UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 001-00035
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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(Mark One) |
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þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2017
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OR |
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¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to ____ |
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Commission file number001-00035
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GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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| New York | | 14-0689340 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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41 Farnsworth Street, One Financial Center, Suite 3700 | Boston | MA | | 0221002111 |
| (Address of principal executive offices) | | (Zip Code) |
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(Registrant’s telephone number, including area code)(617) 443-3000
(Former name, former address and former fiscal year,
if changed since last report)
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(Registrant’s telephone number, including area code)(617) 443-3000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.01 per share | GE | New York Stock Exchange |
| 0.875% Notes due 2025 | GE 25 | New York Stock Exchange |
| 1.875% Notes due 2027 | GE 27E | New York Stock Exchange |
| 1.500% Notes due 2029 | GE 29 | New York Stock Exchange |
| 7 1/2% Guaranteed Subordinated Notes due 2035 | GE /35 | New York Stock Exchange |
| 2.125% Notes due 2037 | GE 37 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þNo ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): |
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Large accelerated filerþ | ☑ | Accelerated filer ¨ | ☐ |
Non-accelerated filer ¨ | ☐ | Smaller reporting company ¨ | ☐ |
Emerging growth company ¨ | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
There were 8,672,085,0001,088,386,043 shares of common stock with a par value of $0.06$0.01 per share outstanding at September 30, 2017.2023.
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS | | |
FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements" - that is,FORWARD-LOOKING STATEMENTS. Our public communications and SEC filings may contain statements related to future, not past, events. In this context,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,”"estimate," "forecast," "target," "preliminary," or "range."
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the completionplanned and potential transactions, including our plan to pursue a spin-off of our announced planportfolio of energy businesses that are planned to be combined as GE Vernova; the impacts of macroeconomic and market conditions and volatility on our business operations, financial results and financial position and on the global supply chain and world economy; our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; impacts related to the COVID-19 pandemic; our de-leveraging plans, including leverage ratios and targets, the timing and nature of actions to reduce the size ofindebtedness and our financial services businesses, including earnings per share of GE Capital Global Holdings, LLC’s (GE Capital) retained businesses (Verticals); expected incomecredit ratings and Industrial operating profit; earnings per share, including the impact of the new revenue recognition standard; revenues; organic growth; growthoutlooks; our funding and productivity associated withliquidity; our Digital and Additive businesses; margins;businesses’ cost structurestructures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; or tax rates; transaction-related synergies, proceeds and gains; cash flows, including the impact of working capital, contract assets and pension funding contributions; returns on capital and investment; capital expenditures; capital allocation, including dividends, share repurchases, acquisitions and liquidity; or capital structure, including leverage.rates.
For us, particular areas where risks or uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
•our success in executing planned and potential transactions, including our plan to pursue a spin-off of GE Vernova, and sales or other dispositions of our equity interests in AerCap Holdings N.V. (AerCap) and GE HealthCare, the strategy,timing for such transactions, the ability to satisfy any applicable pre-conditions, and the expected proceeds, consideration and benefits to GE;
•changes in macroeconomic and market conditions and market volatility, including risk of recession, inflation, supply chain constraints or disruptions, interest rates, perceived weakness or failures of banks, the value of securities and other financial assets (including our equity interests in AerCap and GE HealthCare), oil, natural gas and other commodity prices and exchange rates, and the impact of such changes and volatility on our business operations, financial results and financial position;
•global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related sanctions and other measures and risks related to conflict in the Middle East, decreases in the rates of investment or economic growth globally or in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses' global supply chains and strategies;
•the status of the ongoing recovery from the impact of the COVID-19 pandemic, including impacts of virus variants and resurgences, and of government, business and individual responses, and in particular any adverse impacts to the aviation industry and its participants;
•our capital allocation plans, including de-leveraging actions to reduce GE's indebtedness, the capital structures of the public companies that we plan to form from our businesses with the planned spin-off, the timing and portfolio review being undertaken byamount of dividends, share repurchases, acquisitions, organic investments, and other priorities;
•downgrades of our new chief executive officer;current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our funding profile, costs, liquidity and competitive position;
our ability to convert Industrial earnings into cash and •the amount and timing of our cash flows and earnings, which may be impacted by long-termmacroeconomic, customer, supplier, competitive, contractual and other dynamics and conditions;
•capital and liquidity needs associated with our financial services agreement dynamics,operations, including in connection with our run-off insurance operations and mortgage portfolio in Poland (Bank BPH), the amount and timing of dividends from GE Capitalany required capital contributions and any strategic actions that we may pursue;
•market developments or customer actions that may affect demand and the financial performance of major industries and customers we serve, such as demand for air travel and other aviation industry dynamics; pricing, cost, volume and the timing of investment by customers or industry participants and other factors in renewable energy markets; conditions allin key geographic markets; technology developments; and other shifts in the competitive landscape for our products and services;
•operational execution by our businesses, including the success at our Renewable Energy business in improving product quality and fleet availability, executing on our product and project cost estimates and delivery schedule projections and other aspects of whichoperational performance, as well as the performance of GE Aerospace amidst the ongoing market recovery;
•changes in law, regulation or policy that may affect our abilitybusinesses, such as trade policy and tariffs, regulation and incentives related to pay our quarterly dividend at the planned level or to repurchase shares at planned levels;
our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so;
changes in law, economic and financial conditions, including interest and exchange rate volatility; commodity and equity prices and the value of financial assets;
climate change (including the impact of conditions in the financialInflation Reduction Act and credit markets on the availability and cost of GE Capital funding, and GE Capital's exposure to counterparties;
pending and future mortgage loan repurchase claims, other litigation claimspolicies), and the U.S. Departmenteffects of Justice's investigation under the Financial Institutions Reform, Recoverytax law changes;
•our decisions about investments in research and Enforcement Act of 1989development, and other investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates;
GE Capital’s ability to pay dividends to GE at the planned level, which may be affected by GE Capital’s cash flowsnew products, services and earnings, claimsplatforms, and investigations relating to WMC, charges that may be required in connection with GE Capital’s run-off insurance operations, credit ratings and other factors;
our ability to launch new products in a cost-effective manner;
•our ability to increase margins through implementation of operational improvements, restructuring and other cost reduction measures;
our ability to convert pre-order commitments/wins into orders/bookings;
the price we realize on orders/bookings since commitments/wins are stated at list prices;
customer actions or market developments such as early aircraft retirements, reduced demand for equipment and services in the energy markets in which we operate or shifts in the competitive landscape for our products and services, changes in economic conditions, including oil prices, and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;
•the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of shareholder and related lawsuits, Alstom, Bank BPH and other investigative and legal proceedings;
•the impact of actual or potential quality issues or failures of our capital allocation plans, as such plans may change includingproducts or third-party products with respect to the timingwhich our products are integrated, and size of dividends, share repurchases, acquisitions, joint ventures, dispositionsrelated costs and other strategic actions;reputational effects;
our success in completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced transactions, such as our announced plan to sell our Industrial Solutions business or other dispositions that we may pursue;
our success in integrating acquired businesses and operating joint ventures, including Baker Hughes, a GE company;
our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and Baker Hughes;
•the impact of potential information technology, cybersecurity or data security breaches;breaches at GE or third parties; and
•the other factors that are described in "Forward-Looking Statements" in Baker Hughes, a GE company's most recent earnings release or Securities and Exchange Commission filing; and
the other factors that are described in “Risk Factors”"Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2016.2022, as such descriptions may be updated or amended in any future reports we file with the SEC.
These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
PRESENTATION
The consolidated financial statements of ABOUT GENERAL ELECTRIC.General Electric Company (the(General Electric, GE or the Company) combine theis a high-tech industrial manufacturingcompany that operates worldwide through its three segments, Aerospace, Renewable Energy, and Power. Our products include commercial and defense aircraft engines and systems; wind and other renewable energy generation equipment and grid solutions; and gas, steam, nuclear and other power generation equipment. We have significant global installed bases of equipment across these sectors, and services businesses of General Electric Company (GE) with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital or Financial Services) and its predecessor, General Electric Capital Corporation.
We believe that investors will gain a better understandingto support these products are also an important part of our company if they understand howbusiness alongside new equipment sales.
We previously announced a strategic plan to form three industry-leading, global, investment-grade public companies from (i) our Aerospace business, which we measure and talk aboutplan to refer to as GE Aerospace, (ii) our results. Becauseportfolio of the diversity in ourenergy businesses, we present our financial statements in a three-column format, which allows investors to see our industrial operations separately from our Financial Services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use the terms to mean the following:
General Electric or the Company – the parent company, General Electric Company.
GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated statements of earnings, financial position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).
General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
GE Capital Global Holdings, LLC or GECGH – successor of GECC.
GE Capital or Financial Services – refers to GECGH, or its predecessor GECC, and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated statements of earnings, financial position and cash flows.
GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated statements of earnings, financial position and cash flows.
Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of an Industrial metric is Industrial CFOA (Non-GAAP), which is GE CFOA excluding the effects of dividends from GE Capital.
Industrial segment – the sum of our seven industrial reporting segments, without giving effect to the elimination of transactions among such segments and between these segments and our Financial Services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth.
Baker Hughes, a GE company or BHGE - following the combination of our Oil & Gas business with Baker Hughes Incorporated, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the new company formed in the transaction, Baker Hughes, a GE Company (BHGE). We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment operating profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders. References to "Baker Hughes" represent legacy Baker Hughes Incorporated operating activities which, in certain cases, have been excluded from our results for comparative purposes.
Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.
Verticals or GE Capital Verticals – the adding together of GE Capital businesses that we expect to retain, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Industrial Finance (which includes Healthcare Equipment Finance, Working Capital Solutions and Industrial Financing Solutions)—that relate to the Company’s core industrial domain and other operations, including our run-off insurance activities,Renewable Energy and allocated corporate costs.
We integrate acquisitions as quickly as possible. RevenuesPower businesses, which we plan to combine and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses.
Discussion of GE Capital’s total assets includes deferred income tax liabilities, which are presented within assets for purposes of our consolidated Statement of Financial Position presentations for this filing.
Amounts reported in billions in graphs within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Discussions throughout this MD&A are based on continuing operations unless otherwise noted.
The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.
OTHER TERMS USED BY GE
Backlog – unfilled customer orders for products and product services (expected life of contract sales for product services).
Continuing earnings – unless otherwise indicated, we refer to the caption “earnings from continuing operations attributable toas GE common shareowners” as continuing earnings or simply as earnings.
Continuing earnings per share (EPS) – unless otherwise indicated, when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners”.
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• | Digital revenues – revenues related to internally developed software and associated hardware, including PredixTM and software solutions that improve our customers’ asset performance. In 2016, we reassessed the span of our digital product offerings, which now excludes software-enabled product upgrades. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.
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Equipment leased to others (ELTO) – rental equipment we own that is available to rentVernova, and is stated at cost less accumulated depreciation.
GE Capital Exit Plan –(iii) our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by Industrial revenues.
Industrial operating profit margin (Non-GAAP) – Industrial segment profit plus corporate items and eliminations (excluding gains, restructuring, and non-operating pension cost) divided by industrial segment revenues plus corporate items and eliminations (excluding gains and GE-GE Capital eliminations).
Industrial segment gross margin - industrial segment sales less industrial segment cost of sales divided by sales.
Net earnings – unless otherwise indicated, we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.
Net earnings per share (EPS) – unless otherwise indicated, when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners”.
Non-operating pension cost (Non-GAAP) – comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial gain (loss) amortization for our principal pension plans.
Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension costs.
Operating earnings per share (Non-GAAP) – unless otherwise indicated, when we refer to operating earnings per share, it is the diluted per-share amount of “operating earnings”.
Operating pension cost (Non-GAAP) – comprises the service cost of benefits earned, prior service cost amortization and curtailment gain (loss) for our principal pension plans.
Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
Product services – forformer HealthCare business. 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 (suchour reporting segments as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “product services,” which is an important part of our operations. We refer to “product services” simply as “services” within the MD&A.
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power,Aerospace, Renewable Energy Oil & Gas, Aviation and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant.
Revenues – unless otherwise indicated,Power. The composition of these reporting segments is unchanged. On January 3, 2023, we refer to captions such as “revenues and other income” simply as revenues.
Segment profit – refers tocompleted the operating profitseparation of the industrial segmentsHealthCare business from GE through the spin-off of GE HealthCare Technologies Inc. (GE HealthCare). See Notes 2 and the net earnings3 for further information. The historical results of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
NON-GAAP FINANCIAL MEASURES
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. SecuritiesGE HealthCare and Exchange Commission (SEC) rules. Specifically, we have referred, in various sections of this report, to:
Industrial segment organic revenuescertain assets and Industrial segment organic revenues excluding Power and Oil & Gas
Operating and non-operating pension cost
Adjusted corporate costs (operating)
GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates
Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS
Industrial operating + Verticals earnings and EPS
Industrial operating profit and operating profit margin (excluding certain items)
Industrial operating profit excluding Power and Oil & Gas
Industrial cash flows from operating activities (Industrial CFOA) and Industrial CFOA excluding deal taxes and GE Pension Plan funding
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures areliabilities included in the Supplemental Information section withinspin-off are now reported in GE's consolidated financial statements as discontinued operations. Additionally, on January 1, 2023, we adopted Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to 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 (*)Accounting for Long-Duration Contracts. See Note 13 for further information.
OUR OPERATING SEGMENTS
We are a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive, with products and services ranging from aircraft engines, locomotives, power generation and oil and gas production equipment to medical imaging, financing and industrial products. Operational and financial overviews for our operating segments are provided in the “Segment Operations” section within this MD&A.
OUR INDUSTRIAL OPERATING SEGMENTS
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| Power(a)
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| Renewable Energy | | Healthcare | | |
| Oil & Gas(b)
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OUR FINANCIAL SERVICES OPERATING SEGMENT
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(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
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(b) | Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in BHGE. We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment operating profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders. |
CORPORATE INFORMATION
GE’s Internet address at www.ge.com,, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com,, as well as GE’s Facebook page and Twitter accountsLinkedIn and other social media accounts, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A). The consolidated financial statements of General Electric Company are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Unless otherwise noted, tables are presented in U.S. dollars in millions. 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.
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORS
(DollarsIn the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in billions; per-share amountsour financial statements prepared in dollars)
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| Industrial Segment | 10% | 3% |
| Industrial Segment Organic* | (1)% | 2% |
| Capital | (8)% | (9)% |
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■ ■ Industrial CFOA(a)* ■■ GE Capital Dividend
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(a) 2016 included deal taxes of $(1.1) billion related toaccordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the sale of our Appliances business and in 2017 included deal taxes of $(0.1) billion related to the Baker Hughes transaction and GE Pension Plan funding of $(1.4) billion. |
(b) Included $(0.2) billion related to Baker Hughes and a $0.5 billion correction to operating cash flows for the settlement of certain derivative instruments during the six months ended June 30, 2017. |
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■■ Services ■■ Equipment
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(a) Included $2.5 billion related to Baker Hughes |
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INDUSTRIAL PROFIT & MARGINS |
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INDUSTRIAL OPERATING PROFIT & MARGINS
(NON-GAAP)(a)
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(a) Excluded gains on disposals, non-operating pension cost, restructuring and other charges and noncontrolling interests |
*Non-GAAP Financial MeasureMeasures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars and diluted; attributable to GE common shareowners)
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OPERATING EARNINGS (NON-GAAP) |
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OPERATING EARNINGS PER SHARE (NON-GAAP) |
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INDUSTRIAL OPERATING + VERTICALS EARNINGS(NON-GAAP) |
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INDUSTRIAL OPERATING + VERTICALS EPS
(NON-GAAP)
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CONSOLIDATED RESULTS
2017 SIGNIFICANT DEVELOPMENTS
LEADERSHIP CHANGES
As announced on June 12, 2017, Jeffery R. Immelt retired as Chief Executive Officer (CEO) on July 31, 2017 and John L. Flannery succeeded Mr. Immelt as CEO effective August 1, 2017. Mr. Flannery also joined the Board of Directors on that date. Mr. Immelt remained Chairman of the Board for a transition period through October 2, 2017, at which point Mr. Flannery succeeded Mr. Immelt as Chairman.
On October 6, 2017, we announced that, effective November 1, 2017, Jamie S. Miller, will become Chief Financial Officer, succeeding Jeffrey S. Bornstein. Mr. Bornstein will remain a Vice Chairman through December 31, 2017. Ms. Miller also serves as a director at Baker Hughes, a GE company.
On October 9, 2017, we announced that Robert Lane retired from the Company’s Board of Directors (the Board) after 12 years of service, effective that same date. In addition, the Board elected Edward P. Garden as a director to fill the resulting vacancy, effective on that date. Mr. Garden is the Chief Investment Officer and a Founding Partner of Trian Fund Management, L.P. (Trian), an investment management firm.
2017 SIGNIFICANT TRANSACTIONS
On January 10, 2017, we completed the acquisition of ServiceMax, a leader in cloud-based field service management (FSM) solutions, for $0.9 billion, net of cash acquired.
On April 20, 2017, we completed the acquisition of LM Wind Power, one of the world’s largest wind turbine blade manufacturers for approximately $1.6 billion, net of cash acquired.
On July 3, 2017, we completed the transaction to create BHGE. Under the terms of the deal, which we announced in October 2016, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownership interest of approximately 62.5% and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Baker Hughes shareholders also received a cash dividend funded by a $7.5 billion cash contribution from GE. The completion of the transaction followed the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment.
In October 2016, we announced our plan to sell our Water & Process Technologies business. In March 2017, we announced an agreement to sell the business to Suez Environnement S.A. (Suez), a French-based utility company operating primarily in the water treatment and waste management sectors. On September 29, 2017, we completed the sale for consideration of $3.0 billion, net of obligations assumed and cash transferred (including $0.1 billion from sale of receivables originated in our Water business and sold from GE Capital to Suez), and recognized an after-tax gain of approximately $1.9 billion.
In the first quarter of 2017, we classified our Industrial Solutions business within our Power segment as held for sale. In September 2017, we announced an agreement to sell the business for approximately $2.6 billion to ABB, a Swiss-based engineering company operating primarily in the robotics, power, heavy electrical equipment and automation technology sectors. The deal is expected to close in mid-2018, subject to customary closing conditions and regulatory approval.
THIRD QUARTER 2017 RESULTS
Overall, our consolidated results in the third quarter2023 RESULTS. Total revenues were below our expectations. Consolidated revenues (after adjusting$17.3 billion, up $2.9 billion for the Water gain of $1.9 billionquarter, driven primarily by increases at Aerospace and the impact of incremental Baker Hughes revenues of $2.5 billion*) were $29.0 billion, down $0.2 billion or 1%. The decline in revenues was a result of lower Industrial segment revenues of 1% organically* driven principally by our Power and Oil & Gas segments. For all other Industrial segments, revenues increased 2% organically* as Aviation and Healthcare experienced revenue growth versus the prior year period. Renewable Energy.
Continuing earnings (loss) per share was $0.22, down 4%$0.08. Excluding the results from the prior year. Industrial operating plus Verticalsour run-off Insurance business, gains (losses) on retained and sold ownership interests, non-operating benefit costs, interest and other financial charges, separation costs and restructuring costs, Adjusted earnings per share* was $0.29, down 9% versus$0.82. For the three months ended September 30, 2023, profit margin was 1.7% and profit was up $0.5 billion, primarily due to an increase in segment profit of $1.1 billion, an increase in non-operating benefit income of $0.3 billion, a decrease in Adjusted total Corporate operating costs* of $0.1 billion and a decrease in interest and other financial charges of $0.1 billion. These increases were partially offset by an increase in losses on retained and sold ownership interests of $1.0 billion and an increase in separation costs of $0.1 billion. Adjusted organic profit* increased $1.3 billion, driven primarily by increases at Renewable Energy, including the nonrecurrence of a prior year driven substantially by a 10% decrease in Industrial segmentwarranty and related charge of $0.5 billion, primarily at Onshore Wind, and Aerospace.
Cash flows from operating profit*.
Restructuring and other charges were $0.21 per share, including $0.02 per share related to BHGE integration and synergy investment. In total, restructuring and other itemsactivities (CFOA) were $2.4 billion before tax, with restructuring charges totaling about $0.8 billion (including $0.2 billion related to BHGE) and $0.3 billion of businesses development charges, primarily related to the Baker Hughes transaction. Restructuring charges were higher than originally planned, driven by the accelerated restructuring actions taken at Corporate. Additionally, within restructuring and other charges, we recognized two significant impairments in the quarter totaling $0.13 per share, which included non-cash pre-tax impairment charges of $0.9 billion related to goodwill in our Power Conversion business and $0.3 billion related to a power plant asset. See Note 8 to the consolidated financial statements for further information on the results of our annual goodwill impairment testing.
Industrial profit was $2.4 billion and industrial margins were 7.6%, down $0.3 billion, or 240 basis points, versus the third quarter of 2016 primarily driven by a reduction in Industrial segment profit of $0.7 billion, or 16%. After adjusting segment operating profit of $3.6 billion for restructuring charges of $0.3 billion related to Oil & Gas, which, subsequent to the Baker Hughes transaction, are recorded in the segment rather than at Corporate, adjusted Industrial segment operating profit* was down $0.4 billion, or 10%. The decline in adjusted Industrial segment operating profit* was primarily due to lower results within our Power and Oil & Gas segments, partially offset by the performance of our remaining industrial segments, which had increases in organic revenues* of 2% and adjusted Industrial segment operating profit* of 23%, including lower Corporate costs.
Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. The Power segment experienced a revenue decline of 4% and an operating profit decline of 51% versus the third quarter of 2016. Power revenues were $8.7 billion, with equipment revenues down 3% and service revenues down 4%.
The decline in Power segment results was primarily driven by three factors:
A decline in year-over-year results, principally in our service business, lower shipments of our aeroderivative products, and performance of our Power Conversion business. Within services, we sold fewer Advanced Gas Path (AGP) upgrades and experienced lower outages. Services outages were down 18% versus the third quarter of 2016. Aeroderivative units were down 32 versus the third quarter of 2016. Our markets have also been challenged by the increasing penetration of renewables, fleet penetration for AGPs, lower capacity payments, utilization, and outages. We expect these conditions to persist through the fourth quarter and into 2018.
Second, we experienced project delays and incurred costs associated with certain quality matters. In addition, we recognized a bad debt reserve for a Venezuelan customer receivable. The net effect of these items amounted to approximately $0.1 billion.
Third, the mix effect of having lower volume in our high-margin aero and service businesses, and higher volume in low-margin grid and balance of plant revenues resulted in a substantial margin headwind.
Refer to the Power segment results section within this MD&A for further information.
Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the combined BHGE entity. We consolidate 100% of BHGE’s revenues and cash flows while segment operating profit and net income are derived net of minority ownership interest of approximately 37.5% attributable to BHGE’s Class A shareholders. Also, the operating profit we report for our Oil & Gas segment is adjusted for GE reporting conventions, such as excluding restructuring and other charges. Therefore, our operating profit of approximately 62.5% will differ from BHGE's operating income as reported in its standalone financial statements.
During the third quarter of 2017, Oil & Gas reported revenues of $5.4 billion, an increase of 81% versus the third quarter of 2016, driven by the effects of the Baker Hughes transaction. Adjusting for the Baker Hughes transaction, segment revenues* were $2.8 billion in the quarter, down 5% due to continued weakness in the oil and gas market. Segment operating profit (loss) was $(36) million, or $231 million after adjusting for restructuring and other charges reported in the segment*. The decline in segment operating profit (after adjusting for restructuring and other charges reported in the segment*) of 35% was primarily driven by longer cycle oilfield equipment business. Refer to the Oil & Gas segment results section within this MD&A for further information.
GE CFOA was $4.1 billion and $18.3 billion for the nine months ended September 30, 20172023 and 2016,2022, respectively. The decline in GE CFOA isincreased primarily due to a $12.0an increase in net income (after adjusting for depreciation of property, plant, and equipment, amortization of intangible assets and non-cash (gains) losses related to our retained and sold ownership interests in GE HealthCare, AerCap and Baker Hughes) and an increase in cash from working capital. Free cash flows* (FCF) were $2.2 billion decrease in dividends from GE Capital, reflecting a decrease in proceeds from GE Capital Exit Plan disposals. GE CFOA was also impacted by lower earnings from Power and Oil & Gas, as well as lower than expected working capital improvements. Additionally, GE CFOA was negatively impacted by GE Pension Plan payments of $1.4$(0.3) billion in 2017, compared to zero infor the prior year period. Further,nine months ended September 30, 2023 and 2022, respectively. FCF* increased primarily due to our ongoing insurance actuarial review, we have deferred the decision whether GEsame reasons as noted for CFOA above, after adjusting for an increase in separation cash expenditures, which are excluded from FCF*, partially offset by an increase in cash used for additions to property, plant and equipment and internal-use software. See the Capital will pay additional dividends to GE until the review is completed. Refer to the GEResources and Liquidity - Statement of Cash Flows and Critical Accounting Estimates sections within this MD&Asection for further information.
As noted inRemaining performance obligation (RPO) includes unfilled customer orders for equipment, excluding any purchase order that provides the second quartercustomer with the ability to cancel or terminate without incurring a substantive penalty. Services RPO includes the estimated life of 2017 earnings release presentation, Mr. Flannery is conducting a comprehensive reviewcontract sales related to long-term service agreements which remain unsatisfied at the end of the Company, including a reviewreporting period, the estimated amount of the Company’s business units, the GE Storeunsatisfied performance obligations for time and Corporate. Mr. Flannery provided an update on this review as part of the third quarter earnings release presentation, at which time he stated that management had identified $20 billion plus of assets that would be exited in the next one to two years. On November 13, 2017, Mr. Flannery will present to investors outlining, among other items, the results of the business assessment, cost reduction actions, capital allocation and 2018 outlook. We expect additional restructuring charges related to cost reduction actions, and held-for-salematerial agreements, material services agreements, spare parts under purchase order, multi-year maintenance programs and other associated charges relatedservices agreements, excluding any order that provides the customer with the ability to the exitcancel or sale of assets or businesses.terminate without incurring a substantive penalty. See Note 8 for further information.
*Non-GAAP Financial Measure
20172023 3Q FORM 10-Q 114
| | | | | | | | | |
| RPO | September 30, 2023 | December 31, 2022 | |
| | | |
| Equipment | $ | 53,285 | | $ | 44,198 | | |
| Services | 199,807 | | 194,496 | | |
| Total RPO | $ | 253,092 | | $ | 238,693 | | |
CONSOLIDATED RESULTSAs of September 30, 2023, RPO increased $14.4 billion (6%) from December 31, 2022, primarily at Renewable Energy, from new orders at Grid and a new Offshore Wind project in the U.S.; at Aerospace, from increases in both equipment and services; and at Power, driven by increases in Gas Power and Power Conversion equipment.
THREE AND NINE MONTHS ENDED SEPTEMBER | | | | | | | | | | | | | | | | | | |
| REVENUES | Three months ended September 30 | | Nine months ended September 30 | |
| 2023 | 2022 | | 2023 | 2022 | |
| Equipment revenues | $ | 6,939 | | $ | 5,731 | | | $ | 18,915 | | $ | 15,605 | | |
| Services revenues | 9,565 | | 8,095 | | | 27,136 | | 23,493 | | |
| Insurance revenues | 842 | | 645 | | | 2,480 | | 2,175 | | |
| Total revenues | $ | 17,346 | | $ | 14,470 | | | $ | 48,531 | | $ | 41,272 | | |
For the three months ended September 30,
(Dollars in billions)
|
| | |
REVENUES | | INDUSTRIAL AND FINANCIAL SERVICES REVENUES |
|
| | |
(a) Included $2.5 billion related to Baker Hughes
| | |
THREE MONTHS
Consolidated 2023, total revenues increased $4.2$2.9 billion or 14%(20%).
Consolidated revenues decreased $0.2 billion, or 1%, excluding the $1.9 billion pre-tax gain recorded at Corporate from the sale of our Water business in the third quarter of 2017 and the impact of incremental Baker Hughes revenues of $2.5 billion*.
Industrial segment Equipment revenues increased, approximately $0.2 billion, or 1%, excludingprimarily at Renewable Energy, due to higher equipment revenue across Grid and Offshore Wind and improved pricing on units delivered at Onshore Wind; at Aerospace, due to an increase in commercial install and spare engine unit shipments; and at Power, due to increases at Gas Power and Power Conversion. Services revenues increased, primarily at Aerospace, due to increased commercial spare part shipments and higher prices; and at Power, due to growth in Power Conversion and Steam; partially offset by a decrease at Renewable Energy, due to fewer repower unit deliveries at Onshore Wind.
Excluding the items noted above*, aschange in Insurance revenues, the net effects of acquisitions of $0.3 billionand dispositions and the effects of a weaker U.S. dollar, of $0.2organic revenues* increased $2.5 billion were partially offset by organic revenue* decreases of $0.4 billion.
Financial Services(18%), with equipment revenues decreased $0.2up $1.1 billion or 8%, primarily due to higher impairments(19%) and organic revenue declines, partially offset by higher gains.
NINE MONTHS
Consolidatedservices revenues increased $0.1 billion.
Consolidated revenues decreased $1.2 billion, or 1%, excluding the pre-tax gains recorded at Corporate of $3.1 billion from the sale of Appliances in the second quarter of 2016 and $1.9 billion from the sale of our Water business in the third quarter of 2017 as well as the impact of incremental Baker Hughes revenues of $2.5 billion*.
Industrial segment revenues decreased approximately $0.3 billion, excluding the items noted above*, as the net effects of acquisitions of $0.7 billion and organic revenue* increases of $1.9 billion were partially offset by the net effects of dispositions of $2.8 billion and the effects of a stronger U.S. dollar of $0.1 billion.
Financial Services revenues decreased $0.7 billion, or 9%, primarily due to higher impairments, organic revenue declines and lower gains.
*Non-GAAP Financial Measure
THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions; attributable to GE common shareowners) |
| | |
CONTINUING EARNINGS | | OPERATING EARNINGS* |
THREE MONTHS
Consolidated continuing earnings decreased $0.2 billion.
Industrial
Earnings decreased $2.1 billion, or 98%, excluding the $1.9 billion after-tax gain recorded at Corporate from the sale of our Water business in the third quarter of 2017*.
Industrial segment profit decreased $0.7 billion, or 16%, due to organic operating decreases* of $0.6 billion and restructuring costs related to Baker Hughes of $0.3 billion, partially offset by the net effects of acquisitions of $0.1 billion.
In addition, restructuring and other costs recorded at Corporate increased $1.3 billion, including non-cash impairment charges of $0.9 billion related to goodwill and $0.3 billion related to a power plant asset. Gains recorded at Corporate decreased $0.2 billion, excluding the $1.9 billion pre-tax gain on the sale of our Water business.
Interest and other financial charges increased $0.2 billion while the provision for income taxes decreased $0.3 billion, excluding the tax impact from the sale of our Water business*.
The net effect of acquisitions on our consolidated operating earnings was a decrease of $0.2 billion while the net effect of dispositions was an increase ofup $1.4 billion in the third quarter of 2017.(17%). Organic revenues* increased at Aerospace, Renewable Energy and Power.
Foreign exchange favorably affected industrial operating earnings by $0.1 billion as a result of both translational and transactional impacts related to remeasurement and mark-to-market charges on open hedges.
Financial Services
| |
▪ | Financial Services earnings decreased 8%, primarily due to lower tax benefits primarily associated with a 2016 IRS tax settlement, higher impairments and lower gains, partially offset by lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan and core increases. |
*Non-GAAP Financial Measure
NINE MONTHS
Consolidated continuing earnings decreased $1.5 billion.
Industrial
Earnings decreased $1.6 billion, or 41%, excluding the after-tax gains recorded at Corporate of $1.8 billion from the sale of Appliances in the second quarter of 2016 and $1.9 billion from the sale of our Water business in the third quarter of 2017*.
Industrial segment profit decreased $0.6 billion, or 5%, driven by restructuring costs related to Baker Hughes of $0.3 billion, organic operating decreases* of $0.2 billion and the net effects of dispositions of $0.2 billion, partially offset by the net effects of acquisitions of $0.1 billion.
In addition, restructuring and other costs recorded at Corporate increased $1.2 billion, including non-cash impairment charges of $0.9 billion related to goodwill and $0.3 billion related to a power plant asset. Gains recorded at Corporate decreased $0.3 billion, excluding the $3.1 billion pre-tax gain on the sale of Appliances in 2016 and the $1.9 billion pre-tax gain on the sale of our Water business in 2017.
Interest and other financial charges increased $0.4 billion while the provision for income taxes increased $0.5 billion, excluding the tax impacts from the sale of Appliances and the sale of our Water business*.
The net effect of acquisitions on our consolidated operating earnings was a decrease of $0.2 billion while the net effect of dispositions was a decrease of $1.2 billion in 2017.
Foreign exchange adversely affected industrial operating earnings by an insignificant amount in 2017.
Financial Services
Financial Services losses decreased $1.3 billion, or 87% primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan, lower preferred dividend expenses associated with the January 2016 preferred equity exchange and core increases, partially offset by lower gains, higher impairments and lower tax benefits primarily associated with a 2016 IRS tax settlement.
SEGMENT OPERATIONS
|
| | | | | | | | | | | | | | | | | |
| SUMMARY OF OPERATING SEGMENTS |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| Revenues | | | | | | | |
| Power(a) | $ | 8,679 |
| $ | 8,995 |
| (4) | % | | $ | 26,569 |
| $ | 25,664 |
| 4 | % |
| Renewable Energy | 2,905 |
| 2,770 |
| 5 | % | | 7,406 |
| 6,533 |
| 13 | % |
| Oil & Gas | 5,365 |
| 2,964 |
| 81 | % | | 11,475 |
| 9,497 |
| 21 | % |
| Aviation | 6,816 |
| 6,300 |
| 8 | % | | 20,153 |
| 19,074 |
| 6 | % |
| Healthcare | 4,724 |
| 4,482 |
| 5 | % | | 13,714 |
| 13,190 |
| 4 | % |
| Transportation | 1,074 |
| 1,249 |
| (14) | % | | 3,185 |
| 3,471 |
| (8 | )% |
| Lighting(a) | 483 |
| 576 |
| (16) | % | | 1,442 |
| 4,239 |
| (66 | )% |
| Total industrial segment revenues | 30,046 |
| 27,335 |
| 10 | % | | 83,943 |
| 81,667 |
| 3 | % |
| Capital | 2,397 |
| 2,600 |
| (8) | % | | 7,525 |
| 8,256 |
| (9 | )% |
| Total segment revenues | 32,444 |
| 29,936 |
| 8 | % | | 91,468 |
| 89,923 |
| 2 | % |
| Corporate items and eliminations | 1,028 |
| (670 | ) | | | (777 | ) | 681 |
| |
| Consolidated revenues | $ | 33,472 |
| $ | 29,266 |
| 14 | % | | $ | 90,691 |
| $ | 90,604 |
| — | % |
| | | | | | | | |
| Segment profit (loss) | | | | | | | |
| Power(a) | $ | 611 |
| $ | 1,259 |
| (51) | % | | $ | 2,526 |
| $ | 2,924 |
| (14 | )% |
| Renewable Energy | 257 |
| 202 |
| 27 | % | | 524 |
| 413 |
| 27 | % |
| Oil & Gas(b) | (36 | ) | 353 |
| U |
| | 325 |
| 981 |
| (67 | )% |
| Aviation | 1,680 |
| 1,494 |
| 12 | % | | 4,856 |
| 4,366 |
| 11 | % |
| Healthcare | 820 |
| 717 |
| 14 | % | | 2,289 |
| 2,130 |
| 7 | % |
| Transportation | 276 |
| 309 |
| (11) | % | | 634 |
| 747 |
| (15 | )% |
| Lighting(a) | 23 |
| (15 | ) | F |
| | 43 |
| 196 |
| (78 | )% |
| Total industrial segment profit | 3,630 |
| 4,320 |
| (16) | % | | 11,198 |
| 11,756 |
| (5 | )% |
| Capital | 24 |
| 26 |
| (8 | )% | | (195 | ) | (1,466 | ) | 87 | % |
| Total segment profit (loss) | 3,654 |
| 4,345 |
| (16 | )% | | 11,003 |
| 10,290 |
| 7 | % |
| Corporate items and eliminations | (1,095 | ) | (1,524 | ) | | | (4,687 | ) | (2,120 | ) | |
| GE interest and other financial charges | (718 | ) | (483 | ) | | | (1,918 | ) | (1,490 | ) | |
| GE benefit (provision) for income taxes | 64 |
| (241 | ) | | | (297 | ) | (1,034 | ) | |
Earnings (loss) from continuing operations attributable to GE common shareowners | 1,905 |
| 2,097 |
| (9) | % | | 4,101 |
| 5,645 |
| (27 | )% |
| Earnings (loss) from discontinued operations, net of taxes | (106 | ) | (105 | ) | (1 | )% | | (490 | ) | (954 | ) | 49 | % |
| Less net earnings attributable to | | | | | | | |
| noncontrolling interests, discontinued operations | (1 | ) | (2 | ) | | | 6 |
| 2 |
| |
| Earnings (loss) from discontinued operations, | | | | | | | |
| net of tax and noncontrolling interest | (105 | ) | (103 | ) | (2 | )% | | (497 | ) | (956 | ) | 48 | % |
Consolidated net earnings (loss) attributable to the GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| (10) | % | | $ | 3,604 |
| $ | 4,689 |
| (23 | )% |
| |
(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
| |
(b) | Oil & Gas segment operating profit excluding restructuring and other charges was $231 million and $593 million for the three and nine months ended September 30, 2017, respectively. |
REVENUES AND PROFIT
Segment revenues include revenues and other income related to the segment.
Segment profit is determined based on internal performance measures used by the Chief Executive Officer (CEO) to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring, rationalization and other similar expenses, acquisition costs and other related charges, technology and product development costs, certain gains and losses from acquisitions or dispositions, and litigation settlements or other charges, for which responsibility preceded the current management team. Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. See the Corporate Items and Eliminations section within this MD&A for additional information about costs excluded from segment profit.
Segment profit excludes results reported as discontinued operations and material accounting changes. Segment profit also excludes the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributable to our share of the consolidated earnings or loss of consolidated subsidiaries.
Segment profit excludes or includes interest and other financial charges, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:
Interest and other financial charges, income taxes and GE preferred stock 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 shared services, employee benefits, and information technology, are allocated to our segments based on usage. A portion of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.
With respect to the segment revenue and profit walks, the overall effect of foreign exchange is included within multiple captions as follows:
The translational foreign exchange impact is included within Foreign Exchange.
The transactional impact of foreign exchange hedging is included in operating cost within Productivity and in other income within Other.
SIGNIFICANT SEGMENT DEVELOPMENTS
SALE OF APPLIANCES
On January 15, 2016, we announced the signing of an agreement to sell our Appliances business to Haier. On June 6, 2016, we completed the sale for proceeds of $5.6 billion (including $0.8 billion from the sale of receivables originated in our Appliances business and sold from GE Capital to Haier) and recognized an after-tax gain of $1.8 billion in 2016. For the nine months ended September 30, 2016, Appliances contributed revenues of $2.6 billion and an operating profit of $0.3 billion.
CREATION OF BAKER HUGHES, A GE COMPANY
On July 3, 2017, we completed the transaction to create Baker Hughes, a GE company (BHGE). Under the terms of the deal, which we announced in October 2016, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownership interest of approximately 62.5% and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Baker Hughes shareholders also received a cash dividend funded by a $7.5 billion cash contribution from GE. The completion of the transaction followed the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment.
INCLUSION OF ENERGY CONNECTIONS IN POWER REPORTING SEGMENT
Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of the combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting.
SEGMENT RESULTS – THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
|
INDUSTRIAL SEGMENT EQUIPMENT
& SERVICES REVENUES
|
|
|
INDUSTRIAL SEGMENT PROFIT |
|
| |
■ ■Services (a) ■■ Equipment (b)
| |
|
| |
(a) $13.6 billion, excluding $1.5 billion related to Baker Hughes*, and $40.1 billion, excluding $1.5 billion related to Baker Hughes*, for the three and nine months ended September 30, 2017, respectively
(b) $13.9 billion, excluding $1.0 billion related to Baker Hughes*, and $41.3 billion, excluding $1.0 billion related to Baker Hughes*, for the three and nine months ended September 30, 2017, respectively
| (a) $3.8 billion, excluding $(0.1) billion related to Baker Hughes*
(b) $11.3 billion, excluding $(0.1) billion related to Baker Hughes*
|
|
|
2017 – 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30 |
Industrial segment2023, total revenues increased $2.7$7.3 billion or 10%, driven by increases(18%). Equipment revenues increased, primarily at Oil & Gas primarilyRenewable Energy, due to Baker Hughes, Aviation, Healthcarehigher equipment revenue at Offshore Wind associated with Haliade-X ramp up, as well as at Grid; at Aerospace, due to an increase in commercial install and Renewable Energy,spare engine unit shipments; and at Power, due to higher extended scope on projects at Gas Power. Services revenues increased, primarily at Aerospace, due to increased commercial spare part shipments, internal shop visit volume and higher prices; and at Power, due to growth in Gas Power and Steam; partially offset by decreases at Power, Transportation and Lighting.
Industrial segment profit decreased $0.7 billion, or 16%, driven primarily by lower earnings at Power, Oil & Gas primarily due to restructuring costs associated with Baker Hughes, and Transportation, partially offset by higher earnings at Aviation, Healthcare, Renewable Energy and Lighting.
Industrial segment margin decreased 280 bps to 13.0% in 2017 from 15.8% in 2016 driven by negative cost productivity and business mix. Thea decrease in Industrial segment margin reflects decreases at Oil & Gas and Power, offset by increases at Renewable Energy, Healthcare, Transportation, Aviation and Lighting.
|
|
2017 – 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30 |
Industrial segment revenues increased $2.3 billion, or 3%, driven by increases at Oil & Gas primarily due to Baker Hughes, Aviation, Power, Renewable Energy, and Healthcare, partially offset by decreasesfewer repower unit deliveries at Lighting primarily due toOnshore Wind.
Excluding the sale ofchange in Insurance revenues, the Appliances business in the second quarter of 2016, and Transportation.
Industrial segment profit decreased $0.6 billion, or 5%, driven primarily by lower earnings at Oil & Gas, Power, Lighting due to the sale of Appliances in the second quarter of 2016, and Transportation, partially offset by higher earnings at Aviation, Healthcare, and Renewable Energy.
Industrial segment margin decreased 70 bps to 13.7% in 2017 from 14.4% in 2016 driven by price and business mix. The decrease in Industrial segment margin reflects decreases at Oil & Gas, Power and Transportation, partially offset by increases at Aviation, Renewable Energy, Healthcare and Lighting.
*Non-GAAP Financial Measure
|
| | |
MD&A | SEGMENT OPERATIONS | POWER |
POWER
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
(a) Includes Distributed Power
(b) Includes Water & Process Technologies and GE Hitachi Nuclear
|
|
| | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Gas Turbines | 30 | 22 | (8) | 69 | 63 | (6) |
|
| | |
MD&A | SEGMENT OPERATIONS | POWER |
FINANCIAL OVERVIEW
(Dollars in billions) |
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 9.0 |
| $ | 1.3 |
|
| Volume | (0.5 | ) | (0.1 | ) |
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| (0.2 | ) |
| Productivity | N/A |
| (0.4 | ) |
| Other | 0.2 |
| 0.1 |
|
| September 30, 2017 | $ | 8.7 |
| $ | 0.6 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 25.7 |
| $ | 2.9 |
|
| Volume | 0.9 |
| 0.1 |
|
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | (0.1 | ) | — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| (0.2 | ) |
| Productivity | N/A |
| (0.4 | ) |
| Other | 0.3 |
| 0.2 |
|
| September 30, 2017 | $ | 26.6 |
| $ | 2.5 |
|
Segment revenues down $0.3 billion (4%);
Segment profit down $0.6 billion (51%):
The decrease in revenues was driven by lower services volume at Power Services due to 15 fewer AGP upgrades. Equipment volume also decreased, primarily at Gas Power Systems, as a result of eight fewer gas turbine and 32 fewer aeroderivative units, partially offset by seven more Heat Recovery Steam Generator shipments and extended scope including higher balance of plant revenues. Further decreases in revenue were due to lower prices offset by thenet effects of a weaker U.S. dollar versus the euroacquisitions and increased other income including a reduction in foreign exchange transactional losses.
The decrease in profit was due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, lower prices and lower overall volume, partially offset by increased other income including a reduction in foreign exchange transactional losses.
Segment revenues up $0.9 billion (4%);
Segment profit down $0.4 billion (14%):
The increase in revenues was driven by higher equipment volume, primarily at Gas Power Systems, due to higher balance of plant as well as 36 more Heat Recovery Steam Generator shipments, partially offset by six fewer gas turbine and 27 fewer aeroderivative units. Revenues also increased due to increased other income including a reduction in foreign exchange transactional losses offset by lower prices and the effects of a stronger U.S. dollar versus the euro.
The decrease in profit was due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, and lower prices. These decreases were partially offset by positive base cost productivity on higher volume and increased other income including a reduction in foreign exchange transactional losses.
|
| | |
MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
RENEWABLE ENERGY
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Wind Turbines | 976 | 749 | (227) | 2,500 | 2,073 | (427) |
|
| | |
MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 2.8 |
| $ | 0.2 |
|
| Volume | 0.1 |
| — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 2.9 |
| $ | 0.3 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 6.5 |
| $ | 0.4 |
|
| Volume | 0.6 |
| — |
|
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | 0.2 |
| 0.2 |
|
| September 30, 2017 | $ | 7.4 |
| $ | 0.5 |
|
Segment revenues up $0.1 billion (5%);
Segment profit up $0.1 billion (27%):
The increase in revenues was primarily driven by higher services volume due to increased repowering projects at Onshore Wind, partially offset by lower equipment sales driven by 227 fewer wind turbine shipments and 16% fewer megawatts shipped than in the prior year.
The increase in profit was due to positive cost productivity.
Segment revenues up $0.9 billion (13%);
Segment profit up $0.1 billion (27%):
The increase in revenues was primarily driven by higher volume due to increased repowering projects at Onshore Wind and higher equipment sales at Hydro, partially offset by 427 fewer wind turbine shipments and 4% fewer megawatts shipped than in the prior year. Revenues also increased due to increased other income including a reduction in foreign exchange transactional losses,dispositions and the effects of a weaker U.S. dollar, versusorganic revenues* increased $7.0 billion (18%), with equipment revenues up $3.4 billion (22%) and services revenues up $3.6 billion (15%). Organic revenues* increased at Aerospace, Renewable Energy and Power.
| | | | | | | | | | | | | | | | | | |
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | Three months ended September 30 | | Nine months ended September 30 | |
| (Per-share in dollars and diluted) | 2023 | 2022 | | 2023 | 2022 | |
| Continuing earnings (loss) attributable to GE common shareholders | $ | 84 | | $ | (316) | | | $ | 7,183 | | $ | (2,792) | | |
| Continuing earnings (loss) per share | $ | 0.08 | | $ | (0.29) | | | $ | 6.54 | | $ | (2.54) | | |
For the Brazilian real, partially offset by lower prices.
Thethree months ended September 30, 2023, continuing earnings increased $0.4 billion primarily due to an increase in segment profit was due to material deflationof $1.1 billion, an increase in non-operating benefit income of $0.3 billion, a decrease in Adjusted total Corporate operating costs* of $0.1 billion and increaseda decrease in interest and other income including a reduction in foreign exchange transactional losses.financial charges of $0.1 billion. These increases were partially offset by negative cost productivity and lower prices.
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
OIL & GAS
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
(a) Previously referred to as Surface
(b) Previously referred to as Subsea Systems & Drilling
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
■ ■Services ■■ Equipment
|
(a) Included $2.5 billion related to Baker Hughes
(b) Included $2.5 billion related to Baker Hughes
|
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | |
(a) $2.8 billion, excluding $2.5 billion related to Baker Hughes*
(b) $8.9 billion, excluding $2.5 billion related to Baker Hughes*
| | (a) $0.1 billion, excluding $(0.1) billion related to Baker Hughes*
(b) $0.5 billion, excluding $(0.1) billion related to Baker Hughes*
| | (a) 3.9%, excluding (5.7)% related to Baker Hughes*
(b) 5.3%, excluding (5.7)% related to Baker Hughes*
|
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 3.0 |
| $ | 0.4 |
|
| Volume | (0.2 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | 0.1 |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.3 | ) |
| Other | 0.1 |
| — |
|
| Baker Hughes | 2.5 |
| (0.1 | ) |
| September 30, 2017 | $ | 5.4 |
| $ | — |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 9.5 |
| $ | 1.0 |
|
| Volume | (0.5 | ) | (0.1 | ) |
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| (0.5 | ) |
| Other | 0.2 |
| 0.1 |
|
| Baker Hughes | 2.5 |
| (0.1 | ) |
| September 30, 2017 | $ | 11.5 |
| $ | 0.3 |
|
*Non-GAAP Financial Measure
Segment revenues up $2.4 billion (81%);
Segment profit down $0.4 billion (110%):
Thean increase in revenues was primarily driven by the effectslosses on retained and sold ownership interests of Baker Hughes, a weaker U.S. dollar versus the euro and increased other income including a reduction in foreign exchange transactional losses, partially offset by negative market conditions which resulted in lower organic equipment volume primarily in Oilfield Equipment.
The decrease in operating profit was driven by negative variable cost productivity as well as restructuring and other charges, partially offset by increased volume from Baker Hughes.
Segment revenues up $2.0$1.0 billion, (21%);
Segment profit down $0.7 billion (67%):
Thean increase in revenuesprovision for income tax of $0.1 billion and an increase in separation costs of $0.1 billion. Adjusted earnings* were $0.9 billion, an increase of $1.1 billion. Profit margin was primarily driven by1.7%, an increase from (1.6)%. Adjusted profit* was $1.6 billion, an increase of $1.3 billion organically*, due to increases at Renewable Energy, including the effectsnonrecurrence of Baker Hughesa prior year warranty and increased other income including a reduction in foreign exchange transactional losses, partially offset by negative market conditions which resulted in lower prices and lower organic equipment volume primarily in Oilfield Equipment and Turbomachinery & Process Solutions.
The decrease in operating profit was primarily driven by negative variable cost productivity, restructuring and other charges, lower prices, and lower organic volume, partially offset by increased volume from Baker Hughes, deflation and increased other income including a reduction in foreign exchange transactional losses.
|
| | |
MD&A | SEGMENT OPERATIONS | AVIATION |
AVIATION
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | | | | | | | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Commercial Engines | 654 |
| 641 |
| (13 | ) | 2,055 |
| 1,895 |
| (160 | ) |
| LEAP Engines(a) | 22 |
| 111 |
| 89 |
| 33 |
| 257 |
| 224 |
|
| Military Engines | 100 |
| 145 |
| 45 |
| 402 |
| 402 |
| — |
|
| Spares Rate(b) | $ | 19.1 |
| $ | 23.2 |
| $ | 4.1 |
| $ | 18.5 |
| $ | 22.2 |
| $ | 3.7 |
|
(a) LEAP engines are a subset of commercial engines (b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day |
|
| | |
MD&A | SEGMENT OPERATIONS | AVIATION |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 6.3 |
| $ | 1.5 |
|
| Volume | 0.5 |
| 0.1 |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| 0.1 |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| — |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 6.8 |
| $ | 1.7 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 19.1 |
| $ | 4.4 |
|
| Volume | 1.0 |
| 0.2 |
|
| Price | 0.1 |
| 0.1 |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| (0.1 | ) |
| Productivity | N/A |
| 0.2 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 20.2 |
| $ | 4.9 |
|
Segment revenues uprelated charge of $0.5 billion, (8%);primarily at Onshore Wind, and Aerospace. Adjusted profit margin* was 9.8%, an increase of 760 basis points organically*.Segment profit up $0.2For the nine months ended September 30, 2023, continuing earnings increased $10.0 billion, (12%):
The increase in revenues was primarily due to an increase in services volume includinggains on retained and sold ownership interests of $7.0 billion, an increase in segment profit of $2.0 billion, an increase in non-operating benefit income of $0.9 billion, the nonrecurrence of the Steam asset sale impairment of $0.8 billion and a higher commercial spares shipment rate,decrease in interest and other financial charges of $0.3 billion. These increases were partially offset by a decreasean increase in equipment volume. Equipment volume decreased primarilyprovision for income tax of $0.5 billion, an increase in restructuring and other charges of $0.3 billion and an increase in separation costs of $0.2 billion. Adjusted earnings* were $1.9 billion, an increase of $1.8 billion. Profit margin was 16.9%, an increase from (5.8)%. Adjusted profit* was $3.9 billion, an increase of $2.3 billion organically*, due to fewer GE90increases at Aerospace, Renewable Energy and CF6 Commercial engine shipments, partially offset by 89 more LEAP engine shipments thanPower. Adjusted profit margin* was 8.4%, an increase of 420 basis points organically*.
We continue to experience inflation pressure in the prior year.
The increase in profit was mainly driven by higher volume and material deflation.
Segment revenues up $1.1 billion (6%);
Segment profit up $0.5 billion (11%):
The increase in revenues was primarily due to higher services volume including a higher commercial spares shipment rate and military spare parts demand, and higher prices. Equipment revenues decreased primarily due to 160 fewer Commercial engine shipments, partially offset by 224 more LEAP engine shipments than in the prior year.
The increase in profit was mainly driven by positive cost productivity, higher overall volume and higher prices at Services, partially offset by unfavorable business mix due to negative LEAP margin impact.
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
HEALTHCARE
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 4.5 |
| $ | 0.7 |
|
| Volume | 0.3 |
| — |
|
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 4.7 |
| $ | 0.8 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 13.2 |
| $ | 2.1 |
|
| Volume | 0.8 |
| 0.1 |
|
| Price | (0.2 | ) | (0.2 | ) |
| Foreign Exchange | (0.1 | ) | — |
|
| (Inflation)/Deflation | N/A |
| (0.1 | ) |
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.3 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 13.7 |
| $ | 2.3 |
|
Segment revenues up $0.2 billion (5%);
Segment profit up $0.1 billion (14%):
The increase in revenues was due to higher equipment and services volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems.
The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actionsour supply chain, as well as delays in sourcing key materials needed for our products and skilled labor shortages. This has delayed our ability to convert RPO to revenue and negatively impacted our profit margins. While we expect the impact of inflation to continue to be challenging, we have taken and continue to take actions to limit this pressure, including lean initiatives to drive cost productivity, partnering with our suppliers and adjusting the pricing of our products and services. Also, because we operate in many countries around the world, we are subject to complex global geopolitical forces. Due to an expansion of U.S. sanctions related to the ongoing Russia and Ukraine conflict, we recorded a small gain on the dispositioncharge of a nonstrategic operation in Life Sciences, partially offset by lower prices at Healthcare Systems.
Segment revenues up $0.5 billion (4%);
Segment profit up $0.2 billion (7%):
The increase in revenues was due to higher equipment and services volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems and the effects of a stronger U.S. dollar versus the pound sterling and the Chinese renminbi.
The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actions, as well as higher volume, partially offset by lower prices at Healthcare Systems and inflation.
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
TRANSPORTATION
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
(a) Includes Marine, Stationary, Drilling and Digital |
|
| | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2016 | 3Q 2017 | V | YTD 2016 | YTD 2017 | V |
| Locomotives | 200 | 77 | (123) | 578 | 354 | (224) |
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 1.2 |
| $ | 0.3 |
|
| Volume | (0.2 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| 0.1 |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | — |
| — |
|
| September 30, 2017 | $ | 1.1 |
| $ | 0.3 |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 3.5 |
| $ | 0.7 |
|
| Volume | (0.3 | ) | (0.1 | ) |
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| 0.1 |
|
| Productivity | N/A |
| (0.1 | ) |
| Other | — |
| — |
|
| September 30, 2017 | $ | 3.2 |
| $ | 0.6 |
|
Segment revenues down $0.2 billion (14%);
Segment profit down 11%:
The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments and increased services volume including locomotive parts.
The decrease in profit was driven by negative cost productivity, partially offset by a favorable business mix.
Segment revenues down $0.3 billion (8%);
Segment profit down $0.1 billion (15%):
The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments and increased services volume including locomotive parts.
The decrease in profit was driven by negative cost productivity and lower volume, partially offset by a favorable business mix.
