0000040545 us-gaap:CostOfSalesMember 2019-01-01 2019-09-30
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, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number001-00035
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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(Mark One) |
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þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2018
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OR |
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¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to ____ |
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Commission file number001-00035
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GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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| New York | | 14-0689340 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 41 Farnsworth Street, | Boston | MA | | 02210 |
| (Address of principal executive offices) | | (Zip Code) |
(Registrant’s telephone number, including area code)(617) 443-3000
Securities registered pursuant to Section 12(b) of the Act: |
(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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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.06 per share | GE | New York Stock Exchange |
| Floating Rate Notes due 2020 | GE 20E | New York Stock Exchange |
| 0.375% Notes due 2022 | GE 22A | New York Stock Exchange |
| 1.250% Notes due 2023 | GE 23E | New York Stock Exchange |
| 0.875% Notes due 2025 | GE 25 | New York Stock Exchange |
| 1.875% Notes due 2027 | GE 27E | New York Stock Exchange |
| 1.500% Notes due 2029 | GE 29 | New York Stock Exchange |
| 7 1/2% Guaranteed Subordinated Notes due 2035 | GE /35 | New York Stock Exchange |
| 2.125% Notes due 2037 | GE 37 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesþNo ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesþNo ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): |
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Large accelerated filerþ | ☑ | Accelerated filer ¨ | ☐ |
Non-accelerated filer ¨ | ☐ | Smaller reporting company ¨ | ☐ |
Emerging growth company ¨ | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
There were 8,698,115,0008,733,549,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2018.2019.
TABLE OF CONTENTS
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| About General Electric | |
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| Non-GAAP Financial Measures | |
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Risk Factors | |
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| Glossary | |
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FORWARD LOOKING STATEMENTS | | |
FORWARD LOOKING STATEMENTS
Our public communications and SEC filings may contain "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," “forecast,” "target," “preliminary,” or “range.”
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about potential business or asset dispositions, including plans to separate GE Healthcare into a standalone company, the timing and structure for that separation, the characteristics of the business to be separated and the expected benefits to GE; plans to exit our equity ownership position in Baker Hughes, a GE company (BHGE) and the expected benefits to GE; capital allocation, including our plans with respect to the timing and amount of GE dividends, organic investment and other priorities; our capital structure and access to funding, including leverage ratios and targets, debt repayment plans and credit ratings and outlooks; divestiture proceeds expectations; GE and GE Capital liquidity; future corporate performance; leverage targets; future charges and capital contributions that may be required in connection with GE Capital’s run-off insurance operations and related GE Capital portfolio actions; revenues; organic growth; cash flows and cash conversion, including the impact of working capital, contract assets and pension funding contributions; earnings per share, including the impact of the new revenue recognition accounting standard and U.S. tax reform; future business growth and productivity gains; profit margins; the benefits of restructuring, the new GE operating system and the future cost profile and performance of Corporate; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; tax rates; transaction-related synergies, proceeds and gains; or returns on capital and investment.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, GE Industrial and GE Capital business or asset dispositions or other announced transactions, including our planned separation of GE Healthcare and dispositions of GE Transportation and BHGE, the pricing, gain or loss recognition, timing, and anticipated proceeds from those or other transactions and potential trailing liabilities;
GE’s liquidity and the amount and timing of our GE Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
our capital allocation plans, as such plans may change including with respect to the timing and amount of GE dividends, organic investments, including research and development, investments in Digital and capital expenditures, the repayment or allocation of our outstanding debt obligations, pension funding contributions, acquisitions, joint ventures and other strategic actions;
further downgrades of our current short- and long-term credit ratings or ratings outlooks and the related impact on our funding profile, costs and competitive position;
customer actions or market developments such as reduced demand for equipment and services and other challenges in our Power business, other shifts in the competitive landscape for our products and services, changes in economic conditions, including oil prices, early aircraft retirements and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;
changes in law, economic and financial conditions, including the effect of enactment of U.S. tax reform or other tax law changes, trade policy and tariffs, interest and exchange rate volatility, commodity and equity prices and the value of financial assets;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations, the amount and timing of required capital contributions and related strategic actions that we may pursue, the WMC-related matters described below, the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets, GE Capital’s leverage and credit ratings, the availability and cost of GE Capital funding and GE Capital's exposure to counterparties;
pending and future mortgage loan repurchase claims, other litigation claims and the U.S. Department of Justice's investigation under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and other investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates;
our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of the new GE operating system, restructuring and other cost reduction measures;
our ability to convert pre-order commitments/wins into orders/bookings; and the price we realize on orders/bookings since commitments/wins are stated at list prices;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of WMC, Alstom, SEC and other investigative and legal proceedings;
our success in integrating acquired businesses and operating joint ventures, and our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and BHGE;
the impact of potential product failures and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches;
the other factors that are described in "Forward-Looking Statements" in BHGE’s most recent earnings release or SEC filings; and
the other factors that are described in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2018 and September 30, 2018.
These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
ABOUT GENERAL ELECTRIC
General Electric Company is a high-tech industrial company that operates worldwide through its four industrial segments, Power, Renewable Energy, Aviation and Healthcare, and its financial services segment, Capital. The Power segment offers technologies, solutions, and services related to energy production, including gas and steam turbines, generators, and power generation services. The Renewable Energy segment provides wind turbine platforms, hardware and software, offshore wind turbines, solutions, products and services to hydropower industry, blades for onshore and offshore wind turbines, and high voltage equipment. The Aviation segment provides jet engines and turboprops for commercial airframes, maintenance, component repair, and overhaul services, as well as replacement parts, additive machines and materials, and engineering services. The Healthcare segment provides healthcare technologies in medical imaging, digital solutions, patient monitoring, and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance enhancement solutions. The Capital segment leases and finances aircraft, aircraft engines and helicopters, provides financial and underwriting solutions, and manages our run-off insurance operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
PRESENTATION
The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE)GE with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital or Financial Services)Services and are prepared in conformity with U.S. generally accepted accounting principles (GAAP).
We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. Because of the diversity in our businesses, we present our financial statements in a three-column format, which allows investors to see our industrialGE Industrial operations separately from our Financial Services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use thethese terms to mean the following:
General Electric or the Company – the parent company, General Electric Company.
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| • | General Electric or the Company – the parent company, General Electric Company. |
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| • | GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. |
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| • | GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, any intercompany profits resulting from transactions between GE and GE Capital are eliminated at the GE level. We present the results of GE in the center column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. An example of a GE metric is GE Cash Flows from Operations (GE CFOA). |
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| • | GE Capital or Financial Services – the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows. |
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| • | GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial Free Cash Flows (Non-GAAP). |
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| • | Industrial segment – the sum of our four industrial reportable segments, without giving effect to the elimination of transactions among such segments or between these segments and our financial services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. |
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| • | Baker Hughes – represents our Oil & Gas segment through the date of deconsolidation and our remaining interest in Baker Hughes Company. |
Refer to the eliminationGlossary for a list of transactions among such affiliates. As GE presentskey terms used in our MD&A and financial statements. This document contains “forward-looking statements” - that is, statements related to future events that by their nature address matters that are, to different degrees, uncertain.
For details about the 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 ofuncertainties that could cause our consolidated statements of earnings (loss), financial position and cash flows. An example of a GE metric is GE Industrial free cash flows (Non-GAAP).
General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
GE Capital Global Holdings, LLC or GECGH – the adding together of all affiliates of GECGH, giving effect to the elimination of transactions among such affiliates.
GE Capital or Financial Services – refers to GECGH 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 (loss), 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 (loss), financial position and cash flows.
GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial free cash flows (Non-GAAP).
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 comprises 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 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.
We integrate acquisitions as quickly as possible. Revenues and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses. However, in the case of BHGE, which was acquired on July 3, 2017, we consider theactual results to be organicmaterially different than those expressed in our forward-looking statements, see the Forward-Looking Statements section, as well as our Annual Report on Form 10-K for the third quarteryear ended December 31, 2018 and our other Quarterly Reports on Form 10-Q.
In the accompanying analysis of 2018.financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
Amounts reported in billions in graphstables within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Discussions throughout this MD&A are based on continuing operations unless otherwise noted.
The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.
OTHER TERMS USED BY GE
Backlog and remaining performance obligation (RPO) – backlog is unfilled customer orders for products and product services (expected life of contract sales for product services). RPO, a defined term under GAAP, is backlog excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty, even if the likelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders.
Continuing earnings – we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings.
Continuing earnings per share (EPS) – when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.”
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• | Digital revenues – revenues related to internally developed software (including PredixTM) and associated hardware, and software solutions that improve our customers’ asset performance. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.
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Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.
GE Capital Exit Plan - our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
GE Cash Flows from Operating Activities (GE CFOA) - unless otherwise indicated, GE CFOA is from continuing operations.
GE Industrial profit margin(GAAP) – GE total revenues plus other income minus GE total costs and expenses divided by GE total revenues.
Net earnings (loss) – we refer to the caption “net earnings (loss) attributable to GE common shareowners” as net earnings.
Net earnings (loss) per share (EPS) – when we refer to net earnings (loss) per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners.”
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Aviation, Oil & Gas 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 – revenues comprise sales of goods, sales of services for our industrial businesses and GE Capital revenues from services for our financial services businesses.
Segment profit – refers to the profit of the industrial segments and the net earnings of the financial services segment, both of which include other income. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
Services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and “services” must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of our operations.
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 | | Oil & Gas(a)
| | Lighting |
| Renewable Energy | | Healthcare | | |
| Aviation | | Transportation | | |
OUR FINANCIAL SERVICES OPERATING SEGMENT
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(a) | Beginning in the third quarter of 2017, our Oil & Gas segment comprises our ownership interest of approximately 62.5% in BHGE. We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment 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 addresswebsite at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts and other social media, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
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MD&A | KEY PERFORMANCE INDICATORS | |
KEY PERFORMANCE INDICATORS
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| 2018 REVENUES PERFORMANCE | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| Industrial Segment | (5 | )% | | 2 | % |
| Industrial Segment Organic (Non-GAAP) | 1 | % | | (3 | )% |
| Financial Services | 3 | % | | (6 | )% |
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| GE INDUSTRIAL ORDERS | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
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| Orders | | | | | |
| Equipment | $ | 15.9 |
| $ | 14.0 |
| | $ | 44.2 |
| $ | 40.1 |
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| Services | 15.6 |
| 15.4 |
| | 45.7 |
| 42.3 |
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| Total | $ | 31.4 |
| $ | 29.3 |
| | $ | 89.9 |
| $ | 82.4 |
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| GE INDUSTRIAL BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
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| Backlog | | |
| Equipment | $ | 89.0 |
| $ | 84.1 |
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| Services | 289.9 |
| 272.2 |
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| Total | $ | 378.9 |
| $ | 356.3 |
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| GE COSTS (GAAP) AND GE INDUSTRIAL STRUCTURAL COSTS (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
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| GE total costs and expenses (GAAP) | $ | 50.4 |
| $ | 30.0 |
| | $ | 104.4 |
| $ | 81.0 |
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| GE Industrial structural costs (Non-GAAP) | 5.7 |
| 6.1 |
| | 17.5 |
| 19.0 |
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| GE INDUSTRIAL PROFIT MARGIN (GAAP) AND ADJUSTED GE INDUSTRIAL PROFIT MARGIN (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| | 2018 |
| 2017 |
| | 2018 |
| 2017 |
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| GE Industrial profit margin (GAAP) | (83.0 | )% | 3.3 | % | | (25.1 | )% | 2.9 | % |
| Adjusted GE Industrial profit margin (Non-GAAP) | 8.1 | % | 9.9 | % | | 9.6 | % | 10.5 | % |
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| EARNINGS | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions; per-share amounts in dollars; attributable to GE common shareowners) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
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| Continuing earnings (loss) (GAAP) | $ | (22.8 | ) | $ | 1.4 |
| | $ | (21.7 | ) | $ | 2.6 |
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| Net earnings (loss) (GAAP) | (22.8 | ) | 1.3 |
| | (23.4 | ) | 2.1 |
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| Adjusted earnings (loss) (Non-GAAP) | 1.2 |
| 1.8 |
| | 4.2 |
| 4.9 |
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| Continuing earnings (loss) per share (GAAP) | $ | (2.63 | ) | $ | 0.16 |
| | $ | (2.50 | ) | $ | 0.29 |
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| Net earnings (loss) per share (GAAP) | (2.62 | ) | 0.15 |
| | (2.69 | ) | 0.24 |
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| Adjusted earnings (loss) per share (Non-GAAP) | 0.14 |
| 0.21 |
| | 0.49 |
| 0.56 |
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| GE CFOA (GAAP) AND GE INDUSTRIAL AND ADJUSTED GE INDUSTRIAL FREE CASH FLOWS (NON-GAAP) |
| | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
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| GE CFOA (GAAP) | $ | (4.1 | ) | $ | 4.1 |
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| GE Industrial free cash flows (Non-GAAP) | (0.7 | ) | (1.9 | ) |
| Adjusted GE Industrial free cash flows (Non-GAAP) | (0.3 | ) | (1.2 | ) |
CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS.In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million shares in Baker Hughes for $3.0 billion in cash (net of expenses) which reduced our ownership interest from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified results to discontinued operations for all periods presented. In addition, as disclosed in prior filings, including our 2018 Form 10-K, we expected to record a significant loss upon deconsolidation. In the third quarter of 2019, we recorded a loss of $8.7 billion ($8.2 billion after-tax) in discontinued operations. We elected to prospectively measure our remaining investment in Baker Hughes at fair value and all subsequent changes in fair value will be recognized in earnings from continuing operations. See Notes 2 and 3 to the consolidated financial statements for further information. 2018 SIGNIFICANT DEVELOPMENTS
In February 2019, we completed the spin-off and subsequent merger of our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. In the transaction, GE shareholders received shares of Wabtec common stock representing a 24.3% ownership interest in Wabtec common stock. GE received $2.8 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represented a 24.9% ownership interest in Wabtec. GE is also entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction. As a result, we reclassified our Transportation segment to discontinued operations in the first quarter of 2019, for all periods presented, and recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. In May 2019, we sold 25.3 million shares of Wabtec common stock for proceeds of $1.8 billion. During the third quarter of 2018,2019, we sold our remaining 22.5 million shares of Wabtec common stock for proceeds of $1.6 billion. See Notes 2 and 3 to the consolidated financial statements for further information.
Also in February 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion subject to certain adjustments. In the first quarter of 2019, we classified BioPharma as a business held for sale. We expect to complete the sale in the first quarter of 2020, subject to regulatory approval, providing us flexibility and optionality with respect to our remaining Healthcare business. See Note 2 to the consolidated financial statements for further information.
In the second quarter of 2019, we recognized a non-cash pre-tax impairment charge of $0.7 billion related to goodwill at our Grid Solutions equipment and services reporting unit within our Renewable Energy segment. In the third quarter of 2019, we recognized a non-cash pre-tax goodwill impairment charge of $22.0$0.7 billion related to goodwill at our Power Generation and Grid Solutions businessesHydro reporting unit within our PowerRenewable Energy segment. These charges were recorded within earnings from continuing operations at Corporate. See Note 8 to the consolidated financial statements for further information.
On October 30, 2018
In the third quarter of 2019, we announced planscompleted a tender offer to reduce our quarterly dividend from $0.12 cents to $0.01 cent per share beginningpurchase $4.8 billion of GE senior unsecured debt. The total cash consideration paid for these purchases was $5.0 billion, resulting in a pre-tax loss of $0.3 billion (including fees and other costs associated with the Board’s next dividend declaration,tender) which is expected to occurwas included in December 2018. This change will allow us to retain approximately $3.9 billionInterest and other financial charges within earnings from continuing operations in the GE Statement of cash per year comparedEarnings (Loss). See Note 11 to the prior payout level.consolidated financial statements for further information.
On October 1, 2018, we announced that H. Lawrence Culp, Jr. was named Chairman and Chief Executive Officer (CEO), succeeding John L. Flannery, effective September 30, 2018. Additionally, Thomas W. Horton was elected as lead director, succeeding Mr. Culp, effective that same date.
On July 26, 2018, we announced that Jan R. Hauser, GE's Vice President, Controller and Chief Accounting Officer, had communicated her intention to retire from GE. Thomas S. Timko, formerly the Chief Accounting Officer of General Motors Company, was appointed as her successor, effective September 10, 2018.
ANNOUNCED TRANSACTIONS
In April 2018, we announced an agreement to sell our Enterprise Financial Management, Ambulatory Care Management and Workforce Management assets, comprising our Healthcare segment’s Value-Based Care Division, to Veritas Capital, a private equity investment firm, for net proceeds of approximately $1.0 billion in cash. This transaction closed on July 10, 2018 and resultedWe annually perform premium deficiency testing in the recognition of a pre-tax gain of approximately $0.7 billionaggregate across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2018.2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. As a result of our testing, we identified a premium deficiency resulting in a $1.0 billion pre-tax ($0.8 billion after-tax) charge to earnings. See the “Other Items” section and Note 12 to the consolidated financial statements for further information.
In May 2018,October 2019, we announced an agreementchanges to merge our Transportation segment with Wabtec Corporation, athe U.S. rail equipment manufacturer. UnderGE Pension Plan and the agreement, which has been approved byU.S. GE Supplementary Plan whereby the Boards of Directors of Wabtecbenefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and GE, GEthereafter these employees will receive $2.9 billion in cash at closing, and GE and its shareholders will receive a 50.1% ownership interestincreased benefits in the combined company with GE holding 9.9%sponsored defined contribution plan in lieu of participation in a defined benefit plan and GE shareholders holding the remaining 40.2%. Wabtec shareholdersbenefits for approximately 700 employees that became executives before 2011 will retain 49.9% of the combined company. The deal is expectedbe frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to close in early 2019, subject to customary closing conditions and regulatory approval.
In June 2018, we announced an agreement to sell our Distributed Power business within our Power segment to Advent International, a global private equity investor, for $3.3 billion. The deal is expected to close by the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.
In June 2018, we announced the results of our strategic review and our intention to focus on our Power, Renewable Energy and Aviation businesses. We plan to separate GE Healthcare into a standalone company over the next 12 to 18 months, pursue an orderly separation from BHGE over the next two to three years and substantially reduce GE Industrial net debt*. In addition,new executives since 2011. Finally, we announced our plan forintent to pre-fund approximately $4 to $5 billion of our estimated 2021 and 2022 minimum ERISA funding requirements in 2020 and offer approximately 100,000 former U.S. employees with a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance,vested pension benefit a move which is expectedlimited-time option to generate at least $500 milliontake a lump sum distribution in corporate savings by the endlieu of 2020. Whilefuture monthly payments. As a result of these actions, we announced the strategic portfolio actions for Transportation, GE Healthcare and BHGE, these businesses have not met the accounting criteria for held for sale classification. That classification will depend on the nature and timing of the transaction.
In August 2018, we announced an agreementexpect to sell Energy Financial Services' (EFS) debt origination business within our Capital segment for proceedsrecognize a pre-tax increase in non-operating benefit costs of approximately $2.0$0.6 billion to Starwood Property Trust, Inc., an affiliate of a leading global private investment firm, Starwood Capital Group. In September 2018, we completed the sale and recognized a pre-tax gain of approximately $0.3 billion in the third quarter of 2018. In addition, we completed the sale of various EFS equity investments and recognized a pre-tax gain of approximately $0.2 billion in the third quarter of 2018.
In September 2018, we announced an agreement to sell our Middle River Aircraft Systems business within our Aviation segment to Singapore Technologies Engineering, a global technology, defense and engineering group, for $0.6 billion. The deal is expected to close early 2019, subject to customary closing conditions and regulatory approvals.
In October 2018, we announced an agreement to sell a portfolio of approximately $1.0 billion, including certain assumed obligations, of predominately equity investments in energy assets to Apollo Global Management, LLC. This EFS portfolio within our Capital segment comprises investments in renewable energy, contracted natural gas-fired generation and midstream energy infrastructure assets, primarily in the U.S. The deal is expected to close in the fourth quarter of 2019. See Capital Resources and Liquidity - Financial Policy within MD&A and Note 13 to the consolidated financial statements for further information.
