b) | $ | 9,764 | | $ | 9,769 | | $ | 1,680 | | $ | 1,679 | | $ | 9,523 | | $ | 9,523 |
Preferred stock dividends declared | | (656) | | | (656) | | | (18) | | | (18) | | | - | | | - |
Earnings (loss) from continuing operations attributable to | | | | | | | | | | | | | | | | | |
common shareowners for per-share calculation(a)(b) | $ | 9,108 | | $ | 9,113 | | $ | 1,662 | | $ | 1,661 | | $ | 9,523 | | $ | 9,523 |
Earnings (loss) from discontinued operations | | | | | | | | | | | | | | | | | |
for per-share calculation(a)(b) | | (955) | | | (950) | | | (7,795) | | | (7,795) | | | 5,691 | | | 5,691 |
Net earnings (loss) attributable to GE common | | | | | | | | | | | | | | | | | |
shareowners for per-share calculation(a)(b) | $ | 8,157 | | $ | 8,163 | | $ | (6,135) | | $ | (6,135) | | $ | 15,213 | | $ | 15,212 |
| | | | | | | | | | | | | | | | | |
Average equivalent shares | | | | | | | | | | | | | | | | | |
Shares of GE common stock outstanding | | 9,025 | | | 9,025 | | | 9,944 | | | 9,944 | | | 10,045 | | | 10,045 |
Employee compensation-related shares (including | | | | | | | | | | | | | | | | | |
stock options) and warrants | | 105 | | | - | | | 72 | | | - | | | 78 | | | - |
Total average equivalent shares | | 9,130 | | | 9,025 | | | 10,016 | | | 9,944 | | | 10,123 | | | 10,045 |
| | | | | | | | | | | | | | | | | |
Per-share amounts | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 1.00 | | $ | 1.01 | | $ | 0.17 | | $ | 0.17 | | $ | 0.94 | | $ | 0.95 |
Earnings (loss) from discontinued operations | | (0.10) | | | (0.11) | | | (0.78) | | | (0.78) | | | 0.56 | | | 0.57 |
Net earnings (loss) | | 0.89 | | | 0.90 | | | (0.61) | | | (0.62) | | | 1.50 | | | 1.51 |
| | | | | | | | | | | | | | | | | |
(a) All outstanding stock awards are not included in the computation of diluted earnings per share because their effect was antidilutive due to the loss from continuing operations.
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. Application of this treatment had an insignificant effect.
(a) | Included a dilutive adjustment of an insignificant amount of dividend equivalents in each of the three years presented. |
(b) | Included in 2016 is a dilutive adjustment for the change in income for forward purchase contracts that may be settled in stock. |
For the years ended December 31, 2016, 20152019, 2018 and 2014, there were approximately 22 million, 97 million and 98 million, respectively,2017, as a result of outstanding stock awards thatexcess dividends in respect to the current period earnings, losses were not included in the computation of diluted earnings per share because their effect was antidilutive.
In December 2016, we entered into an ASR agreement to repurchase shares of GE common stock. See Note 15 for additional information. The initial delivery of 59,177,215 shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. GE has determined that the forward contract, indexed to its own common stock, met all the criteria for equity classification. There was no dilutive impact on earnings per share relatedallocated to the forward contract.participating securities.
Earnings-per-share amounts are computed independently for earnings (loss) from continuing operations, earnings (loss) from discontinued operations and net earnings (loss). 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 19. OTHER INCOME
|
| | | | | | | | | |
(In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Purchases and sales of business interests(a) | $ | 3 |
| $ | 1,234 |
| $ | 1,024 |
|
Licensing and royalty income | 256 |
| 218 |
| 188 |
|
Associated companies | 206 |
| 21 |
| 208 |
|
Net interest and investment income(b) | 1,220 |
| 562 |
| 358 |
|
Other items | 515 |
| 282 |
| 115 |
|
GE | 2,200 |
| 2,317 |
| 1,893 |
|
Eliminations | 22 |
| 4 |
| 189 |
|
Total | $ | 2,222 |
| $ | 2,321 |
| $ | 2,083 |
|
| |
(a) | Included a pre-tax gain of $224 million on the sale of ServiceMax partially offset by charges to the valuation allowance on businesses classified as held for sale of $245 million in 2019. Included pre-tax gains of $737 million on the sale of Distributed Power, $681 million on the sale of Value-Based Care and $267 million on the sale of Industrial Solutions, partially offset by charges to the valuation allowance on businesses classified as held for sale of $554 million in 2018. Included a pre-tax gain of $1,931 million on the sale of our Water business, partially offset by charges to the valuation allowance on businesses classified as held for sale of $1,000 million in 2017. See Note 2 for further information. |
| |
(b) | Included unrealized gain of $793 million related to our interest in Baker Hughes in 2019. Included interest income associated with customer advances of $143 million, $136 million and $105 million in 2019, 2018 and 2017, respectively. See Notes 1, 3 and 9. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20. FAIR VALUE MEASUREMENTS
RECURRING FAIR VALUE MEASUREMENTS
MEASUREMENTS.Our assets and liabilities measured at fair value on a recurring basis include investment securities mainly supporting obligations to annuitants and policyholders in our run-off insurance operations, derivatives, and derivatives.our remaining equity interest in Baker Hughes.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | Netting | | |
(In millions) | Level 1 | (a) | Level 2 | (a) | Level 3 | | adjustment | (b) | Net balance |
December 31, 2016 | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | |
U.S. corporate | $ | - | | $ | 19,647 | | $ | 3,399 | | $ | - | | $ | 23,046 |
State and municipal | | - | | | 4,163 | | | 73 | | | - | | | 4,236 |
Mortgage and asset-backed | | - | | | 2,852 | | | 9 | | | - | | | 2,861 |
Corporate – non-U.S. | | - | | | 11,299 | | | 688 | | | - | | | 11,987 |
Government – non-U.S. | | - | | | 1,262 | | | - | | | - | | | 1,262 |
U.S. government and federal agency | | - | | | 482 | | | 232 | | | - | | | 714 |
Equity | | 188 | | | 14 | | | 6 | | | - | | | 208 |
Derivatives(c) | | - | | | 5,444 | | | 23 | | | (5,121) | | | 345 |
Total | $ | 188 | | $ | 45,163 | | $ | 4,429 | | $ | (5,121) | | $ | 44,658 |
| | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | |
Derivatives | $ | - | | $ | 4,880 | | $ | 2 | | $ | (4,449) | | $ | 434 |
Other(e) | | - | | | 1,143 | | | - | | | - | | | 1,143 |
Total | $ | - | | $ | 6,024 | | $ | 2 | | $ | (4,449) | | $ | 1,577 |
| | | | | | | | | | | | | | |
December 31, 2015 | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | |
U.S. corporate | $ | - | | $ | 19,351 | | $ | 3,006 | | $ | - | | $ | 22,358 |
State and municipal | | - | | | 4,215 | | | 30 | | | - | | | 4,245 |
Mortgage and asset-backed | | - | | | 3,084 | | | 32 | | | - | | | 3,116 |
Corporate – non-U.S. | | 12 | | | 544 | | | 290 | | | - | | | 847 |
Government – non-U.S. | | 5 | | | 410 | | | - | | | - | | | 415 |
U.S. government and federal agency | | 49 | | | 404 | | | 323 | | | - | | | 776 |
Equity | | 194 | | | 9 | | | 13 | | | - | | | 216 |
Derivatives(c) | | - | | | 7,312 | | | 79 | | | (6,110) | | | 1,281 |
Other(d) | | - | | | - | | | 259 | | | - | | | 259 |
Total | $ | 260 | | $ | 35,331 | | $ | 4,033 | | $ | (6,110) | | $ | 33,512 |
Liabilities | | | | | | | | | | | | | | |
Derivatives | $ | - | | $ | 5,677 | | $ | 4 | | $ | (4,968) | | $ | 713 |
Other(e) | | - | | | 1,182 | | | - | | | - | | | 1,182 |
Total | $ | - | | $ | 6,860 | | $ | 4 | | $ | (4,968) | | $ | 1,895 |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS December 31 (In millions) | |
| Level 1 | Level 2 | Level 3(a) | Netting adjustment(d) | Net balance(b) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| | | | | | | | | | |
Investment securities | $ | 9,704 |
| $ | 88 |
| $ | 33,606 |
| $ | 29,408 |
| $ | 5,210 |
| $ | 4,013 |
| $ | — |
| $ | — |
| $ | 48,521 |
| $ | 33,508 |
|
Derivatives | — |
| — |
| 2,561 |
| 2,197 |
| 11 |
| 8 |
| (1,832 | ) | (2,001 | ) | 740 |
| 205 |
|
Total assets | $ | 9,704 |
| $ | 88 |
| $ | 36,167 |
| $ | 31,605 |
| $ | 5,221 |
| $ | 4,021 |
| $ | (1,832 | ) | $ | (2,001 | ) | $ | 49,261 |
| $ | 33,713 |
|
| | | | | | | | | | |
Derivatives | $ | — |
| $ | — |
| $ | 834 |
| $ | 1,814 |
| $ | 19 |
| $ | 6 |
| $ | (651 | ) | $ | (1,234 | ) | $ | 202 |
| $ | 586 |
|
Other(c) | — |
| — |
| 807 |
| 722 |
| — |
| — |
| — |
| — |
| 807 |
| 722 |
|
Total liabilities | $ | — |
| $ | — |
| $ | 1,641 |
| $ | 2,535 |
| $ | 19 |
| $ | 6 |
| $ | (651 | ) | $ | (1,234 | ) | $ | 1,009 |
| $ | 1,308 |
|
(a) | There were $12 million |
(a) | Included debt securities classified within Level 3 of Corporate – non-U.S. securities and $50$3,977 million of U.S. governmentcorporate and federal agency$330 million of Government and agencies securities transferred from Level 1 to Level 2 in the twelve months endedat December 31, 2016 primarily attributable to changes in valuation approach. There were no2019, and $3,498 million of U.S. corporate and $292 million of Government and agencies securities transferred between Level 1 and Level 2 in the year endedat December 31, 2015.2018. |
| |
(b) | The netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists. |
(c) | The fair value of derivatives includes an adjustment for non-performance risk. At December 31, 2016 and December 31, 2015, the cumulative adjustment for non-performance risk was $(3) million and insignificant, respectively. See Notes 203 and 2921 for additionalfurther information on the composition of our investment securities and derivative portfolio.portfolios. |
(d) | Includes private equity investments. |
(e)(c) | Primarily represents the liabilities associated with certain of our deferred incentive compensation plans. |
| |
(d) | The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. |
INSTRUMENTS.The majority of our Level 3 balances consist of investmentcomprised debt securities classified as available-for-sale with changes in fair value recorded in shareowners' equity.
CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEARS ENDED DECEMBER 31 |
| | | | | | | | | | | | | | | | | | | Net |
| | | | | | | | | | | | | | | | | | | change in |
| | | Net | | Net | | | | | | | | | | | | | | | unrealized |
| | realized/ | | realized/ | | | | | | | | | | | | | | | gains |
| | unrealized | unrealized | | | | | | | | | | | | | | | (losses) |
| | | gains | | gains | | | | | | | | | | | | | | | relating to |
| | | (losses) | | (losses) | | | | | | | | | Transfers | | Transfers | | | | instruments |
| Balance at | included in | | included | | | | | | | | | into | | out of | | Balance at | | still held at |
(In millions) | January 1 | earnings(a) | | in AOCI | | Purchases | | Sales | | Settlements | | Level 3(b) | | Level 3(b) | | December 31 | | December 31(c) |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. corporate | $ | 3,006 | $ | 9 | $ | 137 | | $ | 468 | | $ | (70) | | $ | (155) | | $ | 32 | | $ | (29) | | $ | 3,399 | | $ | - |
State and municipal | | 30 | | - | | 1 | | | 43 | | | - | | | (1) | | | - | | | - | | | 73 | | | - |
Mortgage and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
asset-backed | | 32 | | (19) | | 1 | | | - | | | - | | | (6) | | | - | | | - | | | 9 | | | - |
Corporate – non-U.S. | | 290 | | 28 | | - | | | 461 | | | (82) | | | (1) | | | 2 | | | (10) | | | 688 | | | - |
U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
federal agency | | 323 | | - | | (90) | | | - | | | - | | | (1) | | | - | | | - | | | 232 | | | - |
Equity | | 13 | | (7) | | 2 | | | - | | | (1) | | | (2) | | | - | | | - | | | 6 | | | - |
Derivatives(d)(e) | | 88 | | (18) | | - | | | 1 | | | - | | | (59) | | | - | | | 8 | | | 21 | | | (21) |
Other | | 259 | | - | | - | | | - | | | - | | | - | | | - | | | (259) | | | - | | | - |
Total | $ | 4,042 | $ | (7) | $ | 51 | | $ | 974 | | $ | (152) | | $ | (226) | | $ | 35 | | $ | (290) | | $ | 4,427 | | $ | (21) |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. corporate | $ | 3,053 | $ | 3 | $ | (165) | | $ | 362 | | $ | (80) | | $ | (137) | | $ | - | | $ | (30) | | $ | 3,006 | | $ | - |
State and municipal | | 58 | | - | | (2) | | | - | | | - | | | (9) | | | - | | | (17) | | | 30 | | | - |
Mortgage and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
asset-backed | | 146 | | (19) | | (9) | | | - | | | (32) | | | (4) | | | - | | | (49) | | | 32 | | | - |
Corporate – non-U.S. | | 337 | | - | | (6) | | | 9 | | | (49) | | | (1) | | | - | | | - | | | 290 | | | - |
Government – non-U.S. | | 2 | | - | | - | | | - | | | - | | | - | | | - | | | (2) | | | - | | | - |
U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | |
federal agency | | 266 | | - | | 58 | | | - | | | - | | | (1) | | | - | | | - | | | 323 | | | - |
Equity | | 9 | | 2 | | (5) | | | - | | | - | | | (4) | | | 10 | | | - | | | 13 | | | - |
Derivatives(d)(e) | | 29 | | 25 | | - | | | - | | | - | | | (6) | | | 40 | | | - | | | 88 | | | 22 |
Other | | 277 | | 8 | | - | | | - | | | (26) | | | - | | | - | | | - | | | 259 | | | 5 |
Total | $ | 4,175 | $ | 19 | $ | (128) | | $ | 370 | | $ | (187) | | $ | (161) | | $ | 51 | | $ | (98) | | $ | 4,042 | | $ | 27 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Earnings effects are primarily included in the "GE Capital revenues from services" and "Interest and other financial charges" captions in the Statement of Earnings. |
(b) | Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 for the twelve months ended December 31, 2016 were primarily a result of the adoption of ASU 2015-02, Amendments to the Consolidation Analysis. See Note 1.
|
(c) | Represents the amount of unrealized gains or losses for the period included in earnings. |
(d) | Represents derivative assets net of derivative liabilities and includes cash accruals of none and $13 million not reflected in the fair value hierarchy table for the twelve months ended December 31, 2016 and 2015, respectively. |
(e) | Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Notes 20 and 29.
|
other comprehensive income. GE 2016 FORM 10-K 186 |
| | | | | | | | | | | | | | | | | | | | | |
(In millions) | Balance at January 1 |
| Net realized/unrealized gains(losses)(a) |
| Purchases(b) |
| Sales & Settlements |
| Transfers into Level 3 |
| Transfers out of Level 3 |
| Balance at December 31 |
|
| | | | | | | |
2019 | | | | | | | |
Investment securities | $ | 4,013 |
| $ | 399 |
| $ | 2,159 |
| $ | (1,308 | ) | $ | — |
| $ | (53 | ) | $ | 5,210 |
|
2018 | | | | | | | |
Investment securities | $ | 4,109 |
| $ | (231 | ) | $ | 729 |
| $ | (333 | ) | $ | 2 |
| $ | (262 | ) | $ | 4,013 |
|
| |
(a) | Primarily included net unrealized gains (losses) of $404 million and $(231) million in other comprehensive income for the years ended December 31, 2019 and December 31, 2018, respectively. |
| |
(b) | Included $975 million and $615 million of U.S. corporate debt securities for the years ended December 31, 2019 and 2018, respectively. |
NONRECURRING FAIR VALUE MEASUREMENTS. The following table represents non-recurring fair value amountsvalues (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurringnonrecurring basis during the fiscal year and were still held at December 31, 20162019 and December 31, 2015.
| | | |
| | | |
| Remeasured during the years ended December 31 |
| 2016 | | 2015 |
(In millions) | Level 2 | | Level 3 | | Level 2 | | Level 3 |
| | | | | | | | | | | |
Financing receivables and financing receivables held for sale | $ | - | | $ | 30 | | $ | - | | $ | 154 |
Cost and equity method investments | | - | | | 103 | | | 1 | | | 436 |
Long-lived assets | | 17 | | | 1,055 | | | 2 | | | 882 |
Total | $ | 17 | | $ | 1,189 | | $ | 3 | | $ | 1,471 |
| | | | | | | | | | | |
The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2016 and 2015.
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Financing receivables and financing receivables held for sale | $ | (14) | | $ | (69) |
Cost and equity method investments | | (44) | | | (506) |
Long-lived assets | | (196) | | | (1,603) |
Total | $ | (254) | | $ | (2,177) |
| | | | | |
2018.
|
| | | | | | | | | | | | | |
| Remeasured during the years ended December 31 |
| 2019 | | 2018 |
(In millions) | Level 2 | Level 3 | | Level 2 | Level 3 |
| | | | | |
Financing receivables and financing receivables held for sale | $ | — |
| $ | 21 |
| | $ | — |
| $ | 47 |
|
Equity securities without readily determinable fair value and equity method investments | — |
| 306 |
| | 479 |
| 874 |
|
Long-lived assets | 12 |
| 412 |
| | 152 |
| 422 |
|
Goodwill | — |
| — |
| | — |
| 2,440 |
|
Total | $ | 12 |
| $ | 739 |
| | $ | 631 |
| $ | 3,783 |
|
GE 20162019 FORM 10-K 187
101LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS |
| | | | | | | | | |
| | | | | | | | Range |
(Dollars in millions) | | Fair value | | Valuation technique | | Unobservable inputs | | (weighted-average) |
| | | | | | | | | |
December 31, 2016 | | | | | | | | | |
Recurring fair value measurements | | | | | | | | | |
Investment securities – Debt | | | | | | | | | |
U.S. corporate | | $ | 809 | | Income approach | | Discount rate(a) | | 1.4%-17.4% (8.1%) |
State and municipal | | | 20 | | Income approach | | Discount rate(a) | | 3.7%-3.7% (3.7%) |
Mortgage and asset-backed | | | 1 | | Income approach | | Discount rate(a) | | 2.7%-6.9% (4.3%) |
| | | | | | | | | |
Non-recurring fair value measurements |
Financing receivables and | | | | | | | | | |
financing receivables held for sale | | $ | 30 | | Income approach | | Discount rate(a) | | 2.5%-30.0% (20.3%) |
| | | | | | | | | |
Cost and equity method investments | | | 94 | | Income approach | | Discount rate(a) | | 9.0%-30.0% (11.8%) |
| | | | | | | | | |
Long-lived assets | | | 683 | | Income approach | | Discount rate(a) | | 2.5%-20.0% (10.4%) |
| | | | | | | | | |
| | | | | | | | | |
December 31, 2015 | | | | | | | | | |
Recurring fair value measurements | | | | | | | | | |
Investment securities – Debt | | | | | | | | | |
U.S. corporate | | $ | 834 | | Income approach | | Discount rate(a) | | 1.7%-14.1% (8.6%) |
Mortgage and asset-backed | | | 31 | | Income approach | | Discount rate(a) | | 5.0%-12.0% (10.5%) |
Corporate – non-U.S. | | | 236 | | Income approach | | Discount rate(a) | | 6.5%-14.0% (7.5%) |
Other financial assets | | | 259 | | Income approach, | | EBITDA multiple | | 6.1X-15.0X (9.9X) |
| | | | | Market comparables | | Capitalization rate | | 7.8%-7.8% (7.8%) |
| | | | | | | | | |
Non-recurring fair value measurements |
Financing receivables and | | | | | | | | | |
financing receivables held for sale | | $ | 146 | | Income approach | | Discount rate(a) | | 6.5%-30.0% (10.7%) |
| | | | | | | | | |
Cost and equity method investments | | | 293 | | Income approach | | Discount rate(a) | | 9.5%-35.0% (14.4%) |
| | | | | | | | | |
Long-lived assets | | | 830 | | Income approach | | Discount rate(a) | | 1.8%-11.7% (10.5%) |
| | | | | | | | | |
(a) |
| Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
At December 31, 20162019 and December 31, 2015, other2018, certain Level 3 assets with recurring fair value measurements of $3,598$4,933 million and $2,637$3,893 million, respectively, and non-recurringnonrecurring measurements of $379$377 million and $122$483 million, respectively, arewere valued using non-binding broker quotes or other third-party sources. At December 31, 2016 and December 31, 2015, other recurringThese fair value measurements of an insignificant amount and $32 million, respectively, and non-recurring fair value measurements of $2 million and $80 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation. In addition, certain equity securities without readily determinable fair value and equity method investments with a fair value totaling $36 million and $572 million at December 31, 2019 and 2018, respectively, were valued using the income approach, for which discount rates were determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rates would result in a decrease in the fair values. The range of discount rates used to price these investments was 12%-16%, with a weighted average of 15% and 6.5%-35%, with a weighted average of 8.9% at December 31, 2019 and 2018, respectively. Other Level 3 assets with recurring and nonrecurring fair value measurements are not material individually or in the aggregate.
NOTE 20.21. FINANCIAL INSTRUMENTS
The following table provides information about assets and liabilities not carried at fair value. The tablevalue and excludes finance leases, equity securities without readily determinable fair value and non-financial assets and liabilities. Substantially all of thethese assets discussed below are considered to be Level 3. The3 and the vast majority of our liabilities'liabilities’ fair values can be determined based on significant observable inputs and thusvalue are considered Level 2. Few of
|
| | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
(In millions) | Carrying amount (net) |
| Estimated fair value |
| | Carrying amount (net) |
| Estimated fair value |
|
|
|
| |
|
|
Assets |
|
| |
|
|
Loans and other receivables | $ | 4,113 |
| $ | 4,208 |
| | $ | 8,811 |
| $ | 8,829 |
|
Liabilities |
|
| |
|
|
Borrowings (Note 11) | $ | 90,882 |
| $ | 97,754 |
| | $ | 103,599 |
| $ | 100,492 |
|
Investment contracts (Note 12) | 2,191 |
| 2,588 |
| | 2,388 |
| 2,630 |
|
Unlike the instruments are actively traded and their fair values must often be determined using financial models. Realization of thecarrying amount, estimated fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.
| | 2016 | | 2015 |
| | Carrying | | | | Carrying | | |
| | amount | | Estimated | | amount | | Estimated |
December 31 (In millions) | | (net) | | fair value | | (net) | | fair value |
| | | | | | | | | | | | |
GE | | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Investments and notes receivable | | $ | 1,526 | | $ | 1,595 | | $ | 1,104 | | $ | 1,174 |
Liabilities | | | | | | | | | | | | |
Borrowings(a)(b) | | | 19,184 | | | 19,923 | | | 18,397 | | | 18,954 |
Borrowings (debt assumed)(a)(c) | | | 60,109 | | | 66,998 | | | 84,704 | | | 92,231 |
| | | | | | | | | | | | |
GE Capital | | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Loans | | | 21,060 | | | 20,830 | | | 20,061 | | | 19,774 |
Time deposits(d) | | | - | | | - | | | 10,386 | | | 10,386 |
Other commercial mortgages | | | 1,410 | | | 1,472 | | | 1,381 | | | 1,447 |
Loans held for sale | | | 473 | | | 473 | | | 342 | | | 342 |
Other financial instruments(e) | | | 121 | | | 150 | | | 94 | | | 110 |
Liabilities | | | | | | | | | | | | |
Borrowings(a)(f)(g)(h) | | | 58,523 | | | 62,024 | | | 95,474 | | | 99,396 |
Investment contracts | | | 2,813 | | | 3,277 | | | 2,955 | | | 3,441 |
| | | | | | | | | | | | |
(b) Included $115borrowings included $1,106 million and $116$1,324 million of accrued interest in estimated fair value at
December 31, 20162019 and December 31, 2015,2018, respectively.
(c) | Included $803 million and $1,006 million of accrued interest in estimated fair value at December 31, 2016 and December 31, 2015, respectively. |
(d) | Balances at December 31, 2015 comprised high quality interest bearing deposits with European branches of global banks, predominantly in the U.K., that matured in April 2016. |
(e) | Principally comprises cost method investments. |
(f) | Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at December 31, 2016 and December 31, 2015 would have been reduced by $2,397 million and $3,001 million, respectively. |
(g) | Included $775 million and $1,103 million of accrued interest in estimated fair value at December 31, 2016 and December 31, 2015, respectively. |
(h) | Excluded $58,780 million and $84,704 million of intercompany payable to GE at December 31, 2016 and December 31, 2015 respectively, which includes a reduction in the short-term intercompany payable to GE for a $(1,329) million loan to GE, which bears the right of offset against amounts owed under the assumed debt agreement. The remaining short-term loan balance was paid in January 2017. |
A description of how we estimate fair values follows:
Loans. Based on a discounted future cash flows methodology, using current market interest rate data adjusted for inherent credit risk or quoted market prices and recent transactions, if available.