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
LIGHTING
OPERATIONAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES
|
|
|
EQUIPMENT/SERVICES REVENUES
|
|
|
■ ■Services ■■ Equipment
|
(a) Lighting began reporting orders in 3Q'16. As a result, 3Q'16 QTD and YTD orders amounts are the same. |
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
FINANCIAL OVERVIEW
(Dollars in billions)
|
| | | | |
SEGMENT REVENUES | | SEGMENT PROFIT | | SEGMENT PROFIT MARGIN |
|
| | | | | | |
| SEGMENT REVENUES & PROFIT WALK: |
| THREE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 0.6 |
| $ | — |
|
| Volume | (0.1 | ) | — |
|
| Price | — |
| — |
|
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| — |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 0.5 |
| $ | — |
|
| |
| NINE MONTHS | |
| | Revenues |
| Profit |
|
| September 30, 2016 | $ | 4.2 |
| $ | 0.2 |
|
| Volume | (2.7 | ) | (0.2 | ) |
| Price | (0.1 | ) | (0.1 | ) |
| Foreign Exchange | — |
| — |
|
| (Inflation)/Deflation | N/A |
| — |
|
| Mix | N/A |
| — |
|
| Productivity | N/A |
| 0.1 |
|
| Other | — |
| — |
|
| September 30, 2017 | $ | 1.4 |
| $ | — |
|
Segment revenues down $0.1 billion (16%);
Segment profit up 253%:
The decrease in revenues was mainly due to lower equipment revenues primarily driven by the decline in sales of traditional lighting product and region exits outside of North America, partially offset by LED, Solar and Digital growth in Current.
The increase in profit was driven by positive cost productivity due to the effects of restructuring actions.
Segment revenues down $2.8 billion (66%);
Segment profit down $0.2 billion (78%):
The decrease in revenues was mainly due to the Appliances disposition in June 2016, lower equipment revenues primarily driven by the decline in sales of traditional lighting product, lower prices and region exits outside of North America, partially offset by LED growth in GE Lighting and Current as well as Solar and Digital growth in Current.
The decrease in profit was due to lower volume driven by the Appliances disposition in June 2016, as well as lower prices, partially offset by positive cost productivity due to the effects of restructuring actions.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
CAPITAL
OPERATIONAL AND FINANCIAL OVERVIEW
(Dollars in billions)
|
|
2017 YTD SUB-SEGMENT REVENUES |
|
|
■■ Verticals ■■ Other Continuing
|
|
|
■■ Verticals ■■ Other Continuing
|
(a) Includes interest and other financial charges and income taxes |
|
|
SIGNIFICANT TRENDS & DEVELOPMENTS |
As of March 30, 2017, GE Capital’s non-US activities are no longer subject to consolidated supervision by the U.K.’s Prudential Regulation Authority (PRA). This completes GE Capital’s global exit from consolidated supervision, having had its designation as a Systemically Important Financial Institution (SIFI) removed in June 2016.
GE Capital paid common dividends of $4.0 billion to GE in the nine months ended September 30, 2017.
Our run-off insurance activities include future policy benefit reserves of $19.2 billion and claim reserves of $4.9 billion at September 30, 2017 of which approximately $9.0 billion and $3.4 billion, respectively, relates to long-term care insurance contracts. We test future policy benefit reserves associated with our run-off insurance activities for premium deficiencies annually. We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts that requires the completion of a comprehensive review of premium deficiency assumptions across all insurance products. This review will be completed in the fourth quarter of 2017. Based upon the work performed to date and complexity of the review as further described within our Critical Accounting Estimates and Note 11 to the consolidated financial statements, a charge2023, primarily related to a probable deficiency is not reasonably estimable at September 30, 2017. Until the above described review has been completed we have deferred the decision whether GE Capital will pay additional dividends to GE.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
THREE MONTHS
Capital revenues decreased $0.2 billion, or 8%, primarily due to higher impairmentsour Power segment, and organic revenue declines, partially offset by higher gains.
Capital earnings decreased 8%, primarily due to lower tax benefits primarily associated with a 2016 IRS tax settlement, higher impairments and lower gains, partially offset by lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan and core increases.
Within Capital, Verticals net earnings decreased $0.2 billion, or 36%, primarily due to higher impairments ($0.2 billion) and lower gains, partially offset by core increases.
Other Capital losses decreased $0.2 billion, or 38%, primarily associated with the GE Capital Exit Plan as follows:
Lower headquarters operation expenses of $0.3 billion.
Lower treasury operation expenses of $0.2 billion reflecting lower excess interest expense and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.
Lower tax benefits of $0.3 billion primarily associated with a 2016 IRS tax settlement.
NINE MONTHS
Capital revenues decreased $0.7 billion, or 9%, primarily due to higher impairments, organic revenue declines and lower gains.
Capital losses decreased $1.3 billion, or 87%, primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan, lower preferred dividend expenses associated with the January 2016 preferred equity exchange and core increases, partially offset by lower gains, higher impairments and lower tax benefits primarily associated with a 2016 IRS tax settlement.
Within Capital, Verticals net earnings decreased 3%, primarily due to lower gains ($0.1 billion) and higher impairments ($0.1 billion), partially offset by core increases ($0.2 billion).
Other Capital losses decreased $1.3 billion, or 45%, primarily associated with the GE Capital Exit Plan as follows:
Lower treasury operation expenses of $0.7 billion reflecting lower excess interest expense, including costs associated with the February and May 2016 debt tenders and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.
Lower headquarters operation expenses of $0.7 billion.
Lower preferred dividend expenses of $0.2 billion associated with the January 2016 preferred equity exchange.
Lower tax benefits of $0.3 billion primarily associated with a 2016 IRS tax settlement.
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
|
| | | | | | | | | | |
| CORPORATE ITEMS AND ELIMINATIONS | | | |
| | | | | | | |
| REVENUES AND OPERATING PROFIT (COST) | | | | | |
| | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | | |
| Revenues | | | | | |
| | Gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| | Eliminations and other | (869 | ) | (878 | ) | | (2,676 | ) | (2,714 | ) |
| Total Corporate Items and Eliminations | 1,028 |
| (670 | ) | | (777 | ) | 681 |
|
| | | | | | | |
| Operating profit (cost) | | | | | |
| | Gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| | Restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
| | Principal retirement plans(a) | (583 | ) | (542 | ) | | (1,668 | ) | (1,489 | ) |
| | Eliminations and other | (383 | ) | (507 | ) | | (1,164 | ) | (1,469 | ) |
| Total Corporate Items and Eliminations | (1,095 | ) | (1,524 | ) | | (4,687 | ) | (2,120 | ) |
| | | | | | | |
| CORPORATE COSTS | | | | | |
| | | | | | | |
| | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | | |
| Total Corporate Items and Eliminations | (1,095 | ) | (1,524 | ) | | (4,687 | ) | (2,120 | ) |
| Less: non-operating pension cost | (570 | ) | (511 | ) | | (1,708 | ) | (1,534 | ) |
Total Corporate costs (operating)* | (525 | ) | (1,012 | ) | | (2,979 | ) | (586 | ) |
| Less: restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
Less: gains (losses) on disposals
| 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted total corporate costs (operating)* | (396 | ) | (538 | ) | | (1,124 | ) | (1,424 | ) |
| |
(a) | Included non-operating pension cost* of $0.6 billion and $0.5 billion in the three months ended September 30, 2017 and 2016, respectively, and $1.7 billion and $1.5 billion in the nine months ended September 30, 2017 and 2016, respectively, which includes expected return on plan assets, interest costs and non-cash amortization of actuarial gains and losses. |
2017 - 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
Revenues and other income increased $1.7 billion, primarily as a result of:
$1.9 billion gain from the sale of our Water businessremaining net asset exposure to Suez
This increase to revenues and other income was partially offset by the following:
$0.2 billion of lower other income for the nonrecurrence of a $0.4 billion gain from the sale of GE Asset Management to State
Street Corporation and a $0.2 billion charge related to the sale of a non-strategic platform in the Aviation business in the
third quarter of 2016
Operating costs decreased $0.4 billion, primarily as a result of:
$1.9 billion of higher gains from the sale of our Water business to Suez
$0.1 billion of lower corporate structural costs
These decreases to operating costs were partially offset by the following:
$1.3 billion of higher restructuring and other charges driven by a charge of $0.9 billion for the impairment of Power Conversion
goodwill and a charge of $0.3 billion for the impairment of a power plant asset
2017 - 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
Revenues and other income decreased $1.5 billion, primarily as a result of:
$1.5 billion of lower net gains primarily driven by the nonrecurrence of the sale of our Appliances business to Haier for $3.1
billion in the second quarter of 2016, partially offset by the sale of our Water business to Suez for $1.9 billion in the third
quarter of 2017
Russia is not material.
*Non-GAAP Financial Measure
20172023 3Q FORM 10-Q 335
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
Operating costs increased $2.6 billion, primarily as a result of:
$1.5 billion of lower net gains primarily driven bySEGMENT OPERATIONS.Refer to the nonrecurrence of the salerevised portions of our Appliances business2022 Form 10-K on Form 8-K as filed on April 25, 2023 for further information regarding our determination of segment profit for continuing operations and for our allocations of corporate costs to Haierour segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SUMMARY OF REPORTABLE SEGMENTS | Three months ended September 30 | | Nine months ended September 30 | |
| 2023 | 2022 | V | % | | 2023 | 2022 | V | % | |
| Aerospace | $ | 8,409 | | $ | 6,705 | | 25 | | % | | $ | 23,250 | | $ | 18,434 | | 26 | | % | |
| Renewable Energy | 4,151 | | 3,594 | | 15 | | % | | 10,837 | | 9,564 | | 13 | | % | |
| Power | 3,974 | | 3,529 | | 13 | | % | | 11,945 | | 11,233 | | 6 | | % | |
| Total segment revenues | 16,533 | | 13,828 | | 20 | | % | | 46,032 | | 39,231 | | 17 | | % | |
| Corporate | 812 | | 643 | | 26 | | % | | 2,498 | | 2,041 | | 22 | | % | |
| Total revenues | $ | 17,346 | | $ | 14,470 | | 20 | | % | | $ | 48,531 | | $ | 41,272 | | 18 | | % | |
| | | | | | | | | | |
| Aerospace | $ | 1,712 | | $ | 1,284 | | 33 | | % | | $ | 4,516 | | $ | 3,341 | | 35 | | % | |
| Renewable Energy | (317) | | (934) | | 66 | | % | | (1,090) | | (1,786) | | 39 | | % | |
| Power | 238 | | 141 | | 69 | | % | | 690 | | 524 | | 32 | | % | |
| Total segment profit (loss) | 1,633 | | 492 | | F | | | 4,117 | | 2,079 | | 98 | | % | |
| Corporate(a) | (1,399) | | (405) | | U | | | 3,858 | | (3,534) | | F | | |
| Interest and other financial charges | (275) | | (361) | | 24 | | % | | (786) | | (1,085) | | 28 | | % | |
| | | | | | | | | | |
| Non-operating benefit income (cost) | 396 | | 96 | | F | | | 1,183 | | 302 | | F | | |
| | | | | | | | | | |
| Benefit (provision) for income taxes | (180) | | (64) | | U | | | (895) | | (362) | | U | | |
| Preferred stock dividends | (91) | | (73) | | (25) | | % | | (295) | | (192) | | (54) | | % | |
| Earnings (loss) from continuing operations attributable to GE common shareholders | 84 | | (316) | | F | | | 7,183 | | (2,792) | | F | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Earnings (loss) from discontinued operations attributable to GE common shareholders | 173 | | 403 | | (57) | | % | | 411 | | 743 | | (45) | | % | |
| Net earnings (loss) attributable to GE common shareholders | $ | 258 | | $ | 88 | | F | | | $ | 7,594 | | $ | (2,049) | | F | | |
(a) Includes interest and other financial charges of $11 million and $13 million and $36 million and $45 million; and benefit for $3.1income taxes of $42 million and $52 million and $153 million and $160 million related to Energy Financial Services (EFS) within Corporate for the three and nine months ended September 30, 2023 and 2022, respectively.
billion in the second quarter of 2016, partially offset by the sale of our Water business to Suez for $1.9 billion
GE AEROSPACE. Our results in the third quarter of 2017
$1.2 billion2023 reflect robust demand for commercial air travel and continued strength in services, which represents 73% of higher restructuringAerospace’s revenue this quarter. A key underlying driver of our commercial engine and other charges drivenservices business is global commercial departures, which grew mid-teens during the third quarter of 2023 compared to the third quarter of 2022. The air traffic growth trends vary by a charge of $0.9 billion forregion given economic conditions, airline competition and government regulations. Consistent with industry projections, we estimate air traffic to grow in line with the impairment of Power Conversion
goodwill and a charge of $0.3 billion for the impairment of a power plant asset
$0.2 billion of higher costs associatedglobal economic conditions. We are in frequent dialogue with our principal retirement plans,airline, airframe, and maintenance, repair and overhaul customers about the outlook for commercial air travel, new aircraft production, fleet retirements, and after-market services, including shop visit and spare parts demand.
As it relates to the effectsdefense environment, we continue to forecast strong demand creating future growth opportunities for our Defense business (previously referred to as our Military business). The U.S. Department of lower discount rates
These increases to operating costs were partially offset by the following:
$0.3 billion of lower corporate structural costs
RESTRUCTURING
Restructuring actions are an essential component of our cost improvement efforts to both existingDefense and foreign governments have continued flight operations and thosehave allocated budgets to upgrade and modernize their existing fleets, including support for next generation large-combat engine architecture such as Aerospace’s XA100 program. More recently, acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associatedAerospace achieved a significant milestone with the consolidationU.S. Army's acceptance of the first two T901 flight test engines that will power the Future Attack Reconnaissance Aircraft prototypes.
We increased our Commercial engine sales servicethis quarter compared to prior year, however, Defense engine sales decreased compared to prior year. Global material availability, supplier delivery performance and manufacturing facilities, the integration of recent acquisitions, including Alstom, the Baker Hughes transaction,skilled labor shortages continue to cause disruptions for us and other asset write-downs.our suppliers and have impacted our production and delivery. We continue to closely monitorpartner with our customers on future production rates. Aerospace is proactively managing the economic environmentimpact of inflationary pressure by deploying lean initiatives to drive cost productivity, partnering with our suppliers and may undertake further restructuringadjusting the pricing of our products and services. We expect the impact of inflation will continue, and we are taking actions to mitigate the impact.
Total engineering, comprising company, customer and partner-funded and nonrecurring engineering costs, increased compared to the prior year. We remain committed to investing in developing and maturing technologies that enable a more closely alignsustainable future of flight.
Notably, CFM’s Revolutionary Innovation for Sustainable Engines (RISE) program represents our cost structuresingle largest efficiency step change, aiming to reduce fuel consumption and CO2 emissions by at least 20% compared to today’s most efficient engines.
We continue to take actions to serve our customers as demand in the global airline industry increases. Aerospace has a deep history of innovation and technology leadership. Our commercial and defense engine installed base, including units produced by joint ventures, of approximately 67,000 units, with earningsapproximately 12,400 units under long-term service agreements, supports recurring, profitable services growth for the future. We believe these strong fundamentals position Aerospace to generate long-term profitable growth and cost reduction goals.higher cash flow over time.
|
| | | | | | | | | | | | | | | |
| RESTRUCTURING & OTHER CHARGES |
| | | Three months ended September 30 | Nine months ended September 30 |
| (In billions) | | 2017 | | 2016 | 2017 | | 2016 |
| | | | | | | | |
| Workforce reductions | | $ | 0.3 |
| | $ | 0.3 |
| $ | 1.0 |
| | $ | 0.9 |
|
| Plant closures & associated costs and other asset write-downs | | 0.8 |
| | 0.2 |
| 1.3 |
| | 0.9 |
|
| Acquisition/disposition net charges | | 0.3 |
| | 0.1 |
| 0.7 |
| | 0.5 |
|
| Goodwill impairment(a) | | 0.9 |
| | — |
| 0.9 |
| | — |
|
| Other | | — |
| | 0.1 |
| 0.1 |
| | 0.3 |
|
| Total(b)(c) | | $ | 2.4 |
| | $ | 0.7 |
| $ | 4.1 |
| | $ | 2.6 |
|
| |
(a) | This amount was recorded in Other costs and expenses in the Statement of Earnings. See Note 8 to the consolidated financial statements for further information. |
| |
(b) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. |
| |
(c) | Included $2.0 billion in GE and $0.4 billion in our Oil & Gas segment for the three months ended September 30, 2017, and $0.6 billion in GE and $0.1 billion in our Oil & Gas segment for the three months ended September 30, 2016. Included $3.5 billion in GE and $0.6 billion in our Oil & Gas segment for the nine months ended September 30, 2017, and $1.9 billion in GE and $0.6 billion in our Oil & Gas segment for the nine months ended September 30, 2016. |
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| Sales in units, except where noted | 2023 | 2022 | | 2023 | 2022 | |
| Commercial Engines(a) | 520 | | 489 | | | 1,544 | | 1,187 | | |
| LEAP Engines(b) | 389 | | 347 | | | 1,174 | | 812 | | |
| Defense Engines | 95 | | 151 | | | 403 | | 466 | | |
| Spare Parts Rate(c) | $ | 42.4 | | $ | 29.4 | | | $ | 35.4 | | $ | 25.2 | | |
(a) Commercial Engines now includes Business Aviation and Aeroderivative units for all periods presented. (b) LEAP engines are subsets of commercial engines. (c) Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day. |
2017 - 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
| | | | | | | | | |
| RPO | September 30, 2023 | December 31, 2022 | |
| Equipment | $ | 15,909 | | $ | 13,748 | | |
| Services | 126,863 | | 121,511 | | |
| Total RPO | $ | 142,772 | | $ | 135,260 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | | 2022 | | | 2023 | | 2022 | | | |
| Commercial Engines & Services | $ | 6,399 | | | $ | 4,971 | | | | $ | 17,293 | | | $ | 13,130 | | | | |
| Defense | 1,111 | | | 1,027 | | | | 3,470 | | | 3,159 | | | | |
| Systems & Other | 900 | | | 707 | | | | 2,487 | | | 2,146 | | | | |
| Total segment revenues | $ | 8,409 | | | $ | 6,705 | | | | $ | 23,250 | | | $ | 18,434 | | | | |
| | | | | | | | | | | |
| Equipment | $ | 2,299 | | | $ | 1,968 | | | | $ | 6,806 | | | $ | 5,379 | | | | |
| Services | 6,111 | | | 4,736 | | | | 16,445 | | | 13,055 | | | | |
| Total segment revenues | $ | 8,409 | | | $ | 6,705 | | | | $ | 23,250 | | | $ | 18,434 | | | | |
| | | | | | | | | | | |
| Segment profit | $ | 1,712 | | | $ | 1,284 | | | | $ | 4,516 | | | $ | 3,341 | | | | |
| Segment profit margin | 20.4 | | % | 19.1 | | % | | 19.4 | | % | 18.1 | | % | | |
For the three months ended September 30, 2017, restructuring2023, segment revenues were up $1.7 billion (25%) and other chargessegment profit was up $0.4 billion (33%).
Revenues increased $1.7 billion (25%) organically*. Commercial Services revenues increased, primarily due to increased commercial spare part shipments and higher prices. Commercial Engines revenues increased, from 31 more commercial install and spare engine unit shipments, including 42 more LEAP units compared to the prior year. Defense revenues increased, primarily due to growth in spare part shipments and development contract revenue, partially offset by 56 fewer engine shipments than the prior year.
Profit increased $0.4 billion (33%) organically*, primarily due to benefits from increased commercial spare part shipments and higher prices. These increases in profit were $2.4partially offset by additional growth investment, inflation in our supply chain and product mix.
For the nine months ended September 30, 2023, segment revenues were up $4.8 billion (26%) and segment profit was up $1.2 billion (35%).
RPO as of which approximately $0.8September 30, 2023 increased $7.5 billion was reported(6%) from December 31, 2022, due to increases in costboth equipment and services. Equipment increased primarily due to an increase in both Commercial and Defense equipment orders since December 31, 2022. Services increased primarily due to contract modifications and as a result of products/engines contracted under long-term service agreements that have now been put into service.
Revenues increased $4.8 billion (26%) organically*. Commercial Services revenues increased, primarily due to increased commercial spare part shipments, internal shop visit volume and higher prices. Commercial Engines revenue increased, from 357 more commercial install and spare engine unit shipments, including 362 more LEAP units compared to the prior year. Defense revenues increased, primarily due to product mix and growth in services, $0.7partially offset by 63 fewer engine shipments than the prior year.
Profit increased $1.1 billion was reported(33%) organically*, primarily due to benefits from increased commercial spare part shipments, internal shop visit volume and higher prices. These increases in selling, generalprofit were partially offset by additional growth investment, inflation in our supply chain and administrative expenses (SG&A), and $0.9 billion was reported in other costs and expenses. These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.6 billion forproduct mix.
RENEWABLE ENERGY – will be part of GE Vernova. During the three months ended September 30, 2017. Of2023, the total $2.4segment experienced higher orders and revenue from increased demand at Grid and higher revenue at Offshore Wind. The Inflation Reduction Act of 2022 (IRA) introduces new and extends existing tax incentives for at least 10 years. It is expected to resolve recent U.S. policy uncertainty that resulted in project delays and deferral of customer investments in Onshore Wind and increase near- and longer-term demand in the U.S. for onshore and offshore wind projects. Included in our RPO of $40.8 billion restructuringat September 30, 2023 are service agreements on approximately 25,000 of our onshore wind turbine installed base of approximately 57,000 units. New product introductions, such as our 3 MW, 5 MW and 6 MW Onshore units, and our 12-14 MW Haliade-X Offshore units, account for approximately half of our RPO in Onshore and Offshore Wind.
*Non-GAAP Financial Measure
At Onshore Wind, we continue to focus on improving our overall quality and fleet availability. We are reducing product variants and deploying repairs and other charges, $0.4 billion was recordedcorrective measures across the fleet. Concurrently, we intend to operate in fewer geographies and focus on those markets that align better with our products and manufacturing footprint. We are realizing the favorable impact of the IRA through a reduction in product costs as qualifying turbines manufactured in the Oil & Gas segment, which amountedU.S. in 2023 are delivered. Approximately half of Onshore Wind’s equipment RPO is associated with U.S. projects where we expect to $0.3receive additional IRA benefits as incremental qualifying turbines are delivered. Finally, we are continuing our restructuring program to reduce our operating costs and are beginning to see the benefits of the above programs.
The Offshore Wind industry, where we expect global growth through the coming decades, currently faces challenges as companies attempt to increase output and reduce costs of new product introductions. Our Offshore Wind business continues to experience pressure related to our product and project cost estimates, as well as in our delivery schedule projections. Although we are deploying countermeasures to combat these pressures and are committed to driving improvement, the increase in production levels for our new larger turbines remains a key challenge that could result in future losses. In the third quarter of 2023, the first 13 MW Haliade-X units are now producing electricity.
Our Grid Solutions business is positioned to support grid expansion and modernization needs globally. We are experiencing strong European demand for High Voltage Direct Current (HVDC) solutions and are securing our position in the rapid growth offshore and onshore interconnection markets. Our HVDC transmission products help customers meet the 2GW HVDC solution standard, and we are developing new technology that solves for a denser, more resilient, stable and efficient electric grid; a grid with lower future greenhouse gas emissions. We also benefited from higher growth in orders from other transmission and grid automation related products within our Grid Solutions business.
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| | | | |
| Sales in units, except where noted | 2023 | 2022 | | 2023 | 2022 | |
| Wind Turbines | 666 | | 640 | | | 1,718 | | 1,703 | | |
| Wind Turbine Gigawatts | 2.5 | | 2.2 | | | 6.4 | | 5.8 | | |
| | | | | | |
| | | | | | |
| Repower units | 50 | | 140 | | | 179 | | 415 | | |
| | | | | | |
| | | | | | |
| | | | | | | | | |
| RPO | September 30, 2023 | December 31, 2022 | |
| Equipment(a) | $ | 26,627 | | $ | 20,142 | | |
| Services | 14,150 | | 14,799 | | |
| Total RPO | $ | 40,777 | | $ | 34,941 | | |
(a) Includes $5.9 billion net of noncontrolling interest.and $5.3 billion related to Offshore Wind at September 30, 2023 and December 31, 2022, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | | Nine months ended September 30 | | | |
| 2023 | | 2022 | | | 2023 | | 2022 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Onshore Wind | $ | 2,431 | | | $ | 2,445 | | | | $ | 6,249 | | | $ | 6,403 | | | | |
| Grid Solutions equipment and services | 946 | | | 744 | | | | 2,693 | | | 2,145 | | | | |
| | | | | | | | | | | |
| Offshore Wind, Hydro and Hybrid Solutions | 773 | | | 405 | | | | 1,895 | | | 1,016 | | | | |
| Total segment revenues | $ | 4,151 | | | $ | 3,594 | | | | $ | 10,837 | | | $ | 9,564 | | | | |
| | | | | | | | | | | |
| Equipment | $ | 3,554 | | | $ | 2,887 | | | | $ | 9,084 | | | $ | 7,505 | | | | |
| Services | 597 | | | 707 | | | | 1,754 | | | 2,059 | | | | |
| Total segment revenues | $ | 4,151 | | | $ | 3,594 | | | | $ | 10,837 | | | $ | 9,564 | | | | |
| | | | | | | | | | | |
| Segment profit (loss) | $ | (317) | | | $ | (934) | | | | $ | (1,090) | | | $ | (1,786) | | | | |
| Segment profit margin | (7.6) | | % | (26.0) | | % | | (10.1) | | % | (18.7) | | % | | |
For the three months ended September 30, 2016, restructuring2023, segment revenues were up $0.6 billion (15%) and other chargessegment losses were down $0.6 billion (66%).
Revenues increased $0.5 billion (14%) organically*, primarily from higher equipment revenue across Grid and Offshore Wind and improved pricing on units delivered at Onshore Wind. Wind turbine deliveries increased by 26 units primarily at Offshore Wind, while repower deliveries decreased by 90 units.
Segment losses decreased $0.7 billion organically*, primarily attributable to the nonrecurrence of which approximatelya prior year warranty and related charge of $0.5 billion, was reported in cost of products/services and $0.2 billion was reported in SG&A. These activities were primarily at Power, Oil & GasOnshore Wind, improved pricing at Onshore Wind, benefits arising from the IRA on product cost at Onshore Wind and Lighting. Cash expenditures for restructuringthe impact of cost reduction initiatives at Grid and other chargesOnshore Wind, where both businesses were approximately $0.5 billion forprofitable in the three months ended September 30, 2016.
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
2017 - 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
quarter. These increases were partially offset by higher losses at Offshore Wind associated with the Haliade-X ramp up and project losses, as well as lower repower volume at Onshore Wind.
For the nine months ended September 30, 2017, restructuring and other charges2023, segment revenues were $4.1 billion of which approximately $1.9 billion was reported in cost of products/services,up $1.3 billion was reported(13%) and segment losses were down $0.7 billion (39%).
RPO as of September 30, 2023 increased $5.8 billion (17%) from December 31, 2022 primarily from several new HVDC projects at Grid and a new Offshore Wind project in SG&A, andthe U.S., partially offset by reductions at Onshore Wind driven by a decrease in repower, partially offset by increases on new unit orders, primarily in North America.
*Non-GAAP Financial Measure
Revenues increased $1.5 billion (15%) organically*, primarily from higher equipment revenue at Offshore Wind associated with the Haliade-X ramp up, as well as at Grid. These increases were partially offset by fewer repower unit deliveries at Onshore Wind.
Segment losses decreased $0.9 billion was reported in other costs(48%) organically*, primarily attributable to the nonrecurrence of a prior year warranty and expenses. These activities wererelated charge of $0.5 billion, primarily at Power, CorporateOnshore Wind, improved pricing at Onshore Wind and Oil & Gas. Cash expenditures for restructuringGrid, benefits arising from the IRA on product cost at Onshore Wind, the impact of cost reduction initiatives at Grid and other chargesOnshore Wind and higher revenue at Grid. These benefits were approximately $1.6 billion forpartially offset by higher losses at Offshore Wind associated with Haliade-X ramp up and project losses, as well as lower repower volume at Onshore Wind.
POWER – will be part of GE Vernova. During the ninethree months ended September 30, 2017. Of2023, GE gas turbine utilization was stable, with strength in the total $4.1 billion restructuringU.S. offset by lower utilization in Europe due to nuclear and hydro recoveries as well as renewables growth. Global electricity demand was also stable with record breaking temperatures driving low single digit gains in the U.S. offset in Europe as energy saving policies continue to take effect. Utilization of the fleet remains resilient following global gas power generation trends. As we continue to work in emerging markets, there could be uncertainty in the timing of deal closures due to financing and other charges,complexities. Power has proactively managed the impact of inflationary pressure by deploying lean initiatives to drive cost productivity, partnering with our suppliers and adjusting the pricing of our products and services. Given the long-cycle nature of the business, we expect the impact of inflation will continue to be challenging and we will continue to take actions to manage.
Although market factors related to the energy transition such as greater renewable energy penetration and the adoption of climate change-related policies continue to evolve, we expect the gas power market to remain stable over the next decade with gas power generation continuing to grow low-single-digits. We believe gas power will play a critical role in the energy transition by providing a critical foundation of dispatchable, flexible power and system inertia from which the energy transition can build upon. We remain focused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdles, where we have high confidence in delivering for our customers.
In the first quarter of 2022, we signed a non-binding memorandum of understanding for GE Steam Power to sell a part of its nuclear activities to Électricité de France S.A. (EDF), which resulted in a reclassification of that business to held for sale. In the fourth quarter of 2022, we signed a binding agreement and expect to complete the sale, subject to regulatory approvals and other customary closing conditions, during the fourth quarter of 2023. On April 3, 2023, our Gas Power business acquired Nexus Controls, a business specializing in aftermarket control system upgrades and controls field services that is expected to strengthen our quality, service, and delivery of our customers' assets.
We continue to invest in new product development. In Nuclear, we have signed an agreement with a customer for the deployment of small modular nuclear reactor technology with the potential to enable reductions in nuclear power plant costs and cycle times. In Gas Power, we continue to invest for the long-term, including multiple decarbonization pathways that will provide customers with cleaner, more reliable power. Our fundamentals remain strong with approximately $70.5 billion in RPO and a gas turbine installed base of approximately 7,000 units and approximately 1,700 units under long-term service agreements with an average life of 10 years. This includes 27 HA-Turbines in RPO and 88 HA-Turbines in the installed base with over two million operating hours.
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| | | | | |
| Sales in units | 2023 | 2022 | | 2023 | 2022 | | |
| GE Gas Turbines | 19 | | 20 | | | 56 | | 69 | | | |
| Heavy-Duty Gas Turbines(a) | 12 | | 14 | | | 39 | | 37 | | | |
| HA-Turbines(b) | 2 | | 3 | | | 9 | | 6 | | | |
| Aeroderivatives(a) | 7 | | 6 | | | 17 | | 32 | | | |
| | | | | | | |
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines.
(b) HA-Turbines are a subset of Heavy-Duty Gas Turbines. | |
| | | | | | | | | |
| RPO | September 30, 2023 | December 31, 2022 | |
| Equipment | $ | 12,390 | | $ | 11,561 | | |
| Services | 58,146 | | 57,420 | | |
| Total RPO | $ | 70,536 | | $ | 68,981 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | | Nine months ended September 30 | | |
| 2023 | | 2022 | | | 2023 | | 2022 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Gas Power | $ | 2,952 | | | $ | 2,612 | | | | $ | 8,872 | | | $ | 8,234 | | | | |
| Steam Power | 571 | | | 571 | | | | 1,762 | | | 1,898 | | | | |
| Power Conversion, Nuclear and other | 450 | | | 346 | | | | 1,311 | | | 1,101 | | | | |
| Total segment revenues | $ | 3,974 | | | $ | 3,529 | | | | $ | 11,945 | | | $ | 11,233 | | | | |
| | | | | | | | | | | |
| Equipment | $ | 1,251 | | | $ | 954 | | | | $ | 3,426 | | | $ | 3,116 | | | | |
| Services | 2,722 | | | 2,575 | | | | 8,519 | | | 8,117 | | | | |
| Total segment revenues | $ | 3,974 | | | $ | 3,529 | | | | $ | 11,945 | | | $ | 11,233 | | | | |
| | | | | | | | | | | |
| Segment profit (loss) | $ | 238 | | | $ | 141 | | | | $ | 690 | | | $ | 524 | | | | |
| Segment profit margin | 6.0 | | % | 4.0 | | % | | 5.8 | | % | 4.7 | | % | | |
*Non-GAAP Financial Measure
For the three months ended September 30, 2023, segment revenues were up $0.4 billion (13%) and segment profit was recorded in the Oil & Gas segment, which amounted toup $0.1 billion (69%).
Revenues increased $0.3 billion net(9%) organically*, primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, increases in Power Conversion equipment and services, and an increase in Steam Power services. Increases were partially offset by a reduction in Steam Power equipment due to the ongoing exit of noncontrolling interest.new build coal.
Profit increased $0.1 billion (61%) organically* primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, partially offset by a decrease in Gas Power contractual services, primarily related to lower contract escalation tied to external indices, more than offsetting increases in contractual services volume.
For the nine months ended September 30, 2016, restructuring2023, segment revenues were up $0.7 billion (6%) and other charges were $2.6segment profit was up $0.2 billion (32%).
RPO as of which approximatelySeptember 30, 2023 increased $1.6 billion was reported(2%) from December 31, 2022, primarily driven by increases in costGas Power equipment, Power Conversion equipment and growth in Gas Power contractual and non-contractual services, partially offset by decreases due to the impact of products/expanded sanctions on Gas Power contractual services $0.8in Russia.
Revenues increased $0.6 billion was reported(5%) organically*, primarily due to an increase in SG&A. These activities wereGas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, and increases in Gas Power and Steam services, partially offset by a reduction in Steam Power equipment due to the ongoing exit of new build coal.
Profit increased $0.2 billion (27%) organically* primarily atdue to an increase in Gas Power Oil &equipment from higher price and scope on Heavy-Duty Gas Turbines and Healthcare. Cash expenditures for restructuringscope on Aeroderivatives, and other charges were approximately $1.2 billion foran increase in Gas Power services.
CORPORATE.The Corporate amounts related to revenues and earnings include the nine months ended September 30, 2016.
COSTS NOT INCLUDED IN SEGMENT RESULTS
As discussed in the Segment Operations section within the MD&A,results of disposed businesses, certain amounts are not included in industrialoperating segment results because they are excluded from measurement of their operating performance for internal and external purposes. The amountpurposes and the elimination of costs not included in segment results follows.
|
| | | | | | | | | | | | | | | | |
| COSTS | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In billions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
Power(a) | $ | 1.1 |
| | $ | 0.4 |
| | $ | 1.7 |
| | $ | 1.0 |
| |
| Renewable Energy | — |
| | — |
| | 0.2 |
| | 0.2 |
| |
| Oil & Gas(b) | — |
| | 0.1 |
| | 0.2 |
| | 0.7 |
| |
| Aviation | — |
| | — |
| | 0.1 |
| | 0.1 |
| |
| Healthcare | 0.1 |
| | 0.1 |
| | 0.2 |
| | 0.4 |
| |
| Transportation | — |
| | — |
| | 0.1 |
| | 0.2 |
| |
Lighting(a) | — |
| | 0.1 |
| | 0.2 |
| | 0.2 |
| |
| Total | $ | 1.3 |
| | $ | 0.7 |
| | $ | 2.7 |
| | $ | 2.7 |
| |
|
| | | | | | | | | | | | | | | | |
| GAINS (LOSSES) | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In billions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
Power(a) | $ | 1.9 |
| | — |
| | $ | 1.9 |
| | — |
| |
| Renewable Energy | — |
| | — |
| | — |
| | — |
| |
| Oil & Gas | — |
| | — |
| | — |
| | — |
| |
| Aviation | — |
| | (0.2 | ) | | — |
| | (0.2 | ) | |
| Healthcare | — |
| | — |
| | — |
| | — |
| |
| Transportation | — |
| | — |
| | — |
| | — |
| |
Lighting(a) | — |
| | — |
| | — |
| | 3.1 |
| (c) |
| Total | $ | 1.9 |
| | $ | (0.2 | ) | | $ | 1.9 |
| | $ | 2.9 |
| |
| |
(a) | Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment has been combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting. |
| |
(b) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment operating profit for our Oil & Gas segment. |
| |
(c) | Related to the sale of our Appliances business in the second quarter of 2016. |
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MD&A | OTHER CONSOLIDATED INFORMATION |
OTHER CONSOLIDATED INFORMATION
INCOME TAXES
GE paysintersegment activities. In addition, the income taxes it owes in every country it does business. Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in approximately 180 countries and more than halfCorporate amounts related to earnings include certain costs of our revenue is earned outsideprincipal retirement plans, significant, higher-cost restructuring programs, separation costs, and other costs reported in Corporate.
Corporate includes the U.S., often in countriesresults of the GE Digital business and our remaining financial services business, including our run-off Insurance business (see Note 13 for further information) and EFS.
| | | | | | | | | | | | | | | | | | |
| REVENUES AND OPERATING PROFIT (COST) | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | | 2023 | 2022 | |
| GE Digital revenues | $ | 226 | | $ | 210 | | | $ | 696 | | $ | 635 | | |
| Insurance revenues (Note 13) | 842 | | 645 | | | 2,480 | | 2,175 | | |
| Eliminations and other | (256) | | (211) | | | (678) | | (768) | | |
| Total Corporate revenues | $ | 812 | | $ | 643 | | | $ | 2,498 | | $ | 2,041 | | |
| | | | | | |
| Gains (losses) on retained and sold ownership interests (Note 19) | $ | (1,109) | | $ | (101) | | | $ | 5,157 | | $ | (1,852) | | |
| Gains (losses) on other equity securities | (1) | | 12 | | | (5) | | (8) | | |
| Gains (losses) on purchases and sales of business interests | 6 | | 22 | | | (13) | | 28 | | |
| Restructuring and other charges (Note 20) | (149) | | (103) | | | (438) | | (173) | | |
| Separation costs (Note 20) | (227) | | (171) | | | (658) | | (419) | | |
| Steam asset sale impairment (Note 7) | — | | — | | | — | | (825) | | |
| Russia and Ukraine charges | — | | (33) | | | (190) | | (263) | | |
| | | | | | |
| Insurance profit (loss) (Note 13) | 99 | | 102 | | | 233 | | 264 | | |
| Adjusted total Corporate operating costs (Non-GAAP) | (18) | | (133) | | | (228) | | (286) | | |
| Total Corporate operating profit (cost) (GAAP) | $ | (1,399) | | $ | (405) | | | $ | 3,858 | | $ | (3,534) | | |
| Less: gains (losses), impairments, Insurance, and restructuring & other | (1,381) | | (272) | | | 4,086 | | (3,247) | | |
| Adjusted total Corporate operating costs (Non-GAAP) | $ | (18) | | $ | (133) | | | $ | (228) | | $ | (286) | | |
| | | | | | |
| Functions & operations | $ | (50) | | $ | (119) | | | $ | (312) | | $ | (238) | | |
| Environmental, health and safety (EHS) and other items | (2) | | (22) | | | 29 | | (81) | | |
| Eliminations | 34 | | 9 | | | 55 | | 32 | | |
| Adjusted total Corporate operating costs (Non-GAAP) | $ | (18) | | $ | (133) | | | $ | (228) | | $ | (286) | | |
Adjusted total corporate operating costs* excludes gains (losses) on purchases and sales of business interests, significant, higher-cost restructuring programs, separation costs, gains (losses) on equity securities, impairments and our run-off Insurance business profit. We believe that adjusting corporate costs to exclude the effects of items that are not closely associated with lower tax rates than inongoing corporate operations provides management and investors with a meaningful measure that increases the U.S. We reinvest mostperiod-to-period comparability of our foreign earnings overseas to be able to fund our active non-U.S. business operations. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, such as research and development, and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.ongoing corporate costs.
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE’s tax payments are due.
See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information on income taxes.
CONSOLIDATED – THREE AND NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
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PROVISION (BENEFIT) FOR INCOME TAXES |
2017 – 2016 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
The consolidated income tax rate was (23)% and 1% for the quarters ended September 30, 2017 and 2016, respectively.
The third quarter 2017 consolidated tax rate reflects a 128% tax rate on $0.2 billion of pre-tax loss at GE Capital and a (4)% tax rate* on $1.7 billion of pre-tax income at GE.
The third quarter 2016 consolidated tax rate reflects a 137% tax rate on $0.2 billion of pre-tax loss at GE Capital and a 11% tax rate* on $2.2 billion of pre-tax income at GE.
The consolidated tax provision includes $0.1 billion benefit and $0.2 billion expense for GE (excluding GE Capital) for the third quarters of 2017 and 2016, respectively.
Consolidated income tax benefit was $0.3 billion in the third quarter of 2017 and insignificant for the third quarter of 2016. The decrease in tax expense is primarily due to the benefit from a lower tax rate on the disposition of the Water business, a larger benefit from global activities and a decrease in pre-tax income taxed at above the average tax rate, partially offset by the adjustment to increase the 2017 year-to-date rate to be in line with the higher projected full year rate compared to the decrease in the 2016 year-to-date rate to be in-line with the lower projected full-year rate. The adjustment to bring the third quarter year-to-date tax rate in-line with the full year tax rate in 2017 decreased the rate compared to prior quarters of 2017 due to a decrease in projected full year pre-tax income.
*Non-GAAP Financial Measure
36 20172023 3Q FORM 10-Q10
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MD&A | OTHER CONSOLIDATED INFORMATION |
For the three months ended September 30, 2023, revenues increased by $0.2 billion due to higher Insurance revenues. Corporate operating profit decreased by $1.0 billion due to $1.0 billion of higher losses on retained and sold ownership interests, primarily related to our AerCap and GE HealthCare investments, partially offset by the nonrecurrence of prior year losses on our Baker Hughes investment. Corporate operating profit also decreased by $0.1 billion due to higher separation costs.
2017 – 2016 COMMENTARY: NINE MONTHS ENDED SEPTEMBERAdjusted total corporate operating costs* decreased by $0.1 billion primarily driven by higher gains from the sale of investments at EFS, favorability from higher bank interest and a reduction in our core functional costs.
For the nine months ended September 30, 2023, revenues increased by $0.5 billion due to $0.3 billion of higher Insurance revenues, $0.1 billion of higher GE Digital revenues and $0.1 billion of lower intersegment eliminations. Corporate operating profit increased by $7.4 billion due to $7.0 billion of higher gains on retained and sold ownership interests, primarily related to our AerCap and GE HealthCare investments, partially offset by lower gains on our Baker Hughes investment. Corporate operating profit also increased as the result of a $0.8 billion non-cash impairment charges related to property, plant and equipment and intangible assets as a result of reclassification of a portion of our Steam Power business to held for sale in the first quarter of 2022. Corporate operating profit also increased due to $0.1 billion of lower charges from contracts and recoverability of assets in connection with the conflict between Russia and Ukraine and resulting sanctions, primarily related to our Aerospace and Power businesses. These decreases were partially offset by $0.3 billion of higher restructuring and other charges and $0.2 billion of higher separation costs.
Adjusted total corporate operating costs* decreased by $0.1 billion primarily driven by favorability from higher bank interest, improved performance in our Digital business and a reduction in our core functional costs. These decreases were partially offset by prior year foreign exchange dynamics and cost timing.
OTHER CONSOLIDATED INFORMATION
RESTRUCTURING AND SEPARATION COSTS. Significant, higher-cost restructuring programs are excluded from measurement of segment operating performance for internal and external purposes; those excluded amounts are reported in Restructuring and other charges for Corporate. In addition, we incur costs associated with separation activities, which are also excluded from measurement of segment operating performance for internal and external purposes. See Note 20 for further information on restructuring and separation costs.
INTEREST AND OTHER FINANCIAL CHARGES were $0.3 billion and $0.4 billion for the three months ended and $0.8 billion and $1.1 billion for the nine months ended September 30, 2023 and 2022, respectively. The consolidateddecrease was primarily due to lower average borrowings balances. The primary components of interest and other financial charges are interest on short- and long-term borrowings.
POSTRETIREMENT BENEFIT PLANS. Refer to Note 14 for information about our pension and retiree benefit plans.
INCOME TAXES.For the three months ended September 30, 2023, the income tax rate was (8)% in the first nine months of 201746.0% compared to 5% in(5.6)% for the first ninethree months of 2016.ended September 30, 2022. The negative tax rate for 2022 reflects a tax expense on a pre-tax loss. See Note 16 for further information.
The first nine months of 2017 consolidated tax rate reflects a 110% tax rate on $0.5 billion of pre-tax loss at GE Capital and a 7% tax rate* on $4.4 billion of pre-taxprovision for income at GE.
The first nine months of 2016 consolidated tax rate reflects a 42% tax rate on $1.7 billion of pre-tax loss at GE Capital and a 13% tax rate* on $7.9 billion of pre-tax income at GE.
The consolidated tax provision includes $0.3taxes was $0.1 billion and $1.0 billion for GE (excluding GE Capital) for the first nine months of 2017 and 2016, respectively.
Consolidated income tax benefit was $0.3$0.0 billion for the first ninethree months of 2017 compared to tax expense of $0.3 billion for the first nine months of 2016.ended September 30, 2023 and 2022, respectively. The decreaseincrease in tax expense iswas primarily due to the decreasetax effect of the increase in pre-tax income taxed at above the average tax rate, a larger benefit from global activitiesexcluding gains and the benefit from a lower tax ratelosses on the disposition of the Water business. This decrease wasour retained and sold ownership interests and an increase in losses in foreign jurisdictions where they are not likely to be utilized, partially offset by the adjustment to increase the 2017 year-to-date rate to be in-line with the higher projected full-year rate compared to the decrease in the 2016 year-to-date rate to be in-line with the lower projected full-year rate and the non-repeat of a deductible stock loss. The adjustment to bring the third quarter year-to-date tax rate in-line with the full year rate decreased the tax rate relative to prior quarters of 2017 due to a decrease in projected full year pre-tax income.
The effective tax rate in future periods is expected to increase as a result of changes in our income profile due to changes in GE Capital earnings as we continue to execute on the GE Capital Exit Plan. We expect the GE effective tax rate excluding GE Capital earnings to be in the low single digits for the full year of 2017.
See Note 13 to the consolidated financial statements for additional information related to income taxes.
BENEFITS FROM GLOBAL OPERATIONS
Our consolidated income tax provision is reduced because of the benefits of lower-taxed global operations. There is a benefit from global operations as non-U.S. income is subject to local country tax rates that are significantly below the 35% U.S. statutory rate. These non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations. The rate of tax on our indefinitely reinvested non-U.S. earnings is below the 35% U.S. statutory tax rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GE funds certain non-U.S. operations through foreign companies that are subject to low foreign taxes.
A substantial portion of the benefit related to business operations subjectseparation-related entity restructuring.
For the three months ended September 30, 2023, the adjusted income tax rate* was 26.0% compared to (109.1)% for the three months ended September 30, 2022. The adjusted provision (benefit) for income taxes* was $0.3 billion and $0.1 billion for the three months ended September 30, 2023 and 2022, respectively. The increase in tax in countries wherewas primarily due to the tax effect of the increase in adjusted earnings before taxes*.
For the nine months ended September 30, 2023, the income tax rate was 9.1% compared to (8.5)% for the nine months ended September 30, 2022. The negative tax rate for 2022 reflects a tax expense on thata pre-tax loss. See Note 16 for further information.
The provision for income is lower thantaxes was $0.7 billion and $0.2 billion for the U.S. statutory rate is derived fromnine months ended September 30, 2023 and 2022, respectively. The increase in tax was primarily due to the tax effect of the increase in pre-tax income excluding gains and losses on our GECAS aircraft leasing operations locatedretained and sold ownership interests, partially offset by a tax benefit related to separation-related entity restructuring.
For the nine months ended September 30, 2023, the adjusted income tax rate* was 26.2% compared to 44.3% for the nine months ended September 30, 2022. The adjusted provision (benefit) for income taxes* was $0.8 billion and $0.2 billion for the nine months ended September 30, 2023 and 2022, respectively. The increase in Ireland wheretax was primarily due to the tax effect of the increase in adjusted earnings are taxed at 12.5%before taxes*.
DISCONTINUED OPERATIONS primarily comprise our former GE HealthCare business, our mortgage portfolio in Poland (Bank BPH), from our Power operations located in SwitzerlandGE Capital Aviation Services (GECAS) business, and Hungary where the earnings are taxed at between 9% and 18.6%, and our Healthcare operations in Europe where tax deductions are allowed for certain intangibleother trailing assets and earningsliabilities associated with prior dispositions. Results of operations, financial position and cash flows for these businesses are taxed belowreported as discontinued operations for all periods presented and the U.S. statutory rate.
We expect our ability to benefit from non-U.S. income taxed at less than the U.S. rate to continue, subject to changes in U.S. or foreign law. In addition, since this benefit depends on management’s intention to indefinitely reinvest amounts outside the U.S., our tax provision will increasenotes to the extent we no longer indefinitely reinvest foreign earnings.
DISCONTINUED OPERATIONS
Discontinued operations primarily relate to our financial services businesses as a result of the GE Capital Exit Plan and includes our U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.
See Notes 2 and 18 to the consolidated financial statements have been adjusted on a retrospective basis. See Note 2 for additionalfurther information related toregarding our businesses in discontinued operations.
*Non-GAAP Financial Measure
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MD&A | STATEMENT OF FINANCIAL POSITION |
11
STATEMENT OF FINANCIAL POSITION
Because GE and GE Capital share certain significant elements of their Statements of Financial Position, the following discussion addresses significant captions in the consolidated statement. Within the following discussions, however, we distinguish between GE and GE Capital activities in order to permit meaningful analysis of each individual consolidating statement.
MAJOR CHANGES IN OUR FINANCIAL POSITION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2017
The Baker Hughes transaction increased total assets (excluding cash assumed as a result of the transaction) by $27.5 billion, primarily due to goodwill of $14.2 billion, other intangible assets of $4.4 billion, property, plant and equipment of $4.0 billion, current receivables of $2.4 billion and inventories of $2.0 billion. See Note 8 to the consolidated financial statements for additional information.
Cash and equivalents decreased $8.3 billion. GE Cash and equivalents increased $2.3 billion due to the issuance of long-term debt, primarily to fund acquisitions, of $8.6 billion, debt effected through GE Capital of $7.3 billion, common dividends from GE Capital of $4.0 billion and proceeds from business dispositions of $2.9 billion. The increase was partially offset by payments of dividends to shareowners of $6.3 billion, business acquisitions of $6.1 billion (net of $4.1 billion cash assumed as a result of the Baker Hughes transaction), treasury stock net purchases of $2.6 billion (cash basis), net PP&E additions of $2.2 billion, net settlements of derivative hedges of $1.4 billion, the settlement of the remaining portion of 2016 debt effected through GE Capital of $1.3 billion and additions to capitalized software of $0.4 billion. GE Capital Cash and equivalents decreased $10.6 billion primarily due to net repayments of debt of $17.6 billion, GE debt effected through GE Capital of $7.3 billion and payments of dividends to shareowners of $4.2 billion, partially offset by maturities of liquidity investments of $6.5 billion, net collections of financing receivables of $3.2 billion, cash collections from discontinued operations of $2.9 billion, proceeds from borrowings assumed by the buyer in a business disposition of $1.8 billion and the settlement of the remaining portion of 2016 GE debt effected through GE Capital of $1.3 billion. See the Statement of Cash Flows section for additional information.
Investment securities decreased $5.6 billion, primarily due to maturities of liquidity portfolio investments at GE Capital. See Note 3 to the consolidated financial statements for additional information.
Inventories increased $1.5 billion (excluding the impact of the Baker Hughes transaction), primarily due to lower-than-anticipated sales volume, mainly in our Power segment and build for future demand in our Power, Aviation and Renewable Energy segments. See Note 5 to the consolidated financial statements for additional information.
Goodwill increased $2.4 billion (excluding the impact of the Baker Hughes transaction), primarily due to the effects of currency exchange of $2.3 billion, the acquisition of LM Wind Power in our Renewable Energy segment of $1.3 billion and the acquisition of ServiceMax in Digital of $0.7 billion, partially offset by the classification of the Industrial Solutions business in our Power segment as held for sale of $1.1 billion and an impairment in the Power Conversion business in our Power segment of $0.9 billion. See Note 8 to the consolidated financial statements for additional information.
Contract assets increased $4.6 billion. Revenues in excess of billings increased $2.6 billion and $1.3 billion for our long-term service and equipment agreements, respectively. The remaining increase in contract assets of $0.7 billion is primarily due an increase in deferred inventory costs and non-recurring engineering costs. See Note 9 to the consolidated financial statements for additional information.
Assets of discontinued operations decreased $8.0 billion, primarily due to the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.
The Baker Hughes transaction increased total liabilities by $6.8 billion, primarily due to borrowings of $3.4 billion, accounts payable of $1.1 billion, other GE current liabilities of $1.1 billion and non-current compensation and benefits of $0.8 billion. See Note 8 to the consolidated financial statements for additional information.
Borrowings decreased $3.2 billion (excluding the impact of the Baker Hughes transaction), primarily due to net repayment of debt at GE Capital of $17.6 billion, partially offset by the issuance of long-term debt at GE of $8.6 billion, primarily to fund acquisitions and the effects of currency exchange of $5.9 billion. See Note 10 to the consolidated financial statements for additional information.
Liabilities of discontinued operations decreased $3.2 billion, primarily due to the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.
Common stock held in treasury increased $2.2 billion, primarily due to treasury stock purchases of $3.7 billion (book basis), partially offset by treasury stock issuances of $1.6 billion.
Noncontrolling interests increased $16.3 billion, primarily due to the recognition of an approximate 37.5% noncontrolling interest attributable to BHGE's Class A shareholders in conjunction with the Baker Hughes transaction. See Note 8 to the consolidated financial statements for additional information.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
FINANCIALCAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY. We intend to maintain a disciplined financial policy with a sustainable investment-grade long-term credit rating. In the fourth quarter of 2021, the Company announced plans to form three industry-leading, global, investment-grade companies, each of which will determine their own financial policies, including capital allocation, dividend, mergers and acquisitions and share buyback decisions.
LIQUIDITY AND BORROWINGS
POLICY.We maintain a strong focus on liquidity. At both GEliquidity and GE Capital we managedefine our liquidity risk tolerance based on sources and uses to help provide access tomaintain a sufficient fundingliquidity position to meet our business needs and financial obligations throughout business cycles.
Ourunder both normal and stressed conditions. We believe that our consolidated liquidity and borrowing plans for GE and GE Capital are established within the context ofavailability under our annual financial and strategic planning processes. At GE,revolving credit facilities will be sufficient to meet our liquidity needs.
CONSOLIDATED LIQUIDITY. Our primary sources of liquidity consist of cash and funding plans take into account the liquidity necessary to fundcash equivalents, free cash flows* from our operating commitments, which include primarily purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also take into account our capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. At GE, we rely primarily onbusinesses, cash generated through our operating activitiesfrom asset sales and any dividend payments from GE Capital.dispositions, and short-term borrowing facilities, including revolving credit facilities. Cash generated from operating activities at GEgeneration can be subject to variability based on many factors, including seasonality, andreceipt of down payments on large equipment orders, timing of billings on long-term contracts. GE has available a varietycontracts, timing of liquidity management toolsAerospace-related customer allowances, market conditions and our ability to fund its operations, including a commercial paper program, as well as bank operating linesexecute dispositions. Total cash, cash equivalents and short-term intercompany loans from GE Capital which are repaid within the same quarter.
We maintain a detailed liquidity policy for GE Capital that defines GE Capital's liquidity risk tolerance under stress based on its liquidity sources, and a comprehensive framework for managing liquidity risk including metrics to identify and monitor liquidity risk and procedures to escalate and address potential issues.
Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2019. GE Capital mainly relies on excessrestricted cash positions, cash generated through dispositions, and the cash flow from our Verticals to fund our debt maturities, including the current portion of long-term debt ($15.6was $13.1 billion at September 30, 2017),2023, of which $2.5 billion was held in the U.S. and $10.6 billion was held outside the U.S.
Cash held in non-U.S. entities has generally been reinvested in active foreign business operations; however, substantially all of our operatingunrepatriated earnings were subject to U.S. federal tax and, interest costs. GE Capital's liquidity positionif there is targeted to meet its obligations under both normal and stressed conditions. Wea change in reinvestment, we would expect to maintain an elevated liquidity position as we generatebe able to repatriate available cash from asset sales, returning(excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to more normalized levels in 2019. During this period we expectthe U.S. would potentially be partially offset by a U.S. foreign tax credit. With regards to our announcement to form three public companies, the planning for and execution of the separations has impacted and is expected to continue to have excess interest costs as asset sales have outpacedimpact indefinite reinvestment. The impact of such changes will be recorded when there is a specific change in ability and intent to reinvest earnings.