THIRD QUARTER 2019 RESULTS.Consolidated revenues were $23.4 billion remained flat for the quarter. Offsetting a decrease in revenues largely attributable to the sale of our Distributed Power business in November 2018, subject to customary closing conditionsindustrial segment organic revenues* increased $1.4 billion, or 7%, driven by our Aviation, Renewable Energy and regulatory approvals.Healthcare segments, partially offset by our Power segment.
Continuing earnings per share was $(0.15). Excluding non-operating benefit costs, gains (losses) on business dispositions, restructuring and other charges, goodwill impairments, unrealized gains (losses) on investments debt extinguishment costs and insurance premium deficiency test charge, Adjusted earnings per share* was $0.15.
*Non-GAAP Financial Measure
8 20184 2019 3Q FORM 10-Q
THIRD QUARTER 2018 RESULTS
Consolidated revenues were $29.6 billion, down $1.1 billion, or 4%, for the quarter. The decline in revenues was largely a result of the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Industrial segment organic revenues* increased $0.3 billion driven principally by our Aviation, Renewable Energy, Oil & Gas and Healthcare segments, partially offset by our Power, Lighting and Transportation segments.
Continuing earnings per share was $(2.63) primarily due to non-cash after-tax impairment charges of $22.2 billion related to goodwill in our Power Generation and Grid Solutions businesses, as well as decreased net gains on business dispositions of $1.7 billion and decreased industrial segment profit of $0.6 billion. Excluding the goodwill impairment charge and other items, Adjusted earnings per share* was $0.14.
As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry, lower market penetration as well as the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges. Finally, market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. These conditions have resulted in downward revisions of our forecasts on current and future projected earnings and cash flows at these businesses. As a result, during the third quarter, we recorded our best estimate of a non-cash pre-tax impairment loss of $22.0 billion related to goodwill in our Power Generation and Grid Solutions businesses. Included in this amount is a non-cash impairment loss of $0.8 billion related to goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power Generation and Grid Solutions reporting units. The aforementioned charges were all recorded at Corporate. See the Corporate Items and Eliminations section within this MD&A and Note 8 to the consolidated financial statements for further information.
For the three months ended September 30, 2018, GE Industrial loss was $22.8 billion and2019, GE Industrial profit was $(0.5) billion and profit margins were (83.0)(2.1)%, down $23.8up $22.6 billion, driven by increaseddecreased non-cash goodwill impairment charges of $21.0$21.2 billion, decreased restructuring and other costs of $1.2 billion, partially offset by increased net gainslosses from disposed or held for sale businesses of $1.7 billion, increased restructuring and other costs of $0.4 billion, including non-cash intangible asset and property, plant and equipment impairment charges at our Power Conversion business of $0.6$0.3 billion and unrealized losses on investments of $0.1 billion, partially offset by decreasedincreased adjusted Corporate operating costs* of $0.2$0.1 billion. IndustrialIndustrial segment profit decreased $0.6increased $0.5 billion, or 21%25%, primarily due to lowerhigher results within our Power, Healthcare and Renewable EnergyAviation segments, partially offset by the performance of our Aviation, Oil & Gas, Transportation, Healthcare and Lighting segments.Renewable Energy segment. Industrial segment organic profit* increased $0.5 billion, or 28%.
GE CFOA from continuing operations was $(4.1)$0.1 billion and $4.1$(4.5) billion for the nine months ended September 30, 2019 and 2018, and 2017, respectively. The decline in GE CFOA isincreased primarily due to no GE Pension Plan contributions ofin 2019 compared to $6.0 billion in 2018 compared to $1.4 billion in 2017 as well as a $4.0 billion decrease in common dividends from GE Capital. GE did not receive a common dividend distribution from GE Capital in 2018, and it does not expect to receive such dividend distributions from GE Capital for the foreseeable future. Refer to the GE Cash Flows section within this MD&A for further information.
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | |
| REVENUES | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Consolidated revenues | $ | 29.6 |
| $ | 30.7 |
| | $ | 88.3 |
| $ | 86.6 |
|
| | | | | | |
| Industrial segment revenues(a) | 27.8 |
| 29.2 |
| | 83.8 |
| 82.0 |
|
| Corporate items and Industrial eliminations | (0.3 | ) | (0.4 | ) | | (1.4 | ) | (1.3 | ) |
| GE Industrial revenues(a) | $ | 27.5 |
| $ | 28.8 |
| | $ | 82.4 |
| $ | 80.7 |
|
| | | | | | |
| Financial services revenues | $ | 2.5 |
| $ | 2.4 |
| | $ | 7.1 |
| $ | 7.5 |
|
| |
(a) | GE Industrial refers to GE excluding the continuing operations of GE Capital. Industrial segment refers to the sum of our seven industrial reporting segments, without giving effect to corporate items or the elimination of transactions among such segments and between these segments and our financial services segment. |
|
|
COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30 |
Consolidated revenues decreased $1.1 billion, or 4%, primarily driven by decreased industrial segment revenues of $1.4 billion, partially offset by an increase in Financial Services revenues of $0.1 billion. The overall impact of foreign currency movements on consolidated revenues was a decrease of $0.3 billion. Below are descriptions of the components:
GE Industrial revenues decreased $1.3 billion, or 5%.
Industrial segment revenues decreased $1.4 billion, or 5%, as decreases at Power, Lighting and Transportation were partially offset by increases at Aviation, Renewable Energy and Oil & Gas. This decrease was driven by the net effects of dispositions of $1.4 billion, primarily attributable to the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, and the effects of a stronger U.S. dollar of $0.3 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $0.3 billion.
Financial Services revenues increased $0.1 billion, or 3%, primarily due to higher gains and lower impairments, partially offset by volume declines.
|
|
COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30 |
Consolidated revenues increased $1.7 billion, or 2%, primarily driven by increased industrial segment revenues of $1.9 billion, partially offset by decreased Financial Services revenues of $0.5 billion. The overall impact of foreign currency movements on consolidated revenues was an increase of $1.1 billion. Below are descriptions of the components:
GE Industrial revenues increased $1.7 billion, or 2%.
Industrial segment revenues increased $1.9 billion, or 2%, as increases at Oil & Gas, Aviation and Healthcare were partially offset by decreases at Power, Renewable Energy, Transportation and Lighting. This increase was driven by the net effects of acquisitions of $5.5 billion, primarily attributable to Baker Hughes through the first half of 2018, and the effects of a weaker U.S. dollar of $1.1 billion, partially offset by the net effects of dispositions of $2.5 billion, primarily attributable to the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* decreased $2.3 billion.
Financial Services revenues decreased $0.5 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | |
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions; per-share amounts in dollars; attributable to GE common shareowners) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Continuing earnings(a) | $ | (22.8 | ) | $ | 1.4 |
| | $ | (21.7 | ) | $ | 2.6 |
|
| | | | | | |
| Continuing earnings per share | $ | (2.63 | ) | $ | 0.16 |
| | $ | (2.50 | ) | $ | 0.29 |
|
(a) Also referred to as "Earnings from continuing operations attributable to GE common shareowners"
In the below discussion, GE Industrial refers to GE excluding the continuing operations of GE Capital. Industrial segment refers to the sum of our seven industrial reporting segments, without giving effect to corporate items or the elimination of transactions among such segments and between these segments and our financial services segment.
|
|
COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30 |
Consolidated continuing earnings decreased $24.3 billion due to increased goodwill impairment charges of $21.0 billion, decreased GE Industrial continuing earnings of $2.6 billion, increased provisiondisbursements for GE Industrial income taxes of $0.5 billion and increased non-operating benefitequipment project costs, of $0.2 billion, partially offset by decreased interest and other financial charges of $0.1 billion. The increase in income tax provision was driven by a $0.2 billion tax charge during the third quarter related to goodwill impairment, including a $0.4 billion charge related to an increase in the deferred tax valuation allowance of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business. Below are descriptions of the components:
GE Industrial earnings decreased $2.6 billion, or 77%.
Corporate items and eliminations decreased $2.0 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $1.7 billion, increased restructuring and other costs of $0.4 billion, including non-cash intangible asset and property, plant and equipment impairment charges at our Power Conversion business of $0.6 billion, and unrealized losses on investments of $0.1 billion, partially offset by decreased adjusted Corporate operating costs* of $0.2 billion.
Industrial segment profit decreased $0.6 billion, or 21%, with decreases at Power and Renewable Energy, partially offset by higher profit at Aviation, Oil & Gas, Transportation, Healthcare and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.2 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, partially offset by lower restructuring and business development costs relatedcash used for working capital compared to Baker Hughes of $0.2 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.6 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services earnings decreased slightly, primarily due to volume declines offset by higher gains associated with the sale of EFS' debt origination business and equity investments.
|
|
COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30 |
Consolidated continuing earnings decreased $24.3 billion due to increased goodwill impairment charges of $21.0 billion, decreased2018. GE Industrial continuing earnings of $1.7Free Cash Flows (FCF)* were $(1.6) billion and increased provision for GE Industrial income taxes of $0.9 billion driven by a $0.2 billion tax charge during the second quarter related to the planned separation of our Healthcare segment and a $0.2 billion tax charge during the third quarter related to goodwill impairment, including a $0.4 billion charge related to an increase in the deferred tax valuation allowance of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business. Continuing earnings also declined due to increased non-operating benefit costs of $0.4 billion, increased Financial Services losses of $0.2 billion and increased interest and other financial charges of $0.1 billion. Below are descriptions of the components:
GE Industrial earnings decreased $1.7 billion, or 23%.
Corporate items and eliminations decreased $0.4 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $1.4 billion, partially offset by decreased restructuring and other costs of $0.4 billion, decreased adjusted Corporate operating costs* of $0.4 billion as well as unrealized gains on investments of $0.2 billion.
Industrial segment profit decreased $1.3 billion, or 14%, with decreases at Power, Renewable Energy and Oil & Gas, partially offset by higher profit at Aviation, Healthcare, Transportation and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.3 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, and higher restructuring and business development costs related to Baker Hughes of $0.3 billion, partially offset by the net effects of acquisitions $0.3 billion, largely associated with Baker Hughes through the first half of the year. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $1.0 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services losses increased $0.2 billion primarily due to higher impairments primarily at EFS related to its renewables and oil and gas investments, and volume declines including costs associated with calling debt and lower base earnings including a loss related to updates to the U.S. tax reform impact on energy investments, partially offset by higher gains associated with the sale of EFS’ debt origination business and equity investments and lower corporate and restructuring costs.
*Non-GAAP Financial Measure
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 $0.9 billion for the three months ended September 30, 2018, a decrease of $0.1 billion or 6% compared to revenues of $1.0 billion for the three months ended September 30, 2017. The decrease was primarily driven by Healthcare.
Revenues were $2.9$(0.3) billion for the nine months ended September 30, 2019 and 2018, anrespectively. The increase of $0.1 billion or 2%in cash used was primarily due to higher cash used for working capital compared to revenues of $2.8 billion for the nine months ended September 30, 2017. The increase was primarily driven by Oil & Gas and Transportation,2018, partially offset by decreases in Powerlower net disbursements for equipment project costs compared to 2018. See the Capital Resources and Healthcare.Liquidity - Statement of Cash Flows section for further information.
Orders were $1.0 billionare contractual commitments with customers to provide specified goods or services for three months ended September 30, 2018 a decrease of 29%, compared to orders of $1.4 billion for the three months ended September 30, 2017. The decrease was primarily driven by Oil & Gas, Transportation, Healthcare and non-GE Verticals.
Orders were $3.0 billion for the nine months ended September 30, 2018, a decrease of 19% compared to orders of $3.7 billion for the nine months ended September 30, 2017. Decreases in Transportation, Power, Oil & Gas and Healthcare were offset by increases in Transportation and Renewable Energy.
During the quarter, a goodwill impairment loss of $0.8 billion was recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power Generation and Grid Solutions reporting units. We recorded the estimated impairment losses in the caption "Goodwill impairment" in our consolidated Statement of Earnings (Loss).
SEGMENT OPERATIONS
|
| | | | | | | | | |
| RECONCILIATION OF INDUSTRIAL BACKLOG TO REMAINING PERFORMANCE OBLIGATION |
| | September 30, 2018 |
| (In billions) | Equipment |
| Services |
| Total |
|
| | | | |
| Backlog | $ | 89.0 |
| $ | 289.9 |
| $ | 378.9 |
|
| Adjustments | (37.4 | ) | (92.3 | ) | (129.8 | ) |
| Remaining Performance Obligation | $ | 51.6 |
| $ | 197.6 |
| $ | 249.2 |
|
an agreed upon price. Backlog representsis unfilled customer orders for products and product services (expected life of contract sales for product services).
|
| | | | | | |
GE INDUSTRIAL BACKLOG (In billions) | September 30, 2019 |
| September 30, 2018 |
|
| | | |
| Equipment | $ | 80.0 |
| $ | 77.3 |
|
| Services | 306.0 |
| 261.5 |
|
| Total backlog | $ | 386.0 |
| $ | 338.7 |
|
|
| | | | | | | | | | | | | |
| GE INDUSTRIAL ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Equipment | $ | 11.3 |
| $ | 12.3 |
| | $ | 32.6 |
| $ | 35.0 |
|
| Services | 11.3 |
| 11.5 |
| | 32.8 |
| 33.5 |
|
| Total orders | $ | 22.5 |
| $ | 23.8 |
| | $ | 65.4 |
| $ | 68.6 |
|
| Total organic orders | $ | 22.8 |
| $ | 22.9 |
| | $ | 66.4 |
| $ | 64.6 |
|
As of September 30, 2019, backlog increased $47.3 billion, or 14%, from the prior year due to an increase in services backlog of $44.5 billion primarily at Aviation and equipment backlog of $2.7 billion primarily at Renewable Energy.
For the three months ended September 30, 2019, orders decreased $1.3 billion, or 5%, on a reported basis and decreased $0.1 billion, or 1%, organically driven by a decrease in equipment orders of $0.4 billion primarily at Aviation and Power, partially offset by Renewable Energy, and an increase in services orders of $0.3 billion, primarily at Aviation, partially offset by Renewable Energy.
For the nine months ended September 30, 2019, orders decreased $3.2 billion, or 5%, on a reported basis and increased $1.8 billion, or 3%, organically driven by an increase in services orders of $2.1 billion primarily at Aviation and Power and a decrease in equipment orders of $0.3 billion primarily at Aviation and Power, partially offset by Renewable Energy.
Remaining performance obligation is(RPO), a defined term under GAAP, and represents is backlog excluding any purchase ordersorder that provideprovides the customer with the ability to cancel or terminate without incurring a substantive penalty, even if the likelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders. See Note 9 to the consolidated financial statements for further information.
|
| | | | | | | | | |
September 30, 2019 (In billions) | Equipment |
| Services |
| Total |
|
| | | |
| Backlog | $ | 80.0 |
| $ | 306.0 |
| $ | 386.0 |
|
| Adjustments | (34.2 | ) | (111.3 | ) | (145.5 | ) |
| Remaining performance obligation | $ | 45.8 |
| $ | 194.7 |
| $ | 240.5 |
|
Adjustments to reported backlog of $(145.5) billion as of September 30, 2019 are largely driven by theadjustments of $(133.7) billion in our Aviation business:segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable. We have included these in backlog as our historical experience has shown no net cancellations, as any canceled engines are typically moved by the airframer to other program customers; (2) our services backlog includes contracts that are cancelable without substantialsubstantive penalty, primarily time and materials contracts; (3) backlog includes engines contracted under long-term service agreements, even if the engines have not yet been put into service. These adjustments to reported backlog are expected to be satisfied beyond one year. See Note 9
*Non-GAAP Financial Measure
|
| | | | | | | | | | | | | |
| REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Consolidated revenues | $ | 23.4 |
| $ | 23.4 |
| | $ | 69.0 |
| $ | 70.5 |
|
| | | | | | |
| Equipment | 11.0 |
| 10.3 |
| | 30.5 |
| 30.6 |
|
| Services | 10.4 |
| 10.4 |
| | 31.7 |
| 32.3 |
|
| Industrial segment revenues | 21.4 |
| 20.7 |
| | 62.3 |
| 62.9 |
|
| Corporate items and Industrial eliminations | 0.1 |
| 0.6 |
| | 1.0 |
| 1.7 |
|
| GE Industrial revenues | $ | 21.5 |
| $ | 21.3 |
| | $ | 63.3 |
| $ | 64.6 |
|
| | | | | | |
| Financial services revenues | $ | 2.1 |
| $ | 2.5 |
| | $ | 6.6 |
| $ | 7.1 |
|
For the three months ended September 30, 2019, consolidated revenues were flat primarily driven by decreased Financial Services revenues of $0.4 billion and decreased Corporate revenues of $0.2 billion largely attributable to the sale of our Current business in November 2018. These decreases were offset by increased industrial segment revenues of $0.7 billion. The overall foreign currency impact on consolidated revenues was a decrease of $0.2 billion.
Industrial segment revenues increased $0.7 billion, or 3%, as increases at Aviation, Renewable Energy, and Healthcare were partially offset by a decrease at Power. This increase included the net effects of dispositions of $0.5 billion, primarily attributable to the sale of Distributed Power in November 2018, and the effects of a stronger U.S. dollar of $0.2 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $1.4 billion, or 7%.
Financial Services revenues decreased $0.4 billion, or 15%, primarily due to lower gains and volume declines, partially offset by lower impairments.
For the nine months ended September 30, 2019, consolidated revenues decreased $1.5 billion, or 2%, primarily driven by decreased industrial segment revenues of $0.6 billion, decreased Corporate revenues of $0.6 billion largely attributable to the sale of our Current business in November 2018, and decreased Financial Services revenues of $0.4 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.2 billion.
Industrial segment revenues decreased $0.6 billion, or 1%, as a decrease at Power was partially offset by increases at Aviation, Renewable Energy and Healthcare. This decrease was driven by the net effects of dispositions of $3.0 billion, primarily attributable to the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, and the effects of a stronger U.S. dollar of $1.2 billion, partially offset by the net effects of acquisitions of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $3.5 billion, or 6%.
Financial Services revenues decreased $0.4 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.
|
| | | | | | | | | | | | | |
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | Three months ended September 30 | | Nine months ended September 30 |
| (In billions; per-share in dollars and diluted) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Continuing earnings | $ | (1.3 | ) | $ | (23.0 | ) | | $ | (0.7 | ) | $ | (21.9 | ) |
| Continuing earnings per share | $ | (0.15 | ) | $ | (2.64 | ) | | $ | (0.08 | ) | $ | (2.53 | ) |
For the three months ended September 30, 2019, consolidated continuing earnings increased $21.6 billion due to decreased goodwill impairment charges of $21.2 billion, increased GE Industrial continuing earnings of $1.2 billion and decreased non-operating benefit costs of $0.2 billion, partially offset by decreased Financial Services earnings of $0.7 billion, increased interest and other financial statementscharges of $0.2 billion and increased provision for GE Industrial income taxes of $0.1 billion.
GE Industrial continuing earnings decreased $1.2 billion. Corporate items and eliminations increased $0.7 billion primarily attributable to decreased restructuring and other costs of $1.2 billion, partially offset by increased net losses from disposed or held for sale businesses of $0.3 billion and increased adjusted Corporate operating costs* of $0.1 billion. Industrial segment profit increased $0.5 billion, or 25%, with higher profit at Power, Healthcare and Aviation, partially offset by lower profit at Renewable Energy. This increase in industrial segment profit includes the net effects of dispositions of $0.1 billion, primarily associated with the sale of Distributed Power in November 2018. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* increased $0.5 billion, or 28%.
Financial Services continuing earnings decreased $0.7 billion, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments and lower excess interest costs. Gains were $0.2 billion and $0.4 billion in the third quarters of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018 as well as the sale of GE Capital's Energy Financial Services (EFS) debt origination business and equity investments resulting in gains of $0.3 billion in 2018.