Borrowings. Based on valuation methodologies using current market interest rate data that are comparable to market quotes adjusted for our non-performance risk.
Investment contracts. Based on expected future cash flows, discounted at currently offered rates for immediate annuity contracts or the income approach for single premium deferred annuities.
Time deposits. Carrying value approximates fair value as these financial instruments have limited credit risk, short-term maturities and interest rates that approximate market.
All other instruments. Based on observable market transactions and/or valuation methodologies using current market interest rate data adjusted for inherent credit risk.
Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.
Additional information aboutDERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for managing risks and not for speculative purposes. Total gross notional amountswas $98,018 million ($55,704 million in GE Capital and $42,314 million in GE) and $117,104 million ($79,082 million in GE Capital and $38,022 million in GE) at December 31, 2019 and 2018, respectively. GE Capital notional relates primarily to managing interest rate and currency risk between financial assets and liabilities, and GE notional relates primarily to managing currency risk.
GE and GE Capital use cash flow hedges primarily to reduce or eliminate the effects of loan commitments follows.
NOTIONAL AMOUNTS OF LOAN COMMITMENTS | | | | | |
| | | | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | |
Ordinary course of business lending commitments(a) | $ | 687 | | $ | 531 |
Unused revolving credit lines | | 238 | | | 279 |
| | | | | |
(a) | Excluded investment commitments of $522 million and $782 million at December 31, 2016 and December 31, 2015, respectively. |
SECURITIES REPURCHASE AND REVERSE REPURCHASE ARRANGEMENTS
Our issuancesforeign exchange rate changes. In addition, GE Capital uses fair value hedges to hedge the effects of securities repurchase agreements are insignificant. No repurchase agreements were accounted forinterest rate and currency changes on debt it has issued as off-book financingwell as net investment hedges to hedge investments in foreign operations. Both GE and GE Capital also use derivatives not designated as hedges from an accounting standpoint (and therefore we do not engageapply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. We use economic hedges when we have exposures to currency exchange risk for which we are unable to meet the requirements for hedge accounting or when changes in securities lending transactions. At December 31, 2016, we were party to no repurchase agreements.
We also enter into reverse securities repurchase agreements, primarily for short-term investment with maturities of 90 days or less. At December 31, 2016, we were party to reverse repurchase agreements totaling $6.9 billion, which were reported in cash and equivalents on the financial statements. Under these reverse securities repurchase agreements, we typically lend available cash at a specified rate of interest and hold U.S. or highly-rated European government securities as collateral during the termcarrying amount of the agreement. Collateral valuehedged item are already recorded in earnings in the same period as the derivative making hedge accounting unnecessary. Even though the derivative is an effective economic hedge, there may be a net effect on earnings in excesseach period due to differences in the timing of amounts loaned underearnings recognition between the agreements.derivative and the hedged item.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In this section, we explainThe table below provides additional information about how we use derivatives to manage our risks and how these financial instruments are reflected in our financial statements. Our useDerivative assets and liabilities are recorded at fair value exclusive of interest earned or owed on interest rate derivatives, which is presented separately in our consolidated Statement of Financial Position. Cash collateral and securities held as collateral represent assets that have been provided by our derivative counterparties as security for amounts they owe us (derivatives that are in an asset position).
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 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 | $ | 23,918 |
| $ | 1,636 |
| $ | 11 |
| | $ | 22,904 |
| $ | 1,335 |
| $ | 23 |
|
Currency exchange contracts | 7,044 |
| 99 |
| 46 |
| | 7,854 |
| 175 |
| 114 |
|
Derivatives accounted for as hedges | $ | 30,961 |
| $ | 1,734 |
| $ | 57 |
| | $ | 30,758 |
| $ | 1,511 |
| $ | 138 |
|
| | | | | | | |
Interest rate contracts | $ | 3,185 |
| $ | 18 |
| $ | 12 |
| | $ | 6,198 |
| $ | 28 |
| $ | 2 |
|
Currency exchange contracts | 62,165 |
| 697 |
| 744 |
| | 77,544 |
| 653 |
| 1,472 |
|
Other contracts | 1,706 |
| 123 |
| 40 |
| | 2,604 |
| 13 |
| 209 |
|
Derivatives not accounted for as hedges | $ | 67,056 |
| $ | 838 |
| $ | 796 |
| | $ | 86,346 |
| $ | 695 |
| $ | 1,682 |
|
| | | | | | | |
Gross derivatives | $ | 98,018 |
| $ | 2,572 |
| $ | 853 |
| | $ | 117,104 |
| $ | 2,205 |
| $ | 1,820 |
|
| | | | | | | |
Netting and credit adjustments | | $ | (546 | ) | $ | (546 | ) | | | $ | (959 | ) | $ | (967 | ) |
Cash collateral adjustments | | (1,286 | ) | (105 | ) | | | (1,042 | ) | (267 | ) |
Net derivatives recognized in Statement of Financial Position | | $ | 740 |
| $ | 202 |
| | | $ | 205 |
| $ | 586 |
|
| | | | | | | |
Net accrued interest | | $ | 182 |
| $ | 1 |
| | | $ | 205 |
| $ | 1 |
|
Securities held as collateral | | (469 | ) | — |
| | | (235 | ) | — |
|
Net amount | | $ | 452 |
| $ | 203 |
| | | $ | 174 |
| $ | 587 |
|
Fair value of derivatives relates solely to risk management; we do not use derivatives for speculation. As discussed elsewhere in this report, we are executing a plan to reduce the size and scope of our financial services business, with the intention of principally retaining those activities that support our industrial businesses. The affected businesses have either been sold or are held for sale and are presented as discontinued operations in our financial statements asconsolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $104 million and $603 million at December 31, 2016. As2019, respectively, and $3 million and $439 million at December 31, 2018, respectively. Securities held as collateral excluded excess collateral received with a resultfair value of these actions, the significance of financial services hedging activity will diminish significantly in the future.$27 million and 0 at December 31, 2019 and 2018, respectively.
RISK MANAGEMENT STRATEGY
In our industrial businesses, we buy, manufacture and sell components and products across global markets. These activities expose us to changes in foreign currency exchange rates and commodity prices, which can adversely affect revenues earned and costs of operating our industrial businesses. When the currency in which we sell equipment differs from the primary currency of one of our industrial businesses (known as its functional currency) and the exchange rate fluctuates, it will affect the revenue we earn on the sale. These sales and purchase transactions also create receivables and payables denominated in foreign currencies, which expose us to foreign currency gains and losses based on changes in exchange rates. Changes in the price of a raw material that we use in manufacturing can affect the cost of manufacturing. FAIR VALUE HEDGES. We use derivatives to mitigate or eliminate these exposures.
With respect to our ongoing financial services activities, our key exposures relate tohedge the effects of interest rate and currency risk. Toexchange rate changes on our borrowings. At December 31, 2019, the extent feasible, we seek to ensure thatcumulative amount of hedging adjustments of $4,234 million (including $2,458 million on discontinued hedging relationships) was included in the characteristicscarrying amount of the debt we have issued align withhedged liability of $54,723 million. At December 31, 2018, the assets being funded. The form (fixed rate or floating rate) and currency denominationcumulative amount of hedging adjustments of $3,255 million (including $2,731 million on discontinued hedging relationships) was included in the carrying amount of the debt we issue depends on a numberhedged liability of considerations, the most important$59,651 million. The cumulative amount of which are market factors (demand, pricing, etc.) that affect the economics of the issuance. If the form and currency denomination of the debt does not match the assets being funded, we typically execute derivatives to meet this objective within defined limits.hedging adjustments was primarily recorded in long-term borrowings.
FORMS OF HEDGING
In this section we explain the hedging methods we use and their effects on our financial statements.
Cash flow hedges – CASH FLOW HEDGES. We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts in our industrial businesses and to convert foreign currency debt that we have issued in our financial services business back to our functional currency. Accordingly,Changes in the vast majorityfair value of our derivative activitycash flow hedges are recorded in this category consists of currency exchange contracts. As a result of acquisitionsAccumulated other comprehensive income (AOCI) in our industrial businesses, we expect to significantly expand our foreign currency hedging activity related to long-term contracts. We also use commodity derivatives to reduce or eliminate price risk on raw materials purchased for use in manufacturing.
Under hedge accounting, the derivative carrying amount is measured at fair value each periodconsolidated Statement of Financial Position and any resulting gain or loss is recorded in a separate component of shareowners' equity. Differences betweenearnings in the derivative and the hedged item may cause changesperiod in their fair values to not offset completely, which is referred to as ineffectiveness. When the hedged transaction occurs, theseoccurs. The gain (loss) recognized in AOCI was $25 million, $(154) million and $199 million for the years ended December 31, 2019, 2018 and 2017, respectively. The gain (loss) reclassified from AOCI to earnings was $(60) million, $(102) million and $149 million for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts are released from shareowners' equity,were primarily related to currency exchange and interest rate contracts.
The total amount in order that the transaction will be reflected inAOCI related to cash flow hedges of forecasted transactions was a $110 million gain at December 31, 2019. We expect to reclassify $16 million of gain to earnings at the rate locked in by the derivative. The effect of the hedge is reported in the same financial statement line item asnext 12 months contemporaneously with the earnings effects of the related forecasted transactions. For the years ended December 31, 2019, 2018 and 2017, we recognized insignificant gains and losses related to hedged transaction. The table below summarizes howforecasted transactions and firm commitments that did not occur by the derivative is reflected in the balance sheet and in earnings under hedge accounting. The effectend of the hedgedoriginally specified period. At December 31, 2019, 2018 and 2017, the maximum term of derivative instruments that hedge forecasted transaction is not presented in this table but offsets the earnings effect of the derivative.transactions was 13 years, 14 years and 15 years, respectively.
As part of our ongoing effort to reduce borrowings, we may repurchase debt that was in a cash flow hedge accounting relationship. At the time of determining that the debt cash flows are probable of not occurring, any related OCI will be released to earnings.
FINANCIAL STATEMENT EFFECTS - CASH FLOW HEDGES |
| | | | | |
| | | | | |
(In millions) | 2016 | | 2015 |
| | | | | |
Balance sheet changes | | | | | |
Fair value of derivatives increase (decrease) | $ | (274) | | $ | (911) |
Shareowners' equity (increase) decrease | | 274 | | | 913 |
| | | | | |
Earnings (loss) related to ineffectiveness | | 1 | | | 2 |
Earnings (loss) effect of derivatives(a) | | (364) | | | (918) |
| | | | | |
(a) Offsets earnings effect of the hedged forecasted transaction | | | | | |
The following table explains the effect of changes in market rates on the fair value of derivatives we use most commonly in cash flow hedging arrangements.
Interest rate forwards/swaps | | Interest rate increases | | Interest rate decreases |
Pay fixed rate/receive floating rate | | Fair value increases | | Fair value decreases |
| | | | |
Currency forwards/swaps | | U.S. dollar strengthens | | U.S. dollar weakens |
Pay U.S. dollars/receive foreign currency | | Fair value decreases | | Fair value increases |
| | | | |
Commodity derivatives | | Price increases | | Price decreases |
Receive commodity/ pay fixed price | | Fair value increases | | Fair value decreases |
| | | | |
Fair value hedges – These derivatives are used to hedge the effects of interest rate and currency exchange rate changes on debt that we have issued. We have issued mostly fixed rate debt that is used to fund both fixed and floating rate assets. In instances where fixed rate debt is funding floating rate assets, we have an exposure to changes in interest rates. We enter into interest rate swaps that receive a fixed rate and pay a floating rate of interest to align with that portion of our debt which funds floating rate assets. These swaps typically match the maturity of the associated debt being hedged.
Under hedge accounting, the derivative is measured at fair value and the carrying amount of the hedged debt is adjusted for the change in value related to the exposure being hedged, with both adjustments offset to earnings as interest expense. For example, the earnings effect of an increase in the fair value of the derivative will be largely offset by the earnings effect of an increase in the carrying amount of the hedged debt. Differences between the terms of the derivative and the hedged debt may cause changes in their fair values to not offset completely, which is referred to as ineffectiveness. The table below summarizes how the derivative and the hedged debt are reflected in the balance sheet and in earnings under hedge accounting. The effect on interest expense of changing from the fixed rate on the debt to the floating rate on the swap is not shown in this table.
FINANCIAL STATEMENT EFFECTS - FAIR VALUE HEDGES | | | | | |
| | | | | |
(In millions) | 2016 | | 2015 |
| | | | | |
Balance sheet changes | | | | | |
Fair value of derivative increase (decrease) | $ | 170 | | $ | (151) |
Adjustment to carrying amount of hedged debt (increase) decrease | | (433) | | | 75 |
| | | | | |
Earnings (loss) related to hedge ineffectiveness | | (263) | | | (75) |
| | | | | |
The effect of changes in market interest rates on the fair value of derivatives we use most commonly in fair value hedging arrangements is presented below.
Interest rate forwards/swaps | | Interest rate increases | | Interest rate decreases |
Pay floating rate/receive fixed rate | | Fair value decreases | | Fair value increases |
| | | | |
Net investment hedges – NET INVESTMENT HEDGES. We invest in foreign operations that conduct their financial services activities in currencies other than the U.S. dollar. We hedge the currency risk associated with those investments primarily using non-derivative instruments such as debt denominated in a foreign currency and short-term currency exchange contracts under which we receive U.S. dollars and pay foreign currency and non-derivatives instruments such as debt denominated in a foreign currency.
Under hedge accounting,For these hedges, the portion of the fair value changechanges of the derivativederivatives or debt instrumentinstruments that relates to changes in spot currency exchange rates is offsetrecorded in a separate component of shareowners' equity. For example, an increase in the fair value of the derivative related to changes in spot exchange rates will be offset by a corresponding increase in the currency translation component of shareowners' equity.AOCI. The portion of the fair value changechanges of the derivativederivatives related to differences between spot and forward rates which primarily relates to the interest component, is recorded in earnings each period as interest expense. As a result of this hedging strategy, the investments in foreign operations of our financial services business are largely unaffected by changes in currency exchange rates.period. The amounts recorded in shareowners' equity onlyAOCI affect earnings if the hedged investment is sold, substantially liquidated, or control is lost.
FINANCIAL STATEMENT EFFECTS - NET INVESTMENT HEDGES |
| | | | | |
(In millions) | 2016 | | 2015 |
| | | | | |
Balance sheet changes | | | | | |
Fair value of derivatives increase (decrease) | $ | 639 | | $ | 4,871 |
Fair value of non-derivatives (increase) decrease | | 1,819 | | | (849) |
Shareowners' equity (increase) decrease | | (2,376) | | | (4,131) |
| | | | | |
Earnings (loss) related to spot-forward differences | | 82 | | | (109) |
Earnings (loss) related to reclassification upon sale or liquidation(a) | | (528) | | | 4,547 |
(a) |
| Included $(529) million and $4,549 million recorded in discontinued operations in the twelve months ended December 31, 2016 and 2015, respectively. | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The effect of changestotal gain (loss) recognized in AOCI on hedging instruments for the years ended December 31, 2019, 2018 and 2017 was $120 million, $646 million and $(1,852) million, respectively, comprising $(36) million, $162 million and $(277) million on currency exchange ratescontracts and $156 million, $484 million and $(1,575) million on the fair value of derivatives we use in net investment hedging arrangements is presented below.
Currency forwards/swaps | | U.S. dollar strengthens | | U.S. dollar weakens |
Receive U.S. dollars/pay foreign currency | | Fair value increases | | Fair value decreases |
Economic Hedges - These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Economic hedges are used when changes in the carrying amount of the hedged item are already recorded in earnings in the same period as the derivative, making hedge accounting unnecessary. For example, in our industrial businesses we record the effects of spot exchange rate changes on our foreign currency
payablesdebt, respectively. The total gain (loss) excluded from assessment and
receivables in earnings each period along with the fair value changes on the foreign currency forward contracts used as economic hedges. In these cases, the earnings effects of the derivative and hedged item largely offset. We also use economic hedges when we have exposures to currency exchange risk for which we are unable to meet the requirements for hedge accounting. For example, we use currency forwards as an economic hedge of forecasted foreign currency cash flows under long-term contracts. In this case, the forecast period is so long that it is difficult to meet the hedge accounting requirement that the occurrence of the hedged transactions is probable. For these types of economic hedges, changes in the fair value of the derivative are recorded in earnings currently but changes in the value of the forecasted foreign currency cash flows are only recognized in earnings
when they occur. As a result, even thoughwas $27 million, $23 million and $19 million for the
derivative is an effective economic hedge, there is a net effect on earnings in each period due to differences in the timing of earnings recognition between the derivativeyears ended December 31, 2019, 2018 and
the hedged item.2017, respectively.
The table below provides information about the earnings effects of all derivatives that serve as economic hedges. These derivatives are marked to fair value through earnings each period. For our financial services business, these gains and losses are reported in "GE Capital revenues from services". For our industrial businesses, the effects are reported in "Other income" or "Other costs and expenses". The offsetting earnings effects associated with hedged assets and liabilities are also displayed in the table below. In general, the earnings effects of the hedged item are recorded in the same financial statement line as the derivative. The earnings effect of economic hedges, after considering offsets related to earnings effects of hedged assets and liabilities, is substantially offset by changes in the faircarrying value of forecasted transactions that have not yet affected earnings.
foreign currency debt designated as net investment hedges was $9,190 million, $12,458 million and $13,028 at
FINANCIAL STATEMENT EFFECTS - ECONOMIC HEDGES | | | | | |
| | | | | |
(In millions) | 2016 | | 2015 |
| | | | | |
Balance sheet changes | | | | | |
Change in fair value of economic hedge increase (decrease) | $ | (2,456) | | $ | (2,720) |
Change in carrying amount of item being hedged increase (decrease) | | 2,107 | | | 2,543 |
| | | | | |
Earnings (loss) effect of economic hedges(a) | | (348) | | | (177) |
| | | | | |
(a)Offset by the future earnings effects of economically hedged item.
The table below explains the effects of market rate changes on the fair value of derivatives we use most commonly as economic hedges.
Interest rate forwards/swaps interest rate | | Interest rate increases | | Interest rate decreases |
Pay floating rate/receive fixed rate | | Fair value decreases | | Fair value increases |
| | | | |
Currency forwards/swaps | | U.S. dollar strengthens | | U.S. dollar weakens |
Pay U.S. dollars/receive foreign currency | | Fair value decreases | | Fair value increases |
Receive U.S. dollars/pay foreign currency | | Fair value increases | | Fair value decreases |
| | | | |
Commodity derivatives | | Price increases | | Price decreases |
Receive commodity/ pay fixed price | | Fair value increases | | Fair value decreases |
| | | | |
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). The notional amount is used to compute interest or other payment streams to be made under the contract and is a measure of our level of activity. We generally disclose derivative notional amounts on a gross basis. A substantial majority of the outstanding notional amount of $181 billion at December 31, 2016 is related to managing interest rate2019, 2018 and currency risk between financial assets2017 respectively. The total reclassified from AOCI into earnings was $7 million, $(1) million and liabilities in our financial services business. The remaining derivative notional amount primarily relates to hedges of anticipated sales$125 million for the years ended December 31, 2019, 2018 and purchases in foreign currency, commodity purchases and contractual terms in contracts that are considered embedded derivatives.2017, respectively.
The table below provides additional information about how derivatives are reflected in our financial statements. Derivative assets and liabilities are recorded at fair value exclusive of interest earned or owed on interest rate derivatives, which is presented separately on our Statement of Financial Position. Cash collateral and securities held as collateral represent assets that have been provided by our derivative counterparties as security for amounts they owe us (derivatives that are in an asset position).
CARRYING AMOUNTS RELATED TO DERIVATIVES | | | | | |
| | | | | |
December 31 (In millions) | 2016 | | 2015 |
| | | | | |
Derivative assets | $ | 5,467 | | $ | 7,391 |
Derivative liabilities | | (4,883) | | | (5,681) |
Accrued interest | | 792 | | | 1,014 |
Cash collateral & credit valuation adjustment | | (672) | | | (1,141) |
Net Derivatives | | 703 | | | 1,583 |
Securities held as collateral | | (442) | | | (1,277) |
Net amount | $ | 262 | | $ | 306 |
| | | | | |
EFFECTS OF DERIVATIVES ON EARNINGS
EARNINGS. All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges. As discussed in the previous sections, each type of hedge affects the financial statements differently. In fair value and economic hedges, both the hedged item and theFor derivatives not designated as hedging derivative largely offset in earnings each period. In cash flow and net investment hedges, the effective portion of the hedging derivative is offset in separate components of shareowners' equity and ineffectiveness is recognized in earnings. The table below summarizes these offsets and the net effect on pre-tax earnings.
(In millions) | | Effect on hedging instrument | | | Effect on underlying | | | Effect on earnings |
| | | | | | | | |
2016 | | | | | | | | |
Cash flow hedges | $ | (274) | | $ | 274 | | $ | 1 |
Fair value hedges | | 170 | | | (433) | | | (263) |
Net investment hedges(a) | | 2,458 | | | (2,376) | | | 82 |
Economic hedges(b) | | (2,456) | | | 2,107 | | | (348) |
Total | | | | | | | $ | (528) |
| | | | | | | | |
2015 | | | | | | | | |
Cash flow hedges | $ | (911) | | $ | 913 | | $ | 2 |
Fair value hedges | | (151) | | | 75 | | | (75) |
Net investment hedges(a) | | 4,022 | | | (4,131) | | | (109) |
Economic hedges(b) | | (2,720) | | | 2,543 | | | (177) |
Total | | | | | | | $ | (359) |
| | | | | | | | |
The amounts in the table above generally do not include associated derivative accruals in income or expense.
(a) Both derivatives and non-derivatives hedging instruments,
are included.(b) Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods.
See Note 15 for additional information about changes in shareowners' equity related to hedging and amounts released to earnings. See Note 29 for other supplemental information about derivatives and hedging.
NOTE 21. VARIABLE INTEREST ENTITIES (VIE)
A VIE is an entity that has one of three characteristics: (1) it is controlled by someone other than its shareowners or partners, (2) its shareowners or partners are not economically exposed to the entity's earnings (for example, they are protected against losses), or (3) it was thinly capitalized when it was formed.
In the normal course of our business we become involved with VIEs either because we help create them or we invest in them. Our VIEs either provide goods and services to customers or provide financing to third parties for the purchase of GE goods and services. If we control the VIE, we consolidate it and provide disclosures below. However, if the VIE is a business and use of its assets is not limited to settling its liabilities, ongoing disclosures are not required.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Our most significant consolidated VIEs are the three joint ventures that were formed as part of the Alstom acquisition. These joint ventures include grid technology, renewable energy, and global nuclear and French steam power and have combined assets, liabilities and redeemable noncontrolling interest as of December 31, 2016 and 2015 of $14,460 million, $9,922 million and $2,709 million and $11,536 million, $8,739 million and $2,859 million, respectively. These joint ventures are considered VIEs because the equity held by Alstom does not participate fully in the earnings of the ventures due to the contractual features allowing Alstom to sell their interests back to GE. We consolidate these ventures because we control all their significant activities. These joint ventures are in all other respects regular businesses and are therefore exempt from ongoing disclosure requirements for VIEs provided below.
The table below provides information about VIEs that are subject to ongoing disclosure requirements. Substantially all of these entities were created to help our customers finance the purchase of GE goods and services or to purchase GE current and customer notes receivable originating from sales of 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.
ASSETS AND LIABILITIES OF CONSOLIDATED VIEs |
| | | | | | | | | | | | | | |
| | | | | GE Capital | | |
| | | | Current | | | Customer | | | | |
(In millions) | GE | | | receivables(a) | | | Notes receivables(b) | | | Other | | Total |
| | | | | | | | | | | | | | |
December 31, 2016 | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Financing receivables, net | $ | - | | $ | - | | $ | - | | $ | 1,035 | | $ | 1,035 |
Current receivables | | 57 | | | - | | | 670 | | | - | | | 727 |
Investment securities | | - | | | - | | | - | | | 982 | | | 982 |
Other assets | | 492 | (c) | | - | | | 1,122 | | | 1,747 | | | 3,361 |
Total | $ | 549 | | $ | - | | $ | 1,792 | | $ | 3,764 | | $ | 6,105 |
| | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | |
Borrowings | $ | 1 | | $ | - | | $ | - | | $ | 818 | | $ | 819 |
Non-recourse borrowings | | - | | | - | | | 401 | | | 16 | | | 417 |
Other liabilities | | 457 | (c) | | - | | | 1,378 | | | 1,482 | | | 3,317 |
Total | $ | 458 | | $ | - | | $ | 1,779 | | $ | 2,316 | | $ | 4,553 |
| | | | | | | | | | | | | | |
December 31, 2015 | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Financing receivables, net | $ | - | | $ | - | | $ | - | | $ | 882 | | $ | 882 |
Current receivables | | 385 | | | 3,506 | | | - | | | - | | | 3,891 |
Investment securities | | - | | | - | | | - | | | 1,404 | | | 1,404 |
Other assets | | 2,482 | | | 24 | | | - | | | 1,068 | | | 3,574 |
Total | $ | 2,867 | | $ | 3,530 | | $ | - | | $ | 3,354 | | $ | 9,751 |
| | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | |
Borrowings | $ | 221 | | $ | - | | $ | - | | $ | 960 | | $ | 1,181 |
Non-recourse borrowings | | - | | | 3,022 | | | - | | | 61 | | | 3,083 |
Other liabilities | | 2,289 | | | 34 | | | - | | | 1,234 | | | 3,557 |
Total | $ | 2,510 | | $ | 3,056 | | $ | - | | $ | 2,255 | | $ | 7,821 |
| | | | | | | | | | | | | | |
(a) | In the second quarter of 2016, we completed the sale of our Appliances business to Haier and sold all of the Appliances current receivables purchased by the securitization trust to Haier for $773 million. At December 31, 2015, the current receivables securitization included $737 million of current receivables purchased from Appliances. |
In the fourth quarter of 2016, we completed the restructure of our Receivables Facility described in Note 22. The restructured facility does not use a consolidated VIE.