Cash, cash equivalents and restricted cash at September 30, 2023 included $1.7 billion of cash held in countries with currency control restrictions (including a total of $0.1 billion in Russia and Ukraine) and $0.4 billion of restricted use cash. Cash held in countries with currency controls represents amounts held in countries that may restrict the transfer of funds to the U.S. or limit our debt maturities. While we maintain elevated liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in orderability to reduce our excess interesttransfer funds to the U.S. without incurring substantial costs.
As part of GE’s previously formulated and communicated plan to incur new long-term debt primarily Restricted use cash represents amounts that are not available to fund acquisitionsoperations, and to refinance existing debt, we issued $15.9primarily comprised funds restricted in connection with certain ongoing litigation matters. Excluded from cash, cash equivalents and restricted cash was $0.7 billion of long-term debtcash in 2017. $8.6 billion equivalent of euro debtour run-off Insurance business, which was issuedclassified as All other assets in the external debt markets, and $7.3 billion was done through two transactions with GE Capital. The $8.6 billion equivalent consists of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037. In lieu of issuing the $7.3 billion of debt externally in the capital markets, GE effected the transactions through GE Capital because GE Capital is holding excess debt as a result of the GE Capital Exit Plan. The debt transactions with GE Capital were priced at markets terms with a weighted average interest rate of 3.5% and a weighted average term of 15 years. To effectuate these transactions, GE and GE Capital entered into intercompany transactions that had the effect of reducing the intercompany payables and receivables given the right of offset between GE and GE Capital by $7.3 billion, as shown in the table below.
In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital resulting in an intercompany receivable and payable between GE and GE Capital. On the GE Statement of Financial Position, assumed debt is presented within borrowings with an offsetting receivable from GE Capital and on the GE Capital Statement of Financial Position, this is reflected as an intercompany payable to GE within borrowings. As of September 30, 2017, the amount of assumed outstanding debt was $49.9 billion (see Note 10 to the consolidated financial statements for additional information). The following table illustrates total GE and GE Capital external debt and debt assumed by GE as of September 30, 2017.Position.
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| | | | | | | | | |
| September 30, 2017 (in billions) | GE |
| GE Capital |
| Consolidated(a) |
|
| | | | |
| External debt | $ | 83.8 |
| $ | 54.9 |
| $ | 136.4 |
|
| | | | |
| Debt assumed by GE from GE Capital | (49.9 | ) | 49.9 |
| — |
|
| Intercompany loans with right of offset | 7.3 |
| (7.3 | ) | — |
|
| Total intercompany payable (receivable) between GE and GE Capital | (42.6 | ) | 42.6 |
| — |
|
| | | | |
| Debt adjusted for assumed debt and intercompany loans | $ | 41.3 |
| $ | 97.5 |
| $ | 136.4 |
|
| |
(a) | Includes $2.4 billion elimination of other intercompany borrowings between GE and GE Capital.
|
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
LIQUIDITY SOURCES
GE cash and equivalents of $12.8 billion at September 30, 2017, comprising $8.0 billion at GE and $4.8 billion at BHGE. GE Capital maintained liquidity sources of $32.5 billion that consisted of cash and equivalents of $27.0 billion, high-quality investments of $5.0 billion and cash and equivalents of $0.5 billion classified as discontinued operations. Additionally, at September 30, 2017, GE has $20.0 billion of committed unused credit lines extended by 36 banks in a syndicated credit facility agreement, as well as $5.3 billion of committed operating lines extended by nine banks. GE Capital has the right to compel GE to borrow under these credit lines and transfer the proceeds as loans to GE Capital.
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| CASH AND EQUIVALENTS |
| (In billions) | September 30, 2017 |
| | | September 30, 2017 |
|
| | | | | |
| GE(a) | $ | 12.8 |
| | U.S. | $ | 7.9 |
|
| GE Capital(b) | 27.0 |
| | Non-U.S.(c) | 31.9 |
|
| |
(a) | At September 30, 2017, $4.5 billion of GE cash and equivalents was held in countries with currency controls that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. These funds are available to fund operations and growth in these countries and we do not currently anticipate a need to transfer these funds to the U.S. Included in this amount was $1.2 billion of BHGE cash and equivalents, which is subject to similar restrictions. |
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(b) | At September 30, 2017, GE Capital cash and equivalents of about $0.6 billion were primarily in insurance entities and were subject to regulatory restrictions. |
| |
(c) | Of this amount at September 30, 2017, $4.6 billion is held outside of the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis through short-term loans, without being subject to U.S. tax. Under the Internal Revenue Code, these loans are permitted to be outstanding for 30 days or less and the total of all such loans is required to be outstanding for less than 60 days during the year. If we were to repatriate this cash, we would be subject to additional U.S. income taxes and foreign withholding taxes. |
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| COMMERCIAL PAPER |
| (In billions) | GE |
| | GE Capital |
|
| | | | |
| Average commercial paper borrowings during the third quarter of 2017 | $ | 14.8 |
| | $ | 5.0 |
|
| Maximum commercial paper borrowings outstanding during the third quarter of 2017 | $ | 19.5 |
| | $ | 5.1 |
|
| Ending commercial paper balance at September 30, 2017 | $ | 2.0 |
| | $ | 5.0 |
|
GE Capital commercial paper maturities have historically been funded principally through new commercial paper issuances and at GE are substantially repaid before quarter-end using indefinitely reinvested overseas cash, which as discussed above, is available for use in the U.S. on a short-term basis without being subject to U.S. tax.
We securitize financial assets as an alternative source of funding. At September 30, 2017, consolidated non-recourse securitization borrowings were $0.7 billion.
FOREIGN CURRENCY
As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies are euro, the pound sterling, the Brazilian real and the Chinese renminbi. The results of operating entities reported in currencies other than U.S. dollar are translated to the U.S. dollar at the applicable exchange rate for inclusion in the financial statements. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. The foreign currency effect arising from operating activities outside of the U.S., including the remeasurement of derivatives, can result in significant transactional foreign currency fluctuations at points in time, but will generally be offset as the underlying hedged item is recognized in earnings. The effects of foreign currency fluctuations, decreased net earnings by $0.1 billion forDuring the nine months ended September 30, 2017.
2023, we received total proceeds of approximately $4.6 billion from the sale of a portion of our AerCap shares. We expect to fully monetize our stake in AerCap over time, in an orderly manner. During the first quarter of 2023, we received proceeds of $0.2 billion and completed monetization of our Baker Hughes position. As part of the spin-off of GE HealthCare completed in the first quarter of 2023, we retained an approximately 19.9% stake of GE HealthCare common stock. During the second quarter of 2023, we received total proceeds of $2.2 billion from the disposition of 28.8 million shares of GE HealthCare. We intend to exit our remaining stake in GE HealthCare over time, in an orderly manner. See Notes 163 and 21 to the consolidated financial statements19 for further information aboutinformation.
Following approval of a statutory permitted accounting practice in 2018 by our risk exposures,primary insurance regulator, the Kansas Insurance Department (KID), we provided a total of $13.2 billion of capital contributions to our useinsurance subsidiaries, including $1.8 billion in the first quarter of derivatives,2023. We expect to provide the final capital contribution of up to $1.8 billion in the first quarter of 2024, pending completion of our December 31, 2023 statutory reporting process. See Note 13 for further information.
On March 6, 2022, the Board of Directors authorized the repurchase of up to $3 billion of our common stock. In connection with this authorization, we repurchased 8.4 million shares for $0.8 billion during the nine months ended September 30, 2023. Additionally, during the third quarter of 2023, we redeemed the remaining outstanding shares of GE preferred stock. We redeemed $2.8 billion and $5.8 billion of GE preferred stock in the effectsthree months and nine months ended September 30, 2023.
BORROWINGS. Consolidated total borrowings were $20.8 billion and $24.1 billion at September 30, 2023 and December 31, 2022, respectively, a decrease of this activity on our financial statements.$3.2 billion. The reduction in borrowings was driven by $3.2 billion of net maturities and repayments of debt.
We have in place committed revolving credit facilities totaling $13.5 billion at September 30, 2023, comprising a $10.0 billion unused back-up revolving syndicated credit facility and a total of $3.5 billion of bilateral revolving credit facilities.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
CREDIT RATINGS
AND CONDITIONS. We have relied, and may continue to rely, on the short-termshort- and long-term debt capital markets to fund, among other things, a significant portion of our operations and significant acquisitions.operations. The cost and availability of debt financing is influenced by our credit ratings.
On October 20, 2017, Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P) placed all of its ratings on GE, GE Capital,, and their affiliates on CreditWatch, with negative implications. S&P stated it will be conducting a review of these ratings and expects to complete this review at approximately the same time GE announces its financial results for the fourth quarter 2017, if not earlier. On October 30, 2017, Fitch Ratings (Fitch) changed its rating outlook to Negative from Stable for GE, GE Capital,currently issue ratings on our short- and their affiliates.long-term debt. Our credit ratings as of the date of this filing are set forth in the following table.
| | | | | | | | | | | |
| Moody's | S&P | Fitch |
| Outlook | Negative | Stable | Stable |
| Short term | P-2 | A-2 | F2 |
| Long term | Baa1 | BBB+ | BBB |
*Non-GAAP Financial Measure
We are disclosing our credit ratings and any current quarter updates to these updates and the ratings below to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds.funds and access to liquidity. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 under “Risk Factors - Financial Risks - Funding access/costs - Failure2022.
Substantially all of the Company's debt agreements in place at September 30, 2023 do not contain material credit rating covenants. Our unused back-up revolving syndicated credit facility and certain of our bilateral revolving credit facilities contain a customary net debt-to-EBITDA financial covenant, which we satisfied at September 30, 2023.
The Company may from time to maintain our credittime enter into agreements that contain minimum ratings or conditionsrequirements. The following table provides a summary of the maximum estimated liquidity impact in the financial and credit markets, could adversely affect our access to capital markets, funding costs and related margins, liquidity and competitive position.”event of further downgrades below each stated ratings level.
GE’s and GE Capital’s ratings as of the date of this filing are set forth in the table below.
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| | | | | |
| Moody'sTriggers Below | S&P | FitchSeptember 30, 2023 |
| BBB+/A-2/P-2 | $ | — |
GE | | | |
Outlook | Stable | CreditWatch Negative | Negative
|
Short term | P-1 | A-1+ | F1+ |
Long term | A1 | AA- | AA- |
| | | |
GE Capital | | | |
Outlook | Stable | CreditWatch Negative
| Negative
|
Commercial paper | P-1 | A-1+ | F1+ |
Senior notes | A1 | AA- | AA- |
|
| BBB/A-3/P-3 | 127 | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITYBBB- | 1,319 | |
| BB+ and below | 641 | |
Our most significant contractual ratings requirements are related to ordinary course commercial activities. The timing within the quarter of the potential liquidity impact of these areas may differ, as can the remedies to resolving any potential breaches of required ratings levels.
FOREIGN EXCHANGE AND INTEREST RATE RISK. 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 Chinese renminbi, the Indian rupee and the British pound sterling, among others. The effects of foreign currency fluctuations on earnings was less than $0.1 billion for the three months ended September 30, 2023 and 2022, and $0.2 billion and $0.1 billion for the nine months ended September 30, 2023 and 2022, respectively.See Note 21 for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
STATEMENT OF CASH FLOWS - NINE MONTHS ENDED SEPTEMBER 30, 2017 VERSUS 2016
CONSOLIDATED CASH FLOWS
We evaluate our cash flow performance by reviewing our industrial (non-GE Capital) businesses and GE Capital businesses separately. Cash from operating activities (CFOA) is the principal source of cash generation for our industrial businesses.
GE CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(in billions)
With respect to GE CFOA, we believe that it is useful to supplement our GE Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.
FROM CONTINUING OPERATIONS. The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and otherspostretirement plans.
Cash from operating activities was $2.4 billion in 2023, an increase of $2.0 billion compared to 2022, primarily due to: an increase in net income (after adjusting for a wide rangedepreciation of materialproperty, plant, and services. Dividends fromequipment, amortization of intangible assets and non-cash (gains) losses related to our retained and sold ownership interests in GE Capital represent the distribution of a portion of GE Capital retained earnings,HealthCare, AerCap, and are distinct fromBaker Hughes) primarily in our Aerospace business and an increase in cash from continuing operations within the GE Capital businesses.
working capital of $1.0 billion. The components of All other operating activities reflectwere as follows:
| | | | | | | | | |
| Nine months ended September 30 | 2023 | 2022 |
| Increase (decrease) in Aerospace-related customer allowance accruals | $ | (147) | | $ | 565 | |
| Net interest and other financial charges/(cash paid) | (142) | | (3) | |
| Increase (decrease) in employee benefit liabilities | 265 | | 35 | |
| Net restructuring and other charges/(cash expenditures) | (24) | | (115) | |
| Other | 228 | | (251) | |
| All other operating activities | $ | 180 | | $ | 232 | |
The cash sourcesimpacts from changes in working capital compared to prior year were as follows: current receivables of $2.7 billion, driven by higher collections partially offset by higher volume; inventories, including deferred inventory, of less than $0.1 billion, driven by higher liquidations offset by higher material purchases; current contract assets of $(0.2) billion, driven by higher revenue recognition partially offset by higher billings on our long-term equipment and uses as well as non-cash adjustmentsother service agreements; accounts payable and equipment project payables of $(1.3) billion, driven by higher disbursements related to purchases of materials in prior periods partially offset by higher volume and progress collections and current deferred income of $(0.3) billion driven by higher liquidations partially offset by higher collections.
Cash from investing activities was $5.4 billion in 2023, an increase of $3.3 billion compared to 2022, primarily due to: cash received related to net income including thosesettlements between our continuing operations and businesses in discontinued operations of $1.1 billion, primarily related to taxes, interest, pension, contract assetsGE HealthCare in connection with its spin-off in 2023 and gains (losses) on principalthe nonrecurrence of a capital contribution to Bank BPH in 2022 (a component of All other investing activities); an increase in proceeds from the dispositions of our retained ownership interests in GE HealthCare, AerCap and Baker Hughes of $3.0 billion; partially offset by the acquisition of Nexus Controls in our Power business dispositions. See Note 21of $0.3 billion in 2023. Cash used for additions to the consolidated financial statements for further information.property, plant and equipment and internal-use software, which are components of free cash flows*, was $1.1 billion and $0.8 billion in 2023 and 2022, respectively.
See the Intercompany Transactions between GE and GE Capital section within the MD&A and Notes 4 and 19 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
*Non-GAAP Financial Measure
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| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
42 20172023 3Q FORM 10-Q13
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
2017 – 2016 COMMENTARY
GE cash from operatingCash used for financing activities decreased $14.3 was $10.2 billion in 2023, an increase of $5.2 billion compared to 2022, primarily due to the following:
to: higher cash paid for redemption of GE Capital paid common dividends to GE totaling $4.0preferred stock of $5.7 billion in 2017 compared with $16.1 billion2023; an increase in 2016.
Cash generated from Industrial CFOA* amounted to an insignificant amount and $2.3 billion in 2017 and 2016, respectively, primarily due to the following:
Net income plus depreciation and deferred income taxes of $5.9 billion in 2017 compared with $9.1 billion in 2016. Net income included pre-tax gains of $1.9 billion from the sale of Water in 2017 and $3.1 billion from the sale of Appliances and $0.4 billion from the salepurchases of GE Asset Management in 2016 which are not included in Industrial CFOA and are instead reflected as a componentcommon stock for treasury of total proceeds from principal business dispositions within$0.3 billion; partially offset by net cash flows from investing activities. Net income also included non-cash pre-tax impairments of $1.3 billion related to Power Conversion goodwill and a power plant asset in 2017 and current tax expense of $0.7 billion and $1.0 billion in 2017 and 2016, respectively.
A decrease in cash used for working capitalreceived on derivatives hedging foreign currency debt of $0.1 billion in 20172023 compared to net cash paid of $0.5 billion in 2022 (a component of All other financing activities).
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used for operating activities of discontinued operations was $0.3 billion in 2023, an increase of $1.4 billion compared with 2016. This was2022, primarily duedriven by decrease in net income, higher disbursements related to a reductionpurchases of materials in inventory build of $1.1 billion,prior periods and higher separation costs related to our former GE HealthCare business partially offset by an increase in cash used for accounts payable of $0.9 billion across all businesses.tax receipts from our trailing operations.
An increase in contract assets of $4.0 billion in 2017 compared with $3.0 billion in 2016, primarily due to cumulative catch up adjustments driven by lower forecasted cost to complete the contracts as well as increased forecasted revenue on our long-term service agreements and the timing of revenue recognized relative to the timing of billings and collections on both our long-term service agreements and long-term equipment contracts.
GE Pension Plan contributions of $1.4 billion in 2017 compared with zero in 2016.
Lower taxes paid of $1.8 billion in 2017 compared with $2.3 billion in 2016.
See Note 21 to the consolidated financial statements for further information regarding cash sources and uses as well as non-cash adjustments to net income reported as All other operating activities.
GE cashCash used for investing activities increased $8.1of discontinued operations was $3.1 billion primarily due to the following:
Business acquisition activitiesin 2023, an increase of $6.1$2.6 billion compared with 2022, primarily driven by the Baker Hughes transaction for $3.4deconsolidation of GE HealthCare cash and equivalents of $1.8 billion ($7.5and higher net settlements between our discontinued operations and businesses in continuing operations of $1.1 billion.
Cash from financing activities of discontinued operations was $2.0 billion cash consideration, less $4.1in 2023, an increase of $2.1 billion of cash assumed), LM Wind Power for $1.6 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired) in 2017, compared with business acquisitions of $0.9 billion in 2016.
Business disposition proceeds of $2.9 billion,2022, primarily driven by the sale of our Water business for $2.7 billion (net of cash transferred) in 2017, compared with proceeds of $5.3 billion, primarily driven by the sale of our Appliances business for $4.8 billion and the sale of GE Asset Management for $0.4 billion in 2016.
Net settlements of derivative hedges of $1.4 billion in 2017 compared with minimal net settlements in 2016.
GE cash from financing activities increased $23.9 billion primarily due to the following:
Net repurchases of GE treasury shares of $2.6 billion and $18.0 billion in 2017 and 2016, respectively.
A net increase in borrowings of $14.9 billion in 2017, mainly driven by the issuance ofHealthCare's long-term debt of $8.6 billion, primarily to fund acquisitions, and 2017 debt effected through GE Capital of $7.3 billion, partially offset by the settlement of the remaining portion of 2016 debt effected through GE Capital of $1.3 billion, compared with a net increase in borrowings of $6.2 billion in 2016, primarily driven by debt effected through GE Capital of $5.0 billion.
*Non-GAAP FInancial Measure
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE CAPITAL CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
| | | | | | | |
| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
2017 – 2016 COMMENTARY-CONTINUING OPERATIONS:
GE Capital cash from operating activities-continuing operations increased $0.2 billion primarily due to the following:
Lower income tax payments of $0.2 billion and a general increase in cash generated from earnings of continuing operations.
These increases were partially offset by a net decrease in cash collateral received from counterparties on derivative contracts of $0.8 billion.
GE Capital cash from investing activities-continuing operations decreased $38.7 billion primarily due to the following:
Net proceeds from the sales of our discontinued operations of $1.0 billion in 2017 compared to $53.2 billion in 2016.
Maturities of $10.4 billion related to interest bearing deposits in 2016.
GE debt effected through GE Capital of $7.3 billion, partially offset by the settlement of the remaining portion of 2016 GE debt effected through GE Capital of $1.3 billion in 2017, compared to GE debt effected through GE Capital of $5.0 billion in 2016.
Net cash paid for derivative settlements of an insignificant amount in 2017 compared to net cash received from derivative settlements of $0.6 billion in 2016.
These decreases were partially offset by the following increases:
Investment securities of $18.7 billion related to maturities of $6.5 billion in 2017 compared to investments of $12.2 billion in 2016.
•Higher net collections of financing receivables of $3.1 billion in 2017.
A general reduction in funding related to discontinued operations.
GE Capital cash used for financing activities-continuing operations decreased $45.3 billion primarily due to the following:
Lower net repayments of borrowings of $17.6 billion in 2017 compared to $50.7 billion in 2016.
GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared to $16.1 billion in 2016.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE CAPITAL DISCONTINUED OPERATIONS CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30
(Dollars in billions)
|
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| OPERATING CASH FLOWS | | INVESTING CASH FLOWS | | FINANCING CASH FLOWS |
| | | | | | | | |
| 2016 | 2017 | | 2016 | 2017 | | 2016 | 2017 |
2017 – 2016 COMMENTARY-DISCONTINUED OPERATIONS:
GE Capital cash used for operating activities-discontinued operations decreased $5.2 billion primarily due to the following:
Lower cash paid for income taxes in 2017.
GE Capital cash used for investing activities-discontinued operations decreased $9.7 billion primarily due to the following:
The sale of bank deposits of $16.5 billion resulting in net cash paid in conjunction with the sale of GE Capital Bank's U.S. online deposit platform during 2016.
This decrease was partially offset by the following increases:
Reduction in funding from continuing operations (primarily our treasury operations).
Sale of bank deposits for $0.5 billion resulting in net cash paid related to our Consumer platform during 2017.
GE Capital cash from financing activities-discontinued operations increased $1.6 billion primarily due to the following:
Debt issued of $1.8 billion in 2017 and $0.9 billion in 2016 by a discontinued business sold during the first quarter of 2017.
Lower repayment of borrowings and bank deposit activity of $0.6 billion in 2017.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
We are repositioning GE to be the world’s best infrastructure and technology company, with a smaller financial services division. Our focus is on driving infrastructure leadership, investing in innovation and achieving a culture of simplification to better serve our customers around the world. Over the last decade, we have made significant strides in transforming our portfolio and focusing on our industrial leadership. We have grown our infrastructure platforms with major portfolio moves, investing in adjacencies and pursuing opportunities that are closely related to our core.
In parallel, we have made a concentrated effort to reduce the size of our GE Capital business and align its growth with Industrial earnings. As a result, GE Capital Verticals are now focused on investing financial, human and intellectual capital to promote growth for our industrial businesses and their customers. GE Capital accomplishes this in part through related party transactions with GE that are made on an arms-length basis and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital solutions to optimize GE cash management,
GE Capital enabled GE industrial orders, including related GE guarantees to GE Capital, and
Aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
Expenses related to parent-subsidiary pension plans,
Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Information technology (IT) and other services sold to GE Capital by GE
Settlements of tax liabilities, and
Various investments, loans and allocations of GE corporate overhead costs.
CASH FLOWS
GE Capital paid $4.0 billion and $16.1 billion of common dividends to GE in the nine months ended September 30, 2017 and 2016, respectively.
In order to manage credit exposure, GE sells current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale of receivables to GE Capital and other third parties. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE Capital are made on an arm’s length basis. The incremental amount of cash received from sales of receivables represents the cash generated or used in the period relating to this activity. The effect of cash generated in GE CFOA from current receivables sold to GE Capital, including current receivables subsequently sold to third parties, decreased GE’s CFOA by $2.3 billion and $0.2 billion in the nine months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, GE Capital had approximately $11.2 billion recorded on its balance sheet related to current receivables purchased from GE. Of these amounts, approximately half had been sold by GE to GE Capital with recourse (i.e., the GE business retains the risk of default). The evaluation of whether recourse transactions qualify for accounting derecognition is based, in part, upon the legal jurisdiction of the sale; as such, the majority of recourse transactions outside the U.S. qualify for sale treatment. Claims by GE Capital on receivables sold with recourse to GE have not been significant for the nine months ended September 30, 2017 and 2016.
In December 2016, GE Capital entered into a Receivables Facility with members of a bank group, designed to provide extra liquidity to GE. The Receivables Facility allows us to sell eligible current receivables on a non-recourse basis for cash and a deferred purchase price to members of the bank group. The purchase commitment of the bank group increased from $3.0 billion to $3.2 billion during the third quarter of 2017. See Note 4 to the consolidated financial statements for further information.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
ENABLED ORDERS
Enabled orders represent the act of introducing, elevating and influencing customers and prospects that result in an industrial sale, potentially coupled with programmatic captive financing or driving incremental products or services across the GE Store. During the nine months ended September 30, 2017 and 2016, GE Capital enabled $8.8 billion and $8.2 billion of GE industrial orders, respectively. 2017 orders are primarily with our Power ($3.3 billion), Renewable Energy ($3.3 billion), Healthcare ($1.0 billion) and Oil & Gas ($0.7 billion) businesses.
AVIATION
During the nine months ended September 30, 2017 and 2016, GE Capital acquired 34 aircraft (list price totaling $4.6 billion) and 32 aircraft (list price totaling $4.7 billion), respectively, from third parties that will be leased to others, which are powered by engines that were manufactured by GE Aviation and affiliates. Additionally, GE Capital had $1.5 billion of net book value of engines, originally manufactured by GE Aviation and affiliates and subsequently leased back to GE Aviation and affiliates at both September 30, 2017 and December 31, 2016, respectively.
POWER, RENEWABLE ENERGY AND AVIATION
GE leverages GE Capital for its expertise in structuring long-term financing arrangements with certain Power, Renewable Energy and Aviation customers for the purchase of equipment, upgrades and long-term service contracts. These arrangements are made on an arm’s length basis and any fair value adjustments are recognized within the results of our Power, Renewable Energy and Aviation segments. Any associated deferred income recorded by GE Capital is eliminated in our consolidated results. In relation to these arrangements, GE Capital had approximately $2.3 billion and $1.9 billion of long-term financing receivables outstanding, net of deferred income of approximately $0.3 billion and $0.3 billion reported on its balance sheet at September 30, 2017 and December 31, 2016, respectively. The effect of cash generated in GE CFOA from long-term financing arrangements with GE Capital increased GE's CFOA by $0.4 billion and $1.0 billion in the nine months ended September 30, 2017 and 2016, 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 an insignificant amount and $0.3 billion for the three and nine months ended September 30, 2017, respectively, and $0.1 billion and $0.4 billion for the three and nine months ended September 30, 2016, respectively.
Certain of this additional funding is recorded as a contra pension expense for GE because GE’s related future pension obligations will be paid by GE Capital. For certain other pension plan funding obligations triggered by the GE Capital Exit Plan, GE agreed to assume the funding obligation that would have been triggered by GE Capital at the date of exit from the plan in exchange for an assumption fee that GE recorded as Other income. There was no cash transferred to GE for the assumption of these GE Capital funding obligations for the three and nine months ended September 30, 2017. The total cash transferred for similar funding obligations assumed by GE from GE Capital for the three and nine months ended September 30, 2016 were zero and $0.1 billion, respectively.
On a consolidated basis, the additional required pension funding and any related assumption fees do not affect current period earnings. Any additional required pension funding will be reflected as a reduction of the pension liability when paid.
GE GUARANTEE OF GE CAPITAL THIRD-PARTY TRANSACTIONS
In certain instances, GE provides guarantees to GE Capital transactions with third parties primarily in connection with enabled orders. In order to meet its underwriting criteria, GE Capital may obtain a direct guarantee from GE related to the performance of the third party. GE guarantees can take many forms and may include, but not be limited to, direct performance or payment guarantees, return on investment guarantees, asset value guarantees and loss pool arrangements. As of September 30, 2017, GE had outstanding guarantees to GE Capital on $1.5 billion of funded exposure and $1.2 billion of unfunded commitments. The recorded amount of these contingent liabilities was $0.1 billion as of September 30, 2017 and is dependent upon individual transaction level defaults, losses and/or returns.
GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicit and explicit support to GE Capital through commitments, capital contributions and operating support. As previously discussed, debt assumed by GE from GE Capitalissuance in connection with the mergerspin-off of GE Capital into GE was $49.9 billion, and GE guaranteed $44.5 billion of GE Capital debt at September 30, 2017. See Notes 10 and 20 to the consolidated financial statements for additional information.$2.0 billion.
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
CRITICAL ACCOUNTING ESTIMATES
We utilized significant estimates in the preparation of the third quarter financial statements.
Please referESTIMATES.Refer to the Critical Accounting Estimates section within MD&A and Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements of our Form 10-K Report filed on February 24, 2017, for a discussion of our accounting policies and the critical accounting estimates we use to: recognize revenue on long-term product services agreements; assess the recoverability of assets such as financing receivables and goodwill; determine the fair value of financial assets; and determine our provision for income taxes and recoverability of deferred tax assets.
INSURANCE AND INVESTMENT CONTRACT LIABILITIES
Insurance and investment contract liabilities amounted to $26.6 billion and $26.1 billion at September 30, 2017 and December 31, 2016, respectively and primarily comprise a liability for future policy benefits for those claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported. Reserves ceded to reinsurers were $2.2 billion and $2.0 billion at September 30, 2017 and December 31, 2016, respectively and are included in the caption “Other receivables” on our Consolidated Statement of Financial Position.
Claim reserves amounted to $4.9 billion and $4.6 billion of which $3.4 billion and $3.1 billion relates to long-term care insurance contracts as of September 30, 2017 and December 31, 2016, respectively. Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss estimates with the support of qualified actuaries and any changes are recorded in the period in which they are determined.
Future policy benefit reserves amounted to $19.2 billion and $18.7 billion of which $9.0 billion and $8.7 billion relates to long-term care insurance contracts at September 30, 2017 and December 31, 2016, respectively. These reserves represent the present value of such benefits less the present value of future net premiums and are based on actuarial assumptions established at the time the policies were issued or acquired. These assumptions include, but are not limited to interest rates, health care experience (including type and cost of care), mortality, and the length of time a policy will remain in force. Our annual premium deficiency testing assesses the adequacy of future policy benefit reserves, net of capitalized acquisition costs using current assumptions. As we no longer originate new policies, we perform premium deficiency testing in the aggregate across our run-off insurance products.
We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts, which is most pronounced for policyholders with higher attained ages. As a result, and as described below, we are conducting a comprehensive review of premium deficiency assumptions across all insurance products, including a reassessment of future claim projections for long-term care contracts that will be incorporated within our annual test of future policy benefit reserves for premium deficiencies, which is expected to be completed in the fourth quarter of 2017.
A comprehensive review of premium deficiency assumptions is a complex process and depends on a number of factors, many of which are interdependent and require evaluation individually and in the aggregate across all insurance products. The vast majority of our run-off insurance activities comprises reinsurance from multiple ceding insurance entities with underlying treaties having unique terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers each of the unique treaties. In order to utilize that information for purposes of completing experience studies covering all key assumptions, we perform detailed procedures to conform and validate the data received, including periodic evaluation of the operating environment at ceding entities. Our long-term care business includes coverage where credible claim experience for higher attained ages is still emerging and to the extent that recent experience deviates from previous expectations, new projections of claim costs extending over the expected life of the policies require development. Significant uncertainties exist in making these best estimate projections for these long-duration insurance contracts that includes consideration of a wide range of possible outcomes as well as actuarial peer reviews before a final determination can be made.
Should the net liability for future policy benefits plus the present value of expected future gross premiums be insufficient to provide for the present value of expected future policy benefits and expenses, we would be required to reduce any remaining capitalized acquisition costs and, to the extent a shortfall still exists, increase our existing future policy benefit reserves. We would record a charge to earnings for any premium deficiencies in the fourth quarter of 2017 upon completion of this review. Based upon the work performed to date and complexity of the review described above, a charge related to a probable deficiency is not reasonably estimable at September 30, 2017. Until the above described review has been completed we have deferred the decision whether GE Capital will pay additional dividends to GE.
See Note 11 to the consolidated financial statements of this report and Note 1 to the consolidated financial statements inof our Annual Report on Form 10-K for the year ended December 31, 20162022 and revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023 for additional discussion of accounting policies and critical accounting estimates, including accounting estimates and assumptions in our insurance reserves and their sensitivity to change. See Notes 1 and 13 for further information.
OTHER ITEMS
NEW ACCOUNTING STANDARDS
ASU NO. 2016-16, ACCOUNTING FOR INCOME TAXES: INTRA-ENTITY TRANSFERS OF ASSETS OTHER THAN INVENTORY
In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. The ASU eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The new standard is effective forINSURANCE. Our 2023 annual periods beginning after December 15, 2017, and interim periods within those annual periods. The effect of the adoption of the standard will depend on the nature and amountreview of future transactions but is currently expected aspolicy benefit reserves cash flow assumptions resulted in an increaseimmaterial charge to retainednet earnings, of approximately $0.4 billion. Future earnings will be reduced in total by this amount. The effect of the change on future transactions will depend on the nature of those transactions as it will affect the timing of recognition of both tax expense and tax benefits, with no change in associated cash flows.
ASU NO. 2016-15, STATEMENT OF CASH FLOWS
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new standard requires that cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables should be classified as cash inflows from investing activities. The new standard is effective for fiscal years beginning after December 15, 2017. A retrospective transition approach is required. Note 4indicating claims experience continues to the Financial Statements describes the DPP created by the Receivables Facility. We currently report cash receipts from the purchasing entities to reduce their DPP obligation to the Company as cash inflows from operating activities in the Consolidated Statement of Cash Flows.
ASU NO. 2016-02, LEASES
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we continue to evaluate the effect of the standard on our ongoing financial reporting, we anticipate that the adoption of the ASU may materially affect our Statement of Financial Position.
ASU NO. 2014-09, REVENUE FROM CONTRACTS WITH CUSTOMERS
BACKGROUND
In May 2014, the FASB issued a new comprehensive set of revenue recognition principles (ASU No. 2014-09, Revenue from Contracts with Customers) that supersedes most existing U.S. GAAP revenue recognition guidance (including ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts). The new standard will become effective for annual reporting periods beginning after December 15, 2017. We will adopt the standard on January 1, 2018, will apply it retrospectively to all periods presented and will elect the practical expedient for contract modifications. Since the issuance of the new standard by the FASB, we have engaged in a collaborative processdevelop consistently with our industry peers and workedmodels. The sensitivities 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 methodrespect to adopt the standard. Under the full retrospective method, all periods presented will be updated upon adoption to conform to the new standard and a cumulative adjustment for effects on periods prior to 2016 will be recorded to retained earnings as of January 1, 2016. Under the modified retrospective approach, prior periods are not updated to be presented on an accounting basis that is consistent with 2018. Rather, a cumulative adjustment for effects of applying the new standard to periods prior to 2018 is recorded to retained earnings as of January 1, 2018. Because only 2018 revenues reflect application of the new standard, incremental disclosures are required to present the 2018 revenues under the prior standard.
As noted above, we have elected to apply the full retrospective approach. We chose that approach because we believe that it is the most helpful to our investors. First and foremost, when we adopt the standard in 2018 we will provide investors with a consistent view of historical trends, as 2016 and 2017 will be on a basis consistent with 2018.
CHANGE IN TIMING AND PRESENTATION, NO IMPACT TO CASH OR ECONOMICS
The new standard requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result, we expect significant changes in the presentation of our financial statements, including: (1) timing of revenue recognition, and (2) changes in classification between revenue and costs. The new standard will have no cash impact and, as such, does not affect the economics of our underlying customer contracts. The effect of applying the new guidance to our existing book of contracts will result in lower reported earnings in 2018 (and comparative periods previously reported) and in the early years after adoption. However, we expect to experience an increase in reported earnings, on that existing book of contracts, as they mature. The new standard will provide for a better alignment of cash and earnings for the affected long-term customer contracts and we expect that it will enhance comparability across industry peers.
SPECIFIC EFFECT ON GE BUSINESSES
Power and Aviation Service Agreements - For our long-term product service agreements, primarily in our Power and Aviation businesses, we expect to continue to recognize revenue based on costs incurred plus an estimated margin rate (over time model). However, the new standard provides prescriptive guidance tied to several factors for determining what constitutes the proper scope of a customer contract for accounting purposes. These factors include optional purchases, contract modifications, and termination clauses. For example, under the new standard contract modifications will be accounted for prospectively by recognizing the financial effect of the modification over the remaining life of the contract. Under existing accounting guidance revisions to estimated margin rates resulting from modifications were reflected as cumulative effect adjustments to earnings in the current period.
Aviation Commercial Engines - Consistent with industry peers, the financial presentation of our Aviation Commercial engines business will be significantly affected as they will be accounted for as of a point in time, which is a change from our current long-term contract accounting process. Our current process applies contract-specific estimated margin rates, which include the effect of estimated cost improvements, to costs incurred. This change is required because our commercial engine contracts do not transfer control to the customer during the manufacturing process. Each install and spare engine will be accounted for as a separate performance obligation, reflecting the actual price and manufacturing costs of such engines. We expect that the most significant effect of this change will be reflected when we have new engine launches, where the cost of earlier production units is higher than the cost of later production units because of cost improvements.
All Other Large Equipment - For the remainder of our equipment businesses, the new revenue standard requires emphasis on transfer of control rather than risks and rewards, which may accelerate timing of revenue recognition versus our current practices. For example, in our Renewable Energy business we wait for risk of loss to be assumed by the customer before recognizing revenue, which generally occurs later than when control is transferred.
CURRENT RANGE OF FINANCIAL STATEMENT EFFECT
We will adopt the new standard as of January 1, 2018. When we report our 2018 results, the comparative results for 2017 and 2016 will be updated to reflect the application of the requirements of the new standard to these periods. Based on our assessment and best estimates to date, we expect a non-cash charge to our January 1, 2016 retained earnings balance of approximately $4.3 billion. We estimate that the charge will comprise approximately $1.0 billion related to commercial aircraft engines and $3.3 billion related primarily to our services businesses (predominately in Power and Aviation). Beyond those effects, we expect application of the new guidance will result in increases and decreases in revenue within our segments, which will largely offset overall and will be immaterial at a total company level. We estimate that our 2016 restated earnings per share will be lower by approximately $0.13, driven primarily by the required changes in accounting for long-term product service arrangements as described above. The expected effect to 2016 earnings per share reflects an increase from the previously reported estimate of approximately $0.10 due to further refinements in the application of our technical interpretations and our detailed assessments at a contract level, which is a complex process for our long-term contracts. In addition, the impact on 2017 will also be a decrease to earnings; however, we are unable to complete that calculation until we finalize our 2017 results. Upon adoption in 2018, our books and records will only reflect the results as required under the new standard limiting our ability to estimate the effect of the standard on our earnings. Given the inherent difficulty in this ongoing estimation of the effect of the standard on any future periods, we do not plan to continue to assess the effect on 2018.
To summarize, we will adopt the new standard in 2018, at which time we will update prior periods to be presented on a consistent basis. As discussed above, we anticipate a dilutive effect of the new standard in the year of adoption consistent with the effect to the restated 2016 and 2017 results and the effect will be less dilutive for years after initial adoption. However, this expectation is based on many variables, including underlying business performance, which are subject to change, making the effect of the standard on future periods difficult to estimate. Importantly, application of the new guidance has no effect on the cash we expect to receive nor the economics of these contracts. Rather, it will simply more closely align revenue with cash, which we believe will be helpful to our investors.
GE DIGITAL
GE Digital's activities are focused on assisting in the market development of our digital product offerings through software design, fulfillment and product management, while also interfacing with our customers. Digital revenues include internally developed software and associated hardware, including Predix and software solutions that improve our customers’ asset performance. These revenues and associated costs are largely generated from our operating businesses and are included in their segment results.
Revenues were $1.0 billion for the three months ended September 30, 2017, an increase of $0.1 billion or 6% compared to revenues of $0.9 billion for the three months ended September 30, 2016. Revenues were $2.8 billion for the nine months ended September 30, 2017, an increase of $0.3 billion or 11% compared to revenues of $2.6 billion for the nine months ended September 30, 2016. These increases were principally driven by Power and Non-GE Verticals.
Orders were $1.4 billion for the three months ended September 30, 2017, an increase of $0.4 billion or 50% compared to orders of $0.9 billion for the three months ended September 30, 2016. Orders were $3.7 billion for the nine months ended September 30, 2017, an increase of $0.9 billion or 32% compared to orders of $2.8 billion for the nine months ended September 30, 2016. These increases were principally driven by Oil & Gas, Non-GE Verticals, Power and Renewable Energy.
VENEZUELA
Although we continue to experience delays in collecting payments on our receivables from our primary customer in Venezuela, our outstanding receivables are not disputed, and we continue to believe that our carrying value of these receivables are recoverable. In assessing the recoverability of these receivables, we considered our collection experience with this customer. To date we have had no material write-offs related to this customer and have collected approximately $67 million in 2017 and $103 million in 2016. In addition, we consider: the continued importance to the Venezuelan economy of oil production; our strategic relationship with this customer; our current activity levels and our current intention to continue to provide services to this customer; the impact of cross-default provisions withinchanges of key cash flow assumptions underlying our future policy benefit reserves included in the loan agreements withrevised portions of our 2022 Form 10-K as filed on April 25, 2023, have not materially changed. See Capital Resources and Liquidity and Notes 1, 3 and 13 for further information related to our run-off insurance operations.
NON-GAAP FINANCIAL MEASURES.We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the customer;total company and an evaluation of this customer’sits businesses. This includes adjustments in recent periods to GAAP financial solvency. We continuemeasures to activelyincrease period-to-period comparability following actions to strengthen our overall financial position and how we manage our relationship with this customer, with ongoing dialogue between key executives of both companies.
As of September 30, 2017, our net exposure to this customer is approximately $260 million. The primary component of this exposure is in GE Capital, which has outstanding financing receivables with a gross value of $210 million and a carrying value of $162 million at September 30, 2017. GE has guaranteed the collectability of these receivables to GE Capital. This exposure also includes approximately $60 million of on-hand inventorybusiness. In addition, management recognizes that we may not be able to redeploy to other customers should the contracts with this customer be terminated unexpectedly, and net trade receivables of approximately $40 million ($266 million gross value). In 2015 and 2016, we exchanged $257 million and $194 million, respectively, of customer accounts receivable for interest bearing promissory notes with a par value of the same amount. As part of these exchanges, GE recognized a pre-tax loss of $135 million to recognize the notes at fair value. Through the second quarter of 2017, GE recorded approximately $40 million of interest and discount accretion on these loans as no payments were past due and these financing receivables are cross-defaulted with other outstanding customer debt. At September 30, 2017 payments of $52 million were past due and while the majority of these payments were received subsequent to the end of the quarter, due to the difficulties in receiving payment GE placed these loans on nonaccrual status and performed an impairment review of these loans, which supported the carrying value at September 30, 2017.
During the three months ended September 30, 2017, GE recorded a bad debt reserve and receivables write offs on other customer receivables of $62 million and an impairment of two buildings of $26 million.
We believe our collectability assumptions to be reasonable according to the current facts and circumstances and they are reviewed on a quarterly basis. However, differences in actual experience or changes in facts and circumstances may materially affect our financial position or results of operations. Our assumptions and related judgments are sensitive to the political and economic conditions in Venezuela. If conditions in Venezuela worsen or if low commodity prices persist for an extended period, wecertain non-GAAP terms may be required to record adjustments to our receivables balance. Our financial results can be affected, positively or negatively,interpreted differently by changes in our assessment of the collectability of these trade receivables.
MD&A
MINE SAFETY DISCLOSURES
Our barite mining operations, in support of our drilling fluids products and services business, are subject to regulation by the federal Mine Safety and Health Administrationother companies under the Federal Mine Safety and Health Act of 1977. There are no mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K to report for the current quarter.
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934. Under Section 13(r) of the Securities Exchange Act of 1934, enacted in 2012, GE is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in business activities relating to Iran, even if those activities are conducted in accordance with authorizations subsequently issued by the U.S. Government. Reportable activities include investments that significantly enhance Iran’s ability to develop petroleum resources valued at $20 million or more in the aggregate during a twelve-month period. Reporting is also required for transactions related to Iran’s domestic production of refined petroleum products or Iran’s ability to import refined petroleum products valued at $5 million or more in the aggregate during a twelve-month period.
different circumstances. In January 2016, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License H authorizing U.S.-owned or controlled foreign entities to engage in transactions with Iran if these entities meet the requirements of the general license. Pursuant to this authorization, a non-U.S. affiliate of GE’s Oil & Gas business received five purchase orders during the third quarter of 2017 for the sale of goods pursuant to General License H that could potentially enhance Iran’s ability to develop petroleum resources. The purchase orders cover the sale of valves and parts for industrial machinery and equipment used in gas plants, petrochemical plants and gas production projects in Iran. These purchase orders are valued at €0.1million ($0.1 million), €0.5 million ($0.5 million), €0.2 million ($0.2 million), €0.1 million ($0.1 million), €1.3 million ($1.5 million). This non-US affiliate also booked a modification of a previously reported contract for the sale of spare parts for gas turbines to add additional scope valued at €0.1 million ($0.1 million) and a further modification to another previously reported contract for the sale of spare parts to reduce the value of the contract by €1.6 million ($1.8 million). This non-US affiliate attributed €1.5 million ($1.8 million) in gross revenues and €0.8 million ($0.9 million) in net profits against previously reported transactions during the quarter ending September 30, 2017.
A second non-U.S. affiliate of GE’s Oil & Gas business received two purchase orders during the third quarter of 2017 for the sale of consumable parts, instruments and a digital recording system to be applied to industrial machinery and equipment on gas plants. The purchase orders are valued at €0.1 million ($0.1 million) and €0.1 million ($0.1 million). This non-US affiliate attributed €0.3 million ($0.3 million) in gross revenues and €0.1 million ($0.1 million) in net profits to these transactions during the quarter ending September 30, 2017.
A non-U.S. affiliate of GE’s Power business received a cancellation to a purchase order previously reported for the sale of spare parts to an Iranian entity to provide electricity and steam to an area of Iran that includes certain oil refineries during the quarter ending September 30, 2017. This purchase order cancellation reduces the value by €16.2 million ($18.1 million). This non-US affiliate also received a modification to a previously reported purchase order for the sale of spare parts to reduce the value of the purchase order by €1.3 million ($1.5 million). This non-US affiliate also attributed €4.8 million ($5.7 million) in gross revenues and €3.1 million ($3.7 million) in net profits during the quarter ending September 30, 2017.
A second non-US affiliate of GE’s Power business received three purchase orders pursuant to General License H valued at €0.1 million ($0.1 million), €0.1 million ($0.1 million) and €0.2 million ($0.2 million) during the third quarter of 2017. The purchase orders cover the sale of protection relays for oil refinery related projects in Iran. This non-US affiliate did not recognize any revenue or profit during the quarter ending September 30, 2017.
A third non-US affiliate of GE’s Power business received two purchase orders pursuant to General License H valued at €0.1 million ($0.1 million) and €0.1 million ($0.1 million) during the third quarter of 2017. The purchase orders cover the sale of spare parts for motors for ultimate end use by a petro-chemical company in Iran. This non-US affiliate did not recognize any revenue or profit during the quarter ending September 30, 2017.
All of these non-U.S. affiliates intend to continue the activities described above, as permitted by all applicable laws and regulations.
For additional information on business activities related to Iran, please refer to the Other Items section within MD&A in our Form 10-Q for the quarter ended June 30, 2017.
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MD&A | SUPPLEMENTAL INFORMATION |
SUPPLEMENTAL INFORMATION
FINANCIAL MEASURES THAT SUPPLEMENT U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES MEASURES (NON-GAAP FINANCIAL MEASURES)
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. Specifically, we have referred, in various sections of this report to:
Industrial segmentwe have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically organic revenues by segment; organic revenues; and equipment and services organic revenues and Industrial segment(2) profit, specifically organic revenues excluding Powerprofit and Oil & Gas
Operatingprofit margin by segment; Adjusted profit and non-operating pension cost
profit margin; Adjusted corporate costs (operating)
GE pre-taxorganic profit and profit margin; Adjusted earnings from continuing operations, excluding GE Capital(loss); Adjusted income tax rate; and Adjusted earnings (loss) from continuing operationsper share (EPS), and the corresponding effective tax rates
Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS
Industrial operating + Verticals earnings and EPS
Industrial operating profit and operating profit margin (excluding certain items)
Industrial operating profit excluding Power and Oil & Gas
Industrial(3) cash flows, from operating activities (Industrial CFOA) and Industrial CFOA excluding deal taxes and GE Pension Plan funding
specifically free cash flows (FCF). The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
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| ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| Revenues | | Segment profit (loss) | | Profit margin |
| Three months ended September 30 | 2023 | | 2022 | | V% | | 2023 | | 2022 | | V% | | 2023 | | 2022 | V pts |
| Aerospace (GAAP) | $ | 8,409 | | | $ | 6,705 | | | 25 | % | | $ | 1,712 | | | $ | 1,284 | | | 33 | % | | 20.4 | % | | 19.1 | % | 1.3pts |
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| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: foreign currency effect | 8 | | | (5) | | | | | 1 | | | (6) | | | | | | | | |
| Aerospace organic (Non-GAAP) | $ | 8,401 | | | $ | 6,710 | | | 25 | % | | $ | 1,711 | | | $ | 1,290 | | | 33 | % | | 20.4 | % | | 19.2 | % | 1.2pts |
| | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | $ | 4,151 | | | $ | 3,594 | | | 15 | % | | $ | (317) | | | $ | (934) | | | 66 | % | | (7.6) | % | | (26.0) | % | 18.4pts |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: foreign currency effect | 72 | | | 27 | | | | | (52) | | | 8 | | | | | | | | |
| Renewable Energy organic (Non-GAAP) | $ | 4,078 | | | $ | 3,567 | | | 14 | % | | $ | (265) | | | $ | (942) | | | 72 | % | | (6.5) | % | | (26.4) | % | 19.9pts |
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| Power (GAAP) | $ | 3,974 | | | $ | 3,529 | | | 13 | % | | $ | 238 | | | $ | 141 | | | 69 | % | | 6.0 | % | | 4.0 | % | 2.0pts |
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| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | 56 | | | — | | | | | 23 | | | — | | | | | | | | |
| Less: foreign currency effect | 59 | | | (8) | | | | | (29) | | | (11) | | | | | | | | |
| Power organic (Non-GAAP) | $ | 3,859 | | | $ | 3,537 | | | 9 | % | | $ | 244 | | | $ | 152 | | | 61 | % | | 6.3 | % | | 4.3 | % | 2.0pts |
|
20172023 3Q FORM 10-Q 5314
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| Revenues | | Segment profit (loss) | | Profit margin |
| Nine months ended September 30 | 2023 | | 2022 | | V% | | 2023 | | 2022 | | V% | | 2023 | | 2022 | V pts |
| Aerospace (GAAP) | $ | 23,250 | | | $ | 18,434 | | | 26 | % | | $ | 4,516 | | | $ | 3,341 | | | 35 | % | | 19.4 | % | | 18.1 | % | 1.3pts |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: foreign currency effect | 5 | | | (9) | | | | | 69 | | | 5 | | | | | | | | |
| Aerospace organic (Non-GAAP) | $ | 23,245 | | | $ | 18,444 | | | 26 | % | | $ | 4,447 | | | $ | 3,336 | | | 33 | % | | 19.1 | % | | 18.1 | % | 1.0pts |
| | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | $ | 10,837 | | | $ | 9,564 | | | 13 | % | | $ | (1,090) | | | $ | (1,786) | | | 39 | % | | (10.1) | % | | (18.7) | % | 8.6pts |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | — | | | — | | | | | — | | | — | | | | | | | | |
| Less: foreign currency effect | (165) | | | 38 | | | | | (148) | | | 25 | | | | | | | | |
| Renewable Energy organic (Non-GAAP) | $ | 11,002 | | | $ | 9,526 | | | 15 | % | | $ | (942) | | | $ | (1,812) | | | 48 | % | | (8.6) | % | | (19.0) | % | 10.4pts |
| | | | | | | | | | | | | | | | |
| Power (GAAP) | $ | 11,945 | | | $ | 11,233 | | | 6 | % | | $ | 690 | | | $ | 524 | | | 32 | % | | 5.8 | % | | 4.7 | % | 1.1pts |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Less: acquisitions and business dispositions | 86 | | | — | | | | | 5 | | | — | | | | | | | | |
| Less: foreign currency effect | (28) | | | (39) | | | | | (76) | | | (75) | | | | | | | | |
| Power organic (Non-GAAP) | $ | 11,887 | | | $ | 11,272 | | | 5 | % | | $ | 761 | | | $ | 599 | | | 27 | % | | 6.4 | % | | 5.3 | % | 1.1pts |
| 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, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | | | | | | | | | | |
| ORGANIC REVENUES (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | V% | | 2023 | 2022 | V% |
| Total revenues (GAAP) | $ | 17,346 | | $ | 14,470 | | 20 | % | | $ | 48,531 | | $ | 41,272 | | 18 | % |
| Less: Insurance revenues | 842 | | 645 | | | | 2,480 | | 2,175 | | |
| Adjusted revenues (Non-GAAP) | $ | 16,504 | | $ | 13,826 | | 19 | % | | $ | 46,050 | | $ | 39,097 | | 18 | % |
| | | | | | | |
| | | | | | | |
| Less: acquisitions and business dispositions | 56 | | — | | | | 87 | | 1 | | |
| Less: foreign currency effect(a) | 142 | | 13 | | | | (191) | | (10) | | |
| Organic revenues (Non-GAAP) | $ | 16,306 | | $ | 13,813 | | 18 | % | | $ | 46,154 | | $ | 39,107 | | 18 | % |
| | | | | | | |
| (a) Foreign currency impact was primarily driven by U.S. dollar depreciation against the euro, Brazilian real and British pound and U.S. dollar appreciation against the Chinese renminbi, Canadian dollar and British pound for the three and nine months ended September 30, 2023, respectively. |
| 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 revenues from our run-off Insurance business, acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | | | | | | | | | | |
| EQUIPMENT AND SERVICES ORGANIC REVENUES (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | V% | | 2023 | 2022 | V% |
| Total equipment revenues (GAAP) | $ | 6,939 | | $ | 5,731 | | 21 | % | | $ | 18,915 | | $ | 15,605 | | 21 | % |
| | | | | | | |
| | | | | | | |
| Less: acquisitions and business dispositions | 23 | | — | | | | 37 | | — | | |
| Less: foreign currency effect | 102 | | 19 | | | | (143) | | 13 | | |
| Equipment organic revenues (Non-GAAP) | $ | 6,814 | | $ | 5,712 | | 19 | % | | $ | 19,021 | | $ | 15,592 | | 22 | % |
| | | | | | | |
| Total services revenues (GAAP) | $ | 9,565 | | $ | 8,095 | | 18 | % | | $ | 27,136 | | $ | 23,493 | | 16 | % |
| | | | | | | |
| | | | | | | |
| Less: acquisitions and business dispositions | 33 | | — | | | | 49 | | 1 | | |
| Less: foreign currency effect | 40 | | (6) | | | | (47) | | (23) | | |
| Services organic revenues (Non-GAAP) | $ | 9,492 | | $ | 8,101 | | 17 | % | | $ | 27,133 | | $ | 23,515 | | 15 | % |
| 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, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL SEGMENT ORGANIC REVENUES |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% | | 2017 |
| 2016 |
| V% |
| | | | | | | | |
| Industrial segment revenues (GAAP) | $ | 30,046 |
| $ | 27,335 |
| 10 | % | | $ | 83,943 |
| $ | 81,667 |
| 3 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 2,865 |
| 6 |
| | | 3,214 |
| 22 |
| |
| Business dispositions | 51 |
| 57 |
| | | 61 |
| 2,852 |
| |
| Currency exchange rates | 219 |
| — |
| | | (51 | ) | — |
| |
| Industrial segment organic revenues (Non-GAAP) | $ | 26,911 |
| $ | 27,272 |
| (1) | % | | $ | 80,718 |
| $ | 78,793 |
| 2 | % |
| | | | | | | | |
| Power revenues (GAAP) | $ | 8,679 |
| $ | 8,995 |
| (4) | % | | $ | 26,569 |
| $ | 25,664 |
| 4 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 94 |
| — |
|
| | 230 |
| 5 |
| |
| Business dispositions | — |
| 19 |
| | | — |
| 154 |
| |
| Currency exchange rates | 123 |
| — |
| | | (73 | ) | — |
| |
| Power organic revenues (Non-GAAP) | $ | 8,462 |
| $ | 8,976 |
| (6) | % | | $ | 26,412 |
| $ | 25,505 |
| 4 | % |
| | | | | | | | |
| Oil & Gas revenues (GAAP) | 5,365 |
| 2,964 |
| 81 | % | | 11,475 |
| 9,497 |
| 21 | % |
| Less adjustments: | | | | | | | |
| Acquisitions | 2,541 |
| — |
| | | 2,542 |
| 1 |
| |
| Business dispositions | — |
| — |
| | | — |
| — |
| |
| Currency exchange rates | 58 |
| — |
| | | (13 | ) | — |
| |
| Oil & Gas organic revenues (Non-GAAP) | $ | 2,766 |
| $ | 2,964 |
| (7) | % | | $ | 8,946 |
| $ | 9,496 |
| (6 | )% |
| | | | | | | | |
| Industrial segment organic revenues excluding Power and Oil & Gas (Non-GAAP) | $ | 15,683 |
| $ | 15,332 |
| 2 | % | | $ | 45,360 |
| $ | 43,792 |
| 4 | % |
| | | | | | | | |
Organic revenue growth measures revenue growth excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting organic revenue growth separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenue growth" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.