For the nine months ended September 30, 2019, consolidated continuing earnings increased $21.2 billion due to decreased goodwill impairment charges of $20.5 billion, decreased non-operating benefit costs of $0.4 billion, decreased provision for GE Industrial income taxes of $0.3 billion driven by the completion of prior years’ audit, increased GE Industrial continuing earnings of $0.1 billion and decreased interest and other financial charges of $0.1 billion, partially offset by increased Financial Services losses of $0.2 billion.
*Non-GAAP Financial Measure
GE Industrial continuing earnings decreased $0.1 billion, or 2%. Corporate items and eliminations increased $0.6 billion primarily attributable to decreased restructuring and other costs of $1.4 billion, partially offset by increased net unrealized losses on investments of $0.3 billion, increased net losses from disposed or held for sale businesses of $0.3 billion and increased adjusted Corporate operating costs* of $0.2 billion. Industrial segment profit decreased $0.5 billion, or 6%, with lower profit at Renewable Energy, partially offset by higher profit at Healthcare, Power and Aviation. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.3 billion, primarily associated with the sales of Industrial Solutions, Value-Based Care and Distributed Power in June 2018, July 2018 and November 2018, respectively, offset by the effects of a weaker U.S. dollar of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.3 billion, or 3%.
Financial Services continuing losses increased $0.2 billion, or 49%, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.5 billion and $0.6 billion in the first nine months of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.3 billion and $0.2 billion in the first nine months of 2019 and 2018, respectively, as well as the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS and the sale of EFS' debt origination business and equity investments resulting in gains of $0.4 billion in 2018.
AVIATION AND GECAS 737 MAX. Aviation develops, produces, and sells LEAP aircraft engines through CFM International (CFM), a company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the Safran Group of France. The LEAP-1B engine is the exclusive engine for the Boeing 737 MAX. In March 2019, global regulatory authorities ordered a temporary fleet grounding of the Boeing 737 MAX. In April 2019, Boeing announced a temporary reduction in the 737 MAX production rate, and during the second quarter of 2019, CFM reduced its production rate for the LEAP-1B to meet Boeing's revised aircraft build rate. As a result of the 737 MAX grounding, GE CFOA was adversely affected by an estimated $0.3 billion and $1.0 billion for the three and nine months ended September 30, 2019, respectively, which primarily represents receivables growth partially offset by progress collections. If the 737 MAX remains grounded, based on current assumptions, we anticipate a negative impact to GE CFOA of approximately $0.4 billion in the fourth quarter of 2019. See Capital Resources and Liquidity - Statement of Cash Flows for further information.
REVENUES AND PROFITAt September 30, 2019, GECAS owned 29 of these aircraft, 25 of which are leased to various lessees that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 150 of these aircraft on order and has made financing commitments to acquire a further 19 aircraft under purchase and leaseback contracts with airlines.
As of September 30, 2019, we have approximately $2.5 billion of net assets related to the 737 MAX program that primarily comprises pre-delivery payments and owned aircraft subject to lease offset by progress collections. No impairment charges were incurred related to the 737 MAX aircraft and related balances in the first nine months of 2019 as we continue to believe these assets are fully recoverable. We continue to monitor these developments with our airline customers, lessees and Boeing.
SEGMENT OPERATIONS. Segment revenues include sales of products and services related toby the segment.
Segment Industrial segment profit is determined based on internal performance measures used by theour Chief Operating Decision Maker (CODM), who is our Chief Executive Officer (CEO), to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring, rationalization and other similar expenses, acquisition costs and other related charges, technology and product development costs, certain gains and losses from acquisitions or dispositions, and certain litigation settlements or other charges, for which responsibility preceded the current management team. Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.settlements. 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 other than those applied retrospectively. 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, non-operating benefit costs, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:
Interest and other financial charges, income taxes and non-operating benefit costs and GE preferred stock dividends are excluded in determining segment profit for the industrial segments.
Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.
Other income is included in segment profit for the industrial segments.
Certain corporate costs, such as those related to shared services, employee benefits, and information technology, are allocated to our segments based on usage. A portion of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.
20182019 3Q FORM 10-Q 137
|
| | | | | | | | | | | | | | | | | |
| SUMMARY OF REPORTABLE SEGMENTS | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Power | $ | 3,926 |
| $ | 4,559 |
| (14) | % | | $ | 13,224 |
| $ | 16,768 |
| (21) | % |
| Renewable Energy | 4,425 |
| 3,920 |
| 13 | % | | 10,590 |
| 9,642 |
| 10 | % |
| Aviation | 8,109 |
| 7,480 |
| 8 | % | | 23,940 |
| 22,111 |
| 8 | % |
| Healthcare | 4,923 |
| 4,707 |
| 5 | % | | 14,540 |
| 14,387 |
| 1 | % |
| Total industrial segment revenues | 21,383 |
| 20,665 |
| 3 | % | | 62,293 |
| 62,908 |
| (1) | % |
| Capital | 2,097 |
| 2,473 |
| (15) | % | | 6,645 |
| 7,075 |
| (6) | % |
| Total segment revenues | 23,480 |
| 23,138 |
| 1 | % | | 68,938 |
| 69,982 |
| (1) | % |
| Corporate items and eliminations | (120 | ) | 254 |
| U |
| | 39 |
| 531 |
| (93) | % |
| Consolidated revenues | $ | 23,360 |
| $ | 23,392 |
| — | % | | $ | 68,976 |
| $ | 70,513 |
| (2) | % |
| | | | | | | | |
| Power | $ | (144 | ) | $ | (676 | ) | 79 | % | | $ | 84 |
| $ | (22 | ) | F |
|
| Renewable Energy | (98 | ) | 116 |
| U |
| | (469 | ) | 312 |
| U |
|
| Aviation | 1,718 |
| 1,665 |
| 3 | % | | 4,764 |
| 4,743 |
| — | % |
| Healthcare | 974 |
| 861 |
| 13 | % | | 2,714 |
| 2,522 |
| 8 | % |
| Total industrial segment profit (loss) | 2,450 |
| 1,967 |
| 25 | % | | 7,092 |
| 7,555 |
| (6) | % |
| Capital | (645 | ) | 19 |
| U |
| | (599 | ) | (403 | ) | (49 | )% |
| Total segment profit (loss) | 1,806 |
| 1,986 |
| (9) | % | | 6,493 |
| 7,151 |
| (9) | % |
| Corporate items and eliminations | (808 | ) | (1,523 | ) | 47 | % | | (2,013 | ) | (2,596 | ) | 22 | % |
| GE goodwill impairments | (740 | ) | (21,973 | ) | 97 | % | | (1,484 | ) | (21,973 | ) | 93 | % |
| GE interest and other financial charges | (791 | ) | (590 | ) | (34) | % | | (1,693 | ) | (1,773 | ) | 5 | % |
| GE non-operating benefit costs | (562 | ) | (760 | ) | 26 | % | | (1,684 | ) | (2,132 | ) | 21 | % |
| GE benefit (provision) for income taxes | (229 | ) | (95 | ) | U |
| | (327 | ) | (624 | ) | 48 | % |
| Earnings (loss) from continuing operations attributable to GE common shareowners | (1,325 | ) | (22,956 | ) | 94 | % | | (707 | ) | (21,947 | ) | 97 | % |
| Earnings (loss) from discontinued operations, net of taxes | (8,093 | ) | 155 |
| U |
| | (5,212 | ) | (1,526 | ) | U |
|
| Less net earnings attributable to noncontrolling interests, discontinued operations | 46 |
| 7 |
| F |
| | 58 |
| (97 | ) | F |
|
| Earnings (loss) from discontinued operations, net of tax and noncontrolling interest | (8,140 | ) | 148 |
| U |
| | (5,270 | ) | (1,429 | ) | U |
|
| Consolidated net earnings (loss) attributable to the GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | 59 | % | | $ | (5,977 | ) | $ | (23,376 | ) | 74 | % |
|
| | | | | | | | | | | | | | | | | |
| SUMMARY OF OPERATING SEGMENTS | | | | | | | |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V% |
| | 2018 |
| 2017 |
| V% |
|
| | | | | | | | |
| Revenues | | | | | | | |
| Power | $ | 5,739 |
| $ | 8,527 |
| (33) | % | | $ | 20,540 |
| $ | 25,868 |
| (21 | )% |
| Renewable Energy | 2,873 |
| 2,507 |
| 15 | % | | 6,172 |
| 6,587 |
| (6 | )% |
| Aviation | 7,480 |
| 6,696 |
| 12 | % | | 22,111 |
| 20,003 |
| 11 | % |
| Oil & Gas | 5,670 |
| 5,311 |
| 7 | % | | 16,609 |
| 11,394 |
| 46 | % |
| Healthcare | 4,707 |
| 4,710 |
| — | % | | 14,387 |
| 13,703 |
| 5 | % |
| Transportation | 932 |
| 949 |
| (2) | % | | 2,746 |
| 3,006 |
| (9 | )% |
| Lighting | 385 |
| 472 |
| (18) | % | | 1,272 |
| 1,407 |
| (10 | )% |
| Total industrial segment revenues | 27,785 |
| 29,171 |
| (5) | % | | 83,837 |
| 81,967 |
| 2 | % |
| Capital | 2,473 |
| 2,397 |
| 3 | % | | 7,075 |
| 7,525 |
| (6 | )% |
| Total segment revenues | 30,258 |
| 31,569 |
| (4) | % | | 90,912 |
| 89,491 |
| 2 | % |
| Corporate items and eliminations | (685 | ) | (907 | ) | 24 | % | | (2,575 | ) | (2,851 | ) | 10 | % |
| Consolidated revenues | $ | 29,573 |
| $ | 30,662 |
| (4) | % | | $ | 88,337 |
| $ | 86,640 |
| 2 | % |
| | | | | | | | |
| Segment profit (loss) | | | | | | | |
| Power | $ | (631 | ) | $ | 464 |
| U |
| | $ | 64 |
| $ | 1,896 |
| (97 | )% |
| Renewable Energy | 60 |
| 217 |
| (72) | % | | 220 |
| 445 |
| (51 | )% |
| Aviation | 1,665 |
| 1,335 |
| 25 | % | | 4,743 |
| 3,982 |
| 19 | % |
| Oil & Gas(a) | 180 |
| (57 | ) | F |
| | 110 |
| 322 |
| (66 | )% |
| Healthcare | 861 |
| 847 |
| 2 | % | | 2,522 |
| 2,335 |
| 8 | % |
| Transportation | 162 |
| 141 |
| 15 | % | | 448 |
| 420 |
| 7 | % |
| Lighting | 26 |
| 14 |
| 86 | % | | 52 |
| 41 |
| 27 | % |
| Total industrial segment profit | 2,325 |
| 2,961 |
| (21) | % | | 8,157 |
| 9,441 |
| (14 | )% |
| Capital | 19 |
| 24 |
| (21) | % | | (403 | ) | (195 | ) | U |
|
| Total segment profit (loss) | 2,344 |
| 2,985 |
| (21) | % | | 7,753 |
| 9,246 |
| (16 | )% |
| Corporate items and eliminations | (1,546 | ) | 439 |
| U |
| | (2,507 | ) | (2,083 | ) | (20 | )% |
| Goodwill impairment | (21,973 | ) | (947 | ) | U |
| | (21,973 | ) | (947 | ) | U |
|
| GE interest and other financial charges | (662 | ) | (718 | ) | 8 | % | | (1,995 | ) | (1,918 | ) | (4 | )% |
| GE non-operating benefit costs | (804 | ) | (610 | ) | (32) | % | | (2,178 | ) | (1,811 | ) | (20 | )% |
| GE benefit (provision) for income taxes | (205 | ) | 281 |
| U |
| | (842 | ) | 93 |
| U |
|
Earnings (loss) from continuing operations attributable to GE common shareowners | (22,847 | ) | 1,429 |
| U |
| | (21,742 | ) | 2,579 |
| U |
|
| Earnings (loss) from discontinued operations, net of taxes | 39 |
| (106 | ) | F |
| | (1,634 | ) | (490 | ) | U |
|
| Less net earnings attributable to | | | | | | | |
| noncontrolling interests, discontinued operations | — |
| (1 | ) | F |
| | — |
| 6 |
| U |
|
| Earnings (loss) from discontinued operations, | | | | | | | |
| net of tax and noncontrolling interest | 39 |
| (105 | ) | F |
| | (1,634 | ) | (497 | ) | U |
|
Consolidated net earnings (loss) attributable to the GE common shareowners | $ | (22,808 | ) | $ | 1,324 |
| U |
| | $ | (23,376 | ) | $ | 2,082 |
| U |
|
| |
(a) | Oil & Gas segment profit excluding restructuring and other charges* was $247 million and $210 million for the three months ended September 30, 2018 and 2017, respectively, and $650 million and $590 million for the nine months ended September 30, 2018 and 2017, respectively. |
*Non-GAAP Financial Measure
14 20188 2019 3Q FORM 10-Q
|
| | |
| MD&A | SEGMENT OPERATIONS | POWER |
POWER
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Gas Power Systems(a) | $ | 1.0 |
| $ | 2.0 |
| | $ | 3.9 |
| $ | 6.2 |
|
| Power Services | 2.7 |
| 2.9 |
| | 8.7 |
| 9.1 |
|
| Steam Power Systems | 0.4 |
| 0.6 |
| | 1.4 |
| 1.5 |
|
| Energy Connections(b) | 1.5 |
| 2.4 |
| | 6.0 |
| 7.1 |
|
| Other(c) | 0.1 |
| 0.7 |
| | 0.5 |
| 2.0 |
|
| Total segment revenues | $ | 5.7 |
| $ | 8.5 |
| | $ | 20.5 |
| $ | 25.9 |
|
|
|
(a) Includes Distributed Power
(b) Includes Grid Solutions, Power Conversion and Automation & Controls. Includes Industrial Solutions through its disposition.
(c) Includes Water & Process Technologies and GE Hitachi Nuclear |
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 3.3 |
| $ | 3.9 |
| | $ | 9.0 |
| $ | 12.6 |
|
| Services | 3.4 |
| 4.2 |
| | 10.5 |
| 13.3 |
|
| Total | $ | 6.6 |
| $ | 8.1 |
| | $ | 19.5 |
| $ | 25.9 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 25.0 |
| $ | 26.1 |
|
| Services | 68.7 |
| 73.3 |
|
| Total | $ | 93.7 |
| $ | 99.5 |
|
|
| | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2018 |
| 3Q 2017 |
| V |
| YTD 2018 |
| YTD 2017 |
| V |
|
| Gas Turbines | 9 |
| 22 |
| (13 | ) | 28 |
| 63 |
| (35 | ) |
|
| | |
MD&A | SEGMENT OPERATIONS | POWER |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 2.3 |
| $ | 4.5 |
| | $ | 9.3 |
| $ | 13.3 |
|
| Services | 3.4 |
| 4.1 |
| | 11.2 |
| 12.6 |
|
| Total | $ | 5.7 |
| $ | 8.5 |
| | $ | 20.5 |
| $ | 25.9 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | (0.6 | ) | $ | 0.5 |
| | $ | 0.1 |
| $ | 1.9 |
|
| Segment profit margin | (11.0 | )% | 5.4 | % | | 0.3 | % | 7.3 | % |
2018 – 2017 COMMENTARY
As previously disclosed,In the first quarter of 2019, we reorganized the businesses within our Power segment into Gas Power and Power Portfolio, and effectively eliminated the Power headquarters structure to allow us to reduce costs and improve operations. In the second quarter of 2019, we completed the reorganization of our Grid Solutions equipment and services business into our Renewable Energy segment and our Grid Solutions software and Power Digital businesses into Corporate for all periods presented. Gas Power is a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio comprises our Steam Power Systems (including services previously reported in Power Services), Power Conversion and GE Hitachi Nuclear businesses. Power Portfolio's 2018 results also include our former Industrial Solutions and Distributed Power businesses which were sold in June 2018 and November 2018, respectively.
The power market as well as its operating environment continuescontinue to be challenging. OurOver the past several quarters, our outlook for Power has continued to deterioratewas driven by the significant overcapacity in the industry, lower market penetration as well asincreased price pressure from competition on servicing the installed base, and the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negativelycould be impacted by project execution and our own underlying operational challenges. Finally,Also, market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. These
We have and will continue to take actions to right size our business for the current market conditions have resultedand our long-term outlook, including restructuring our operations to dispose of non-core businesses, resizing our remaining businesses to better align with market demand and driving these businesses with an operational rigor and discipline that is focused on our customers’ lifecycle experience. We are building a cost structure to support an average 25 to 30 gigawatt new unit gas turbine market; however, actual orders in downward revisionsa given year can vary. As a result of these actions and overall market conditions, we believe the business is showing early signs of stabilization. We anticipate lower restructuring cash costs during 2019 than originally planned due to a mix of timing, attrition and executing projects at lower costs. We expect incremental improvements in 2020 with further acceleration in 2021 and beyond.
We continue to invest in new product development, such as our forecasts on currentHA-Turbines, and future projected earningsupgrades as these are critical to our customers and cash flowsthe long-term strategy of the business.
|
| | | | | | | | | |
| (In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 19.0 |
| $ | 19.4 |
|
| Services | | | | 67.8 |
| 67.5 |
|
| Total backlog | | | | $ | 86.8 |
| $ | 86.9 |
|
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| GE Gas Turbine unit orders | 17 |
| | 23 |
| | | 52 |
| | 41 |
| |
| Heavy-Duty Gas Turbine unit orders(a) | 15 |
| | 21 |
| | | 42 |
| | 32 |
| |
| HA-Turbine unit orders(b) | 5 |
| | 5 |
| | | 15 |
| | 7 |
| |
| Aeroderivative unit orders(a) | 2 |
| | 2 |
| | | 10 |
| | 9 |
| |
| GE Gas Turbine Gigawatts orders(c) | 3.1 |
| | 3.8 |
| | | 9.8 |
| | 5.8 |
| |
| | | | | | | | | | |
| GE Gas Turbine unit sales | 12 |
| | 11 |
| | | 32 |
| | 37 |
| |
| Heavy-Duty Gas Turbine unit sales(a) | 9 |
| | 9 |
| | | 20 |
| | 28 |
| |
| HA-Turbine unit sales(b) | 5 |
| | 5 |
| | | 6 |
| | 9 |
| |
| Aeroderivative unit sales(a) | 3 |
| | 2 |
| | | 12 |
| | 9 |
| |
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines. (b) HA-Turbines are a subset of Heavy-Duty Gas Turbines. (c) Gigawatts reported associated with financial orders in the periods presented.
| | | | | | |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 1.3 |
| | $ | 2.4 |
| | | $ | 4.3 |
| | $ | 6.4 |
| |
| Services | 2.6 |
| | 3.1 |
| | | 8.1 |
| | 9.9 |
| |
| Total orders | $ | 3.9 |
| | $ | 5.5 |
| | | $ | 12.4 |
| | $ | 16.3 |
| |
|
| | | | | | | | | | | | | | | | | |
| Gas Power | $ | 2.7 |
| | $ | 2.7 |
| | | $ | 9.2 |
| | $ | 9.7 |
| |
| Power Portfolio | 1.2 |
| | 1.9 |
| | | 4.0 |
| | 7.1 |
| |
| Total sub-segment revenues | $ | 3.9 |
| | $ | 4.6 |
| | | $ | 13.2 |
| | $ | 16.8 |
| |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 1.4 |
| | $ | 1.3 |
| | | $ | 4.5 |
| | $ | 6.2 |
| |
| Services | 2.5 |
| | 3.2 |
| | | 8.8 |
| | 10.5 |
| |
| Total segment revenues | $ | 3.9 |
| | $ | 4.6 |
| | | $ | 13.2 |
| | $ | 16.8 |
| |
| | | | | | | | | | |
| Segment profit | $ | (0.1 | ) | | $ | (0.7 | ) | | | $ | 0.1 |
| | $ | — |
| |
| | | | | | | | | | |
| Segment profit margin | (3.7 | ) | % | (14.8 | ) | % | | 0.6 |
| % | (0.1 | ) | % |
For the three months ended September 30, 2019, segment orders were down $1.7 billion (30%), segment revenues were down $0.6 billion (14%) and segment profit was up $0.5 billion (79%).