(b) | In the first quarter of 2016, two funding vehicles were established to purchase customer notes receivable from GE, one of which is partially funded by third-party debt. |
(c) | In the first quarter of 2016, we purchased the minority interest in an Oil & Gas joint venture and as a result the entity is no longer a VIE. Consolidated VIE assets and liabilities were reduced by $1,240 million and $1,284 million, respectively. |
Total revenues from our consolidated VIEs were $1,141 million, $1,638 million and $1,457 million for the years ended December 31, 2016, 2015 and 2014, respectively. Related expenses consisted primarily of cost of goods and services of $692 million, $1,232 million and $823 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Where we provide servicing for third-party investors, we are contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-1/P1. These third-party investors also owe us amounts for purchased financial assets and scheduled interest and principal payments. At December 31, 2016 and 2015, the amounts of commingled cash owed to the third-party investors were $1,117 million and $1,093 million, respectively, and the amounts owed to us by third-party investors were $5 million and $7 million, respectively.
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
We become involved with unconsolidated VIEs primarily through assisting in the formation and financing of the entity. We do not consolidate these entities because we do not have power over decisions that significantly affect their economic performance. Our investments in unconsolidated VIEs, at December 31, 2016 and 2015 were $6,346 million and $787 million, respectively. Obligations to make additional investments in these entities are not significant.
Our investments in long-lived, capital-intensive energy limited partnerships through Energy Financial Services became non-consolidated VIEs in accordance with our January 2016 adoption of ASU 2015-2, Amendments to the Consolidated Analysis (see Note 1). In these partnerships we are the sole limited partner and had no participating rights or substantive removal rights over the general partners. The general partners of these entities, who possess the technical and industry expertise necessary to operate and manage their activities, continue to control these limited partnerships. As a result of this accounting change, our disclosed investments in unconsolidated VIEs increased by $6,077 million, without additional funds being advanced to these entities.
NOTE 22. RECEIVABLES FACILITY
Since 2002, the Company, as part of its working capital management, has sold current receivables to trusts in which third-party investors invest (the Receivables Facility). We use the cash generated from those sales to fund GE working capital earlier than we would otherwise receive payment from our customers and to manage credit exposures.
In 2010, we consolidated the trust that existed at that time pursuant to a change in the accounting guidance and subsequently reported both current receivables owned by the trust and the associated non-recourse third-party debt of the trust as assets and liabilities of a consolidated VIE on the Statement of Financial Position. Our economic exposure to the sold receivables remained the same before and after we consolidated the trust.
In the fourth quarter of 2016, we completed a refinancing of the Receivables Facility. The total facility size remained at $3,000 million. As a result of this refinancing, the current receivables are now purchased directly by third-party investors, who make their own arrangements to fund the purchase, and we no longer use the trust we used prior to the refinancing. Upon sale of the receivables, we receive proceeds of cash and a deferred purchase price (DPP). The DPP is an interest in specified assets of the purchasers (the receivables sold by GE Capital) that entitles GE Capital to the residual cash flows of those specified assets. The third-party purchasers have no recourse to other assets of GE Capital in the event of non-payment by the debtors. Where the purchasing entity is a bank multi-seller commercial paper conduit, assets transferred by other parties to that entity form a majority of the entity's assets.
The amount of customer receivables sold and outstanding under the Receivables Facility at December 31, 2016 was $2,575 million, and the consolidated customer receivables financed by third-party investors at December 31, 2015 was $3,506 million.
The amount of DPP due to GE Capital was $483 million at December 31, 2016, and is classified as "Current receivables" in the consolidated column of the Statement of Financial Position and as "Financing receivables" in the GE Capital column of the Statement of Financial Position.
Because of the refinancing, GE Capital's financing receivables decreased by approximately $2,092 million as of December 31, 2016 when compared to December 31, 2015. The Company's economic exposure under the Receivables Facility, represented by the DPP, remained the same before and after we completed the refinancing of the Receivables Facility.
Given the short-term nature of the underlying receivables, discount rates and prepayments are not factors in determining the value of the DPP. Collections on the DPP are presented within Cash flows from operating activities in the consolidated column in the Statement of Cash Flows. As the performance of the transferred current receivables is similar to the performance of our other current receivables, delinquencies are not expected to be significant.
NOTE 23. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS
The GE Capital Aviation Services (GECAS) business in GE Capital had placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $32,958 million and secondary orders with airlines for used aircraft of approximately $1,275 million at December 31, 2016. In our Aviation segment, we had committed to provide financing assistance of $2,230 million of future customer acquisitions of aircraft equipped with our engines.
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.
At December 31, 2016, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 21.
Credit Support. We have provided $1,352 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $44 million at December 31, 2016.
Indemnification Agreements – Continuing Operations. We have agreements that require us to fund up to $222 million at December 31, 2016 under residual value guarantees on a variety of leased equipment. Under most of our residual value guarantees, our commitment is secured by the leased asset. The liability for these indemnification agreements was $7 million at December 31, 2016.
At December 31, 2016, we also had $973 million of other indemnification commitments, substantially all of which relate to representations and warrantiesthe gain or loss recognized in sales of businesses or assets. The liability for these indemnification commitments was $228 million at December 31, 2016.
Indemnification Agreements – Discontinued Operations.At December 31, 2016, we provided specific indemnifications to buyers of GE Capital's assets that amounted to $2,638 million, for which we have recognized related liabilities of $285 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.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions related to the acquisition or disposition are achieved. Amount of contingent consideration was insignificant at December 31, 2016.
PRODUCT WARRANTIES
We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information – mostly historical claims experience – claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Balance at January 1 | $ | 1,723 | | $ | 1,199 | | $ | 1,370 |
Current-year provisions | | 791 | | | 649 | | | 593 |
Expenditures | | (729) | | | (718) | | | (714) |
Other changes(a) | | 135 | | | 593 | | | (50) |
Balance at December 31 | $ | 1,920 | | $ | 1,723 | | $ | 1,199 |
| | | | | | | | |
(a)Included $634 million related to Alstom acquisition in 2015.
LEGAL MATTERS
WMC. During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, andearnings is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At December 31, 2016, such claims consisted of $1,060 million of individual claims generally submitted before the filing of a lawsuit (compared to $2,887 million at December 31, 2015) and $5,456 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $8,047 million at December 31, 2015). The total amount of these claims, $6,516 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable law and the June 11, 2015 decision of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims.
Reserves related to repurchase claims made against WMC were $626 million at December 31, 2016, reflecting a net decrease to reserves in the year ended December 31, 2016 of $249 million due to settlements partially offset by incremental provisions. The reserve estimate takes into account recent settlement activity and is based upon WMC's evaluation ofeither the remaining exposures as a percentage of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization for which timely claims have been assertedcurrent period change in litigation against WMC. Settlements in prior periods reduced WMC's exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements.
ROLLFORWARD OF THE RESERVE | | | | | |
| |
(In millions) | | 2016 | | | 2015 |
| | | | | |
Balance at January 1 | $ | 875 | | $ | 809 |
Provision | | 91 | | | 212 |
Claim resolutions / rescissions | | (340) | | | (146) |
Balance at December 31 | $ | 626 | | $ | 875 |
| | | | | |
Given the significant litigation activity and WMC's continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC's past experience. Adverse changes to WMC's assumptions supporting the reserve may result in an increase to these reserves. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at December 31, 2016. This estimate involves significant judgment and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal Proceedings and potential changes in WMC's legal strategy. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations or an adverse outcome in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) investigation discussed in Legal Proceedings, as WMC is unable at this time to develop such a meaningful estimate.
At December 31, 2016, there were 10 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 11 securitizations. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. On January 23, 2017, the ResCap Liquidating Trust, as successor to Residential Funding Company, LLC (RFC), filed a lawsuit against WMC in the United States District Court for the District of Minnesota arising from alleged breaches in representations and warranties made by WMC in connection with the sale of approximately $840 million in loans to RFC over a period of time preceding RFC's filing for bankruptcy protection in May 2012. Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.
WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party or, in two cases, involving mortgage loan repurchase claims made against RMBS sponsors. WMC believes that it has defenses to these demands.
To the extent WMC is required to repurchase loans, WMC's loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC's legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.
FINANCIAL INFORMATION FOR WMC | | | |
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Total revenues and other income (loss) | $ | (8) | | $ | (184) | | $ | (291) |
| | | | | | | | |
Earnings (loss) from discontinued operations, net of taxes | $ | (52) | | $ | (146) | | $ | (199) |
Alstom legacy matters. On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of two significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65 million by the European Commission for participating in a gas insulated switchgear cartel that operated from 1988 to 2004 (that fine was later reduced to €59 million), and (2) in December 2014, Alstom pled guilty in the United States to multiple violations of the Foreign Corrupt Practices Act and paid a criminal penalty of $772 million. As part of GE's accounting for the acquisition, we established a reserve amounting to $858 million for legal and compliance matters related to the legacy business practices that were the subject of these and related cases in various jurisdictions.
Regardless of jurisdiction, the allegations relate to claimed anti-competitive conduct or improper payments in the pre-acquisition period as the source of legal violations and/or damages. Given the significant litigation and compliance activity related to these matters and our ongoing efforts to resolve them, itexposures which is difficult to assess whether the disbursements will ultimately be consistent with the reserve established. The estimation of this reserve involved significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations of this nature. Damages sought may include disgorgement of profits on the underlying business transactions, fines and/or penalties, interest, or other forms of resolution. Factors that can affect the ultimate amount of losses associated with these matters include the way cooperation is assessed and valued, prosecutorial discretion in the determination of damages, formulas for determining fines and penalties, the duration and amount of legal and investigative resources applied, and political and social influences within each jurisdiction, among other considerations. Actual losses arising from claims in these matters could exceed the amount provided. At this time, we are unable to develop a meaningful estimate of the range of reasonably possible additional losses for this exposure.
ENVIRONMENTAL MATTERS
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites, such amounts are not reasonably estimable. Total reserves related to environmental remediation and asbestos claims, were $1,767 million at December 31, 2016.
NOTE 24. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on an arms-length basis and are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:
· | GE Capital dividends to GE, |
· | GE Capital working capital solutions to optimize GE cash management, |
· | GE Capital enabled GE industrial orders, and |
· | Aircraft engines, power equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment. |
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
· | Expenses related to parent-subsidiary pension plans, |
· | Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions, |
· | Information technology (IT) and other services sold to GE Capital by GE, and |
· | Various investments, loans and allocations of GE corporate overhead costs. |
Presented below is a walk of intercompany eliminations from the unconsolidated GE and GE Capital totals to the consolidated cash flows.
(In millions) | 2016 | | 2015 | | 2014 |
| | | | | | | | |
Cash from (used for) operating activities-continuing operations | | | | | | | | |
Combined | $ | 28,408 | | $ | 17,891 | | $ | 21,434 |
GE current receivables sold to GE Capital | | 697 | | | (856) | | | (1,882) |
GE Capital dividends to GE | | (20,095) | | | (4,300) | | | (3,000) |
Other reclassifications and eliminations(a) | | (2,911) | | | (879) | | | (519) |
Total cash from (used for) operating activities-continuing operations | $ | 6,099 | | $ | 11,856 | | $ | 16,033 |
Cash from (used for) investing activities-continuing operations | | | | | | | | |
Combined | $ | 58,134 | | $ | 59,516 | | $ | 17,252 |
GE current receivables sold to GE Capital | | (230) | | | 1,261 | | | 1,730 |
GE Capital short-term loan to GE | | 1,329 | | | - | | | - |
Other reclassifications and eliminations(a) | | 3,380 | | | 836 | | | 247 |
Total cash from (used for) investing activities-continuing operations | $ | 62,613 | | $ | 61,613 | | $ | 19,229 |
Cash from (used for) financing activities-continuing operations | | | | | | | | |
Combined | $ | (107,750) | | $ | (73,484) | | $ | (44,340) |
GE current receivables sold to GE Capital | | (467) | | | (405) | | | 152 |
GE Capital dividends to GE | | 20,095 | | | 4,300 | | | 3,000 |
GE Capital short-term loan to GE | | (1,329) | | | - | | | - |
Other reclassifications and eliminations(a) | | (469) | | | 42 | | | 276 |
Total cash from (used for) financing activities-continuing operations | $ | (89,920) | | $ | (69,547) | | $ | (40,912) |
| | | | | | | | |
(a) | Includes eliminations of other cash flows activities including those related to GE Capital enabled GE industrial orders, various investments, loans and allocations of GE corporate overhead costs. |
NOTE 25. OPERATING SEGMENTS
BASIS FOR PRESENTATION
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described and referenced in Note 1. Segment results for our financial services businesses reflect the discrete tax effect of transactions.
A description of our operating segments as of December 31, 2016, can be found below, and details of segment profit by operating segment can be found in the Summary of Operating Segments table in "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in this Form 10-K Report.
Power plant products and services, including design, installation, operation and maintenance services are sold into global markets. Gas, steam and aeroderivative turbines, nuclear reactors, generators, combined cycle systems, controls and related services, including total asset optimization solutions, equipment upgrades and long-term maintenance service agreements are sold to power generation and other industrial customers. Water treatment services and equipment include specialty chemical treatment programs, water purification equipment, mobile treatment systems and desalination processes.
Renewable Energy makes power from renewable sources affordable, accessible, and reliable for the benefit of people everywhere. With one of the broadest technology portfolios in the industry, Renewable Energy creates value for customers by providing technology and services in the Onshore Wind Power industry, high-yield offshore wind turbines as well as a full range of solutions, products and services to serve the hydropower industry, from initial design to final commissioning.
Oil & Gas supplies mission critical equipment for the global oil and gas industry, used in applications spanning the entire value chain from drilling and completion through production, liquefied natural gas (LNG) and pipeline compression, pipeline inspection, and including downstream processing in refineries and petrochemical plants. The business designs and manufactures surface and subsea drilling and production systems, equipment for floating production platforms, compressors, turbines, turboexpanders, high pressure reactors, industrial power generation and a broad portfolio of auxiliary equipment.
Aviation products and services include jet engines, aerospace systems and equipment, replacement parts and repair and maintenance services for all categories of commercial aircraft; for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; for marine applications; and for executive and regional aircraft. Products and services are sold worldwide to airframe manufacturers, airlines and government agencies.
Healthcare products include diagnostic imaging systems such as magnetic resonance (MR), computed tomography (CT) and positron emission tomography (PET) scanners, X-ray, surgical & interventional imaging, nuclear imaging, digital mammography and molecular imaging technologies. Healthcare-manufactured technologies include patient and resident monitoring, diagnostic cardiology, ultrasound, bone densitometry, anesthesiology and oxygen therapy, and neonatal and critical care devices. Related services include equipment monitoring and repair, digital technologies and customer productivity services. Products also include diagnostic imaging agents used in medical scanning procedures, drug discovery, biopharmaceutical manufacturing and purification, and tools for protein and cellular analysis for pharmaceutical and academic research, including a pipeline of precision molecular diagnostics in development for neurology, cardiology and oncology applications. Products and services are sold worldwide to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market.
Transportation is a global technology leader and supplier to the railroad, mining, marine and drilling industries. GE provides freight and passenger locomotives, diesel engines for rail, marine and stationary power applications, railway signaling and communications systems, underground mining equipment, motorized drive systems for mining trucks, information technology solutions, high-quality replacement parts and value added services.
ENERGY CONNECTIONS & LIGHTING
Energy Connections is GE's electrification business. Global teams design leading technology solutions for the delivery, management, conversion and optimization of electrical power for customers across multiple energy-intensive industries. GE has invested in our Energy Connections capabilities, with strategic acquisitions and joint ventures that enable GE to increase its offerings to the utility, industrial, renewable energy, oil and gas, marine, metals and mining industries. Plant automation hardware, software and embedded computing systems including controllers, embedded systems, advanced software, motion control, operator interfaces and industrial computers are also provided by Energy Connections.
Lighting includes the GE Lighting and Current, powered by GE (Current) businesses. GE Lighting is focused on driving innovation and growth in light emitting diode (LED) and connected home technology in the U.S. Lighting offers LEDs in a variety of shapes, sizes, wattages and color temperatures. It's also investing in the growing smart home category, building a suite of connected lighting products with simple connection points that offer new opportunities to do more at home. Current delivers energy efficiency and productivity solutions for commercial and industrial customers. We combine infrastructure technology like LED and solar with new sensor-enabled data networks and Predix-based digital applications to help our customers reduce energy costs, better predict spend and gain business productivity insights. We partner with a wide variety of digital companies to help expand our app catalog, and we offer flexible financing solutions that help our customers achieve faster payback periods and better long-term value.
Capital is the financial services division of GE focused on customers and markets aligned with GE's industrial businesses, whether in developed economies or emerging markets. We provide financial products and services around the globe, that are geared to utilize GE's industry specific expertise in aviation, energy, infrastructure, and healthcare to capitalize on market-specific opportunities. In addition, we continue to operate our run-off insurance activities as part of our continuing operations.
REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues(a) | | Intersegment revenues(b) | | External revenues |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Power | $ | 26,827 | | $ | 21,490 | | $ | 20,580 | | $ | 640 | | $ | 762 | | $ | 778 | | $ | 26,187 | | $ | 20,728 | | $ | 19,802 |
Renewable Energy | | 9,033 | | | 6,273 | | | 6,399 | | | 11 | | | 12 | | | 14 | | | 9,022 | | | 6,261 | | | 6,386 |
Oil & Gas | | 12,898 | | | 16,450 | | | 19,085 | | | 383 | | | 387 | | | 402 | | | 12,515 | | | 16,063 | | | 18,683 |
Aviation | | 26,261 | | | 24,660 | | | 23,990 | | | 730 | | | 418 | | | 692 | | | 25,530 | | | 24,242 | | | 23,298 |
Healthcare | | 18,291 | | | 17,639 | | | 18,299 | | | 15 | | | 7 | | | 6 | | | 18,276 | | | 17,633 | | | 18,293 |
Transportation | | 4,713 | | | 5,933 | | | 5,650 | | | 1 | | | 1 | | | (2) | | | 4,713 | | | 5,932 | | | 5,652 |
Energy Connections & Lighting | | 15,133 | | | 16,351 | | | 15,724 | | | 1,059 | | | 1,021 | | | 912 | | | 14,074 | | | 15,329 | | | 14,812 |
Total industrial | | 113,156 | | | 108,796 | | | 109,727 | | | 2,839 | | | 2,608 | | | 2,801 | | | 110,316 | | | 106,188 | | | 106,926 |
Capital | | 10,905 | | | 10,801 | | | 11,320 | | | 1,288 | | | 1,151 | | | 1,037 | | | 9,617 | | | 9,650 | | | 10,283 |
Corporate items | | | | | | | | | | | | | | | | | | | | | | | | | | |
and eliminations | | (368) | | | (2,211) | | | (3,863) | | | (4,127) | | | (3,759) | | | (3,838) | | | 3,760 | | | 1,548 | | | (25) |
Total | $ | 123,693 | | $ | 117,386 | | $ | 117,184 | | $ | - | | $ | - | | $ | - | | $ | 123,693 | | $ | 117,386 | | $ | 117,184 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Revenues of GE businesses include income from sales of goods and services to customers and other income. |
(b) | Sales from one component to another generally are priced at equivalent commercial selling prices. |
Revenues from customers located in the United States were $53,317 million, $53,238 million and $51,147 million in 2016, 2015 and 2014, respectively. Revenues from customers located outside the United States were $70,376 million, $64,148 million and $66,038 million in 2016, 2015 and 2014, respectively.
| | | Property, plant and | | |
| Assets(a) | | equipment additions(b) | | Depreciation and amortization |
| At December 31 | | For the years ended December 31 | | For the years ended December 31 |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Power | $ | 55,474 | | $ | 51,908 | | $ | 26,698 | | $ | 769 | | $ | 2,122 | | $ | 578 | | $ | 1,130 | | $ | 712 | | $ | 563 |
Renewable Energy | | 8,794 | | | 9,468 | | | 3,572 | | | 166 | | | 999 | | | 41 | | | 37 | | | 116 | | | 113 |
Oil & Gas | | 24,615 | | | 26,126 | | | 27,329 | | | 284 | | | 422 | | | 656 | | | 529 | | | 596 | | | 585 |
Aviation | | 38,899 | | | 34,524 | | | 33,716 | | | 1,328 | | | 1,260 | | | 1,197 | | | 900 | | | 855 | | | 824 |
Healthcare | | 28,639 | | | 28,162 | | | 29,227 | | | 432 | | | 284 | | | 405 | | | 785 | | | 799 | | | 843 |
Transportation | | 4,288 | | | 4,368 | | | 4,449 | | | 108 | | | 202 | | | 128 | | | 159 | | | 179 | | | 169 |
Energy Connections & Lighting | | 17,858 | | | 21,587 | | | 15,536 | | | 354 | | | 1,348 | | | 535 | | | 441 | | | 426 | | | 548 |
Capital(c) | | 187,804 | | | 316,069 | | | 502,204 | | | 3,769 | | | 7,570 | | | 3,818 | | | 2,515 | | | 2,584 | | | 2,612 |
Corporate items | | | | | | | | | | | | | | | | | | | | | | | | | | |
and eliminations(d) | | (1,187) | | | 858 | | | 11,201 | | | 94 | | | (297) | | | (111) | | | 341 | | | 231 | | | 164 |
Total | $ | 365,183 | | $ | 493,071 | | $ | 653,931 | | $ | 7,305 | | $ | 13,911 | | $ | 7,247 | | $ | 6,836 | | $ | 6,499 | | $ | 6,421 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Total assets of Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation, Energy Connections & Lighting and Capital operating segments at December 31, 2016, include investments in and advances to associated companies of $405 million, $9 million, $88 million, $1,779 million, $366 million, $6 million, $752 million and $7,673 million, respectively. Investments in and advances to associated companies contributed approximately $(17) million, $(4) million, $4 million, $75 million, $19 million, $46 million and $363 million to segment pre-tax income of Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Energy Connections & Lighting and Capital operating segments, respectively, and Transportation an insignificant amount, for the year ended December 31, 2016. |
(b) | Additions to property, plant and equipment include amounts relating to principal businesses purchased. |
(c) | Includes Capital discontinued operations |
(d) | Includes deferred income taxes that are presented as assets for purposes of our consolidating balance sheet presentation. |
| Interest and other financial charges | | Provision (benefit) for income taxes |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | | | | | | | | | |
Capital | $ | 3,790 | | $ | 2,301 | | $ | 1,638 | | $ | (1,431) | | $ | 4,979 | | $ | (861) |
Corporate items and eliminations(a) | | 1,234 | | | 1,162 | | | 1,085 | | | 967 | | | 1,506 | | | 1,634 |
Total | $ | 5,025 | | $ | 3,463 | | $ | 2,723 | | $ | (464) | | $ | 6,485 | | $ | 773 |
| | | | | | | | | | | | | | | | | |
(a) | Included amounts for Power, Renewable Energy, Oil & Gas, Aviation, Healthcare, Transportation and Energy Connections & Lighting, for which our measure of segment profit excludes interest and other financial charges and income taxes. |
Property, plant and equipment – net associated with operations based in the United States were $14,987 million, $14,273 million and $9,868 million at December 31, 2016, 2015 and 2014, respectively. Property, plant and equipment – net associated with operations based outside the United States were $35,531 million, $39,822 million and $38,201 million at December 31, 2016, 2015 and 2014, respectively.
NOTE 26. 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 the Statement of Cash Flows are net of cash disposed and included certain deal-related costs. Amounts reported in the "Net cash from (payments for) principal businesses purchased" line is net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions.
Amounts reported in the "All other operating activities" line in the Statement of Cash Flows consist primarily of adjustments to current and noncurrent accruals, deferrals of costs and expenses and adjustments to assets. Certain supplemental information related to our cash flows is shown below.