We also believe that the variability in the revenue of our Power and Oil & Gas businesses may obscure underlying trends of our other industrial businesses. As a result, we have also presented our organic revenue growth measure excluding the revenues of our Power and Oil & Gas businesses.
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | | | | | | |
| OPERATING AND NON-OPERATING PENSION COST |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Service cost for benefits earned | $ | 267 |
| $ | 307 |
| | $ | 810 |
| $ | 913 |
|
| Prior service cost amortization | 73 |
| 76 |
| | 218 |
| 228 |
|
| Curtailment loss (gain) | — |
| — |
| | 43 |
| (1 | ) |
| Operating pension cost (Non-GAAP) | 340 |
| 383 |
| | 1,071 |
| 1,140 |
|
| | | | | | |
| Expected return on plan assets | (847 | ) | (837 | ) | | (2,545 | ) | (2,507 | ) |
| Interest cost on benefit obligations | 715 |
| 736 |
| | 2,144 |
| 2,205 |
|
| Net actuarial loss amortization | 702 |
| 612 |
| | 2,109 |
| 1,836 |
|
| Non-operating pension cost (Non-GAAP) | 570 |
| 511 |
| | 1,708 |
| 1,534 |
|
| Total principal pension plans cost (GAAP) | $ | 910 |
| $ | 894 |
| | $ | 2,779 |
| $ | 2,674 |
|
We have provided the operating and non-operating components of cost for our principal pension plans. Operating pension cost comprise the service cost of benefits earned, prior service cost amortization and curtailment loss (gain) for our principal pension plans. Non-operating pension cost comprise the expected return on plan assets, interest cost on benefit obligations and net actuarial loss amortization for our principal pension plans. We believe that the operating components of pension cost better reflects the ongoing service-related cost of providing pension benefits to our employees. We believe that the operating and non-operating components of cost for our principal pension plans, considered along with the corresponding GAAP measure, provide management and investors with additional information for comparison of our pension plan cost and operating results with the pension plan cost and operating results of other companies.
|
| | | | | | | | | | | | | |
| ADJUSTED CORPORATE COSTS (OPERATING) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Total Corporate Items and Eliminations (GAAP) | $ | (1,095 | ) | $ | (1,524 | ) | | $ | (4,687 | ) | $ | (2,120 | ) |
| Less: non-operating pension cost (Non-GAAP) | (570 | ) | (511 | ) | | (1,708 | ) | (1,534 | ) |
| Total Corporate costs (operating) (Non-GAAP) | $ | (525 | ) | $ | (1,012 | ) | | $ | (2,979 | ) | $ | (586 | ) |
| Less: restructuring and other charges | (2,027 | ) | (683 | ) | | (3,755 | ) | (2,557 | ) |
| Less: gains (losses) on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted total corporate costs (operating) (Non-GAAP) | $ | (396 | ) | $ | (538 | ) | | $ | (1,124 | ) | $ | (1,424 | ) |
Operating corporate costs exclude non-service-related pension costs of our principal pension plans, which comprise interest costs, expected return on plan assets and amortization of actuarial gains/losses. Service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating corporate costs. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. Accordingly, we believe that our measure of operating corporate costs provides management and investors with a useful measure of the operational costs incurred outside of our businesses. We believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating corporate costs to the operating corporate costs of other companies.
We also believe that adjusting operating corporate costs to exclude the effects of items that are not closely associated with ongoing corporate operations, such as earnings of previously divested businesses, gains and losses on disposed and held for sale businesses, and restructuring and other charges, provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
20172023 3Q FORM 10-Q 5515
| | | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED PROFIT AND PROFIT MARGIN (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 | |
| 2023 | 2022 | V% | | 2023 | 2022 | V% | |
| Total revenues (GAAP) | $ | 17,346 | $ | 14,470 | 20% | | $ | 48,531 | $ | 41,272 | 18% | |
| Less: Insurance revenues (Note 13) | 842 | 645 | | | 2,480 | 2,175 | | |
| Adjusted revenues (Non-GAAP) | $ | 16,504 | $ | 13,826 | 19% | | $ | 46,050 | $ | 39,097 | 18% | |
| | | | | | | | |
| Total costs and expenses (GAAP) | $ | 16,373 | $ | 14,880 | 10% | | $ | 46,449 | $ | 42,650 | 9% | |
| Less: Insurance cost and expenses (Note 13) | 742 | 543 | | | 2,248 | 1,911 | | |
| Less: interest and other financial charges(a) | 275 | 361 | | | 786 | 1,085 | | |
| Less: non-operating benefit cost (income) | (396) | (96) | | | (1,183) | (302) | | |
| Less: restructuring & other(a) | 149 | 103 | | | 438 | 176 | | |
| | | | | | | | |
| Less: separation costs(a) | 227 | 171 | | | 658 | 419 | | |
| Less: Steam asset sale impairment(a) | — | — | | | — | 825 | | |
| Less: Russia and Ukraine charges(a) | — | 33 | | | 190 | 263 | | |
| | | | | | | | |
| | | | | | | | |
| Add: noncontrolling interests | (14) | (2) | | | (37) | 19 | | |
| Add: EFS benefit from taxes | (42) | (52) | | | (153) | (160) | | |
| Adjusted costs (Non-GAAP) | $ | 15,320 | $ | 13,711 | 12% | | $ | 43,122 | $ | 38,133 | 13% | |
| | | | | | | | |
| Other income (loss) (GAAP) | $ | (673) | $ | 178 | U | | $ | 6,100 | $ | (1,000) | F | |
| Less: gains (losses) on retained and sold ownership interests and other equity securities(a) | (1,110) | (89) | | | 5,152 | (1,859) | | |
| | | | | | | | |
| | | | | | | | |
| Less: gains (losses) on purchases and sales of business interests & other(a) | 6 | 22 | | | (13) | 31 | | |
| Adjusted other income (loss) (Non-GAAP) | $ | 431 | $ | 245 | 76% | | $ | 961 | $ | 828 | 16% | |
| | | | | | | | |
| Profit (loss) (GAAP) | $ | 300 | $ | (232) | F | | $ | 8,182 | $ | (2,378) | F | |
| Profit (loss) margin (GAAP) | 1.7% | (1.6)% | 3.3pts | | 16.9% | (5.8)% | 22.7pts | |
| | | | | | | | |
| Adjusted profit (loss) (Non-GAAP) | $ | 1,615 | $ | 359 | F | | $ | 3,889 | $ | 1,793 | F | |
| Adjusted profit (loss) margin (Non-GAAP) | 9.8% | 2.6% | 7.2pts | | 8.4% | 4.6% | 3.8pts | |
| | | | | | | | |
| (a) See the Corporate and Other Consolidated Information sections for further information. | |
| We believe that adjusting profit to exclude the effects of items that are not closely associated with ongoing operations provides management and investors with a meaningful measure that increases the period-to-period comparability. Gains (losses) and restructuring and other items are impacted by the timing and magnitude of gains associated with dispositions, and the timing and magnitude of costs associated with restructuring and other activities. |
| | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED ORGANIC PROFIT (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | V% | | 2023 | 2022 | V% |
| Adjusted profit (loss) (Non-GAAP) | $ | 1,615 | | $ | 359 | | F | | $ | 3,889 | | $ | 1,793 | | F |
| | | | | | | |
| | | | | | | |
| Less: acquisitions and business dispositions | 23 | | — | | | | (1) | | (5) | | |
| Less: foreign currency effect(a) | (88) | | (11) | | | | (237) | | (38) | | |
| Adjusted organic profit (loss) (Non-GAAP) | $ | 1,680 | | $ | 370 | | F | | $ | 4,126 | | $ | 1,836 | | F |
| | | | | | | |
| Adjusted profit (loss) margin (Non-GAAP) | 9.8 | % | 2.6 | % | 7.2 | pts | | 8.4 | % | 4.6 | % | 3.8 | pts |
| Adjusted organic profit (loss) margin (Non-GAAP) | 10.3 | % | 2.7 | % | 7.6 | pts | | 8.9 | % | 4.7 | % | 4.2 | pts |
| | | | | | | |
| (a) Included foreign currency positive effect on revenues of $142 million and negative effect on operating costs and other income (loss) of $230 million for the three months ended September 30, 2023. Included foreign currency negative effect on revenues of $191 million and negative effect on operating costs and other income (loss) of $46 million for the nine months ended September 30, 2023. |
| 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, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | | | | | | |
| GE PRE-TAX EARNINGS FROM CONTINUING OPERATIONS, EXCLUDING GE CAPITAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND THE CORRESPONDING EFFECTIVE TAX RATES |
| | Three months ended September 30 | Nine months ended September 30 |
| (Dollars in millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| GE earnings from continuing operations before income taxes (GAAP) | $ | 1,701 |
| $ | 2,263 |
| | $ | 4,162 |
| $ | 6,405 |
|
| Less: GE Capital earnings (loss) from continuing operations | $ | 24 |
| $ | 26 |
| | $ | (195 | ) | $ | (1,466 | ) |
| Adjusted earnings from continuing operations before income taxes (Non-GAAP) | $ | 1,677 |
| $ | 2,237 |
| | $ | 4,357 |
| $ | 7,871 |
|
| | | | | | |
| GE (excluding GE Capital) provision for income taxes - continuing operations (GAAP) | $ | (64 | ) | $ | 241 |
| | $ | 297 |
| $ | 1,034 |
|
| GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | (4 | )% | 11 | % | | 7 | % | 13 | % |
We believe that the GE effective tax rate is best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. Management believes that in addition to the Consolidated and GE Capital tax rates shown in Note 14 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2016, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses.
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL OPERATING EARNINGS AND GE CAPITAL EARNINGS (LOSS) FROM CONTINUING OPERATIONS AND EPS |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions; except per-share amounts) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | 1,905 |
| $ | 2,097 |
| (9 | )% | | $ | 4,101 |
| $ | 5,645 |
| (27 | )% |
| Non-operating pension cost | 570 |
| 511 |
| | | 1,708 |
| 1,534 |
| |
| Tax effect on non-operating pension cost(a) | (199 | ) | (179 | ) | | | (597 | ) | (537 | ) | |
| Adjustment: non-operating pension cost (net of tax) | 371 |
| 332 |
| | | 1,111 |
| 997 |
| |
| Operating earnings (loss) (Non-GAAP) | 2,276 |
| 2,429 |
| (6 | )% | | 5,212 |
| 6,642 |
| (22 | )% |
| | | | | | | | |
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners | 24 |
| 26 |
| | | (195 | ) | (1,466 | ) | |
| Industrial operating earnings (loss) (Non-GAAP) | $ | 2,252 |
| $ | 2,404 |
| (6 | )% | | $ | 5,407 |
| $ | 8,109 |
| (33 | )% |
| | | | | | | | |
| Earnings (loss) per share (EPS) – diluted(b) | | | | | | | |
| Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | 0.22 |
| $ | 0.23 |
| (4 | )% | | $ | 0.47 |
| $ | 0.61 |
| (23 | )% |
| Adjustment: non-operating pension cost (net of tax) | 0.04 |
| 0.04 |
| | | 0.13 |
| 0.11 |
| |
| Operating EPS (Non-GAAP) | 0.26 |
| 0.27 |
| (4 | )% | | 0.59 |
| 0.72 |
| (18 | )% |
| Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | — |
| — |
| 0 | % | | (0.02 | ) | (0.16 | ) | 88 | % |
| Industrial operating EPS (Non-GAAP) | $ | 0.26 |
| $ | 0.27 |
| (4 | )% | | $ | 0.61 |
| $ | 0.88 |
| (31 | )% |
| |
(a) | The tax effect on non-operating pension cost was calculated using a 35% U.S. federal statutory tax rate, based on its applicability to such cost. |
| |
(b) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
Operating earnings (loss) excludes non-service related pension cost of our principal pension plans, comprising interest cost, expected return on plan assets and amortization of actuarial gains/losses. The service cost, prior service cost and curtailment loss components of our principal pension plans are included in operating earnings. We believe that these components of pension cost better reflect the ongoing service-related cost of providing pension benefits to our employees. As such, we believe that our measure of operating earnings (loss) provides management and investors with a useful measure of the operational results of our business. Other components of GAAP pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Neither GAAP nor operating pension cost are necessarily indicative of the current or future cash flow requirements related to our pension plans. We believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating results to the operating results of other companies. We also believe that presenting operating earnings separately for our industrial businesses provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company.
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | | | | | | | | | | |
| INDUSTRIAL OPERATING + VERTICALS EARNINGS AND EPS |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions; except per-share amounts) | 2017 |
| 2016 |
| V% |
| | 2017 |
| 2016 |
| V% |
|
| | | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | 24 |
| $ | 26 |
| (8 | )% | | $ | (195 | ) | $ | (1,466 | ) | 87 | % |
| Less: GE Capital other continuing earnings (loss) (Other Capital)(a) | (275 | ) | (441 | ) | | | (1,573 | ) | (2,881 | ) | |
| Verticals earnings(b) | 299 |
| 466 |
| (36 | )% | | 1,377 |
| 1,414 |
| (3 | )% |
| Industrial operating earnings (Non-GAAP) | 2,252 |
| 2,404 |
| (6 | )% | | 5,407 |
| 8,109 |
| (33 | )% |
| Industrial operating earnings + Verticals earnings (Non-GAAP) | $ | 2,550 |
| $ | 2,870 |
| (11 | )% | | $ | 6,784 |
| $ | 9,523 |
| (29 | )% |
| | | | | | | | |
| Earnings (loss) per share (EPS) - diluted(c) | | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareowners | $ | — |
| $ | — |
| — | % | | $ | (0.02 | ) | $ | (0.16 | ) | 88 | % |
| Less: GE Capital other continuing EPS (Other Capital) | (0.03 | ) | (0.05 | ) | | | (0.18 | ) | (0.31 | ) | |
| Verticals EPS | $ | 0.03 |
| $ | 0.05 |
| (40 | )% | | $ | 0.16 |
| $ | 0.15 |
| 7 | % |
| Industrial operating EPS (Non-GAAP) | 0.26 |
| 0.27 |
| (4 | )% | | 0.61 |
| 0.88 |
| (31 | )% |
| Industrial operating + Verticals EPS (Non-GAAP) | $ | 0.29 |
| $ | 0.32 |
| (9 | )% | | $ | 0.77 |
| $ | 1.03 |
| (25 | )% |
| | | | | | | | |
Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP)
| $ | 0.22 |
| $ | 0.23 |
| (4 | )% | | $ | 0.47 |
| $ | 0.61 |
| (23 | )% |
| Less: non-operating pension cost (net of tax) | (0.04 | ) | (0.04 | ) | | | (0.13 | ) | (0.11 | ) | |
| Less: Other Capital | (0.03 | ) | (0.05 | ) | | | (0.18 | ) | (0.31 | ) | |
| Industrial operating + Verticals EPS (Non-GAAP) | $ | 0.29 |
| $ | 0.32 |
| (9 | )% | | $ | 0.77 |
| $ | 1.03 |
| (25 | )% |
| |
(a) | Includes interest on non-Verticals borrowings, restructuring costs and allocations of GE and GE Capital headquarters costs in excess of those allocated to the Verticals. |
| |
(b) | Verticals include businesses expected to be retained (GECAS, Energy Financial Services, Industrial Finance, and run-off insurance activities), including allocated corporate after-tax costs of $25 million in both the three months ended September 30, 2017 and 2016, and $75 million in both the nine months ended September 30, 2017 and 2016. |
| |
(c) | Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
As described above, Verticals represents the GE Capital businesses that we expect to retain. We believe that presenting Industrial operating + Verticals earnings-per-share amounts provides management and investors with a useful measure to evaluate the performance of the businesses we expect to retain after the disposition of most of our financial services business.
20172023 3Q FORM 10-Q 5716
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) AND ADJUSTED INCOME TAX RATE (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 | | | | | | |
| 2023 | 2022 | | 2023 | 2022 | | | | |
| (Per-share amounts in dollars) | Earnings | EPS | Earnings | EPS | | Earnings | EPS | Earnings | EPS | | | | | | |
| Earnings (loss) from continuing operations (GAAP) (Note 18) | $ | 84 | $ | 0.08 | $ | (313) | $ | (0.29) | | $ | 7,180 | $ | 6.54 | $ | (2,789) | $ | (2.54) | | | | | | |
| Insurance earnings (loss) (pre-tax) | 100 | 0.09 | 101 | 0.09 | | 235 | 0.21 | 269 | 0.25 | | | | | | |
| Tax effect on Insurance earnings (loss) | (23) | (0.02) | (23) | (0.02) | | (54) | (0.05) | (61) | (0.06) | | | | | | |
| Less: Insurance earnings (loss) (net of tax) (Note 13) | 77 | 0.07 | 78 | 0.07 | | 181 | 0.17 | 208 | 0.19 | | | | | | |
| Earnings (loss) excluding Insurance (Non-GAAP) | $ | 7 | $ | 0.01 | $ | (391) | $ | (0.36) | | $ | 6,999 | $ | 6.37 | $ | (2,997) | $ | (2.73) | | | | | | |
| Non-operating benefit (cost) income (pre-tax) (GAAP) | 396 | 0.36 | 96 | 0.09 | | 1,183 | 1.08 | 302 | 0.28 | | | | | | |
| Tax effect on non-operating benefit (cost) income | (83) | (0.08) | (20) | (0.02) | | (248) | (0.23) | (63) | (0.06) | | | | | | |
| Less: Non-operating benefit (cost) income (net of tax) | 313 | 0.28 | 76 | 0.07 | | 935 | 0.85 | 239 | 0.22 | | | | | | |
| Gains (losses) on purchases and sales of business interests (pre-tax)(a) | 6 | 0.01 | 22 | 0.02 | | (13) | (0.01) | 28 | 0.03 | | | | | | |
| Tax effect on gains (losses) on purchases and sales of business interests | (7) | (0.01) | 39 | 0.04 | | (23) | (0.02) | 56 | 0.05 | | | | | | |
| Less: Gains (losses) on purchases and sales of business interests (net of tax) | (1) | — | 61 | 0.06 | | (35) | (0.03) | 84 | 0.08 | | | | | | |
| Gains (losses) on retained and sold ownership interests and other equity securities (pre-tax)(a) | (1,110) | (1.01) | (89) | (0.08) | | 5,152 | 4.69 | (1,859) | (1.69) | | | | | | |
| Tax effect on gains (losses) on retained and sold ownership interests and other equity securities(b)(c) | — | — | (9) | (0.01) | | 1 | — | (15) | (0.01) | | | | | | |
| Less: Gains (losses) on retained and sold ownership interests and other equity securities (net of tax) | (1,110) | (1.01) | (98) | (0.09) | | 5,153 | 4.69 | (1,874) | (1.71) | | | | | | |
| Restructuring & other (pre-tax)(a) | (149) | (0.14) | (103) | (0.09) | | (438) | (0.40) | (173) | (0.16) | | | | | | |
| Tax effect on restructuring & other | 31 | 0.03 | 22 | 0.02 | | 92 | 0.08 | 37 | 0.03 | | | | | | |
| Less: Restructuring & other (net of tax) | (118) | (0.11) | (81) | (0.07) | | (346) | (0.31) | (136) | (0.12) | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Separation costs (pre-tax)(a) | (227) | (0.21) | (171) | (0.16) | | (658) | (0.60) | (419) | (0.38) | | | | | | |
| Tax effect on separation costs | 278 | 0.25 | 39 | 0.04 | | 256 | 0.23 | 31 | 0.03 | | | | | | |
| Less: Separation costs (net of tax) | 51 | 0.05 | (132) | (0.12) | | (402) | (0.37) | (388) | (0.35) | | | | | | |
| Steam asset sale impairment (pre-tax)(a) | — | — | — | — | | — | — | (825) | (0.75) | | | | | | |
| Tax effect on Steam asset sale impairment | — | — | — | — | | — | — | 84 | 0.08 | | | | | | |
| Less: Steam asset sale impairment (net of tax) | — | — | — | — | | — | — | (741) | (0.68) | | | | | | |
| Russia and Ukraine charges (pre-tax)(a) | — | — | (33) | (0.03) | | (190) | (0.17) | (263) | (0.24) | | | | | | |
| Tax effect on Russia and Ukraine charges | — | — | — | — | | (5) | — | 15 | 0.01 | | | | | | |
| Less: Russia and Ukraine charges (net of tax) | — | — | (33) | (0.03) | | (195) | (0.18) | (248) | (0.23) | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Less: Excise tax and accretion of preferred share redemption | (28) | (0.03) | 3 | — | | (58) | (0.05) | 3 | — | | | | | | |
| Less: U.S. and foreign tax law change enactment | — | — | — | — | | — | — | (37) | (0.03) | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Adjusted earnings (loss) (Non-GAAP) | $ | 901 | $ | 0.82 | $ | (187) | $ | (0.17) | | $ | 1,947 | $ | 1.77 | $ | 102 | $ | 0.09 | | | | | | |
| | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before taxes (GAAP) | $ | 300 | | $ | (232) | | | $ | 8,182 | | | $ | (2,378) | | | | | | | |
| Less: Total adjustments above (pre-tax) | (984) | | (177) | | | 5,271 | | | (2,940) | | | | | | | |
| Adjusted earnings before taxes (Non-GAAP) | $ | 1,283 | | $ | (55) | | | $ | 2,910 | | | $ | 562 | | | | | | | |
| | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes (GAAP) | $ | 138 | | $ | 13 | | | $ | 741 | | $ | 203 | | | | | | | |
| Less: Tax effect on adjustments above | (196) | | (48) | | | (19) | | (46) | | | | | | | |
| Adjusted provision (benefit) for income taxes (Non-GAAP) | $ | 334 | | $ | 60 | | | $ | 761 | | $ | 249 | | | | | | | |
| | | | | | | | | | | | | | | |
| Income tax rate (GAAP) | 46.0% | | (5.6)% | | | 9.1% | | (8.5)% | | | | | | | |
| Adjusted income tax rate (Non-GAAP) | 26.0% | | (109.1)% | | | 26.2% | | 44.3% | | | | | | | |
| | | | | | | | | | | | | | | |
| (a) See the Corporate and Other Consolidated Information sections for further information. |
| (b) Includes tax benefits available to offset the tax on gains (losses) on equity securities. |
| (c) Includes related tax valuation allowances. |
| | | | | | | | | | | | | | | |
| Earnings per share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
The service cost for our pension and other benefit plans are included in Adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe the retained cost in Adjusted earnings* and the Adjusted tax rate* 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 2023. *Non-GAAP Financial Measure |
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | | | | | | |
| INDUSTRIAL OPERATING PROFIT AND OPERATING PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Revenues | | | | | |
| GE total revenues and other income | $ | 31,603 |
| $ | 27,172 |
| | $ | 84,506 |
| $ | 82,382 |
|
| Less: GE Capital earnings (loss) from continuing operations | 24 |
| 26 |
| | (195 | ) | (1,466 | ) |
| GE revenues and other income excluding GE Capital earnings (loss) (Industrial revenues) (GAAP) | 31,580 |
| 27,146 |
| | 84,701 |
| 83,848 |
|
| | | | | | |
| Less: gains on disposals | 1,897 |
| 208 |
| | 1,899 |
| 3,395 |
|
| Adjusted Industrial revenues (Non-GAAP) | $ | 29,682 |
| $ | 26,938 |
| | $ | 82,801 |
| $ | 80,453 |
|
| | | | | | |
| Costs | | | | | |
| GE total costs and expenses | $ | 29,903 |
| $ | 24,909 |
| | $ | 80,344 |
| $ | 75,977 |
|
| Less: GE interest and other financial charges | 718 |
| 483 |
| | 1,918 |
| 1,490 |
|
| Industrial costs excluding interest and other financial charges (GAAP) | 29,185 |
| 24,426 |
| | 78,426 |
| 74,487 |
|
| | | | | | |
| Less: non-operating pension cost | 570 |
| 511 |
| | 1,708 |
| 1,534 |
|
| Less: restructuring and other charges | 2,294 |
| 683 |
| | 4,022 |
| 2,557 |
|
| Less: noncontrolling interests | 140 |
| 76 |
| | 236 |
| 275 |
|
| Adjusted Industrial costs (Non-GAAP) | $ | 26,181 |
| $ | 23,156 |
| | $ | 72,459 |
| $ | 70,121 |
|
| | | | | | |
| Industrial profit (GAAP) | 2,394 |
| 2,720 |
| | 6,275 |
| 9,361 |
|
| Industrial margins (GAAP) | 7.6 | % | 10.0 | % | | 7.4 | % | 11.2 | % |
| | | | | | |
| Industrial operating profit (Non-GAAP) | $ | 3,501 |
| 3,782 |
| | $ | 10,342 |
| $ | 10,332 |
|
| Industrial operating profit margins (Non-GAAP) | 11.8 | % | 14.0 | % | | 12.5 | % | 12.8 | % |
|
| | | | | | | |
| INDUSTRIAL OPERATING PROFIT EXCLUDING POWER AND OIL & GAS (NON-GAAP) |
| | | Three months ended September 30 |
| (In millions) | | 2017 |
| 2016 |
| V% |
|
| | | | | |
| | | | | |
| Industrial operating profit (Non-GAAP from above) | | 3,501 |
| 3,782 |
| |
| Less: Power segment profit | | 611 |
| 1,259 |
| |
| Less: Oil & Gas segment profit, excluding restructuring and other charges | | 231 |
| 353 |
| |
| Industrial operating profit excluding Power and Oil & Gas (Non-GAAP) | | 2,659 |
| 2,169 |
| 23 | % |
| |
(a) | Oil & Gas segment profit of $(36) million, excluding restructuring and other charges of $267 million, was $231 million for the three months ended September 30, 2017. |
We have presented our Industrial operating profit and operating profit margin excluding gains, non-operating pension cost, restructuring and other charges and noncontrolling interests. We believe that Industrial operating profit and operating profit margin adjusted for these items are meaningful measures because they increase the comparability of period-to-period results. In addition, we have presented our industrial operating profit measure excluding the segment profit of the Power business and the segment profit of the Oil & Gas business, excluding restructuring and other charges as we believe that the variability in the operating profit of our Power and Oil & Gas businesses may obscure underlying trends of our other industrial businesses.
|
| | |
MD&A | SUPPLEMENTAL INFORMATION |
|
| | | | | | | | |
| INDUSTRIAL CASH FLOWS FROM OPERATING ACTIVITIES (INDUSTRIAL CFOA) AND INDUSTRIAL CFOA EXCLUDING DEAL TAXES AND GE PENSION PLAN FUNDING |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| V% |
|
| | | | |
| Cash from GE's operating activities (continuing operations), as reported (GAAP) | $ | 4,050 |
| $ | 18,342 |
| (78 | )% |
| Adjustments: dividends from GE Capital | 4,016 |
| 16,050 |
| |
| Industrial CFOA (Non-GAAP) | $ | 34 |
| $ | 2,292 |
| 99 | % |
| Adjustments: | | | |
| Deal taxes | 112 |
| 1,076 |
| |
| GE Pension Plan funding | 1,431 |
| — |
| |
| Industrial CFOA excluding deal taxes and GE Pension Plan funding (Non-GAAP) | $ | 1,577 |
| $ | 3,368 |
| U |
|
We define “Industrial CFOA” as GE’s cash from operating activities (continuing operations) less the amount of dividends received by GE from GE Capital. This reflects the effects of intercompany transactions, which include, but are not limited to, the following: GE Capital working capital solutions to optimize GE cash management; GE Capital enabled GE industrial orders; aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment; expenses related to parent-subsidiary pension plans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions; information technology (IT) and other services sold to GE Capital by GE; and various investments, loans and allocations of GE corporate overhead costs.
We believe that investors may find it useful to compare GE's operating cash flows without the effect of GE Capital dividends, since these dividends are not representative of the operating cash flows of our industrial businesses and can vary from period-to-period based upon the results of the financial services businesses. We also believe that investors may find it useful to compare Industrial CFOA excluding the effects of deal taxes paid related to the 2016 Appliances sale, the 2017 Baker Hughes transaction and contributions to our GE Pension Plan. Management recognizes that these measures may not be comparable to cash flow results of companies which contain both industrial and financial services businesses, but believes that this comparison is aided by the provision of additional information about the amounts of dividends paid by our financial services business and the separate presentation in our financial statements of the GE Capital cash flows. We believe that our measure of Industrial CFOA and Industrial CFOA excluding deal-related taxes and GE Pension Plan contributions provides management and investors with useful measures to compare the capacity of our industrial operations to generate operating cash flow with the operating cash flow of other non-financial businesses and companies and as such provides useful measures to supplement the reported GAAP CFOA measure.
20172023 3Q FORM 10-Q 5917
| | | | | | | | |
| FREE CASH FLOWS (FCF) (NON-GAAP) | Nine months ended September 30 |
| 2023 | 2022 |
| CFOA (GAAP) | $ | 2,354 | | $ | 379 | |
| Less: Insurance CFOA | 124 | | 48 | |
| CFOA excluding Insurance (Non-GAAP) | $ | 2,229 | | $ | 331 | |
| Add: gross additions to property, plant and equipment and internal-use software | (1,065) | | (801) | |
| Less: separation cash expenditures | (751) | | (72) | |
| Less: Corporate restructuring cash expenditures | (128) | | — | |
| Less: taxes related to business sales | (145) | | (119) | |
| Free cash flows (Non-GAAP) | $ | 2,189 | | $ | (279) | |
| | |
| We believe investors may find it useful to compare free cash flows* performance without the effects of CFOA related to our run-off Insurance business, separation cash expenditures, Corporate restructuring cash expenditures (associated with the separation-related program announced in October 2022) and taxes related to business sales. We believe this measure will better allow management and investors to evaluate the capacity of our operations to generate free cash flows. |
CONTROLS AND PROCEDURES
.Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of September 30, 2017,2023, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2017,2023, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. On March 6, 2022, the Board of Directors authorized up to $3 billion of common share repurchases. We repurchased 2,200 thousand shares for $253 million during the three months ended September 30, 2023 under this authorization.
| | | | | | | | | | | | | | |
| 2023 (Shares in thousands) | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of our share repurchase authorization | Approximate dollar value of shares that may yet be purchased under our share repurchase authorization |
| | | | |
| | | | |
| | | | |
| July | 213 | | $ | 116.15 | | 213 | | |
| August | 1,378 | | 114.42 | | 1,378 | | |
| September | 609 | | 115.18 | | 609 | | |
| Total | 2,200 | | $ | 114.80 | | 2,200 | | $ | 1,191 | |
*Non-GAAP Financial Measure
|
| | | | | | | | | | |
| Period | Total number of shares purchased |
| Average price paid per share |
| Total number of shares purchased as part of our share repurchase program(a) |
| Approximate dollar value of shares that may yet be purchased under our share repurchase program(a) |
|
| (Shares in thousands) | | | | |
| | | | | |
| 2017 | | | | |
| July | 696 |
| $ | 26.23 |
| 696 |
| |
| August | 1,132 |
| 24.99 |
| 1,132 |
| |
| September | 899 |
| 24.39 |
| 899 |
| |
| Total | 2,727 |
| $ | 25.11 |
| 2,727 |
| $ | 21 | billion |
| |
(a) | Shares were repurchased through the 2015 GE Share Repurchase Program (the Program). As of September 30, 2017, we were authorized to repurchase up to $50 billion of our common stock through 2018 and we had repurchased a total of approximately $29 billion under the Program. The Program is flexible and shares will be acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. |
LEGAL PROCEEDINGS | | | | | | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions, per-share amounts in dollars) | 2023 | 2022 | | 2023 | 2022 |
| Sales of equipment | $ | 6,939 | | $ | 5,731 | | | $ | 18,915 | | $ | 15,605 | |
| Sales of services | 9,565 | | 8,095 | | | 27,136 | | 23,493 | |
| Insurance revenues (Note 13) | 842 | | 645 | | | 2,480 | | 2,175 | |
| Total revenues (Note 8) | 17,346 | | 14,470 | | | 48,531 | | 41,272 | |
| | | | | |
| Cost of equipment sold | 7,065 | | 6,488 | | | 19,610 | | 17,165 | |
| Cost of services sold | 5,839 | | 5,046 | | | 16,386 | | 14,668 | |
| Selling, general and administrative expenses | 2,171 | | 1,966 | | | 6,671 | | 6,509 | |
| Separation costs (Note 20) | 227 | | 171 | | | 658 | | 419 | |
| Research and development | 471 | | 426 | | | 1,356 | | 1,269 | |
| Interest and other financial charges | 286 | | 374 | | | 822 | | 1,130 | |
| | | | | |
| Insurance losses, annuity benefits and other costs (Note 13) | 710 | | 504 | | | 2,129 | | 1,794 | |
| | | | | |
| Non-operating benefit cost (income) | (396) | | (96) | | | (1,183) | | (302) | |
| | | | | |
| Total costs and expenses | 16,373 | | 14,880 | | | 46,449 | | 42,650 | |
| | | | | |
| Other income (loss) (Note 19) | (673) | | 178 | | | 6,100 | | (1,000) | |
| | | | | |
| Earnings (loss) from continuing operations before income taxes | 300 | | (232) | | | 8,182 | | (2,378) | |
| Benefit (provision) for income taxes (Note 16) | (138) | | (13) | | | (741) | | (203) | |
| Earnings (loss) from continuing operations | 161 | | (245) | | | 7,440 | | (2,581) | |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | 173 | | 409 | | | 412 | | 775 | |
| Net earnings (loss) | 335 | | 165 | | | 7,852 | | (1,806) | |
| Less net earnings (loss) attributable to noncontrolling interests | (14) | | 4 | | | (37) | | 51 | |
| Net earnings (loss) attributable to the Company | 348 | | 161 | | | 7,889 | | (1,857) | |
| Preferred stock dividends and other | (91) | | (73) | | | (295) | | (192) | |
| Net earnings (loss) attributable to GE common shareholders | $ | 258 | | $ | 88 | | | $ | 7,594 | | $ | (2,049) | |
| | | | | |
| Amounts attributable to GE common shareholders | | | | | |
| Earnings (loss) from continuing operations | $ | 161 | | $ | (245) | | | $ | 7,440 | | $ | (2,581) | |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (14) | | (2) | | | (37) | | 19 | |
| Earnings (loss) from continuing operations attributable to the Company | 175 | | (243) | | | 7,478 | | (2,600) | |
| Preferred stock dividends and other | (91) | | (73) | | | (295) | | (192) | |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareholders | 84 | | (316) | | | 7,183 | | (2,792) | |
| | | | | |
| | | | | |
| | | | | |
| Earnings (loss) from discontinued operations attributable | | | | | |
| to GE common shareholders | 173 | | 403 | | | 411 | | 743 | |
| Net earnings (loss) attributable to GE common shareholders | $ | 258 | | $ | 88 | | | $ | 7,594 | | $ | (2,049) | |
| | | | | |
| Earnings (loss) per share from continuing operations (Note 18) | | | | | |
| Diluted earnings (loss) per share | $ | 0.08 | | $ | (0.29) | | | $ | 6.54 | | $ | (2.54) | |
| Basic earnings (loss) per share | $ | 0.08 | | $ | (0.29) | | | $ | 6.60 | | $ | (2.54) | |
| | | | | |
| Net earnings (loss) per share (Note 18) | | | | | |
| Diluted earnings (loss) per share | $ | 0.23 | | $ | 0.08 | | | $ | 6.91 | | $ | (1.86) | |
| Basic earnings (loss) per share | $ | 0.24 | | $ | 0.08 | | | $ | 6.98 | | $ | (1.86) | |
The following information supplements and amends our discussion set forth under “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.
WMC. There are 5 lawsuits in which our discontinued U.S. mortgage business, WMC, is a party. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. While the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase) and/or monetary damages. Beginning in the fourth quarter 2013, WMC entered into settlements that reduced its exposure on claims asserted in certain securitizations, and the claim amounts reported herein reflect the effect of these settlements.
At September 30, 2017, five WMC cases were pending in the United States District Court for the District of Connecticut. Four of these cases were initiated in 2012, and one was initiated in the third quarter 2013. Deutsche Bank National Trust Company (Deutsche Bank) is the adverse party in four cases, and TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, is the adverse party in one case. The Deutsche Bank complaints assert claims on approximately $4,300 million of mortgage loans and seek to recover damages in excess of approximately $1,800 million. The TMI complaint asserts claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of approximately $425 million. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the four securitizations at issue in the Connecticut lawsuits, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructions that Deutsche Bank’s entry into the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust’s governing documents. No bondholder in any of these securitizations has objected to the proposed settlements. On July 17, 2017, the court entered a judgment and order granting Deutsche Bank’s petitions. The period to file an appeal expired October 9, 2017, and the underlying lawsuits were dismissed by stipulation on October 13, 2017. On August 25, 2017, the presiding judge in the TMI case entered an order setting a trial date of January 16, 2018.
Four cases are pending against WMC in New York State Supreme Court, all of which were initiated by securitization trustees or securities administrators. These cases involve, in the aggregate, claims involving approximately $4,559 million of mortgage loans. One of these lawsuits was initiated by Deutsche Bank in the second quarter 2013 and names as defendants WMC and Barclays Bank PLC. It involves claims against WMC on approximately $1,000 million of mortgage loans and does not specify the amount of damages sought. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the two securitizations at issue in this lawsuit, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructions that Deutsche Bank’s entry into the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust’s governing documents. Bondholders in these two securitizations have filed objections to the proposed settlements and are seeking discovery in connection with their objections. The court has scheduled the next hearing on these objections for December 8, 2017. The second case, in which the plaintiff is The Bank of New York Mellon (BNY), was initiated in the fourth quarter 2012 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $650 million. In the second quarter, WMC and J.P. Morgan reached an agreement with the securitization trustee to settle this case, subject to court approval, and the trustee filed an action in Minnesota state court seeking such approval on July 11, 2017. The court held an initial hearing in this matter on September 11, 2017, at which no bondholder objected to the settlement, and entered an order approving the settlement on October 4, 2017. With this settlement now final, we expect the underlying lawsuit will be dismissed in the fourth quarter. The third case was initiated by BNY in November 2013 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. In this case, BNY asserts claims on approximately $1,300 million of mortgage loans, and seeks to recover damages in excess of $600 million. On September 18, 2015, the court granted defendants’ motion to dismiss this case on statute of limitations grounds, and the plaintiff filed a notice of appeal on October 21, 2015. On May 11, 2017, the intermediate appellate court affirmed the dismissal of WMC, and the plaintiff is seeking leave to appeal this decision to the New York Court of Appeals. The fourth case was filed in October 2014 and names as defendants WMC, J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A. The plaintiff, BNY, asserts claims on approximately $959 million of mortgage loans and seeks to recover damages in excess of $475 million. On September 7, 2016, the court granted WMC’s motion to dismiss this case on statute of limitations grounds, and an appeal from this decision is pending in the intermediate appellate court. The latter two cases have been stayed pending the outcome of ongoing settlement negotiations.
62 20172023 3Q FORM 10-Q19
| | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | |
| (In millions) | September 30, 2023 | December 31, 2022 |
| | |
| | |
| Cash, cash equivalents and restricted cash | $ | 13,127 | | $ | 15,810 | |
| Investment securities (Note 3) | 7,054 | | 7,609 | |
| Current receivables (Note 4) | 14,546 | | 14,831 | |
| | |
| Inventories, including deferred inventory costs (Note 5) | 17,020 | | 14,891 | |
| | |
| | |
| Current contract assets (Note 9) | 1,875 | | 2,467 | |
| All other current assets (Note 10) | 1,438 | | 1,400 | |
| Assets of businesses held for sale (Note 2) | 1,375 | | 1,374 | |
| Current assets | 56,434 | | 58,384 | |
| | |
| Investment securities (Note 3) | 35,528 | | 36,027 | |
| | |
| | |
| Property, plant and equipment – net (Note 6) | 12,203 | | 12,192 | |
| | |
| Goodwill (Note 7) | 13,177 | | 12,999 | |
| Other intangible assets – net (Note 7) | 5,790 | | 6,105 | |
| Contract and other deferred assets (Note 9) | 5,427 | | 5,776 | |
| All other assets (Note 10) | 16,307 | | 15,477 | |
| Deferred income taxes (Note 16) | 10,235 | | 10,001 | |
| Assets of discontinued operations (Note 2) | 1,560 | | 31,890 | |
| Total assets | $ | 156,662 | | $ | 188,851 | |
| | |
| Short-term borrowings (Note 11) | $ | 1,334 | | $ | 3,739 | |
| | |
| Accounts payable and equipment project payables (Note 12) | 15,785 | | 15,399 | |
| Progress collections and deferred income (Note 9) | 17,185 | | 16,216 | |
| All other current liabilities (Note 15) | 12,026 | | 12,130 | |
| Liabilities of businesses held for sale (Note 2) | 1,835 | | 1,944 | |
| Current liabilities | 48,164 | | 49,428 | |
| | |
| Deferred income (Note 9) | 1,337 | | 1,409 | |
| Long-term borrowings (Note 11) | 19,488 | | 20,320 | |
| | |
| Insurance liabilities and annuity benefits (Note 13) | 35,832 | | 36,845 | |
| Non-current compensation and benefits | 9,718 | | 10,400 | |
| All other liabilities (Note 15) | 11,177 | | 11,063 | |
| Liabilities of discontinued operations (Note 2) | 1,112 | | 24,474 | |
| Total liabilities | 126,830 | | 153,938 | |
| | |
| Preferred stock (Note 17) | — | | 6 | |
| Common stock (Note 17) | 15 | | 15 | |
| Accumulated other comprehensive income (loss) – net attributable to GE (Note 17) | (3,351) | | (2,272) | |
| Other capital | 27,229 | | 34,173 | |
| Retained earnings | 85,017 | | 82,983 | |
| Less common stock held in treasury | (80,244) | | (81,209) | |
| Total GE shareholders’ equity | 28,665 | | 33,696 | |
| Noncontrolling interests | 1,167 | | 1,216 | |
| Total equity | 29,832 | | 34,912 | |
| Total liabilities and equity | $ | 156,662 | | $ | 188,851 | |
At September 30, 2017, one case was pending against WMC in the United States District Court for the Southern District of New York. The case was initiated by the Federal Housing Finance Agency (FHFA) in the fourth quarter 2012. In the second quarter 2013, Deutsche Bank, in its role as securitization trustee, intervened as a plaintiff and filed a complaint relating to approximately $1,300 million of loans and alleging losses in excess of approximately $100 million. In December 2013, the District Court issued an order denying WMC’s motion to dismiss but, on its own motion, ordered re-briefing on several issues raised by WMC’s motion to dismiss in February 2015. On July 10, 2015, the District Court entered an order dismissing the lawsuit as time-barred under the applicable statute of limitations. Deutsche Bank filed a notice of appeal from this order of dismissal on August 13, 2015, and the United States Court of Appeals for the Second Circuit heard oral argument on June 10, 2016. In September 2016, WMC and Deutsche Bank agreed to settle all claims arising out of the securitization at issue in this lawsuit, subject to judicial approval. In October 2016, Deutsche Bank filed a petition for instruction in California state court seeking judicial instructions that Deutsche Bank’s entry into the settlement agreement was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of the trust’s governing documents. No bondholder in this securitization has objected to the proposed settlement. On July 17, 2017, the court entered a judgment and order granting Deutsche Bank’s petition. The period to file an appeal expired October 9, 2017, and the underlying lawsuit was dismissed on October 16, 2017.
The amounts of the claims at issue in these cases (discussed above) reflect the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. All of the mortgage loans involved in these lawsuits are included in WMC’s reported claims at September 30, 2017. See Note 18 to the consolidated financial statements for additional information.
On January 23, 2017, the ResCap Liquidating Trust, as successor to Residential Funding Company, LLC (RFC), filed a lawsuit seeking unspecified damages against WMC in the United States District Court for the District of Minnesota arising from alleged breaches in representations and warranties made by WMC in connection with the sale of approximately $840 million in loans to RFC over a period of time preceding RFC’s filing for bankruptcy protection in May 2012. On September 27, 2017, the parties entered into a settlement agreement, and the lawsuit was dismissed October 8, 2017.
In December 2015, we learned that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice is investigating potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and its affiliates arising out of the origination, purchase or sale of residential mortgage loans between January 1, 2005 and December 31, 2007. The Justice Department subsequently issued subpoenas to WMC and GE Capital, and we are cooperating with the Justice Department’s investigation, including providing documents and witnesses for interviews.
Alstom legacy matters. In connection with our acquisition of Alstom’s Thermal, Renewables and Grid businesses in November 2015, we are subject to legacy legal proceedings and legal compliance risks that relate to claimed anti-competitive conduct or improper payments by Alstom in the pre-acquisition period. See Note 18 to the consolidated financial statements for additional information.
GE Retirement Savings Plan class action. On September 27, 2017, three individual plaintiffs filed a putative class action lawsuit in the U.S. District Court for the Southern District of California against GE, trustees of GE’s 401(k) plan (the GE RSP) and other individual defendants yet to be named. Like a growing number of similar lawsuits that have been brought against other companies in recent years, the suit alleges that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) in their oversight of the GE RSP, including by selecting underperforming proprietary mutual funds as investment options for plan participants. The plaintiffs, purporting to act on behalf of GE RSP participants and beneficiaries from 2011 through June 30, 2016, seek damages of $700 million, but we believe we have defenses to the claims and will respond accordingly.
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FINANCIAL STATEMENTS AND NOTES
| | | | | | | | | |
| | | |
| STATEMENT OF CASH FLOWS (UNAUDITED) | Nine months ended September 30 | |
| (In millions) | 2023 | 2022 | |
| | | |
| Net earnings (loss) | $ | 7,852 | | $ | (1,806) | | |
| | | |
| | | |
| (Earnings) loss from discontinued operations activities | (412) | | (775) | | |
| Adjustments to reconcile net earnings (loss) to cash from (used for) operating activities | | | |
| Depreciation and amortization of property, plant and equipment | 1,097 | | 1,130 | | |
| Amortization of intangible assets (Note 7) | 448 | | 1,193 | | |
| | | |
| | | |
| (Gains) losses on purchases and sales of business interests (Note 19) | (103) | | (42) | | |
| (Gains) losses on retained and sold ownership interests and other equity securities | (5,181) | | 2,145 | | |
| | | |
| Principal pension plans cost (Note 14) | (834) | | 269 | | |
| Principal pension plans employer contributions | (156) | | (152) | | |
| Other postretirement benefit plans (net) | (496) | | (617) | | |
| Provision (benefit) for income taxes | 741 | | 203 | | |
| Cash recovered (paid) during the year for income taxes | (806) | | (295) | | |
| Changes in operating working capital: | | | |
| Decrease (increase) in current receivables | 120 | | (2,583) | | |
| Decrease (increase) in inventories, including deferred inventory costs | (2,220) | | (2,226) | | |
| Decrease (increase) in current contract assets | 775 | | 934 | | |
| Increase (decrease) in accounts payable and equipment project payables | 394 | | 1,697 | | |
| Increase (decrease) in progress collections and current deferred income | 949 | | 1,227 | | |
| Financial services derivatives net collateral/settlement | 3 | | (154) | | |
| All other operating activities | 180 | | 232 | | |
| Cash from (used for) operating activities – continuing operations | 2,354 | | 379 | | |
| Cash from (used for) operating activities – discontinued operations | (315) | | 1,038 | | |
| Cash from (used for) operating activities | 2,038 | | 1,417 | | |
| | | |
| Additions to property, plant and equipment and internal-use software | (1,065) | | (801) | | |
| Dispositions of property, plant and equipment | 77 | | 157 | | |
| | | |
| | | |
| Proceeds from principal business dispositions | — | | 15 | | |
| Net cash from (payments for) principal businesses purchased | (365) | | (30) | | |
| Dispositions of retained ownership interests | 7,037 | | 4,071 | | |
| Net (purchases) dispositions of insurance investment securities | (1,240) | | (1,189) | | |
| All other investing activities | 906 | | (150) | | |
| Cash from (used for) investing activities – continuing operations | 5,351 | | 2,073 | | |
| Cash from (used for) investing activities – discontinued operations | (3,058) | | (481) | | |
| Cash from (used for) investing activities | 2,293 | | 1,592 | | |
| | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (35) | | 66 | | |
| Newly issued debt (maturities longer than 90 days) | 10 | | — | | |
| Repayments and other debt reductions (maturities longer than 90 days) | (3,230) | | (3,178) | | |
| Dividends paid to shareholders | (501) | | (455) | | |
| | | |
| Redemption of GE preferred stock | (5,795) | | (104) | | |
| Purchases of GE common stock for treasury | (945) | | (688) | | |
| All other financing activities | 278 | | (679) | | |
| Cash from (used for) financing activities – continuing operations | (10,217) | | (5,038) | | |
| Cash from (used for) financing activities – discontinued operations | 1,999 | | (89) | | |
| Cash from (used for) financing activities | (8,218) | | (5,127) | | |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (91) | | (623) | | |
| Increase (decrease) in cash, cash equivalents and restricted cash | (3,978) | | (2,741) | | |
| Cash, cash equivalents and restricted cash at beginning of year | 19,092 | | 16,859 | | |
| Cash, cash equivalents and restricted cash at September 30 | 15,114 | | 14,118 | | |
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 1,244 | | 1,573 | | |
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 13,869 | | $ | 12,545 | | |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| |
| |
| |
| |
| |
| |
| | 1 | | |
| | 2 | | |
| | 3 | | |
| | 4 | Current Receivables | |
| | 5 | | |
| | 6 | | |
| | 7 | | |
| | 8 | | |
| | 9 | | |
| | 10 | | |
| | 11 | Investment contracts, insurance liabilities and insurance annuity benefits | |
| | 12 | | |
| | 13 | | |
| | 14 | | |
| | 15 | | |
| | 16 | | |
| | 17 | | |
| | 18 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
| | 19 | | |
| | 20 | | |
| | 21 | | |
FINANCIAL STATEMENTS | | | | | | | | | | | | | | | | | | |
| | | | | | |
| STATEMENT OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2023 | 2022 | | 2023 | 2022 | |
| | | | | | |
| Net earnings (loss) | $ | 335 | | $ | 165 | | | $ | 7,852 | | $ | (1,806) | | |
| Less: net earnings (loss) attributable to noncontrolling interests | (14) | | 4 | | | (37) | | 51 | | |
| Net earnings (loss) attributable to the Company | $ | 348 | | $ | 161 | | | $ | 7,889 | | $ | (1,857) | | |
| | | | | | |
| Currency translation adjustments | (396) | | (874) | | | 2,085 | | (1,815) | | |
| Benefit plans | (188) | | 259 | | | (2,680) | | 788 | | |
| Investment securities and cash flow hedges | (1,379) | | (1,904) | | | (1,147) | | (7,597) | | |
| Long-duration insurance contracts(a) | 2,187 | | 2,036 | | | 660 | | 8,949 | | |
| | | | | | |
| Less: other comprehensive income (loss) attributable to noncontrolling interests | 1 | | (4) | | | (3) | | — | | |
| Other comprehensive income (loss) attributable to the Company | $ | 223 | | $ | (479) | | | $ | (1,079) | | $ | 324 | | |
| | | | | | |
| Comprehensive income (loss) | $ | 559 | | $ | (318) | | | $ | 6,770 | | $ | (1,482) | | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | (12) | | — | | | (40) | | 51 | | |
| Comprehensive income (loss) attributable to the Company | $ | 571 | | $ | (318) | | | $ | 6,810 | | $ | (1,533) | | |
| | | | | | |
| | | | | | |
| | | | | | |
(a) Represents the net after-tax change in future policy benefit reserves and related reinsurance recoverables from updating the discount rate. See Notes 1 and 13 for further information.
| | | | | | | | | | | | | | | | | | |
| | |
| STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2023 | 2022 | | 2023 | 2022 | |
| | | | | | |
| Preferred stock issued(a) | $ | — | | $ | 6 | | | $ | — | | $ | 6 | | |
| Common stock issued | $ | 15 | | $ | 15 | | | $ | 15 | | $ | 15 | | |
| | | | | | |
| Beginning balance | (3,573) | | (4,057) | | | (2,272) | | (4,860) | | |
| Currency translation adjustments | (397) | | (871) | | | 2,086 | | (1,813) | | |
| Benefit plans | (188) | | 259 | | | (2,678) | | 786 | | |
| Investment securities and cash flow hedges | (1,379) | | (1,904) | | | (1,147) | | (7,597) | | |
| Long-duration insurance contracts | 2,187 | | 2,036 | | | 660 | | 8,949 | | |
| Accumulated other comprehensive income (loss) | $ | (3,351) | | $ | (4,536) | | | $ | (3,351) | | $ | (4,536) | | |
| Beginning balance | 30,426 | | 34,382 | | | 34,173 | | 34,691 | | |
| Gains (losses) on treasury stock dispositions | (491) | | (115) | | | (1,503) | | (608) | | |
| Stock-based compensation | 87 | | 90 | | | 257 | | 270 | | |
| Other changes(a) | (2,793) | | (103) | | | (5,698) | | (99) | | |
| Other capital | $ | 27,229 | | $ | 34,254 | | | $ | 27,229 | | $ | 34,254 | | |
| Beginning balance | 84,848 | | 80,972 | | | 82,983 | | 83,286 | | |
| Net earnings (loss) attributable to the Company | 348 | | 161 | | | 7,889 | | (1,857) | | |
| Dividends and other transactions with shareholders(b) | (180) | | (161) | | | (5,856) | | (457) | | |
| | | | | | |
| Retained earnings | $ | 85,017 | | $ | 80,971 | | | $ | 85,017 | | $ | 80,971 | | |
| Beginning balance | (80,524) | | (80,883) | | | (81,209) | | (81,093) | | |
| Purchases | (315) | | (317) | | | (953) | | (701) | | |
| Dispositions | 595 | | 150 | | | 1,918 | | 745 | | |
| Common stock held in treasury | $ | (80,244) | | $ | (81,049) | | | $ | (80,244) | | $ | (81,049) | | |
| GE shareholders' equity balance | 28,665 | | 29,660 | | | 28,665 | | 29,660 | | |
| Noncontrolling interests balance | 1,167 | | 1,278 | | | 1,167 | | 1,278 | | |
| Total equity balance at September 30 | $ | 29,832 | | $ | 30,938 | | | $ | 29,832 | | $ | 30,938 | | |
(a) Included decreases of $2,795 million and $5,795 million, substantially all in Other capital related to our redemption of GE preferred stock in the three and nine months ended September 30, 2023, respectively.
(b) Included a $5,300 million decrease in Retained earnings reflecting a pro-rata distribution of approximately 80.1% of the shares of GE HealthCare on January 3, 2023.
|
| | | | | | |
| STATEMENT OF EARNINGS (LOSS) | | |
| (UNAUDITED) | | |
| | Three months ended September 30 |
| | General Electric Company and consolidated affiliates |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
|
| | | |
| Revenues and other income | | |
| Sales of goods | $ | 19,386 |
| $ | 18,553 |
|
| Sales of services | 10,043 |
| 8,261 |
|
| Other income | 2,146 |
| 227 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
|
| GE Capital revenues from services | 1,898 |
| 2,224 |
|
| Total revenues and other income | 33,472 |
| 29,266 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 16,815 |
| 15,255 |
|
| Cost of services sold | 7,279 |
| 5,711 |
|
| Selling, general and administrative expenses | 4,855 |
| 4,343 |
|
| Interest and other financial charges | 1,232 |
| 961 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 617 |
| 684 |
|
| Other costs and expenses | 1,208 |
| 238 |
|
| Total costs and expenses | 32,006 |
| 27,191 |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | 1,466 |
| 2,074 |
|
| Benefit (provision) for income taxes | 334 |
| (18 | ) |
| Earnings (loss) from continuing operations | 1,800 |
| 2,056 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (106 | ) | (105 | ) |
| Net earnings (loss) | 1,694 |
| 1,951 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (142 | ) | (76 | ) |
| Net earnings (loss) attributable to the Company | 1,836 |
| 2,027 |
|
| Preferred stock dividends | (36 | ) | (33 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
|
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 1,800 |
| $ | 2,056 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (141 | ) | (74 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 1,941 |
| 2,131 |
|
| Preferred stock dividends | (36 | ) | (33 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | 1,905 |
| 2,097 |
|
| Earnings (loss) from discontinued operations, net of taxes | (106 | ) | (105 | ) |
| Less net earnings (loss) attributable to | | |
| noncontrolling interests, discontinued operations | (1 | ) | (2 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
|
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Diluted earnings (loss) per share | $ | 0.22 |
| $ | 0.23 |
|
| Basic earnings (loss) per share | $ | 0.22 |
| $ | 0.24 |
|
| | | |
| Net earnings (loss) | | |
| Diluted earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
|
| Basic earnings (loss) per share | $ | 0.21 |
| $ | 0.22 |
|
| | | |
| Dividends declared per common share | $ | 0.24 |
| $ | 0.23 |
|
Amounts may not add due to rounding.