Reported orders decrease of $1.7 billion was driven primarily by the nonrecurrence of $0.4 billion of orders related to Distributed Power following its sale in November 2018. Orders decreased $1.0 billion, or 20%, organically to $4.0 billion from $5.0 billion, mainly due to orders for six fewer heavy-duty gas turbines at these businesses.Gas Power and a decrease in Steam orders at Power Portfolio.
DuringRevenues decreased $0.1 billion, or 3%, organically*. Services revenues decreased due to a decrease in Steam convertible orders at Power Portfolio and Gas Power convertible upgrade orders. Equipment revenues increased due to the absence of liquidated damages recognized in the third quarter of 2018 Gas Power Systems recorded a $0.2 billion pre-tax charge related to an oxidation issue within the HA and 9FB Stage 1 turbine blades, resulting in increased warranty and maintenance reserves. In addition, Power recognized pre-tax charges of approximately $0.4 billion associated with an increase in issues on our existing projects driven by execution as well as partner and customer challenges.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $2.8 billion (33%);
Segment profit down $1.1 billion:
Equipment revenues decreased primarily at Gas Power Systems Power.
Profit increased $0.6 billion, or 81%, organically*due to lower unit sales, including seven fewer aeroderivative units and 13 fewer gas turbines, as well as the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Services revenues decreased primarily due to the absence of Water and Industrial Solutions, partially offset by three more AGP upgrades. Revenues also decreased due to price pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to negativeimproved variable cost productivity driven by the absence of significant warranty and project cost updates as well as liquidated damages recognized by Gas Power Systems, lower volume includingin the absencethird quarter of Water2018.
For the nine months ended September 30, 2019, segment orders were down $3.8 billion (23%), segment revenues were down $3.5 billion (21%) and Industrial Solutions, lower prices and negative mix in our long-term service contracts comparedsegment profit was up $0.1 billion.
Backlog as of September 30, 2019 decreased $0.4 billion from September 30, 2018 primarily due to the prior year. These decreases were nonrecurrence of $2.9 billion of backlog related to Distributed Power following its sale in November 2018. Offsetting this decrease, backlog increased $2.8 billion, or 3%, driven by an increase services backlog of $2.6 billion and equipment backlog of $0.2 billion.
Reported orders decrease of $3.8 billion was driven primarily by the nonrecurrence of $2.7 billion of orders related to Industrial Solutions and Distributed Power following their sales in June 2018 and November 2018, respectively. Orders decreased $0.4 billion, or 3%, organically to $12.9 billion from $13.3 billion mainly due to a decrease in Steam orders at Power Portfolio, partially offset by favorable business mix and cost reduction efforts, excluding the effects of acquisition and disposition activity and foreign exchange.ten more heavy duty gas turbine orders.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $5.3Revenues decreased $0.5 billion, (21%);
Segment profit down $1.8 billion (97%):
or 4%, organically*. Equipment revenues decreased primarily at Gas Power Systems due to lower unit sales, including 28eight fewer aeroderivative units and 35 fewerheavy-duty gas turbines and 18 fewer Heat Recovery Steam Generators, as well as the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018.turbines. Services revenues decreased primarily due to the absence of Waterlower contractual services revenues driven by lower outages, upgrades and Industrial Solutions as well as 22 fewer AGP upgrades. Revenues also decreased mix.
Profit increased $0.3 billion organically*due to price pressure, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The decrease in profit was due to negativeimproved variable cost productivity driven by the absence of significant warranty and project cost updates as well as liquidated damages recognized by Gas Power Systems, lower volume includingin 2018.
RENEWABLE ENERGY
In the absencesecond quarter of Water2019, we completed the reorganization of our Grid Solutions equipment and Industrialservices business into our Renewable Energy segment and our Grid Solutions lower pricessoftware business into Corporate for all periods presented. Also in the second quarter of 2019, we recognized a non-cash pre-tax impairment charge of $0.7 billion related to goodwill at our Grid Solutions equipment and negative mix inservices reporting unit. In the third quarter of 2019, we recognized a non-cash impairment charge of $0.7 billion related to goodwill at our long-term service contracts comparedHydro reporting unit. These charges were recorded within earnings from continuing operations at Corporate. See Note 8 to the prior year. These decreases were partially offsetconsolidated financial statements for further information.
The onshore wind market in the U.S. continues to see the positive impact from the Production Tax Credit (PTC) cycle and customer preference shifting to larger, more efficient units to drive down costs and compete with other power generation options. Despite the competitive nature of the market, onshore wind order pricing stabilized in 2019 due to demand caused by favorablethe anticipated expiration of PTCs in the U.S. in 2020 and auction stabilization in international markets. We have experienced a significant production ramp for 2019 deliveries in onshore wind and we continue to closely monitor our execution during this growth period including risks of delivery delays due to customer site readiness issues and possible project postponements. The grid market continues to be challenging as we have experienced current year order declines in the High Voltage Direct Current (HVDC) and High Voltage (HV) product lines. While the Hydro business mix andis executing its turnaround plan, we are expecting near term declines in contribution margin.
New product introductions continue to be important to our customers who are demonstrating the willingness to adopt the new technology of larger turbines that decrease the levelized cost of energy. We are continuing to focus on cost reduction efforts, excludinginitiatives of our products, in-sourcing blade production and developing larger, more efficient turbines like the effectsHaliade-X (Offshore Wind) and Cypress (Onshore Wind). During the third quarter of acquisition2019, we signed our largest Cypress order to date, and disposition activity and foreign exchange.were selected as the preferred supplier for two Offshore wind projects, an important commercial milestone for the Haliade-X. In October 2019, the prototype for the Haliade-X was successfully installed with final certification expected by the middle of 2020.
|
| | | | | | | | | |
| (In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 16.4 |
| $ | 14.1 |
|
| Services | | | | 10.9 |
| 8.8 |
|
| Total backlog | | | | $ | 27.4 |
| $ | 22.9 |
|
*Non-GAAP Financial Measure
16 201810 2019 3Q FORM 10-Q
|
| | |
| MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY | |
RENEWABLE ENERGY
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Onshore Wind | $ | 2.6 |
| $ | 2.2 |
| | $ | 5.2 |
| $ | 5.8 |
|
| Offshore Wind | 0.1 |
| 0.1 |
| | 0.4 |
| 0.2 |
|
| Hydro | 0.2 |
| 0.3 |
| | 0.6 |
| 0.6 |
|
| Total segment revenues | $ | 2.9 |
| $ | 2.5 |
| | $ | 6.2 |
| $ | 6.6 |
|
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| Wind Turbine unit orders | 1,184 |
| | 857 |
| | | 3,138 |
| | 2,113 |
| |
| Wind Turbine Megawatts orders(a) | 3,893 |
| | 2,183 |
| | | 9,227 |
| | 5,563 |
| |
| Repower unit orders | 318 |
| | 726 |
| | | 912 |
| | 1,071 |
| |
| | | | | | | | | | |
| Wind Turbine unit sales | 1,128 |
| | 952 |
| | | 2,285 |
| | 1,655 |
| |
| Wind Turbine Megawatts sales(a) | 3,148 |
| | 2,611 |
| | | 6,392 |
| | 4,526 |
| |
| Repower unit sales | 266 |
| | 120 |
| | | 643 |
| | 523 |
| |
| (a) Megawatts reported associated with financial orders in the periods presented. | | | | | | |
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 1.7 |
| $ | 2.2 |
| | $ | 4.9 |
| $ | 5.7 |
|
| Services | 1.2 |
| 0.7 |
| | 2.1 |
| 1.4 |
|
| Total | $ | 2.9 |
| $ | 3.0 |
| | $ | 7.0 |
| $ | 7.1 |
|
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 4.3 |
| | $ | 2.6 |
| | | $ | 10.1 |
| | $ | 7.6 |
| |
| Services | 0.7 |
| | 1.3 |
| | | 2.1 |
| | 2.4 |
| |
| Total orders | $ | 5.0 |
| | $ | 3.9 |
| | | $ | 12.2 |
| | $ | 10.0 |
| |
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 8.1 |
| $ | 7.2 |
|
| Services | 8.3 |
| 6.7 |
|
| Total | $ | 16.3 |
| $ | 14.0 |
|
|
| | | | | | | | | | | | | | | | | |
| Onshore Wind | $ | 3.2 |
| | $ | 2.5 |
| | | $ | 7.1 |
| | $ | 5.1 |
| |
| Grid Solutions equipment and services | 1.0 |
| | 1.1 |
| | | 2.9 |
| | 3.5 |
| |
| Hydro and Offshore Wind | 0.2 |
| | 0.3 |
| | | 0.6 |
| | 1.0 |
| |
| Total sub-segment revenues | $ | 4.4 |
| | $ | 3.9 |
| | | $ | 10.6 |
| | $ | 9.6 |
| |
|
| | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| 3Q 2018 |
| 3Q 2017 |
| V |
| YTD 2018 |
| YTD 2017 |
| V |
|
| Wind Turbines | 952 |
| 637 |
| 315 |
| 1,655 |
| 1,895 |
| (240 | ) |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 3.6 |
| | $ | 3.4 |
| | | $ | 8.5 |
| | $ | 8.0 |
| |
| Services | 0.8 |
| | 0.5 |
| | | 2.1 |
| | 1.7 |
| |
| Total segment revenues | $ | 4.4 |
| | $ | 3.9 |
| | | $ | 10.6 |
| | $ | 9.6 |
| |
| | | | | | | | | | |
| Segment profit (loss) | $ | (0.1 | ) | | $ | 0.1 |
| | | $ | (0.5 | ) | | $ | 0.3 |
| |
| | | | | | | | | | |
| Segment profit margin | (2.2 | ) | % | 3.0 |
| % | | (4.4 | ) | % | 3.2 |
| % |
For the three months ended September 30, 2019, segment orders were up $1.2 billion (30%), segment revenues were up $0.5 billion (13%) and segment profit was down $0.2 billion.
Orders increased $1.2 billion, or 32%, organically to $5.1 billion from $3.9 billion due to increased demand in Onshore international markets and a large scale 6MW turbine order in Offshore Wind.
Revenues increased $0.6 billion, or 15%, organically*. Equipment revenues increased due to 176 more wind turbine shipments on a unit basis, or 21% more megawatts shipped, than in the prior year, offset by a decrease in Grid Solutions equipment driven by lower HVDC and Alternating Current Substation (ACS) project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower unit deliveries at Onshore Wind.
Profit decreased $0.2 billion organically* largely due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018. Excluding this, profit decreased driven by price pressure in Grid Solutions equipment and services and Onshore Wind, the impact of U.S.-China tariffs, project execution and increased research and development spend for Haliade-X and Cypress, partially offset by higher volume in Onshore Wind and cost productivity.
For the nine months ended September 30, 2019, segment orders were up $2.2 billion (22%), segment revenues were up $0.9 billion (10%) and segment profit was down $0.8 billion.
Backlog as of September 30, 2019 increased $4.4 billion, or 19%, from September 30, 2018 driven by increased demand at Onshore Wind resulting from the anticipated expiration of PTCs, increased services backlog due to the increased Onshore Wind installed equipment base, and a large scale 6MW turbine order in Offshore Wind.
Orders increased $2.4 billion, or 24%, organically to $12.4 billion from $10.0 billion due to increased demand in domestic and international Onshore markets, partially offset by a decrease in repower unit orders compared to the prior year.
Revenues increased $1.4 billion, or 14%, organically*. Equipment revenues increased due to 630 more wind turbine shipments on a unit basis, or 41% more megawatts shipped, than in the prior year, partially offset by decreases in Offshore due to the nonrecurrence of a project executed in the prior year and Grid Solutions equipment due to lower HVDC and ACS project revenues and HV product shipments. Services revenues increased primarily due to an increase in repower units pricing and volume at Onshore Wind.
Profit decreased $0.8 billion organically* due to higher losses in Grid Solutions equipment and services, Hydro and Offshore Wind as we began fully consolidating these entities in the fourth quarter of 2018, as well as project execution challenges including higher losses on legacy contracts, partially offset by a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts. Excluding these items, profit decreased driven by price pressure in Grid Solutions equipment and services and Onshore Wind, project execution, the impact of U.S.-China tariffs and increased research and development spend for Haliade-X and Cypress, partially offset by higher volume in Onshore Wind and cost productivity.
*Non-GAAP Financial Measure
20182019 3Q FORM 10-Q 1711
|
| | |
| MD&A | SEGMENT OPERATIONS | RENEWABLE ENERGY |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 2.4 |
| $ | 2.0 |
| | $ | 4.8 |
| $ | 5.4 |
|
| Services | 0.4 |
| 0.6 |
| | 1.4 |
| 1.2 |
|
| Total | $ | 2.9 |
| $ | 2.5 |
| | $ | 6.2 |
| $ | 6.6 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | 0.1 |
| $ | 0.2 |
| | $ | 0.2 |
| $ | 0.4 |
|
| Segment profit margin | 2.1 | % | 8.7 | % | | 3.6 | % | 6.8 | % |
2018 – 2017 COMMENTARY
The renewable energy market remains competitive, particularly in onshore wind. The onshore wind market continues to experience megawatt growth as customer preference has shifted from 1.X models to larger, more efficient units. However, overcapacity in the industry, the move to auctions in international markets and U.S. tax reform contributed to continued pricing pressure in the first nine months of 2018. In addition, uncertainty at the end of 2017 related to the impact of U.S. tax reform resulted in a temporary delay in project work during the year. From the third quarter of 2018 onward, we expect project build and shipments to increase in anticipation of the expiration of Production Tax Credits (PTCs) in the U.S. at 100% value in 2020.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $0.4 billion (15%);
Segment profit down $0.2 billion (72%):
Equipment volume increased due to 315 more wind turbine shipments on a unit basis, or 70% more megawatts shipped, than in the prior year. Services volume decreased due to 177 fewer repower units at Onshore Wind driven by project delays as a result of uncertainty related to the impact of U.S. tax reform. Revenues also decreased due to pricing pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was primarily due to pricing pressure in Onshore Wind and negative variable cost productivity, partially offset by cost-out actions, materials deflation and increased equipment volume.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $0.4 billion (6%);
Segment profit down $0.2 billion (51%):
Equipment volume decreased due to 240 fewer wind turbine shipments on a unit basis, despite 1% more megawatts shipped, than in the prior year. Services volume increased due to larger installed base resulting in increased contractual revenues, partially offset by 18 fewer repower units at Onshore Wind than in the prior year. Revenues also increased due to the acquisition of LM Wind in April 2017, which contributed $0.1 billion of inorganic revenue growth in the first half of 2018, and the effects of a weaker U.S. dollar versus certain currencies, partially offset by pricing pressure.
The decrease in profit was due to pricing pressure, partially offset by materials deflation.
|
| | |
MD&A | SEGMENT OPERATIONS | AVIATION |
AVIATION
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Commercial Engines & Services | $ | 5.6 |
| $ | 4.8 |
| | $ | 16.4 |
| $ | 14.7 |
|
| Military | 0.9 |
| 1.0 |
| | 2.9 |
| 2.9 |
|
| Systems & Other | 0.9 |
| 0.8 |
| | 2.7 |
| 2.4 |
|
| Total segment revenues | $ | 7.5 |
| $ | 6.7 |
| | $ | 22.1 |
| $ | 20.0 |
|
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 4.1 |
| $ | 2.2 |
| | $ | 11.8 |
| $ | 7.7 |
|
| Services | 5.1 |
| 4.5 |
| | 15.0 |
| 13.6 |
|
| Total | $ | 9.1 |
| $ | 6.7 |
| | $ | 26.8 |
| $ | 21.3 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 37.8 |
| $ | 34.7 |
|
| Services | 173.1 |
| 153.1 |
|
| Total | $ | 210.9 |
| $ | 187.8 |
|
|
| | | | | | | | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2018 |
| 3Q 2017 |
| V |
| YTD 2018 |
| YTD 2017 |
| V |
|
| Commercial Engines | 714 |
| 641 |
| 73 |
| 2,062 |
| 1,895 |
| 167 |
|
| LEAP Engines(a) | 303 |
| 111 |
| 192 |
| 739 |
| 257 |
| 482 |
|
| Military Engines | 160 |
| 145 |
| 15 |
| 502 |
| 402 |
| 100 |
|
| Spares Rate(b) | $ | 28.0 |
| $ | 23.2 |
| $ | 4.8 |
| $ | 26.6 |
| $ | 22.2 |
| $ | 4.4 |
|
(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
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 2.8 |
| $ | 2.4 |
| | $ | 8.3 |
| $ | 7.4 |
|
| Services | 4.6 |
| 4.3 |
| | 13.8 |
| 12.6 |
|
| Total | $ | 7.5 |
| $ | 6.7 |
| | $ | 22.1 |
| $ | 20.0 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | 1.7 |
| $ | 1.3 |
| | $ | 4.7 |
| $ | 4.0 |
|
| Segment profit margin | 22.3 | % | 19.9 | % | | 21.5 | % | 19.9 | % |
2018 – 2017 COMMENTARY
Global passenger air travel continued to grow with revenue passenger kilometers (RPK) growth outpacing the five-year average and demand exceeding capacity. Industry-load factors remained above 80%(a). Air freight volume also increased, particularly in international markets. Freight capacity additions slightly exceeded freight volume growth during the year.
We shipped 739 LEAP engines in the first nine months of the year and remain on track to ship 1,100-1,200 engines in 2018.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $0.8 billion (12%);
Segment profit up $0.3 billion (25%):
Equipment revenues increased primarily due to 73 more commercial units, including 192 more LEAP units partially offset by lower commercial legacy output including the CFM product line, versus the prior year. Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price.
The increase in profit was mainly due to product and structural cost productivity, increased price, and higher spare engine shipments. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin and lower military spare parts sales.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $2.1 billion (11%);
Segment profit up $0.8 billion (19%):
Equipment revenues increased primarily due to 100 more military engine shipments and 167 more commercial units, including 482 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM and GE90 product lines. Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price.
The increase in profit was mainly due to increased volume, increased price, higher spare engine shipments and product and structural cost productivity. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin as well as higher overhaul shop costs due to increased volume and mix.
(a) Based on the latest available information from the International Air Transport Association
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
OIL & GAS
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Turbomachinery & Process Solutions (TPS) | $ | 1.4 |
| $ | 1.4 |
| | $ | 4.2 |
| $ | 4.7 |
|
| Oilfield Services (OFS) | 3.0 |
| 2.7 |
| | 8.6 |
| 3.1 |
|
| Oilfield Equipment (OFE) | 0.6 |
| 0.6 |
| | 1.9 |
| 2.0 |
|
| Digital Solutions | 0.7 |
| 0.6 |
| | 1.9 |
| 1.6 |
|
| Total segment revenues | $ | 5.7 |
| $ | 5.3 |
| | $ | 16.6 |
| $ | 11.4 |
|
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 2.2 |
| $ | 2.4 |
| | $ | 6.7 |
| $ | 4.6 |
|
| Services | 3.5 |
| 3.3 |
| | 10.3 |
| 6.8 |
|
| Total | $ | 5.8 |
| $ | 5.8 |
| | $ | 17.0 |
| $ | 11.4 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Backlog | | |
| Equipment | $ | 5.3 |
| $ | 5.8 |
|
| Services | 16.0 |
| 16.0 |
|
| Total | $ | 21.3 |
| $ | 21.8 |
|
|
| | |
MD&A | SEGMENT OPERATIONS | OIL & GAS |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 2.2 |
| $ | 2.2 |
| | $ | 6.6 |
| $ | 4.7 |
|
| Services | 3.4 |
| 3.1 |
| | 10.0 |
| 6.7 |
|
| Total | $ | 5.7 |
| $ | 5.3 |
| | $ | 16.6 |
| $ | 11.4 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | 0.2 |
| $ | (0.1 | ) | | $ | 0.1 |
| $ | 0.3 |
|
| Segment profit margin | 3.2 | % | (1.1 | )% | | 0.7 | % | 2.8 | % |
2018 – 2017 COMMENTARY
Stability in the oil and gas market since the second half of 2017 has led to continued improvements in activity. North American onshore rig count has continued to grow, and international rig count has also seen moderate increases. Offshore projects remain subject to increases in customer spending behavior, and final investment decisions on liquefied natural gas (LNG) projects are also expected to start in late 2018 as the market continues to be oversupplied.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $0.4 billion (7%);
Segment profit up $0.2 billion:
Services and equipment revenues increased primarily at OFS as a result of higher activity in North America and international markets. These increases were partially offset by the effects of a stronger U.S. dollar versus certain currencies.