For the years ended December 31 (In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
GE | | | | | | | | |
All other operating activities | | | | | | | | |
(Gains) losses on purchases and sales of business interests(a) | $ | (3,701) | | $ | (1,020) | | $ | (188) |
Contract assets (net)(b) | | (3,929) | | | (1,919) | | | (1,572) |
Income taxes(c) | | (2,752) | | | 1,671 | | | 773 |
Interest charges | | 275 | | | 380 | | | 332 |
Principal pension plans(d) | | 3,071 | | | 4,265 | | | 3,368 |
Other | | (402) | | | (1,294) | | | 260 |
| $ | (7,438) | | $ | 2,083 | | $ | 2,973 |
Net dispositions (purchases) of GE shares for treasury | | | | | | | | |
Open market purchases under share repurchase program(e) | $ | (22,581) | | $ | (2,709) | | $ | (2,211) |
Other purchases | | (399) | | | (58) | | | (49) |
Dispositions | | 1,550 | | | 1,668 | | | 1,042 |
| $ | (21,429) | | $ | (1,099) | | $ | (1,218) |
GE Capital | | | | | | | | |
All other operating activities | | | | | | | | |
Cash collateral on derivative contracts | | (428) | | | (1,936) | | | 738 |
Increase (decrease) in other liabilities | | (2,616) | | | 4,860 | | | (3,331) |
Other | | (10) | | | 2,163 | | | 5,073 |
| $ | (3,054) | | $ | 5,087 | | $ | 2,480 |
Net decrease (increase) in GE Capital financing receivables | | | | | | | | |
Increase in loans to customers | $ | (65,055) | | $ | (65,306) | | $ | (64,843) |
Principal collections from customers - loans | | 60,375 | | | 60,292 | | | 60,764 |
Investment in equipment for financing leases | | (690) | | | (417) | | | (535) |
Principal collections from customers - financing leases | | 856 | | | 734 | | | 841 |
Sales of financing receivables | | 3,235 | | | 4,923 | | | 3,612 |
| $ | (1,279) | | $ | 226 | | $ | (161) |
All other investing activities | | | | | | | | |
Purchases of investment securities | $ | (18,588) | | $ | (7,790) | | $ | (2,008) |
Dispositions and maturities of investment securities | | 7,343 | | | 9,587 | | | 2,723 |
Decrease (increase) in other assets - investments | | 9,202 | | | (1,439) | | | (287) |
Other(f) | | 3,682 | | | (5,048) | | | 24,146 |
| $ | 1,639 | | $ | (4,690) | | $ | 24,574 |
Repayments and other reductions (maturities longer than 90 days) | | | | | | | | |
Short-term (91 to 365 days) | $ | (44,519) | | $ | (42,110) | | $ | (36,919) |
Long-term (longer than one year) | | (13,418) | | | (2,455) | | | (864) |
Principal payments - non-recourse, leveraged leases | | (348) | | | (283) | | | (304) |
| $ | (58,285) | | $ | (44,848) | | $ | (38,087) |
All other financing activities | | | | | | | | |
Proceeds from sales of investment contracts | $ | 19 | | $ | 163 | | $ | 322 |
Redemption of investment contracts | | (346) | | | (1,235) | | | (1,113) |
Other | | (800) | | | (290) | | | 112 |
| $ | (1,127) | | $ | (1,362) | | $ | (679) |
| | | | | | | | |
(a) | Included pre-tax gains on sales of businesses reclassified to Proceeds from principal business dispositions within Cash flows from investing activities of $(3,136) million for Appliances and $(398) million for GE Asset Management in 2016 and $(623) million for Signaling in 2015. See Note 17. |
(b) | Contract assets are presented net of related billings in excess of revenues on our long-term product service agreements. See Note 9. |
(c) | Reflected the effects of current tax expense (benefit) of $(140) million, $3,307 million and $2,110 million and net cash paid during the year for income taxes of $(2,612) million, $(1,636) million and $(1,337) million for the years ended December 31, 2016, 2015 and 2014, respectively. Cash flows effects of deferred tax provisions (benefits) are shown separately within cash flows from operating activities. See Note 14. |
(d) | Reflected the effects of pension costs of $3,623 million, $4,498 million and $3,604 million and employer contributions of $(552) million, $(233) million and $(236) million for the years ended December 31, 2016, 2015 and 2014, respectively. 2016 employer contributions included GE Pension Trust funding of $(330) million representing net sale proceeds associated with the sale of GE Asset Management. See Notes 2 and 12. |
(e) | Included $(11,370) million paid under ASR agreements in 2016. |
(f) | Other primarily included net activity related to settlements between our continuing operations (primarily our treasury operations) and businesses in discontinued operations. |
NOTE 27. COST INFORMATION
We conduct research and development (R&D) activities to continually enhance our existing products and services, develop new product and services to meet our customers' changing needs and requirements, and address new market opportunities.
Research and development expenses are classified in cost of goods and services sold in the Statement of Earnings. In addition, research and development funding from customers, principally the U.S. government, is recorded as an offset to such costs. We also enter into research and development arrangements with unrelated investors, which are generally formed through partnerships and consolidated within GE's financial statements. Research and development funded through consolidated partnerships is classified within net earnings/loss attributable to noncontrolling interests.
| | | | | | | | |
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
Total R&D | $ | 5,466 | | $ | 5,278 | | $ | 5,273 |
Less customer funded R&D (principally the U.S. Government) | | (611) | | | (803) | | | (721) |
Less partner funded R&D | | (73) | | | (226) | | | (319) |
GE funded R&D | $ | 4,782 | | $ | 4,249 | | $ | 4,233 |
| | | | | | | | |
Of total Research and Development, the segments with the most significant expenditures for the years ended December 31, 2016, 2015 and 2014 were: Aviation $1,595 million, $1,893 million and $1,965 million, respectively; Healthcare $938 million, $905 million, and $817 million, respectively; and Power $695 million, $721 million and $641 million, respectively. The remaining segments and Corporate, including Global Research Center, had combined expenditures of $2,238 million, $1,759 million and $1,850 million, for the years ended December 31, 2016, 2015 and 2014, respectively.
COLLABORATIVE ARRANGEMENTS
Our businesses enter into collaborative arrangements primarily with manufacturers and suppliers of components used to build and maintain certain engines, under which GE and these participants share in the risks and rewards of these product programs. GE's payments to participants are recorded as cost of services sold ($1,080 million, $788 million and $873 million for the years 2016, 2015 and 2014, respectively) or as cost of goods sold ($2,482 million, $2,736 million and $2,660 million for the years 2016, 2015 and 2014, respectively).
RENTAL EXPENSE
Rental expense under operating leases is shown below.
(In millions) | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | |
GE | $ | 1,528 | | $ | 1,258 | | $ | 1,356 |
GE Capital | | 91 | | | 107 | | | 123 |
| | 1,619 | | | 1,365 | | | 1,479 |
Eliminations | | (126) | | | (169) | | | (223) |
Total | $ | 1,493 | | $ | 1,196 | | $ | 1,256 |
| | | | | | | | |
At December 31, 2016, minimum rental commitments under noncancellable operating leases aggregated $5,172 million and $302 million for GE and GE Capital, respectively. Amounts payable over the next five years follow.
(In millions) | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 |
| | | | | | | | | | | | | | |
GE | $ | 942 | | $ | 854 | | $ | 742 | | $ | 640 | | $ | 537 |
GE Capital | | 27 | | | 23 | | | 22 | | | 21 | | | 20 |
| | 969 | | | 877 | | | 763 | | | 661 | | | 557 |
Eliminations | | (171) | | | (155) | | | (143) | | | (138) | | | (130) |
Total | $ | 798 | | $ | 722 | | $ | 621 | | $ | 524 | | $ | 427 |
| | | | | | | | | | | | | | |
NOTE 28. GUARANTOR FINANCIAL INFORMATION
GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On October 26, 2015, GE Capital International Funding Company Unlimited Company, formerly GE Capital International Funding Company (the Issuer), then a finance subsidiary of General Electric Capital Corporation, settled its previously announced private offers to exchange (the Exchange Offers) the Issuer's new senior unsecured notes for certain outstanding debt securities of General Electric Capital Corporation.
The new notes that were issued were composed of $15.3 billion of 0.964% six month notes due April 2016 (which have subsequently been repaid upon maturity), £0.8 billion of 1.363% six month notes due April 2016 (which have subsequently been repaid upon maturity), $6.1 billion of 2.342% notes due 2020, $2.0 billion of 3.373% notes due 2025 and $11.5 billion of 4.418% notes due 2035. These notes were fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (GECIHL) (each a Guarantor, and together, the Guarantors).
Under the terms of a registration rights agreement entered into in connection with the Exchange Offers, the Issuer and the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (SEC) for an offer to exchange new senior notes of the Issuer registered with the SEC and guaranteed by the Guarantors for certain of the Issuer's outstanding unregistered senior notes. This exchange was completed in July 2016.
PRESENTATION
In connection with the registration of the senior notes, the Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities. Included are the Condensed Consolidating Statements of Earnings and Comprehensive Income for the years ended December 31, 2016, 2015 and 2014, Condensed Consolidating Statements of Financial Position as of December 31, 2016 and December 31, 2015 and Condensed Consolidating Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 for:
· | General Electric Company (the Parent Company Guarantor) - prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations. The equity basis earnings (losses) of subsidiaries are reflected in the captions "Equity in earnings (losses) of affiliates" and "Earnings (loss) from discontinued operations, net of taxes";
|
· | GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – incorporated in May 2015 as a finance subsidiary for debt and reflects activity subsequent to the issuance of new notes on October 26, 2015;
|
· | GE Capital International Holdings Limited (GECIHL) (the Subsidiary Guarantor) - prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting and reflects activity subsequent to the GE Capital Reorganization on December 3, 2015. The equity basis earnings (losses) of subsidiaries are reflected in the captions "Equity in earnings (losses) of affiliates" and "Earnings (loss) from discontinued operations, net of taxes";
|
· | Non-Guarantor Subsidiaries - prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows;
|
· | Consolidating Adjustments - adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries; and
|
· | Consolidated - prepared on a consolidated basis.
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEAR ENDED DECEMBER 31, 2016 |
|
| | Parent | | | | | | Non- | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
(in millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | Adjustments | | Consolidated |
| | | | | | | | | | | | |
Revenues and other income | | | | | | | | | | | | |
Sales of goods and services | $ | 40,315 | $ | - | $ | - | $ | 152,047 | $ | (81,971) | $ | 110,391 |
Other income | | 10,949 | | - | | - | | 63,363 | | (70,308) | | 4,005 |
Equity in earnings (loss) of affiliates | | 1,397 | | - | | 1,542 | | 116,897 | | (119,836) | | - |
GE Capital revenues from services | | - | | 897 | | 1,419 | | 12,994 | | (6,012) | | 9,297 |
Total revenues and other income | | 52,661 | | 897 | | 2,961 | | 345,301 | | (278,127) | | 123,693 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
Interest and other financial charges | | 3,505 | | 831 | | 2,567 | | 5,429 | | (7,308) | | 5,025 |
Investment contracts, insurance losses and | | | | | | | | | | | | |
insurance annuity benefits | | - | | - | | - | | 2,863 | | (67) | | 2,797 |
Other costs and expenses | | 41,972 | | - | | 143 | | 165,382 | | (100,656) | | 106,842 |
Total costs and expenses | | 45,478 | | 831 | | 2,711 | | 173,674 | | (108,030) | | 114,663 |
Earnings (loss) from continuing | | | | | | | | | | | | |
operations before income taxes | | 7,183 | | 66 | | 250 | | 171,627 | | (170,097) | | 9,030 |
Benefit (provision) for income taxes | | 2,539 | | (10) | | (105) | | (1,911) | | (49) | | 464 |
Earnings (loss) from continuing operations | | 9,723 | | 56 | | 145 | | 169,717 | | (170,146) | | 9,494 |
Earnings (loss) from discontinued | | | | | | | | | | | | |
operations, net of taxes | | (891) | | - | | (1,927) | | 351 | | 1,514 | | (954) |
Net earnings (loss) | | 8,831 | | 56 | | (1,782) | | 170,067 | | (168,632) | | 8,540 |
Less net earnings (loss) attributable to | | | | | | | | | | | | |
noncontrolling interests | | - | | - | | - | | (149) | | (142) | | (291) |
Net earnings (loss) attributable to | | | | | | | | | | | | |
the Company | | 8,831 | | 56 | | (1,782) | | 170,216 | | (168,490) | | 8,831 |
Other comprehensive income | | (2,069) | | (12) | | 1,126 | | (3,393) | | 2,279 | | (2,069) |
Comprehensive income (loss) attributable | | | | | | | | | | | | |
to the Company | $ | 6,762 | $ | 44 | $ | (657) | $ | 166,823 | $ | (166,211) | $ | 6,762 |
| | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) | |
FOR THE YEAR ENDED DECEMBER 31, 2015 | |
| |
| | Parent | | | | | | Non- | | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | | |
(in millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | Adjustments | | Consolidated | |
| | | | | | | | | | | | | |
Revenues and other income | | | | | | | | | | | | | |
Sales of goods and services | $ | 43,945 | $ | - | $ | - | $ | 139,158 | $ | (77,294) | $ | 105,809 | |
Other income | | 2,725 | | - | | - | | 31,146 | | (31,644) | | 2,227 | |
Equity in earnings (loss) of affiliates | | 1,815 | | - | | 437 | | 389,796 | | (392,048) | | - | |
GE Capital revenues from services | | - | | 250 | | (460) | | 36,909 | | (27,349) | | 9,350 | |
Total revenues and other income | | 48,485 | | 250 | | (23) | | 597,009 | | (528,335) | | 117,386 | |
| | | | | | | | | | | | 4 | |
Costs and expenses | | | | | | | | | | | | | |
Interest and other financial charges | | 3,127 | | 232 | | 284 | | 9,037 | | (9,216) | | 3,463 | |
Investment contracts, insurance losses and | | | | | | | | | | | | | |
insurance annuity benefits | | - | | - | | - | | 2,748 | | (143) | | 2,605 | |
Other costs and expenses | | 45,308 | | - | | 3 | | 160,472 | | (102,651) | | 103,132 | |
Total costs and expenses | | 48,435 | | 232 | | 287 | | 172,257 | | (112,011) | | 109,200 | |
Earnings (loss) from continuing | | | | | | | | | | | | | |
operations before income taxes | | 50 | | 18 | | (310) | | 424,752 | | (416,324) | | 8,186 | |
Benefit (provision) for income taxes | | 1,314 | | (2) | | (9) | | (11,426) | | 3,639 | | (6,485) | |
Earnings (loss) from continuing operations | | 1,364 | | 15 | | (319) | | 413,326 | | (412,686) | | 1,700 | |
Earnings (loss) from discontinued | | | | | | | | | | | | | |
operations, net of taxes | | (7,490) | | - | | 483 | | (738) | | 250 | | (7,495) | |
Net earnings (loss) | | (6,126) | | 15 | | 164 | | 412,588 | | (412,436) | | (5,795) | |
Less net earnings (loss) attributable to | | | | | | | | | | | | | |
noncontrolling interests | | - | | - | | - | | 249 | | 82 | | 332 | |
Net earnings (loss) attributable to | | | | | | | | | | | | | |
the Company | | (6,126) | | 15 | | 164 | | 412,339 | | (412,518) | | (6,126) | |
Other comprehensive income (loss) | | 1,644 | | 12 | | 1,377 | | (4,843) | | 3,454 | | 1,644 | |
Comprehensive income (loss) attributable | | | | | | | | | | | | | |
to the Company | $ | (4,483) | $ | 27 | $ | 1,542 | $ | 407,496 | $ | (409,065) | $ | (4,483) | |
| | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) | |
FOR THE YEAR ENDED DECEMBER 31, 2014 | |
| |
| | Parent | | | | | | Non- | | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | | |
(in millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | Adjustments | | Consolidated | |
| | | | | | | | | | | | | |
Revenues and other income | | | | | | | | | | | | | |
Sales of goods and services | $ | 44,511 | $ | - | $ | - | $ | 137,034 | $ | (74,786) | $ | 106,758 | |
Other income | | 1,722 | | - | | - | | 22,416 | | (23,360) | | 778 | |
Equity in earnings (loss) of affiliates | | 10,510 | | - | | - | | 53,841 | | (64,351) | | - | |
GE Capital revenues from services | | - | | - | | - | | 50,749 | | (41,101) | | 9,648 | |
Total revenues and other income | | 56,743 | | - | | - | | 264,040 | | (203,598) | | 117,184 | |
| | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | |
Interest and other financial charges | | 3,014 | | - | | - | | 11,395 | | (11,686) | | 2,723 | |
Investment contracts, insurance losses and | | | | | | | | | | | | | |
insurance annuity benefits | | - | | - | | - | | 2,678 | | (148) | | 2,530 | |
Other costs and expenses | | 46,128 | | - | | - | | 155,133 | | (99,593) | | 101,668 | |
Total costs and expenses | | 49,142 | | - | | - | | 169,206 | | (111,427) | | 106,921 | |
Earnings (loss) from continuing | | | | | | | | | | | | | |
operations before income taxes | | 7,601 | | - | | - | | 94,833 | | (92,171) | | 10,263 | |
Benefit (provision) for income taxes | | 1,777 | | - | | - | | (4,181) | | 1,631 | | (773) | |
Earnings (loss) from continuing operations | | 9,378 | | - | | - | | 90,652 | | (90,540) | | 9,490 | |
Earnings (loss) from discontinued | | | | | | | | | | | | | |
operations, net of taxes | | 5,855 | | - | | - | | (27) | | 27 | | 5,855 | |
Net earnings (loss) | | 15,233 | | - | | - | | 90,625 | | (90,513) | | 15,345 | |
Less net earnings (loss) attributable to | | | | | | | | | | | | | |
noncontrolling interests | | - | | - | | - | | 2,893 | | (2,781) | | 112 | |
Net earnings (loss) attributable to | | | | | | | | | | | | | |
the Company | | 15,233 | | - | | - | | 87,733 | | (87,733) | | 15,233 | |
Other comprehensive income (loss) | | (9,053) | | - | | - | | (2,787) | | 2,787 | | (9,053) | |
Comprehensive income (loss) attributable | | | | | | | | | | | | | |
to the Company | $ | 6,180 | $ | - | $ | - | $ | 84,946 | $ | (84,946) | $ | 6,180 | |
| | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| DECEMBER 31, 2016 |
| |
| | | Parent | | | | | | Non- | | | | |
| | | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
| (In millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | Adjustments | Consolidated |
| | | | | | | |
| Assets | | | | | | | | | | | | |
| Cash and equivalents | $ | 2,558 | $ | - | $ | 3 | $ | 46,994 | $ | (1,426) | $ | 48,129 |
| Investment securities | | 1 | | - | | - | | 47,394 | | (3,082) | | 44,313 |
| Receivables - net | | 63,620 | | 17,157 | | 30,470 | | 79,401 | | (148,385) | | 42,263 |
| Inventories | | 4,654 | | - | | - | | 21,076 | | (3,377) | | 22,354 |
| Property, plant and equipment - net | | 5,768 | | - | | - | | 46,366 | | (1,615) | | 50,518 |
| Investment in subsidiaries(a) | | 272,685 | | - | | 80,481 | | 492,674 | | (845,840) | | - |
| Goodwill and intangible assets | | 8,128 | | - | | - | | 42,074 | | 36,673 | | 86,875 |
| All other assets | | 14,692 | | 44 | | 39 | | 201,276 | | (160,134) | | 55,917 |
| Assets of discontinued operations | | - | | - | | - | | - | | 14,815 | | 14,815 |
| Total assets | $ | 372,107 | $ | 17,202 | $ | 110,992 | $ | 977,255 | $ | (1,112,372) | $ | 365,183 |
| | | | | | | | | | | | | |
| Liabilities and equity | | | | | | | | | | | | |
| Short-term borrowings | $ | 167,089 | $ | 1 | $ | 46,432 | $ | 25,919 | $ | (208,727) | $ | 30,714 |
| Accounts payable | | 5,412 | | - | | - | | 47,366 | | (38,343) | | 14,435 |
| Other current liabilities | | 11,072 | | 33 | | 117 | | 25,095 | | 114 | | 36,431 |
| Long-term and non-recourse borrowings | | 68,983 | | 16,486 | | 34,389 | | 68,912 | | (83,273) | | 105,496 |
| All other liabilities | | 43,722 | | 511 | | 481 | | 58,376 | | (9,656) | | 93,434 |
| Liabilities of discontinued operations | | - | | - | | - | | - | | 4,158 | | 4,158 |
| Total Liabilities | | 296,279 | | 17,030 | | 81,419 | | 225,667 | | (335,727) | | 284,668 |
| | | | | | | | | | | | | |
| Redeemable noncontrolling interests | | - | | - | | - | | 2,223 | | 802 | | 3,025 |
| | | | | | | | | | | | | |
| GE shareowners' equity | | 75,828 | | 171 | | 29,573 | | 747,719 | | (777,463) | | 75,828 |
| Noncontrolling interests | | - | | - | | - | | 1,647 | | 16 | | 1,663 |
| Total equity | | 75,828 | | 171 | | 29,573 | | 749,366 | | (777,447) | | 77,491 |
| Total liabilities, redeemable | | | | | | | | | | | | |
| noncontrolling interests and equity | $ | 372,107 | $ | 17,202 | $ | 110,992 | $ | 977,255 | $ | (1,112,372) | $ | 365,183 |
| | | | | | | | | | | | | |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $28.5 billion and net assets of discontinued operations of $6.0 billion. |
CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
DECEMBER 31, 2015 |
|
| | Parent | | | | | | Non- | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
(In millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | Adjustments | Consolidated |
| | | | | | |
Assets | | | | | | | | | | | | |
Cash and equivalents | $ | 4,137 | $ | - | $ | - | $ | 86,955 | $ | (20,609) | $ | 70,483 |
Investment securities | | 14 | | - | | - | | 40,886 | | (8,927) | | 31,973 |
Receivables - net | | 88,696 | | 33,232 | | 69,306 | | 75,909 | | (221,286) | | 45,856 |
Inventories | | 5,447 | | - | | - | | 19,762 | | (2,694) | | 22,515 |
Property, plant and equipment - net | | 6,540 | | - | | - | | 56,808 | | (9,253) | | 54,095 |
Investment in subsidiaries(a) | | 274,471 | | - | | 78,505 | | 405,686 | | (758,662) | | - |
Goodwill and intangible assets | | 7,793 | | - | | - | | 61,412 | | 14,118 | | 83,323 |
All other assets | | 15,732 | | 11 | | 915 | | 247,611 | | (200,392) | | 63,876 |
Assets of discontinued operations | | - | | - | | - | | - | | 120,951 | | 120,951 |
Total assets | $ | 402,828 | $ | 33,242 | $ | 148,725 | $ | 995,029 | $ | (1,086,754) | $ | 493,071 |
| | | | | | | | | | | | |
Liabilities and equity | | | | | | | | | | | | |
Short-term borrowings | $ | 145,051 | $ | 16,204 | $ | 71,862 | $ | 60,601 | $ | (243,858) | $ | 49,860 |
Accounts payable | | 6,096 | | - | | - | | 37,636 | | (30,052) | | 13,680 |
Other current liabilities | | 14,482 | | - | | 17 | | 34,903 | | (7,861) | | 41,540 |
Long-term and non-recourse borrowings | | 97,471 | | 16,423 | | 46,392 | | 105,801 | | (118,345) | | 147,742 |
All other liabilities | | 41,455 | | 488 | | 224 | | 57,996 | | (9,513) | | 90,651 |
Liabilities of discontinued operations | | - | | - | | - | | - | | 46,487 | | 46,487 |
Total Liabilities | | 304,555 | | 33,115 | | 118,495 | | 296,937 | | (363,141) | | 389,961 |
| | | | | | | | | | | | |
Redeemable noncontrolling interests | | - | | - | | - | | 2,888 | | 84 | | 2,972 |
| | | | | | | | | | | | |
GE shareowners' equity | | 98,274 | | 127 | | 30,230 | | 693,589 | | (723,946) | | 98,274 |
Noncontrolling interests | | - | | - | | - | | 1,616 | | 248 | | 1,864 |
Total equity | | 98,274 | | 127 | | 30,230 | | 695,204 | | (723,697) | | 100,138 |
Total liabilities, redeemable | | | | | | | | | | | | |
noncontrolling interests and equity | $ | 402,828 | $ | 33,242 | $ | 148,725 | $ | 995,029 | $ | (1,086,754) | $ | 493,071 |
| | | | | | | | | | | | |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $40.1 billion and net assets of discontinued operations of $58.6 billion. |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2016 |
| | | | | | | | | | | | |
| | Parent | | | | | | Non- | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
(In millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | adjustments | | Consolidated |
| | | | | | | | | | | | |
Cash flows – operating activities | | | | | | | | | | | | |
Cash from (used for) operating activities - | | | | | | | | | | | | |
continuing operations | $ | (4,966) | $ | (10) | $ | (52) | $ | 162,918 | $ | (151,791) | $ | 6,099 |
Cash from (used for) operating activities - | | | | | | | | | | | | |
discontinued operations | | (891) | | - | | - | | (5,039) | | (413) | | (6,343) |
Cash from (used for) operating activities | | (5,858) | | (10) | | (52) | | 157,880 | | (152,204) | | (244) |
| | | | | | | | | | | | |
Cash flows – investing activities | | | | | | | | | | | | |
Cash from (used for) investing activities – | | | | | | | | | | | | |
continuing operations | | 14,158 | | 16,384 | | 35,443 | | 72,205 | | (75,577) | | 62,613 |
Cash from (used for) investing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | (13,412) | | - | | (13,412) |
Cash from (used for) investing activities | | 14,158 | | 16,384 | | 35,443 | | 58,794 | | (75,577) | | 49,202 |
| | | | | | | | | | | | |
Cash flows – financing activities | | | | | | | | | | | | |
Cash from (used for) financing activities – | | | | | | | | | | | | |
continuing operations | | (9,879) | | (16,374) | | (35,388) | | (275,243) | | 246,964 | | (89,920) |
Cash from (used for) financing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | 789 | | - | | 789 |
Cash from (used for) financing activities | | (9,879) | | (16,374) | | (35,388) | | (274,454) | | 246,964 | | (89,131) |
Effect of currency exchange rate changes | | | | | | | | | | | | |
on cash and equivalents | | - | | - | | - | | (1,146) | | - | | (1,146) |
Increase (decrease) in cash and equivalents | | (1,578) | | - | | 3 | | (58,927) | | 19,183 | | (41,319) |
Cash and equivalents at beginning of year | | 4,137 | | - | | - | | 107,351 | | (20,609) | | 90,879 |
Cash and equivalents at end of year | | 2,558 | | - | | 3 | | 48,423 | | (1,426) | | 49,558 |
Less cash and equivalents of discontinued | | | | | | | | | | | | |
operations at end of year | | - | | - | | - | | 1,429 | | - | | 1,429 |
Cash and equivalents of continuing operations | | | | | | | | | | | | |
at end of year | $ | 2,558 | $ | - | $ | 3 | $ | 46,994 | $ | (1,426) | $ | 48,129 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2015 |
| | | | | | | | | | | | |
| | Parent | | | | | | Non- | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
(In millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | adjustments | | Consolidated |
| | | | | | | | | | | | |
Cash flows – operating activities | | | | | | | | | | | | |
Cash from (used for) operating activities - | | | | | | | | | | | | |
continuing operations | $ | 13,587 | $ | 68 | $ | 631 | $ | 433,479 | $ | (435,909) | $ | 11,856 |
Cash from (used for) operating activities - | | | | | | | | | | | | |
discontinued operations | | (7,490) | | - | | (30) | | 27,533 | | (11,979) | | 8,034 |
Cash from (used for) operating activities | | 6,097 | | 68 | | 601 | | 461,013 | | (447,888) | | 19,891 |
| | | | | | | | | | | | |
Cash flows – investing activities | | | | | | | | | | | | |
Cash from (used for) investing activities – | | | | | | | | | | | | |
continuing operations | | 7,106 | | (248) | | (601) | | (493,933) | | 549,289 | | 61,613 |
Cash from (used for) investing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | 5,854 | | (7,979) | | (2,125) |
Cash from (used for) investing activities | | 7,106 | | (248) | | (601) | | (488,079) | | 541,310 | | 59,488 |
| | | | | | | | | | | | |
Cash flows – financing activities | | | | | | | | | | | | |
Cash from (used for) financing activities – | | | | | | | | | | | | |
continuing operations | | (13,886) | | 180 | | - | | 67,063 | | (122,904) | | (69,547) |
Cash from (used for) financing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | (37,582) | | 31,075 | | (6,507) |
Cash from (used for) financing activities | | (13,886) | | 180 | | - | | 29,481 | | (91,829) | | (76,054) |
Effect of currency exchange rate changes | | | | | | | | | | | | |
on cash and equivalents | | - | | - | | - | | (3,464) | | - | | (3,464) |
Increase (decrease) in cash and equivalents | | (683) | | - | | - | | (1,049) | | 1,594 | | (138) |
Cash and equivalents at beginning of year | | 4,820 | | - | | - | | 108,400 | | (22,203) | | 91,017 |
Cash and equivalents at end of year | | 4,137 | | - | | - | | 107,351 | | (20,609) | | 90,879 |
Less cash and equivalents of discontinued | | | | | | | | | | | | |
operations at end of year | | - | | - | | - | | 20,395 | | - | | 20,395 |
Cash and equivalents of continuing operations | | | | | | | | | | | | |
at end of year | $ | 4,137 | $ | - | $ | - | $ | 86,955 | $ | (20,609) | $ | 70,483 |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | | | | | | | | | |
| | Parent | | | | | | Non- | | | | |
| | Company | | Subsidiary | | Subsidiary | | Guarantor | | Consolidating | | |
(In millions) | | Guarantor | | Issuer | | Guarantor | | Subsidiaries | | adjustments | | Consolidated |
| | | | | | | | | | | | |
Cash flows – operating activities | | | | | | | | | | | | |
Cash from (used for) operating activities - | | | | | | | | | | | | |
continuing operations | $ | (2,483) | $ | - | $ | - | $ | 147,449 | $ | (128,933) | $ | 16,033 |
Cash from (used for) operating activities - | | | | | | | | | | | | |
discontinued operations | | 5,855 | | - | | - | | 5,794 | | 27 | | 11,676 |
Cash from (used for) operating activities | | 3,372 | | - | | - | | 153,243 | | (128,906) | | 27,709 |
| | | | | | | | | | | | |
Cash flows – investing activities | | | | | | | | | | | | |
Cash from (used for) investing activities – | | | | | | | | | | | | |
continuing operations | | (1,410) | | - | | - | | (403,870) | | 424,509 | | 19,229 |
Cash from (used for) investing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | (24,263) | | - | | (24,263) |
Cash from (used for) investing activities | | (1,410) | | - | | - | | (428,133) | | 424,509 | | (5,034) |
| | | | | | | | | | | | |
Cash flows – financing activities | | | | | | | | | | | | |
Cash from (used for) financing activities – | | | | | | | | | | | | |
continuing operations | | (5,641) | | - | | - | | 272,150 | | (307,421) | | (40,912) |
Cash from (used for) financing activities – | | | | | | | | | | | | |
discontinued operations | | - | | - | | - | | 23,956 | | - | | 23,956 |
Cash from (used for) financing activities | | (5,641) | | - | | - | | 296,106 | | (307,421) | | (16,956) |
Effect of currency exchange rate changes | | | | | | | | | | | | |
on cash and equivalents | | - | | - | | - | | (3,492) | | - | | (3,492) |
Increase (decrease) in cash and equivalents | | (3,679) | | - | | - | | 17,721 | | (11,818) | | 2,224 |
Cash and equivalents at beginning of year | | 8,499 | | - | | - | | 90,678 | | (10,385) | | 88,792 |
Cash and equivalents at end of year | | 4,820 | | - | | - | | 108,400 | | (22,203) | | 91,017 |
Less cash and equivalents of discontinued | | | | | | | | | | | | |
operations at end of year | | - | | - | | - | | 20,991 | | - | | 20,991 |
Cash and equivalents of continuing operations | | | | | | | | | | | | |
at end of year | $ | 4,820 | $ | - | $ | - | $ | 87,408 | $ | (22,203) | $ | 70,025 |
NOTE 29. SUPPLEMENTAL INFORMATION
POSTRETIREMENT BENEFIT PLANS
As discussed in Note 12, we sponsor a number of pension plans which consist of the two principal pension plans for certain U.S. employees as well as other affiliate pension plans. In addition, we sponsor a number of postretirement health and life insurance benefit plans (retiree benefit plans).