See accompanying notes.
66 20172023 3Q FORM 10-Q22
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) |
| (UNAUDITED) | | | | | |
| | | | | | |
| | Three months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Revenues and other income | | | | | |
| Sales of goods | $ | 19,358 |
| $ | 18,621 |
| | $ | 39 |
| $ | 34 |
|
| Sales of services | 10,080 |
| 8,313 |
| | — |
| — |
|
| Other income | 2,141 |
| 213 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | 24 |
| 26 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 2,359 |
| 2,566 |
|
| Total revenues and other income | 31,603 |
| 27,172 |
| | 2,397 |
| 2,600 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 16,796 |
| 15,329 |
| | 30 |
| 27 |
|
| Cost of services sold | 6,725 |
| 5,216 |
| | 592 |
| 547 |
|
| Selling, general and administrative expenses | 4,717 |
| 3,880 |
| | 285 |
| 631 |
|
| Interest and other financial charges | 718 |
| 483 |
| | 790 |
| 617 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 640 |
| 700 |
|
| Other costs and expenses(b) | 947 |
| — |
| | 271 |
| 241 |
|
| Total costs and expenses | 29,903 |
| 24,909 |
| | 2,608 |
| 2,763 |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | 1,701 |
| 2,263 |
| | (211 | ) | (163 | ) |
| Benefit (provision) for income taxes | 64 |
| (241 | ) | | 270 |
| 223 |
|
| Earnings (loss) from continuing operations | 1,765 |
| 2,022 |
| | 59 |
| 60 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (105 | ) | (103 | ) | | (106 | ) | (105 | ) |
| Net earnings (loss) | 1,660 |
| 1,918 |
| | (47 | ) | (45 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (140 | ) | (76 | ) | | (2 | ) | 0 |
|
| Net earnings (loss) attributable to the Company | 1,800 |
| 1,994 |
| | (46 | ) | (45 | ) |
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | 1,765 |
| $ | 2,022 |
| | $ | 59 |
| $ | 60 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (140 | ) | (76 | ) | | (1 | ) | 1 |
|
| Earnings (loss) from continuing operations attributable to the Company | 1,905 |
| 2,097 |
| | 60 |
| 59 |
|
| Preferred stock dividends | — |
| — |
| | (36 | ) | (33 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | 1,905 |
| 2,097 |
| | 24 |
| 26 |
|
| Earnings (loss) from discontinued operations, net of taxes | (105 | ) | (103 | ) | | (106 | ) | (105 | ) |
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | — |
| — |
| | (1 | ) | (2 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 1,800 |
| $ | 1,994 |
| | $ | (81 | ) | $ | (78 | ) |
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | GE amount represents a goodwill impairment charge recognized in the third quarter of 2017. See Note 8 for further information. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | |
| STATEMENT OF EARNINGS (LOSS) |
| (UNAUDITED) |
| | Nine months ended September 30 |
| | General Electric Company |
| | and consolidated affiliates |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
|
| | | |
| Revenues and other income | | |
| Sales of goods | $ | 54,562 |
| $ | 54,626 |
|
| Sales of services | 27,333 |
| 25,530 |
|
| Other income | 2,611 |
| 3,385 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
|
| GE Capital revenues from services | 6,184 |
| 7,063 |
|
| Total revenues and other income | 90,691 |
| 90,604 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 46,805 |
| 45,533 |
|
| Cost of services sold | 19,441 |
| 18,177 |
|
| Selling, general and administrative expenses | 13,649 |
| 13,833 |
|
| Interest and other financial charges | 3,545 |
| 4,023 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 1,908 |
| 2,101 |
|
| Other costs and expenses | 1,531 |
| 801 |
|
| Total costs and expenses | 86,879 |
| 84,467 |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | 3,812 |
| 6,137 |
|
| Benefit (provision) for income taxes | 303 |
| (302 | ) |
| Earnings (loss) from continuing operations | 4,115 |
| 5,835 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (490 | ) | (954 | ) |
| Net earnings (loss) | 3,624 |
| 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 5,164 |
|
| Preferred stock dividends | (252 | ) | (474 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
|
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | 4,115 |
| $ | 5,835 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (238 | ) | (285 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 4,352 |
| 6,120 |
|
| Preferred stock dividends | (252 | ) | (474 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | 4,101 |
| 5,645 |
|
| Earnings (loss) from discontinued operations, net of taxes | (490 | ) | (954 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| discontinued operations | 6 |
| 2 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
|
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Diluted earnings (loss) per share | $ | 0.47 |
| $ | 0.61 |
|
| Basic earnings (loss) per share | $ | 0.47 |
| $ | 0.62 |
|
| | | |
| Net earnings (loss) | | |
| Diluted earnings (loss) per share | $ | 0.41 |
| $ | 0.51 |
|
| Basic earnings (loss) per share | $ | 0.41 |
| $ | 0.51 |
|
| | | |
| Dividends declared per common share | $ | 0.72 |
| $ | 0.69 |
|
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) |
| (UNAUDITED) |
| | | | | | |
| | Nine months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Revenues and other income | | | | | |
| Sales of goods | $ | 54,622 |
| $ | 54,745 |
| | $ | 101 |
| $ | 88 |
|
| Sales of services | 27,501 |
| 25,745 |
| | — |
| — |
|
| Other income | 2,578 |
| 3,359 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (195 | ) | (1,466 | ) | | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 7,424 |
| 8,168 |
|
| Total revenues and other income | 84,506 |
| 82,382 |
| | 7,525 |
| 8,256 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 46,888 |
| 45,669 |
| | 79 |
| 71 |
|
| Cost of services sold | 17,934 |
| 16,725 |
| | 1,673 |
| 1,667 |
|
| Selling, general and administrative expenses | 12,656 |
| 12,094 |
| | 1,358 |
| 2,238 |
|
| Interest and other financial charges | 1,918 |
| 1,490 |
| | 2,373 |
| 3,006 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 1,958 |
| 2,186 |
|
| Other costs and expenses(b) | 947 |
| — |
| | 629 |
| 822 |
|
| Total costs and expenses | 80,344 |
| 75,977 |
| | 8,070 |
| 9,990 |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | 4,162 |
| 6,405 |
| | (545 | ) | (1,734 | ) |
| Benefit (provision) for income taxes | (297 | ) | (1,034 | ) | | 600 |
| 732 |
|
| Earnings (loss) from continuing operations | 3,865 |
| 5,370 |
| | 55 |
| (1,002 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (497 | ) | (956 | ) | | (494 | ) | (954 | ) |
| Net earnings (loss) | 3,368 |
| 4,414 |
| | (439 | ) | (1,956 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (236 | ) | (275 | ) | | 5 |
| (8 | ) |
| Net earnings (loss) attributable to the Company | 3,604 |
| 4,689 |
| | (443 | ) | (1,948 | ) |
| Preferred stock dividends | — |
| — |
| | (252 | ) | (474 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
| | $ | (695 | ) | $ | (2,422 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | 3,865 |
| $ | 5,370 |
| | $ | 55 |
| $ | (1,002 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (236 | ) | (275 | ) | | (2 | ) | (10 | ) |
| Earnings (loss) from continuing operations attributable to the Company | 4,101 |
| 5,645 |
| | 57 |
| (992 | ) |
| Preferred stock dividends | — |
| — |
| | (252 | ) | (474 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | 4,101 |
| 5,645 |
| | (195 | ) | (1,466 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (497 | ) | (956 | ) | | (494 | ) | (954 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | — |
| — |
| | 6 |
| 2 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | 3,604 |
| $ | 4,689 |
| | $ | (695 | ) | $ | (2,422 | ) |
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | GE amount represents a goodwill impairment charge recognized in the third quarter of 2017. See Note 8 for further information. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | | | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) |
| (UNAUDITED) |
| | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Net earnings (loss) | $ | 1,694 |
| $ | 1,951 |
| | $ | 3,624 |
| $ | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (142 | ) | (76 | ) | | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | $ | 1,836 |
| $ | 2,027 |
| | $ | 3,856 |
| $ | 5,164 |
|
| | | | | | |
| Other comprehensive income (loss) | | | | | |
| Investment securities | $ | 21 |
| $ | 97 |
| | $ | 213 |
| $ | 715 |
|
| Currency translation adjustments | 513 |
| (194 | ) | | 1,854 |
| (138 | ) |
| Cash flow hedges | 100 |
| 30 |
| | 109 |
| 60 |
|
| Benefit plans | 423 |
| 548 |
| | 2,032 |
| 1,481 |
|
| Other comprehensive income (loss) | 1,058 |
| 481 |
| | 4,209 |
| 2,117 |
|
| Less other comprehensive income (loss) attributable to noncontrolling interests | 127 |
| 5 |
| | 134 |
| 10 |
|
| Other comprehensive income (loss) attributable to the Company | $ | 931 |
| $ | 477 |
| | $ | 4,075 |
| $ | 2,107 |
|
| | | | | | |
| Comprehensive income (loss) | $ | 2,752 |
| $ | 2,432 |
| | $ | 7,833 |
| $ | 6,998 |
|
| Less comprehensive income (loss) attributable to noncontrolling interests | (15 | ) | (71 | ) | | (98 | ) | (273 | ) |
| Comprehensive income (loss) attributable to the Company | $ | 2,766 |
| $ | 2,504 |
| | $ | 7,931 |
| $ | 7,271 |
|
Amounts presented net of taxes.
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES | | | |
| CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS' EQUITY |
| (UNAUDITED) |
| | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| | 2016 |
|
| | | | |
| Shareowners' equity balance at January 1 | $ | 75,828 |
| | $ | 98,274 |
|
| Net earnings (loss) attributable to the Company | 3,856 |
| | 5,164 |
|
| Dividends and other transactions with shareowners | (6,514 | ) | | (6,770 | ) |
| Redemption value adjustment for redeemable noncontrolling interests | (177 | ) | | (178 | ) |
| Other comprehensive income (loss) attributable to the Company | 4,075 |
| | 2,107 |
|
| Net sales (purchases) of shares for treasury | (2,161 | ) | | (16,310 | ) |
| Changes in other capital(a) | 1,199 |
| | (404 | ) |
| Ending balance at September 30 | 76,105 |
| | 81,882 |
|
| Noncontrolling interests | 17,947 |
| | 1,663 |
|
| Total equity balance at September 30 | $ | 94,052 |
| | $ | 83,544 |
|
(a) The Baker Hughes transaction resulted in an increase to additional paid in capital of $1,131 million. See Note 8 for further information.
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | |
| STATEMENT OF FINANCIAL POSITION |
| | General Electric Company and consolidated affiliates |
| (In millions, except share amounts) | September 30, 2017 |
| December 31, 2016 |
|
| | (Unaudited) |
| |
| Assets | | |
| Cash and equivalents | $ | 39,854 |
| $ | 48,129 |
|
| Investment securities (Note 3) | 38,696 |
| 44,313 |
|
| Current receivables (Note 4) | 25,026 |
| 24,076 |
|
| Inventories (Note 5) | 25,848 |
| 22,354 |
|
| Financing receivables – net (Note 6) | 12,228 |
| 12,242 |
|
| Other GE Capital receivables | 6,107 |
| 5,944 |
|
| Property, plant and equipment – net (Note 7) | 54,101 |
| 50,518 |
|
| Receivable from GE Capital | — |
| — |
|
| Investment in GE Capital | — |
| — |
|
| Goodwill (Note 8) | 87,068 |
| 70,438 |
|
| Other intangible assets – net (Note 8) | 21,435 |
| 16,436 |
|
| Contract assets (Note 9) | 29,809 |
| 25,162 |
|
| All other assets | 27,576 |
| 27,176 |
|
| Deferred income taxes (Note 13) | 1,129 |
| 1,833 |
|
| Assets of businesses held for sale (Note 2) | 2,369 |
| 1,745 |
|
| Assets of discontinued operations (Note 2) | 6,791 |
| 14,815 |
|
| Total assets(a) | $ | 378,038 |
| $ | 365,183 |
|
| | | |
| Liabilities and equity | | |
| Short-term borrowings (Note 10) | $ | 28,127 |
| $ | 30,714 |
|
| Accounts payable, principally trade accounts | 14,907 |
| 14,435 |
|
| Progress collections and price adjustments accrued | 16,970 |
| 16,760 |
|
| Dividends payable | 2,093 |
| 2,107 |
|
| Other GE current liabilities | 17,420 |
| 17,564 |
|
| Non-recourse borrowings of consolidated securitization entities (Note 10) | 708 |
| 417 |
|
| Long-term borrowings (Note 10) | 107,557 |
| 105,080 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | 26,597 |
| 26,086 |
|
| Non-current compensation and benefits | 42,423 |
| 43,780 |
|
| All other liabilities | 22,191 |
| 22,912 |
|
| Liabilities of businesses held for sale (Note 2) | 561 |
| 656 |
|
| Liabilities of discontinued operations (Note 2) | 990 |
| 4,158 |
|
| Total liabilities(a) | 280,544 |
| 284,668 |
|
| | | |
| Redeemable noncontrolling interests (Note 14) | 3,441 |
| 3,025 |
|
| | | |
Preferred stock (5,944,250 shares outstanding at both September 30, 2017
and December 31, 2016) | 6 |
| 6 |
|
Common stock (8,672,085,000 and 8,742,614,000 shares outstanding
at September 30, 2017 and December 31, 2016, respectively) | 702 |
| 702 |
|
| Accumulated other comprehensive income (loss) – net attributable to GE(b) | | |
| Investment securities | 887 |
| 674 |
|
| Currency translation adjustments | (5,092 | ) | (6,816 | ) |
| Cash flow hedges | 119 |
| 12 |
|
| Benefit plans | (10,436 | ) | (12,469 | ) |
| Other capital | 38,423 |
| 37,224 |
|
| Retained earnings | 136,696 |
| 139,532 |
|
| Less common stock held in treasury | (85,199 | ) | (83,038 | ) |
| Total GE shareowners’ equity | 76,105 |
| 75,828 |
|
| Noncontrolling interests(c) (Note 14) | 17,947 |
| 1,663 |
|
| Total equity (Note 14) | 94,052 |
| 77,491 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 378,038 |
| $ | 365,183 |
|
| |
(a) | Our consolidated assets at September 30, 2017 included total assets of $6,018 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets included current receivables and net financing receivables of $1,486 million and investment securities of $965 million within continuing operations and assets of discontinued operations of $285 million. Our consolidated liabilities at September 30, 2017 included liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities included non-recourse borrowings of consolidated securitization entities (CSEs) of $(708) million within continuing operations. See Note 17. |
| |
(b) | The sum of accumulated other comprehensive income (loss) (AOCI) attributable to the Company was $(14,523) million and $(18,598) million at September 30, 2017 and December 31, 2016, respectively. |
| |
(c) | Included AOCI attributable to noncontrolling interests of $(144) million and $(278) million at September 30, 2017 and December 31, 2016, respectively. |
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions, except share amounts) | September 30,
2017 |
| December 31, 2016 |
| | September 30,
2017 |
| December 31, 2016 |
|
| | (Unaudited) | | | (Unaudited) | |
| Assets | | | | | |
| Cash and equivalents | $ | 12,836 |
| $ | 10,525 |
| | $ | 27,019 |
| $ | 37,604 |
|
| Investment securities (Note 3) | 384 |
| 137 |
| | 38,415 |
| 44,180 |
|
| Current receivables (Note 4) | 14,725 |
| 12,715 |
| | — |
| — |
|
| Inventories (Note 5) | 25,767 |
| 22,263 |
| | 81 |
| 91 |
|
| Financing receivables - net (Note 6) | — |
| — |
| | 24,900 |
| 26,041 |
|
| Other GE Capital receivables | — |
| — |
| | 15,654 |
| 15,576 |
|
| Property, plant and equipment – net (Note 7) | 23,740 |
| 19,103 |
| | 31,260 |
| 32,225 |
|
| Receivable from GE Capital(b) | 42,593 |
| 58,780 |
| | — |
| — |
|
| Investment in GE Capital | 20,856 |
| 24,677 |
| | — |
| — |
|
| Goodwill (Note 8) | 84,698 |
| 68,070 |
| | 2,370 |
| 2,368 |
|
| Other intangible assets – net (Note 8) | 21,170 |
| 16,131 |
| | 266 |
| 305 |
|
| Contract assets (Note 9) | 29,809 |
| 25,162 |
| | — |
| — |
|
| All other assets | 14,083 |
| 12,007 |
| | 13,227 |
| 14,608 |
|
| Deferred income taxes (Note 13) | 6,179 |
| 6,666 |
| | (5,055 | ) | (4,833 | ) |
| Assets of businesses held for sale (Note 2) | 2,220 |
| 1,629 |
| | — |
| — |
|
| Assets of discontinued operations (Note 2) | — |
| 9 |
| | 6,791 |
| 14,806 |
|
| Total assets | $ | 299,061 |
| $ | 277,874 |
| | $ | 154,928 |
| $ | 182,970 |
|
| | | | | | |
| Liabilities and equity | | | | | |
| Short-term borrowings (Note 10)(b) | $ | 18,748 |
| $ | 20,482 |
| | $ | 21,179 |
| $ | 23,443 |
|
| Accounts payable, principally trade accounts | 20,574 |
| 20,876 |
| | 1,883 |
| 1,605 |
|
| Progress collections and price adjustments accrued | 17,139 |
| 16,838 |
| | — |
| — |
|
| Dividends payable | 2,093 |
| 2,107 |
| | — |
| — |
|
| Other GE current liabilities | 17,420 |
| 17,564 |
| | — |
| — |
|
| Non-recourse borrowings of consolidated securitization entities (Note 10) | — |
| — |
| | 708 |
| 417 |
|
| Long-term borrowings (Note 10)(b) | 65,097 |
| 58,810 |
| | 75,651 |
| 93,443 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 11) | — |
| — |
| | 27,105 |
| 26,546 |
|
| Non-current compensation and benefits | 41,447 |
| 42,770 |
| | 967 |
| 1,001 |
|
| All other liabilities | 18,688 |
| 17,506 |
| | 5,388 |
| 7,430 |
|
| Liabilities of businesses held for sale (Note 2) | 561 |
| 656 |
| | — |
| — |
|
| Liabilities of discontinued operations (Note 2) | 24 |
| 35 |
| | 966 |
| 4,123 |
|
| Total liabilities | 201,791 |
| 197,644 |
| | 133,847 |
| 158,008 |
|
| | | | | | |
| Redeemable noncontrolling interests (Note 14) | 3,441 |
| 3,025 |
| | — |
| — |
|
| | | | | | |
Preferred stock (5,944,250 shares outstanding at both September 30, 2017 and December 31, 2016) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,672,085,000 and 8,742,614,000 shares outstanding at September 30, 2017 and December 31, 2016, respectively) | 702 |
| 702 |
| | — |
| — |
|
| Accumulated other comprehensive income (loss) - net attributable to GE | | | | | |
| Investment securities | 887 |
| 674 |
| | 895 |
| 656 |
|
| Currency translation adjustments | (5,092 | ) | (6,816 | ) | | (169 | ) | (740 | ) |
| Cash flow hedges | 119 |
| 12 |
| | 43 |
| 43 |
|
| Benefit plans | (10,436 | ) | (12,469 | ) | | (555 | ) | (622 | ) |
| Other capital | 38,423 |
| 37,224 |
| | 12,773 |
| 12,669 |
|
| Retained earnings | 136,696 |
| 139,532 |
| | 7,863 |
| 12,664 |
|
| Less common stock held in treasury | (85,199 | ) | (83,038 | ) | | — |
| — |
|
| Total GE shareowners’ equity | 76,105 |
| 75,828 |
| | 20,856 |
| 24,677 |
|
| Noncontrolling interests (Note 14) | 17,723 |
| 1,378 |
| | 224 |
| 285 |
|
| Total equity (Note 14) | 93,829 |
| 77,205 |
| | 21,080 |
| 24,962 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 299,061 |
| $ | 277,874 |
| | $ | 154,928 |
| $ | 182,970 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
(b) | In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital, resulting in an intercompany receivable and payable between GE and GE Capital. See Note 10. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “General Electric Company and consolidated affiliates” columns on the prior page.
|
| | | | | | |
| STATEMENT OF CASH FLOWS |
| (UNAUDITED) | | |
| | Nine months ended September 30 |
| | General Electric Company and consolidated affiliates |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Cash flows – operating activities | | |
| Net earnings (loss) | $ | 3,624 |
| $ | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | (231 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 5,164 |
|
| (Earnings) loss from discontinued operations | 490 |
| 954 |
|
| Adjustments to reconcile net earnings (loss) attributable to the | | |
| Company to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment | 3,715 |
| 3,641 |
|
| (Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
| Deferred income taxes | (669 | ) | 1,244 |
|
| Decrease (increase) in GE current receivables | 1,737 |
| 763 |
|
| Decrease (increase) in inventories | (1,454 | ) | (2,594 | ) |
| Increase (decrease) in accounts payable | (518 | ) | (49 | ) |
| Increase (decrease) in GE progress collections | (269 | ) | 78 |
|
| All other operating activities(a) | (2,881 | ) | (5,356 | ) |
| Cash from (used for) operating activities – continuing operations | 4,008 |
| 3,846 |
|
| Cash from (used for) operating activities – discontinued operations | (490 | ) | (5,719 | ) |
| Cash from (used for) operating activities | 3,518 |
| (1,873 | ) |
| | | |
| Cash flows – investing activities | | |
| Additions to property, plant and equipment | (5,071 | ) | (5,109 | ) |
| Dispositions of property, plant and equipment | 3,768 |
| 3,403 |
|
| Net decrease (increase) in GE Capital financing receivables | 1,184 |
| 293 |
|
| Proceeds from sale of discontinued operations | 1,018 |
| 53,250 |
|
| Proceeds from principal business dispositions | 3,030 |
| 5,273 |
|
| Net cash from (payments for) principal businesses purchased | (6,053 | ) | (930 | ) |
| All other investing activities(a) | 6,815 |
| (2,621 | ) |
| Cash from (used for) investing activities – continuing operations | 4,692 |
| 53,559 |
|
| Cash from (used for) investing activities – discontinued operations | (2,349 | ) | (12,056 | ) |
| Cash from (used for) investing activities | 2,343 |
| 41,503 |
|
| | | |
| Cash flows – financing activities | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | 531 |
| (1,021 | ) |
| Newly issued debt (maturities longer than 90 days) | 9,337 |
| 1,178 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (18,418 | ) | (50,500 | ) |
| Net dispositions (purchases) of GE shares for treasury | (2,620 | ) | (17,969 | ) |
| Dividends paid to shareowners | (6,417 | ) | (6,611 | ) |
| All other financing activities | (640 | ) | (266 | ) |
| Cash from (used for) financing activities – continuing operations | (18,228 | ) | (75,188 | ) |
| Cash from (used for) financing activities – discontinued operations | 1,905 |
| 295 |
|
| Cash from (used for) financing activities | (16,323 | ) | (74,893 | ) |
| Effect of currency exchange rate changes on cash and equivalents | 1,253 |
| (169 | ) |
| Increase (decrease) in cash and equivalents | (9,208 | ) | (35,432 | ) |
| Cash and equivalents at beginning of year | 49,558 |
| 90,878 |
|
| Cash and equivalents at September 30 | 40,350 |
| 55,445 |
|
| Less cash and equivalents of discontinued operations at September 30 | 496 |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 39,854 |
| $ | 52,530 |
|
| |
(a) | Included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017. |
Amounts may not add due to rounding.
See accompanying notes.
|
| | | | | | | | | | | | | |
| STATEMENT OF CASH FLOWS (CONTINUED) | | | |
| (UNAUDITED) |
| | Nine months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Cash flows – operating activities | | | | | |
| Net earnings (loss) | $ | 3,368 |
| $ | 4,414 |
| | $ | (439 | ) | $ | (1,956 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (236 | ) | (275 | ) | | 5 |
| (8 | ) |
| Net earnings (loss) attributable to the Company | 3,604 |
| 4,689 |
| | (443 | ) | (1,948 | ) |
| (Earnings) loss from discontinued operations | 497 |
| 956 |
| | 494 |
| 954 |
|
| Adjustments to reconcile net earnings (loss) attributable to the | | | | | |
| Company to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment | 1,977 |
| 1,857 |
| | 1,736 |
| 1,771 |
|
| (Earnings) loss from continuing operations retained by GE Capital(b) | 4,211 |
| 17,518 |
| | — |
| — |
|
| Deferred income taxes | (401 | ) | 81 |
| | (267 | ) | 1,164 |
|
| Decrease (increase) in GE current receivables | 701 |
| 455 |
| | — |
| — |
|
| Decrease (increase) in inventories | (1,437 | ) | (2,543 | ) | | — |
| (15 | ) |
| Increase (decrease) in accounts payable | (980 | ) | (38 | ) | | (97 | ) | 12 |
|
| Increase (decrease) in GE progress collections | (179 | ) | 179 |
| | — |
| — |
|
| All other operating activities(c) | (3,942 | ) | (4,812 | ) | | 632 |
| (35 | ) |
| Cash from (used for) operating activities – continuing operations | 4,050 |
| 18,342 |
| | 2,053 |
| 1,903 |
|
| Cash from (used for) operating activities – discontinued operations | — |
| — |
| | (490 | ) | (5,719 | ) |
| Cash from (used for) operating activities | 4,050 |
| 18,342 |
| | 1,563 |
| (3,815 | ) |
| | | | | | |
| Cash flows – investing activities | | | | | |
| Additions to property, plant and equipment | (3,051 | ) | (2,804 | ) | | (2,422 | ) | (2,719 | ) |
| Dispositions of property, plant and equipment | 825 |
| 727 |
| | 3,186 |
| 2,974 |
|
| Net decrease (increase) in GE Capital financing receivables | — |
| — |
| | 3,242 |
| 128 |
|
| Proceeds from sale of discontinued operations | — |
| — |
| | 1,018 |
| 53,250 |
|
| Proceeds from principal business dispositions | 2,908 |
| 5,273 |
| | — |
| — |
|
| Net cash from (payments for) principal businesses purchased | (6,053 | ) | (930 | ) | | — |
| — |
|
| All other investing activities(c) | (2,375 | ) | (1,915 | ) | | 3,472 |
| (6,435 | ) |
| Cash from (used for) investing activities – continuing operations | (7,745 | ) | 350 |
| | 8,497 |
| 47,198 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| | (2,349 | ) | (12,056 | ) |
| Cash from (used for) investing activities | (7,744 | ) | 351 |
| | 6,147 |
| 35,142 |
|
| | | | | | |
| Cash flows – financing activities | | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | 170 |
| 1,732 |
| | 243 |
| (1,945 | ) |
| Newly issued debt (maturities longer than 90 days) | 16,214 |
| 5,180 |
| | 420 |
| 987 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (1,532 | ) | (755 | ) | | (18,215 | ) | (49,745 | ) |
| Net dispositions (purchases) of GE shares for treasury | (2,620 | ) | (17,969 | ) | | — |
| — |
|
| Dividends paid to shareowners | (6,269 | ) | (6,427 | ) | | (4,164 | ) | (16,234 | ) |
| All other financing activities | (461 | ) | (143 | ) | | (168 | ) | (259 | ) |
| Cash from (used for) financing activities – continuing operations | 5,501 |
| (18,382 | ) | | (21,884 | ) | (67,196 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| | 1,905 |
| 295 |
|
| Cash from (used for) financing activities | 5,501 |
| (18,382 | ) | | (19,979 | ) | (66,900 | ) |
| Effect of currency exchange rate changes on cash and equivalents | 504 |
| (91 | ) | | 749 |
| (78 | ) |
| Increase (decrease) in cash and equivalents | 2,311 |
| 219 |
| | (11,519 | ) | (35,652 | ) |
| Cash and equivalents at beginning of year | 10,525 |
| 10,372 |
| | 39,033 |
| 80,506 |
|
| Cash and equivalents at September 30 | 12,836 |
| 10,591 |
| | 27,514 |
| 44,854 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| | 496 |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 12,836 |
| $ | 10,591 |
| | $ | 27,019 |
| $ | 41,939 |
|
| |
(a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. |
| |
(b) | Represents GE Capital earnings/loss from continuing operations attributable to the Company, net of GE Capital dividends paid to GE. |
| |
(c) | GE included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017.
|
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; “GE Capital” means GE Capital Global Holdings, LLC (GECGH) or its predecessor General Electric Capital Corporation (GECC) and all of their affiliates and associated companies. Separate information is shown for “GE” and “Financial Services (GE Capital).” Transactions between GE and GE Capital have been eliminated from the “Consolidated” columns and are discussed in Note 19.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidatedPOLICIES. Our financial statements representare prepared in conformity with U.S. generally accepted accounting principles (GAAP), which requires us to make estimates based on assumptions about current, and for some estimates, future, economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations, financial position and cash flows. Such changes could result in future impairments of goodwill, intangibles, long-lived assets and investment securities, revisions to estimated profitability on long-term product service agreements, incremental credit losses on receivables and debt securities, a change in the consolidationcarrying amount of General Electric Company (the Company)our tax assets and all companiesliabilities, or a change in our insurance liabilities and pension obligations as of the time of a relevant measurement event.
In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that we directly or indirectly control, either through majority ownership or otherwise. See Note 1cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the consolidated financial statements inour Annual Report on Form 10-K for the year ended December 31, 2016 that discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report), “GE” represents the adding together of all affiliated companies except GE Capital (GE Capital or Financial Services), whose continuing operations are presented on a one-line basis; GE Capital consists of General Capital Global Holdings, LLC (GECGH) and all of its affiliates; and “Consolidated” represents the adding together of GE and GE Capital with the effects of transactions betweencurrency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the two eliminated. Unless otherwise indicated, we refertiming of settlements to the caption revenuessuppliers for property, plant and equipment, non-cash gains/losses and other income simply as “revenues” throughout this Form 10-Q.balance sheet reclassifications.
We have reclassified certain prior-periodprior-year amounts to conform to the current-periodcurrent-year’s presentation. Unless otherwise noted, tables are presented in U.S. dollars in millions. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Earnings per share amounts are computed independently for earnings from continuing operations, earnings from discontinued operations and net earnings. As a result, the sum of per-share amounts may not equal the total. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. We present businesses whose disposal represents a strategic shift that has, or will have, a major effect on our operations and financial results as discontinued operations when the components meet the criteria for held for sale, are sold, or spun-off. See Note 2 for further information.
INTERIM PERIOD PRESENTATION
The accompanying consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these consolidatedThese financial statements should be read in conjunction with the financial statements, notes and notes theretosignificant accounting policies included in our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2016.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to Note 1, Basis of Presentation2022 and Summary of Significant Accounting Policies, to the consolidated financial statementsrevised portions of our 20162022 Form 10-K Report for the discussion of our significant accounting policies.on Form 8-K as filed on April 25, 2023.
ACCOUNTING CHANGES
On January 1, 2017, we adopted ASU 2015-11, Simplifying the Measurement of Inventory, which was intended to simplify the subsequent measurement of inventory held by an entity not measured using last-in, first-out (LIFO) or retail inventory method. The amendments eliminated the requirement that entities consider the replacement cost of inventory and the net realizable value less a normal profit margin, which was historically used to establish a floor and ceiling for an assessment of market value. The adoption of this standard was immaterial to our financial statements.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
On September 25, 2017,OPERATIONS. In the fourth quarter of 2022, we signed ana binding agreement to sell a portion of our Industrial Solutions business within our Power segment with assets of $2,220 million and liabilities of $561 million, to ABB for approximately $2,600 million. The transaction is targeted to close in mid-2018.
On March 8, 2017, we signed an agreement to sell our WaterSteam business within our Power segment to Suez EnvironnementÉlectricité de France S.A. (Suez)(EDF). OnWe expect to complete the sale, subject to regulatory approvals and other customary closing conditions, in the fourth quarter of 2023. Closing the transaction is expected to result in a significant gain.
In the fourth quarter of 2022, we classified our captive industrial insurance subsidiary, Electric Insurance Company, domiciled in Massachusetts, with assets of $533 million and liabilities of $351 million as of September 30, 2017, we completed the sale2023, into held for consideration of $3,041 million, net of obligations assumed and cash transferred, (including $122 million from sale of receivables originated in our Water business and sold from GE Capital to Suez) and recognized an after-tax gain of $1,872 million insale. In the third quarter of 20172023, we signed a binding agreement to sell this business and expect to complete the sale, subject to regulatory approvals and other customary closing conditions, in the caption “Other income”first half of 2024. In connection with the expected sale, for the nine months ended September 30, 2023, we recorded a loss of $109 million in Other income (loss) in our consolidated Statement of Earnings.Earnings (Loss).
| | | | | | | | |
| ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE | September 30, 2023 | December 31, 2022 |
| | |
| Current receivables, inventories and contract assets | $ | 539 | | $ | 495 | |
| Non-current captive insurance investment securities | 555 | | 554 | |
| Property, plant and equipment and intangible assets - net | 235 | | 232 | |
| Valuation allowance on disposal group classified as held for sale | (126) | | (17) | |
| All other assets | 172 | | 111 | |
| Assets of businesses held for sale | $ | 1,375 | | $ | 1,374 | |
| | |
| Progress collections and deferred income | $ | 1,083 | | $ | 1,127 | |
| Insurance liabilities and annuity benefits | 357 | | 358 | |
| Accounts payable, equipment project payables and other current liabilities | 338 | | 371 | |
| All other liabilities | 58 | | 87 | |
| Liabilities of businesses held for sale | $ | 1,835 | | $ | 1,944 | |
|
| | | | | | |
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
|
|
|
|
| Assets |
|
|
|
| Current receivables(a) | $ | 339 |
| $ | 366 |
|
| Inventories | 361 |
| 211 |
|
| Property, plant, and equipment – net | 390 |
| 632 |
|
| Goodwill | 1,050 |
| 212 |
|
| Other intangible assets – net | 130 |
| 123 |
|
| Contract assets | 52 |
| 125 |
|
| Other | 46 |
| 76 |
|
| Assets of businesses held for sale | $ | 2,369 |
| $ | 1,745 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable | $ | 219 |
| $ | 190 |
|
| Progress collections and price adjustments accrued | 21 |
| 141 |
|
| Other current liabilities | 131 |
| 133 |
|
| Non-current compensation and benefits | 152 |
| 82 |
|
| Other | 38 |
| 110 |
|
| Liabilities of businesses held for sale | $ | 561 |
| $ | 656 |
|
| |
(a) | Included transactions in our industrial businesses that were made on an arms-length basis with GE Capital, including GE current receivables sold to GE Capital of $148 million and $117 million at September 30, 2017 and December 31, 2016, respectively. These intercompany balances included within our held for sale businesses are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. |
DISCONTINUED OPERATIONS
Discontinued operations primarily relate tocomprise our financial services businesses as a result of theformer GE HealthCare business, our mortgage portfolio in Poland (Bank BPH), our GE Capital Exit Plan,Aviation Services (GECAS) business, and also includes the remainingother trailing assets of our U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.and liabilities associated with prior dispositions. Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.presented and the notes to the financial statements have been adjusted on a retrospective basis.
GE HealthCare. On January 3, 2023, we completed the previously announced separation of our HealthCare business (the Separation), into a separate, independent, publicly traded company, GE HealthCare Technologies Inc. (GE HealthCare). The Separation was structured as a tax-free spin-off, and was achieved through GE's pro-rata distribution of approximately 80.1% of the outstanding shares of GE HealthCare to holders of GE common stock. In connection with the Separation, the historical results of GE HealthCare and certain assets and liabilities included in the Separation are reported in GE's consolidated financial statements as discontinued operations.
We have entered into Transitional Service Agreements (TSA)continuing involvement with GE HealthCare primarily through a transition services agreement, through which GE and providedGE HealthCare continue to provide certain indemnificationsservices to buyerseach other for a period of time following the Separation, and a trademark licensing agreement. For the nine months ended September 30, 2023, we collected net cash of $715 million related to these activities.
Bank BPH. As previously reported, Bank BPH, along with other Polish banks, has been subject to ongoing litigation in Poland related to its portfolio of floating rate residential mortgage loans, with cases brought by individual borrowers seeking relief related to their foreign currency indexed or denominated mortgage loans in various courts throughout Poland. As previously reported, GE Capital’s assets. Underand Bank BPH approved the TSAs,adoption of a settlement program and recorded a charge of $1,014 million in the quarter ended June 30, 2023. The estimate of total losses for borrower litigation at Bank BPH as of September 30, 2023 was $2,522 million. In order to maintain appropriate regulatory capital levels, during the nine months ended September 30, 2023, we made previously reported non-cash capital contributions in the form of intercompany loan forgiveness of $1,797 million; no incremental cash contributions from GE Capital provides various services for terms generally between 12 and 24 months and receives a level of cost reimbursement fromwere required in connection with the buyers. See Note 18 forsecond quarter charge. For further information about indemnifications. the recent actions and other factors that are relevant to the estimate of total losses for borrower litigation at Bank BPH, refer to our disclosures about Bank BPH in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 and other prior filings. Future changes or adverse developments could increase our estimate of total losses and potentially require future cash contributions to Bank BPH.
The Bank BPH financing receivable portfolio is recorded at the lower of cost or fair value, less cost to sell, which reflects market yields and estimates with respect to ongoing borrower litigation. Earnings (loss) from discontinued operations included zero and $1,189 million in pre-tax charges for the three and nine months ended September 30, 2023, and $128 million and $562 million in pre-tax charges for the three and nine months ended September 30, 2022, respectively, primarily related to the ongoing borrower litigation. At September 30, 2023, the total portfolio had a carrying value of zero, net of a valuation allowance.
GECAS/AerCap. We have continuing involvement with AerCap, primarily through our ownership interest, ongoing sales or leases of products and services, and transition services that we provide to AerCap. For the nine months ended September 30, 2023, we had direct and indirect sales of $122 million to AerCap, primarily related to engine services and sales, and purchases of $175 million from AerCap, primarily related to engine leases. We paid net cash of $157 million to AerCap related to this activity.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
RESULTS OF DISCONTINUED OPERATIONS Three months ended September 30 | GE HealthCare | | Bank BPH & Other | Total | | GE HealthCare | | Bank BPH & Other | Total |
| Total revenues | $ | — | | | $ | — | | $ | — | | | $ | 4,612 | | | $ | — | | $ | 4,612 | |
| Cost of equipment and services sold | — | | | — | | — | | | (2,838) | | | — | | (2,838) | |
| Other income, costs and expenses | (34) | | | (5) | | (39) | | | (1,185) | | | (153) | | (1,338) | |
| | | | | | | | | |
| Earnings (loss) of discontinued operations before income taxes | (34) | | | (5) | | (39) | | | 589 | | | (153) | | 436 | |
| Benefit (provision) for income taxes | 222 | | | (12) | | 210 | | | (95) | | | (22) | | (116) | |
| Earnings (loss) of discontinued operations, net of taxes | 188 | | | (17) | | 171 | | | 494 | | | (174) | | 320 | |
| | | | | | | | | |
| Gain (loss) on disposal before income taxes | — | | | 2 | | 2 | | | — | | | — | | — | |
| Benefit (provision) for income taxes | — | | | — | | — | | | — | | | 90 | | 90 | |
| Gain (loss) on disposal, net of taxes | — | | | 2 | | 2 | | | — | | | 90 | | 90 | |
| | | | | | | | | |
| Earnings (loss) from discontinued operations, net of taxes | $ | 188 | | | $ | (15) | | $ | 173 | | | $ | 494 | | | $ | (85) | | $ | 409 | |
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| 2023 | | 2022 |
RESULTS OF DISCONTINUED OPERATIONS Nine months ended September 30 | GE HealthCare | | Bank BPH & Other | Total | | GE HealthCare | | Bank BPH & Other | Total |
| Total revenues | $ | — | | | $ | — | | $ | — | | | $ | 13,491 | | | $ | — | | $ | 13,491 | |
| Cost of equipment and services sold | — | | | — | | — | | | (8,237) | | | — | | (8,237) | |
| Other income, costs and expenses | (54) | | | (1,246) | | (1,300) | | | (3,523) | | | (608) | | (4,132) | |
| | | | | | | | | |
| Earnings (loss) of discontinued operations before income taxes | (54) | | | (1,246) | | (1,300) | | | 1,731 | | | (608) | | 1,123 | |
| Benefit (provision) for income taxes | 1,708 | | | (2) | | 1,706 | | | (387) | | | (36) | | (424) | |
| Earnings (loss) of discontinued operations, net of taxes | 1,654 | | | (1,248) | | 406 | | | 1,344 | | | (644) | | 699 | |
| | | | | | | | | |
| Gain (loss) on disposal before income taxes | — | | | 6 | | 6 | | | — | | | (30) | | (30) | |
| Benefit (provision) for income taxes | — | | | — | | — | | | 12 | | | 95 | | 107 | |
| Gain (loss) on disposal, net of taxes | — | | | 6 | | 6 | | | 12 | | | 64 | | 76 | |
| | | | | | | | — | | |
| Earnings (loss) from discontinued operations, net of taxes | $ | 1,654 | | | $ | (1,242) | | $ | 412 | | | $ | 1,356 | | | $ | (580) | | $ | 775 | |
20172023 3Q FORM 10-Q 7724
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The tax benefit for the three and nine months ended September 30, 2023 for GE HealthCare relates to retroactive 2023 IRS guidance concerning foreign tax credits and accounting method changes and completion of the 2022 U.S. federal tax return. The tax benefit for the nine months ended September 30, 2023 also includes preparatory steps for the spin-off, which resulted in taxable gain offset by a deferred tax asset and the reversal of valuation allowances for capital loss carryovers utilized against a portion of the gain.
| | | | | | | | |
| ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS | September 30, 2023 | December 31, 2022 |
| Cash, cash equivalents and restricted cash | $ | 1,244 | | $ | 2,627 | |
| Current receivables | 11 | | 3,361 | |
| Inventories, including deferred inventory costs | — | | 2,512 | |
| Goodwill | — | | 12,799 | |
| Other intangible assets - net | — | | 1,520 | |
| Contract and other deferred assets | — | | 854 | |
| Financing receivables held for sale (Polish mortgage portfolio)(a) | — | | 1,200 | |
| Property, plant and equipment - net | 61 | | 2,379 | |
| All other assets | 202 | | 2,109 | |
| Deferred income taxes | 41 | | 2,528 | |
| Assets of discontinued operations | $ | 1,560 | | $ | 31,890 | |
| | |
| Accounts payable and equipment project payables | $ | 69 | | $ | 3,487 | |
| Progress collections and deferred income | — | | 2,499 | |
| Long-term borrowings | — | | 8,273 | |
| Non-current compensation and benefits | 35 | | 5,658 | |
| All other liabilities(a) | 1,007 | | 4,556 | |
| Liabilities of discontinued operations | $ | 1,112 | | $ | 24,474 | |
(a) Included $1,913 million and $848 million of valuation allowances against Financing receivables held for sale, of which $1,678 million and $611 million related to estimated borrower litigation losses, and $844 million and $748 million in All other liabilities, related to estimated borrower litigation losses for Bank BPH’s foreign currency-denominated mortgage portfolio, as of September 30, 2023 and December 31, 2022, respectively. Accordingly, total estimated losses related to borrower litigation were $2,522 million and $1,359 million as of September 30, 2023 and December 31, 2022, respectively. As a result of the settlement program, the valuation allowance completely offsets the financing receivables balance as of September 30, 2023.
|
| | | | | | | | | | | | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
|
|
|
|
|
| Operations |
|
|
|
|
|
|
|
|
| Total revenues and other income (loss) | $ | 35 |
| $ | 633 |
| $ | 123 |
| $ | 2,494 |
|
|
|
|
|
|
| Earnings (loss) from discontinued operations before income taxes | $ | (191 | ) | $ | 6 |
| $ | (603 | ) | $ | (154 | ) |
| Benefit (provision) for income taxes(a) | 71 |
| 278 |
| 198 |
| 460 |
|
| Earnings (loss) from discontinued operations, net of taxes | $ | (120 | ) | $ | 284 |
| $ | (404 | ) | $ | 306 |
|
|
|
|
|
|
| Disposal |
|
|
|
|
| Gain (loss) on disposal before income taxes | $ | 22 |
| $ | (50 | ) | $ | 3 |
| $ | (591 | ) |
| Benefit (provision) for income taxes(a) | (8 | ) | (339 | ) | (89 | ) | (670 | ) |
| Gain (loss) on disposal, net of taxes | $ | 14 |
| $ | (389 | ) | $ | (86 | ) | $ | (1,261 | ) |
|
|
|
|
|
| Earnings (loss) from discontinued operations, net of taxes(b)(c) | $ | (106 | ) | $ | (105 | ) | $ | (490 | ) | $ | (954 | ) |
| |
(a) | GE Capital's total tax benefit (provision) for discontinued operations and disposals included current tax benefit (provision) of $(63) million and $726 million for the three months ended September 30, 2017 and 2016, respectively, and $(386) million and $(154) million for the nine months ended September 30, 2017 and 2016, respectively, including current U.S. Federal tax benefit (provision) of $1 million and $678 million for the three months ended September 30, 2017 and 2016, respectively, and $(518) million and $207 million for the nine months ended September 30, 2017 and 2016, respectively. The deferred tax benefit (provision) was $126 million and $(787) million for the three months ended September 30, 2017 and 2016, respectively, and $495 million and $(56) million for the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(b) | The sum of GE Industrial earnings (loss) from discontinued operations, net of taxes, and GE Capital earnings (loss) from discontinued operations, net of taxes, after adjusting for earnings (loss) attributable to noncontrolling interests related to discontinued operations, is reported within earnings (loss) from discontinued operations, net of taxes, in the GE Industrial column of the Consolidated Statement of Earnings (Loss).
|
| |
(c) | Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(168) million and $(43) million for the three months ended September 30, 2017 and 2016, respectively, and $(606) million and $(746) million for the nine months ended September 30, 2017 and 2016, respectively.
|
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
|
|
|
| Assets |
|
|
| Cash and equivalents | $ | 496 |
| $ | 1,429 |
|
| Investment securities | 1,131 |
| 2,626 |
|
| Deferred income taxes | 969 |
| 487 |
|
| Financing receivables held for sale | 3,631 |
| 8,547 |
|
| Other assets | 564 |
| 1,727 |
|
| Assets of discontinued operations | $ | 6,791 |
| $ | 14,815 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable | 51 |
| 164 |
|
| Borrowings | — |
| 2,076 |
|
| Other liabilities | 939 |
| 1,918 |
|
| Liabilities of discontinued operations | $ | 990 |
| $ | 4,158 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3. INVESTMENT SECURITIES
Substantially allSECURITIES. All of our investmentdebt securities are classified as available-for-sale and comprise mainlysubstantially all are investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations. We do notmanage 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. This process includes consideration of various asset allocation strategies and incorporates information from 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. Asset allocation planning is a dynamic process that considers changes in market conditions, risk appetite, liquidity needs and other factors, which are reviewed on a periodic basis by our investment team. Our investment in GE HealthCare comprised 61.6 million shares (approximately 13.5% ownership interest) at September 30, 2023. Our investment in AerCap comprised 30.9 million ordinary shares (approximately 14.5% ownership interest) at September 30, 2023 and an AerCap senior note, for which we have anyadopted the fair value option. We sold our remaining shares in Baker Hughes during the first quarter of 2023. Our GE HealthCare and AerCap investments are recorded as Equity securities with readily determinable fair values (RDFV). Investment securities held within insurance entities are classified as held-to-maturity. non-current as they support the long-duration insurance liabilities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Amortized
cost | Gross
unrealized
gains | Gross
unrealized
losses | Estimated
fair value | | Amortized
cost | Gross
unrealized
gains | Gross
unrealized
losses | Estimated
fair value |
| Equity (GE HealthCare) | $ | — | | $ | — | | $ | — | | $ | 4,190 | | | $ | — | | $ | — | | $ | — | | $ | — | |
| Equity and note (AerCap) | — | | — | | — | | 2,864 | | | — | | — | | — | | 7,403 | |
| Equity (Baker Hughes) | — | | — | | — | | — | | | — | | — | | — | | 207 | |
| Current investment securities | $ | — | | $ | — | | $ | — | | $ | 7,054 | | | $ | — | | $ | — | | $ | — | | $ | 7,609 | |
| Debt | | | | | | | | | |
| U.S. corporate | $ | 27,539 | | $ | 280 | | $ | (2,947) | | $ | 24,872 | | | $ | 26,921 | | $ | 675 | | $ | (2,164) | | $ | 25,432 | |
| Non-U.S. corporate | 2,513 | | 10 | | (381) | | 2,141 | | | 2,548 | | 18 | | (300) | | 2,266 | |
| State and municipal | 2,759 | | 18 | | (301) | | 2,475 | | | 2,898 | | 66 | | (241) | | 2,722 | |
| Mortgage and asset-backed | 4,806 | | 12 | | (361) | | 4,457 | | | 4,442 | | 21 | | (290) | | 4,173 | |
| Government and agencies | 1,444 | | 1 | | (177) | | 1,267 | | | 1,172 | | 2 | | (147) | | 1,026 | |
| Other equity | 315 | | — | | — | | 315 | | | 408 | | — | | — | | 408 | |
| Non-current investment securities | $ | 39,376 | | $ | 320 | | $ | (4,168) | | $ | 35,528 | | | $ | 38,388 | | $ | 781 | | $ | (3,143) | | $ | 36,027 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| December 31, 2016 |
| (In millions) | Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value (a) |
|
| Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value (a) |
|
|
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
|
|
|
|
|
| U.S. corporate | $ | 20,255 |
| $ | 3,594 |
| $ | (45 | ) | $ | 23,804 |
|
| $ | 20,049 |
| $ | 3,081 |
| $ | (85 | ) | $ | 23,046 |
|
| Non-U.S. corporate | 5,615 |
| 84 |
| (13 | ) | 5,686 |
|
| 11,917 |
| 98 |
| (27 | ) | 11,987 |
|
| State and municipal | 3,827 |
| 506 |
| (49 | ) | 4,284 |
|
| 3,916 |
| 412 |
| (92 | ) | 4,236 |
|
| Mortgage and asset-backed | 2,808 |
| 97 |
| (19 | ) | 2,886 |
|
| 2,787 |
| 111 |
| (37 | ) | 2,861 |
|
| Government and agencies | 1,769 |
| 74 |
| (10 | ) | 1,833 |
|
| 1,842 |
| 160 |
| (26 | ) | 1,976 |
|
| Equity (b) | 191 |
| 13 |
| — |
| 204 |
|
| 154 |
| 55 |
| (1 | ) | 208 |
|
| Total | $ | 34,464 |
| $ | 4,368 |
| $ | (136 | ) | $ | 38,696 |
|
| $ | 40,665 |
| $ | 3,917 |
| $ | (269 | ) | $ | 44,313 |
|
| |
(a) | Included $384 million and $137 million of investment securities held by GE at September 30, 2017 and December 31, 2016, respectively, of which $149 million and $86 million are equity securities.
|
| |
(b) | Estimated fair values included $107 million and $17 million of trading securities at September 30, 2017 and December 31, 2016, respectively. Net unrealized gains (losses) recorded to earnings related to these securities were $12 million and $1 million for the three months ended and $41 million and $(2) million for the nine months ended September 30, 2017 and 2016, respectively.
|
The amortized cost of debt securities excludes accrued interest of $493 million and $457 million at September 30, 2023 and December 31, 2022, respectively, which is reported in All other current assets.
Investments with a
The estimated fair value of $4,452 million and $4,406 million were classified within Level 3 (significant inputs to the valuation model are unobservable)investment securities at September 30, 20172023 decreased since December 31, 2022, primarily due to AerCap, GE HealthCare and Baker Hughes share sales and higher market yields, partially offset by the classification of our remaining equity interest in GE HealthCare within investment securities, the mark-to-market effect on our equity interests in GE HealthCare and AerCap, and new investments at Insurance.
Total estimated fair value of debt securities in an unrealized loss position were $25,932 million and $21,482 million, of which $15,886 million and $3,275 million had gross unrealized losses of $(3,656) million and $(835) million and had been in a loss position for 12 months or more at September 30, 2023 and December 31, 2016,2022, respectively. The remaining investments are substantially all classified within Level 2 (determined based on significant observable inputs). During the nine months endedAt September 30, 20172023, the majority of our U.S. and 2016, thereNon-U.S. corporate securities' gross unrealized losses were no significant transfers into or outin the consumer, electric, technology and energy industries. In addition, gross unrealized losses on our Mortgage and asset-backed securities included $(224) million related to commercial mortgage-backed securities (CMBS) collateralized by pools of Level 3.
|
| | | | | | | | | | | | | |
| ESTIMATED FAIR VALUE AND GROSS UNREALIZED LOSSES OF AVAILABLE-FOR-SALE INVESTMENT SECURITIES |
| | In loss position for |
| | Less than 12 months | | 12 months or more |
| (In millions) | Estimated fair value |
| Gross unrealized losses |
| | Estimated
fair value |
| Gross
unrealized
losses |
|
| | | | | | |
| September 30, 2017 | | | | | |
| Debt | | | | | |
| U.S. corporate | $ | 681 |
| $ | (17 | ) | | $ | 530 |
| $ | (28 | ) |
| Non-U.S. corporate | 581 |
| (4 | ) | | 3,591 |
| (9 | ) |
| State and municipal | 125 |
| (2 | ) | | 270 |
| (47 | ) |
| Mortgage and asset-backed | 821 |
| (9 | ) | | 227 |
| (9 | ) |
| Government and agencies | 593 |
| (9 | ) | | 257 |
| (1 | ) |
| Equity | 3 |
| — |
| | — |
| — |
|
| Total | $ | 2,805 |
| $ | (41 | ) | | $ | 4,874 |
| $ | (95 | ) |
| | | | | | |
| December 31, 2016 | | | | | |
| Debt | | | | | |
| U.S. corporate | $ | 1,692 |
| $ | (55 | ) | | $ | 359 |
| $ | (30 | ) |
| Non-U.S. corporate | 5,352 |
| (26 | ) | | 14 |
| (1 | ) |
| State and municipal | 674 |
| (27 | ) | | 158 |
| (64 | ) |
| Mortgage and asset-backed | 822 |
| (21 | ) | | 132 |
| (16 | ) |
| Government and agencies | 549 |
| (26 | ) | | — |
| — |
|
| Equity | 9 |
| (1 | ) | | — |
| — |
|
| Total | $ | 9,098 |
| $ | (157 | ) | | $ | 663 |
| $ | (111 | ) |
Unrealizedcommercial mortgage loans on real estate, and $(112) million related to asset-backed securities. The majority of our CMBS and asset-backed securities in an unrealized loss position have received investment-grade credit ratings from the major rating agencies. For our securities in an unrealized loss position, the losses are not indicative of the amount of credit loss that would be recognized and at September 30, 2017 are primarily due to increases in market yields subsequent to our purchase of the securities. We presentlylosses, we currently do not intend to sell the vast majority of our debt securities that are in an unrealized loss positioninvestments, and believe that it is not more likely than not that we will be required to sell the vast majority of these securitiesinvestments before anticipated recovery of their amortized cost basis.
| | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | | 2023 | 2022 |
| Net unrealized gains (losses) for equity securities with RDFV | $ | (911) | | $ | (136) | | | $ | 5,651 | | $ | (1,970) | |
| Proceeds from debt/equity securities sales and early redemptions | 3,336 | | 693 | | | 10,088 | | 6,115 | |
| Gross realized gains on debt securities | 7 | | 1 | | | 44 | | 34 | |
| Gross realized losses and impairments on debt securities | (14) | | (14) | | | (60) | | (29) | |
Contractual maturities of our amortized cost. The methodologiesdebt securities (excluding mortgage and significant inputs used to measure the amount of credit loss for our investment securities during 2017 have not changed.
Total pre-tax, other-than-temporary impairments on investment securities recognized in earnings were an insignificant amount and $28 million for the nine months endedasset-backed securities) at September 30, 2017 and 2016, respectively.2023 are as follows:
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | Amortized cost | Estimated fair value |
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES | |
| (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) | |
| | | |
| (In millions) | Amortized cost |
| Estimated fair value |
| |
| | | |
| Due | | |
| Within one year | $ | 5,342 |
| $ | 5,344 |
| Within one year | $ | 859 | | $ | 847 | |
| After one year through five years | 3,577 |
| 3,796 |
| After one year through five years | 4,867 | | 4,793 | |
| After five years through ten years | 5,639 |
| 6,171 |
| After five years through ten years | 5,211 | | 5,038 | |
| After ten years | 16,994 |
| 20,395 |
| After ten years | 23,319 | | 20,077 | |
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
Although we generally do not haveThe majority of our equity securities are classified within Level 1 and the intent to sell any specificmajority of our debt securities at the endare classified within Level 2, as their valuation is determined based on significant observable inputs. Investments with a fair value of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior$6,434 million and $6,421 million are classified within Level 3, as significant inputs to their maturities for a variety of reasons, including diversification, credit quality, yieldvaluation models are unobservable at September 30, 2023 and liquidity requirements andDecember 31, 2022, respectively. During the funding of claims and obligations to policyholders. Gross realized gains on available-for-sale investment securities were $54 million and $7 million, and gross realized losses were $(5) million and $(12) million in the threenine months ended September 30, 20172023 and 2016, respectively. Gross realized gains on available-for-sale investment2022, there were no significant transfers into or out of Level 3.