The increase in profit was primarily driven by lower restructuring and other charges as well as synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated, partially offset by losses in equity of affiliates and the allocation to noncontrolling interests.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $5.2 billion (46%);
Segment profit down $0.2 billion (66%):
The Baker Hughes acquisition in July 2017 contributed $5.4 billion of revenue growth in the first half of 2018 compared to the first half of 2017. Legacy Oil & Gas equipment revenues decreased due to lower volume primarily at TPS and OFE as a result of lower opening backlog, while services revenues increased due to higher OFS activity in North America and international markets. These decreases were partially offset by the effects of a weaker U.S. dollar versus certain currencies in the first half of 2018.
The decrease in profit was primarily driven by restructuring and other charges and unfavorable business mix, partially offset by synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated.
*Non-GAAP Financial Measure
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
HEALTHCARE
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Healthcare Systems | $ | 3.4 |
| $ | 3.4 |
| | $ | 10.2 |
| $ | 9.7 |
|
| Life Sciences | 1.1 |
| 1.1 |
| | 3.5 |
| 3.3 |
|
| Healthcare Digital | 0.1 |
| 0.2 |
| | 0.6 |
| 0.8 |
|
| Total segment revenues | $ | 4.7 |
| $ | 4.7 |
| | $ | 14.4 |
| $ | 13.7 |
|
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
(In billions)
| 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 3.1 |
| $ | 3.0 |
| | $ | 8.9 |
| $ | 8.5 |
|
| Services | 2.0 |
| 2.0 |
| | 6.2 |
| 6.0 |
|
| Total | $ | 5.1 |
| $ | 5.1 |
| | $ | 15.1 |
| $ | 14.6 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 6.2 |
| $ | 6.1 |
|
| Services | 11.1 |
| 12.0 |
|
| Total | $ | 17.3 |
| $ | 18.1 |
|
|
| | |
MD&A | SEGMENT OPERATIONS | HEALTHCARE |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 2.7 |
| $ | 2.6 |
| | $ | 8.1 |
| $ | 7.6 |
|
| Services | 2.0 |
| 2.1 |
| | 6.3 |
| 6.1 |
|
| Total | $ | 4.7 |
| $ | 4.7 |
| | $ | 14.4 |
| $ | 13.7 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | 0.9 |
| $ | 0.8 |
| | $ | 2.5 |
| $ | 2.3 |
|
| Segment profit margin | 18.3 | % | 18.0 | % | | 17.5 | % | 17.0 | % |
2018 – 2017 COMMENTARY
The Healthcare Systems global market continues to expand at low single digit rates, driven by strength in emerging markets, as these economies continue to expand their population’s access to healthcare, and slower growth in developed markets. The Life Sciences market continues to be strong, with the Bioprocess market growing at a high single digit rate, driven by growth in biologic drugs, and the contrast agents market growing at low single digit rates.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues flat;
Segment profit up 2%:
Equipment revenues increased due to higher volume in Healthcare Systems attributable to global growth in Imaging and Ultrasound in both developed regions such as the U.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Contrast Imaging. These increases were offset by a decrease in services revenues due to the disposition of the Value-Based Care Division at the beginning of the third quarter of 2018 as well as price pressure at Healthcare Systems.
The increase in profit was primarily driven by cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions and higher volume. These increases were partially offset by price pressure at Healthcare Systems, investments in programs including Digital and Healthcare Systems new product introductions, the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences and the disposition of the Value-Based Care Division.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues up $0.7 billion (5%);
Segment profit up $0.2 billion (8%):
Services and equipment revenues increased due to higher volume in Healthcare Systems attributable to global growth in Imaging and Ultrasound in both developed regions such as the U.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Contrast Imaging. In addition, revenues increased due to the effects of a weaker U.S. dollar versus certain currencies, partially offset by price pressure at Healthcare Systems and the disposition of the Value-Based Care Division during the quarter.
The increase in profit was primarily driven by volume growth and cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. These increases were partially offset by price pressure at Healthcare Systems, inflation, investments in programs including Digital and Healthcare Systems new product introductions, the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences and the disposition of the Value-Based Care Division.
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
TRANSPORTATION
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Locomotives | $ | 0.1 |
| $ | 0.3 |
| | $ | 0.5 |
| $ | 1.1 |
|
| Services | 0.6 |
| 0.5 |
| | 1.6 |
| 1.4 |
|
| Mining | 0.1 |
| 0.1 |
| | 0.4 |
| 0.2 |
|
| Other(a) | 0.1 |
| 0.1 |
| | 0.3 |
| 0.2 |
|
| Total segment revenues | $ | 0.9 |
| $ | 0.9 |
| | $ | 2.7 |
| $ | 3.0 |
|
|
|
(a) Includes Marine, Stationary, Drilling and Digital |
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 1.4 |
| $ | 0.2 |
| | $ | 2.6 |
| $ | 1.0 |
|
| Services | 0.6 |
| 0.7 |
| | 2.0 |
| 1.7 |
|
| Total | $ | 2.0 |
| $ | 0.9 |
| | $ | 4.6 |
| $ | 2.7 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 6.4 |
| $ | 4.0 |
|
| Services | 12.5 |
| 10.6 |
|
| Total | $ | 18.8 |
| $ | 14.6 |
|
|
| | | | | | | | | | | | |
| UNIT SALES | | | | | | |
| | 3Q 2018 |
| 3Q 2017 |
| V |
| YTD 2018 |
| YTD 2017 |
| V |
|
| Locomotives | 40 |
| 77 |
| (37 | ) | 154 |
| 354 |
| (200 | ) |
|
| | |
MD&A | SEGMENT OPERATIONS | TRANSPORTATION |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 0.2 |
| $ | 0.4 |
| | $ | 0.8 |
| $ | 1.4 |
|
| Services | 0.7 |
| 0.6 |
| | 1.9 |
| 1.6 |
|
| Total | $ | 0.9 |
| $ | 0.9 |
| | $ | 2.7 |
| $ | 3.0 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Six months ended June 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | 0.2 |
| $ | 0.1 |
| | $ | 0.4 |
| $ | 0.4 |
|
| Segment profit margin | 17.4 | % | 14.9 | % | | 16.3 | % | 14.0 | % |
2018 – 2017 COMMENTARY
While the North American market has experienced some fleet overcapacity and constrained spending by the railroads limiting fleet expansion, there continue to be signs of improvement. North American carload volume increased 5.0% during the third quarter of 2018, driven primarily by an increase in intermodal traffic(a). With improving carload volume, the number of parked locomotives has also improved, decreasing 27% from the prior year.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues down 2%;
Segment profit up 15%:
Equipment volume decreased primarily driven by lower international locomotive shipments. This decrease was partially offset by growth in mining and an increase in services revenues as railroads are running their locomotives longer, and recently unparked locomotives tend to be older units in higher need of servicing and replacement parts, driving an increase in services volume and parts shipped.
The increase in profit was driven by favorable business mix from a higher proportion of services volume, partially offset by lower locomotive volume.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $0.3 billion (9%);
Segment profit up 7%:
Equipment volume decreased primarily driven by lower locomotive shipments. This decrease was partially offset by growth in mining and an increase in services revenues as railroads are running their locomotives longer, and recently unparked locomotives tend to be older units in higher need of servicing and replacement parts, driving an increase in services volume and parts shipped.
The increase in profit was driven by favorable business mix from a higher proportion of services and mining volume as well as lower spend driven by prior year restructuring, partially offset by lower locomotive volume.
(a) Defined as when at least two modes of transportation are used to move freight.
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
LIGHTING
OPERATIONAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Current | $ | 0.2 |
| $ | 0.3 |
| | $ | 0.7 |
| $ | 0.7 |
|
| GE Lighting | 0.2 |
| 0.2 |
| | 0.6 |
| 0.7 |
|
| Total segment revenues | $ | 0.4 |
| $ | 0.5 |
| | $ | 1.3 |
| $ | 1.4 |
|
|
| | | | | | | | | | | | | |
| ORDERS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Equipment | $ | 0.2 |
| $ | 0.2 |
| | $ | 0.7 |
| $ | 0.8 |
|
| Services | — |
| — |
| | — |
| 0.1 |
|
| Total | $ | 0.2 |
| $ | 0.2 |
| | $ | 0.7 |
| $ | 0.9 |
|
|
| | | | | | |
| BACKLOG | |
| (In billions) | September 30, 2018 |
| September 30, 2017 |
|
| | | |
| Equipment | $ | 0.2 |
| $ | 0.2 |
|
| Services | — |
| — |
|
| Total | $ | 0.2 |
| $ | 0.2 |
|
|
| | |
MD&A | SEGMENT OPERATIONS | LIGHTING |
FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Equipment | $ | 0.4 |
| $ | 0.5 |
| | $ | 1.2 |
| $ | 1.4 |
|
| Services | — |
| — |
| | — |
| — |
|
| Total | $ | 0.4 |
| $ | 0.5 |
| | $ | 1.3 |
| $ | 1.4 |
|
| | | | | | |
| SEGMENT PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Segment profit | $ | — |
| $ | — |
| | $ | 0.1 |
| $ | — |
|
| Segment profit margin | 6.8 | % | 3.0 | % | | 4.1 | % | 2.9 | % |
2018 – 2017 COMMENTARY
The traditional lighting market continued to decline in the nine months of 2018 with corresponding growth in LED lighting as the market shifts away from traditional lighting products in favor of more energy efficient, cost-saving options.
THREE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $0.1 billion (18%);
Segment profit up 86%:
Revenues decreased due to the disposition of our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business in the second quarter of 2018. Excluding the impact of these dispositions, equipment revenues decreased due to lower traditional lighting and solar sales and lower LED prices, partially offset by higher LED volume and Digital sales.
The increase in profit was driven by savings from restructuring and decreased investment and controllable spending, partially offset by regional exits and lower prices.
NINE MONTHS ENDED SEPTEMBER 30:
Segment revenues down $0.1 billion (10%);
Segment profit up 27%:
Revenues decreased due to the disposition of our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business in the second quarter of 2018. Excluding the impact of these dispositions, equipment revenues increased due to higher LED volume and Digital sales, partially offset by lower traditional lighting and solar sales and lower LED prices.
The increase in profit was driven by savings from restructuring and decreased investment and controllable spending, partially offset by regional exits and lower prices.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
CAPITAL
OPERATIONAL AND FINANCIAL OVERVIEW
|
| | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| GECAS | $ | 1.2 |
| $ | 1.2 |
| | $ | 3.6 |
| $ | 3.9 |
|
| EFS | 0.3 |
| — |
| | 0.2 |
| 0.2 |
|
| Industrial Finance and WCS(a) | 0.3 |
| 0.4 |
| | 1.0 |
| 1.1 |
|
| Insurance | 0.7 |
| 0.7 |
| | 2.2 |
| 2.2 |
|
| Other continuing operations | (0.1 | ) | — |
| | — |
| — |
|
| Total segment revenues | $ | 2.5 |
| $ | 2.4 |
| | $ | 7.1 |
| $ | 7.5 |
|
| |
(a) | In the second quarter of 2018, management of our Working Capital Solutions (WCS) business was transferred to our Treasury operations. |
|
| | | | | | | | | | | | | |
| SEGMENT PROFIT(a) | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Profit | $ | — |
| $ | — |
| | $ | (0.4 | ) | $ | (0.2 | ) |
| |
(a) | Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in |
determining segment profit for the Capital segment, which is included in continuing operations. See Note 2 to the consolidated financial
statements for further information on discontinued operations.
|
|
SIGNIFICANT TRENDS & DEVELOPMENTS |
GE Capital paid no common dividends to GE in the three months ended September 30, 2017, and $4.0 billion in the nine months ended September 30, 2017. GE Capital paid no common dividends in 2018 and does not expect to make a common dividend distribution to GE for the foreseeable future.
In 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s Energy Financial Services (EFS) and Industrial Finance businesses (GE Capital strategic shift). As a result, we classified financing receivables of the Energy Financial Services and Industrial Finance businesses as held for sale as we no longer intend to hold these financing receivables for the foreseeable future. See Note 6 to the consolidated financial statements for further information.
In the first quarter of 2018, GE Capital contributed $3.5 billion of capital to its insurance subsidiaries and expects to contribute approximately an additional $11 billion through 2024 subject to ongoing monitoring by the Kansas Insurance Department (KID) and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements. We perform premium deficiency testing at least annually. Any future adverse changes in our assumptions could result in an increase to future policy benefit reserves and additional contributions of capital over and above the $11 billion noted above. For example, a hypothetical five percent increase in future claim costs, holding all other assumptions constant, would result in a $1.5 billion increase to our future policy benefit reserves. Similarly, a hypothetical 25 basis point decline in expected investment yield, holding all other assumptions constant would result in a $1.0 billion increase in future policy benefit reserves. Any favorable changes to these assumptions could result in additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income. See Note 12 to the consolidated financial statements for further information.
We are actively exploring options to mitigate, reduce or eliminate our reinsurance exposures. These options include further premium increases, prudent enhancement of investment returns, transferring or terminating reinsurance arrangements, and risk-transfer transactions with third parties. Certain of these options could have a material financial impact, depending on the timing, extent of risk transfer to a third party, and negotiated terms and conditions of any ultimate arrangements.
During the first quarter of 2018, we recorded a reserve of $1.5 billion in discontinued operations in connection with the DOJ ongoing investigation regarding potential violations of FIRREA by WMC and GE Capital. See Legal Proceedings and Note 19 to the consolidated financial statements for further information.
In August 2018, we announced an agreement to sell EFS' debt origination business within our Capital segment for proceeds of approximately $2.0 billion to Starwood Property Trust, Inc. an affiliate of a leading global private investment firm, Starwood Capital Group. In September 2018, we completed the sale and recognized a pre-tax gain of approximately $0.3 billion in the third quarter of 2018. In addition, we completed the sale of various EFS equity investments and recognized a pre-tax gain of approximately $0.2 billion in the third quarter of 2018.
|
| | |
MD&A | SEGMENT OPERATIONS | CAPITAL |
During the third quarter of 2018, in connection with the GE Capital strategic shift, we classified an additional $0.2 billion of Healthcare Equipment Finance financing receivables as held for sale at September 30, 2018.
In October 2018, we announced an agreement to sell a portfolio of approximately $1.0 billion, including certain assumed obligations, of predominately equity investments in energy assets to Apollo Global Management, LLC. This EFS portfolio within our Capital segment comprises investments in renewable energy, contracted natural gas-fired generation and midstream energy infrastructure assets, primarily in the U.S. The deal is expected to close in the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.
2018 – 2017 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
Capital revenues increased $0.1 billion, or 3%, primarily due to higher gains and lower impairments, partially offset by volume declines.
Capital earnings decreased slightly due to lower volume, partially offset by higher gains associated with the sale of EFS’ debt origination business and equity investments.
2018 – 2017 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
Capital revenues decreased $0.5 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.
Capital losses increased $0.2 billion, primarily due to higher impairments primarily at EFS related to its renewables and oil and gas investments and volume declines including costs associated with calling debt and lower base earnings including a loss related to updates to the U.S. tax reform impact on energy investments, partially offset by higher gains associated with the sale of EFS’ debt origination business and equity investments and lower corporate and restructuring costs.
|
| | |
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) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | | |
| Revenues | | | | | |
| | Eliminations and other | $ | (685 | ) | $ | (907 | ) | | $ | (2,575 | ) | $ | (2,851 | ) |
| Total Corporate Items and Eliminations | $ | (685 | ) | $ | (907 | ) | | $ | (2,575 | ) | $ | (2,851 | ) |
| | | | | | | |
| Operating profit (cost) | | | | | |
| | Gains (losses) on disposals(a) | $ | 207 |
| $ | 1,885 |
| | $ | 450 |
| $ | 1,887 |
|
| | Restructuring and other charges(b) | (1,501 | ) | (1,079 | ) | | (2,328 | ) | (2,761 | ) |
| | Unrealized gains (losses)(c) | (73 | ) | — |
| | 193 |
| — |
|
| | Goodwill impairment | (21,973 | ) | (947 | ) | | (21,973 | ) | (947 | ) |
| | Eliminations and other | (179 | ) | (367 | ) | | (822 | ) | (1,209 | ) |
| Total Corporate Items and Eliminations | $ | (23,519 | ) | $ | (509 | ) | | $ | (24,481 | ) | $ | (3,031 | ) |
| |
(a) | Includes gains (losses) on disposed or held for sale businesses. |
| |
(b) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. |
| |
(c) | Amount is related to our Pivotal Software equity investment for the three and nine months ended September 30, 2018. |
We believe that adjusting operating corporate costs* to exclude the effects of items that are not closely associated with ongoing corporate operations (see reconciliation below), such as earnings of previously divested businesses, gains and losses on disposed and held for sale businesses, restructuring and other charges provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
|
| | | | | | | | | | | | | |
| CORPORATE COSTS (OPERATING) | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Total Corporate Items and Eliminations (GAAP) | $ | (23,519 | ) | $ | (509 | ) | | $ | (24,481 | ) | $ | (3,031 | ) |
| Less: restructuring and other charges | (1,501 | ) | (1,079 | ) | | (2,328 | ) | (2,761 | ) |
| Less: gains (losses) on disposals | 207 |
| 1,885 |
| | 450 |
| 1,887 |
|
| Less: unrealized gains (losses) | (73 | ) | — |
| | 193 |
| — |
|
| Less: goodwill impairment | (21,973 | ) | (947 | ) | | (21,973 | ) | (947 | ) |
| Adjusted total corporate costs (operating) (Non-GAAP) | $ | (179 | ) | $ | (367 | ) | | $ | (822 | ) | $ | (1,209 | ) |
2018 - 2017 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
Revenues increased $0.2 billion, primarily as a result of:
$0.2 billion decrease in inter-segment eliminations.
Operating costs increased $23.0 billion, primarily as a result of:
$21.0 billion of higher goodwill impairment charges due to a $22.0 billion goodwill impairment related to our Power business in the third quarter of 2018 compared to a $0.9 billion charge for the impairment of Power Conversion goodwill in the third quarter of 2017.
$1.7 billion of lower net gains from disposed or held for sale businesses, which is primarily related to the $1.9 billion gain from the sale of our Water business to Suez in the third quarter of 2017 and $0.4 billion of held for sale losses related to our Lighting and Aviation segments in the third quarter of 2018. These decreases were partially offset by a $0.7 billion gain from the sale of our Value-Based Care business to Veritas Capital in the third quarter of 2018.
$0.4 billion of higher restructuring and other charges related to $0.6 billion of impairments within our Power business in the third quarter of 2018 partially offset by $0.2 billion of lower impairments on power plant assets in 2018.
$0.1 billion of higher unrealized losses related to our equity investment in Pivotal Software.
$0.2 billion of lower Corporate costs from restructuring and cost reduction actions.
*Non-GAAP Financial Measure
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
2018 - 2017 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
Revenues increased $0.3 billion, primarily as a result of:
$0.3 billion decrease in inter-segment eliminations.