The accounting requirements and concepts discussed in Note 12 Postretirement Benefit Plans are the same for other pension plans and principal retiree benefit plans and are consistently applied.
The following disclosures provide additional information with respect to our pension plans and principal retiree benefit plans.
Other pension plans in 2016 included 49 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 eligible participants and these participants share in the cost of healthcare benefits.
COST OF BENEFIT PLANS | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Other pension plans | | Principal retiree benefit plans |
(In millions) | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 |
| | | | | | | | | | | | | | | | | |
Service cost for benefits earned | $ | 462 | | $ | 416 | | $ | 403 | | $ | 123 | | $ | 145 | | $ | 164 |
Prior service cost (credit) amortization | | 1 | | | - | | | 6 | | | (164) | | | (8) | | | 353 |
Expected return on plan assets | | (1,034) | | | (881) | | | (789) | | | (43) | | | (48) | | | (50) |
Interest cost on benefit obligations | | 670 | | | 555 | | | 587 | | | 249 | | | 335 | | | 424 |
Net actuarial loss (gain) amortization | | 256 | | | 289 | | | 205 | | | (50) | | | (25) | | | (150) |
Curtailment loss (gain) | | 19 | | | (6) | | | - | | | - | | | (225) | (a) | | 48 |
Benefit plans cost | $ | 374 | | $ | 373 | | $ | 412 | | $ | 115 | | $ | 174 | | $ | 789 |
| | | | | | | | | | | | | | | | | |
(a)Gain principally resulting from life insurance amendment.
ASSUMPTIONS USED IN BENEFIT CALCULATIONS
The accounting assumptions in the table below are those that are significant to the measurement of our benefit obligations.
ASSUMPTIONS USED TO MEASURE BENEFIT OBLIGATIONS |
| | | | | | | | | | | | | |
| Other pension plans (weighted average) | | Principal retiree benefit plans |
December 31 | 2016 | | 2015 | | 2014 | | | 2016 | | 2015 | | 2014 | |
| | | | | | | | | | | | | |
Discount rate | 2.58 | % | 3.33 | % | 3.53 | % | | 3.75 | % | 3.93 | % | 3.89 | % |
Compensation increases | 3.48 | | 3.32 | | 3.60 | | | 3.80 | | 3.80 | | 4.10 | |
Initial healthcare trend rate | N/A | | N/A | | N/A | | | 6.00 | (a) | 6.00 | | 6.00 | |
| | | | | | | | | | | | | |
(a)For 2016, ultimately declining to 5% for 2030 and thereafter.
The healthcare trend assumptions for 2015 and 2016 apply to our pre-65 retiree medical plans. Our post-65 retiree plan has a fixed subsidy and therefore is not subject to healthcare inflation.
The discount rate used to measure the benefit obligation at the end of the year is also used to measure benefit cost in the following year. The assumptions used to measure benefit cost follow.
ASSUMPTIONS USED TO MEASURE BENEFIT COST |
| | | | | | | | | | | | | | | | |
| Other pension plans (weighted average) | | Principal retiree benefit plans |
December 31 | 2016 | | 2015 | | 2014 | | | 2016 | | | 2015 | | | 2014 | | |
| | | | | | | | | | | | | | | | |
Discount rate | 3.33 | % | 3.53 | % | 4.39 | % | | 3.93 | % | (a) | 3.89 | % | (a) | 4.61 | % | (a) |
Expected return on assets | 6.36 | | 6.95 | | 6.92 | | | 7.00 | | | 7.00 | | | 7.00 | | |
| | | | | | | | | | | | | | | | |
(a) | Weighted average discount rates of 3.86%, 3.92% and 4.47% were used for determination of costs in 2016, 2015 and 2014, respectively. |
BENEFIT OBLIGATIONS | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other pension plans | | Principal retiree benefit plans | |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 | |
| | | | | | | | | | | | |
Balance at January 1 | $ | 21,618 | | $ | 15,589 | | $ | 6,757 | | $ | 10,703 | |
Service cost for benefits earned | | 462 | | | 416 | | | 123 | | | 145 | |
Interest cost on benefit obligations | | 670 | | | 555 | | | 249 | | | 335 | |
Participant contributions | | 43 | | | 15 | | | 51 | | | 50 | |
Plan amendments | | (54) | | | (12) | | | (7) | | | (3,291) | (a) |
Actuarial loss (gain) | | 2,993 | (b) | | (406) | (b) | | (291) | (c) | | (444) | (b) |
Benefits paid | | (842) | | | (576) | | | (603) | | | (691) | |
Acquisitions (dispositions)/ other - net | | (98) | | | 6,859 | (d) | | 10 | | | (50) | |
Exchange rate adjustments | | (2,249) | | | (822) | | | - | | | - | |
Balance at December 31(e) | $ | 22,543 | | $ | 21,618 | | $ | 6,289 | | $ | 6,757 | |
| | | | | | | | | | | | |
(a) | Principally related to plan amendments affecting post-65 retiree health and retiree life insurance for certain production participants. |
(b) | Primarily associated with discount rate changes. |
(c) | Primarily associated with lower costs from new healthcare supplier contracts. |
(d) | Substantially all related to Alstom acquisition. |
(e) | The benefit obligation for retiree health plans was $4,366 million and $4,838 million at December 31, 2016 and 2015, respectively. |
THE COMPOSITION OF OUR PLAN ASSETS
The fair value of other pension plans' and principal retiree benefit plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of the assets are consistently applied and described in Note 1.
| Other pension plans | | Principal retiree benefit plans |
December 31 (in millions) | | 2016 | | | 2015 | | | 2016 | | | 2015 |
| | | | | | | | | | | |
Equity securities | | | | | | | | | | | |
U.S. equity securities | $ | 666 | | $ | 667 | | $ | 187 | | $ | 203 |
Non-U.S. equity securities | | 6,337 | | | 6,323 | | | 152 | | | 162 |
Debt securities | | | | | | | | | | | |
Fixed income and cash investment funds | | 6,049 | | | 6,258 | | | 30 | | | 84 |
U.S. corporate | | 319 | | | 242 | | | 38 | | | 52 |
Other debt securities | | 577 | | | 551 | | | 82 | | | 93 |
Private equities | | 627 | | | 703 | | | 61 | | | 75 |
Real estate | | 1,449 | | | 1,358 | | | 4 | | | 6 |
Other investments | | 1,067 | | | 1,266 | | | 21 | | | 20 |
Total plan assets | $ | 17,091 | | $ | 17,368 | | $ | 575 | | $ | 695 |
| | | | | | | | | | | |
Other Pension Plans assets valued using NAV for practical expedient amounted to $4,669 million and $4,213 million as of December 31, 2016 and 2015, respectively. The percentages of other pension plans assets valued using NAV by investment fund type for equity securities, fixed income and cash, and alternative investments were 7%, 4% and 16% as of December 31, 2016, respectively, and 6%, 3% and 15% as of December 31, 2015, respectively.
The practical expedient was not applied for investments with a fair value of $135 million and $169 million in 2016 and 2015, respectively and those investments were classified within Level 3. The remaining investments were substantially all considered Level 1 and 2.
Principal retiree benefit plan assets valued using NAV for practical expedient amounted to $133 million and $160 million as of December 31, 2016 and 2015. There were no Level 3 investments held in 2016 and 2015. The remaining investments were considered Level 1 or Level 2.
FAIR VALUE OF PLAN ASSETS | | | | | | | | | | | |
| | | | | | | | | | | |
| Other pension plans | | Principal retiree benefit plans |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | |
Balance at January 1 | $ | 17,368 | | $ | 12,386 | | $ | 695 | | $ | 813 |
Actual gain on plan assets | | 1,743 | | | 381 | | | 22 | | | 22 |
Employer contributions | | 795 | | | 549 | | | 410 | | | 501 |
Participant contributions | | 43 | | | 15 | | | 51 | | | 50 |
Benefits paid | | (842) | | | (576) | | | (603) | | | (691) |
Acquisitions (dispositions) / other - net | | (81) | | | 5,207 | (a) | | - | | | - |
Exchange rate adjustments | | (1,935) | | | (594) | | | - | | | - |
Balance at December 31 | $ | 17,091 | | $ | 17,368 | | $ | 575 | | $ | 695 |
| | | | | | | | | | | |
(a)Substantially all related to Alstom acquisition.
ASSET ALLOCATION | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | Other pension plans | | Principal retiree | |
| Principal pension plans | | (weighted average) | | benefit plans | |
| 2016 | | 2016 | | 2016 | | 2016 | | 2016 | | 2016 | |
| Target | | Actual | | Target | | Actual | | Target | | Actual | |
December 31 | allocation | | allocation | | allocation | | allocation | | allocation | | allocation | |
| | | | | | | | | | | | |
Equity securities | 18 - 58 | % | 46 | % | 39 | % | 41 | % | 35 - 75 | % | 59 | % |
Debt securities (including cash equivalents) | 11 - 61 | | 33 | | 30 | | 41 | | 11 - 46 | | 26 | |
Private equities | 6 - 16 | | 10 | | 3 | | 4 | | 0 - 25 | | 11 | |
Real estate | 3 - 13 | | 7 | | 9 | | 8 | | 0 - 12 | | 1 | |
Other investments | 3 - 13 | | 4 | | 19 | | 6 | | 0 - 10 | | 3 | |
| | | | | | | | | | | | |
Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust and oversee its investment allocation, which includes selecting investment managers and setting long-term strategic targets. The primary strategic investment objectives are balancing investment risk and return and monitoring the plan's liquidity position in order to meet the near-term benefit payment and other cash needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
According to statute, the aggregate holdings of all qualifying employer securities (e.g., GE common stock) and qualifying employer real property may not exceed 10% of the fair value of trust assets at the time of purchase. GE securities represented 2.1% and 3.7% of the GE Pension Trust assets at year end 2016 and 2015, respectively.
The GE Pension Plan has a broadly diversified portfolio of investments in equities, fixed income, private equities, real estate and hedge funds; these investments are both U.S. and non-U.S. in nature. As of December 31, 2016, no sector concentration of assets exceeded 15% of total GE Pension Plan assets.
ESTIMATED FUTURE BENEFIT PAYMENTS | |
| | | | | | | | | | | | | | | | | 2022 - | |
(In millions) | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2026 | |
| | | | | | | | | | | | | | | | | | |
Principal pension plans | $ | 3,450 | | $ | 3,595 | | $ | 3,695 | | $ | 3,790 | | $ | 3,865 | | $ | 20,455 | |
Other pension plans | | 785 | | | 795 | | | 805 | | | 815 | | | 830 | | | 4,400 | |
Principal retiree benefit plans | | 600 | | | 580 | | | 560 | | | 535 | | | 520 | | | 2,245 | |
| | | | | | | | | | | | | | | | | | |
2016 COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | | |
| | | | | | | | | | | | | |
| | | | | | | | | | Principal | | |
| Total | | Principal | | Other | | | retiree | | |
| postretirement | | pension | | pension | | benefit | | |
(In millions) | benefit plans | | plans | | plans | | plans | | |
| | | | | | | | | | | | | |
Cost of postretirement benefit plans | $ | 4,112 | | $ | 3,623 | | $ | 374 | | $ | 115 | | |
Changes in other comprehensive income | | | | | | | | | | | | | |
Prior service cost (credit) – current year | | (61) | | | - | | | (54) | | | (7) | | |
Net actuarial loss (gain) – current year | | 4,038 | | | 2,317 | | | 1,989 | | | (268) | | |
Net curtailment/gain (loss) | | (50) | | | (31) | | | (19) | | | - | | |
Prior service credit (cost) amortization | | (140) | | | (303) | | | (1) | | | 164 | | |
Net actuarial gain (loss) amortization | | (2,655) | | | (2,449) | | | (256) | | | 50 | | |
Total changes in other comprehensive income | | 1,132 | | | (466) | | | 1,659 | | | (61) | | |
Cost of postretirement benefit plans and | | | | | | | | | | | | | |
changes in other comprehensive income | $ | 5,244 | | $ | 3,157 | | $ | 2,033 | | $ | 54 | | |
| | | | | | | | | | | | | |
See Note 20 for the primary information related to our derivatives and hedging activity. This section provides certain supplemental information about this topic.
Changes in the fair value of derivatives are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income, or AOCI) and are recorded in earnings in the current period in whichor a future period when the hedged transaction occurs. recording of the exposures occur.
The table below summarizes this activity by hedging instrument.
FAIR VALUE OF DERIVATIVES | |
| | | | | | | | | | | |
| 2016 | | 2015 |
December 31 (in millions) | | Assets | | | Liabilities | | | Assets | | | Liabilities |
| | | | | | | | | | | |
Derivatives accounted for as hedges | | | | | | | | | | | |
Interest rate contracts | $ | 3,106 | | $ | 210 | | $ | 4,132 | | $ | 158 |
Currency exchange contracts | | 402 | | | 624 | | | 1,109 | | | 1,383 |
Other contracts | | - | | | - | | | - | | | - |
| | 3,508 | | | 834 | | | 5,241 | | | 1,541 |
| | | | | | | | | | | |
Derivatives not accounted for as hedges | | | | | | | | | | | |
Interest rate contracts | | 62 | | | 20 | | | 119 | | | 44 |
Currency exchange contracts | | 1,778 | | | 4,011 | | | 1,715 | | | 4,048 |
Other contracts | | 119 | | | 17 | | | 315 | | | 49 |
| | 1,958 | | | 4,048 | | | 2,149 | | | 4,141 |
| | | | | | | | | | | |
Gross derivatives recognized in statement of | | | | | | | | | | | |
financial position | | | | | | | | | | | |
Gross derivatives | | 5,467 | | | 4,883 | | | 7,391 | | | 5,681 |
Gross accrued interest | | 768 | | | (24) | | | 1,001 | | | (13) |
| | 6,234 | | | 4,859 | | | 8,392 | | | 5,668 |
| | | | | | | | | | | |
Amounts offset in statement of financial position | | | | | | | | | | | |
Netting adjustments(a) | | (3,097) | | | (3,094) | | | (4,326) | | | (4,326) |
Cash collateral(b) | | (2,025) | | | (1,355) | | | (1,784) | | | (642) |
| | (5,121) | | | (4,449) | | | (6,110) | | | (4,968) |
| | | | | | | | | | | |
Net derivatives recognized in statement of | | | | | | | | | | | |
financial position | | | | | | | | | | | |
Net derivatives | | 1,113 | | | 410 | | | 2,282 | | | 700 |
| | | | | | | | | | | |
Amounts not offset in statement of | | | | | | | | | | | |
financial position | | | | | | | | | | | |
Securities held as collateral(c) | | (442) | | | - | | | (1,277) | | | - |
| | | | | | | | | | | |
Net amount | $ | 671 | | $ | 410 | | $ | 1,005 | | $ | 700 |
| | | | | | | | | | | |
Derivatives are classifiedpresents the effect of our derivative financial instruments in the
captions "All other assets" and "All other liabilities" and the related accrued interest is classified in "Other GE Capital receivables" and "All other liabilities" in ourconsolidated Statement of
Financial Position.
Earnings (Loss):(a) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. At December 31, 2016 and December 31, 2015, the cumulative adjustment for non-performance risk was $(3) million and insignificant, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 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 (Loss) | $ | 95,214 |
| $ | 70,029 |
| $ | 4,227 |
| $ | 13,949 |
| $ | 2,222 |
| | $ | 97,012 |
| $ | 72,818 |
| $ | 4,766 |
| $ | 14,643 |
| $ | 2,321 |
|
| | | | | | | | | | | |
Total effect of cash flow hedges | $ | 5 |
| $ | (24 | ) | $ | (37 | ) | $ | (3 | ) | $ | — |
| | $ | (53 | ) | $ | (10 | ) | $ | (39 | ) | $ | — |
| $ | — |
|
| | | | | | | | | | | |
Hedged items | | | $ | (1,276 | ) | | | | | | $ | 617 |
| | |
Derivatives designated as hedging instruments | | | 1,229 |
| | | | | | (724 | ) | | |
Total effect of fair value hedges | | | $ | (48 | ) | | | | | | $ | (107 | ) | | |
| | | | | | | | | | | |
Interest rate contracts | $ | (24 | ) | $ | — |
| $ | (50 | ) | $ | — |
| $ | — |
| | $ | (72 | ) | $ | — |
| $ | (4 | ) | $ | — |
| $ | — |
|
Currency exchange contracts | 180 |
| (35 | ) | — |
| (6 | ) | (59 | ) | | (1,303 | ) | (520 | ) | — |
| — |
| (47 | ) |
Other | (2 | ) | — |
| 195 |
| — |
| 1 |
| | (1 | ) | — |
| (95 | ) | — |
| (10 | ) |
Total effect of derivatives not designated as hedges | $ | 154 |
| $ | (35 | ) | $ | 145 |
| $ | (6 | ) | $ | (58 | ) | | $ | (1,375 | ) | $ | (520 | ) | $ | (99 | ) | $ | — |
| $ | (56 | ) |
(b) Excluded excess cash collateral received and posted of $6 million and $177 million at December 31, 2016, respectively, and $48 million and $379 million at December 31, 2015, respectively.
(c) Excluded excess securities collateral received of zero and $107 million at December 31, 2016 and December 31, 2015, respectively.
CASH FLOW HEDGE ACTIVITY | | | | | | | | | | | |
| | | | | | | Gain (loss) reclassified |
| Gain (loss) recognized in AOCI | | from AOCI into earnings |
(In millions) | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | |
Interest rate contracts | $ | 6 | | $ | (1) | | $ | (79) | | $ | (130) |
Currency exchange contracts | | (281) | | | (907) | | | (282) | | | (784) |
Commodity contracts | | - | | | (5) | | | (2) | | | (4) |
Total(a) | $ | (274) | | $ | (913) | | $ | (364) | | $ | (918) |
| | | | | | | | | | | |
(a) | Gain (loss) is recorded in "GE Capital revenues from services", "Interest and other financial charges", and "Other costs and expenses" in our Statement of Earnings when reclassified. |
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was a $40 million gain at December 31, 2016. We expect to transfer $83 million loss to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both the twelve months ended 2016 and 2015, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At December 31, 2016 and 2015, the maximum term of derivative instruments that hedge forecasted transactions was 16 years and 17 years, respectively. See Note 15 for additional information about reclassifications out of AOCI.