In addition to the equity securities were $197described above, we hold $909 million and $49$614 million of equity securities without RDFV at September 30, 2023 and December 31, 2022, respectively, that are classified within non-current All other assets in our Statement of Financial Position. Fair value adjustments, including impairments, recorded in earnings were immaterial for all periods presented. These are primarily limited partnership investments in private equity, infrastructure and real estate funds that are measured at net asset value per share (or equivalent) as a practical expedient to estimated fair value and are excluded from the fair value hierarchy.
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
| | | | | | | | |
| |
| | |
| CURRENT RECEIVABLES | September 30, 2023 | December 31, 2022 |
| | |
| | |
| | |
| | |
| | |
| Customer receivables | $ | 11,655 | | $ | 11,803 | |
| Revenue sharing program receivables(a) | 1,265 | | 1,326 | |
| Non-income based tax receivables | 1,068 | | 1,146 | |
| Supplier advances | 833 | | 691 | |
| Receivables from disposed businesses | 171 | | 115 | |
| Other sundry receivables | 313 | | 518 | |
| | |
| Allowance for credit losses(b) | (760) | | (768) | |
| Total current receivables | $ | 14,546 | | $ | 14,831 | |
(a) Revenue sharing program receivables in Aerospace are amounts due from third parties who participate in engine programs by developing and supplying certain engine components through the life of the program. The participants share in program revenues, receive a share of customer progress payments and share costs related to discounts and warranties.
(b) Allowance for credit losses decreased primarily due to write-offs of $35 million, partially offset by net new provisions of $28 million.
| | | | | | | | |
| September 30, 2023 | December 31, 2022 |
| Aerospace | $ | 7,892 | | $ | 7,784 | |
| Renewable Energy | 2,344�� | | 2,415 | |
| Power | 4,002 | | 4,229 | |
| Corporate | 308 | | 404 | |
| Total current receivables | $ | 14,546 | | $ | 14,831 | |
Sales of customer receivables. From time to time, the Company sells current or long-term receivables to third parties in response to customer-sponsored requests or programs, to facilitate sales, or for risk mitigation purposes. The Company sold current customer receivables to third parties and subsequently collected $1,623 million and gross realized losses were $(9) million and $(52)$1,347 million in the nine months ended September 30, 20172023 and 2016,2022, respectively, related primarily to our participation in customer-sponsored supply chain finance programs. Within these programs, primarily in Renewable Energy and Aerospace, the Company has no continuing involvement, fees associated with the transferred receivables are covered by the customer and cash is received at the original invoice due date. Included in the sales of customer receivables in the nine months ended September 30, 2023, was $82 million in our Gas Power business, primarily for risk mitigation purposes.
| | | | | | | | | | | |
| | | |
| LONG-TERM RECEIVABLES | September 30, 2023 | December 31, 2022 | | | |
| | | | | |
| Long-term customer receivables(a) | $ | 483 | | $ | 457 | | | | |
| Supplier advances | 252 | | 266 | | | | |
| Non-income based tax receivables | 248 | | 213 | | | | |
| | | | | |
| Sundry receivables | 578 | | 483 | | | | |
| | | | | |
| Allowance for credit losses | (170) | | (183) | | | | |
| Total long-term receivables | $ | 1,391 | | $ | 1,236 | | | | |
(a) The Company sold $83 million of long-term customer receivables to third parties for the nine months ended September 30, 2022, primarily in our Gas Power business for risk mitigation purposes.
NOTE 5. INVENTORIES, INCLUDING DEFERRED INVENTORY COSTS
| | | | | | | | |
| September 30, 2023 | December 31, 2022 |
| Raw materials and work in process | $ | 10,733 | | $ | 9,191 | |
| Finished goods | 4,140 | | 3,937 | |
| Deferred inventory costs(a) | 2,146 | | 1,764 | |
| Inventories, including deferred inventory costs | $ | 17,020 | | $ | 14,891 | |
(a) Represents cost deferral for shipped goods (such as components for wind turbine assemblies within our Renewable Energy segment) and labor and overhead costs on time and material service contracts (primarily originating in Power and Aerospace) and other costs for which the criteria for revenue recognition has not yet been met.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES
| | | | | | | | |
| September 30, 2023 | December 31, 2022 |
| Original cost | $ | 27,154 | | $ | 26,641 | |
| Less: accumulated depreciation and amortization | (16,767) | | (16,303) | |
| Right-of-use operating lease assets | 1,816 | | 1,854 | |
| Property, plant and equipment – net | $ | 12,203 | | $ | 12,192 | |
Operating Lease Liabilities. Our consolidated operating lease liabilities, included in All other liabilities in our Statement of Financial Position, were $1,967 million and $2,089 million, as of September 30, 2023 and December 31, 2022, respectively. Expense on our operating lease portfolio, primarily from our long-term fixed leases, was $201 million and $205 million, and $602 million and $641 million, for the three and nine months ended September 30, 2023 and 2022, respectively.
Proceeds from investment securities sales
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
| | | | | | | | | | | | | | | | |
| GOODWILL | January 1, 2023 | Acquisitions | | | Currency exchange
and other | Balance at September 30, 2023 |
| Aerospace | $ | 8,835 | | $ | — | | | | $ | (9) | | $ | 8,826 | |
| Renewable Energy | 3,201 | — | | | | 6 | | 3,207 | |
| Power | 144 | 160 | | | | (1) | | 303 | |
| Corporate(a) | 818 | 22 | | | | (1) | | 839 | |
| Total | $ | 12,999 | | $ | 182 | | | | $ | (5) | | $ | 13,177 | |
(a) Corporate balance comprises our Digital business.
We assess the possibility that a reporting unit’s fair value has been reduced below its carrying amount due to the occurrence of events or circumstances between annual impairment testing dates. In the third quarter of 2023, we did not identify any reporting units that required an interim impairment test. However, we continue to monitor the operating results and early redemptionscash flow forecasts of our Digital reporting unit at Corporate and our Additive reporting unit in our Aerospace segment as the fair value of these reporting units were not significantly in excess of their carrying values based on the results of our most recent annual impairment test, performed in the fourth quarter of 2022. At September 30, 2023, our Digital and Additive reporting units had goodwill of $839 million and $238 million, respectively.
Intangible assets decreased $315 million during the nine months ended September 30, 2023, primarily as a result of amortization, partially offset by issuers totaled $659additions of capitalized software, customer-related and patents and technology, mainly at Power and Aerospace, of $180 million. Consolidated amortization expense was $149 million and $416$135 million and $448 million and $1,193 million in the three and nine months ended, September 30, 20172023 and 2016,2022, respectively. Included within consolidated amortization expense for the nine months ended September 30, 2022 was a non-cash pre-tax impairment charge of $765 million related to intangible assets at our remaining Steam business within our Power segment, not including a related $59 million impairment charge in Property, plant and equipment. For further information on these non-cash pre-tax impairment charges, refer to the revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023.
NOTE 8. REVENUES
| | | | | | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | |
| Three months ended September 30 | 2023 | | 2022 |
| Equipment | Services | Total | | Equipment | Services | Total |
| Aerospace | $ | 2,299 | | $ | 6,111 | | $ | 8,409 | | | $ | 1,968 | | $ | 4,736 | | $ | 6,705 | |
| | | | | | | |
| Renewable Energy | 3,554 | | 597 | | 4,151 | | | 2,887 | | 707 | | 3,594 | |
| Power | 1,251 | | 2,722 | | 3,974 | | | 954 | | 2,575 | | 3,529 | |
| | | | | | | |
| Total segment revenues | $ | 7,104 | | $ | 9,430 | | $ | 16,533 | | | $ | 5,809 | | $ | 8,018 | | $ | 13,828 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| Nine months ended September 30 | 2023 | | 2022 |
| Equipment | Services | Total | | Equipment | Services | Total |
| Aerospace | $ | 6,806 | | $ | 16,445 | | $ | 23,250 | | | $ | 5,379 | | $ | 13,055 | | $ | 18,434 | |
| | | | | | | |
| Renewable Energy | 9,084 | | 1,754 | | 10,837 | | | 7,505 | | 2,059 | | 9,564 | |
| Power | 3,426 | | 8,519 | | 11,945 | | | 3,116 | | 8,117 | | 11,233 | |
| | | | | | | |
| Total segment revenues | $ | 19,316 | | $ | 26,717 | | $ | 46,032 | | | $ | 16,000 | | $ | 23,231 | | $ | 39,231 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | | 2022 | | 2023 | | 2022 |
| Commercial Engines & Services | $ | 6,399 | | | $ | 4,971 | | | $ | 17,293 | | | $ | 13,130 | |
| Defense | 1,111 | | | 1,027 | | | 3,470 | | | 3,159 | |
| Systems & Other | 900 | | | 707 | | | 2,487 | | | 2,146 | |
| Aerospace | $ | 8,409 | | | $ | 6,705 | | | $ | 23,250 | | | $ | 18,434 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Onshore Wind | $ | 2,431 | | | $ | 2,445 | | | $ | 6,249 | | | $ | 6,403 | |
| Grid Solutions equipment and services | 946 | | | 744 | | | 2,693 | | | 2,145 | |
| | | | | | | |
| Offshore Wind, Hydro and Hybrid Solutions | 773 | | | 405 | | | 1,895 | | | 1,016 | |
| Renewable Energy | $ | 4,151 | | | $ | 3,594 | | | $ | 10,837 | | | $ | 9,564 | |
| | | | | | | |
| Gas Power | $ | 2,952 | | | $ | 2,612 | | | $ | 8,872 | | | $ | 8,234 | |
| Steam Power | 571 | | | 571 | | | 1,762 | | | 1,898 | |
| Power Conversion, Nuclear and other | 450 | | | 346 | | | 1,311 | | | 1,101 | |
| Power | $ | 3,974 | | | $ | 3,529 | | | $ | 11,945 | | | $ | 11,233 | |
| | | | | | | |
| Total segment revenues | $ | 16,533 | | | $ | 13,828 | | | $ | 46,032 | | | $ | 39,231 | |
| | | | | | | |
| GE Digital revenues | $ | 226 | | | $ | 210 | | | $ | 696 | | | $ | 635 | |
| Insurance revenues | 842 | | | 645 | | | 2,480 | | | 2,175 | |
| Eliminations and other | (256) | | | (211) | | | (678) | | | (768) | |
| Corporate | $ | 812 | | | $ | 643 | | | $ | 2,498 | | | $ | 2,041 | |
| | | | | | | |
| Total revenues | $ | 17,346 | | | $ | 14,470 | | | $ | 48,531 | | | $ | 41,272 | |
| | | | | | | |
|
REMAINING PERFORMANCE OBLIGATION. As of September 30, 2023, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $253,092 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows: (1) equipment-related remaining performance obligation of $53,285 million, of which 44%, 69% and 97% is expected to be satisfied within 1, 2 and 5 years, respectively; and (2) services-related remaining performance obligation of $199,807 million, of which 12%, 43%, 67% and 82% is expected to be recognized within 1, 5, 10 and 15 years, respectively, primarily from sales of U.S. Corporate and Mortgagethe remaining thereafter.
NOTE 9. CONTRACT AND OTHER DEFERRED ASSETS & PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract and asset-backed securities and $2,433 million and $1,283other deferred assets decreased $942 million in the nine months ended September 30, 20172023 primarily due to a decrease in long-term service agreements, partially offset by the timing of revenue recognition ahead of billing milestones on long-term equipment contracts. Our long-term service agreements decreased primarily due to billings of $9,577 million, partially offset by revenues recognized of $8,242 million and 2016, respectivelya net favorable change in estimated profitability of $88 million at Power and $50 million at Aerospace.
| | | | | | | | | | | | | | | | | |
| September 30, 2023 | Aerospace | Renewable Energy | Power | Corporate | Total |
| Revenues in excess of billings | $ | 2,565 | | $ | — | | $ | 5,353 | | $ | — | | $ | 7,919 | |
| Billings in excess of revenues | (7,775) | | — | | (1,847) | | — | | (9,622) | |
| Long-term service agreements | $ | (5,210) | | $ | — | | $ | 3,506 | | $ | — | | $ | (1,703) | |
| | | | | |
| | | | | |
| Equipment and other service agreements | 521 | | 1,181 | | 1,614 | | 262 | | 3,578 | |
| Current contract assets | $ | (4,689) | | $ | 1,181 | | $ | 5,120 | | $ | 262 | | $ | 1,875 | |
| | | | | |
| Nonrecurring engineering costs(a) | 2,449 | | 19 | | 2 | | — | | 2,470 | |
| Customer advances and other(b) | 2,344 | | — | | 613 | | — | | 2,957 | |
| Non-current contract and other deferred assets | $ | 4,793 | | $ | 19 | | $ | 615 | | $ | — | | $ | 5,427 | |
| Total contract and other deferred assets | $ | 104 | | $ | 1,200 | | $ | 5,735 | | $ | 262 | | $ | 7,302 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | |
| Revenues in excess of billings | $ | 2,363 | | $ | — | | $ | 5,403 | | $ | — | | $ | 7,766 | |
| Billings in excess of revenues | (6,681) | | — | | (1,763) | | — | | (8,443) | |
| Long-term service agreements | $ | (4,318) | | $ | — | | $ | 3,640 | | $ | — | | $ | (677) | |
| | | | | |
| | | | | |
| Equipment and other service agreements | 433 | | 1,063 | | 1,404 | | 245 | | 3,144 | |
| Current contract assets | $ | (3,884) | | $ | 1,063 | | $ | 5,044 | | $ | 245 | | $ | 2,467 | |
| | | | | |
| Nonrecurring engineering costs(a) | 2,513 | | 17 | | 4 | | — | | 2,534 | |
| Customer advances and other(b) | 2,519 | | — | | 724 | | — | | 3,243 | |
| Non-current contract and other deferred assets | $ | 5,032 | | $ | 17 | | $ | 728 | | $ | — | | $ | 5,776 | |
| Total contract and other deferred assets | $ | 1,148 | | $ | 1,079 | | $ | 5,772 | | $ | 245 | | $ | 8,244 | |
(a) Included costs incurred prior to production (such as requisition engineering) for equipment production contracts, primarily within our Aerospace segment, which are amortized ratably over each unit produced.
(b) Included amounts due from customers at Aerospace for the sales of U.S. corporate securitiesengines, spare parts and Governmentservices, and agencies.at Power, for the sale of services upgrades, which we collect through incremental fixed or usage-based fees from servicing the equipment under long-term service agreements.
NOTE 4.CURRENT RECEIVABLES
|
| | | | | | | | | | | | | |
| | Consolidated(a)(b) | | GE(c) |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
| | September 30, 2017 |
| December 31, 2016 |
|
| | | | | | |
| Current receivables | $ | 26,045 |
| $ | 24,935 |
| | $ | 15,733 |
| $ | 13,562 |
|
| Allowance for losses | (1,019 | ) | (858 | ) | | (1,008 | ) | (847 | ) |
| Total | $ | 25,026 |
| $ | 24,076 |
| | $ | 14,725 |
| $ | 12,715 |
|
| |
(a) | Included GE industrial customer receivables sold to a GE Capital affiliate and recorded on GE Capital’s balance sheet of $11,224 million and $12,304 million at September 30, 2017 and December 31, 2016, respectively. The consolidated total included a deferred purchase price receivable of $436 million and $483 million at September 30, 2017 and December 31, 2016, respectively, related to our Receivables Facility.
|
| |
(b) | In order to manage the credit exposure, the Company sells additional current receivables to third parties outside the Receivables Facility, substantially all of which are serviced by the Company. The outstanding balance of these current receivables was $2,460 million and $3,821 million at September 30, 2017 and December 31, 2016, respectively. Of these balances, $1,284 million and $2,504 million was sold by GE to GE Capital prior to the sale to third parties at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, our maximum exposure to loss under the limited recourse arrangements is $34 million and $215 million, respectively.
|
| |
(c) | GE current receivables balances at September 30, 2017 and December 31, 2016, before allowance for losses, included $9,912 million and $8,927 million, respectively, from sales of goods and services to customers. The remainder of the balances primarily relates to supplier advances, revenue sharing programs and other non-income based tax receivables.
|
RECEIVABLES FACILITY
The Company hasProgress collections and deferred income increased $897 million primarily due to new collections received in excess of revenue recognition primarily at Power, partially offset by net liquidations at Renewable Energy. Revenues recognized for contracts included in a $3,200 million revolving Receivables Facility under which receivables are sold directly to third-party purchasers. The third-party purchasers have no recourse to other assetsliability position at the beginning of the Company in the event of non-payment by the debtors. Where the purchasing entity is a bank multi-seller commercial paper conduit, assets transferred by other parties to that entity form a majority of the entity’s assets. Upon sale of the receivables, we receive proceeds of cashyear were $11,421 million and a deferred purchase price (DPP). The DPP is an interest in specified assets of the purchasers (the receivables sold by GE Capital) that entitles GE Capital to the residual cash flows of those specified assets.
During$10,044 million for the nine months ended September 30, 2017, GE Industrial sold current receivables of $15,057 million to GE Capital, which GE Capital sold immediately to third parties under the Receivables Facility. GE Capital continues to service the current receivables for the purchasers. The Company received total cash collections of $14,729 million on previously sold current receivables owed to the purchasing entities. The purchasing entities reinvested $12,681 million of those collections to purchase newly originated current receivables from the Company2023 and paid $461 million to reduce their DPP obligation to the Company.2022, respectively.
| | | | | | | | | | | | | | | | | |
| September 30, 2023 | Aerospace | Renewable Energy | Power | Corporate | Total |
| | | | | |
| | | | | |
| Progress collections | $ | 5,917 | | $ | 4,939 | | $ | 5,750 | | $ | 103 | | $ | 16,708 | |
| Current deferred income | 194 | | 174 | | 6 | | 102 | | 476 | |
| Progress collections and deferred income | $ | 6,111 | | $ | 5,113 | | $ | 5,756 | | $ | 205 | | $ | 17,185 | |
| Non-current deferred income | 1,109 | | 177 | | 36 | | 15 | | 1,337 | |
| Total Progress collections and deferred income | $ | 7,220 | | $ | 5,290 | | $ | 5,792 | | $ | 220 | | $ | 18,522 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | |
| | | | | |
| | | | | |
| Progress collections | $ | 5,814 | | $ | 5,195 | | $ | 4,514 | | $ | 131 | | $ | 15,655 | |
| Current deferred income | 233 | | 208 | | 13 | | 107 | | 562 | |
| Progress collections and deferred income | $ | 6,047 | | $ | 5,404 | | $ | 4,527 | | $ | 238 | | $ | 16,216 | |
| Non-current deferred income | 1,110 | | 183 | | 104 | | 12 | | 1,409 | |
| Total Progress collections and deferred income | $ | 7,157 | | $ | 5,586 | | $ | 4,632 | | $ | 250 | | $ | 17,625 | |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the nine months ended September 30, 2017, GE Industrial recognized a loss of $100 million resulting from a discount on the sale of these receivables to GE Capital. GE Capital recovered the majority of this loss on the sale of the receivables to third party purchasers.
At September 30, 2017, GE Capital, under the Receivables Facility, serviced $2,903 million of transferred receivables that remain outstanding.
Given the short-term nature of the underlying receivables, discount rates and prepayments are not factors in determining the value of the DPP. Collections on the DPP are presented within Cash flows from operating activities in the consolidated column in the Statement of Cash Flows. As the performance of the transferred current receivables is similar to the performance of ourNOTE 10. ALL OTHER ASSETS.All other current assets and All other assets primarily include equity method and other investments, long-term customer and sundry receivables delinquencies are not expected to be significant.
NOTE 5. INVENTORIES
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Raw materials and work in process | $ | 13,939 |
| $ | 12,636 |
|
| Finished goods | 10,856 |
| 8,798 |
|
| Unbilled shipments | 531 |
| 536 |
|
| | 25,327 |
| 21,971 |
|
| Revaluation to LIFO | 521 |
| 383 |
|
| Total inventories | $ | 25,848 |
| $ | 22,354 |
|
NOTE 6. GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
|
| | | | | | |
| FINANCING RECEIVABLES, NET |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Loans, net of deferred income | $ | 20,039 |
| $ | 21,101 |
|
| Investment in financing leases, net of deferred income | 4,923 |
| 4,998 |
|
| | 24,962 |
| 26,099 |
|
| Allowance for losses | (62 | ) | (58 | ) |
| Financing receivables – net | $ | 24,900 |
| $ | 26,041 |
|
We manage(see Note 4), cash and cash equivalents and receivables in our financing receivables portfolio using delinquencyrun-off insurance operations and nonaccrual data as key performance indicators. At September 30, 2017, $718 million (2.9%), $165 million (0.7%)prepaid taxes and $317 million (1.3%) of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. Of the $317 million of nonaccrual financing receivables at September 30, 2017, the vast majority are secured by collateral and $271 million are currently paying in accordance with the contractual terms. At December 31, 2016, $811 million (3.1%), $407 million (1.6%) and $322 million (1.2%) of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively.
The recorded investment in impaired loans at September 30, 2017 and December 31, 2016 was $352 million and $262 million, respectively. The method used to measure impairment for these loans is primarily based on collateral value. At September 30, 2017, troubled debt restructurings included in impaired loans were $137 million.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Original cost | $ | 91,421 |
| $ | 85,875 |
|
| Less accumulated depreciation and amortization | (37,321 | ) | (35,356 | ) |
| Property, plant and equipment – net | $ | 54,101 |
| $ | 50,518 |
|
Consolidated depreciation and amortization on property, plant and equipment was $1,397 million and $1,136 million in the three months ended September 30, 2017 and 2016, respectively and $3,715 million and $3,641other deferred charges. All other non-current assets increased $831 million in the nine months ended September 30, 20172023, primarily due to an increase in equity method and 2016,other investments of $478 million, an increase in long-term receivables of $155 million, an increase in pension surplus of $101 million and an increase in Insurance cash and cash equivalents of $98 million. Insurance cash and cash equivalents was $717 million and $619 million at September 30, 2023 and December 31, 2022, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
29
NOTE 8. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS11. BORROWINGS
ACQUISITIONS
On October 11, 2016, we announced a plan to acquire LM Wind Power, the Danish maker of rotor blades for approximately $1,700 million. The transaction closed on April 20, 2017. The preliminary purchase price allocation resulted in goodwill of approximately $1,300 million and amortizable intangible assets of approximately $200 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
In the first quarter of 2017, we acquired the remaining 96% of ServiceMax, a leader in cloud-based field service management solutions, for $867 million, net of cash acquired of $91 million. Upon gaining control, we fair valued the business including our previously held 4% equity interest. The preliminary purchase price allocation resulted in goodwill of approximately $670 million and amortizable intangible assets of approximately $280 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
On September 14, 2016, we acquired the remaining 74% of the software developer Meridium Inc. for cash proceeds of $369 million. Upon gaining control, we fair valued the business including our previously held 26% equity interest. The purchase price allocation resulted in goodwill of approximately $360 million and amortizable intangible assets of approximately $150 million.
On May 10, 2016, we announced the pending acquisition of the heat recovery steam generator (HRSG) business from Doosan Engineering & Construction for $250 million. On August 16, 2016, we closed on 80% of the HRSG business for approximately $220 million. On May 23, 2017, we closed an additional 15% of the remaining HRSG business for approximately $35 million. The business is included in our Power Segment. The agreement to purchase the remaining 5% of the HRSG business was terminated on October 13, 2017. The purchase price allocation resulted in goodwill of approximately $160 million and amortizable intangible assets of approximately $36 million.
BAKER HUGHES
On July 3, 2017, GE completed the previously announced combination of GE’s Oil & Gas business (GE Oil & Gas) with Baker Hughes Incorporated (Baker Hughes). As part of the transaction, GE contributed GE Oil & Gas and $7,498 million in cash in exchange for an ownership interest of approximately 62.5% in the new combined company. The operating assets of the new combined company are held through a partnership named Baker Hughes, a GE company, LLC (BHGE LLC). GE holds an economic interest of approximately 62.5% in this partnership, and Baker Hughes’ former shareholders hold an ownership interest of approximately 37.5% through a newly NYSE listed corporation, Baker Hughes, a GE company (BHGE), which controls the partnership. In turn, GE holds a controlling, voting interest of approximately 62.5% in BHGE through Class B Common Stock, which grants voting rights but no economic rights. Baker Hughes’ former shareholders received one share of BHGE Class A Common Stock and a special one-time cash dividend of $17.50 per share at closing. Total consideration was $24,798 million, including the $7,498 million cash contribution.
| | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 | |
| | | | | |
| | | | | |
| Current portion of long-term borrowings | | | | | |
| Senior notes issued by GE | | $ | 192 | | | $ | 464 | | |
| Senior and subordinated notes assumed by GE | | 915 | | | 1,973 | | |
| Senior notes issued by GE Capital | | 106 | | | 1,188 | | |
| Other | | 121 | | | 115 | | |
| Total short-term borrowings | | $ | 1,334 | | | $ | 3,739 | | |
| | | | | |
| | | | | |
| Senior notes issued by GE | | $ | 4,587 | | | $ | 4,724 | | |
| Senior and subordinated notes assumed by GE | | 8,473 | | | 8,406 | | |
| Senior notes issued by GE Capital | | 5,620 | | | 6,289 | | |
| Other | | 809 | | | 901 | | |
| Total long-term borrowings | | $ | 19,488 | | | $ | 20,320 | | |
| Total borrowings | | $ | 20,822 | | | $ | 24,059 | | |
The Baker Hughes acquisitionCompany has been accounted for as a business combination, using the acquisition method. The net assets of Baker Hughes’ contributed businesses were recorded at their estimated fair value, and GE Oil & Gas continues at its historical or carryover basis. We recorded noncontrolling interest of $16,470 million for the approximate 37.5% ownership interest in the combined company held by BHGE’s Class A shareholders. The noncontrolling interest is recorded at fair value for the portion attributable to Baker Hughes and at our historical cost for the portion attributable to GE Oil & Gas. The fair value of the noncontrolling interest associated with the acquired net assets was determined by the publicly traded share price of Baker Hughes at the close of the transaction. The impact of recognizing the noncontrolling interest in GE Oil & Gas resulted in an increase to additional paid in capital of $1,131 million.
The tables below present the preliminary fair value of the consideration exchanged and the preliminary allocation of purchase price to the major classes of assets and liabilities of the acquired Baker Hughes business and the associated fair value of preexisting noncontrolling interest related to the acquired net assets of Baker Hughes. The estimated values are not yet final and are subject to change, and the changes could be significant. We will finalize the amounts recognized as soon as possible as we obtain the information necessary to complete the analysis, but no later than one year from the acquisition date.
|
| | | |
| PRELIMINARY PURCHASE PRICE | |
| (In millions) | July 3, 2017 |
|
| | |
| Cash consideration | $ | 7,498 |
|
| Fair value of the Class A Shares in BHGE issued to Baker Hughes shareholders | 17,300 |
|
| Total consideration for Baker Hughes | $ | 24,798 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | |
| PRELIMINARY IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED | |
| (In millions) | July 3, 2017 |
|
| | |
| Cash and cash equivalents | $ | 4,133 |
|
| Accounts receivable | 2,378 |
|
| Inventories | 1,975 |
|
| Property, plant, and equipment - net | 4,048 |
|
| Other intangible assets - net (a) | 4,400 |
|
| All other assets | 1,314 |
|
| Accounts payable | (1,115 | ) |
| Borrowings | (3,373 | ) |
| Deferred taxes (b) | (825 | ) |
| All other liabilities | (2,267 | ) |
| Total identifiable net assets | 10,668 |
|
| Fair value of existing noncontrolling interest | (77 | ) |
| Goodwill (c) | 14,207 |
|
| Total allocated purchase price | $ | 24,798 |
|
| |
(a) | The estimated fair value of intangible assets and related useful lives in the preliminary purchase price allocation include: |
|
| | | | |
| (In millions) | Estimated fair value
|
| Estimated useful life (in years) |
| Trademarks - Baker Hughes | $ | 2,000 |
| Indefinite life |
| Customer-related | 1,300 |
| 15 |
| Patents and technology | 900 |
| 10 |
| Trademarks - Other | 200 |
| 10 |
| Total | $ | 4,400 |
| |
| |
(b) | Includes an increase of approximately $974 million primarily related to fair value adjustments to identifiable assets and liabilities (excluding goodwill).
|
| |
(c) | The above goodwill represents future economic benefits expected to be recognized from combining the operations of GE Oil & Gas and Baker Hughes, including expected future synergies and operating efficiencies. Goodwill resulting from the acquisition has been allocated to our Oil & Gas reporting units, of which $67 million is deductible for tax purposes. |
INCOME TAXES
BHGE LLC, will be treated as a disregarded entity for U.S. federal income tax purposes and, accordingly, will not incur any material current or deferred U.S. federal income taxes. BHGE LLC’s foreign subsidiaries, however, are expected to incur current and deferred foreign income taxes.
At closing, GE and BHGE, entered into a Tax Matters Agreement. The Tax Matters Agreement governs the administration and allocation between the parties of tax liabilities and benefits arising prior to, as a result of, and subsequent to the transaction. GE will be responsible for certain taxes related to the formation of the transaction undertaken by GE and Baker Hughes and their respective subsidiaries. We have assumed approximately $35 million of tax obligations of Baker Hughes related to the formation of the transaction.
The Tax Matters Agreement will also provide for the sharing of certain tax benefits arising from the transaction. GE will be entitled to 100% of these tax benefits to the extent that GE has borne certain taxes related to the formation of the transaction. Thereafter, these tax benefits will be shared by GE and BHGE in accordance with their ownership of the partnership, which will initially be approximately 62.5% and approximately 37.5%, respectively.
ACQUISITION COSTS
During the three and nine months ended September 30, 2017, acquisition costs of $159 million and $310 million, respectively, were expensed as incurred and were reported as selling, general and administrative expenses.
UNAUDITED ACTUAL AND PRO FORMA INFORMATION
Our consolidated "Revenues and other income", and "Earnings (loss) from continuing operations" from July 3, 2017 through September 30, 2017 includes $2,541 million and $(441) million, respectively, related to the Baker Hughes contributed business.
The following unaudited pro forma information has been presented as if the Baker Hughes transaction occurred on January 1, 2016. This information has been prepared by combining the historical results of the Company and historical results of Baker Hughes. The unaudited pro forma combined financial data for all periods presented were adjusted to give effect to proforma events that 1) are directly attributable to the aforementioned transaction, 2) factually supportable, and 3) expected to have a continuing impact on the consolidated results of operations.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The unaudited combined pro forma results do not include any incremental cost savings that may result from the integration. The adjustments are based on information available to the Company at this time. Accordingly, the adjustments are subject to change and the impact of such changes may be material. The unaudited combined pro forma information is for informational purposes only.
The pro forma information is not necessarily indicative of what the combined company’s results actually would have been had the acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company.
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| Revenues and other income | $ | 33,472 |
| $ | 31,617 |
| | $ | 95,353 |
| $ | 98,029 |
|
| Earnings (loss) from continuing operations | 1,960 |
| 1,603 |
| | 4,139 |
| 3,015 |
|
Significant adjustments to the pro forma information above include recognition of non-recurring direct incremental acquisition costs in the nine-month period ended September 30, 2016 and exclusion of those costs from all other periods presented; and the amortization associated with an estimate of the acquired intangible assets. A non-recurring contractually obligated termination fee of $3,500 million ($3,320 million net of related costs incurred) received by Baker Hughes due to an inability to obtain antitrust related approvals from a prior merger agreement is recognized in the nine months ended September 30, 2016.
GOODWILL
|
| | | | | | | | | | | | |
| CHANGES IN GOODWILL BALANCES |
| (In millions) | January 1, 2017 |
| Acquisitions |
| Dispositions,
currency
exchange
and other |
| Balance at
September 30, 2017 |
|
| | | | | |
| Power | $ | 26,403 |
| $ | 55 |
| $ | (1,219 | ) | $ | 25,239 |
|
| Renewable Energy | 2,507 |
| 1,503 |
| 230 |
| 4,240 |
|
| Oil & Gas | 10,363 |
| 14,207 |
| 315 |
| 24,885 |
|
| Aviation | 9,455 |
| 17 |
| 606 |
| 10,077 |
|
| Healthcare | 17,424 |
| 50 |
| 92 |
| 17,566 |
|
| Transportation | 899 |
| — |
| 26 |
| 925 |
|
| Lighting | 281 |
| — |
| 10 |
| 291 |
|
| Capital | 2,368 |
| — |
| 2 |
| 2,370 |
|
| Corporate | 739 |
| 722 |
| 16 |
| 1,476 |
|
| Total | $ | 70,438 |
| $ | 16,553 |
| $ | 78 |
| $ | 87,068 |
|
Goodwill balances increased by $16,630 million in 2017, primarily as a result of the Baker Hughes transaction, the LM Wind Power and ServiceMax acquisitions and the currency exchange effects of a weaker U.S. dollar, partially offset by the reclassification of our Industrial Solutions business to assets of businesses held for sale and impairment of our Power Conversion reporting unit.
We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.
Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 10.0% to 18.0%.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the third quarter of 2017, we performed our annual impairment test of goodwill for all our reporting units. Based on the results of our step one testing, the fair values of each of the GE reporting units exceeded their carrying values except for our Power Conversion reporting unit, within our Power operating segment. The primary factors contributing to a reduction in fair value of this reporting unit were extended downturns in certain of its customer segments, most notably the marine and oil and gas markets, increased pricing and cost pressures in low margin renewable markets, and the delayed introduction of new technologies and products. Therefore, we performed a step two analysis. As a result of this analysis, we recognized a non-cash goodwill impairment loss of $947 million ($940 million after tax) during the third quarter to write down the carrying values of Power Conversion’s goodwill to its implied fair value of $191 million. The impairment loss was recorded on the Statement of Earnings to Other costs and expenses. After the impairment loss, the fair value of our Power Conversion reporting unit was in excess of its carrying value by approximately 2%.
In addition, we identified one reporting unit for which the fair value was not substantially in excess of its carrying value. The Grid Solutions reporting unit within our Power operating segment was formed as a result of the Alstom acquisition in November 2015. Since fair value equaled carrying value at the time of acquisition, this caused the fair value of this reporting unit not to be significantly in excess of its carrying value. In the current annual impairment test, fair value of Grid Solutions was in excess of its carrying value by approximately 3% and, therefore, continues to be not substantially in excess of carrying value. While the goodwill of this reporting unit is not currently impaired, there could be an impairment in the future as a result of changes in certain assumptions. For example, the fair value could be adversely affected and result in an impairment of goodwill if expected synergies of the acquisition with Alstom are not realized or if the reporting unit was not able to execute on customer opportunities, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease. The goodwill associated with our Grid Solutions reporting unit was $4,418 million, representing approximately 5% of our total goodwill at September 30, 2017.
While the fair values of our Oil & Gas reporting units are in excess of their carrying values, the Oilfield Equipment and Oilfield Services reporting unit continues to experience declines in orders, project commencement delays and pricing pressures, which reduced its fair value. To the extent that conditions further deteriorate, the fair value of this reporting unit will continue to decline. We will continue to monitor the oil & gas industry and the impact it may have on this reporting unit. In addition, because of the Baker Hughes acquisition and related integration activities, the composition of our historical reporting units for the Oil & Gas operating segment may change. In the event that any of our reporting units change substantially, we will be required to re-test the reporting units as of the date of the reorganization, re-allocate goodwill based on the relative fair values of the new reporting units, and record any required impairment. Finally, the operating and reporting segments and associated reporting units for BHGE are different than GE’s, as BHGE is a subsidiary and performs its reporting unit assessment one level below its operating segments.
As of September 30, 2017, we believe no other goodwill impairment exists, apart from the impairment charge discussed above, and that the remaining goodwill is recoverable for all of the reporting units; however, there can be no assurances that additional goodwill will not be impaired in future periods.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
OTHER INTANGIBLE ASSETS
|
| | | | | | |
| OTHER INTANGIBLE ASSETS - NET | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Intangible assets subject to amortization | $ | 19,345 |
| $ | 16,336 |
|
| Indefinite-lived intangible assets(a) | 2,090 |
| 100 |
|
| Total | $ | 21,435 |
| $ | 16,436 |
|
| |
(a) | Indefinite-lived intangible assets principally comprise trademarks and in-process research and development.
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | |
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION |
| | September 30, 2017 | | December 31, 2016 |
| (In millions) | Gross carrying amount |
| Accumulated amortization |
| Net |
| | Gross carrying amount |
| Accumulated amortization |
| Net |
|
| | | | | | | | |
| Customer-related | $ | 10,903 |
| $ | (2,909 | ) | $ | 7,994 |
| | $ | 9,172 |
| $ | (2,408 | ) | $ | 6,764 |
|
| Patents and technology | 10,548 |
| (3,646 | ) | 6,902 |
| | 8,693 |
| (3,325 | ) | 5,368 |
|
| Capitalized software | 8,268 |
| (5,064 | ) | 3,204 |
| | 7,652 |
| (4,538 | ) | 3,114 |
|
| Trademarks | 1,426 |
| (408 | ) | 1,018 |
| | 1,165 |
| (307 | ) | 858 |
|
| Lease valuations | 160 |
| (76 | ) | 84 |
| | 143 |
| (59 | ) | 84 |
|
| Present value of future profits(a) | 709 |
| (709 | ) | — |
| | 684 |
| (684 | ) | — |
|
| All other | 245 |
| (101 | ) | 144 |
| | 273 |
| (124 | ) | 149 |
|
| Total | $ | 32,258 |
| $ | (12,912 | ) | $ | 19,345 |
| | $ | 27,781 |
| $ | (11,444 | ) | $ | 16,336 |
|
| |
(a) | Balances at September 30, 2017 and December 31, 2016 include adjustments of $221 million and $241 million, respectively, to the present value of future profits in our run-off insurance activities to reflect the effects that would have been recognized had the related unrealized investment securities holding net gains actually been realized.
|
Intangible assets subject to amortization increased by $3,009 million in the nine months ended September 30, 2017, primarily as a result of the Baker Hughes transaction, coupled with the LM Wind Power and ServiceMax acquisitions, partially offset by amortization.
GE amortization expense related to intangible assets subject to amortization was $522 million and $405 million in the three months ended September 30, 2017 and 2016, respectively, and $1,424 million and $1,268 million for the nine months ended September 30, 2017 and 2016, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $16 million and $33 million in the three months ended September 30, 2017 and 2016, respectively, and $50 million and $103 million for the nine months ended September 30, 2017 and 2016, respectively.
NOTE 9. CONTRACT ASSETS
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| GE | | |
| Revenues in excess of billings | | |
| Long-term product service agreements(a) | $ | 15,358 |
| $ | 12,752 |
|
| Long-term equipment contract revenues(b) | 7,187 |
| 5,859 |
| Total revenues in excess of billings | 22,545 |
| 18,611 |
| | | |
| Deferred inventory costs(c) | 3,818 |
| 3,349 |
| Non-recurring engineering costs(d) | 2,345 |
| 2,185 |
| Other | 1,101 |
| 1,018 |
| Contract assets | $ | 29,809 |
| $ | 25,162 |
|
| |
(a) | Long-term product service agreement balances are presented net of related billings in excess of revenues of $2,595 million and $3,750 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | Reflects revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as gas power systems). |
| |
(c) | Represents cost deferral for shipped goods (such as components for wind turbine assembly within our Renewable Energy segment) and other costs for which the revenue recognition criteria has not yet been met. |
| |
(d) | Includes costs incurred prior to production (such as requisition engineering) for long-term equipment production contracts, primarily within our Aviation segment, which are allocated ratably to each unit produced. |
Revenues in excess of billings increased $2,606 million and $1,328 million for our long-term service agreements and long-term equipment contracts, respectively. The increase in our long-term service agreements is due to a $1,930 million cumulative catch up adjustment driven by lower forecasted costs to complete these contracts as well as increased forecasted revenue and $676 million due to the timing of revenue recognized for work performed relative to billings and collections. Revenue in excess of billings for our long-term equipment contracts increased $1,328 million primarily due to the timing of revenue recognized for work performed relative to the timing of billings and collections. The remaining increase in contract assets of $712 million is primarily due an increase in deferred inventory costs and non-recurring engineering costs.
The change in estimated profitability within our long-term product service agreements in our Power, Aviation, Transportation, and Oil & Gas segments resulted in an adjustment of $649 million and $588 million for the three months ended September 30, 2017 and 2016, respectively, and $1,930 million and $1,714 million for the nine months ended September 30, 2017 and 2016, respectively, driven primarily by cost execution and increased productivity.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 10. BORROWINGS
|
| | | | | | |
| (In millions) | September 30, 2017 | December 31, 2016 |
| | | |
| Short-term borrowings | | |
| GE | | |
| Commercial paper | $ | 2,000 |
| $ | 1,500 |
|
| Current portion of long-term borrowings(d) | 14,623 |
| 17,109 |
|
| Other | 2,125 |
| 1,874 |
|
| Total GE short-term borrowings(a) | 18,748 |
| 20,482 |
|
| | | |
| GE Capital | | |
| U.S. Commercial paper | 5,021 |
| 5,002 |
|
| Current portion of long-term borrowings(b) | 5,627 |
| 6,517 |
|
| Intercompany payable to GE(c) | 9,971 |
| 11,696 |
|
| Other | 561 |
| 229 |
|
| Total GE Capital short-term borrowings | 21,179 |
| 23,443 |
|
| | | |
| Eliminations(c) | (11,800 | ) | (13,212 | ) |
| Total short-term borrowings | $ | 28,127 |
| $ | 30,714 |
|
| | | |
| Long-term borrowings | | |
| GE | | |
| Senior notes(d) | $ | 60,314 |
| $ | 54,396 |
|
| Subordinated notes | 2,938 |
| 2,768 |
|
| Subordinated debentures(f) | 382 |
| 719 |
|
| Other | 1,463 |
| 928 |
|
| Total GE long-term borrowings(a) | 65,097 |
| 58,810 |
|
| | | |
| GE Capital | | |
| Senior notes | 41,467 |
| 44,131 |
|
| Subordinated notes | 214 |
| 236 |
|
| Intercompany payable to GE(e) | 32,623 |
| 47,084 |
|
| Other(b) | 1,347 |
| 1,992 |
|
| Total GE Capital long-term borrowings | 75,651 |
| 93,443 |
|
| | | |
| Eliminations(e) | (33,191 | ) | (47,173 | ) |
| Total long-term borrowings | $ | 107,557 |
| $ | 105,080 |
|
| Non-recourse borrowings of consolidated securitization entities(g) | $ | 708 |
| $ | 417 |
|
| Total borrowings | $ | 136,392 |
| $ | 136,210 |
|
| |
(a) | Excluding assumed debt of GE Capital, the total amount of GE borrowings was $41,252 million and $20,512 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | Included $1,653 million and $2,665 million of funding secured by aircraft and other collateral at September 30, 2017 and December 31, 2016, respectively, of which $477 million and $1,419 million is non-recourse to GE Capital at September 30, 2017 and December 31, 2016, respectively. |
| |
(c) | Included a reduction of zero and $1,329 million for short-term intercompany loans from GE Capital to GE at September 30, 2017 and December 31, 2016, respectively, which bear the right of offset against amounts owed under the assumed debt agreement. Excluding intercompany loans, total short-term assumed debt was $9,971 million and $13,024 million at September 30, 2017 and December 31, 2016, respectively. The remaining short-term loan balance was paid in January 2017.
|
| |
(d) | Current portion of long-term borrowings and senior notes at September 30, 2017 included $202 million and $2,923 million, respectively, of borrowings issued by BHGE. |
| |
(e) | Included a reduction of $7,271 million and zero for long-term intercompany loans from GE Capital to GE at September 30, 2017 and December 31, 2016, respectively, which bear the right of offset against amounts owed under the assumed debt agreement. Excluding intercompany loans, total long-term assumed debt was $39,893 million and $47,084 million at September 30, 2017 and December 31, 2016, respectively. The $7,271 million of intercompany loans collectively have a weighted average interest rate of 3.5% and term of approximately 15 years. |
| |
(f) | Comprises subordinated debentures which constitute the sole assets of trusts that have issued trust preferred securities and where GE owns 100% of the common securities of the trusts. Obligations associated with these trusts are unconditionally guaranteed by GE. |
| |
(g) | Included $222 million and $320 million of current portion of long-term borrowings at September 30, 2017 and December 31, 2016, respectively. See Note 17. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the second quarter of 2017, GE completed issuances of €8,000 million senior unsecured debt, composed of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037.
On April 10, 2015, GE 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 September 30, 2017, the Guarantee applies to $44,526 millionsubsidiaries of GE Capital, debt.
our former financial services business. See Notes 16 andNote 21 for additionalfurther information about borrowings and associated swaps.hedges.
NOTE 11. INVESTMENT CONTRACTS,12. ACCOUNTS PAYABLE AND EQUIPMENT PROJECT PAYABLES
| | | | | | | | |
| September 30, 2023 | December 31, 2022 |
| Trade payables | $ | 10,693 | | $ | 10,033 | |
| Supply chain finance programs | 3,605 | | 3,689 | |
| Equipment project payables(a) | 1,122 | | 1,236 | |
| Non-income based tax payables | 365 | | 441 | |
| Accounts payable and equipment project payables | $ | 15,785 | | $ | 15,399 | |
(a) Primarily related to projects in our Power and Renewable Energy segments.
We facilitate voluntary supply chain finance programs with third parties, which provide participating suppliers the opportunity to sell their GE receivables to third parties at the sole discretion of both the suppliers and the third parties. Total supplier invoices paid through these third-party programs were $6,044 million and $5,180 million for the nine months ended September 30, 2023 and 2022, respectively.
NOTE 13. INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITSBENEFITS.On January 1, 2023, we adopted Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The new guidance for measuring the liability for future policy benefits and related reinsurance recoverable asset was adopted on a modified retrospective basis such that those balances were adjusted to conform to the new guidance at the January 1, 2021 transition date. Refer to the revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023 for more information.
Insurance liabilities and investment contract liabilitiesannuity benefits comprise mainlysubstantially all obligations to policyholdersannuitants and annuitantsinsureds in our run-off insurance activities.operations. Our insurance operations (net of eliminations) generated revenues of $842 million and $645 million, profit was $99 million and $102 million and net earnings was $77 million and $78 million for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, revenues were $2,480 million and $2,175 million, profit was $233 million and $264 million and net earnings was $181 million and $208 million, respectively. These operations were supported by assets of $45,420 million and $45,031 million at September 30, 2023 and December 31, 2022, respectively. A summary of our insurance liabilities and annuity benefits is presented below:
| | | | | | | | | | | | | | | | | |
| September 30, 2023 | Long-term care | Structured settlement annuities | Life | Other contracts | Total |
| Future policy benefit reserves | $ | 23,801 | | $ | 8,534 | | $ | 1,040 | | $ | 405 | | $ | 33,780 | |
| Investment contracts | — | | 812 | | — | | 782 | | 1,594 | |
| Other | — | | — | | 172 | 286 | | 458 | |
| | | | | |
| | | | | |
| Total | $ | 23,801 | | $ | 9,346 | | $ | 1,212 | | $ | 1,473 | | $ | 35,832 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | |
| Future policy benefit reserves | $ | 24,256 | | $ | 8,860 | | $ | 1,040 | | $ | 437 | | $ | 34,593 | |
| Investment contracts | — | | 860 | | — | | 849 | | 1,708 | |
| Other | — | | — | | 178 | | 365 | | 544 | |
| | | | | |
| | | | | |
| Total | $ | 24,256 | | $ | 9,720 | | $ | 1,218 | | $ | 1,651 | | $ | 36,845 | |
|
| | | | | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Future policy benefit reserves(a) | | |
Life insurance and other contracts
| $ | 10,125 |
| $ | 10,053 |
|
Long-term care insurance contracts
| 9,031 |
| 8,688 |
|
| 19,156 |
| 18,741 |
|
| Investment contracts | 2,606 |
| 2,813 |
|
| Claim reserves(b) | 4,927 |
| 4,606 |
|
| Unearned premiums and other | 416 |
| 386 |
|
| | 27,105 |
| 26,546 |
|
| Eliminations | (508 | ) | (460 | ) |
| Total | $ | 26,597 |
| $ | 26,086 |
|
| |
(a) | Future policy benefit reserves are accounted for mainly by a net-level premium method using estimated yields generally ranging from 3.0% to 8.5% in both 2017 and 2016. |
| |
(b) | Includes $3,431 million and $3,129 million related to long term-care insurance contracts at September 30, 2017 and December 31, 2016, respectively. |
The following tables summarize balances of and changes in future policy benefits reserves.
Future policy benefit reserves represent
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | September 30, 2022 |
| Present value of expected net premiums | Long-term care | Structured settlement annuities | Life | | | | Long-term care | Structured settlement annuities | Life | | |
| Balance, beginning of year | $ | 4,059 | | $ | — | | $ | 4,828 | | | | | $ | 5,652 | | $ | — | | $ | 6,622 | | | |
| Beginning balance at locked-in discount rate | 3,958 | | — | | 5,210 | | | | | 4,451 | | — | | 5,443 | | | |
| Effect of changes in cash flow assumptions | (9) | | — | | (77) | | | | | (3) | | — | | 91 | | | |
| Effect of actual variances from expected experience | (42) | | — | | (286) | | | | | (259) | | — | | (14) | | | |
| Adjusted beginning of year balance | 3,908 | | — | | 4,847 | | | | | 4,189 | | — | | 5,520 | | | |
| Interest accrual | 157 | | — | | 148 | | | | | 170 | | — | | 153 | | | |
| Net premiums collected | (296) | | — | | (220) | | | | | (321) | | — | | (252) | | | |
| Effect of foreign currency | — | | — | | 11 | | | | | — | | — | | (209) | | | |
| Ending balance at locked-in discount rate | 3,768 | | — | | 4,786 | | | | | 4,038 | | — | | 5,212 | | | |
| Effect of changes in discount rate assumptions | 43 | | — | | (500) | | | | | 32 | | — | | (410) | | | |
| Balance, end of period | $ | 3,811 | | $ | — | | $ | 4,286 | | | | | $ | 4,070 | | $ | — | | $ | 4,802 | | | |
| | | | | | | | | | | |
| Present value of expected future policy benefits | | | | | | | | | | | |
| Balance, beginning of year | $ | 28,316 | | $ | 8,860 | | $ | 5,868 | | | | | $ | 40,296 | | $ | 12,328 | | $ | 7,923 | | | |
| Beginning balance at locked-in discount rate | 27,026 | | 8,790 | | 6,247 | | | | | 27,465 | | 9,024 | | 6,560 | | | |
| Effect of changes in cash flow assumptions | (41) | | (16) | | 49 | | | | | (392) | | (23) | | 120 | | | |
| Effect of actual variances from expected experience | (79) | | 18 | | (254) | | | | | (344) | | (3) | | 9 | | | |
| Adjusted beginning of year balance | 26,906 | | 8,792 | | 6,042 | | | | | 26,729 | | 8,998 | | 6,689 | | | |
| Interest accrual | 1,091 | | 342 | | 177 | | | | | 1,089 | | 355 | | 184 | | | |
| Benefit payments | (947) | | (511) | | (396) | | | | | (855) | | (510) | | (399) | | | |
| Effect of foreign currency | — | | — | | 12 | | | | | — | | — | | (220) | | | |
| Ending balance at locked-in discount rate | 27,050 | | 8,623 | | 5,835 | | | | | 26,962 | | 8,843 | | 6,254 | | | |
| Effect of changes in discount rate assumptions | 562 | | (89) | | (509) | | | | | 610 | | (81) | | (417) | | | |
| Balance, end of period | $ | 27,612 | | $ | 8,534 | | $ | 5,326 | | | | | $ | 27,572 | | $ | 8,762 | | $ | 5,837 | | | |
| Net future policy benefit reserves | $ | 23,801 | | $ | 8,534 | | $ | 1,040 | | | | | $ | 23,503 | | $ | 8,762 | | $ | 1,035 | | | |
| Less: Reinsurance recoverables, net of allowance for credit losses | (133) | | — | | (39) | | | | | (2,869) | | — | | (66) | | | |
| Net future policy benefit reserves, after reinsurance recoverables | $ | 23,668 | | $ | 8,534 | | $ | 1,001 | | | | | $ | 20,634 | | $ | 8,762 | | $ | 969 | | | |
The Statement of Earnings (Loss) for the present valuenine months ended September 30, 2023 and 2022 included gross premiums or assessments of such benefits less$636 million and $685 million and interest accretion of $1,305 million and $1,304 million, respectively. For the present valuenine months ended September 30, 2023 and 2022, gross premiums or assessments were substantially all related to long-term care of $367 million and $365 million and life of $251 million and $297 million, while interest accretion was substantially all related to long-term care of $934 million and $919 million and structured settlement annuities of $342 million and $355 million, respectively.
The following table provides the amount of undiscounted and discounted expected future netgross premiums and are based on actuarial assumptions established atexpected future benefits and expenses.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 | | |
| | Undiscounted | Discounted(a) | | Undiscounted | Discounted(a) | | | | |
| | | | | | | | | | |
| Long-term care: | Gross premiums | $ | 7,522 | | $ | 4,656 | | | $ | 8,057 | | $ | 4,858 | | | | | |
| Benefit payments | 63,406 | | 27,612 | | | 65,620 | | 27,572 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Structured settlement annuities: | Benefit payments | 19,480 | | 8,534 | | | 20,122 | | 8,762 | | | | | |
| | | | | | | | | | |
| Life: | Gross premiums | 12,387 | | 5,144 | | | 13,786 | | 5,905 | | | | | |
| Benefit payments | 11,214 | | 5,326 | | | 12,023 | | 5,837 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(a) Determined using the timecurrent discount rate as of September 30, 2023 and 2022.
The following table provides the policies were issued or acquired. These assumptions include, but are not limited toweighted-average durations of and weighted-average interest rates health care experience (including typefor the liability for future policy benefits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | September 30, 2022 | | |
| Long-term care | Structured settlement annuities | Life | | Long-term care | Structured settlement annuities | Life | | | | | | |
| Duration (years)(a) | 12.3 | 10.5 | 5.3 | | 13.0 | 10.7 | 5.1 | | | | | | |
| Interest accretion rate | 5.5% | 5.4% | 4.9% | | 5.5% | 5.4% | 4.9% | | | | | | |
| Current discount rate | 5.8% | 5.7% | 5.6% | | 5.7% | 5.7% | 5.5% | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
(a) Determined using the current discount rate as of September 30 2023 and cost of care), mortality, and the length of time a policy will remain in force. 2022.
Our 2023 annual premium deficiency testing assesses the adequacyreview of future policy benefit reserves net of capitalized acquisition costs using current assumptions. Should the net liability for future policy benefits plus the present value of expected future premiums be insufficient to provide for the present value of expected future policy benefits and expenses, we would be required to reduce remaining capitalized acquisition costs and, to the extent a shortfall still exists, increase our existing future policy benefit reserves. We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts and are conducting a comprehensive review of premium deficiencycash flow assumptions across all insurance contracts, including a reassessment of future claim projections for long-term care contracts that will be incorporated within our annual test of future policy benefit reserves for premium deficienciesresulted in the fourth quarter of 2017. We would record aan immaterial charge to net earnings, for any premium deficienciesindicating claims experience continues to develop consistently with our models. Our 2022 annual review resulted in the fourth quarter of 2017 upon completion of this review.changes to our assumptions principally related to higher near-term mortality related to COVID-19.
Claim reserves are established when a claim is incurred or is estimated to have been incurredIncluded in Insurance losses and representsannuity benefits in our best estimate of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss
estimates with the support of qualified actuaries and any changes are recorded in the period in which they are determined.