Operating costs increased $21.5 billion, primarily as a result of:
$21.0 billion of higher goodwill impairment charges due to a $22.0 billion goodwill impairment related to our Power business in the third quarter of 2018 compared to a $0.9 billion charge for the impairment of Power Conversion goodwill in the third quarter of 2017.
$1.4 billion of lower net gains from disposed or held for sale businesses, which is primarily related to the $1.9 billion gain from the sale of our Water business to Suez in the third quarter of 2017, $0.5 billion of held for sale losses related to our Lighting and Aviation segments in 2018. These decreases were partially offset by a $0.7 billion gain from the sale of our Value-Based Care business to Veritas Capital in the third quarter of 2018 and a $0.3 billion gain from the sale of our Industrial Solutions business to ABB in the second quarter of 2018.
$0.4 billion of lower restructuring and other charges primarily due to $0.8 billion of lower restructuring charges as well as $0.2 billion lower impairment losses on power plant assets in 2018. These decreases were partially offset by $0.6 billion of impairments related to our Power segment in 2018.
$0.2 billion of higher unrealized gains related to our equity investment in Pivotal Software.
$0.4 billion of lower Corporate costs from restructuring and cost reduction actions.
RESTRUCTURING
Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of recent acquisitions, including Alstom, the Baker Hughes transaction, and certain other asset write-downs such as those associated with product line exits. We continue to closely monitor the economic environment and may undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
|
| | | | | | | | | | | | | |
| RESTRUCTURING & OTHER CHARGES | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 | 2017 |
| | | | | | |
| Workforce reductions | $ | 0.3 |
| $ | 0.3 |
| | $ | 0.7 |
| $ | 1.0 |
|
| Plant closures & associated costs and other asset write-downs | 1.1 |
| 0.8 |
| | 1.5 |
| 1.3 |
|
| Acquisition/disposition net charges | 0.2 |
| 0.3 |
| | 0.6 |
| 0.7 |
|
| Other | — |
| — |
| | 0.1 |
| 0.1 |
|
| Total(a) | $ | 1.6 |
| $ | 1.4 |
| | $ | 2.9 |
| $ | 3.1 |
|
| |
(a) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. |
2018 - 2017 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
For the three months ended September 30, 2018, restructuring and other charges were $1.6 billion of which approximately $0.6 billion was reported in cost of products/services and $0.9 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.5 billion for three months ended September 30, 2018. Of the total $1.6 billion restructuring and other charges, $0.1 billion was recorded in the Oil & Gas segment, which amounted to $0.1 billion net of noncontrolling interest.
For the three months ended September 30, 2017, restructuring and other charges were $1.4 billion of which approximately $0.8 billion was reported in cost of products/services, $0.7 billion was reported in SG&A. These activities were primarily at Corporate, Oil & Gas and Power. Cash expenditures for restructuring and other charges were approximately $0.6 billion for the three months ended September 30, 2017. Of the total $1.4 billion restructuring and other charges, $0.4 billion was recorded in the Oil & Gas segment which amounted to $0.3 billion net of noncontrolling interest.
|
| | |
MD&A | CORPORATE ITEMS AND ELIMINATIONS |
2018 - 2017 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
For the nine months ended September 30, 2018, restructuring and other charges were $2.9 billion of which approximately $1.1 billion was reported in cost of products/services and $1.7 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $1.3 billion for nine months ended September 30, 2018. Of the total $2.9 billion restructuring and other charges, $0.6 billion was recorded in the Oil & Gas segment, which amounted to $0.4 billion net of noncontrolling interest.
For the nine months ended September 30, 2017, restructuring and other charges were $3.1 billion of which approximately $1.9 billion was reported in cost of products/services and $1.3 billion was reported in SG&A. These activities were primarily at Corporate, Power and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $1.6 billion for the nine months ended September 30, 2017. Of the total $3.1 billion restructuring and other charges, $0.4 billion was recorded in the Oil & Gas segment which amounted to $0.3 billion net of noncontrolling interest.
COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS
As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. These costs relate primarily to goodwill impairment, restructuring and acquisition and disposition activities. The amount of costs and gains (losses) not included in segment results are as follows.
|
| | | | | | | | | | | | | |
| COSTS | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Power | $ | 23.0 |
| $ | 1.1 |
| | $ | 23.2 |
| $ | 1.7 |
|
| Renewable Energy | — |
| — |
| | 0.1 |
| 0.2 |
|
| Aviation | — |
| — |
| | — |
| 0.1 |
|
| Oil & Gas(a) | — |
| — |
| | — |
| 0.2 |
|
| Healthcare | 0.1 |
| 0.1 |
| | 0.2 |
| 0.2 |
|
| Transportation | — |
| — |
| | — |
| 0.1 |
|
| Lighting | — |
| — |
| | — |
| 0.2 |
|
| Total | $ | 23.1 |
| $ | 1.3 |
| | $ | 23.6 |
| $ | 2.7 |
|
|
| | | | | | | | | | | | | |
| GAINS (LOSSES) | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Power | $ | — |
| $ | 1.9 |
| | $ | 0.3 |
| $ | 1.9 |
|
| Renewable Energy | — |
| — |
| | — |
| — |
|
| Aviation | (0.1 | ) | — |
| | (0.1 | ) | — |
|
| Oil & Gas(a) | — |
| — |
| | — |
| — |
|
| Healthcare | 0.7 |
| — |
| | 0.7 |
| — |
|
| Transportation | — |
| — |
| | — |
| — |
|
| Lighting | (0.3 | ) | — |
| | (0.4 | ) | — |
|
| Total | $ | 0.2 |
| $ | 1.9 |
| | $ | 0.4 |
| $ | 1.9 |
|
| |
(a) | Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. |
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES
Consolidated interest and other financial charges amounted to $1.2 billion and $1.2 billion for the three months ended September 30, 2018 and 2017, respectively, as incremental interest on BHGE debt issuances and higher benchmark interest rates were offset by debt maturities. Consolidated interest and other financial charges amounted to $3.8 billion and $3.5 billion for the nine months ended September 30, 2018 and 2017, respectively. The increase of $0.3 billion was driven by incremental interest on BHGE debt issuances and higher benchmark interest rates, partially offset by debt maturities.
GE interest and other financial charges (exclusive of interest on debt assumed by GE) amounted to $0.7 billion and $0.7 billion for the three months ended September 30, 2018 and 2017, respectively, as incremental interest on BHGE debt issuances and intercompany loans from GE Capital were offset by lower costs from monetization programs with GE Capital and debt maturities. GE interest and other financial charges (exclusive of interest on debt assumed by GE) amounted to $2.0 billion and $1.9 billion for the nine months ended September 30, 2018 and 2017, respectively. The increase of $0.1 billion was driven by incremental interest from BHGE debt issuances and intercompany loans from GE Capital as well as higher interest rates on commercial paper, partially offset by lower costs from monetization programs with GE Capital and debt maturities.
GE Capital interest and other financial charges (inclusive of interest on debt assumed by GE) amounted to $0.7 billion and $0.8 billion for the three months ended September 30, 2018 and 2017, respectively and $2.3 billion and $2.4 billion for the nine months ended September 30, 2018 and 2017, respectively. The decrease in both periods was driven by lower average debt balances due to maturities, partially offset by higher benchmark interest rates.
INCOME TAXES
GE pays the income taxes it owes in every country in which it does business. Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in over 180 countries and the majority of our revenue is earned outside the U.S., including in countries with lower tax rates than in the U.S. We reinvest most of our foreign earnings overseas to be able to fund our active non-U.S. business operations. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, like research and development; and by acquisitions, dispositions and tax law changes. On December 22, 2017, the U.S. enacted legislation commonly known as the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowers the statutory tax rate on our U.S. earnings, taxes historic foreign earnings at a reduced rate of tax, creates a territorial tax system and enacts new taxes associated with global operations. Our provisional estimate of the transition tax on historic foreign earnings and the effect on our deferred taxes is described in Note 14 to the consolidated financial statements. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE’s tax payments are due.
See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2017 for further information on income taxes.
CONSOLIDATED
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Provision (benefit) for income taxes | $ | 0.2 |
| $ | (0.6 | ) | | $ | 0.7 |
| $ | (0.7 | ) |
2018 – 2017 COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
The consolidated income tax rate was (1)% and (74)% for the quarters ended September 30, 2018 and 2017, respectively. The negative rate for 2018 reflects a tax expense on a pretax loss whereas the negative rate for 2017 reflects a tax benefit on pre-tax income.
The consolidated provision (benefit) for income taxes was $0.2 billion in the third quarter of 2018 and $(0.6) billion in the third quarter of 2017. The increase in tax provision was primarily due to the nonrecurrence of the benefit from a lower tax rate relative to the U.S. statutory rate on the disposition of the Water business in 2017 and an increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business in 2018.
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
The consolidated tax provision (benefit) includes $0.2 billion and $(0.3) billion for GE (excluding GE Capital) for the third quarters of 2018 and 2017, respectively.
2018 – 2017 COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
The consolidated income tax rate was (3)% and (38)% for the nine months ended September 30, 2018 and 2017, respectively. The negative rate for 2018 reflects a tax expense on a pretax loss whereas the negative rate for 2017 reflects a tax benefit on pre-tax income.
The consolidated provision (benefit) for income taxes was $0.7 billion in the nine months of 2018 and $(0.7) billion in the nine months of 2017. The increase in tax provision was primarily due to lower benefits from global activities relative to the U.S. statutory rate including an increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business, the decision to execute an internal restructuring to separate the Healthcare business and the cost of the newly enacted base erosion and global intangible income provisions and the nonrecurrence of the benefit from a lower tax rate relative to the U.S. tax rate on the disposition of the Water business in 2017. This was partially offset by an adjustment to the 2018 nine-month provision that decreased the rate to be in line with the lower projected full year rate while in 2017, there was an adjustment to increase the nine-month rate to be in line with the higher projected full year rate.
The consolidated tax provision (benefit) includes $0.8 billion and $(0.1) billion for GE (excluding GE Capital) for the nine months of 2018 and 2017, respectively.
The effective tax rate in future periods is expected to increase given changes in our income profile including changes to GE Capital earnings.
See Note 14 to the consolidated financial statements for additional information related to income taxes.
BENEFITS FROM GLOBAL OPERATIONS
Absent the effects of U.S. tax reform, our consolidated income tax provision is reduced because of the benefits of lower-taxed global operations. The benefit from non-U.S. rates below the U.S. statutory rate was significant prior to the decrease in the U.S. statutory rate to 21% beginning in 2018. While reduced, there is still a benefit as certain non-U.S. income is subject to local country tax rates that are below the new U.S. statutory rate.
The rate of tax on our indefinitely reinvested non-U.S. earnings is below the historic 35% U.S. statutory tax rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GE funds certain non-U.S. operations through foreign companies that are subject to low foreign taxes. Most of these earnings have been reinvested in active non-U.S. business operations and as of December 31, 2017, we had not decided to repatriate these earnings to the U.S. Given U.S. tax reform, substantially all of our prior unrepatriated earnings are subject to U.S. tax and accordingly we expect to have the ability to repatriate available non-U.S. cash from those earnings without additional U.S. federal tax cost and any foreign withholding taxes on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit. We will update our analysis of investment in foreign earnings in 2018 as we consider the impact of U.S. tax reform.
A substantial portion of the benefit for lower-taxed non-U.S. earnings related to business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate is derived from our GECAS aircraft leasing operations located in Ireland where the earnings are taxed at 12.5%, from our Power operations located in Switzerland and Hungary where the earnings are taxed at between 9% and 18.6%, and our Healthcare operations in Europe where tax deductions are allowed for certain intangible assets and earnings are taxed below the historic U.S. statutory rate.
Because the U.S. tax rate has been reduced to 21% beginning in 2018 and because the U.S. has adopted a territorial tax system and enacted new provisions of U.S. law related to taxation of global operations as part of U.S. tax reform, the overall tax benefit from non-U.S. operations compared to the U.S. statutory rate will be reduced or eliminated going forward as we also have non-U.S. operations taxed at close to the current U.S. statutory rate of 21% and non-U.S. operations with non-deductible losses and may incur additional taxes related to newly enacted U.S. tax provisions on global operations, as discussed below.
As part of U.S. tax reform, the U.S. has enacted a tax on “base eroding” payments from the U.S. We are evaluating the impact of this new provision on our operations and intend to undertake restructuring actions to avoid a significant impact from this provision. The U.S. has also enacted a minimum tax on foreign earnings (“global intangible low tax income”). Because we have tangible assets outside the U.S. and pay a rate of foreign tax above the minimum tax rate, we are not expecting a significant increase in tax liability from this new U.S. minimum tax. Because aspects of the new law and the effect on our operations is uncertain and because aspects of the accounting rules associated with the tax on global intangible low-taxed income have not been resolved, we have made an accrual for the current but not the deferred tax effects of this provision. Overall, we project a cost for the base erosion and global intangible low tax income provisions in 2018 that exceeds the net benefit of non-U.S. operations taxed at less than the 21% U.S. statutory tax rate.
|
| | |
MD&A | OTHER CONSOLIDATED INFORMATION |
We have not significantly adjusted our provisional estimate of the enactment of U.S. tax reform during the third quarter of 2018 as we continue to analyze information related to our operations as well as new guidance and other aspects of the enacted provisions. Based on our on-going analysis of the currently issued guidance on the transition tax on historic foreign earnings and related foreign tax credit impacts through the third quarter, including advice from outside advisors, we believe the provisional estimate of the impact of enactment, as recorded in the fourth quarter of 2017 and adjusted during 2018 remains a reasonable estimate of the effects of enactment including the impact of items in the 2018 tax filings. We will update the impact of enactment during the fourth quarter of 2018 based on available government guidance and additional analysis of our information. However, there were discrete changes in the provisional estimate identified, primarily at Baker Hughes in connection with measurement period adjustments to purchase price allocation and the associated impact of the change in tax rate on deferred taxes that reduced the provisional amounts recorded by $0.1 billion in the first nine months of 2018. Primarily all of this benefit relates to non-consolidated operations and did not affect net earnings to the company as there is an offsetting adjustment to income from noncontrolling interests. The net remaining cost also relates primarily to the revaluation of deferred taxes corresponding to measurement period adjustments to the purchase price allocation for the Baker Hughes acquisition.
DISCONTINUED OPERATIONS
Discontinued operations primarily comprise residual assets and liabilities related to our exited U.S. mortgage business (WMC), as discussed in Legal Proceedings and Notes 2 and 19 to the consolidated financial statements, as well as our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses as a result of the GE Capital Exit Plan (our plan announced in 2015 to reduce the size of our financial services businesses).
During the first quarter of 2018, we recorded a reserve of $1.5 billion in discontinued operations in connection with the DOJ ongoing investigation regarding potential violations of FIRREA by WMC and GE Capital. See Legal Proceedings and Note 19 to the consolidated financial statements for further information.
|
| | |
MD&A | STATEMENT OF FINANCIAL POSITION |
STATEMENT OF FINANCIAL POSITION
Because GE and GE Capital share certain significant elements of their Statements of Financial Position, the following discussion addresses significant captions in the consolidated statement. Within the following discussions, however, we distinguish between GE and GE Capital activities in order to permit meaningful analysis of each individual consolidating statement.
MAJOR CHANGES IN OUR FINANCIAL POSITION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2018
Cash, cash equivalents and restricted cash decreased $17.0 billion.
As of September 30, 2018, GE Cash, cash equivalents and restricted cash excluding BHGE was $9.1 billion and BHGE Cash, cash equivalents and restricted cash was $4.8 billion.
GE Cash, cash equivalents and restricted cash decreased $5.0 billion due to cash used for operating activities of $4.1 billion (including GE Pension Plan contributions of $6.0 billion), net repayments of borrowings of $3.4 billion (including $0.8 billion at BHGE), payments of common dividends to shareowners of $3.1 billion, gross additions to PP&E and internal-use software of $2.7 billion, BHGE net stock repurchases and dividends to noncontrolling interests of $0.6 billion, net investments in intangible assets of $0.5 billion and net settlements of derivative hedges of $0.4 billion, partially offset by intercompany loans from GE Capital to GE of $6.5 billion and proceeds from business dispositions of $3.4 billion.
GE Capital Cash, cash equivalents and restricted cash as of September 30, 2018 was $13.1 billion and decreased $12.1 billion primarily due to net repayments of borrowings of $16.8 billion, intercompany loans from GE Capital to GE of $6.5 billion and net purchases of investment securities of $2.8 billion, partially offset by net collections of financing receivables of $6.7 billion, maturities of liquidity investments of $4.8 billion and proceeds from the sale of EFS' debt origination business and equity investments of $3.7 billion.
See the Statement of Cash Flows section within this MD&A for further information.
Investment securities decreased $3.9 billion, primarily due to maturities of liquidity portfolio investments and a decrease in net unrealized gains, partially offset by net purchases of investment securities at GE Capital. See Note 3 to the consolidated financial statements for further information.
Current receivables decreased $3.8 billion, primarily due to customer collections of receivables sold by GE to GE Capital in prior periods outpacing new volume. See Note 4 to the consolidated financial statements for further information.
Financing receivables - net decreased $2.4 billion, primarily due to the classification of Healthcare Equipment Finance financing receivables at GE Capital as held for sale, in connection with the GE Capital strategic shift. See Note 6 to the consolidated financial statements for further information.
Property, plant and equipment - net decreased $3.2 billion, primarily due to depreciation and amortization of $4.2 billion and the classification of our Distributed Power business in our Power segment as held for sale of $0.3 billion, partially offset by net additions to property, plant and equipment of $2.3 billion. See Note 7 to the consolidated financial statements for further information.
Goodwill decreased $23.6 billion, primarily due to impairments related to our Power segment of $22.0 billion, the classification of our Distributed Power business in our Power segment as held for sale of $1.8 billion and the effects of currency exchange of $0.6 billion, partially offset by purchase accounting adjustments of $0.8 billion. See Note 8 to the consolidated financial statements for further information.
Contract and other deferred assets increased $0.5 billion. Revenues in excess of billings increased $0.3 billion on our long-term service agreements. In addition, other deferred assets increased $0.2 billion, primarily due to an increase in nonrecurring engineering costs of $0.3 billion partially offset by a decrease in deferred inventory costs of $0.1 billion. See Note 10 to the consolidated financial statements for further information.
All other assets decreased $4.5 billion, primarily due to sales of associated companies at GE Capital and the adoption of ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. See Note 1 to the consolidated financial statements for further information.
Deferred income taxes increased $1.5 billion, primarily due to the adoption of ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. See Note 1 to the consolidated financial statements for further information.
Borrowings decreased $19.6 billion, primarily due to net repayments of borrowings at GE Capital of $16.8 billion, net repayments of borrowings at BHGE of $0.8 billion and the effects of currency exchange of $0.5 billion. See Note 11 to the consolidated financial statements for further information.
Investment contracts, insurance liabilities and insurance annuity benefits decreased $2.6 billion, primarily due to a decrease in future policy benefit reserves as a result of a decrease in unrealized gains on debt securities supporting insurance contracts. See Note 12 to the consolidated financial statements for further information.
Non-current compensation and benefits decreased $7.3 billion, primarily due to GE Pension Plan contributions of $6.0 billion.
Redeemable noncontrolling interests decreased $3.0 billion, primarily due to the exercise by Alstom of their redemption rights with respect to grid technology and renewable energy joint ventures in our Power and Renewable Energy segments. See Note 15 to the consolidated financial statements for further information.
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| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY AND BORROWINGS
We maintain a strong focus on liquidity. At both GE and GE Capital we manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.
Our liquidity and borrowing plans for GE and GE Capital are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also consider our capital allocation and growth objectives, including funding debt maturities and insurance obligations, investing in research and development and acquiring industrial businesses, as well as dividend payments and share repurchases. We define our liquidity risk tolerance based on liquidity sources and uses, and our liquidity position is targeted to meet our obligations under both normal and stressed conditions.