For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness were insignificant for each reporting period.
COUNTERPARTY CREDIT RISK
RISK. Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we net our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasury securities) when our receivables due from the counterparties, measured at current market value, exceeds specified limits. The fair value of such collateral was $2,466 million at December 31, 2016, of which $2,025 million was cash and $442 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of which was $1,355 million at December 31, 2016. At December 31, 2016, our exposure Our exposures to counterparties (including accrued interest), net of collateral we hold,held, was $496 million. This excludes$368 million and $95 million at December 31, 2019 and 2018, respectively. Counterparties' exposures related to embedded derivatives.
Additionally, our master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3 or other ratings levels agreed upon with the counterparty. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability after consideration(including accrued interest), net of collateral posted by us, was $159 million and outstanding interest payments was $385$571 million at December 31, 2016. This excludes2019 and 2018, respectively.
NOTE 22. VARIABLE INTEREST ENTITIES
In addition to the 3 VIEs detailed in Note 4, we have other consolidated VIEs with assets of $2,663 million and $2,321 million, and liabilities of $1,137 million and $1,611 million at December 31 2019 and 2018, respectively. The increase in consolidated VIE assets is primarily due to the formation of the aeroderivative JV described in Note 2. 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 December 31, 2019 can only be used to settle the liabilities of those VIEs.
Our investments in unconsolidated VIEs were $1,937 million and $2,346 million, at December 31, 2019 and 2018, respectively. These investments are primarily owned by GE Capital businesses, $621 million and $1,670 million of which were owned by EFS, comprised of equity method investments, and $896 million and 0 of which were owned by our run-off insurance operations, primarily comprising investment securities, at December 31, 2019 and 2018, respectively. The increase in investments in unconsolidated VIEs in our run-off insurance operations reflects implementation of our revised reinvestment plan which incorporates the introduction of strategic initiatives to invest in higher-yielding asset classes. Our maximum exposure to loss in respect of unconsolidated VIEs is increased by our commitments to make additional investments in these entities described in Note 23.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 23. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS. The GECAS business within our Capital segment has placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $36,313 million, excluding pre-delivery payments made in advance, (including 366 new aircraft with delivery dates of 16% in 2020, 19% in 2021 and 65% in 2022 through 2026) and secondary orders with airlines for used aircraft of approximately $2,419 million (including 55 used aircraft with delivery dates of 71% in 2020, 20% in 2021 and 9% in 2022) at December 31, 2019. When we purchase aircraft, it is at a contractual price, which is usually less than the aircraft manufacturer’s list price. As of December 31, 2019, we have made $2,934 million of pre-delivery payments to aircraft manufacturers.
GE Capital had total investment commitments of $2,648 million at December 31, 2019. The commitments primarily comprise project financing investments in thermal and wind energy projects of $1,225 million and investments by our run-off insurance operations in investment securities and other assets of $1,394 million, included within these commitments are obligations to make additional investments in unconsolidated VIEs of $217 million and $996 million, respectively. See Note 22 for further information.
As of December 31, 2019, in our Aviation segment, we have committed to provide financing assistance of $2,269 million of future customer acquisitions of aircraft equipped with our engines.
GUARANTEES. At December 31, 2019, we were committed under the following guarantee arrangements:
Credit Support. At December 31, 2019, we have provided $1,565 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. The liability for such credit support was $35 million at December 31, 2019.
Indemnification Agreements – Continuing Operations. At December 31, 2019, we have $1,611 million of other indemnification commitments, including representations and warranties in sales of businesses or assets, for which we recorded a liability of $192 million.
Indemnification Agreements – Discontinued Operations. At December 31, 2019, we have provided specific indemnities to buyers of GE Capital’s assets that, in the aggregate, represent a maximum potential claim of $1,032 million with the related reserves of $142 million, which incorporates our evaluation of risk and the likelihood of making payments under the indemnities. The recognized liabilities represent the estimated fair value of the indemnities when issued as adjusted for any subsequent probable and estimable losses. Approximately 44% of these exposures are expected to be resolved within the next year, while substantially all indemnifications are expected to be resolved within the next ten years.
PRODUCT WARRANTIES. We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information, mostly historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
|
| | | | | | | | | |
(In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Balance at January 1 | $ | 2,192 |
| $ | 2,103 |
| $ | 1,743 |
|
Current-year provisions | 713 |
| 945 |
| 929 |
|
Expenditures | (715 | ) | (788 | ) | (708 | ) |
Other changes | (26 | ) | (69 | ) | 139 |
|
Balance at December 31 | $ | 2,165 |
| $ | 2,192 |
| $ | 2,103 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
LEGAL MATTERS. In the normal course of our business, we are involved from time to time in various arbitrations, class actions, commercial litigation, investigations and other legal, regulatory or governmental actions, including the significant matters described below 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.
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 embedded derivatives.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 claims that were active during 2019 were 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 were 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 subsequently 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 provided approximately $14 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 had against certain GE entities. This settlement was incorporated into and approved as part of the Chapter 11 plan that the Bankruptcy Court approved in November 2019. The Chapter 11 plan also incorporated the resolution of the claims at issue in the previously reported lawsuit that the TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, brought against WMC in the United States District Court for the District of Connecticut with respect to approximately $800 million of mortgage loans. The Chapter 11 plan became effective in December 2019, and GE Capital’s membership interests in WMC were extinguished pursuant to the plan. In total, we paid approximately $207 million to WMC in connection with the settlement of potential claims that WMC may have had against us, as discussed above. As of December 31, 2019, we had no further liabilities to WMC. As a condition to the settlement agreement described above, GE Capital provided WMC $39.5 million of exit financing that is secured by other remaining assets of WMC.
Alstom legacy legal matters. On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of 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, including the previously reported legal proceedings in Israel and Slovenia that are described below. The reserve balance was $875 million and $889 million at December 31, 2019 and 2018, 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 civil actions in 2013 seeking damages of approximately $950 million and $600 million, respectively, related to the alleged conduct underlying the decision that are pending before the Central District Court in Israel. The parties have been working to finalize a settlement, which is subject to court approval, and we anticipate a decision from the court in the first half of 2020.
In connection with alleged improper payments by Alstom relating to contracts won in 2006 and 2008 for work on a state-owned power plant in Šoštanj, Slovenia, the power plant owner in January 2017 filed an arbitration claim for damages of approximately $430 million before the International Chamber of Commerce Court of Arbitration in Vienna, Austria. In February 2017, a government investigation in Slovenia of the same underlying conduct proceeded to an investigative phase overseen by a judge of the Celje District Court.
Shareholder and related 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 2019, the lead plaintiff filed a fifth 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 shareholders who acquired GE stock between February 27, 2013 and January 23, 2018. GE filed a motion to dismiss in December 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). NaN 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.
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 shareholders 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, and in November 2019, the court dismissed the remaining claims and the plaintiffs filed a notice of appeal. In December 2019, the plaintiffs filed a second amended derivative complaint, and in January 2020, 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 shareholders 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 November 2019, the plaintiffs moved to re-argue to challenge the stay, and GE cross-moved to re-argue the denial of the motion to dismiss and filed a notice of appeal.
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.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In February 2019, 2 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 shareholders 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 6 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, in March 2019, 2 derivative lawsuits were filed in the Delaware Court of Chancery naming as defendants GE, directors of Baker Hughes (including former members of GE’s Board of Directors and current and former GE executive officers) and Baker Hughes (as nominal defendant), and the court issued an order consolidating these two actions (the Schippnick case). The complaint as amended in May 2019 alleges, among other things, that GE and the Baker Hughes directors breached their fiduciary duties and that GE was unjustly enriched by entering into transactions and agreements related to GE's sales of approximately 12% of its ownership interest in Baker Hughes in November 2018. The complaint seeks declaratory relief, disgorgement of profits, an award of damages, pre- and post-judgment interest and attorneys’ fees and costs. In May 2019, the plaintiffs voluntarily dismissed their claims against the directors who were members of the Baker Hughes Conflicts Committee and a former Baker Hughes director. In October 2019, the Court denied the remaining defendants’ motions to dismiss, except with respect to the unjust enrichment claim against GE, which has been dismissed. In November 2019, the defendants filed their answer to the complaint, and a special litigation committee of the Baker Hughes Board of Directors moved for an order staying all proceedings in this action pending completion of the committee's investigation of the allegations and claims asserted in the complaint. In December 2019, the court granted a six-month stay.
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.
These cases are at an early stage; we believe we have defenses to the claims and are responding accordingly.
SEC investigation.In late November 2017, staff of the Boston office of the U.S. Securities & Exchange Commission (SEC) notified us that they are conducting an investigation of GE’s revenue recognition practices and internal controls over financial reporting related to long-term service agreements. Following our investor update in January 2018 about the increase in future policy benefit reserves for GE Capital’s run-off insurance operations, the SEC staff expanded the scope of its investigation to encompass the reserve increase and the process leading to the reserve increase. Following our announcement in October 2018 about the expected non-cash goodwill impairment charge related to GE’s Power business, the SEC expanded the scope of its investigation to include that charge as well. We are providing documents and other information requested by the SEC staff, and we are cooperating with the ongoing investigation. Staff from the DOJ are also investigating these matters, and we are providing them with requested documents and information as well.
Other GE Retirement Savings Plan class actions.NaN putative class action lawsuits have been filed regarding the oversight of the GE RSP, and those class actions have been consolidated into a single action in the U.S. District Court for the District of Massachusetts. The consolidated complaint names as defendants GE, GE Asset Management, current and former GE and GE Asset Management executive officers and employees who served on fiduciary bodies responsible for aspects of the GE RSP during the class period. Like similar lawsuits that have been brought against other companies in recent years, this action alleges that the defendants breached their fiduciary duties under ERISA in their oversight of the GE RSP, principally by retaining 5 proprietary funds that plaintiffs allege were underperforming as investment options for plan participants and by charging higher management fees than some alternative funds. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from September 26, 2011 through the date of any judgment. In August and December 2018, the court issued orders dismissing 1 count of the complaint and denying GE's motion to dismiss the remaining counts. We believe we have defenses to the claims and are responding accordingly.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 $2.5 billion at December 31, 2019. 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 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 and nuclear decommissioning regulations. Additionally, like many other industrial companies, we and our subsidiaries are defendants in various lawsuits related to alleged worker exposure to asbestos or other hazardous materials. Liabilities for environmental remediation, nuclear decommissioning and worker exposure claims exclude possible insurance 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 sites and lawsuits, such amounts are not reasonably estimable. Total reserves related to environmental remediation, nuclear decommissioning and worker exposure claims were $2,484 million and $2,172 million at December 31, 2019 and 2018, respectively.
As previously reported, in 2000, GE and the Environmental Protection Agency (EPA) entered into a consent decree relating to PCB cleanup of the Housatonic River in Massachusetts. Following EPA’s release in September 2015 of an intended final remediation decision, GE and EPA engaged in mediation and the first step of the dispute resolution process contemplated by the consent decree. In October 2016, the EPA issued its final decision pursuant to the consent decree, which GE and several other interested parties appealed to EPA’s Environmental Appeals Board (EAB). The EAB issued its decision in January 2018, affirming parts of EPA’s decision and granting relief to GE on certain significant elements of its challenge. The EAB remanded the decision back to EPA to address those elements and reissue a revised final remedy, and EPA convened a mediation process with GE and interested stakeholders. In February 2020, EPA announced an agreement between EPA and many of the mediation stakeholders, including GE, concerning a revised Housatonic River remedy. EPA will next propose this remedy for public comment and then finalize a revised remedy. As of December 31, 2019, and based on its assessment of current facts and circumstances and its defenses, GE believes that it has recorded adequate reserves to cover future obligations associated with the proposed final remedy.
Expenditures for site remediation, nuclear decommissioning and worker exposure claims amounted to approximately $236 million, $214 million, and $227 million for the years ended December 31, 2019, 2018, and 2017, respectively. We presently expect that such expenditures will be approximately $350 million and $250 million in 2020 and 2021, respectively.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 24. 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 captions 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 caption are net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions.
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| | | | | | | | | |
GE For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
|
|
|
|
|
Increase (decrease) in employee benefit liabilities(a) | $ | 227 |
| $ | 587 |
| $ | (68 | ) |
Other gains on investing activities | (723 | ) | (378 | ) | (138 | ) |
Restructuring and other charges(b) | 1,144 |
| 2,244 |
| 2,781 |
|
Restructuring and other cash expenditures | (1,157 | ) | (1,474 | ) | (1,484 | ) |
Increase (decrease) in equipment project accruals | (314 | ) | (939 | ) | (212 | ) |
Baker Hughes Class B dividends received | 282 |
| 494 |
| 251 |
|
Other(c) | 613 |
| 142 |
| 374 |
|
All other operating activities | $ | 72 |
| $ | 676 |
| $ | 1,504 |
|
| | | |
Derivative settlements (net) | $ | (14 | ) | $ | (947 | ) | $ | (1,016 | ) |
Investments in intangible assets (net) | (30 | ) | (496 | ) | (321 | ) |
Other investments (net)(d) | 791 |
| 726 |
| (1,404 | ) |
Sales of retained ownership interests in Wabtec | 3,383 |
| — |
| — |
|
Other(e) | (455 | ) | 77 |
| (6,698 | ) |
All other investing activities | $ | 3,675 |
| $ | (640 | ) | $ | (9,439 | ) |
| | | |
Disposition of Baker Hughes noncontrolling interests | $ | — |
| $ | 4,373 |
| $ | 308 |
|
Acquisition of noncontrolling interests(f) | (28 | ) | (3,345 | ) | (135 | ) |
Other(g) | (284 | ) | 79 |
| 117 |
|
All other financing activities | $ | (312 | ) | $ | 1,107 |
| $ | 290 |
|
| | | |
Open market purchases under share repurchase program | $ | (10 | ) | $ | (245 | ) | $ | (3,506 | ) |
Other purchases | (47 | ) | (23 | ) | (67 | ) |
Dispositions | 84 |
| 250 |
| 1,021 |
|
Net dispositions (purchases) of GE shares for treasury | $ | 29 |
| $ | (17 | ) | $ | (2,550 | ) |
| |
(a) | Included non-cash adjustments for stock-based compensation expenses. |
| |
(b) | Excluded 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. |
| |
(c) | 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. |
| |
(d) | Included the provision of a promissory note to Baker Hughes in 2017 and subsequent principal collections in 2018 and 2019. See Note 2. |
| |
(e) | Included net activity related to settlements between our continuing operations and discontinued operations. In 2017, this was primarily driven by funding in order to complete the Baker Hughes acquisition. |
| |
(f) | Primarily included the acquisition of Alstom's interest in the grid technology, renewable energy, and global nuclear and French steam power joint ventures for $(3,105) million in the fourth quarter of 2018. See Note 16. |
| |
(g) | Primarily included debt tender expenditures of $(255) million incurred to purchase GE long-term debt in 2019. |
GE 20162019 FORM 10-K 220 110
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | |
GE CAPITAL For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
|
|
|
|
|
Cash collateral and settlements received (paid) on derivative contracts | $ | 1,263 |
| $ | (708 | ) | $ | 836 |
|
Increase (decrease) in other liabilities | (1,470 | ) | 240 |
| (798 | ) |
Other(a) | 811 |
| 627 |
| 11,076 |
|
All other operating activities | $ | 605 |
| $ | 158 |
| $ | 11,114 |
|
|
|
|
|
Increase in loans to customers | $ | (15,022 | ) | $ | (30,207 | ) | $ | (45,251 | ) |
Principal collections from customers - loans | 18,083 |
| 37,237 |
| 47,471 |
|
Investment in equipment for financing leases | (18 | ) | (306 | ) | (585 | ) |
Principal collections from customers - financing leases(b) | — |
| 802 |
| 1,011 |
|
Sales of financing receivables | 345 |
| 2,458 |
| 251 |
|
Net decrease (increase) in GE Capital financing receivables | $ | 3,389 |
| $ | 9,986 |
| $ | 2,897 |
|
|
|
|
|
Purchases of investment securities | $ | (6,205 | ) | $ | (5,775 | ) | $ | (2,867 | ) |
Dispositions and maturities of investment securities | 4,589 |
| 8,309 |
| 10,001 |
|
Decrease (increase) in other assets - investments | 1,347 |
| (4,516 | ) | (8,497 | ) |
Other(c) | 2,886 |
| 2,464 |
| 4,375 |
|
All other investing activities | $ | 2,617 |
| $ | 482 |
| $ | 3,013 |
|
|
|
|
|
Short-term (91 to 365 days) | $ | (10,515 | ) | $ | (14,251 | ) | $ | (18,591 | ) |
Long-term (longer than one year) | (991 | ) | (5,460 | ) | (2,054 | ) |
Principal payments - non-recourse, leveraged leases | (126 | ) | (125 | ) | (362 | ) |
Repayments and other reductions (maturities longer than 90 days) | $ | (11,632 | ) | $ | (19,836 | ) | $ | (21,007 | ) |
|
|
|
|
Redemption of investment contracts | $ | (279 | ) | $ | (268 | ) | $ | (344 | ) |
Settlements paid on derivative contracts | (864 | ) | (2,235 | ) | (212 | ) |
Other | 324 |
| 95 |
| 276 |
|
All other financing activities | $ | (819 | ) | $ | (2,408 | ) | $ | (280 | ) |
| |
(a) | Primarily included non-cash adjustments for insurance-related charges recorded in 2019 and 2017. |
| |
(b) | In 2019, per ASU No. 2016-02, Leases, principal collections from customers on financing leases is classified as cash from operating activities. |
| |
(c) | Primarily included cash related to our current receivables and supply chain finance programs and net activity related to settlements between our continuing operations (primarily our treasury operations) and businesses in discontinued operations. |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 25. INTERCOMPANY TRANSACTIONS
Transactions between related companies 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.
|
| | | | | | | | | |
(In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Combined GE and GE Capital cash from (used for) operating activities - continuing operations | $ | 6,495 |
| $ | 2,282 |
| $ | 13,853 |
|
GE current receivables sold to GE Capital | 1,081 |
| 5 |
| (4,435 | ) |
GE long-term receivables sold to GE Capital | 468 |
| 1,079 |
| (250 | ) |
Supply chain finance programs(a) | 2,289 |
| (18 | ) | 302 |
|
GE Capital common dividends to GE | — |
| — |
| (4,016 | ) |
Other reclassifications and eliminations | 86 |
| (138 | ) | 387 |
|
Consolidated cash from (used for) operating activities-continuing operations | $ | 10,419 |
| $ | 3,210 |
| $ | 5,840 |
|
| | | |
Combined GE and GE Capital cash from (used for) investing activities - continuing operations | $ | 13,509 |
| $ | 14,915 |
| $ | (3,473 | ) |
GE current receivables sold to GE Capital | (1,677 | ) | (839 | ) | 4,561 |
|
GE long-term receivables sold to GE Capital | (468 | ) | (1,079 | ) | 250 |
|
Supply chain finance programs(a) | (2,289 | ) | 18 |
| (302 | ) |
GE Capital loans to GE | — |
| 6,479 |
| 7,271 |
|
Repayment of GE Capital loans by GE | (1,523 | ) | — |
| (1,329 | ) |
Capital contribution from GE to GE Capital | 4,000 |
| — |
| — |
|
Other reclassifications and eliminations | (868 | ) | (570 | ) | (251 | ) |
Consolidated cash from (used for) investing activities-continuing operations | $ | 10,684 |
| $ | 18,925 |
| $ | 6,728 |
|
| | | |
Combined GE and GE Capital cash from (used for) financing activities - continuing operations | $ | (14,665 | ) | $ | (22,408 | ) | $ | (21,738 | ) |
GE current receivables sold to GE Capital | 596 |
| 835 |
| (127 | ) |
GE Capital common dividends to GE | — |
| — |
| 4,016 |
|
GE Capital loans to GE | — |
| (6,479 | ) | (7,271 | ) |
Repayment of GE Capital loans by GE | 1,523 |
| — |
| 1,329 |
|
Capital contribution from GE to GE Capital | (4,000 | ) | — |
| — |
|
Other reclassifications and eliminations | 782 |
| 706 |
| (136 | ) |
Consolidated cash from (used for) financing activities-continuing operations | $ | (15,764 | ) | $ | (27,345 | ) | $ | (23,927 | ) |
| |
(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 $303 million, $5,192 million and $4,411 million related to cash payments received on the Receivable facility deferred purchase price in the years ended December 31, 2019, 2018 and 2017, respectively, which are reflected as Cash from investing activities in the GE Capital and Consolidated columns of our consolidated Statement of Cash Flows. Sales of current and long-term receivables from GE to GE Capital are classified as Cash from operating activities in the GE column of our Statement of Cash Flows. See Note 4 for further information.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 26. OPERATING SEGMENTS
BASIS FOR PRESENTATION.Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described and referenced in Note 1. Segment results for our financial services businesses reflect the discrete tax effect of transactions.
A description of our operating segments as of December 31, 2019, can be found in the Summary of Operating Segments section within MD&A. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31 |
| Total revenues(a) | | Intersegment revenues(b) | | External revenues |
REVENUES (In millions) | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | | | | | |
Power | $ | 18,625 |
| $ | 22,150 |
| $ | 29,426 |
| | $ | 357 |
| $ | 152 |
| $ | 326 |
| | $ | 18,267 |
| $ | 21,997 |
| $ | 29,100 |
|
Renewable Energy | 15,337 |
| 14,288 |
| 14,321 |
| | 139 |
| 186 |
| 242 |
| | 15,198 |
| 14,102 |
| 14,080 |
|
Aviation | 32,875 |
| 30,566 |
| 27,013 |
| | 758 |
| 375 |
| 459 |
| | 32,117 |
| 30,191 |
| 26,554 |
|
Healthcare | 19,942 |
| 19,784 |
| 19,017 |
| | — |
| — |
| — |
| | 19,942 |
| 19,784 |
| 19,017 |
|
Total industrial segment revenues | 86,778 |
| 86,789 |
| 89,776 |
| | 1,254 |
| 714 |
| 1,027 |
| | 85,524 |
| 86,075 |
| 88,749 |
|
Capital | 8,741 |
| 9,551 |
| 9,070 |
| | 971 |
| 1,384 |
| 1,558 |
| | 7,770 |
| 8,167 |
| 7,512 |
|
Corporate items and eliminations | (305 | ) | 673 |
| 433 |
| | (2,225 | ) | (2,097 | ) | (2,585 | ) | | 1,920 |
| 2,770 |
| 3,018 |
|
Total | $ | 95,214 |
| $ | 97,012 |
| $ | 99,279 |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 95,214 |
| $ | 97,012 |
| $ | 99,279 |
|
| |
(a) | Revenues of GE businesses include income from sales of goods and services to customers. |
| |
(b) | Sales from one component to another generally are priced at equivalent commercial selling prices. |
The equipment and services revenues classification in the table below is consistent with our segment MD&A presentation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31 |
| 2019 | | 2018 | | 2017 |
(In millions) | Equipment | Services | Total | | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | | | | | |
Power | $ | 6,247 |
| $ | 12,378 |
| $ | 18,625 |
| | $ | 8,077 |
| $ | 14,073 |
| $ | 22,150 |
| | $ | 12,909 |
| $ | 16,517 |
| $ | 29,426 |
|
| | | | | | | | | | | |
Renewable Energy | 12,267 |
| 3,069 |
| 15,337 |
| | 11,419 |
| 2,870 |
| 14,288 |
| | 13,969 |
| 352 |
| 14,321 |
|
| | | | | | | | | | | |
Aviation | 12,804 |
| 20,071 |
| 32,875 |
| | 11,499 |
| 19,067 |
| 30,566 |
| | 10,215 |
| 16,797 |
| 27,013 |
|
| | | | | | | | | | | |
Healthcare | 11,585 |
| 8,357 |
| 19,942 |
| | 11,422 |
| 8,363 |
| 19,784 |
| | 10,771 |
| 8,246 |
| 19,017 |
|
| | | | | | | | | | | |
Total industrial segment revenues | $ | 42,904 |
| $ | 43,875 |
| $ | 86,778 |
| | $ | 42,416 |
| $ | 44,372 |
| $ | 86,789 |
| | $ | 47,864 |
| $ | 41,913 |
| $ | 89,776 |
|
|
| | | | | | | | | | | |
SEGMENT REVENUES | Years ended December 31 |
(In millions) | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | |
Gas Power | $ | 13,122 |
|
| $ | 13,296 |
|
| $17,100 |
Power Portfolio | 5,503 |
|
| 8,853 |
|
| 12,326 |
|
Power | $ | 18,625 |
| | $ | 22,150 |
| | $ | 29,426 |
|
| | | | | |
Onshore Wind | $ | 10,421 |
| | $ | 8,220 |
| | $ | 8,055 |
|
Grid Solutions equipment and services | 4,062 |
| | 4,772 |
| | 5,117 |
|
Other | 855 |
| | 1,296 |
| | 1,149 |
|
Renewable Energy | $ | 15,337 |
| | $ | 14,288 |
| | $ | 14,321 |
|
| | | | | |
Commercial | $ | 24,217 |
| | $ | 22,724 |
| | $ | 19,709 |
|
Military | 4,389 |
| | 4,103 |
| | 3,991 |
|
Systems & Other | 4,269 |
| | 3,740 |
| | 3,314 |
|
Aviation | $ | 32,875 |
| | $ | 30,566 |
| | $ | 27,013 |
|
| | | | | |
Healthcare Systems | $ | 14,648 |
| | $ | 14,886 |
| | $ | 14,460 |
|
Life Sciences | 5,294 |
| | 4,898 |
| | 4,557 |
|
Healthcare | $ | 19,942 |
| | $ | 19,784 |
| | $ | 19,017 |
|
| | | | | |
Total industrial segment revenues | $ | 86,778 |
| | $ | 86,789 |
| | $ | 89,776 |
|
Capital(a) | 8,741 |
| | 9,551 |
| | 9,070 |
|
Corporate items and eliminations | (305 | ) | | 673 |
| | 433 |
|
Consolidated revenues | $ | 95,214 |
| | $ | 97,012 |
| | $ | 99,279 |
|
(a) Substantially all of our revenues at GE Capital are outside of the scope of ASC 606.