When insurance affiliates cede insurance risk to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders. When losses on ceded risks give rise to claims for recovery, we establish allowances for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption “Other receivables” on our Consolidated Statement of Financial Position, and amounted to $2,182 million and $2,038 million at September 30, 2017 and December 31, 2016, respectively.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We recognize reinsurance recoveries as a reduction of the Consolidated Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” Reinsurance recoveries were $104 million and $339 million(Loss) for the three and nine months ended September 30, 2017, respectively,2023 and $782022 are unfavorable and favorable pre-tax adjustments of $90 million and $225$448 million, respectively, from updating the net premium ratio (i.e., the percentage of projected gross premiums required to cover expected policy benefits and related expenses) after updating for actual historical experience each quarter and updating of future cash flow assumptions. Included in these amounts for the three and nine months ended September 30, 2016,2023 and 2022, are unfavorable adjustments of $298 million and $112 million, respectively, due to insufficient gross premiums (i.e., net premium ratio exceeded 100%), related to certain cohorts in our long-term care and life insurance portfolios. These adjustments are primarily attributable to increases in the net premium ratio as a result of updating future cash flow assumptions on cohorts where the beginning of the period net premium ratio exceeded 100%.
At September 30, 2023 and 2022, policyholders account balances totaled $1,838 million and $2,008 million, respectively. As our insurance operations are in run-off, changes in policyholder account balances for the nine months ended September 30, 2023 and 2022 are primarily attributed to surrenders, withdrawals, and benefit payments of $318 million and $334 million, partially offset by net additions from separate accounts and interest credited of $188 million and $210 million, respectively. Interest on policyholder account balances is generally credited at minimum guaranteed rates, primarily between 3.0% and 6.0% at both September 30, 2023 and 2022.
See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 20163 for further information.information related to our run-off insurance operations.
NOTE 12.14. POSTRETIREMENT BENEFIT PLANS
PLANS.We sponsor a number of pension and retiree health and life insurance benefit plans. Principalplans that we present in three categories, principal pension plans, other pension plans and principal retiree benefit plans. Please refer to Note 13 to the consolidated financial statements in the revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023, for further information.
The components of benefit plans cost other than the service cost are included in the GE Pension Plan and the GE Supplementary Pension Plan. caption Non-operating benefit costs in our Statement of Earnings (Loss).
| | | | | | | | | | | | | | | | | |
| PRINCIPAL PENSION PLANS | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | | 2023 | 2022 |
| Service cost for benefits earned | $ | 23 | | $ | 48 | | | $ | 68 | | $ | 146 | |
| | | | | |
| Expected return on plan assets | (594) | | (785) | | | (1,782) | | (2,356) | |
| Interest cost on benefit obligations | 473 | | 518 | | | 1,419 | | 1,551 | |
| Net actuarial loss amortization and other | (180) | | 356 | | | (539) | | 1,071 | |
| Net periodic expense (income) | (278) | | 137 | | | (834) | | 412 | |
| Less discontinued operations | — | | 48 | | | — | | 143 | |
| Continuing operations – net periodic expense (income) | $ | (278) | | $ | 89 | | | $ | (834) | | $ | 269 | |
Principal retiree benefit plans provide healthincome was $37 million and life insurance benefits to certain eligible participants$53 million for the three months ended September 30, 2023 and these participants share in the cost of the healthcare benefits. Other pension plans include the U.S.2022, respectively, and non-U.S. pension plans with pension assets or obligations greater than $50 million. Smaller pension plans$109 million and other retiree benefit plans are not material individually or in the aggregate.
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| | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PENSION PLANS |
| | Principal pension plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 267 |
| | $ | 307 |
| | $ | 810 |
| | $ | 913 |
| |
| Prior service cost amortization | 73 |
| | 76 |
| | 218 |
| | 228 |
| |
| Expected return on plan assets | (847 | ) | | (837 | ) | | (2,545 | ) | | (2,507 | ) | |
| Interest cost on benefit obligations | 715 |
| | 736 |
| | 2,144 |
| | 2,205 |
| |
| Net actuarial loss amortization | 702 |
| | 612 |
| | 2,109 |
| | 1,836 |
| |
| Curtailment loss (gain) | — |
| | — |
| | 43 |
| (a) | (1 | ) | |
| Pension plans cost | $ | 910 |
| | $ | 894 |
| | $ | 2,779 |
| | $ | 2,674 |
| |
| |
(a) | Curtailment loss resulting from our intent to sell the Industrial Solutions business within our Power segment. |
|
| | | | | | | | | | | | | | | | |
| | Other pension plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 156 |
| | $ | 106 |
| | $ | 430 |
| | $ | 337 |
| |
| Prior service credit amortization | (2 | ) | | — |
| | (4 | ) | | (1 | ) | |
| Expected return on plan assets | (324 | ) | | (264 | ) | | (919 | ) | | (786 | ) | |
| Interest cost on benefit obligations | 158 |
| | 172 |
| | 445 |
| | 512 |
| |
| Net actuarial loss amortization | 110 |
| | 68 |
| | 320 |
| | 197 |
| |
| Curtailment loss | 11 |
| | — |
| | 11 |
| (a) | — |
| |
| Pension plans cost | $ | 109 |
| | $ | 82 |
| | $ | 283 |
| | $ | 259 |
| |
| |
(a) | Curtailment loss resulting from a Canadian manufacturing plant closure. |
|
| | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PRINCIPAL RETIREE BENEFIT PLANS |
| | Principal retiree benefit plans |
| | Three months ended September 30 | | Nine months ended September 30 | |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
| |
| | | | | | | | | |
| Service cost for benefits earned | $ | 25 |
| | $ | 32 |
| | $ | 77 |
| | $ | 84 |
| |
| Prior service credit amortization | (42 | ) | | (41 | ) | | (128 | ) | | (123 | ) | |
| Expected return on plan assets | (9 | ) | | (11 | ) | | (27 | ) | | (33 | ) | |
| Interest cost on benefit obligations | 55 |
| | 62 |
| | 168 |
| | 188 |
| |
| Net actuarial gain amortization | (20 | ) | | (12 | ) | | (61 | ) | | (39 | ) | |
| Curtailment loss | — |
| | — |
| | 3 |
| (a) | — |
| |
| Retiree benefit plans cost | $ | 9 |
| | $ | 30 |
| | $ | 32 |
| | $ | 77 |
| |
| |
(a) | Curtailment loss resulting from our intent to sell the Industrial Solutions business within our Power segment. |
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 13. INCOME TAXES
Our effective income tax rates were (7.9)% and 4.9% during$158 million for the nine months ended 2017September 30, 2023 and 2016,2022, respectively. The ratePrincipal retiree benefit plans income from continuing operations was $34 million and $101 million for 2017 benefited from the tax difference on global activities,three months and nine months ended September 30, 2022, respectively. Other pension plans income was $32 million and $94 million for the tax rate on the disposition of the Water businessthree months ended September 30, 2023 and U.S. business credits2022, respectively, and for 2016 from a deductible stock loss$91 million and U.S. business credits. In$310 million for the nine months ended 2017, these decreasesSeptember 30, 2023 and 2022, respectively. Other pension plans income from continuing operations was $68 million and $229 million for the three months and nine months ended September 30, 2022, respectively.
We also have a defined contribution plan for eligible U.S. employees that provides employer contributions which were partially offset by$73 million and $109 million for the non-deductible impairment of goodwill associated with the Power Conversion businessthree months ended September 30, 2023 and by an adjustment to bring the nine-month tax rate in line with the higher expected full-year rate. In2022, respectively, and $253 million and $333 million for the nine months ended 2016, there was a further decrease to bring the nine-month tax rate in line with the lower expected full-year rate.
In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positionsSeptember 30, 2023 and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances,2022, respectively. Employer contributions from continuing operations were $78 million and information available at the reporting date.
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| | | | | | |
| UNRECOGNIZED TAX BENEFITS | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Unrecognized tax benefits | $ | 5,281 |
| $ | 4,692 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 3,224 |
| 2,886 |
|
| Accrued interest on unrecognized tax benefits | 789 |
| 615 |
|
| Accrued penalties on unrecognized tax benefits | 157 |
| 118 |
|
| Reasonably possible reduction to the balance of unrecognized tax benefits | | |
| in succeeding 12 months | 0-800 |
| 0-600 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-700 |
| 0-500 |
|
| |
(a) | Some portion of such reduction may be reported as discontinued operations. |
The increases$236 million for the periodthree months and nine months ended September 30, 20172022, respectively.
NOTE 15. CURRENT AND ALL OTHER LIABILITIES. All other current liabilities and All other liabilities primarily relateinclude liabilities for customer sales allowances, equipment project and commercial liabilities, loss contracts, employee compensation and benefits, income taxes payable and uncertain tax positions, operating lease liabilities (see Note 6), environmental, health and safety remediations and product warranties (see Note 23). All other current liabilities decreased $104 million in the nine months ended September 30, 2023, primarily due to preliminary estimatesdecreases in sales discounts and allowances of $147 million, environmental, health and safety liabilities of $95 million, interest payable of $92 million and derivative instruments of $77 million, partially offset by an increase in equipment projects and other commercial liabilities of $257 million. All other liabilities increased $115 million in the nine months ended September 30, 2023, primarily due to increases in uncertain and other income taxes and related liabilities of $395 million and environmental, health and safety liabilities of $103 million, partially offset by decreases in equipment projects and other commercial liabilities of $198 million and operating lease liabilities of $122 million.
NOTE 16. INCOME TAXES. Our income tax rate was 9.1% and (8.5)% for entities consolidated as part of the Baker Hughes transaction.
nine months ended September 30, 2023 and 2022, respectively. The low tax rate for 2023 was primarily due to the unrealized gain on our investment in GE HealthCare, which we expect to recover in a manner consistent with the tax-free treatment confirmed in our Internal Revenue Service (IRS) ruling in connection with the spin of GE Healthcare, U.S. general business credits and net tax benefit related to separation income tax effects including losses on Separation-related entity restructuring. This was partially offset by losses in foreign jurisdictions that are not likely to be utilized. The tax rate for 2022 reflects a tax provision on a pre-tax loss. The rate was negative primarily due to the net unrealized capital loss on our retained and sold ownership interests for which the loss could not be tax benefited, losses in foreign jurisdictions that are not likely to be utilized and non-tax benefited asset impairment charges.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act that includes a new Corporate Alternative Minimum Tax (CAMT) based upon financial statement income, an excise tax on stock buybacks and tax incentives for energy and climate initiatives, among other provisions. The new CAMT is expected to slow but not eliminate the favorable tax impact of our deferred tax assets, resulting in higher cash tax in some years that would generate future tax benefits. The impact of CAMT will depend on our facts in each year and anticipated guidance from the U.S. Department of the Treasury. We currently do not expect to incur CAMT in 2023.
The IRS is currently auditing our consolidated U.S. income tax returns for 2012-20132016-2018.
NOTE 17. SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| | | | | | |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (AOCI) (Dividends per share in dollars) | 2023 | 2022 | | 2023 | 2022 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Beginning balance | $ | (3,409) | | $ | (5,512) | | | $ | (5,893) | | $ | (4,569) | | |
| AOCI before reclasses – net of taxes of $141, $79, $123 and $215 | (396) | | (874) | | | (176) | | (1,815) | | |
| Reclasses from AOCI – net of taxes of $0, $0, $(626) and $0(a) | — | | — | | | 2,262 | | — | | |
| AOCI | (396) | | (874) | | | 2,085 | | (1,815) | | |
| Less AOCI attributable to noncontrolling interests | 1 | | (4) | | | (1) | | (2) | | |
| Currency translation adjustments AOCI | $ | (3,806) | | $ | (6,382) | | | $ | (3,806) | | $ | (6,382) | | |
| | | | | | |
| Beginning balance | $ | 4,041 | | $ | 4,173 | | | $ | 6,531 | | $ | 3,646 | | |
| AOCI before reclasses – net of taxes of $10, $24, $9 and $81 | 19 | | 66 | | | (24) | | 217 | | |
| Reclasses from AOCI – net of taxes of $(61), $53, $(718) and $159(a) | (207) | | 193 | | | (2,656) | | 571 | | |
| AOCI | (188) | | 259 | | | (2,680) | | 788 | | |
| Less AOCI attributable to noncontrolling interests | — | | — | | | (2) | | 2 | | |
| Benefit plans AOCI | $ | 3,853 | | $ | 4,432 | | | $ | 3,853 | | $ | 4,432 | | |
| | | | | | |
| Beginning balance | $ | (1,696) | | $ | (521) | | | $ | (1,927) | | $ | 5,172 | | |
| AOCI before reclasses – net of taxes of $(371), $(494), $(310) and $(2,015) | (1,370) | | (1,894) | | | (1,099) | | (7,601) | | |
| Reclasses from AOCI – net of taxes of $(2), $3, $(5) and $10(a) | (8) | | (10) | | | (49) | | 4 | | |
| AOCI | (1,379) | | (1,904) | | | (1,147) | | (7,597) | | |
| | | | | | |
| Investment securities and cash flow hedges AOCI | $ | (3,075) | | $ | (2,425) | | | $ | (3,075) | | $ | (2,425) | | |
| | | | | | |
| Beginning balance | $ | (2,510) | | $ | (2,196) | | | $ | (983) | | $ | (9,109) | | |
| AOCI before reclasses – net of taxes of $581, $542, $175 and $2,379 | 2,187 | | 2,036 | | | 660 | | 8,949 | | |
| | | | | | |
| AOCI | 2,187 | | 2,036 | | | 660 | | 8,949 | | |
| Long-duration insurance contracts AOCI | $ | (323) | | $ | (160) | | | $ | (323) | | $ | (160) | | |
| | | | | | |
| AOCI at September 30 | $ | (3,351) | | $ | (4,536) | | | $ | (3,351) | | $ | (4,536) | | |
| | | | | | |
| Dividends declared per common share | $ | 0.08 | | $ | 0.08 | | | $ | 0.24 | | $ | 0.24 | | |
(a)The total reclassification from AOCI included $195 million, including currency translation of $2,234 million and 2014-2015. In addition, certain other U.S. tax deficiency issues and refund claims for previous years are still unresolved. It is reasonably possible that a portionbenefit plans of $(2,030) million, net of taxes, in first quarter of 2023 related to the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balancespin-off of "unrecognized tax benefits" - that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.
GE HealthCare.
90 20172023 3Q FORM 10-Q33
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 14. SHAREOWNERS’ EQUITY
|
| | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Investment securities | | | | |
| Beginning balance | $ | 866 |
| $ | 1,077 |
| $ | 674 |
| $ | 460 |
|
| Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $45, $48, $204 and $352 | 54 |
| 97 |
| 363 |
| 675 |
|
| Reclassifications from OCI – net of deferred taxes of $(17), $5, $(78) and $36 | (32 | ) | 1 |
| (150 | ) | 40 |
|
| Other comprehensive income (loss)(a) | 21 |
| 97 |
| 213 |
| 715 |
|
| Less OCI attributable to noncontrolling interests | 1 |
| (2 | ) | 1 |
| (1 | ) |
| Ending balance | $ | 887 |
| $ | 1,176 |
| $ | 887 |
| $ | 1,176 |
|
| | | | | |
| Currency translation adjustments (CTA) | | | | |
| Beginning balance | $ | (5,481 | ) | $ | (5,448 | ) | $ | (6,816 | ) | $ | (5,499 | ) |
| OCI before reclassifications – net of deferred taxes of $(407), $5, $(648) and $222 | 710 |
| (280 | ) | 1,463 |
| (138 | ) |
| Reclassifications from OCI – net of deferred taxes of $2, $(6), $(538) and $74 | (196 | ) | 85 |
| 391 |
| 1 |
|
| Other comprehensive income (loss)(a) | 513 |
| (194 | ) | 1,854 |
| (138 | ) |
| Less OCI attributable to noncontrolling interests | 125 |
| 0 |
| 131 |
| 6 |
|
| Ending balance | $ | (5,092 | ) | $ | (5,643 | ) | $ | (5,092 | ) | $ | (5,643 | ) |
| | | | | |
| Cash flow hedges | | | | |
| Beginning balance | $ | 22 |
| $ | (51 | ) | $ | 12 |
| $ | (80 | ) |
| OCI before reclassifications – net of deferred taxes of $55, $(12), $53 and $(17) | 175 |
| (21 | ) | 239 |
| (61 | ) |
| Reclassifications from OCI – net of deferred taxes of $(28), $6, $(37) and $7 | (75 | ) | 52 |
| (129 | ) | 121 |
|
| Other comprehensive income (loss)(a) | 100 |
| 30 |
| 109 |
| 60 |
|
| Less OCI attributable to noncontrolling interests | 3 |
| — |
| 3 |
| — |
|
| Ending balance | $ | 119 |
| $ | (21 | ) | $ | 119 |
| $ | (21 | ) |
| | | | | |
| Benefit plans | | | | |
| Beginning balance | $ | (10,860 | ) | $ | (10,476 | ) | $ | (12,469 | ) | $ | (11,410 | ) |
| Prior service credit (costs) - net of deferred taxes of $0, $0, $0 and $5 | — |
| — |
| — |
| 23 |
|
| Net actuarial gain (loss) – net of deferred taxes of $(49), $49, $84 and $6 | (132 | ) | 83 |
| 367 |
| 71 |
|
| Net curtailment/settlement - net of deferred taxes of $3, $0, $19 and $0 | 8 |
| — |
| 38 |
| (1 | ) |
| Prior service cost amortization – net of deferred taxes of $17, $22, $55 and $63 | 13 |
| 12 |
| 34 |
| 45 |
|
| Net actuarial loss amortization – net of deferred taxes of $255, $216, $759 and $649 | 536 |
| 453 |
| 1,595 |
| 1,343 |
|
| Other comprehensive income (loss)(a) | 423 |
| 548 |
| 2,032 |
| 1,481 |
|
| Less OCI attributable to noncontrolling interests | (1 | ) | 6 |
| (1 | ) | 5 |
|
| Ending balance | $ | (10,436 | ) | $ | (9,934 | ) | $ | (10,436 | ) | $ | (9,934 | ) |
| | | | | |
| Accumulated other comprehensive income (loss) at September 30 | $ | (14,523 | ) | $ | (14,422 | ) | $ | (14,523 | ) | $ | (14,422 | ) |
| |
(a) | Total other comprehensive income (loss) was $1,058 million and $481 million in the three months ended September 30, 2017 and 2016, respectively, and $4,209 million and $2,117 million in the nine months ended September 30, 2017 and 2016 respectively. |
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Preferred stock. On September 15, 2023 we redeemed the remaining outstanding shares of GE preferred stock. We redeemed $2,795 million and $5,795 million of GE preferred stock in the three months and nine months ended September 30, 2023. GE preferred shares outstanding was 5,795,444 at December 31, 2022.
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| | | | | | | | | | | | | | |
| RECLASSIFICATION OUT OF AOCI | | | | | | |
| | Three months ended | | Nine months ended | |
| | September 30 | | September 30 | |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
| Statement of Earnings caption |
| | | | | | | |
| Available-for-sale securities | | | | | | |
| Gains (losses) on securities | $ | 49 |
| $ | (6 | ) | | $ | 228 |
| $ | (76 | ) | Total revenues and other income(a) |
| Income taxes | (17 | ) | 5 |
| | (78 | ) | 36 |
| Benefit (provision) for income taxes(b) |
| Net of tax | $ | 32 |
| $ | (1 | ) | | $ | 150 |
| $ | (40 | ) | |
| Currency translation adjustments | | | | | | |
| Gains (losses) on dispositions | $ | 194 |
| $ | (79 | ) | | $ | 147 |
| $ | (74 | ) | Total revenues and other income(c) |
| Income taxes | 2 |
| (6 | ) | | (538 | ) | 74 |
| Benefit (provision) for income taxes(d) |
| Net of tax | $ | 196 |
| $ | (85 | ) | | $ | (391 | ) | $ | (1 | ) | |
| Cash flow hedges | | | | | | |
| Gains (losses) on interest rate derivatives | $ | (6 | ) | $ | (12 | ) | | $ | (21 | ) | $ | (67 | ) | Interest and other financial charges |
| Foreign exchange contracts | 98 |
| (43 | ) | | 176 |
| (47 | ) | (e) |
| Other | 12 |
| (3 | ) | | 13 |
| (14 | ) | (f) |
| Total before tax | 104 |
| (57 | ) | | 167 |
| (128 | ) | |
| Income taxes | (28 | ) | 6 |
| | (37 | ) | 7 |
| Benefit (provision) for income taxes |
| Net of tax | $ | 75 |
| $ | (52 | ) | | $ | 129 |
| $ | (121 | ) | |
| Benefit plan items | | | | | | |
| Curtailment gain (loss) | $ | (11 | ) | $ | — |
| | $ | (57 | ) | $ | 1 |
| (g) |
| Amortization of prior service cost | (30 | ) | (34 | ) | | (89 | ) | (108 | ) | (g) |
| Amortization of actuarial gains (losses) | (791 | ) | (669 | ) | | (2,354 | ) | (1,992 | ) | (g) |
| Total before tax | (832 | ) | (703 | ) | | (2,500 | ) | (2,099 | ) | |
| Income taxes | 275 |
| 238 |
| | 833 |
| 712 |
| Benefit (provision) for income taxes |
| Net of tax | $ | (557 | ) | $ | (465 | ) | | $ | (1,667 | ) | $ | (1,387 | ) | |
| | | | | | | |
| Total reclassification adjustments (net of tax) | $ | (254 | ) | $ | (602 | ) | | $ | (1,779 | ) | $ | (1,548 | ) | (h) |
| |
(a) | Included insignificant amounts for the three months ended September 30, 2017 and 2016, and an insignificant amount and $(72) million for the nine months ended September 30, 2017 and 2016, respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(b) | Included an insignificant amount and $3 million for the three months ended September 30, 2017 and 2016, and an insignificant amount and $34 million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(c) | Included zero and $(79) million for the three months ended September 30, 2017 and 2016, and $32 million and $(8) million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes.
|
| |
(d) | Included zero and $(7) million for the three months ended September 30, 2017 and 2016, and $(541) million and $73 million for the nine months ended September 30, 2017 and 2016 respectively in earnings (loss) from discontinued operations, net of taxes
|
| |
(e) | Primarily includes $105 million and $(30) million inCommon stock. GE Capital revenues from services and $(8) million and $(13) million in interest and other financial charges in the three months ended September 30, 2017 and 2016, respectively and $206 million and $1 million in GE Capital revenues from services and $(30) million and $(48) million in interest and other financial charges in the nine months ended September 30, 2017 and 2016, respectively.
|
| |
(f) | Primarily recorded in costs and expenses. |
| |
(g) | Curtailment gain (loss), amortization of prior service cost and actuarial gains and losses out of AOCI are included in the computation of net periodic pension costs. See Note 12 for further information. |
| |
(h) | Included $146 million after-tax reclassification of AOCI to additional paid in capital as a result of recognition of noncontrolling interest in GE Oil & Gas as part of Baker Hughes transaction for the three and nine months ended September 30, 2017. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NONCONTROLLING INTERESTS
Noncontrolling interests in equity of consolidated affiliates include common stock shares in consolidated affiliatesoutstanding were 1,088,386,043 and 1,089,107,878 at September 30, 2023 and December 31, 2022, respectively. For further information on our common and preferred stock issued by our affiliates.
|
| | | | | | | | | | | | | |
| CHANGES TO NONCONTROLLING INTERESTS | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | |
| Beginning balance | $ | 1,634 |
| $ | 1,693 |
| | $ | 1,663 |
| $ | 1,864 |
|
| Net earnings (loss) | (93 | ) | 6 |
| | (73 | ) | (62 | ) |
| Dividends | (99 | ) | (25 | ) | | (130 | ) | (47 | ) |
| Dispositions | (77 | ) | (53 | ) | | (85 | ) | (94 | ) |
| Other (including AOCI)(a)(b)(c) | 16,582 |
| 42 |
| | 16,572 |
| 1 |
|
| Ending balance at September 30 | $ | 17,947 |
| $ | 1,663 |
| | $ | 17,947 |
| $ | 1,663 |
|
| |
(a) | Includes research & development partner funding arrangements and acquisitions.
|
| |
(b) | 2016 included $(123) million for deconsolidation of investment funds managed by GE Asset Management (GEAM) upon the adoption of ASU 2015-02, Amendmentsissuances, please refer to the Consolidation Analysis, and prior to the July 1, 2016 sale of GEAM.
|
| |
(c) | 2017 includes $16,470 million related to Baker Hughes transaction. See Note 8 for further information. |
REDEEMABLE NONCONTROLLING INTERESTS
Redeemable noncontrolling interests presented in our Statement of Financial Position include common shares issued by our affiliates that are redeemable at the option of the holder of those interests.
As part of the Alstom acquisition, we formed three joint ventures with Alstom in grid technology, renewable energy, and global nuclear and French steam power. Noncontrolling interests in these joint ventures hold certain redemption rights. These joint ventures and the associated redemption rights are discussed in Note 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Our retained earnings is adjusted for subsequent changes in the redemption value of the noncontrolling interest in these entities to the extent that the redemption value exceeds the carrying amount of the noncontrolling interest.2022.
|
| | | | | | | | | | | | | |
| CHANGES TO REDEEMABLE NONCONTROLLING INTERESTS | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Beginning balance | $ | 3,193 |
| $ | 3,070 |
| | $ | 3,025 |
| $ | 2,972 |
|
| Net earnings (loss) | (49 | ) | (82 | ) | | (158 | ) | (221 | ) |
| Dividends | (12 | ) | (8 | ) | | (22 | ) | (17 | ) |
| Redemption value adjustment | 63 |
| 68 |
| | 177 |
| 178 |
|
| Other | 248 |
| 3 |
| | 419 |
| 138 |
|
| Ending balance at September 30(a) | $ | 3,441 |
| $ | 3,051 |
| | $ | 3,441 |
| $ | 3,051 |
|
| |
(a) | Included $3,106 million and $2,942 million related to the Alstom joint ventures at September 30, 2017 and 2016, respectively.
|
NOTE 18. EARNINGS PER SHARE INFORMATION
OTHER | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | 2023 | | 2022 |
| (Earnings for per-share calculation, shares in millions, per-share amounts in dollars) | Diluted | Basic | | Diluted | Basic |
| Earnings (loss) from continuing operations | $ | 175 | | $ | 175 | | | $ | (243) | | $ | (243) | |
| Preferred stock dividends and other and accretion of preferred share repurchase(a) | (91) | | (91) | | | (70) | | (70) | |
| | | | | |
| Earnings (loss) from continuing operations attributable to common shareholders | 84 | | 84 | | | (313) | | (313) | |
| Earnings (loss) from discontinued operations | 173 | | 173 | | | 403 | | 403 | |
| Net earnings (loss) attributable to GE common shareholders | 258 | | 258 | | | 91 | | 91 | |
| | | | | |
| Shares of GE common stock outstanding | 1,088 | | 1,088 | | | 1,095 | | 1,095 | |
| Employee compensation-related shares (including stock options) | 11 | | — | | | — | | — | |
| Total average equivalent shares | 1,099 | | 1,088 | | | 1,095 | | 1,095 | |
| | | | | |
| Earnings (loss) per share from continuing operations | $ | 0.08 | | $ | 0.08 | | | $ | (0.29) | | $ | (0.29) | |
| Earnings (loss) per share from discontinued operations | 0.16 | | 0.16 | | | 0.37 | | 0.37 | |
| Net earnings (loss) per share | 0.23 | | 0.24 | | | 0.08 | | 0.08 | |
| | | | | |
| Potentially dilutive securities(b) | 21 | | | | 49 | | |
Dividends from GE Capital to GE totaled zero and $5,050 million in | | | | | | | | | | | | | | | | | |
| Nine months ended September 30 | 2023 | | 2022 |
| (Earnings for per-share calculation, shares in millions, per-share amounts in dollars) | Diluted | Basic | | Diluted | Basic |
| Earnings (loss) from continuing operations | $ | 7,474 | | $ | 7,477 | | | $ | (2,600) | | $ | (2,600) | |
| Preferred stock dividends and other and accretion of preferred share repurchase(a) | (295) | | (295) | | | (189) | | (189) | |
| | | | | |
| Earnings (loss) from continuing operations attributable to common shareholders | 7,180 | | 7,183 | | | (2,789) | | (2,789) | |
| Earnings (loss) from discontinued operations | 411 | | 411 | | | 743 | | 743 | |
| Net earnings (loss) attributable to GE common shareholders | 7,591 | | 7,594 | | | (2,046) | | (2,046) | |
| | | | | |
| Shares of GE common stock outstanding | 1,089 | | 1,089 | | | 1,097 | | 1,097 | |
| Employee compensation-related shares (including stock options) | 9 | | — | | | — | | — | |
| Total average equivalent shares | 1,098 | | 1,089 | | | 1,097 | | 1,097 | |
| | | | | |
| Earnings (loss) per share from continuing operations | $ | 6.54 | | $ | 6.60 | | | $ | (2.54) | | $ | (2.54) | |
| Earnings (loss) per share from discontinued operations | 0.37 | | 0.38 | | | 0.68 | | 0.68 | |
| Net earnings (loss) per share | 6.91 | | 6.98 | | | (1.86) | | (1.86) | |
| | | | | |
| Potentially dilutive securities(b) | 29 | | | | 46 | | |
(a) For the three months ended September 30, 2017 and 2016, respectively and $4,105 million, including cash dividends of $4,016 million, and $16,050 million in the nine months ended September 30, 2017 and 2016, respectively. Dividends on GE preferred stock totaled $362023, included $(28) million and $33$(58) million in the three months ended September 30, 2017 and 2016, respectively, and $252 million, including cash dividends of $147 million and $474 million, including cash dividends of $184 million in the nine months ended September 30, 2017 and 2016,related to excise tax on preferred share redemptions, respectively. Dividends on GE preferred stock are payable semi-annually, in June and December, and accretion is recorded on a quarterly basis.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
| | Three months ended September 30 |
| | 2017 | | 2016 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Amounts attributable to the Company: | | | | | |
| Consolidated | | | | | |
Earnings from continuing operations for per-share calculation(a)(b) | $ | 1,935 |
| $ | 1,935 |
| | $ | 2,127 |
| $ | 2,127 |
|
| Preferred stock dividends | (36 | ) | (36 | ) | | (33 | ) | (33 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation(a)(b) | $ | 1,899 |
| $ | 1,899 |
| | $ | 2,094 |
| $ | 2,094 |
|
Loss from discontinued operations for per-share calculation(a)(b) | (109 | ) | (109 | ) | | (100 | ) | (100 | ) |
Net earnings attributable to GE common shareowners for per-share calculation(a)(b) | $ | 1,794 |
| $ | 1,794 |
| | $ | 1,991 |
| $ | 1,991 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,665 |
| 8,665 |
| | 8,904 |
| 8,904 |
|
| Employee compensation-related shares (including stock options) | 67 |
| — |
| | 112 |
| — |
|
| Total average equivalent shares | 8,732 |
| 8,665 |
| | 9,016 |
| 8,904 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | 0.22 |
| $ | 0.22 |
| | $ | 0.23 |
| $ | 0.24 |
|
| Loss from discontinued operations | (0.01 | ) | (0.01 | ) | | (0.01 | ) | (0.01 | ) |
| Net earnings | 0.21 |
| 0.21 |
| | 0.22 |
| 0.22 |
|
|
| | | | | | | | | | | | | |
| | | | | | |
| | Nine months ended September 30 |
| | 2017 | | 2016 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Amounts attributable to the Company: | | | | | |
| Consolidated | | | | | |
Earnings from continuing operations for per-share calculation(a)(b) | $ | 4,336 |
| $ | 4,336 |
| | $ | 6,110 |
| $ | 6,110 |
|
| Preferred stock dividends | (252 | ) | (252 | ) | | (474 | ) | (474 | ) |
Earnings from continuing operations attributable to common shareowners for per-share calculation(a)(b) | $ | 4,084 |
| $ | 4,084 |
| | $ | 5,636 |
| $ | 5,636 |
|
Loss from discontinued operations for per-share calculation(a)(b) | (507 | ) | (507 | ) | | (956 | ) | (956 | ) |
Net earnings attributable to GE common shareowners for per-share calculation(a)(b) | $ | 3,588 |
| $ | 3,587 |
| | $ | 4,680 |
| $ | 4,680 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,689 |
| 8,689 |
| | 9,096 |
| 9,096 |
|
| Employee compensation-related shares (including stock options) | 85 |
| — |
| | 105 |
| — |
|
| Total average equivalent shares | 8,774 |
| 8,689 |
| | 9,201 |
| 9,096 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | 0.47 |
| $ | 0.47 |
| | $ | 0.61 |
| $ | 0.62 |
|
| Loss from discontinued operations | (0.06 | ) | (0.06 | ) | | (0.10 | ) | (0.11 | ) |
| Net earnings | 0.41 |
| 0.41 |
| | 0.51 |
| 0.51 |
|
| |
(a) | Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities. For the three months ended September 30, 2017 pursuant to the two-class method, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities. For the three months ended September 30, 2016, participating securities are included in the computation of earnings per share pursuant to the two-class method and the application of this treatment had an insignificant effect. For the ninemonths ended September 30, 2017 and 2016, pursuant to the two-class method, as a result of excess dividends in respect to the current period earnings, losses were not allocated to the participating securities.
|
| |
(b) | Included an insignificant amount of dividend equivalents in each of the periods presented. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
For the three months ended September 30, 2017 and 2016, approximately 82 million and 15 million of outstanding(b) Outstanding stock awards were not included in the computation of diluted earnings (loss) per share because their effect was antidilutive.F
Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or the nine months ended September 30, 2017dividend equivalents are considered participating securities and, 2016, approximately 48 million and 24 million of outstanding stock awards were nottherefore, are included in the computation of diluted earnings per share because their effect was antidilutive.
Earnings per share amounts are computed independently for earningspursuant to the two-class method. For the three and nine months ended September 30, 2023, application of this treatment had an insignificant effect. For the three and nine months ended September 30, 2022, as a result of the loss from continuing operations, losslosses were not allocated to the participating securities.
NOTE 19. OTHER INCOME (LOSS)
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| 2023 | 2022 | | 2023 | 2022 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Investment in GE HealthCare realized and unrealized gain (loss) | $ | (813) | | $ | — | | | $ | 5,066 | | $ | — | | |
| Investment in and note with AerCap realized and unrealized gain (loss) | (296) | | 138 | | | 81 | | (2,669) | | |
| Investment in Baker Hughes realized and unrealized gain (loss) | — | | (238) | | | 10 | | 818 | | |
| Gains (losses) on retained and sold ownership interests | $ | (1,109) | | $ | (101) | | | $ | 5,157 | | $ | (1,852) | | |
| | | | | | |
| Other net interest and investment income (loss) | 193 | | 123 | | | 534 | | 269 | | |
| Licensing and royalty income | 53 | | 54 | | | 178 | | 141 | | |
| Equity method income | 78 | | 14 | | | 147 | | 129 | | |
| Purchases and sales of business interests(a) | 115 | | 23 | | | 103 | | 42 | | |
| Other items | (2) | | 65 | | | (18) | | 270 | | |
| Total other income (loss) | $ | (673) | | $ | 178 | | | $ | 6,100 | | $ | (1,000) | | |
(a) Included a pre-tax gain of $90 million related to the sale of an investment at Energy Financial Services during the three months ended September 30, 2023.
Our investment in GE HealthCare comprises 61.6 million shares (approximately 13.5% ownership interest) at September 30, 2023. During the nine months ended September 30, 2023, we received total proceeds of $2,192 million from discontinued operationsthe disposition of GE HealthCare shares. Our investment in AerCap comprises 30.9 million ordinary shares (approximately 14.5% ownership interest) at September 30, 2023 and net earnings.an AerCap senior note. During the nine months ended September 30, 2023, we received total proceeds of $4,624 million from the sale of AerCap shares. During the first quarter of 2023, we received proceeds of $216 million from the sale of Baker Hughes shares and have now fully monetized our position.
NOTE 20. RESTRUCTURING CHARGES AND SEPARATION COSTS
RESTRUCTURING AND OTHER CHARGES. This table is inclusive of all restructuring charges in our segments and at Corporate, and the charges are shown below for the business where they originated. Separately, in our reported segment results, significant, higher-cost restructuring programs are excluded from measurement of segment operating performance for internal and external purposes; those excluded amounts are reported in Restructuring and other charges for Corporate.
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| RESTRUCTURING AND OTHER CHARGES | 2023 | 2022 | | 2023 | 2022 | |
| Workforce reductions | $ | 70 | | $ | 51 | | | $ | 227 | | $ | 70 | | |
| Plant closures & associated costs and other asset write-downs | 62 | | 48 | | | 183 | | 98 | | |
| Acquisition/disposition net charges and other | 21 | | 14 | | | 48 | | 39 | | |
| Total restructuring and other charges | $ | 153 | | $ | 112 | | | $ | 458 | | $ | 206 | | |
| | | | | | |
| Cost of equipment/services | $ | 51 | | $ | 66 | | | $ | 116 | | $ | 109 | | |
| Selling, general and administrative expenses | 102 | | 46 | | | 342 | | 100 | | |
| Other (income) loss | — | | — | | | — | | (3) | | |
| Total restructuring and other charges | $ | 153 | | $ | 112 | | | $ | 458 | | $ | 206 | | |
| | | | | | |
| Aerospace | $ | 3 | | $ | 6 | | | $ | 10 | | $ | 16 | | |
| Renewable Energy | 57 | | 66 | | | 198 | | 78 | | |
| Power | 43 | | 30 | | | 81 | | 97 | | |
| Corporate | 50 | | 10 | | | 169 | | 15 | | |
| Total restructuring and other charges | $ | 153 | | $ | 112 | | | $ | 458 | | $ | 206 | | |
| Restructuring and other charges cash expenditures | $ | 89 | | $ | 75 | | | $ | 382 | | $ | 286 | | |
An analysis of changes in the liability for restructuring follows:
| | | | | | | | | | | | | | | | | | |
| Three months ended September 30 | | Nine months ended September 30 | |
| 2023 | 2022 | | 2023 | 2022 | |
| Balance at beginning of period | $ | 963 | | $ | 640 | | | $ | 977 | | $ | 825 | | |
| Additions | 67 | | 96 | | | 238 | | 127 | | |
| Payments | (75) | | (54) | | | (259) | | (242) | | |
| Effect of foreign currency and other | (69) | | (17) | | | (71) | | (45) | | |
| Balance at September 30(a) | $ | 885 | | $ | 665 | | | $ | 885 | | $ | 665 | | |
(a) Includes actuarial determined post-employment severance benefits reserve of $367 million and $333 million as of September 30, 2023 and 2022, respectively.
For the three and nine months ended September 30, 2023, restructuring and other initiatives primarily included exit activities related to the restructuring programs announced in 2022, reflecting lower Corporate shared-service and footprint needs as a result of the GE HealthCare spin-off, and exit activities across our businesses planned to be part of GE Vernova, primarily reflecting the selectivity strategy to operate in fewer markets and to simplify and standardize product variants at Renewable Energy. This plan was expanded during the third quarter of 2023 to include the consolidation of the global footprint and related resources at our Power business to better serve our customers. We recorded total charges of $153 million and $458 million, consisting of $86 million and $220 million, primarily in non-cash impairment, accelerated depreciation and other charges, not reflected in the table above, and $67 million and $238 million primarily in employee workforce reduction charges, which are reflected in the table above in the three and nine months ended September 30, 2023, respectively. We incurred $89 million and $382 million in cash outflows related to restructuring actions, primarily for employee severance payments and contract terminations in the three and nine months ended September 30, 2023, respectively.
For the three months ended September 30, 2022, restructuring and other initiatives primarily included exit activities across our businesses planned to be part of GE Vernova, primarily reflecting the selectivity strategy to operate in fewer markets and to simplify and standardize product variants at Renewable Energy. For the nine months ended September 30, 2022, restructuring and other initiatives primarily included exit activities at our Power business related to our new coal build wind-down actions which included the exit of certain product lines, closing certain manufacturing and office facilities, and workforce reduction programs. We recorded total charges of $112 million and $206 million, consisting of $16 million and $79 million primarily in non-cash impairment, accelerated depreciation and other charges, not reflected in the table above, and $96 million and $127 million primarily in employee workforce reduction charges, which are reflected in the table above in the three and nine months ended September 30, 2022, respectively. We incurred $75 million and $286 million in cash outflows related to restructuring actions, primarily for employee severance payments in the three and nine months ended September 30, 2022, respectively.
SEPARATION COSTS. In November 2021, the company announced its plan to form three industry-leading, global public companies focused on the growth sectors of aviation, healthcare, and energy. As a result of this plan, we have incurred and expect to continue to incur separation, transition, and operational costs, which will depend on specifics of the sumtransactions.
For the three and nine months ended September 30, 2023, we incurred pre-tax separation expense of per-share amounts from continuing operations$227 million and $658 million, and paid $175 million and $751 million in cash, respectively, primarily related to employee costs, professional fees, costs to establish certain stand-alone functions and information technology systems, and other transformation and transaction costs to transition to three stand-alone public companies. These costs are presented as separation costs in our consolidated Statement of Earnings (Loss). In addition, we recognized $278 million and $256 million of net tax benefit, including a net tax benefit associated with planned legal entity separation and tax on changes to indefinite reinvestment of foreign earnings in the three and nine months ended September 30, 2023, respectively.
For the three and nine months ended September 30, 2022, we incurred pre-tax separation costs of $171 million and $419 million, and paid $60 million and $72 million in cash, and recognized $32 million and $24 million of net tax benefit, respectively, related to separation activities.
As discussed in Note 2, GE completed the separation of its HealthCare business into a separate, independent publicly traded company, GE HealthCare Technologies Inc. As a result, pre-tax separation costs specifically identifiable to GE HealthCare are now reflected in discontinued operations may not equaloperations. We incurred $2 million and $22 million in pre-tax costs for the total per-share amountsthree and nine months ended September 30, 2023, respectively, recognized $5 million of tax benefits for net earnings.the nine months ended September 30, 2023, and spent $27 million and $167 million in cash for the three and nine months ended September 30, 2023, respectively.
NOTE 16.21. FINANCIAL INSTRUMENTS AND NON-RECURRING FAIR VALUE MEASUREMENTS
INSTRUMENTS.The following table provides information about assets and liabilities not carried at fair value. The tablevalue and excludes finance leases, equity securities without readily determinable fair value and non-financial assets and liabilities. Substantially all of thethese assets discussed below are considered to be Level 3. The3 and the vast majority of our liabilities’ fair value can be determined based on significant observable inputs and thusare considered Level 2. Few of
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Carrying
amount
(net) | Estimated
fair value | | Carrying
amount
(net) | Estimated
fair value |
| Assets | Loans and other receivables | $ | 2,378 | | $ | 2,203 | | | $ | 2,557 | | $ | 2,418 | |
| | | | | | |
| Liabilities | Borrowings (Note 11) | $ | 20,822 | | $ | 19,361 | | | $ | 24,059 | | $ | 22,849 | |
| Investment contracts (Note 13) | 1,594 | | 1,598 | | | 1,708 | | 1,758 | |
Assets and liabilities that are reflected in the instruments are actively traded and their fair values must often be determined usingaccompanying financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.
|
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (In millions) | Carrying
amount
(net) |
| Estimated
fair value |
| | Carrying
amount
(net) |
| Estimated
fair value |
|
|
|
| |
|
|
| GE |
|
| |
|
|
| Assets |
|
| |
|
|
| Investments and notes receivable | $ | 1,337 |
| $ | 1,404 |
| | $ | 1,526 |
| $ | 1,595 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(b) | 33,982 |
| 35,180 |
| | 19,184 |
| 19,923 |
|
| Borrowings (debt assumed)(a)(c) | 49,864 |
| 56,894 |
| | 60,109 |
| 66,998 |
|
|
|
| |
|
|
| GE Capital |
|
| |
|
|
| Assets |
|
| |
|
|
| Loans | 19,994 |
| 20,069 |
| | 21,060 |
| 20,830 |
|
| Other commercial mortgages | 1,490 |
| 1,576 |
| | 1,410 |
| 1,472 |
|
| Loans held for sale | 1,063 |
| 1,063 |
| | 473 |
| 473 |
|
| Other financial instruments(d) | 115 |
| 161 |
| | 121 |
| 150 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(e)(f)(g) | 54,945 |
| 59,327 |
| | 58,523 |
| 62,024 |
|
| Investment contracts | 2,606 |
| 3,057 |
| | 2,813 |
| 3,277 |
|
| |
(b) | Included $230 million and $115 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(c) | Included $575 million and $803 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(d) | Principally comprises cost method investments.
|
| |
(e) | Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at September 30, 2017 and December 31, 2016 would have been reduced by $2,604 million and $2,397 million, respectively.
|
| |
(f) | Included $764 million and $775 million of accrued interest in estimated fair value at September 30, 2017 and December 31, 2016, respectively.
|
| |
(g) | Excluded $42,593 million and $58,780 million of net intercompany payable to GE at September 30, 2017 and December 31, 2016, respectively.
|
|
| | | | | | |
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | | |
| | | |
| (In millions) | September 30, 2017 |
| December 31, 2016 |
|
| | | |
| Ordinary course of business lending commitments(a) | $ | 1,729 |
| $ | 687 |
|
| Unused revolving credit lines | 232 |
| 238 |
|
| |
(a) | Excluded investment commitments of $451 million and $522 million at September 30, 2017 and December 31, 2016, respectively.
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NON-RECURRING FAIR VALUE MEASUREMENTS
The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at September 30, 2017 and December 31, 2016.
|
| | | | | | | | | | | | |
| | Remeasured during
the nine months ended
September 30, 2017 | Remeasured during
the year ended
December 31, 2016 |
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 |
| | | | | |
| Financing receivables | $ | — |
| $ | 10 |
| $ | — |
| $ | 30 |
|
| Cost and equity method investments | — |
| 60 |
| — |
| 103 |
|
| Long-lived assets | 277 |
| 743 |
| 17 |
| 1,055 |
|
| Goodwill | $ | — |
| $ | 191 |
| $ | — |
| $ | — |
|
| Total | $ | 277 |
| $ | 1,004 |
| $ | 17 |
| $ | 1,189 |
|
The following table represents the fair value adjustments to assets measuredstatements at fair value on a non-recurring basis and still held at September 30, 2017 and 2016.
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Financing receivables | $ | (1 | ) | $ | — |
| | $ | (1 | ) | $ | (14 | ) |
| Cost and equity method investments | (58 | ) | (2 | ) | | (89 | ) | (95 | ) |
| Long-lived assets | (671 | ) | (21 | ) | | (712 | ) | (161 | ) |
| Goodwill | $ | (947 | ) | $ | — |
| | $ | (947 | ) | $ | — |
|
| Total | $ | (1,676 | ) | $ | (24 | ) | | $ | (1,748 | ) | $ | (270 | ) |
|
| | | | | | |
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | Range
(weighted-average) |
| | | | | |
| September 30, 2017 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Cost and equity method investments | $ | 51 |
| Income approach | Discount rate(a) | 9.0%-40.0%(13.9)%
|
| | | | | |
| Long-lived assets | 508 |
| Income approach | Discount rate(a) | 2.7%-17.0% (7.2%) |
| | | | | |
| | | | | |
| December 31, 2016 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Financing receivables | $ | 30 |
| Income approach | Discount rate(a) | 2.5%-30.0% (20.3%) |
| | | | | |
| Cost and equity method investments | 94 |
| Income approach, | Discount rate(a) | 9.0%-30.0% (11.8%) |
| | | | | |
| Long-lived assets | 683 |
| Income approach | Discount rate(a) | 2.5%-20.0% (10.4%) |
Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increasenot included in the discount rate would result in a decrease in the fair value.above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.
At September 30, 2017 and December 31, 2016, non-recurring measurements of $252 million and $379 million, respectively, are valued using non-binding broker quotes or other third-party sources. At September 30, 2017 and December 31, 2016, non-recurring fair value measurements were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DERIVATIVES AND HEDGING
FORMS OF HEDGING
In this section we explain the hedging methods we use and their effects on our financial statements.
Cash flow hedges – We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts in our industrial businesses and to convert foreign currency debtHEDGING. Our policy requires that we have issued in our financial services business back to our functional currency.
As part of our ongoing effort to reduce borrowings, we may repurchase debt that was in a cash flow hedge accounting relationship. At the time of determining that the debt cash flows are probable of not occurring any related OCI will be released to earnings.
|
| | | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - CASH FLOW HEDGES |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Balance sheet changes | | | | | |
| Fair value of derivatives increase (decrease) | $ | 225 |
| $ | 2 |
| | $ | 281 |
| $ | (43 | ) |
| Shareowners' equity (increase) decrease | (225 | ) | (2 | ) | | (281 | ) | 43 |
|
| | | | | | |
| Earnings (loss) related to ineffectiveness | — |
| — |
| | — |
| — |
|
| Earnings (loss) effect of derivatives(a) | 104 |
| (57 | ) | | 167 |
| (128 | ) |
| |
(a) | Offsets earnings effect of the hedged forecasted transaction |
Fair value hedges– These derivatives are used to hedge the effects of interest ratesolely for managing risks and currency exchange rate changes on debt that we have issued. |
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - FAIR VALUE HEDGES | | | | |
| | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Fair value of derivative increase (decrease) | $ | (148 | ) | $ | (116 | ) | $ | (430 | ) | $ | 2,494 |
|
| Adjustment to carrying amount of hedged debt (increase) decrease | 103 |
| 37 |
| 267 |
| (2,651 | ) |
| | | | | |
| Earnings (loss) related to hedge ineffectiveness | (45 | ) | (79 | ) | (162 | ) | (156 | ) |
Net investment hedges – We invest in foreign operations that conduct their financial services activities in currencies other than the US dollar. We hedge the currency risk associated with those investments primarily using short-term currency exchange contracts under which we receive US dollars and pay foreign currency and non-derivative instruments such as debt denominated in a foreign currency.
|
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - NET INVESTMENT HEDGES |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Fair value of derivatives increase (decrease) | $ | (111 | ) | $ | 107 |
| $ | (302 | ) | $ | 154 |
|
| Fair value of non-derivative instruments (increase) decrease | (905 | ) | 475 |
| (1,764 | ) | 425 |
|
| Shareowners' equity (increase) decrease | 1,020 |
| (552 | ) | 2,082 |
| (513 | ) |
| | | | | |
| Earnings (loss) related to | | | | |
| spot-forward differences and ineffectiveness | 4 |
| 30 |
| 17 |
| 67 |
|
| Earnings (loss) related to | | | | |
| reclassification upon sale or liquidation(a) | 18 |
| 47 |
| 78 |
| (1,025 | ) |
| |
(a) | Included zero and $47 million recorded in discontinued operations in the three months ended September 30, 2017 and 2016 and $59 million and $(1,026) million recorded in discontinued operations in the nine months ended September 30, 2017 and 2016, respectively. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Economic Hedges- These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements.for speculative purposes. We use economic hedges when we have exposuresderivatives to manage currency exchange risk for which we are unable to meet the requirements for hedge accounting or when changes in the carrying amount of the hedged item are already recorded in earnings in the same period as the derivative making hedge accounting unnecessary. Even though the derivative is an effective economic hedge, there may be a net effect on earnings in each period due to differences in the timing of earnings recognition between the derivative and the hedged item.
|
| | | | | | | | | | | | |
| FINANCIAL STATEMENT EFFECTS - ECONOMIC HEDGES | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| | | | | |
| Balance sheet changes | | | | |
| Change in fair value of economic hedge increase (decrease) | $ | 663 |
| $ | (686 | ) | $ | 1,304 |
| $ | (808 | ) |
| Change in carrying amount of item being hedged increase (decrease) | (920 | ) | 380 |
| (1,876 | ) | 182 |
|
| | | | | |
| Earnings (loss) effect of economic hedges(a) | (257 | ) | (306 | ) | (572 | ) | (626 | ) |
| |
(a) | Offset by the future earnings effects of economically hedged item. |
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). The notional amount is used to compute interest or other payment streams to be made under the contract and is a measure of our level of activity. We generally disclose derivative notional amounts on a gross basis. The majority of the outstanding notional amount of $185 billion at September 30, 2017 isrisks related to managingforeign exchange, and interest rate and currency risk between financial assets and liabilities, and certain equity investments and commodity prices.
| | | | | | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | September 30, 2023 | | December 31, 2022 |
| Gross Notional | All other current assets | All other current liabilities | | Gross Notional | All other current assets | All other current liabilities |
| Qualifying currency exchange contracts | $ | 6,510 | | $ | 142 | | $ | 116 | | | $ | 5,112 | | $ | 132 | | $ | 146 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-qualifying currency exchange contracts and other | 56,586 | | 904 | | 945 | | | 52,786 | | 1,143 | | 1,095 | |
| | | | | | | |
| Gross derivatives | $ | 63,096 | | $ | 1,047 | | $ | 1,061 | | | $ | 57,898 | | $ | 1,275 | | $ | 1,241 | |
| | | | | | | |
| Netting and credit adjustments | | $ | (719) | | $ | (718) | | | | $ | (821) | | $ | (820) | |
| | | | | | | |
| Net derivatives in statement of financial position | | $ | 327 | | $ | 343 | | | | $ | 454 | | $ | 420 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
FAIR VALUE HEDGES. As of September 30, 2023, all fair value hedges were terminated due to exposure management actions, including debt maturities. Gains (losses) associated with the terminated hedging relationships will continue to amortize into interest expense until the hedged borrowings mature. The cumulative amount of hedging adjustments of $1,165 million (all on discontinued hedging relationships) was included in our financial services business.the carrying amount of the previously hedged liability of $8,715 million. At September 30, 2022, the cumulative amount of hedging adjustments of $1,693 million (all on discontinued hedging relationships) was included in the carrying amount of the previously hedged liability of $13,825 million. The remaining derivative notionalcumulative amount of hedging adjustments was primarily relatesrecorded in long-term borrowings.
| | | | | | | | | | | | | | | | | | |
| CASH FLOW HEDGES AND NET INVESTMENT HEDGES | | | | | | |
| Gain (loss) recognized in AOCI | Three months ended September 30 | | Nine months ended September 30 |
| 2023 | 2022 | | 2023 | 2022 | |
| Cash flow hedges(a) | $ | (7) | | $ | (95) | | | $ | 42 | | $ | (252) | | |
| Net investment hedges(b) | 171 | | 396 | | | 41 | | 691 | | |
(a) Primarily related to currency exchange contracts.
(b) The carrying value of foreign currency debt designated as net investment hedges was $4,554 million and $3,019 million as of September 30, 2023 and 2022, respectively. The total reclassified from AOCI into earnings was zero for both the three months and nine months ended September 30, 2023 and 2022.
Changes in the fair value of cash flow hedges are recorded in AOCI and recorded in earnings in the period in which the hedged transaction occurs. The total amount in AOCI related to cash flow hedges of anticipated sales and purchasesforecasted transactions was a $24 million loss as of September 30, 2023. We expect to reclassify $68 million of loss to earnings in foreign currency, commodity purchases and contractual terms in contractsthe next 12 months contemporaneously with the earnings effects of the related forecasted transactions. As of September 30, 2023, the maximum term of derivative instruments that are considered embedded derivatives.hedge forecasted transactions was approximately 12 years.
The table below provides additional information about how derivativespresents the effects of hedges and resulting gains (losses) of our derivative financial instruments in the Statement of Earnings (Loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2023 | | Three months ended September 30, 2022 |
| | | |
| Revenues | | Interest Expense | SG&A | Other(a) | | Revenues | | Interest Expense | SG&A | Other(a) |
| $ | 17,346 | | | $ | 286 | | $ | 2,171 | | $ | 12,232 | | | $ | 14,470 | | | $ | 374 | | $ | 1,966 | | $ | 11,712 | |
| | | | | | | | | | | |
| Cash flow hedges | $ | (14) | | | $ | (2) | | $ | 1 | | $ | 17 | | | $ | (3) | | | $ | (4) | | $ | (1) | | $ | (12) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Non-hedging derivatives (b) | $ | — | | | $ | — | | $ | (295) | | $ | (18) | | | $ | 1 | | | $ | — | | $ | 33 | | $ | (447) | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2023 | | Nine months ended September 30, 2022 |
| | | |
| Revenues | | Interest Expense | SG&A | Other(a) | | Revenues | | Interest Expense | SG&A | Other(a) |
| $ | 48,531 | | | $ | 822 | | $ | 6,671 | | $ | 42,096 | | | $ | 41,272 | | | $ | 1,130 | | $ | 6,509 | | $ | 30,832 | |
| | | | | | | | | | | |
| Cash flow hedges | $ | (9) | | | $ | (8) | | $ | 1 | | $ | 25 | | | $ | 1 | | | $ | (17) | | $ | (1) | | $ | (80) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Fair value hedges | | | | | | | | | $ | (16) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Non-hedging derivatives (b) | $ | — | | | $ | — | | $ | (5) | | $ | (145) | | | $ | 3 | | | $ | — | | $ | (421) | | $ | (542) | |
(a) Amounts are reflected ininclusive of cost of sales and other income (loss).
(b) SG&A was primarily driven by hedges of deferred incentive compensation, and hedges of remeasurement of monetary assets and liabilities.