GE cash, cash equivalents and restricted cash totaled $13.9 billion at September 30, 2018, including $4.8 billion at BHGE. At GE, we rely primarily on free cash flows from our operating businesses, proceeds from announced dispositions and planned debt issuances. Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions. Our focus is on strengthening our cash position, with a balanced capital allocation plan including organic investments that generate strong returns. We intend to maintain a disciplined financial policy, targeting a sustainable credit rating in the Single A range, and targeting a net debt/EBITDA ratio of 2.5x or less. We expect to make significant progress toward this leverage goal over the next few years.
During the first nine months of 2018, GE entered into intercompany loans from GE Capital totaling $6.5 billion (utilizing a portion of GE Capital's excess unsecured term debt) which comprised $6.0 billion to fund its contributions to the GE Pension Plan and a short-term loan of $0.5 billion to refinance other existing intercompany loans from GE Capital to GE to a shorter duration. These loans bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement and were priced at market terms with a weighted average interest rate and term of 3.6% and approximately six years, respectively. At September 30, 2018, the total balance of all such intercompany loans with right of offset was $13.7 billion, with a collective weighted average interest rate and term of 3.5% and approximately 10 years, respectively. These loans can be prepaid by GE at any time, in whole or in part, without premium or penalty.
Our 2018 capital allocation plan also considers the fourth quarter funding of €2.6 billion ($3.1 billion) for Alstom redemption rights related to certain consolidated joint ventures, which was completed on October 2, 2018. See Note 15 to the consolidated financial statements for further information.
GE has available a variety of liquidity management tools to fund its operations, including a commercial paper program, revolving credit facilities and short-term intercompany loans from GE Capital, which are typically repaid within the same quarter. At GE Capital, we mainly rely on cash and short-term investments, cash generated from dispositions and cash flows from our businesses to fund our insurance obligations and debt maturities, including the current portion of long-term debt of $7.6 billion at September 30, 2018, as well as our operating and interest costs. On October 2, 2018, S&P lowered the credit ratings of GE and GE Capital short- and long-term debt from A-1 to A-2 and from A to BBB+, respectively, with a Stable outlook. The reduction in our short-term ratings will result in GE transitioning to a split tier-1/tier-2 commercial paper issuer, which will reduce our borrowing capacity in the commercial paper markets. To accommodate GE’s short-term liquidity needs, we plan to increase utilization of our revolving credit facilities, which will result in an overall increase to our cost of funds.
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 2020. GE Capital expects to maintain an adequate liquidity position, primarily as a result of cash and short-term investments, cash generated from dispositions and cash flows from our businesses. During this period, we expect to continue to have excess interest costs as asset sales have outpaced our debt maturities. Additionally, as previously communicated, GE Capital expects to fund approximately $11.0 billion to our insurance subsidiaries over the next seven years, in addition to $3.5 billion which was funded in the first quarter of 2018. These contributions are subject to ongoing monitoring by the Kansas Insurance Department, and the total amount to be contributed could increase or decrease based upon the results of reserve adequacy testing. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements.
As of September 30, 2018, GE Capital maintained liquidity sources of $13.8 billion that consisted of cash, cash equivalents and restricted cash of $13.1 billion, high-quality investments of $0.2 billion and cash, cash equivalents and restricted cash of $0.4 billion classified within discontinued operations. We expect to generate incremental cash from planned asset reduction actions, of which approximately $7.0 billion has been completed. We also anticipate that GE will contribute at least $3 billion of capital to GE Capital in 2019. Additionally, while we maintain adequate liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our excess interest costs.
*Non-GAAP Financial Measure
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
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. At September 30, 2018, the outstanding assumed debt was $37.0 billion (see Note 11 to the consolidated financial statements for additional information). The following table provides a reconciliation of total short- and long-term borrowings as reported on the respective GE and GE Capital Statements of Financial Position to borrowings originally issued by GE and GE Capital.
|
| | | | | | | | | |
| September 30, 2018 (in billions) | GE |
| GE Capital |
| Consolidated(a) |
|
| | | | |
| Total short- and long-term borrowings | $ | 69.6 |
| $ | 47.0 |
| $ | 115.0 |
|
| | | | |
| Debt assumed by GE from GE Capital | (37.0 | ) | 37.0 |
| — |
|
| Intercompany loans with right of offset | 13.7 |
| (13.7 | ) | — |
|
| Total intercompany payable (receivable) between GE and GE Capital | (23.3 | ) | 23.3 |
| — |
|
| | | | |
| Total borrowings issued and outstanding | $ | 46.3 |
| $ | 70.3 |
| $ | 115.0 |
|
| |
(a) | Includes $1.6 billion elimination of other intercompany borrowings between GE and GE Capital.
|
The following table illustrates the primary components of borrowings originally issued and outstanding in GE and GE Capital.
|
| | | | | | | | |
| (In billions) | | | | |
| GE | September 30, 2018 |
| | GE Capital | September 30, 2018 |
|
| Commercial paper | $ | 3.0 |
| | Commercial paper | $ | 3.0 |
|
| Senior notes | 20.9 |
| | Senior and subordinated notes | 39.5 |
|
| Intercompany loans from GE Capital(a) | 13.7 |
| | Senior and subordinated notes assumed by GE | 37.0 |
|
| Other GE borrowings | 2.3 |
| | Intercompany loans to GE(a) | (13.7 | ) |
| Total GE excluding BHGE | $ | 39.9 |
| | Other GE Capital borrowings | 4.4 |
|
| BHGE borrowings | 6.4 |
| | | |
| Total borrowings issued by GE | $ | 46.3 |
| | Total borrowings issued by GE Capital | $ | 70.3 |
|
| |
(a) | The intercompany loans from GE Capital to GE bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement. |
In conjunction with the 2016 exchange of the GE Capital preferred stock into GE preferred stock and the exchange of Series A, B and C preferred stock into Series D preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirrored the GE preferred stock held by external investors ($5,496 million carrying value at September 30, 2018). On July 1, 2018, GE Capital and GE exchanged the existing Series D preferred stock issued to GE for new GE Capital Series D preferred stock that is mandatorily convertible into GE Capital common stock on January 21, 2021. The cash dividend on the new GE Capital preferred stock will equal the cash dividend and accretion on the GE Series D preferred stock through January 21, 2021, at which time the GE Capital preferred stock will convert to GE Capital common stock. After this conversion, GE Capital will no longer pay preferred stock dividends to GE and GE will have to rely on its own cash flows to pay dividends on the GE Series D preferred stock. The exchange of GE Capital Series D preferred stock has no impact on the GE Series D preferred stock, which remains callable for $5,694 million on January 21, 2021 or thereafter on dividend payment dates.
LIQUIDITY SOURCES
GE cash, cash equivalents and restricted cash totaled $13.9 billion at September 30, 2018, including $4.8 billion in BHGE that can only be accessed by GE through the declaration of a dividend by BHGE's Board of Directors, our pro-rata share of BHGE stock buy-backs, and settlements of any intercompany positions. As a result of these restrictions, GE does not consider BHGE cash a freely available source of liquidity for its purposes. GE Capital maintained liquidity sources of $13.8 billion that consisted of cash, cash equivalents and restricted cash of $13.1 billion, high-quality investments of $0.2 billion and cash, cash equivalents and restricted cash of $0.4 billion classified as discontinued operations. Additionally, GE had in place $47.5 billion of committed credit lines ($40.8 billion net of offset provisions), which had no outstanding balance at September 30, 2018.
|
| | |
MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
|
| | | | | | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
| (In billions) | September 30, 2018 |
| | | September 30, 2018 |
|
| | | | | |
| GE(a) | $ | 13.9 |
| | U.S. | $ | 9.8 |
|
| GE Capital(b) | 13.1 |
| | Non-U.S. | 17.2 |
|
| |
(a) | At September 30, 2018, $3.7 billion of GE cash, cash equivalents and restricted cash 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 $1.1 billion of BHGE cash and equivalents, which is subject to similar restrictions. |
| |
(b) | Included $0.8 billion held in insurance and banking entities which are subject to regulatory restrictions. |
Excluding cash held in countries with currency controls and cash at BHGE, total GE cash, cash equivalents and restricted cash was $6.5 billion at September 30, 2018.
|
| | | |
| COMMITTED AND AVAILABLE CREDIT FACILITIES | |
| September 30 (In billions) | 2018 |
| | |
| Unused back-up revolving credit facility(a) | $ | 20.0 |
|
| Revolving credit facilities (exceeding one year)(b) | 24.0 |
|
| Bilateral revolving credit facilities (364-day)(c) | 3.6 |
|
| Total committed credit facilities | $ | 47.5 |
|
| Less offset provisions(d) | (6.7 | ) |
| Total net available credit facilities | $ | 40.8 |
|
| |
(a) | Consisted of a $20 billion syndicated credit facility extended by 36 banks, expiring in 2021. |
| |
(b) | Included a $19.8 billion syndicated credit facility extended by six banks, expiring in 2020. |
| |
(c) | Consisted of credit facilities extended by seven banks, with expiration dates ranging from February 2019 to May 2019. |
| |
(d) | Commitments under certain credit facilities in (a) and (b) may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both syndicated credit facilities. |
During the third quarter of 2018, GE average and maximum borrowings from revolving credit facilities were $1.8 billion and $2.0 billion, respectively.
Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under certain of these credit lines and transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks.
|
| | | | | | | |
| COMMERCIAL PAPER |
| (In billions) | GE | | GE Capital |
| | | | |
| 2018 | | | |
| Average borrowings during the third quarter | $ | 9.8 |
| | $ | 3.0 |
|
| Maximum borrowings outstanding during the third quarter | $ | 11.7 |
| | $ | 3.1 |
|
| Ending balance at September 30 | $ | 3.0 |
| | $ | 3.0 |
|
| | | | |
| 2017 | | | |
| Average borrowings during the third quarter | $ | 14.8 |
| | $ | 5.0 |
|
| Maximum borrowings outstanding during the third quarter | $ | 19.5 |
| | $ | 5.1 |
|
| Ending balance at September 30 | $ | 2.0 |
| | $ | 5.0 |
|
GE Capital commercial paper maturities have historically been funded principally through new commercial paper issuances, and the majority of GE commercial paper is repaid within the respective quarter.
We securitize financial assets as an alternative source of funding. During 2018, we completed $2.2 billion of non-recourse issuances and $1.4 billion of non-recourse borrowings matured. At September 30, 2018, consolidated non-recourse securitization borrowings were $2.7 billion.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
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, excluding the earnings impact of the underlying hedged item, decreased net earnings for the three months ended September 30, 2018 by less than $0.3 billion.
Effective July 1, 2018, we designated the Argentine peso as highly inflationary, which had an immaterial impact on our financial statements.
As of September 30, 2018, we held the U.S. dollar equivalent of $0.4 billion of cash in Angolan kwanza. As Angola is subject to currency controls that restrict the transfer of funds to the U.S. and there is no liquid derivatives market for this currency, we have used Angolan kwanza to purchase $0.4 billion equivalent bonds issued by the central bank in Angola (Banco Nacional de Angola) with various maturities through 2020 to mitigate the related currency devaluation exposure risk. The bonds are denominated in Angolan kwanza as U.S. dollar equivalents, so that, upon payment of periodic interest and principal upon maturity, payment is made in Angolan kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
DEBT AND DERIVATIVE INSTRUMENTS, GUARANTEES AND COVENANTS
CREDIT RATINGS
We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations and significant acquisitions. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and long-term debt.
On October 2, 2018, S&P lowered the credit ratings of GE and GE Capital short- and long-term debt from A-1 to A-2 and from A to BBB+, respectively, with a Stable outlook. In addition, Moody’s and Fitch changed their respective outlooks to ‘review for a potential downgrade’ and ‘Rating Watch Negative’ for both GE and GE Capital.
We are disclosing these updates and the ratings below to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see “Risk Factors - Funding & liquidity - Failure to maintain our credit ratings, or conditions in the financial and credit markets, could adversely affect our access to capital markets, funding costs and related margins, liquidity, capital allocation plans and competitive position.”
The credit ratings of GE and GE Capital as of the date of this filing are set forth in the table below.
|
| | | |
| Moody's | S&P | Fitch |
| | | |
GE | | | |
Outlook | Review for Downgrade | Stable | Rating Watch Negative |
Short term | P-1 | A-2 | F1 |
Long term | A2 | BBB+ | A |
| | | |
GE Capital | | | |
Outlook | Review for Downgrade | Stable | Rating Watch Negative |
Short term | P-1 | A-2 | F1 |
Long term | A2 | BBB+ | A |
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
PRINCIPAL DEBT AND DERIVATIVE CONDITIONS
Certain of our derivative instruments can be terminated if specified credit ratings are not maintained and certain debt and derivatives agreements of other consolidated entities have provisions that are affected by these credit ratings. Substantially all of our debt agreements do not contain material credit rating covenants.
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the net exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration of collateral posted by us and outstanding interest payments was $510 million at September 30, 2018. This excludes exposure related to embedded derivatives.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
STATEMENT OF CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30, 2018 VERSUS 2017
We evaluate our cash flows 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.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss) including those related to taxes, pensions, restructuring and gains (losses) on principal business dispositions. See Note 20 to the consolidated financial statements for further information regarding All other operating activities and All other investing activities.
GE CASH FLOWS
With respect to GE CFOA, we believe that it is useful to supplement our GE Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.
The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material and services. Common dividends from GE Capital represent the distribution of a portion of GE Capital retained earnings, and are distinct from cash from continuing operations within the GE Capital businesses.
In the following discussion, Net earnings for cash flows represents the adding together of Net earnings (loss), (Earnings) loss from discontinued operations and (Earnings) loss from continuing operations retained by GE Capital, excluding GE Capital common dividends paid to GE, if any.
See the Intercompany Transactions between GE and GE Capital section within this MD&A and Notes 4 and 21 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
2018 – 2017 COMMENTARY
GE cash used for operating activities increased $8.2 billion primarily due to the following:
No common dividends were paid by GE Capital to GE in 2018 compared with $4.0 billion in 2017.
Cash used for GE CFOA (excluding common dividends received from GE Capital in 2017) amounted to $4.1 billion in 2018 and an insignificant amount in 2017, primarily due to the following:
Net earnings for cash flows plus depreciation and amortization of property, plant and equipment, amortization of intangible assets, goodwill impairments and deferred income taxes of $5.5 billion in 2018 compared with $6.0 billion in 2017. Net earnings for cash flows included pre-tax gains on business dispositions and other investments and non-cash pre-tax gains (losses) of $0.9 billion compared with $2.0 billion in 2017. Net earnings for cash flows also included pre-tax restructuring and other charges of $2.2 billion in 2018 compared with $3.0 billion in 2017.
Lower growth in contract and other deferred assets of $1.0 billion in 2018 compared with $2.9 billion in 2017, primarily due to the timing of revenue recognized relative to the timing of billings and collections on our long-term equipment agreements, primarily in our Power segment, our long-term service agreements, primarily in our Aviation segment, and lower cash used for deferred inventory, primarily in our Power segment, partially offset by our Renewable Energy and Aviation segments.
An increase in cash used for working capital of $2.3 billion in 2018 compared with $0.9 billion in 2017. This was primarily due to an increase in cash used from progress collections of $1.9 billion, mainly in our Power and Aviation segments, partially offset by our Renewable Energy segment, an increase in cash used for current receivables of $1.4 billion across all segments excluding Oil & Gas, and an increase in cash used for inventories of $0.3 billion, mainly in our Oil & Gas, Transportation, Healthcare and Aviation segments, partially offset by our Power segment. These increases in cash used for working capital were partially offset by an increase in cash generated from accounts payable of $2.2 billion, mainly in our Aviation, Oil & Gas, Renewable Energy and Healthcare segments.
GE Pension Plan contributions of $6.0 billion in 2018 compared with $1.4 billion in 2017.
Lower cash paid for restructuring charges of $1.3 billion in 2018 compared with $1.6 billion in 2017.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
GE cash from investing activities increased $8.1 billion primarily due to the following:
An insignificant amount of business acquisitions in 2018, compared with business acquisitions of $6.1 billion in 2017, mainly driven by the Baker Hughes transaction for $3.4 billion ($7.5 billion cash consideration, less $4.1 billion of cash assumed), LM Wind Power for $1.6 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired).
Net cash paid for settlements of derivative hedges of $0.4 billion in 2018, compared with $1.4 billion in 2017.
Lower additions to property, plant and equipment of $2.4 billion in 2018, compared with $3.1 billion in 2017.
Proceeds from business dispositions of $3.4 billion in 2018, primarily from the sale of our Industrial Solutions business for $2.2 billion (net of cash transferred) and our Value-Based Care business in our Healthcare segment for $1.0 billion (net of cash transferred), compared with $2.9 billion in 2017, mainly driven by the sale of our Water business for $2.7 billion (net of cash transferred).
GE cash used for financing activities increased $6.2 billion primarily due to the following:
A net increase in borrowings of $3.1 billion in 2018, mainly driven by intercompany loans from GE Capital to GE of $6.5 billion (including $6.0 billion to fund contributions to the GE Pension Plan), partially offset by net repayments of debt of $3.4 billion (including $0.8 billion at BHGE), compared with a net increase in borrowings of $14.7 billion in 2017, mainly driven by the issuance of long-term debt of $8.6 billion, primarily to fund acquisitions, and long-term loans from GE Capital to GE of $7.3 billion, partially offset by the settlement of the remaining portion of a 2016 short-term loan from GE Capital to GE of $1.3 billion.
BHGE net stock repurchases and dividends to noncontrolling interests of $0.6 billion in 2018, compared with $0.1 billion in 2017.
These increases in cash used were partially offset by the following decreases:
Common dividends paid to shareowners of $3.1 billion in 2018, compared with $6.3 billion in 2017.
An insignificant amount of net repurchases of GE treasury shares in 2018, compared with net repurchases of $2.6 billion in 2017.
GE CAPITAL CASH FLOWS
2018 – 2017 COMMENTARY-CONTINUING OPERATIONS:
GE Capital cash from operating activities-continuing operations decreased $1.6 billion primarily due to the following:
A net increase in cash collateral paid to counterparties on derivative contracts of $1.8 billion.
GE Capital cash from investing activities-continuing operations decreased $2.1 billion primarily due to the following:
A decrease in net maturities related to investment securities of $4.6 billion: $2.1 billion in 2018 compared with $6.7 billion in 2017.
An increase in net additions to property, plant & equipment of $1.2 billion.
Net proceeds from the sales of our discontinued operations of an insignificant amount in 2018 compared with $1.0 billion in 2017.
An increase in intercompany loans from GE Capital to GE of $6.5 billion in 2018 compared with $5.9 billion in 2017 ($7.3 billion of long-term loans, partially offset by the settlement of the remaining portion of a 2016 short-term loan of $1.3 billion).
A general reduction in funding related to discontinued operations.
These decreases in cash were partially offset by the following increases:
Proceeds from the sale of EFS' debt origination business and equity investments of $3.7 billion in 2018.
Higher collections of financing receivables of $3.4 billion: $6.7 billion in 2018 compared with $3.2 billion in 2017.
GE Capital cash used for financing activities-continuing operations decreased $2.9 billion primarily due to the following:
GE Capital paid no common dividends to GE in 2018 compared with $4.0 billion in 2017.
Lower net repayments of borrowings of $16.8 billion in 2018 compared with $17.6 billion in 2017.
These increases in cash were partially offset by a net increase in derivative cash settlements paid of $1.8 billion.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
GE Capital, the financial arm of GE, provides financial and intellectual capital to GE’s industrial businesses and its customers. GE Capital enables GE orders by either providing direct financing for a GE transaction or by bringing market participants together that result in industrial sales. On January 16, 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital's Energy Financial Services and Industrial Finance businesses. We will retain origination capabilities to support our industrial businesses; however, we will transition to more funding by the capital markets, including export credit agencies and financial institutions. The transactions where GE and GE Capital are directly involved are made on arm's length terms and are reported in the GE and GE Capital columns of our 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,
GE Capital financing of GE long-term receivables, 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 did not receive a common dividend distribution from GE Capital in the nine months ended September 30, 2018 and it does not expect to for the foreseeable future. GE Capital paid $4.0 billion of common dividends to GE in the nine months ended September 30, 2017.