Revenues from customers located in the United States were $39,372 million, $39,876 million and $41,468 million for the years ended December 31, 2019, 2018 and 2017, respectively. Revenues from customers located outside the United States were $55,843 million, $57,136 million and $57,811 million for the years ended December 31, 2019, 2018 and 2017, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
REMAINING PERFORMANCE OBLIGATION. As of December 31, 2019, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $245,434 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows: 1) equipment-related remaining performance obligation of $48,487 million of which 58%, 76% and 88% is expected to be recognized within 1, 2 and 5 years, respectively, and the remaining thereafter; and 2) services-related remaining performance obligations of $196,947 million of which 14%, 46%, 72% and 83% 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.
Total sales of goods and services to agencies of the U.S. Government were 5%, 5% and 4% of GE revenues for the years ended December 31, 2019, 2018 and 2017, respectively. Within our Aviation segment, defense-related sales were 5%, 4% and 4% of GE revenues for the years ended December 31, 2019, 2018 and 2017, respectively.
|
| | | | | | | | | |
PROFIT AND EARNINGS For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
|
| | | |
Power | $ | 386 |
| $ | (808 | ) | $ | 1,894 |
|
Renewable Energy | (666 | ) | 292 |
| 728 |
|
Aviation | 6,820 |
| 6,466 |
| 5,370 |
|
Healthcare | 3,896 |
| 3,698 |
| 3,488 |
|
Total industrial segment profit | 10,436 |
| 9,647 |
| 11,479 |
|
Capital | (530 | ) | (489 | ) | (6,765 | ) |
Total segment profit | 9,906 |
| 9,158 |
| 4,714 |
|
Corporate items and eliminations | (2,212 | ) | (2,837 | ) | (3,798 | ) |
GE goodwill impairments | (1,486 | ) | (22,136 | ) | (1,165 | ) |
GE interest and other financial charges | (2,115 | ) | (2,415 | ) | (2,538 | ) |
GE non-operating benefit costs | (2,828 | ) | (2,740 | ) | (2,409 | ) |
GE provision for income taxes | (1,309 | ) | (467 | ) | (3,493 | ) |
Earnings (loss) from continuing operations attributable to GE common shareholders | (44 | ) | (21,438 | ) | (8,689 | ) |
Earnings (loss) from discontinued operations, net of taxes | (5,335 | ) | (1,363 | ) | (312 | ) |
Less net earnings (loss) attributable to noncontrolling interests, discontinued operations | 60 |
| 1 |
| (81 | ) |
Earnings (loss) from discontinued operations, net of taxes and noncontrolling interests | (5,395 | ) | (1,364 | ) | (231 | ) |
Consolidated net earnings (loss) attributable to GE common shareholders | $ | (5,439 | ) | $ | (22,802 | ) | $ | (8,920 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| Interest and other financial charges | | Benefit (provision) for income taxes |
For the years ended December 31 (In millions) | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | |
Capital | $ | 2,532 |
| $ | 2,982 |
| $ | 3,145 |
| | $ | 582 |
| $ | 374 |
| $ | 6,302 |
|
Corporate items and eliminations(a) | 1,695 |
| 1,784 |
| 1,510 |
| | (1,309 | ) | (467 | ) | (3,493 | ) |
Total | $ | 4,227 |
| $ | 4,766 |
| $ | 4,655 |
| | $ | (726 | ) | $ | (93 | ) | $ | 2,808 |
|
| |
(a) | Included amounts for Power, Renewable Energy, Aviation and Healthcare, for which our measure of segment profit excludes interest and other financial charges and income taxes. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | Property, plant and equipment additions(a) | | Depreciation and amortization(b) |
| At December 31 | | For the years ended December 31 | | For the years ended December 31 |
(In millions) | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| | | | | | | | | | | |
Power | $ | 26,731 |
| $ | 27,389 |
| $ | 55,827 |
| | $ | 277 |
| $ | 358 |
| $ | 1,018 |
| | $ | 880 |
| $ | 1,307 |
| $ | 1,228 |
|
Renewable Energy | 15,935 |
| 16,400 |
| 18,466 |
| | 455 |
| 303 |
| 677 |
| | 425 |
| 474 |
| 382 |
|
Aviation | 41,647 |
| 38,021 |
| 37,473 |
| | 1,031 |
| 1,070 |
| 1,426 |
| | 1,150 |
| 1,042 |
| 979 |
|
Healthcare | 30,514 |
| 28,048 |
| 28,408 |
| | 395 |
| 378 |
| 393 |
| | 702 |
| 832 |
| 806 |
|
Capital(c) | 117,546 |
| 119,329 |
| 150,805 |
| | 3,830 |
| 4,569 |
| 3,680 |
| | 2,083 |
| 2,163 |
| 2,342 |
|
Corporate items and eliminations(d) | 29,565 |
| 18,032 |
| 10,758 |
| | (175 | ) | (46 | ) | (64 | ) | | 355 |
| 763 |
| 456 |
|
Total continuing | $ | 261,939 |
| $ | 247,219 |
| $ | 301,737 |
| | $ | 5,813 |
| $ | 6,632 |
| $ | 7,130 |
| | $ | 5,595 |
| $ | 6,582 |
| $ | 6,193 |
|
| |
(a) | Additions to property, plant and equipment include amounts relating to principal businesses purchased. |
| |
(b) | Included amortization expense related to intangible assets. |
| |
(c) | Included Capital deferred income taxes that are presented as assets for purposes of our balance sheet presentation. |
| |
(d) | Included GE deferred income taxes that are presented as assets for purposes of our balance sheet presentation. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Total assets of Power, Renewable Energy, Aviation, Healthcare, Capital and Corporate at December 31, 2019, include investments in and advances to associated companies of $565 million, $630 million, $2,073 million, $245 million, $2,159 million and $45 million, respectively. Investments in and advances to associated companies contributed approximately $(4) million, $(2) million, $204 million, $19 million, $324 million and $(11) million to pre-tax income for the year ended December 31, 2019 of Power, Renewable Energy, Aviation, Healthcare, Capital and Corporate, respectively.
We classify certain assets that cannot meaningfully be associated with specific geographic areas as “Other Global” for this purpose.
|
| | | | | | |
December 31 (In millions) | 2019 |
| 2018 |
|
| | |
U.S. | $ | 144,405 |
| $ | 126,566 |
|
Non-U.S. | | |
Europe | 70,565 |
| 70,007 |
|
Asia | 22,089 |
| 22,355 |
|
Americas | 13,435 |
| 12,871 |
|
Other Global | 11,445 |
| 15,420 |
|
Total Non-U.S. | $ | 117,534 |
| $ | 120,653 |
|
Total assets (Continuing Operations) | $ | 261,939 |
| $ | 247,219 |
|
The increase in total continuing assets from December 31, 2018 to December 31, 2019 is primarily due to the deconsolidation of our Baker Hughes segment and classification of our retained interest in Baker Hughes within investment securities, as well as lower sales of receivables and the effect of adopting new leasing standards.
Property, plant and equipment – net associated with operations based in the United States were $11,992 million, $11,868 million and $12,393 million at December 31, 2019, 2018 and 2017, respectively. Property, plant and equipment – net associated with operations based outside the United States were $31,298 million, $31,743 million and $33,576 million at December 31, 2019, 2018 and 2017, respectively.
NOTE 30.27. GUARANTOR FINANCIAL INFORMATION
GE Capital International Funding Company Unlimited Company (the Issuer) previously issued senior unsecured registered notes that are fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (each a Guarantor, and together, the Guarantors). The Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities, specifically Condensed Consolidating Statements of Earnings and Comprehensive Income, Condensed Consolidating Statements of Financial Position and Condensed Consolidating Statements of Cash Flows for:
| |
• | General Electric Company (the Parent Company Guarantor) – prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations; |
| |
• | GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary that issued the guaranteed notes for debt; |
| |
• | GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor) – prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting; |
| |
• | Non-Guarantor Subsidiaries – prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows; |
| |
• | Consolidating Adjustments – adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries and in the comparative periods, this category includes the impact of new accounting policies adopted as described in Note 1; and |
| |
• | Consolidated – prepared on a consolidated basis. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEAR ENDED DECEMBER 31, 2019 |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 28,078 |
| $ | — |
| $ | — |
| $ | 154,927 |
| $ | (95,518 | ) | $ | 87,487 |
|
GE Capital revenues from services | — |
| 964 |
| 64 |
| 9,949 |
| (3,250 | ) | 7,728 |
|
Total revenues | 28,078 |
| 964 |
| 64 |
| 164,876 |
| (98,768 | ) | 95,214 |
|
| | | | | | |
Interest and other financial charges | 1,612 |
| 980 |
| 1,405 |
| 1,975 |
| (1,745 | ) | 4,227 |
|
Other costs and expenses | 32,563 |
| 1 |
| — |
| 166,371 |
| (106,876 | ) | 92,059 |
|
Total costs and expenses | 34,175 |
| 981 |
| 1,406 |
| 168,346 |
| (108,622 | ) | 96,287 |
|
Other income | (3,853 | ) | — |
| — |
| 30,453 |
| (24,378 | ) | 2,222 |
|
Equity in earnings (loss) of affiliates | 5,923 |
| — |
| 1,290 |
| 75,445 |
| (82,658 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (4,028 | ) | (17 | ) | (52 | ) | 102,427 |
| (97,182 | ) | 1,149 |
|
Benefit (provision) for income taxes | (1,143 | ) | 1 |
| — |
| (228 | ) | 643 |
| (726 | ) |
Earnings (loss) from continuing operations | (5,170 | ) | (16 | ) | (52 | ) | 102,200 |
| (96,539 | ) | 423 |
|
Earnings (loss) from discontinued operations, net of taxes | 192 |
| — |
| 59 |
| — |
| (5,585 | ) | (5,335 | ) |
Net earnings (loss) | (4,979 | ) | (16 | ) | 7 |
| 102,200 |
| (102,124 | ) | (4,912 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| 7 |
| 59 |
| 66 |
|
Net earnings (loss) attributable to the Company | (4,979 | ) | (16 | ) | 7 |
| 102,192 |
| (102,184 | ) | (4,979 | ) |
Other comprehensive income | 2,681 |
| — |
| (1,022 | ) | 2,280 |
| (1,258 | ) | 2,681 |
|
Comprehensive income (loss) attributable to the Company | $ | (2,297 | ) | $ | (16 | ) | $ | (1,015 | ) | $ | 104,472 |
| $ | (103,441 | ) | $ | (2,297 | ) |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEAR ENDED DECEMBER 31, 2018 |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 34,972 |
| $ | — |
| $ | — |
| $ | 164,691 |
| $ | (110,723 | ) | $ | 88,940 |
|
GE Capital revenues from services | — |
| 917 |
| 1,038 |
| 9,531 |
| (3,414 | ) | 8,072 |
|
Total revenues | 34,972 |
| 917 |
| 1,038 |
| 174,222 |
| (114,136 | ) | 97,012 |
|
| | | | | | |
Interest and other financial charges | 1,728 |
| 911 |
| 2,560 |
| 2,459 |
| (2,893 | ) | 4,766 |
|
Other costs and expenses | 47,471 |
| — |
| 1 |
| 186,262 |
| (118,180 | ) | 115,554 |
|
Total costs and expenses | 49,199 |
| 911 |
| 2,561 |
| 188,721 |
| (121,073 | ) | 120,320 |
|
Other income | 3,910 |
| — |
| — |
| 29,268 |
| (30,857 | ) | 2,321 |
|
Equity in earnings (loss) of affiliates | (11,404 | ) | — |
| 1,554 |
| 240,036 |
| (230,186 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (21,721 | ) | 6 |
| 31 |
| 254,803 |
| (254,106 | ) | (20,987 | ) |
Benefit (provision) for income taxes | 1,092 |
| 5 |
| — |
| (2,381 | ) | 1,191 |
| (93 | ) |
Earnings (loss) from continuing operations | (20,629 | ) | 11 |
| 31 |
| 252,422 |
| (252,915 | ) | (21,080 | ) |
Earnings (loss) from discontinued operations, net of taxes | (1,726 | ) | — |
| (39 | ) | — |
| 401 |
| (1,363 | ) |
Net earnings (loss) | (22,355 | ) | 11 |
| (8 | ) | 252,422 |
| (252,514 | ) | (22,443 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (204 | ) | 116 |
| (89 | ) |
Net earnings (loss) attributable to the Company | (22,355 | ) | 11 |
| (8 | ) | 252,627 |
| (252,629 | ) | (22,355 | ) |
Other comprehensive income | (10 | ) | — |
| (82 | ) | (2,840 | ) | 2,922 |
| (10 | ) |
Comprehensive income (loss) attributable to the Company | $ | (22,364 | ) | $ | 11 |
| $ | (90 | ) | $ | 249,786 |
| $ | (249,707 | ) | $ | (22,364 | ) |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
FOR THE YEAR ENDED DECEMBER 31, 2017 |
|
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Sales of goods and services | $ | 35,551 |
| $ | — |
| $ | — |
| $ | 161,172 |
| $ | (104,782 | ) | $ | 91,942 |
|
GE Capital revenues from services | — |
| 703 |
| 800 |
| 9,888 |
| (4,053 | ) | 7,337 |
|
Total revenues | 35,551 |
| 703 |
| 800 |
| 171,060 |
| (108,835 | ) | 99,279 |
|
| | | | | | |
Interest and other financial charges | 1,644 |
| 652 |
| 2,006 |
| 3,343 |
| (2,990 | ) | 4,655 |
|
Other costs and expenses | 38,765 |
| — |
| 18 |
| 177,223 |
| (107,954 | ) | 108,052 |
|
Total costs and expenses | 40,409 |
| 653 |
| 2,023 |
| 180,566 |
| (110,943 | ) | 112,707 |
|
Other income | (959 | ) | — |
| — |
| 75,291 |
| (72,249 | ) | 2,083 |
|
Equity in earnings (loss) of affiliates | 553 |
| — |
| 1,938 |
| 109,521 |
| (112,012 | ) | — |
|
Earnings (loss) from continuing operations before income taxes | (5,263 | ) | 50 |
| 714 |
| 175,307 |
| (182,152 | ) | (11,345 | ) |
Benefit (provision) for income taxes | (2,896 | ) | (5 | ) | 115 |
| 5,877 |
| (282 | ) | 2,808 |
|
Earnings (loss) from continuing operations | (8,159 | ) | 45 |
| 829 |
| 181,184 |
| (182,435 | ) | (8,536 | ) |
Earnings (loss) from discontinued operations, net of taxes | (325 | ) | — |
| 41 |
| 4 |
| (32 | ) | (312 | ) |
Net earnings (loss) | (8,484 | ) | 45 |
| 870 |
| 181,187 |
| (182,467 | ) | (8,849 | ) |
Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (137 | ) | (228 | ) | (365 | ) |
Net earnings (loss) attributable to the Company | (8,484 | ) | 45 |
| 870 |
| 181,324 |
| (182,239 | ) | (8,484 | ) |
Other comprehensive income | 4,184 |
| — |
| 567 |
| (7,552 | ) | 6,985 |
| 4,184 |
|
Comprehensive income (loss) attributable to the Company | $ | (4,300 | ) | $ | 45 |
| $ | 1,436 |
| $ | 173,773 |
| $ | (175,254 | ) | $ | (4,300 | ) |
|
| | | | | | | | | | | | | | | | | | |
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 |
| $ | — |
| $ | 2,981 |
| $ | 9,712 |
| $ | (125,792 | ) | $ | 22,072 |
|
Long-term and non-recourse borrowings | 40,660 |
| 16,771 |
| 24,417 |
| 34,262 |
| (47,301 | ) | 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 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
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 | 30,466 |
| 17,467 |
| 2,792 |
| 69,268 |
| (90,504 | ) | 29,488 |
|
Investment in subsidiaries | 176,239 |
| — |
| 45,832 |
| 733,535 |
| (955,605 | ) | — |
|
All other assets | 29,615 |
| 12 |
| — |
| 359,063 |
| (138,230 | ) | 250,460 |
|
Total assets | $ | 245,881 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,187,841 |
| $ | (1,188,751 | ) | $ | 311,072 |
|
| | | | | | |
Short-term borrowings | $ | 150,426 |
| $ | — |
| $ | 9,854 |
| $ | 9,649 |
| $ | (157,153 | ) | $ | 12,776 |
|
Long-term and non-recourse borrowings | 59,800 |
| 16,115 |
| 24,341 |
| 41,066 |
| (50,498 | ) | 90,824 |
|
All other liabilities | 43,872 |
| 336 |
| 245 |
| 153,160 |
| (41,622 | ) | 155,992 |
|
Total liabilities | 254,098 |
| 16,452 |
| 34,439 |
| 203,875 |
| (249,273 | ) | 259,591 |
|
| | | | | | |
Total liabilities and equity | $ | 245,881 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,187,841 |
| $ | (1,188,751 | ) | $ | 311,072 |
|
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2019 |
| | | | | | |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | 5,526 |
| $ | 137 |
| $ | (1,685 | ) | $ | 33,515 |
| $ | (28,721 | ) | $ | 8,772 |
|
| | | | | | |
Cash from (used for) investing activities | 32,210 |
| (137 | ) | 6,223 |
| 400,190 |
| (429,548 | ) | 8,939 |
|
| | | | | | |
Cash from (used for) financing activities | (36,706 | ) | — |
| (4,538 | ) | (436,933 | ) | 462,045 |
| (16,133 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (50 | ) | — |
| (50 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | 1,030 |
| — |
| — |
| (3,277 | ) | 3,776 |
| 1,529 |
|
Cash, cash equivalents and restricted cash at beginning of year | 9,561 |
| — |
| — |
| 30,399 |
| (4,412 | ) | 35,548 |
|
Cash, cash equivalents and restricted cash at end of year | 10,591 |
| — |
| — |
| 27,121 |
| (636 | ) | 37,077 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at end of year | — |
| — |
| — |
| 638 |
| — |
| 638 |
|
Cash, cash equivalents and restricted cash of continuing operations at end of year | $ | 10,591 |
| $ | — |
| $ | — |
| $ | 26,484 |
| $ | (636 | ) | $ | 36,439 |
|
| |
(a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $(1,282) million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2018 |
| | | | | | |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | 42,950 |
| $ | (387 | ) | $ | 34,361 |
| $ | 328,029 |
| $ | (399,976 | ) | $ | 4,978 |
|
| | | | | | |
Cash from (used for) investing activities | 1,292 |
| 457 |
| 27,415 |
| (297,621 | ) | 286,736 |
| 18,280 |
|
| | | | | | |
Cash from (used for) financing activities | (38,154 | ) | (70 | ) | (61,779 | ) | (48,782 | ) | 116,979 |
| (31,807 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (628 | ) | — |
| (628 | ) |
Increase (decrease) in cash, cash equivalents and restricted cash | 6,089 |
| — |
| (3 | ) | (19,002 | ) | 3,739 |
| (9,176 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 3,472 |
| — |
| 3 |
| 49,400 |
| (8,151 | ) | 44,724 |
|
Cash, cash equivalents and restricted cash at end of year | 9,561 |
| — |
| — |
| 30,399 |
| (4,412 | ) | 35,548 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at end of year | — |
| — |
| — |
| 4,424 |
| — |
| 4,424 |
|
Cash, cash equivalents and restricted cash of continuing operations at end of year | $ | 9,561 |
| $ | — |
| $ | — |
| $ | 25,975 |
| $ | (4,412 | ) | $ | 31,124 |
|
| |
(a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $1,991 million. |
|
| | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE YEAR ENDED DECEMBER 31, 2017 |
| | | | | | |
(In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | |
Cash from (used for) operating activities(a) | $ | (29,441 | ) | $ | 52 |
| $ | 4,305 |
| $ | 149,385 |
| $ | (117,747 | ) | $ | 6,554 |
|
| | | | | | |
Cash from (used for) investing activities | (4,432 | ) | (52 | ) | (1,871 | ) | (222,298 | ) | 234,032 |
| 5,379 |
|
| | | | | | |
Cash from (used for) financing activities | 34,616 |
| — |
| (2,473 | ) | 70,782 |
| (121,410 | ) | (18,484 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| 891 |
| — |
| 891 |
|
Increase (decrease) in cash, cash equivalents and restricted cash | 743 |
| — |
| (39 | ) | (1,239 | ) | (5,125 | ) | (5,659 | ) |
Cash, cash equivalents and restricted cash at beginning of year | 2,729 |
| — |
| 41 |
| 50,640 |
| (3,026 | ) | 50,384 |
|
Cash, cash equivalents and restricted cash at end of year | 3,472 |
| — |
| 3 |
| 49,400 |
| (8,151 | ) | 44,724 |
|
Less cash, cash equivalents and restricted cash of discontinued operations at end of year | — |
| — |
| — |
| 7,901 |
| — |
| 7,901 |
|
Cash, cash equivalents and restricted cash of continuing operations at end of year | $ | 3,472 |
| $ | — |
| $ | 3 |
| $ | 41,499 |
| $ | (8,151 | ) | $ | 36,823 |
|
| |
(a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $239 million. |
NOTE 28. BAKER HUGHES SUMMARIZED FINANCIAL INFORMATION
In September 2019, we deconsolidated our Baker Hughes segment and elected to account for our remaining interest in Baker Hughes (comprising 377.4 million shares and a promissory note receivable) at fair value. At December 31, 2019, the fair value of our interest in Baker Hughes was $9,888 million. Since the date of deconsolidation, we have not sold any shares of Baker Hughes and recognized an unrealized gain of $793 million for the period ended December 31, 2019 based on a share price of $25.63. See Notes 2 and 3 for further information.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Summarized financial information of Baker Hughes from the date of deconsolidation is as follows.