COUNTERPARTY CREDIT RISK. Our exposures to counterparties were $256 million and $306 million at September 30, 2023 and December 31, 2022, respectively. Counterparties' exposures to our financial statements.derivative liability were $294 million and $365 million at September 30, 2023 and December 31, 2022, respectively.
|
| | | | | | |
| CARRYING AMOUNTS RELATED TO DERIVATIVES | | |
| (In millions) | September 30, 2017 | December 31, 2016 |
| | | |
| Derivative assets | $ | 4,601 |
| $ | 5,467 |
|
| Derivative liabilities | (2,453 | ) | (4,883) |
| Accrued interest | 490 |
| 792 |
| Cash collateral & credit valuation adjustment | (1,816 | ) | (672) |
| Net Derivatives | 822 |
| 703 |
| Securities held as collateral | (437 | ) | (442) |
| Net amount | $ | 385 |
| $ | 262 |
|
98 20172023 3Q FORM 10-Q37
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
EFFECTS OF DERIVATIVES ON EARNINGS
All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges.
|
| | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | Effect on hedging instrument | Effect on underlying | Effect on earnings | Effect on hedging instrument | Effect on underlying | Effect on earnings |
| | | | | | | |
| 2017 | | | | | | |
| Cash flow hedges | $ | 225 |
| $ | (225 | ) | $ | — |
| $ | 281 |
| $ | (281 | ) | $ | — |
|
| Fair value hedges | (148 | ) | 103 |
| (45 | ) | (430 | ) | 267 |
| (162 | ) |
| Net investment hedges(a) | (1,016 | ) | 1,020 |
| 4 |
| (2,065 | ) | 2,082 |
| 17 |
|
| Economic hedges(b) | 663 |
| (920 | ) | (257 | ) | 1,304 |
| (1,876 | ) | (572 | ) |
| Total |
|
| $ | (298 | ) |
|
| $ | (717 | ) |
| | | | | | | |
| 2016 | | | | | | |
| Cash flow hedges | $ | 2 |
| $ | (2 | ) | $ | — |
| $ | (43 | ) | $ | 43 |
| $ | — |
|
| Fair value hedges | (116 | ) | 37 |
| (79 | ) | 2,494 |
| (2,651 | ) | (156 | ) |
| Net investment hedges(a) | 582 |
| (552 | ) | 30 |
| 580 |
| (513 | ) | 67 |
|
| Economic hedges(b) | (686 | ) | 380 |
| (306 | ) | (808 | ) | 182 |
| (626 | ) |
| Total |
|
| $ | (355 | ) |
|
| $ | (715 | ) |
The amounts in the table above generally do not include associated derivative accruals in income or expense.
| |
(a) | Both derivatives and non-derivatives hedging instruments are included. |
| |
(b) | Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods. |
See Note 14 for additional information about changes in shareowners' equity related to hedging and amounts released to earnings.
See Note 21 for other supplemental information about derivatives and hedging.
NOTE 17.22. VARIABLE INTEREST ENTITIES
A VIE is an entity that has oneENTITIES. In our Statement 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 businessFinancial Position, we become involved with VIEs either because we help create them or we invest in them. Our VIEs either provide goods and services to customers or provide financing to third parties for the purchase of GE goods and services. If we control the VIE, we consolidate it and provide disclosure below. However, if the VIE is a business and use of its assets is not limited to settling its liabilities, ongoing disclosures are not required.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Our most significant consolidated VIEs are four joint ventures used to complete acquisitions. The newest of these, BHGE LLC was formed as part of the Baker Hughes transaction. BHGE LLC owns the operatinghave assets of GE Oil & Gas$114 million and Baker Hughes. BHGE LLC is a VIE as we hold an economic interest$401 million and liabilities of approximately 62.5% in the partnership, but we hold no voting or participating rights through our direct economic ownership. BHGE LLC is a SEC Registrant with separate filing requirements with the SEC$198 million and its separate financial information can be obtained from www.sec.gov.
The remaining three joint ventures were formed as part of the Alstom acquisition. These joint ventures include grid technology, renewable energy, and global nuclear and French steam power and have combined assets, liabilities and redeemable non-controlling interest as of$206 million at September 30, 20172023 and December 31, 2016 of $16,282 million, $11,414 million and $3,106 million and $14,460 million, $9,922 million and $2,709 million, respectively.2022, respectively, in consolidated Variable Interest Entities (VIEs). These joint ventures are considered VIEs because the equity held by Alstom does not participate fully in the earnings of the ventures due to contractual features allowing Alstom to sell their interests back to GE.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We consolidate these joint ventures because we control all their significant activities. These joint ventures are in all other repects regular businesses and are therefore exempt from ongoing disclosure requirements for consolidated VIEs provided below.
The table below provides information about consolidated VIEs that are subject to ongoing disclosure requirements. Substantially all of these entities were created to help our customers facilitate or finance the purchase of GE goodsequipment and services or to purchase GE customer notes receivable arising from sales of GE goods and services. These entities have no features that could expose us to losses that couldwould significantly exceed the difference between the consolidated assets and liabilities.
|
| | | | | | | | | | | | |
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs |
| | | GE Capital | |
| (In millions) | GE | Customer Notes receivables(a) | Other | Total |
| | | | | |
| September 30, 2017 | | | | |
| Assets | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| $ | 919 |
| $ | 919 |
|
| Current receivables | 49 |
| 557 |
| — |
| 606 |
|
| Investment securities | — |
| — |
| 965 |
| 965 |
|
| Other assets | 541 |
| 1,273 |
| 1,895 |
| 3,709 |
|
| Total | $ | 590 |
| $ | 1,830 |
| $ | 3,779 |
| $ | 6,199 |
|
| | | | | |
| Liabilities | | | | |
| Borrowings | $ | 71 |
| $ | — |
| $ | 1,078 |
| $ | 1,149 |
|
| Non-recourse borrowings | — |
| 693 |
| 16 |
| 709 |
|
| Other liabilities | 411 |
| 1,053 |
| 1,546 |
| 3,010 |
|
| Total | $ | 482 |
| $ | 1,746 |
| $ | 2,640 |
| $ | 4,868 |
|
| | | | | |
| December 31, 2016 | | | | |
| Assets | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| $ | 1,035 |
| $ | 1,035 |
|
| Current receivables | 57 |
| 670 |
| — |
| 727 |
|
| Investment securities | — |
| — |
| 982 |
| 982 |
|
| Other assets | 492 |
| 1,122 |
| 1,747 |
| 3,361 |
|
| Total | $ | 549 |
| $ | 1,792 |
| $ | 3,764 |
| $ | 6,105 |
|
| | | | | |
| Liabilities | | | | |
| Borrowings | $ | 1 |
| $ | — |
| $ | 818 |
| $ | 819 |
|
| Non-recourse borrowings | — |
| 401 |
| 16 |
| 417 |
|
| Other liabilities | 457 |
| 1,378 |
| 1,482 |
| 3,317 |
|
| Total | $ | 458 |
| $ | 1,779 |
| $ | 2,316 |
| $ | 4,553 |
|
| |
(a) | Two funding vehicles established to purchase customer notes receivable from GE, one of which is partially funded by third-party debt.
|
Total revenues from our consolidated VIEs were $293 million and $211 million for the three months ended September 30, 2017 and 2016, respectively and $801 million and $881 million in the nine months ended September 30, 2017 and 2016, respectively. Related expenses consisted primarily of cost of goods and services of $78 million and $112 million for the three months ended September 30, 2017 and 2016, respectively and $256 million and $610 million in the nine months ended September 30, 2017 and 2016, respectively.
Where we provide servicing for third-party investors, we are contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-1/P1. These third-party investors also owe us amounts for purchased financial assets and scheduled interest and principal payments, At September 30, 2017 and December 31, 2016, the amounts of commingled cash owed to the third-party investors were $1,216 million and $1,117 million, respectively, and the amounts owed to us by third-party investors were zero and $5 million, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
We become involved with unconsolidated VIEs primarily through assisting in the formation and financing of the entity. We do not consolidate these entities because we do not have power over decisions that significantly affect their economic performance. Our investments in unconsolidated VIEs were $6,388 million and $5,917 million at September 30, 20172023 and December 31, 2016 were $6,3822022, respectively. Of these investments, $1,302 million and $6,346$1,481 million were owned by EFS, comprising equity method investments, primarily renewable energy tax equity investments, at September 30, 2023 and December 31, 2022, respectively. Substantially allIn addition, $4,855 million and $4,219 million were owned by our run-off insurance operations, primarily comprising equity method investments at September 30, 2023 and December 31, 2022, respectively. Our maximum exposure to loss in respect of these investments are heldunconsolidated VIEs is increased by Energy Financial Services. Obligationsour commitments to make additional investments in these entities are not significant. described in Note 23.
NOTE 18.23. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS
The GE Capital Aviation Services (GECAS) business in GE CapitalCOMMITMENTS. We had placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $38,669 million and secondary orders with airlines for used aircrafttotal investment commitments of approximately $2,077$3,886 million at September 30, 2017. In2023. The commitments primarily comprise investments by our Aviationrun-off insurance operations in investment securities and other assets of $3,813 million and included within these commitments are obligations to make investments in unconsolidated VIEs of $3,709 million. See Note 22 for further information.
As of September 30, 2023, in our Aerospace segment, we hadhave committed to provide financing assistance of $1,875$2,670 million of future customer acquisitions of aircraft equipped with our engines.
GUARANTEES
OurGUARANTEES. Indemnification agreements - Discontinued Operations. Following the Separation of GE HealthCare on January 3, 2023, GE has remaining performance and bank guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.
At September 30, 2017, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 17.
Credit Support. We have provided $1,855 millionits former HealthCare business, with a maximum aggregate exposure of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $47$44 million at September 30, 2017.2023. Most of these guarantees are not expected to remain in effect as of December 31, 2023. GE also has obligations under the Transition Services Agreement and Tax Matters Agreement to indemnify GE HealthCare for certain technology and tax costs of $90 million, which are fully reserved. In addition, we have provided specific indemnities to other buyers of assets of our business that, in the aggregate, represent a maximum potential claim of $703 million with related reserves of $70 million.
Indemnification Agreementsagreements – Continuing Operations. WeGE has obligations under the Tax Matters Agreement to indemnify GE HealthCare for certain tax costs and other indemnifications of $43 million, which are fully reserved. In addition, we have agreements that require us to fund up to $190 million at September 30, 2017 under residual value guarantees on a variety of leased equipment. Under most of our residual value guarantees, our commitment is secured by the leased asset. The liability for these indemnification agreements was $7 million at September 30, 2017.
At September 30, 2017, we also had $1,688$554 million of other indemnification commitments, substantially all of which relate toincluding representations and warranties in sales of businesses or assets. The liability for these indemnification commitments was $277 million at September 30, 2017.
Indemnification Agreements – Discontinued Operations. At September 30, 2017, we provided specific indemnifications to buyers of GE Capital’sbusiness assets, that amounted to $2,714 million, for which we have recognized related liabilitiesrecorded a liability of $320$76 million. In addition, in connection with
For information on credit support agreements, refer to the 2015 public offering and salerevised portions of our North American Retail Finance business, Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations. 2022 Form 10-K on Form 8-K as filed on April 25, 2023.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions related to the acquisition or disposition are achieved. Amount of contingent consideration was insignificant at September 30, 2017.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
PRODUCT WARRANTIES
WARRANTIES.We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information, – mostly historical claims experience, – claims costs may differ from amounts provided. An analysis of changes in theThe liability for product warranties follows.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Balance at January 1 | $ | 1,920 |
| $ | 1,723 |
|
| Current-year provisions | 615 |
| 539 |
|
| Expenditures | (601 | ) | (539 | ) |
| Other changes(a) | 255 |
| 166 |
|
| Balance as of September 30 | $ | 2,189 |
| $ | 1,889 |
|
(a) Primarily includes effect of currency exchangewas $1,997 million and acquisitions.
OTHER LOSS CONTINGENCIES
LEGAL MATTERS
WMC. During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At September 30, 2017, such claims consisted of $1,019 million of individual claims generally submitted before the filing of a lawsuit (compared to $1,060 million at December 31, 2016) and $5,435 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $5,456 million at December 31, 2016). The total amount of these claims, $6,454 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable law and the June 11, 2015 decision of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims. Giving effect to the settlements and subsequent dismissals of lawsuits on five securitizations discussed in Legal Proceedings, active claims at October 26, 2017 consisted of $462 million of individual claims generally submitted before the filing of a lawsuit and $3,198 million of Litigation Claims, as defined above.
Reserves related to repurchase claims made against WMC were $647$1,960 million at September 30, 2017, reflecting a net increase to reserves2023 and December 31, 2022, respectively.
LEGAL MATTERS. The following information supplements and amends the discussion of Legal Matters in Note 24 in the nine monthsrevised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023 and Note 23 in our Quarterly Reports on Form 10-Q for the quarters ended SeptemberMarch 31, 2023 and June 30, 20172023; refer to those discussions for information about previously reported legal matters that are not updated below. In the normal course of $21 million. The reserveour 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 takes into account recent settlement activity and is based upon WMC’s evaluationthe size or range of the remaining exposures aspossible loss, and accruals for legal matters are not recorded until a percentageloss for a particular matter is considered probable and reasonably estimable. Given the nature of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization for which timely claims have been asserted in litigation against WMC. Settlements in prior periods reduced WMC’s exposure on claims asserted in certain securitizationslegal matters and the claim amounts reported above give effect to these settlements.
|
| | | | | | | | | | | | | | | |
| ROLLFORWARD OF THE RESERVE | | | | | | | |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
| | | | | | | | |
| Balance, beginning of period | $ | 636 |
| | $ | 860 |
| | $ | 626 |
| | $ | 875 |
|
| Provision | 11 |
| | — |
| | 21 |
| | 84 |
|
| Claim resolutions / rescissions | — |
| | (195 | ) | | — |
| | (294 | ) |
| Balance, end of period | $ | 647 |
| | $ | 665 |
| | $ | 647 |
| | $ | 665 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC,complexities involved, it is often difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at September 30, 2017. This estimate involves significant judgmentpredict and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal Proceedings and potential changes in WMC’s legal strategy. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations or an adverse outcome in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) investigation discussed in Legal Proceedings, as WMC is unable at this time to develop such a meaningful estimate. With respect to the FIRREA investigation, this inability to developdetermine a meaningful estimate of theloss or range of reasonably possible loss reflects,until we know, among other factors, the rangeparticular claims involved, the likelihood of penalties andsuccess of our defenses to those claims, the damages or other sanctions incurred by various financial institutions in proceedings and settlements involving claims made under FIRREA by the U.S. Department of Justice.
At September 30, 2017, there were 10 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 11 securitizations. The adverse parties in these cases are securitization trusteesrelief sought, how discovery or parties claiming to act on their behalf. As discussed in Legal Proceedings, five of these lawsuits have been dismissed following the conclusion of settlement agreements, and one of the lawsuits is subject of a settlement agreement approved by a Minnesota state court. One of the lawsuits involves claims made on two securitizations, and these claims are the subject of settlement agreements to which objections have been filed in California state court. Two of the three remaining lawsuits have been stayed pendingother procedural considerations will affect the outcome, the settlement posture of ongoing settlement negotiations. The sole remaining active lawsuit against WMC is the TMI case, discussed in Legal Proceedings, which was recently scheduled for trial on January 16, 2018. Settlement discussions to date have been unsuccessful, and if this case proceeds to trial and WMC is found liable, it is likely damages would be in an amount exceeding the total value of WMC’s assets.
Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defensesother parties and other factors anythat may have a material effect on the outcome. For these matters, unless otherwise specified, we do not believe it is possible to provide a meaningful estimate of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.
WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS or securitization trustees in connection with actual or potential claims concerning alleged misrepresentations in the securitization offering documents to which WMCat this time. Moreover, it is not a party, mortgage loan repurchase claims made against RMBS sponsors or other claims involving alleged defects in loans sold by WMC. WMC believes that it has defensesuncommon for legal matters to these demands.be resolved over many years, during which time relevant developments and new information must be continuously evaluated.
To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC’s legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.
Alstom legacy matters. On November 2,legal matters. In 2015, we acquired the Thermal,Steam Power, Renewables and Grid businesses from Alstom. PriorAlstom, which prior to theour acquisition the seller waswere the subject of two significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65payments. We had reserves of $416 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$455 million at September 30, 2023 and 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 million31, 2022, respectively, 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 Allegations in these cases relate to claimed anti-competitive conduct or improper payments in the pre-acquisition period as the source of legal violations and/or damages. Given the significant litigation and compliance activity related to these matters and our ongoing efforts to resolve them, it is difficult to assess whether the disbursements will ultimately be consistent with the reserve established. The estimation of this reserve involved significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations of this nature. Damages sought may include disgorgementnature, and at this time we are unable to develop a meaningful estimate of profits on the underlying business transactions, fines and/or penalties, interest, or other formsrange of resolution.reasonably possible additional losses beyond the amount of this reserve. 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 disgorgement, fines andor penalties, the duration and amount of legal and investigative resources applied, and political and social influences within each jurisdiction, and tax consequences of any settlements or previous deductions, among other considerations. Actual losses arising from claims in these and related matters could exceed the amount provided. At this time, we are unable
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, also referred to developas the Sjunde AP-Fonden case). In October 2019, the lead plaintiff filed a meaningful estimatefifth 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 rangeSecurities Exchange Act of reasonably possible additional losses1934 related to insurance reserves and accounting for this exposure.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. In January 2021, the court granted defendants’ motion to dismiss as to the majority of the claims. Specifically, the court dismissed all claims related to insurance reserves, as well as all claims related to accounting for long-term service agreements, with the exception of certain claims about historic disclosures related to factoring in the Power business that survive as to GE and its former CFO Jeffrey S. Bornstein. All other individual defendants have been dismissed from the case. In April 2022, the court granted the plaintiffs' motion for class certification for shareholders who acquired stock between February 26, 2016 and January 23, 2018, and granted the plaintiffs’ request to amend their complaint. In September 2022, GE filed a motion for summary judgment on the plaintiffs' remaining claims. In September 2023, the court denied GE’s motion for summary judgment, except as to claims arising from disclosures made between November 2017 and January 2018.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ENVIRONMENTAL MATTERS
Our operations, like operationsIn February 2019, a securities action (the Touchstone case) was filed in the U.S. District Court for the Southern District of other companies engaged in similar businesses, involveNew York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the use, disposalSecurities Exchange Act of 1934 and cleanupSection 1707.43 of substances regulated under environmental protection laws. We are involved in numerous remediation actions to clean up hazardous wastes as required by federalthe Ohio Securities Act 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 arecommon law fraud 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 informationalleged misstatements regarding insurance reserves, GE Power’s revenue recognition practices related to individual sites, such amounts are not reasonably estimable. For further information, see our Annual Reportlong term service agreements, GE’s acquisition of Alstom, and the goodwill recognized in connection with that transaction. The lawsuit seeks damages on Form 10-Kbehalf of six institutional investors who purchased GE common stock between August 1, 2014 and October 30, 2018 and rescission of those purchases. In May 2021, the plaintiffs filed an amended complaint, and GE in June 2021 filed a motion to dismiss that complaint. In September 2022, the court granted GE’s motion to the dismiss the plaintiffs’ case with no opportunity to replead their case. In January 2023, the plaintiffs filed an appeal of the court’s dismissal of their case with the U.S. Court of Appeals for the fiscal year ended December 31, 2016.Second Circuit. In September 2023, the Court of Appeals affirmed the dismissal of the case.
NOTE 19. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on an arms-length basisGE Retirement Savings Plan (RSP) class actions. Four putative class action lawsuits were filed regarding the oversight of the GE RSP, and are reportedthose class actions were consolidated into a single action in the respectiveU.S. District Court for the District of Massachusetts. The consolidated complaint named as defendants GE, GE Asset Management, current and former GE and GE Capital columnsAsset Management executive officers and employees who served on fiduciary bodies responsible for aspects of ourthe GE RSP during the class period. Like similar lawsuits that were brought against other companies in recent years, this action alleged that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) in their oversight of the GE RSP, principally by retaining five 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 sought 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 one count of the complaint and denying GE's motion to dismiss the remaining counts. In September 2022, both GE and the plaintiffs filed motions for summary judgment on the remaining claims. In September 2023, GE executed a class action settlement with plaintiffs in the amount of $61 million, which the court preliminarily approved in October 2023. Net of insurance contributions, this had an immaterial financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital solutions to optimize GE cash management,
GE Capital enabled GE industrial orders, including related GE guarantees to GE Capital, and
Aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installedimpact on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growthGE’s results for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
Expenses related to parent-subsidiary pension plans,
Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Information technology (IT) and other services sold to GE Capital by GE
Settlements of tax liabilities, and
Various investments, loans and allocations of GE corporate overhead costs.
Presented below is a walk of intercompany eliminations from the combined GE and GE Capital totals to the consolidated cash flows from continuing operations.
|
| | | | | | |
| | Nine months ended September 30, 2017 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| Cash from (used for) operating activities-continuing operations | | |
| Combined | $ | 6,103 |
| $ | 20,245 |
|
| GE current receivables sold to GE Capital | 1,402 |
| 675 |
|
| GE Capital dividends to GE | (4,016 | ) | (16,050 | ) |
| Other reclassifications and eliminations(a) | 519 |
| (1,024 | ) |
| Total cash from (used for) operating activities-continuing operations | $ | 4,008 |
| $ | 3,846 |
|
| Cash from (used for) investing activities-continuing operations | | |
| Combined | $ | 752 |
| $ | 47,548 |
|
| GE current receivables sold to GE Capital | (1,653 | ) | (622 | ) |
| GE debt effected through GE Capital | 5,942 |
| 5,002 |
|
| Other reclassifications and eliminations(a) | (349 | ) | 1,631 |
|
| Total cash from (used for) investing activities-continuing operations | $ | 4,692 |
| $ | 53,559 |
|
| Cash from (used for) financing activities-continuing operations | | |
| Combined | $ | (16,383 | ) | $ | (85,578 | ) |
| GE current receivables sold to GE Capital | 251 |
| (54 | ) |
| GE Capital dividends to GE | 4,016 |
| 16,050 |
|
| GE debt effected through GE Capital | (5,942 | ) | (5,002 | ) |
| Other reclassifications and eliminations(a) | (170 | ) | (604 | ) |
| Total cash from (used for) financing activities-continuing operations | $ | (18,228 | ) | $ | (75,188 | ) |
| |
(a) | Includes eliminations of other cash flows activities including those related to GE Capital enabled GE industrial orders, various investments, loans and allocations of GE corporate overhead costs. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20. GUARANTOR FINANCIAL INFORMATION
GUARANTOR AND NON-GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On October 26, 2015, GE Capital International Funding Company Unlimited Company, formerly GE Capital International Funding Company (the Issuer), then a finance subsidiary of General Electric Capital Corporation, settled its previously announced private offers to exchange (the Exchange Offers) the Issuer’s new senior unsecured notes for certain outstanding debt securities of General Electric Capital Corporation.
The new notes that were issued were fully and unconditionally, jointly and severally guaranteed by both the Company and GE Capital International Holdings Limited (GECIHL) (each a Guarantor, and together, the Guarantors).
Under the terms of a registration rights agreement entered into in connection with the Exchange Offers, the Issuer and the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (SEC) for an offer to exchange new senior notes of the Issuer registered with the SEC and guaranteed by the Guarantors for certain of the Issuer’s outstanding unregistered senior notes. This exchange was completed in July 2016.
PRESENTATION
In connection with the registration of the senior notes, the Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities. Included are the Condensed Consolidating Statements of Earnings and Comprehensive Income for the three monthsquarter ended September 30, 20172023.
Bank BPH. As previously reported, Bank BPH, along with other Polish banks, has been subject to ongoing litigation in Poland related to its portfolio of floating rate residential mortgage loans, with cases brought by individual borrowers seeking relief related to their foreign currency indexed or denominated mortgage loans in various courts throughout Poland. For several years, GE has observed an increase in the number of lawsuits being brought against Bank BPH and 2016other banks in Poland by current and nine monthsformer borrowers, and we expect this to continue in future reporting periods. As previously reported, GE and Bank BPH approved the adoption of a settlement program and recorded an additional charge of $1,014 million in the quarter ended SeptemberJune 30, 2017 and 2016, Condensed Consolidating Statements2023. The estimate of Financial Positiontotal losses for borrower litigation at Bank BPH as of September 30, 2017 and December 31, 2016 and Condensed Consolidating Statements of Cash Flows2023 was $2,522 million. This estimate accounts for the nine monthscosts of payments to borrowers who we estimate will participate in the settlement program, as well as estimates of litigation with other borrowers where remedies can often exceed the value of the current loan balance, and represents our best estimate of the total losses we expect to incur over time. However, there are a number of factors that could affect the estimate in the future; refer to the disclosures about Bank BPH in our Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 20172023 and 2016 for:
other prior filings for additional details.
General Electric Company (the Parent Company Guarantor) - prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations;
GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary for debt;
GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor)- prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting;
Non-Guarantor Subsidiaries- prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows;
Consolidating Adjustments - adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries; and
Consolidated - prepared on a consolidated basis.
20172023 3Q FORM 10-Q 10539
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 8,025 |
| $ | — |
| $ | — |
| $ | 40,741 |
| $ | (19,338 | ) | $ | 29,428 |
|
| Other income (loss) | (1,152 | ) | — |
| — |
| 25,159 |
| (21,861 | ) | 2,146 |
|
| Equity in earnings (loss) of affiliates | 5,672 |
| — |
| 1,019 |
| 21,123 |
| (27,813 | ) | — |
|
| GE Capital revenues from services | — |
| 176 |
| 209 |
| 2,785 |
| (1,272 | ) | 1,898 |
|
| Total revenues and other income (loss) | 12,545 |
| 176 |
| 1,228 |
| 89,808 |
| (70,284 | ) | 33,472 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 1,671 |
| 168 |
| 542 |
| 1,279 |
| (2,428 | ) | 1,232 |
|
| Other costs and expenses | 9,382 |
| — |
| — |
| 40,253 |
| (18,861 | ) | 30,774 |
|
| Total costs and expenses | 11,053 |
| 168 |
| 542 |
| 41,533 |
| (21,290 | ) | 32,006 |
|
| Earnings (loss) from continuing operations before income taxes | 1,491 |
| 7 |
| 686 |
| 48,275 |
| (48,994 | ) | 1,466 |
|
| Benefit (provision) for income taxes | 457 |
| (1 | ) | — |
| (59 | ) | (63 | ) | 334 |
|
| Earnings (loss) from continuing operations | 1,948 |
| 6 |
| 686 |
| 48,216 |
| (49,058 | ) | 1,800 |
|
| Earnings (loss) from discontinued operations, net of taxes | (113 | ) | — |
| (562 | ) | 4 |
| 565 |
| (106 | ) |
| Net earnings (loss) | 1,836 |
| 6 |
| 125 |
| 48,220 |
| (48,493 | ) | 1,694 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (21 | ) | (121 | ) | (142 | ) |
| Net earnings (loss) attributable to the Company | 1,836 |
| 6 |
| 125 |
| 48,241 |
| (48,372 | ) | 1,836 |
|
| Other comprehensive income (loss) | 931 |
| — |
| (187 | ) | 19,935 |
| (19,749 | ) | 931 |
|
| Comprehensive income (loss) attributable to the Company | $ | 2,766 |
| $ | 6 |
| $ | (62 | ) | $ | 68,176 |
| $ | (68,121 | ) | $ | 2,766 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 8,194 |
| $ | — |
| $ | — |
| $ | 36,082 |
| $ | (17,462 | ) | $ | 26,814 |
|
| Other income (loss) | 883 |
| — |
| — |
| 35,578 |
| (36,234 | ) | 227 |
|
| Equity in earnings (loss) of affiliates | 1,788 |
| — |
| 428 |
| 29,804 |
| (32,019 | ) | — |
|
| GE Capital revenues from services | — |
| 166 |
| 243 |
| 2,838 |
| (1,023 | ) | 2,224 |
|
| Total revenues and other income (loss) | 10,865 |
| 166 |
| 671 |
| 104,302 |
| (86,738 | ) | 29,266 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 1,166 |
| 138 |
| 525 |
| 856 |
| (1,724 | ) | 961 |
|
| Other costs and expenses | 8,498 |
| — |
| 16 |
| 36,101 |
| (18,385 | ) | 26,230 |
|
| Total costs and expenses | 9,664 |
| 138 |
| 541 |
| 36,957 |
| (20,109 | ) | 27,191 |
|
| Earnings (loss) from continuing operations before income taxes | 1,201 |
| 28 |
| 130 |
| 67,345 |
| (66,630 | ) | 2,074 |
|
| Benefit (provision) for income taxes | 932 |
| (3 | ) | (11 | ) | (951 | ) | 16 |
| (18 | ) |
| Earnings (loss) from continuing operations | 2,132 |
| 24 |
| 119 |
| 66,395 |
| (66,614 | ) | 2,056 |
|
| Earnings (loss) from discontinued operations, net of taxes | (105 | ) | — |
| (552 | ) | 224 |
| 328 |
| (105 | ) |
| Net earnings (loss) | 2,027 |
| 24 |
| (433 | ) | 66,619 |
| (66,286 | ) | 1,951 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (51 | ) | (25 | ) | (76 | ) |
| Net earnings (loss) attributable to the Company | 2,027 |
| 24 |
| (433 | ) | 66,670 |
| (66,262 | ) | 2,027 |
|
| Other comprehensive income (loss) | 477 |
| — |
| 51 |
| (711 | ) | 661 |
| 477 |
|
| Comprehensive income (loss) attributable to the Company | $ | 2,504 |
| $ | 24 |
| $ | (382 | ) | $ | 65,959 |
| $ | (65,601 | ) | $ | 2,504 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 24,897 |
| $ | — |
| $ | — |
| $ | 114,446 |
| $ | (57,448 | ) | $ | 81,895 |
|
| Other income (loss) | (1,041 | ) | — |
| — |
| 57,784 |
| (54,132 | ) | 2,611 |
|
| Equity in earnings (loss) of affiliates | 10,444 |
| — |
| 1,711 |
| 71,787 |
| (83,942 | ) | — |
|
| GE Capital revenues from services | — |
| 505 |
| 583 |
| 7,644 |
| (2,548 | ) | 6,184 |
|
| Total revenues and other income (loss) | 34,301 |
| 505 |
| 2,294 |
| 251,661 |
| (198,070 | ) | 90,691 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 3,348 |
| 477 |
| 1,485 |
| 3,582 |
| (5,348 | ) | 3,545 |
|
| Other costs and expenses | 27,567 |
| — |
| 22 |
| 113,764 |
| (58,020 | ) | 83,334 |
|
| Total costs and expenses | 30,916 |
| 478 |
| 1,507 |
| 117,346 |
| (63,368 | ) | 86,879 |
|
| Earnings (loss) from continuing operations before income taxes | 3,385 |
| 27 |
| 787 |
| 134,315 |
| (134,702 | ) | 3,812 |
|
| Benefit (provision) for income taxes | 971 |
| (3 | ) | 115 |
| (758 | ) | (22 | ) | 303 |
|
| Earnings (loss) from continuing operations | 4,356 |
| 24 |
| 902 |
| 133,557 |
| (134,724 | ) | 4,115 |
|
| Earnings (loss) from discontinued operations, net of taxes | (501 | ) | — |
| (284 | ) | 7 |
| 287 |
| (490 | ) |
| Net earnings (loss) | 3,856 |
| 24 |
| 618 |
| 133,564 |
| (134,437 | ) | 3,624 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (53 | ) | (178 | ) | (231 | ) |
| Net earnings (loss) attributable to the Company | 3,856 |
| 24 |
| 618 |
| 133,617 |
| (134,259 | ) | 3,856 |
|
| Other comprehensive income (loss) | 4,075 |
| — |
| 463 |
| (7,059 | ) | 6,596 |
| 4,075 |
|
| Comprehensive income (loss) attributable to the Company | $ | 7,931 |
| $ | 24 |
| $ | 1,081 |
| $ | 126,559 |
| $ | (127,663 | ) | $ | 7,931 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues and other income | | | | | | |
| Sales of goods and services | $ | 28,870 |
| $ | — |
| $ | — |
| $ | 108,043 |
| $ | (56,757 | ) | $ | 80,156 |
|
| Other income (loss) | 845 |
| — |
| — |
| 55,062 |
| (52,522 | ) | 3,385 |
|
| Equity in earnings (loss) of affiliates | 7,923 |
| — |
| 1,093 |
| 58,732 |
| (67,747 | ) | — |
|
| GE Capital revenues from services | — |
| 762 |
| 1,262 |
| 9,182 |
| (4,144 | ) | 7,063 |
|
| Total revenues and other income (loss) | 37,638 |
| 762 |
| 2,355 |
| 231,019 |
| (181,170 | ) | 90,604 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 2,828 |
| 685 |
| 2,133 |
| 4,027 |
| (5,651 | ) | 4,023 |
|
| Other costs and expenses | 30,555 |
| — |
| 71 |
| 110,725 |
| (60,906 | ) | 80,445 |
|
| Total costs and expenses | 33,383 |
| 686 |
| 2,204 |
| 114,752 |
| (66,558 | ) | 84,467 |
|
| Earnings (loss) from continuing operations before income taxes | 4,255 |
| 76 |
| 150 |
| 116,267 |
| (114,612 | ) | 6,137 |
|
| Benefit (provision) for income taxes | 1,862 |
| (10 | ) | (58 | ) | (1,908 | ) | (189 | ) | (302 | ) |
| Earnings (loss) from continuing operations | 6,118 |
| 67 |
| 93 |
| 114,359 |
| (114,801 | ) | 5,835 |
|
| Earnings (loss) from discontinued operations, net of taxes | (954 | ) | — |
| (1,547 | ) | 398 |
| 1,149 |
| (954 | ) |
| Net earnings (loss) | 5,164 |
| 67 |
| (1,455 | ) | 114,757 |
| (113,652 | ) | 4,881 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (143 | ) | (140 | ) | (283 | ) |
| Net earnings (loss) attributable to the Company | 5,164 |
| 67 |
| (1,455 | ) | 114,900 |
| (113,512 | ) | 5,164 |
|
| Other comprehensive income (loss) | 2,107 |
| (12 | ) | 114 |
| 136 |
| (238 | ) | 2,107 |
|
| Comprehensive income (loss) attributable to the Company | $ | 7,271 |
| $ | 55 |
| $ | (1,341 | ) | $ | 115,036 |
| $ | (113,750 | ) | $ | 7,271 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| SEPTEMBER 30, 2017 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash and equivalents | $ | 737 |
| $ | — |
| $ | 3 |
| $ | 39,623 |
| $ | (509 | ) | $ | 39,854 |
|
| Investment securities | 1 |
| — |
| — |
| 40,298 |
| (1,603 | ) | 38,696 |
|
| Receivables - net | 51,669 |
| 17,452 |
| 31,245 |
| 87,077 |
| (144,082 | ) | 43,362 |
|
| Inventories | 5,264 |
| — |
| — |
| 24,695 |
| (4,112 | ) | 25,848 |
|
| Property, plant and equipment - net | 5,645 |
| — |
| — |
| 49,754 |
| (1,299 | ) | 54,101 |
|
| Investment in subsidiaries(a) | 297,324 |
| — |
| 80,506 |
| 695,869 |
| (1,073,699 | ) | — |
|
| Goodwill and intangible assets | 6,812 |
| — |
| — |
| 84,760 |
| 16,932 |
| 108,503 |
|
| All other assets | 27,636 |
| 44 |
| 387 |
| 214,163 |
| (181,348 | ) | 60,882 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 6,791 |
| 6,791 |
|
| Total assets | $ | 395,089 |
| $ | 17,497 |
| $ | 112,142 |
| $ | 1,236,239 |
| $ | (1,382,929 | ) | $ | 378,038 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 183,427 |
| $ | — |
| $ | 46,537 |
| $ | 23,793 |
| $ | (225,630 | ) | $ | 28,127 |
|
| Accounts payable | 9,672 |
| — |
| — |
| 66,041 |
| (60,807 | ) | 14,907 |
|
| Other current liabilities | 11,479 |
| 33 |
| 3 |
| 24,418 |
| 550 |
| 36,483 |
|
| Long-term and non-recourse borrowings | 72,193 |
| 16,724 |
| 34,810 |
| 53,517 |
| (68,979 | ) | 108,265 |
|
| All other liabilities | 42,212 |
| 544 |
| 137 |
| 55,881 |
| (7,003 | ) | 91,772 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 990 |
| 990 |
|
| Total Liabilities | 318,984 |
| 17,302 |
| 81,488 |
| 223,650 |
| (360,879 | ) | 280,544 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 2,713 |
| 727 |
| 3,441 |
|
| | | | | | | |
| GE shareowners' equity | 76,105 |
| 195 |
| 30,654 |
| 1,008,330 |
| (1,039,179 | ) | 76,105 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,545 |
| 16,402 |
| 17,947 |
|
| Total equity | 76,105 |
| 195 |
| 30,654 |
| 1,009,876 |
| (1,022,777 | ) | 94,052 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 395,089 |
| $ | 17,497 |
| $ | 112,142 |
| $ | 1,236,239 |
| $ | (1,382,929 | ) | $ | 378,038 |
|
| |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $19,301 million and net assets of discontinued operations of $3,776 million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| DECEMBER 31, 2016 |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash and equivalents | $ | 2,558 |
| $ | — |
| $ | 3 |
| $ | 46,994 |
| $ | (1,426 | ) | $ | 48,129 |
|
| Investment securities | 1 |
| — |
| — |
| 47,394 |
| (3,082 | ) | 44,313 |
|
| Receivables - net | 63,620 |
| 17,157 |
| 30,470 |
| 79,401 |
| (148,385 | ) | 42,263 |
|
| Inventories | 4,654 |
| — |
| — |
| 21,076 |
| (3,377 | ) | 22,354 |
|
| Property, plant and equipment - net | 5,768 |
| — |
| — |
| 46,366 |
| (1,615 | ) | 50,518 |
|
| Investment in subsidiaries(a) | 272,685 |
| — |
| 80,481 |
| 492,674 |
| (845,840 | ) | — |
|
| Goodwill and intangible assets | 8,128 |
| — |
| — |
| 42,074 |
| 36,673 |
| 86,875 |
|
| All other assets | 14,692 |
| 44 |
| 39 |
| 201,276 |
| (160,134 | ) | 55,917 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 14,815 |
| 14,815 |
|
| Total assets | $ | 372,107 |
| $ | 17,202 |
| $ | 110,992 |
| $ | 977,255 |
| $ | (1,112,372 | ) | $ | 365,183 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 167,089 |
| $ | 1 |
| $ | 46,432 |
| $ | 25,919 |
| $ | (208,727 | ) | $ | 30,714 |
|
| Accounts payable | 5,412 |
| — |
| — |
| 47,366 |
| (38,343 | ) | 14,435 |
|
| Other current liabilities | 11,072 |
| 33 |
| 117 |
| 25,095 |
| 114 |
| 36,431 |
|
| Long-term and non-recourse borrowings | 68,983 |
| 16,486 |
| 34,389 |
| 68,912 |
| (83,273 | ) | 105,496 |
|
| All other liabilities | 43,722 |
| 511 |
| 481 |
| 58,376 |
| (9,656 | ) | 93,434 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 4,158 |
| 4,158 |
|
| Total Liabilities | 296,279 |
| 17,030 |
| 81,419 |
| 225,667 |
| (335,727 | ) | 284,668 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 2,223 |
| 802 |
| 3,025 |
|
| | | | | | | |
| GE shareowners' equity | 75,828 |
| 171 |
| 29,573 |
| 747,719 |
| (777,463 | ) | 75,828 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,647 |
| 16 |
| 1,663 |
|
| Total equity | 75,828 |
| 171 |
| 29,573 |
| 749,366 |
| (777,447 | ) | 77,491 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 372,107 |
| $ | 17,202 |
| $ | 110,992 |
| $ | 977,255 |
| $ | (1,112,372 | ) | $ | 365,183 |
|
| |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $28,516 million and net assets of discontinued operations of $6,012 million. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| NINE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
| | | | | | | |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash flows – operating activities | | | | | | |
| Cash from (used for) operating activities - continuing operations | $ | (25,937 | ) | $ | 39 |
| $ | (81 | ) | $ | 193,403 |
| $ | (163,416 | ) | $ | 4,008 |
|
| Cash from (used for) operating activities - discontinued operations | (501 | ) | — |
| — |
| 8 |
| 3 |
| (490 | ) |
| Cash from (used for) operating activities | (26,437 | ) | 39 |
| (81 | ) | 193,411 |
| (163,413 | ) | 3,518 |
|
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | (1,723 | ) | (39 | ) | 345 |
| (257,130 | ) | 263,239 |
| 4,692 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (2,349 | ) | — |
| (2,349 | ) |
| Cash from (used for) investing activities | (1,723 | ) | (39 | ) | 345 |
| (259,479 | ) | 263,239 |
| 2,343 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | 26,339 |
| — |
| (265 | ) | 104,160 |
| (148,463 | ) | (18,228 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| 1,905 |
| — |
| 1,905 |
|
| Cash from (used for) financing activities | 26,339 |
| — |
| (265 | ) | 106,065 |
| (148,463 | ) | (16,323 | ) |
| Effect of currency exchange rate changes on cash and equivalents | — |
| — |
| — |
| 1,253 |
| — |
| 1,253 |
|
| Increase (decrease) in cash and equivalents | (1,821 | ) | — |
| — |
| 41,251 |
| (48,638 | ) | (9,208 | ) |
| Cash and equivalents at beginning of year | 2,558 |
| — |
| 3 |
| (1,132 | ) | 48,129 |
| 49,558 |
|
| Cash and equivalents at September 30 | 737 |
| — |
| 3 |
| 40,119 |
| (509 | ) | 40,350 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| — |
| 496 |
| — |
| 496 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 737 |
| $ | — |
| $ | 3 |
| $ | 39,623 |
| $ | (509 | ) | $ | 39,854 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| NINE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED) |
| | | | | | | |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash flows – operating activities | | | | | | |
| Cash from (used for) operating activities - continuing operations | $ | (14,847 | ) | $ | 175 |
| $ | (121 | ) | $ | 83,404 |
| $ | (64,766 | ) | $ | 3,846 |
|
| Cash from (used for) operating activities - discontinued operations | (954 | ) | — |
| — |
| (4,366 | ) | (399 | ) | (5,719 | ) |
| Cash from (used for) operating activities | (15,801 | ) | 175 |
| (121 | ) | 79,038 |
| (65,165 | ) | (1,873 | ) |
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | 20,902 |
| 16,080 |
| 36,317 |
| 32,000 |
| (51,740 | ) | 53,559 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (12,056 | ) | — |
| (12,056 | ) |
| Cash from (used for) investing activities | 20,902 |
| 16,080 |
| 36,317 |
| 19,944 |
| (51,740 | ) | 41,503 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | (6,894 | ) | (16,255 | ) | (36,194 | ) | (150,446 | ) | 134,601 |
| (75,188 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| 295 |
| — |
| 295 |
|
| Cash from (used for) financing activities | (6,894 | ) | (16,255 | ) | (36,194 | ) | (150,151 | ) | 134,601 |
| (74,893 | ) |
| Effect of currency exchange rate changes on cash and equivalents | — |
| — |
| — |
| (169 | ) | — |
| (169 | ) |
| Increase (decrease) in cash and equivalents | (1,792 | ) | — |
| 3 |
| (51,339 | ) | 17,696 |
| (35,432 | ) |
| Cash and equivalents at beginning of year | 4,137 |
| — |
| — |
| 107,350 |
| (20,609 | ) | 90,878 |
|
| Cash and equivalents at September 30 | 2,344 |
| — |
| 3 |
| 56,011 |
| (2,913 | ) | 55,445 |
|
| Less cash and equivalents of discontinued operations at September 30 | — |
| — |
| — |
| 2,915 |
| — |
| 2,915 |
|
| Cash and equivalents of continuing operations at September 30 | $ | 2,344 |
| $ | — |
| $ | 3 |
| $ | 53,095 |
| $ | (2,913 | ) | $ | 52,530 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 21. SUPPLEMENTAL INFORMATION
CASH FLOWS INFORMATION
AmountsENVIRONMENTAL, HEALTH AND SAFETY MATTERS. As previously reported, in 2000, GE and the "AllEnvironmental Protection Agency (EPA) entered into a consent decree relating to PCB cleanup of the Housatonic River in Massachusetts. Following the EPA’s release in September 2015 of an intended final remediation decision, GE and the 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 operating activities" lineinterested parties appealed to the EPA’s Environmental Appeals Board (EAB). The EAB issued its decision in January 2018, affirming parts of the StatementEPA’s decision and granting relief to GE on certain significant elements of Cash Flows reflect cash sourcesits challenge. The EAB remanded the decision back to the EPA to address those elements and uses as well as non-cash adjustmentsreissue a revised final remedy, and the EPA convened a mediation process with GE and interested stakeholders. In February 2020, the EPA announced an agreement between the EPA and many of the mediation stakeholders, including GE, concerning a revised Housatonic River remedy. Based on the mediated resolution, the EPA solicited public comment on a draft permit and issued the final revised permit effective in January 2021. In March 2021, two local environmental advocacy groups filed a joint petition to net income including those related to taxes, interest, pension, contract assetsthe EAB challenging portions of the revised permit; in February 2022, the EAB denied the petition, and gains (losses) on principal business dispositions. Certain supplemental information related to our cash flows is shown below.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
|
| | | |
| GE | | |
| All other operating activities | | |
| (Gains) losses on purchases and sales of business interests(a) | $ | (1,968 | ) | $ | (3,471 | ) |
| Contract assets (net)(b) | (4,009 | ) | (3,035 | ) |
| Income taxes(c) | (1,107 | ) | (1,318 | ) |
| Interest charges(d) | 327 |
| 323 |
|
| Principal pension plans(e) | 1,179 |
| 2,520 |
|
| Other(f) | 1,636 |
| 169 |
|
| | $ | (3,942 | ) | $ | (4,812 | ) |
| Net dispositions (purchases) of GE shares for treasury | | |
| Open market purchases under share repurchase program | $ | (3,394 | ) | $ | (18,708 | ) |
| Other purchases | (58 | ) | (430 | ) |
| Dispositions | 831 |
| 1,168 |
|
| | $ | (2,620 | ) | $ | (17,969 | ) |
| |
(a) | Included pre-tax gains on sales of businesses reclassified to Proceeds from principal business dispositions within Cash flows from investing activities of $(1,897) million for Water in the nine months ended September 30, 2017, and $(3,130) million for Appliances and $(398) million for GE Asset Management in the nine months ended September 30, 2016. |
| |
(b) | Contract assets are presented net of related billings in excess of revenues on our long-term product service agreements. See Note 9. |
| |
(c) | Reflected the effects of current tax expense (benefit) of $699 million and $953 million and net cash paid during the year for income taxes of $(1,806) million and $(2,271) million for the nine months ended September 30, 2017 and 2016, respectively. Cash flows effects of deferred tax provisions (benefits) are shown separately within cash flows from operating activities. |
| |
(d) | Reflected the effects of interest expense of $1,918 million and $1,490 million and cash paid for interest of $(1,591) million and $(1,167) million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(e) | Reflected the effects of pension costs of $2,779 million and $2,674 million and employer contributions of $(1,600) million and $(154) million for the nine months ended September 30, 2017 and 2016, respectively. See Note 12. |
| |
(f) | Included a $512 million correction of investing cash flows used for the settlement of derivative instruments classified as operating during the the six months ended June 30, 2017. Therefore, operating cash flows were understated and investing cash flows were overstated during the the six months ended June 30, 2017. |
DERIVATIVES AND HEDGING
See Note 16the permit became effective in March 2022. In May 2022, the two environmental advocacy groups petitioned the U.S. Court of Appeals for the primary information relatedFirst Circuit to our derivativesreview the EPA’s final permit, and hedging activity. This section provides certain supplementalthe Court denied the petition in July 2023. As of September 30, 2023, 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. For further information about this topic.
Changes inenvironmental, health and safety matters, see the fair value of derivatives are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income, or AOCI) and are recorded in earnings in the period in which the hedged transaction occurs. The table below summarizes this activity by hedging instrument.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | |
| | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| (In millions) | Assets |
| Liabilities |
| | Assets |
| Liabilities |
|
| | | | | | |
| Derivatives accounted for as hedges | | | | | |
| Interest rate contracts | $ | 2,663 |
| $ | 108 |
| | $ | 3,106 |
| $ | 210 |
|
| Currency exchange contracts | 233 |
| 105 |
| | 402 |
| 624 |
|
| Other contracts | — |
| — |
| | — |
| — |
|
| | 2,895 |
| 213 |
| | 3,508 |
| 834 |
|
| | | | | | |
| Derivatives not accounted for as hedges | | | | | |
| Interest rate contracts | 74 |
| 6 |
| | 62 |
| 20 |
|
| Currency exchange contracts | 1,499 |
| 2,187 |
| | 1,778 |
| 4,011 |
|
| Other contracts | 132 |
| 46 |
| | 119 |
| 17 |
|
| | 1,705 |
| 2,240 |
| | 1,958 |
| 4,048 |
|
| | | | | | |
| Gross derivatives recognized in statement of financial position | | | | | |
| Gross derivatives | 4,601 |
| 2,453 |
| | 5,467 |
| 4,883 |
|
| Gross accrued interest | 491 |
| — |
| | 768 |
| (24 | ) |
| | 5,091 |
| 2,454 |
| | 6,234 |
| 4,859 |
|
| | | | | | |
| Amounts offset in statement of financial position | | | | | |
| Netting adjustments(a) | (1,802 | ) | (1,802 | ) | | (3,097 | ) | (3,094 | ) |
| Cash collateral(b) | (2,091 | ) | (276 | ) | | (2,025 | ) | (1,355 | ) |
| | (3,893 | ) | (2,078 | ) | | (5,121 | ) | (4,449 | ) |
| | | | | | |
| Net derivatives recognized in statement of financial position | | | | | |
| Net derivatives | 1,198 |
| 376 |
| | 1,113 |
| 410 |
|
| | | | | | |
| Amounts not offset in statement of financial position | | | | | |
| Securities held as collateral(c) | (437 | ) | — |
| | (442 | ) | — |
|
| | | | | | |
| Net amount | $ | 761 |
| $ | 376 |
| | $ | 671 |
| $ | 410 |
|
Derivatives are classified in the captions "All other assets" and "All other liabilities" and the related accrued interest is classified in "Other GE Capital receivables" and "All other liabilities" in our Statement of Financial Position.
| |
(a) | The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. At September 30, 2017 and December 31, 2016, the cumulative adjustment for non-performance risk was insignificant and $(3) million, respectively. |
| |
(b) | Excluded excess cash collateral received and posted of $90 million and $151 million at September 30, 2017, respectively, and $6 million and $177 million at December 31, 2016, respectively. |
| |
(c) | Excluded excess securities collateral received of $42 million and zero at September 30, 2017 and December 31, 2016, respectively. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | |
| CASH FLOW HEDGE ACTIVITY | | | | | |
| | Gain (loss) recognized in AOCI | | Gain (loss) reclassified
from AOCI into earnings |
| | for the three months ended September 30 | | for the three months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Interest rate contracts | $ | 1 |
| $ | 1 |
| | $ | (6 | ) | $ | (12 | ) |
| Currency exchange contracts | 224 |
| — |
| | 110 |
| (46 | ) |
| Commodity contracts | — |
| 1 |
| | — |
| — |
|
| Total(a) | $ | 225 |
| $ | 2 |
| | $ | 104 |
| $ | (57 | ) |
|
| | | | | | | | | | | | | |
| | | | | | |
| CASH FLOW HEDGE ACTIVITY | | | | | |
| | Gain (loss) recognized in AOCI | | Gain (loss) reclassified
from AOCI into earnings |
| | for the nine months ended September 30 | | for the nine months ended September 30 |
| (In millions) | 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | | |
| Interest rate contracts | $ | 3 |
| $ | 32 |
| | $ | (21 | ) | $ | (67 | ) |
| Currency exchange contracts | 278 |
| (76 | ) | | 189 |
| (59 | ) |
| Commodity contracts | — |
| 1 |
| | — |
| (3 | ) |
| Total(a) | $ | 281 |
| $ | (43 | ) | | $ | 167 |
| $ | (128 | ) |
| |
(a) | Gain (loss) is recorded in "GE Capital revenues from services", "Interest and other financial charges", and "Other costs and expenses" in our Statement of Earnings when reclassified. |
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was a $160 million gain at September 30, 2017. We expect to transfer $39 million gain to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both the six months ended 2017 and 2016, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At September 30, 2017 and 2016, the maximum term of derivative instruments that hedge forecasted transactions was 15 years and 16 years, respectively. See Note 14 for additional information about reclassifications out of AOCI.
For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness were insignificant for each reporting period.
COUNTERPARTY CREDIT RISK
Fair valuesrevised portions of our derivatives can change significantly from period to period based2022 Form 10-K 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)Form 8-K as filed 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.April 25, 2023.
As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasury securities) when our receivable due from the counterparties, measured at current market value, exceeds a specified limit. The fair value of such collateral was $2,529 million at September 30, 2017, of which $2,091 million was cash and $437 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of cash collateral posted was $276 million at September 30, 2017. At September 30, 2017, our exposure to counterparties (including accrued interest), net of collateral we hold, was $681 million. This excludes exposure related to embedded derivatives.
Additionally, our master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3 or other ratings levels agreed upon with the counterparty. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability, after consideration of collateral posted by us and outstanding interest payments was $271 million at September 30, 2017. This excludes exposure related to embedded derivatives.
EXHIBITS
|
| | |
| GE 2007 Long-Term Incentive Plan (as amended and restated April 26, 2017) (Incorporated by reference to Exhibit 99.1 to GE’s Registration Statement on Form S-8,Offer Letterfor Rahul Ghai, dated July 28, 2017, File number 333-219566 (Commission file number 001-00035))October 5, 2023.* |
| Computation of Per Share Earnings.*
Computation Data is provided in Note 18 of Ratio of Earnings to Fixed Charges.
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.this Report.*
|
| Certification Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended.* |
| Certification Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended.* |
| Certification Pursuant to 18 U.S.C. Section 1350.* |
Exhibit 101 | 101. The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2023, formatted in XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the three and nine months ended September 30, 20172023 and 2016,2022, (ii) Statement of Financial Position at September 30, 2023 and December 31, 2022, (iii) Statement of Cash Flows for the nine months ended September 30, 2023 and 2022, (iv) Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 20172023 and 2016, (iii) Consolidated2022, (v) Statement of Changes in Shareowners’Shareholders' Equity for the three and nine months ended September 30, 20172023 and 2016, (iv) Statement of Financial Position at September 30, 2017 and December 31, 2016, (v) Statement of Cash Flows for the nine months ended September 30, 2017 and 2016,2022, and (vi) Notes to Consolidated Financial Statements. |
| | Exhibit 104. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 15 to the Consolidated Financial Statements in this Report.
Filed electronically herewith |
FORM 10-Q CROSS REFERENCE INDEX
|
| | | | | | | |
Item NumberFORM 10-Q CROSS REFERENCE INDEX | | Page(s) |
| Part I – FINANCIAL INFORMATION |
| Item 1. | | Financial Statements | | 66-113 |
| | | | |
| Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4-59 |
| | | | |
| Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | | Not applicable(a)13, 36-37 |
| | | | |
| Item 4. | | Controls and Procedures | | 60 |
| | | | |
Part II – OTHER INFORMATION |
| Item 1. | | Legal Proceedings | | 62-63 |
| Item 1A. | | Risk Factors | | Not applicable(a) |
Item 1A. | | Risk Factors | | Not applicable(b) |
| | | | |
| Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 61 |
| | | | |
| Item 3. | | Defaults Upon Senior Securities | | Not applicable |
| | | | |
| Item 4. | | Mine Safety Disclosures | | 51Not applicable |
| Item 5. | | Other Information | | Not applicable |
Item 5.6. | | Other InformationExhibits | | Not applicable |
| Signatures | | | | |
Item 6. | | Exhibits | | 114 |
| | | | |
Signatures | | | 116 |
| |
(a) | There have been no significant changes to our market risk since December 31, 2016. For a discussion of our exposure to market risk, refer to our Annual Report on Form 10-K for the year ended December 31, 2016. |
| |
(b) | There have been no significant changes to our risk factors since December 31, 2016. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2016. |
(a) For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2022.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | | | | |
| October 24, 2023 | | General Electric Company
(Registrant)
/s/ Thomas S. Timko |
October 30, 2017Date | | /s/ Jan R. Hauser |
Date | | Jan R. HauserThomas S. Timko
Vice President, Chief Accounting Officer and Controller Duly Authorized Officer and Principal Accounting Officer
|
116 20172023 3Q FORM 10-Q40