|
| | | |
From September 16 to December 31, 2019 (In millions) | |
| |
Revenues | $ | 7,751 |
|
Gross Profit | 1,558 |
|
Net income (loss) | 120 |
|
Net income (loss) attributable to the entity | 60 |
|
|
| | | |
December 31, 2019 (In millions) | |
| |
Current | $ | 15,222 |
|
Noncurrent | 38,147 |
|
Total assets | $ | 53,369 |
|
| |
Current | $ | 10,014 |
|
Noncurrent | 8,857 |
|
Total liabilities | $ | 18,871 |
|
Noncontrolling interests | $ | 12,570 |
|
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 29. QUARTERLY INFORMATION (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First quarter | | Second quarter | | Third quarter | | Fourth quarter |
(In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | | | | | | |
Consolidated operations | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 983 |
| $ | 446 |
| | $ | (115 | ) | $ | 791 |
| | $ | (1,290 | ) | $ | (23,014 | ) | | $ | 845 |
| $ | 697 |
|
Earnings (loss) from discontinued operations | 2,663 |
| (1,559 | ) | | 219 |
| (122 | ) | | (8,093 | ) | 155 |
| | (123 | ) | 163 |
|
Net earnings (loss) | 3,645 |
| (1,113 | ) | | 104 |
| 669 |
| | (9,383 | ) | (22,859 | ) | | 721 |
| 860 |
|
Less net earnings (loss) attributable to noncontrolling interests | 57 |
| 34 |
| | (23 | ) | (132 | ) | | 40 |
| (90 | ) | | (7 | ) | 99 |
|
Net earnings (loss) attributable to the Company | $ | 3,588 |
| $ | (1,147 | ) | | $ | 127 |
| $ | 800 |
| | $ | (9,423 | ) | $ | (22,769 | ) | | $ | 728 |
| $ | 761 |
|
Per-share amounts – earnings (loss) from continuing operations | | | | | | | | | | | |
Diluted earnings (loss) per share | $ | 0.10 |
| $ | 0.03 |
| | $ | (0.03 | ) | $ | 0.08 |
| | $ | (0.15 | ) | $ | (2.64 | ) | | $ | 0.07 |
| $ | 0.06 |
|
Basic earnings (loss) per share | 0.10 |
| 0.03 |
| | (0.03 | ) | 0.08 |
| | (0.15 | ) | (2.64 | ) | | 0.08 |
| 0.06 |
|
Per-share amounts – earnings (loss) from discontinued operations | | | | | | | | | | | |
Diluted earnings (loss) per share | 0.30 |
| (0.17 | ) | | 0.03 |
| (0.01 | ) | | (0.93 | ) | 0.02 |
| | (0.02 | ) | 0.01 |
|
Basic earnings (loss) per share | 0.30 |
| (0.17 | ) | | 0.03 |
| (0.01 | ) | | (0.93 | ) | 0.02 |
| | (0.01 | ) | 0.01 |
|
Per-share amounts – net earnings (loss) | | | | | | | | | | | |
Diluted earnings (loss) per share | 0.40 |
| (0.14 | ) | | (0.01 | ) | 0.07 |
| | (1.08 | ) | (2.62 | ) | | 0.06 |
| 0.07 |
|
Basic earnings (loss) per share | 0.41 |
| (0.14 | ) | | (0.01 | ) | 0.07 |
| | (1.08 | ) | (2.62 | ) | | 0.06 |
| 0.07 |
|
Dividends declared | 0.01 |
| 0.12 |
| | 0.01 |
| 0.12 |
| | 0.01 |
| 0.12 |
| | 0.01 |
| 0.01 |
|
| | | | | | | | | | | |
Selected data | | | | | | | | | | | |
GE | | | | | | | | | | | |
Sales of goods and services | $ | 20,324 |
| $ | 21,138 |
| | $ | 21,416 |
| $ | 22,190 |
| | $ | 21,519 |
| $ | 21,273 |
| | $ | 24,460 |
| $ | 24,437 |
|
Gross profit from sales | 4,494 |
| 4,879 |
| | 4,500 |
| 5,100 |
| | 4,660 |
| 3,924 |
| | 5,780 |
| 4,261 |
|
GE Capital | | | | | | | | | | | |
Total revenues | 2,227 |
| 2,173 |
| | 2,321 |
| 2,429 |
| | 2,097 |
| 2,473 |
| | 2,096 |
| 2,476 |
|
Earnings (loss) from continuing operations attributable to the Company | 175 |
| (179 | ) | | 99 |
| (22 | ) | | (603 | ) | 58 |
| | 259 |
| 101 |
|
| First quarter | | Second quarter | | Third quarter | | Fourth quarter |
(In millions; per-share amounts in dollars) | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | | | | | | | | | | | | |
Consolidated operations | | | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 415 | | $ | (4,673) | | $ | 3,363 | | $ | 1,813 | | $ | 2,056 | | $ | 1,915 | | $ | 3,659 | | $ | 2,645 |
Earnings (loss) from discontinued | | | | | | | | | | | | | | | | | | | | | | | |
operations | | (308) | | | (8,936) | | | (541) | | | (2,947) | | | (105) | | | 629 | | | - | | | 3,758 |
Net earnings (loss) | | 107 | | | (13,608) | | | 2,823 | | | (1,134) | | | 1,951 | | | 2,545 | | | 3,659 | | | 6,403 |
Less net earnings (loss) attributable to | | | | | | | | | | | | | | | | | | | | | | | |
noncontrolling interests | | (121) | | | (35) | | | (86) | | | 225 | | | (76) | | | 39 | | | (8) | | | 103 |
Net earnings (loss) attributable to | | | | | | | | | | | | | | | | | | | | | | | |
the Company | $ | 228 | | $ | (13,573) | | $ | 2,908 | | $ | (1,360) | | $ | 2,027 | | $ | 2,506 | | $ | 3,667 | | $ | 6,301 |
Per-share amounts – earnings (loss) from | | | | | | | | | | | | | | | | | | | | | | | |
continuing operations | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | $ | 0.03 | | $ | (0.45) | | $ | 0.36 | | $ | 0.17 | | $ | 0.23 | | $ | 0.19 | | $ | 0.39 | | $ | 0.26 |
Basic earnings (loss) per share | | 0.03 | | | (0.45) | | | 0.36 | | | 0.17 | | | 0.24 | | | 0.19 | | | 0.40 | | | 0.26 |
Per-share amounts – earnings (loss) | | | | | | | | | | | | | | | | | | | | | | | |
from discontinued operations | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | | (0.03) | | | (0.90) | | | (0.06) | | | (0.30) | | | (0.01) | | | 0.05 | | | - | | | 0.38 |
Basic earnings (loss) per share | | (0.03) | | | (0.90) | | | (0.06) | | | (0.30) | | | (0.01) | | | 0.05 | | | - | | | 0.38 |
Per-share amounts – net earnings (loss) | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | | (0.01) | | | (1.35) | | | 0.30 | | | (0.13) | | | 0.22 | | | 0.25 | | | 0.39 | | | 0.64 |
Basic earnings (loss) per share | | (0.01) | | | (1.35) | | | 0.30 | | | (0.13) | | | 0.22 | | | 0.25 | | | 0.40 | | | 0.64 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Selected data | | | | | | | | | | | | | | | | | | | | | | | |
GE | | | | | | | | | | | | | | | | | | | | | | | |
Sales of goods and services | $ | 25,407 | | $ | 23,839 | | $ | 28,150 | | $ | 26,141 | | $ | 26,934 | | $ | 25,612 | | $ | 30,345 | | $ | 30,614 |
Gross profit from sales | | 5,516 | | | 5,514 | | | 6,192 | | | 6,033 | | | 6,388 | | | 6,275 | | | 7,027 | | | 7,556 |
GE Capital | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | 2,885 | | | 2,866 | | | 2,771 | | | 2,690 | | | 2,600 | | | 2,660 | | | 2,649 | | | 2,585 |
Earnings (loss) from continuing operations | | | | | | | | | | | | | | | | | | | | | | | |
attributable to the Company | | (603) | | | (5,721) | | | (448) | | | (332) | | | 59 | | | (154) | | | 397 | | | (1,447) |
| | | | | | | | | | | | | | | | | | | | | | | |
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold.
Earnings-per-share amounts are computed independently each quarter for earnings (loss) from continuing operations, earnings (loss) from discontinued operations and net earnings.earnings (loss). As a result, the sum of each quarter'squarter’s per-share amount may not equal the total per-share amount for the respective year; and the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings (loss) for the respective quarters.
|
| | |
FORWARD-LOOKING STATEMENTS | | |
FORWARD-LOOKING STATEMENTS
Our public communications and SEC filings may contain statements related to future, not past, events. These forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range." Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; macroeconomic and market conditions; planned and potential business or asset dispositions; our de-leveraging plans, including leverage ratios and targets, the timing and nature of actions to reduce indebtedness and our credit ratings and outlooks; GE's and GE 2016Capital's funding and liquidity; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; or tax rates.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced GE Industrial and GE Capital business or asset dispositions or other transactions, including the planned sale of our BioPharma business within our Healthcare segment and plan to exit our equity ownership position in Baker Hughes, the timing of closing for those transactions and the expected proceeds and benefits to GE;
our de-leveraging and capital allocation plans, including with respect to actions to reduce our indebtedness, the timing and amount of GE dividends, organic investments, and other priorities;
further downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our liquidity, funding profile, costs and competitive position;
GE’s liquidity and the amount and timing of our GE Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations and discontinued operations; the amount and timing of required capital contributions to the insurance operations and strategic actions that we may pursue; the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets; the availability and cost of funding; and GE Capital's exposure to particular counterparties and markets;
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;
changes in macroeconomic and market conditions, particularly interest rates as it relates to our pension and run-off insurance liabilities, as well as the value of stocks and other financial assets (including our equity ownership positions in Baker Hughes), oil and other commodity prices and exchange rates;
market developments or customer actions that may affect levels of demand and the financial performance of the major industries and customers we serve, such as secular, cyclical and competitive pressures in our Power business, pricing and other pressures in the renewable energy market, levels of demand for air travel and other customer dynamics such as early aircraft retirements, conditions in key geographic markets and other shifts in the competitive landscape for our products and services;
the length and severity of the recent coronavirus outbreak, including its impacts across our businesses on demand, operations in China and our global supply chains;
operational execution by our businesses, including our ability to improve the operations and execution of our Power and Renewable Energy businesses, and the continued strength of our Aviation business;
changes in law, regulation or policy that may affect our businesses, such as trade policy and tariffs, regulation related to climate change and the effects of U.S. tax reform and other tax law changes;
our decisions about investments in new products, services and platforms, and our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of operational changes, restructuring and other cost reduction measures;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom, SEC and other investigative and legal proceedings;
the impact of actual or potential failures of our products or third-party products with which our products are integrated, such as the fleet grounding of the Boeing 737 MAX and the timing of its return to service, and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches; and
the other factors that are described in "Risk Factors" in this form 10-K report.
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.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our Executive Officers of the Registrant (As of February 1, 2017)2020)
|
| | | | | | |
| | | | | | Date assumed |
| | | | | | Executive |
Name | | Position | | Age | | Officer Position |
| | | | | | |
Jeffrey R. ImmeltH. Lawrence Culp, Jr. | | Chairman of the Board & Chief Executive Officer | | 6056 | | January 1997October 2018 |
JeffreyJamie S. BornsteinMiller | | Senior Vice President & Chief Financial Officer | | 51 | | July 2013November 2017 |
ElizabethMichael J. Comstock | | Vice Chairman, Business Innovations | | 56 | | April 2013 |
Alexander DimitriefHolston | | Senior Vice President, General Counsel & Secretary | | 58 | | November 2015 |
Jan R. Hauser | | Vice President, Controller & Chief Accounting Officer | | 57 | | April 20132018 |
David L. Joyce | | Vice Chairman of General Electric Company; | | 6063 | | September 2016 |
| | President & CEO, GE Aviation | | | | |
Susan P. PetersL. Kevin Cox | | Senior Vice President, Chief Human Resources Officer | | 6356 | | August 2013February 2019 |
John G. RiceKieran P. Murphy | | Senior Vice ChairmanPresident of General Electric Company; | | 6056 | | September 19972018 |
| | President & CEO, Global Growth Organization GE Healthcare | | | | |
Jérôme X. Pécresse | | Senior Vice President of General Electric Company; | | 52 | | September 2018 |
| | President & CEO, GE Renewable Energy | | | | |
Russell Stokes | | Senior Vice President of General Electric Company; | | 48 | | September 2018 |
| | President & CEO, GE Power Portfolio | | | | |
Scott L. Strazik | | Senior Vice President of General Electric Company; | | 41 | | January 2019 |
| | CEO, GE Gas Power | | | | |
Thomas S. Timko | | Vice President, Controller & Chief Accounting Officer | | 51 | | September 2018 |
All Executive Officers are elected by the Board of Directors for an initial term that continues until the Board meeting immediately preceding the next annual statutory meeting of shareowners,shareholders, and thereafter are elected for one-year terms or until their successors have been elected. All Executive Officers have been executives of General Electric Company for the last five years except for Ms. Hauser. Messrs. Culp, Cox, Holston, Pécresse and Timko.
Prior to joining GE in April 2013, Ms. Hauser2018 as an independent director and being elected to the position of Chairman and CEO in October 2018, Mr. Culp served as CEO at Danaher Corp. (2001-2014); as a partner,senior advisor at Danaher Corp. (2014-2016); as a senior lecturer at Harvard Business School (2015-2018); and as a senior adviser at Bain Capital Private Equity, LP (2017-2018).
Prior to joining GE in February 2019, Mr. Cox had been Chief Human Resources Officer at American Express since 2005.
Prior to joining GE in April 2018, Mr. Holston had been general counsel at Merck since 2015, after joining the drugmaker as chief ethics and compliance officer in 2012.
Prior to joining GE in November 2015 with the acquisition of Alstom, Mr. Pécresse was an Executive Vice President of Alstom since June 2011.
Prior to joining GE in September 2018, Mr. Timko was Vice President, Controller and Chief Accounting Services, National Professional Services GroupOfficer at PricewaterhouseCoopers LLP.General Motors since 2013.
The remaining information called for by this item is incorporated by reference to "Election“Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Other” “Other Governance Policies & Practices” and Practices" and "Board Committees"“Board Operations” in our definitive proxy statement for our 20172020 Annual Meeting of ShareownersShareholders to be held April 26, 2017,May 5, 2020, which will be filed within 120 days of the end of our fiscal year ended December 31, 20162019 (the 20172020 Proxy Statement).
GE 2016 FORM 10-K 222
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
Included in the "Financial“Financial Statements and Supplementary Data"Data” section of this report:
Management'sManagement’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Statement of Earnings (Loss) for the years ended December 31, 2016, 20152019, 2018 and 20142017
Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statement of Changes in Shareowners' Equity for the years ended December 31, 2016, 2015 and 2014
Statement of Financial Position at December 31, 20162019 and 20152018
Statement of Cash Flows for the years ended December 31, 2016, 20152019, 2018 and 20142017
Statement of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017
Statement of Changes in Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017
Notes to consolidated financial statements
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Summary of Operating Segments
(a)2. Financial Statement Schedules
The schedules listed in Reg. 210.5-04 have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(a)3. Exhibit Index
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| | | |
Exhibit
Number | | Description |
2(a) | | |
2(b) | | Amendment to Transaction Agreement and Plan of Merger dated March 27, 2017 between General Electric Company, Baker Hughes Incorporated, Bear Newco, Inc., Bear MergerSub, Inc., BHI Newco, Inc., and Bear MergerSub 2, Inc. (Incorporated by reference to Bear Newco, Inc.'s Registration Statement on Form S-4, pages A-II-I through G-16, filed pursuant to Rule 424(b)(3) on May 30, 2017 (Commission file number 333-216991)). |
3(i) | | The Restated Certificate of Incorporation of General Electric Company (Incorporated(Incorporated by reference to Exhibit 3(i) to GE'sGE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013)2013), as amended by the Certificate of Amendment, dated December 2, 2015 (Incorporated(Incorporated by reference to Exhibit 3.1 to GE'sGE’s Current Report on Form 8-K, dated December 3, 2015)2015), as further amended by the Certificate of Amendment, dated January 19, 2016 (Incorporated(Incorporated by reference to Exhibit 3.1 to GE'sGE’s Current Report on Form 8-K, dated January 20, 2016)2016), as further amended by the Certificate of Change of General Electric Company (Incorporated by reference to Exhibit 3(1) to GE’s Current Report on Form 8-K, dated September 1, 2016, as further amended by the Certificate of Amendment, dated May 13, 2019 (Incorporated by reference to Exhibit 3.1 to GE’s Current Report on Form 8-K, dated May 13, 2019), and as further amended by the Certificate of Change of General Electric Company (Incorporated by reference to Exhibit 3(1)3.1 to GE'sGE’s Current Report on Form 8-K, dated September 1, 2016December 9, 2019) (in each case, under Commission file number 001-00035). |
|
3(ii) | | |
|
4(a) | | |
|
4(b) | | |
|
4(c) | | |
|
4(d) | | |
|
4(e) | | |
|
4(f) | | |
|
4(g) | | Letter fromSenior Note Indenture, dated October 9, 2012, by and between the Senior Vice PresidentCompany and Chief Financial Officer of General Electric to General Electric Capital Corporation dated September 15, 2006, with respect to returning dividends, distributions or other payments to General Electric Capital Corporation in certain circumstances described in the Indenture for Subordinated Debentures dated September 1, 2006, between General Electric Capital Corporation and theThe Bank of New York Mellon, as successor trustee (Incorporated by reference to Exhibit 4(c) to General Electric Capital Corporation's Post-Effective Amendment No. 2 to Registration Statement4.1 of GE’s Current Report on Form S-3, File No. 333-1328078-K dated October 9, 2012 (Commission file number 001-06461)001-00035)). |
|
| | | |
4(h) | | |
| | |
4(i) | | |
| | |
4(j) | | |
|
4(k) | | |
4(l) | | |
(10) | | Except for 10(t)10(aa) and (bb) below, all of the following exhibits consist of Executive Compensation Plans or Arrangements: |
|
| | (a) | General Electric Incentive Compensation Plan, as amended effective July 1, 1991 (Incorporated by reference to Exhibit 10(a) to GE'sGE’s Annual Report on Form 10-K (Commission file number 001-00035) for the fiscal year ended December 31, 1991). |
|
| | (b) | |
|
| | (c) | General Electric Supplemental Life Insurance Program, as amended February 8, 1991 (Incorporated by reference to Exhibit 10(i) to GE'sGE’s Annual Report on Form 10-K (Commission file number 001-00035) for the fiscal year ended December 31, 1990). |
|
| | (d) | |
| | (e) | |
| | (f) | |
| | (g) | |
|
| | (e)(h) | General Electric Leadership Life Insurance Program, effective January 1, 1994 |
|
| | (f) | General Electric Supplementary Pension Plan, as amended effective July 1, 2015. (Incorporated by reference to Exhibit 10(f) to GE's Annual Report on Form 10-K (Commission file number 001-00035) for the fiscal year ended December 31, 2015).
|
| | (g)(i) | General Electric 2003 Non-Employee Director Compensation Plan, Amended and Restated as of September 9, 2016 (Incorporated by reference to Exhibit 10(a) to GE's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (Commission file number 000-00035)). |
|
| | (h) | |
|
| | (i)(j) | |
|
| | (j)(k) | |
|
| | (k)(l) | |
|
| | (l) | General Electric Company 2007 Long-Term Incentive Plan (as amended and restated April 25, 2012) (Incorporated by reference to Exhibit 99.1 to GE's Registration Statement on Form S-8, dated May 4, 2012, File number 333-181177 (Commission file number 001-00035)). |
|
| | (m) | |
| | (n) | |
|
| | (n)(o) | |
|
| | (o)(p) | |
|
| | (p) | Form of Agreement for Long Term Performance Award Grants to Executive Officers under the General Electric Company 2007 Long-Term Incentive Plan (as amended and restated April 25, 2012) (Incorporated by reference to Exhibit 10(a) to GE's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (Commission file number 001-00035)). |
|
| | (q) | |
|
| | | |
| | (r) | |
| | (s) | |
| | (t) | |
| | (u) | |
| | (v) | |
| | (w) | |
|
| | (r) | First Restatement of the General Electric International Employee Stock Purchase Plan effective May 1, 2002 (Incorporated by reference to Exhibit 4.1 to GE's Registration Statement on Form S-8, dated November 13, 2009, File No. 333-163106 (Commission file number 001-00035)). |
| | | |
| | (s) | Time Sharing Agreement dated November 22, 2010 between General Electric Company and Jeffrey R. Immelt (Incorporated by reference to Exhibit 10(z) to GE's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission file number 001-00035)).
|
| | (t)(x) | |
| | (y) | |
| | (z) | |
| | (aa) | |
| | (u)(bb) | Early Retirement |
Citibank, N.A., as co-administrative agents, and the lenders party thereto (Incorporated by reference to Exhibit 10(b) to GE’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018) and Amendment No. 1 to Credit Agreement dated March 12, 2019 (Incorporated by reference to Exhibit 10(b) to GE’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019) (Commission file number 001-00035)). |
(11) | | |
|
12(a) | | Computation of Ratio of Earnings to Fixed Charges.* |
|
12(b) | | Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.* |
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(21) | | |
|
(23) | | |
|
(24) | | |
|
31(a) | | |
|
31(b) | | |
|
(32) | | |
|
99(a) | | Undertaking for Inclusion in Registration Statements on Form S-8 of General Electric Company (Incorporated by reference to Exhibit 99(b) to General Electric Annual Report on Form 10-K (Commission file number 001-00035) for the fiscal year ended December 31, 1992). |
99(b) | | |
99(b) | | |
99(c) | | |
99(c) | | |
| | Format.* |
(101) | | The following materials from General Electric Company's Annual Report on Form 10-K for the year ended December 31, 2016,2018, formatted inas Inline XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, (ii) Consolidated Statement of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014, (iii) Consolidated Statement of Changes in Shareowners' Equity for the years ended December 31, 2016, 2015 and 2014, (iv) Statement of Financial Position at December 31, 20162019 and 2015, (v)2018, (iii) Statement of Cash Flows for the years ended December 31, 2016, 20152019, 2018 and 2014,2017, (iv) Statement of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017, (v) Statement of Changes in Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017, and (vi) the Notes to Consolidated Financial Statements.* |
(104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed electronically herewith. |
** | Information required to be presented in Exhibit 11 is provided in Note 18 to the consolidated financial statements in this Form 10-K Report in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share. |
GE 2016 FORM 10-K 226
FORM 10-K CROSS REFERENCE INDEX
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| | | | |
Item Number | | Page(s) |
Part I | | | | |
Item 1. | | Business | | 18-19, 33-63, 74-75, 98-993, 7, 9-20 |
| | | | |
Item 1A. | | Risk Factors | | 120-12550-57 |
Item 1B. | | Unresolved Staff Comments | | Not applicable |
| | | | |
Item 2. | | Properties | | 193 |
| | | | |
Item 3. | | Legal Proceedings | | 126-127106-109 |
| | | | |
Item 4. | | Mine Safety Disclosures | | Not applicable |
| | | | |
Part II | | | | |
Item 5. | | Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 26, 11750 |
| | | | |
Item 6. | | Selected Financial Data | | 11649 |
| | | | |
Item 7. | | Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations | | 20-1154-49 |
| | | | |
Item 7A. | | Quantitative and Qualitative Disclosures About Market Risk | | 80-81, 118-11928-30, 102-104 |
| | | | |
Item 8. | | Financial Statements and Supplementary Data | | 131-22162-120 |
| | | | |
Item 9. | | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | | Not applicable |
| | | | |
Item 9A. | | Controls and Procedures | | 12958 |
| | | | |
Item 9B. | | Other Information | | Not applicable |
Part III | | | | |
Item 10. | | Directors, Executive Officers and Corporate Governance | | 222122 |
| | | | |
Item 11. | | Executive Compensation | | (a) |
| | | | |
Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | (b), Note 1699-100 |
| | | | |
Item 13. | | Certain Relationships and Related Transactions, and Director Independence | | (c) |
| | | | |
Item 14. | | Principal AccountingAccountant Fees and Services | | (d) |
Part IV | | | | |
Item 15. | | Exhibits and Financial Statement Schedules | | 223-226123-125 |
Item 16. | | Form 10-K Summary | | 3-16, (e)Not applicable |
| | | | |
Signatures | | | 228127 |
| |
(a) | Incorporated by reference to "Compensation"“Compensation” in the 20172020 Proxy Statement. |
| |
(b) | Incorporated by reference to "Stock“Stock Ownership Information" and "Key Data About Our Grant Practices"Information” in the 20172020 Proxy Statement. |
| |
(c) | Incorporated by reference to "Related“Related Person Transactions"Transactions” and "How“How We Assess Director Independence"Independence” in the 20172020 Proxy Statement. |
| |
(d) | Incorporated by reference to "Independent“Independent Auditor Information"Information” in the 20172020 Proxy Statement. |
(e) | The Introduction & Summary does not include Part III information because it will be incorporated by reference to the 2017 Proxy Statement. |
GE 20162019 FORM 10-K 227 126
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K for the fiscal year ended December 31, 2016,2019, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized in the City of Boston and Commonwealth of Massachusetts on the 24th day of February 2017.2020.
General Electric Company
(Registrant)
|
| |
By | /s/ Jamie S. Miller |
| Jamie S. Miller Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
By /s/ Jeffrey S. Bornstein
Jeffrey S. Bornstein
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | | |
| Signer | | Title | | Date |
| | | | | |
| /s/ JeffreyJamie S. BornsteinMiller | | Principal Financial Officer | | February 24, 20172020 |
| JeffreyJamie S. Bornstein Miller Senior Vice President and
Chief Financial Officer | | | | |
| | | | | |
| /s/ Jan R. HauserThomas S. Timko | | Principal Accounting Officer | | February 24, 20172020 |
| Jan R. Hauser Thomas S. Timko
Vice President, Chief Accounting Officer and Controller | | | | |
| | | | | |
| /s/ Jeffrey R. Immelt H. Lawrence Culp, Jr. | | Principal Executive Officer | | February 24, 2020 |
| Jeffrey R. Immelt*H. Lawrence Culp, Jr.*
Chairman of the Board of Directors | | Principal Executive Officer
| | February 24, 2017 |
| | | | | |
| Sébastien M. Bazin* | | Director | | |
| W. Geoffrey Beattie* | | Director | | |
| John J. Brennan* | | Director | | |
| Francisco D'Souza* | | Director | | |
| Marijn E. Dekkers*Edward P. Garden* | | Director | | |
| Peter B. Henry*Thomas W. Horton* | | Director | | |
| Susan Hockfield*Risa Lavizzo-Mourey* | | Director | | |
| Andrea Jung*Catherine A. Lesjak* | | Director | | |
| Robert W. Lane*Paula Rosput Reynolds* | | Director | | |
| Rochelle B. Lazarus* | | Director | | |
| Lowell C. McAdam* | | Director | | |
| Steven M. Mollenkopf* | | Director | | |
| James J. Mulva* | | Director | | |
| James E. Rohr* | | Director | | |
| Mary L. Schapiro*Leslie F. Seidman* | | Director | | |
| James S. Tisch* | | Director | | |
| | | | | |
| | | | | |
| A majority of the Board of Directors | | | | |
| | | | | |
| | | | | |
*By | /s/ Christoph A. Pereira | | | | |
| Christoph A. Pereira
Attorney-in-fact
| | | | |
| February 24, 20172020 | | | | |
GE 20162019 FORM 10-K 228 127