In order to manage short-term liquidity and credit exposure, GE sells current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. During any given period, GE receives cash from the sale of receivables to GE Capital and other third parties, and it therefore forgoes the future collections of cash on receivables sold, as GE Capital collects the cash from the customer. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE Capital are made on arm’s length terms. These transactions can result in cash generation or cash use in the Statement of Cash Flows. The incremental amount of cash received from sales of receivables in excess of the cash GE would have otherwise collected had these receivables not been sold represents the cash generated or used in the period relating to this activity. The impact from current receivables sold to GE Capital, including current receivables subsequently sold to third parties, decreased GE’s CFOA by $2.9 billion and $2.3 billion in the nine months ended September 30, 2018 and 2017, respectively.
As of September 30, 2018, GE Capital had approximately $6.4 billion recorded on its balance sheet related to current receivables purchased from GE. Of these amounts, approximately 26% had been sold by GE to GE Capital with full or limited recourse (i.e., the GE business retains all or some 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. The effect on GE CFOA of claims by GE Capital on receivables sold with full or limited recourse to GE has not been significant for the nine months ended September 30, 2018 and 2017.
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 remains at $3.8 billion at September 30, 2018. See Note 4 to the consolidated financial statements for further information.
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MD&A | FINANCIAL RESOURCES AND LIQUIDITY |
In certain circumstances, GE provides customers primarily within our Power, Renewable Energy and Aviation businesses with extended payment terms for the purchase of new equipment, purchases of significant upgrades and for fixed billings within our long-term service contracts. Similar to current receivables, GE may sell these long-term receivables to GE Capital to manage short-term liquidity and fund growth. These transactions are made on arm's length terms and any fair value adjustments, primarily related to time value of money, are recognized within the Industrial business in the period these receivables are sold to GE Capital. GE Capital accretes interest and factoring fee income over the life of the receivables. Factoring fee income is eliminated in our consolidated results. In addition, the long-term portion of any remaining outstanding receivables as of the end of the period are reflected in All other assets within our consolidated Statement of Financial Position. Related to GE long-term customer receivables outstanding, assets at GE Capital decreased to $1.2 billion from $2.1 billion, net of deferred income of approximately $0.1 and $0.3 billion recorded in its balance sheet at September 30, 2018 and December 31, 2017, respectively. The effect of cash generated from the sale of these long-term receivables to GE Capital decreased GE's CFOA by $0.6 billion and increased GE's CFOA by $0.4 billion in the nine months ended September 30, 2018 and 2017, respectively.
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. During the nine months ended September 30, 2018 and 2017, GE Capital enabled $5.9 billion and $8.8 billion of GE industrial orders, respectively. In 2018, orders were primarily with our Renewable Energy ($2.2 billion), Healthcare ($1.5 billion) and Power ($1.1 billion) businesses.
AVIATION
Global passenger air travel continued to grow (measured in revenue passenger kilometers (RPK)) at 4.5%* in the current year. Oil prices remained stable, and global traffic growth was broad-based across global regions. We expect this trend to drive continued demand in the installed base of commercial engines and increased focus on newer, more fuel-efficient aircraft. Industry-load factors for airlines remain at all-time high levels above 80%*. Air freight volume decreased, particularly in international markets driven by economic conditions and slowing global trade. As it relates to the military environment, the U.S. Department of Defense has increased its budget and foreign governments have increased spending to upgrade and modernize their existing fleets, creating future opportunities.
We announced record commercial wins at the Paris Air Show in June 2019, some of which contributed to backlog growth of 20% from September 30, 2018. We continue to expect future orders as a result of these wins.
Total engineering, comprised of both company and customer funded spending, continues to grow in line with revenue growth. Company funded research and development spend has decreased compared to prior year. However, customer funded engineering efforts, primarily in our Military business, continue to increase.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
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| | | | | | | | | |
| (In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 38.2 |
| $ | 37.8 |
|
| Services | | | | 214.7 |
| 173.1 |
|
| Total backlog | | | | $ | 252.9 |
| $ | 210.9 |
|
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| Commercial Engines unit orders | 297 |
| | 1,779 |
| | | 1,995 |
| | 3,913 |
| |
| GEnx Engines unit orders(a) | 99 |
| | 68 |
| | | 150 |
| | 361 |
| |
| LEAP Engines unit orders(a) | 49 |
| | 1,555 |
| | | 1,378 |
| | 2,989 |
| |
| Military Engines unit orders | 154 |
| | 119 |
| | | 233 |
| | 647 |
| |
| | | | | | | | | | |
| Commercial Engines unit sales | 714 |
| | 714 |
| | | 2,188 |
| | 2,062 |
| |
| GEnx Engines unit sales(a) | 73 |
| | 65 |
| | | 221 |
| | 172 |
| |
| LEAP Engines unit sales(a) | 455 |
| | 303 |
| | | 1,316 |
| | 739 |
| |
| Military Engines unit sales | 186 |
| | 160 |
| | | 490 |
| | 502 |
| |
| Spares Rate unit sales(b) | $ | 30.0 |
| | $ | 28.0 |
| | | $ | 29.0 |
| | $ | 26.6 |
| |
(a) GEnx and LEAP engines are subsets of commercial engines (b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day. | |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 3.0 |
| | $ | 4.1 |
| | | $ | 9.7 |
| | $ | 11.8 |
| |
| Services | 5.8 |
| | 5.1 |
| | | 16.4 |
| | 15.0 |
| |
| Total orders | $ | 8.8 |
| | $ | 9.1 |
| | | $ | 26.1 |
| | $ | 26.8 |
| |
|
| | | | | | | | | | | | | | | | | |
| Commercial Engines & Services | $ | 6.0 |
| | $ | 5.6 |
| | | $ | 17.8 |
| | $ | 16.4 |
| |
| Military | 1.1 |
| | 0.9 |
| | | 3.1 |
| | 2.9 |
| |
| Systems & Other | 1.1 |
| | 0.9 |
| | | 3.1 |
| | 2.7 |
| |
| Total sub-segment revenues | $ | 8.1 |
| | $ | 7.5 |
| | | $ | 23.9 |
| | $ | 22.1 |
| |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 3.1 |
| | $ | 2.8 |
| | | $ | 9.3 |
| | $ | 8.3 |
| |
| Services | 5.0 |
| | 4.6 |
| | | 14.6 |
| | 13.8 |
| |
| Total segment revenues | $ | 8.1 |
| | $ | 7.5 |
| | | $ | 23.9 |
| | $ | 22.1 |
| |
| | | | | | | | | | |
| Segment profit | $ | 1.7 |
| | $ | 1.7 |
| | | $ | 4.8 |
| | $ | 4.7 |
| |
| | | | | | | | | | |
| Segment profit margin | 21.2 |
| % | 22.3 |
| % | | 19.9 |
| % | 21.5 |
| % |
* Based on the latest available information from the International Air Transport Association
For the three months ended September 30, 2019, segment orders were down $0.3 billion (4%), segment revenues were up $0.6 billion (8%) and segment profit was up $0.1 billion (3%).
Orders decreased $0.2 billion, or 2%, organically to $8.8 billion from $9.0 billion primarily driven by a decline in LEAP engine orders due to the 737 MAX grounding, partially offset by increased orders in Military equipment compared to the prior year. Services orders increased on both long-term service agreements and continued strength in material orders.
Revenues increased $0.7 billion, or 10%, organically*. Equipment revenues increased primarily due to 152 more LEAP units, and 26 more military engine shipments versus the prior year, partially offset by lower legacy commercial output in the CFM product line. Services revenues also increased primarily due to increased price, a higher commercial spare parts shipment rate and increased shop visits on long-term service agreements.
Profit increased $0.1 billion, or 4%, organically* mainly due to Services increased volume and increased price. Profit also increased due to higher volume on commercial spare engines, including spare LEAP 1-B engines sold to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification, partially offset by continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments.
For the nine months ended September 30, 2019, segment orders were down $0.7 billion (3%), segment revenues were up $1.8 billion (8%) and segment profit was flat.
Backlog as of September 30, 2019 increased $42.0 billion, or 20%, from September 30, 2018 primarily due to an increase in long-term service agreements.
Orders decreased $0.5 billion, or 2%, organically to $26.1 billion from $26.5 billion primarily driven by a decline in LEAP engine orders due to the 737 MAX grounding as well as four large commercial equipment orders received in second quarter 2018 that were not expected to repeat in the current year. This decrease was offset by Services orders which increased on both long-term service agreements and continued strength in materials orders.
Revenues increased $2.0 billion, or 9%, organically*. Equipment revenues increased primarily due to 126 more commercial units, including 577 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM product line. Services revenues also increased primarily due to increased price, a higher commercial spare parts shipment rate and increased shop visits on long-term service agreements.
Profit remained flat organically*, mainly due to Services increased volume and increased price. Profit also increased due to higher volume of commercial spares engines, including spare LEAP 1-B engines sold to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification, partially offset by continued negative mix from lower shipments on commercial engines, primarily the CFM to LEAP engine transition and Passport engine shipments. Additionally, we recorded charges during the year related to the uncertainty of collection for a customer in a challenging financial position and additional costs for the GE9X engine certification.
HEALTHCARE
The global healthcare market has continued to expand, driven by macro trends relating to growing and aging populations, increasing chronic and lifestyle-related disease, accelerating demand for healthcare in emerging markets, increasing demand for biologic drugs and insulin, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in more cost-effective manner has also driven growth across each of our global markets.
The Healthcare Systems equipment market continues to expand at low single-digit rates, while demand continues for services on new equipment as well as on our existing installed base. However, there is short-term variation driven by market-specific political and economic cycles. Growth in emerging markets is driven by long-term trends of expanding demand and access to healthcare. Developed markets are expected to remain steady in the near term driven by macro trends in the healthcare industry. The Life Sciences market, which encompasses Bioprocess and Pharmaceutical diagnostics, continues to be strong. The Bioprocess market is growing at a high single-digit rate, driven by growth in biologic drugs. The Pharmaceutical diagnostics business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow at low- to mid-single digit rates, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhancement of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians.
We continue focusing on creating new products and solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. We strive to introduce technology innovation that enables our customers to improve their patient and operational outcomes as they diagnose, treat and monitor an increasing number of medical conditions and patients. We recently introduced Venue Go, further expanding our Artificial Intelligence-enabled, point of care Ultrasound portfolio. Our Life Care Solutions business continues to expand its portfolio via innovative digital solutions like Mural, a newly-released virtual care solution for use in both teleICU applications and care protocol compliance across hospitals and health systems. Within Imaging, we launched Discovery™ IQ Gen 2, our latest Molecular Imaging scanner with MotionFree technology which enables clinicians to detect lesions with significantly more accuracy.
Effective January 1, 2019, the Healthcare Equipment Finance (HEF) financing business within our Capital segment was transferred to our Healthcare segment and is presented within Healthcare Systems.
*Non-GAAP Financial Measure
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| | | | | | | | | |
| (In billions) | | | | September 30, 2019 | September 30, 2018 |
| | | | | | |
| Equipment | | | | $ | 6.7 |
| $ | 6.2 |
|
| Services | | | | 11.4 |
| 11.1 |
|
| Total backlog | | | | $ | 18.1 |
| $ | 17.3 |
|
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (Dollars in billions) | 2019 |
| | 2018 |
| | | 2019 |
| | 2018 |
| |
| | | | | | | | | | |
| Equipment | $ | 3.1 |
| | $ | 3.1 |
| | | $ | 9.2 |
| | $ | 8.9 |
| |
| Services | 2.1 |
| | 2.0 |
| | | 6.1 |
| | 6.2 |
| |
| Total orders | $ | 5.1 |
| | $ | 5.1 |
| | | $ | 15.3 |
| | $ | 15.1 |
| |
|
| | | | | | | | | | | | | | | | | |
| Healthcare Systems | $ | 3.6 |
| | $ | 3.6 |
| | | $ | 10.7 |
| | $ | 10.9 |
| |
| Life Sciences | 1.3 |
| | 1.1 |
| | | 3.9 |
| | 3.5 |
| |
| Total sub-segment revenues | $ | 4.9 |
| | $ | 4.7 |
| | | $ | 14.5 |
| | $ | 14.4 |
| |
|
| | | | | | | | | | | | | | | | | |
| Equipment | $ | 2.8 |
| | $ | 2.7 |
| | | $ | 8.3 |
| | $ | 8.1 |
| |
| Services | 2.1 |
| | 2.0 |
| | | 6.2 |
| | 6.3 |
| |
| Total segment revenues | $ | 4.9 |
| | $ | 4.7 |
| | | $ | 14.5 |
| | $ | 14.4 |
| |
| | | | | | | | | | |
| Segment profit | $ | 1.0 |
| | $ | 0.9 |
| | | $ | 2.7 |
| | $ | 2.5 |
| |
| | | | | | | | | | |
| Segment profit margin | 19.8 |
| % | 18.3 |
| % | | 18.7 |
| % | 17.5 |
| % |
For the three months ended September 30, 2019, segment orders were up $0.1 billion (1%), segment revenues were up $0.2 billion (5%) and segment profit was up $0.1 billion (13%).
Orders increased $0.1 billion, or 2%, organically to $5.2 billion from $5.1 billion primarily attributable to continued strength in Life Sciences.
Revenues increased $0.2 billion, or 5%, organically* due to higher volume in Life Sciences, driven by BioPharma and Pharmaceutical Diagnostics, as well as higher volume in Healthcare Systems.
Profit increased $0.1 billion, or 10%, organically* primarily driven by volume growth and cost productivity due to cost reduction actions, sourcing and logistic initiatives, design engineering and prior year restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and Healthcare Systems new product introductions.
For the nine months ended September 30, 2019, segment orders were up $0.1 billion (1%), segment revenues were up $0.2 billion (1%) and segment profit was up $0.2 billion (8%).
Backlog as of September 30, 2019 increased $0.8 billion, or 5%, from September 30, 2018 primarily due to an increase in equipment backlog of $0.5 billion.
Orders increased $0.7 billion, or 5%, organically to $15.6 billion from $14.9 billion primarily attributable to growth in services orders in both Life Sciences and Healthcare Systems.
Revenues increased $0.6 billion, or 4%, organically* due to higher volume in Life Sciences, driven by BioPharma and Pharmaceutical Diagnostics, as well as higher volume in Healthcare Systems.
Profit increased $0.3 billion, or 11%, organically* primarily driven by volume growth and cost productivity due to cost reduction actions, sourcing and logistic initiatives, design engineering and restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and Healthcare Systems new product introductions.
CAPITAL
In 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s Energy Financial Services (EFS) and Industrial Finance (IF) businesses. With respect to this announcement, we completed $15 billion of asset reductions during 2018 and $3.6 billion of asset reductions during the first nine months of 2019, including approximately $2.0 billion during the third quarter of 2019. We expect to execute total asset reductions of approximately $10 billion by the end of 2019, primarily comprising receivables held by GECAS, Working Capital Solutions (WCS), supply chain finance program and EFS assets. In August 2019, we announced that we entered into a definitive agreement for Apollo Global Management, LLC and Athene Holding Ltd. to purchase PK AirFinance, an aviation lending business, from GECAS. The sale of PK AirFinance is aligned to GE Capital’s overall strategy to become smaller and simpler, and we expect to sell the business for a small premium upon closing in the fourth quarter of 2019. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements.
In the second quarter of 2019, GE Capital received a $1.5 billion capital contribution from GE and expects to receive approximately $2.5 billion of additional capital contributions from GE by the end of 2019.
*Non-GAAP Financial Measure
GE Capital made capital contributions to its insurance subsidiaries of $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. See the Capital Resources and Liquidity section for further information.
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. As a result of our testing, we identified a premium deficiency resulting in a $1.0 billion pre-tax ($0.8 billion after-tax) charge to earnings. See the “Other Items” section and Note 12 to the consolidated financial statements for further information.
Effective January 1, 2019, the HEF business within our Capital segment was transferred to our Healthcare segment.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's exposure related to the temporary fleet grounding of the Boeing 737 MAX.
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| | | | | | |
| (In billions) | September 30, 2019 |
| December 31, 2018 |
|
| GECAS | $ | 41.6 |
| $ | 41.7 |
|
| EFS | 2.3 |
| 3.0 |
|
| Industrial Finance and WCS | 10.8 |
| 15.8 |
|
| Insurance | 46.5 |
| 40.3 |
|
| Other continuing operations | 15.8 |
| 18.6 |
|
| Total segment assets | $ | 117.0 |
| $ | 119.3 |
|
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GECAS | $ | 1.2 |
| $ | 1.2 |
| | $ | 3.7 |
| $ | 3.6 |
|
| EFS | — |
| 0.3 |
| | 0.1 |
| 0.2 |
|
| IF and WCS | 0.2 |
| 0.3 |
| | 0.7 |
| 1.0 |
|
| Insurance | 0.7 |
| 0.7 |
| | 2.2 |
| 2.2 |
|
| Other continuing operations | — |
| (0.1 | ) | | — |
| — |
|
| Total segment revenues | $ | 2.1 |
| $ | 2.5 |
| | $ | 6.6 |
| $ | 7.1 |
|
|
| | | | | | | | | | | | | |
| GECAS | $ | 0.3 |
| $ | 0.3 |
| | $ | 0.8 |
| $ | 0.9 |
|
| EFS | — |
| 0.2 |
| | 0.1 |
| 0.2 |
|
| IF and WCS | 0.1 |
| 0.1 |
| | 0.2 |
| 0.3 |
|
| Insurance | (0.7 | ) | (0.1 | ) | | (0.7 | ) | (0.1 | ) |
| Other continuing operations(a) | (0.3 | ) | (0.5 | ) | | (1.0 | ) | (1.6 | ) |
| Total segment profit | $ | (0.6 | ) | $ | — |
| | $ | (0.6 | ) | $ | (0.4 | ) |
|
| | |
| September 30, 2019 | December 31, 2018 |
| GE Capital debt to equity ratio | 4.7:1 | 5.7:1 |
(a) Other continuing operations primarily comprise excess interest costs from debt previously allocated to assets that have been sold as part of the GE Capital Exit Plan, preferred stock dividend costs and interest costs not allocated to GE Capital segments, which are driven by GE Capital’s interest allocation process. Interest costs are allocated to GE Capital segments based on the tenor of their assets using the market rate at the time of origination, which differs from the asset profile when the debt was originated. As a result, actual interest expense is higher than interest expense allocated to the remaining GE Capital segments. Preferred stock dividend costs will become a GE obligation in January 2021 as the internal preferred stock issued by GE Capital to GE under which GE Capital pays preferred stock dividends to GE to fund GE preferred stock dividends will convert into common equity. See Note 15 to the consolidated financial statements for further information. The excess interest costs from debt previously allocated to assets that have been sold are expected to run off by 2020. In addition, we anticipate unallocated interest costs to gradually decline as debt matures and/or is refinanced.
For the three months ended September 30, 2019, Capital revenues decreased $0.4 billion, or 15%, primarily due to lower gains and volume declines, partially offset by lower impairments.
Capital earnings decreased $0.7 billion, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments and lower excess interest costs. Gains were $0.2 billion and $0.4 billion in the third quarters of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018 as well as the sale of EFS' debt origination business and equity investments resulting in gains of $0.3 billion in 2018.
For the nine months ended September 30, 2019, Capital revenues decreased $0.4 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.
Capital losses increased $0.2 billion, or 49%, primarily due to a $1.0 billion pre-tax charge identified through the completion of our annual insurance premium deficiency review and lower gains, partially offset by lower impairments, lower excess interest costs and tax law changes. Gains were $0.5 billion and $0.6 billion in the first nine months of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.3 billion and $0.2 billion in the first nine months of 2019 and 2018, respectively, as well as the sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS and the sale of EFS' debt origination business and equity investments resulting in gains of $0.4 billion in 2018.
CORPORATE ITEMS AND ELIMINATIONS
Corporate items and eliminations includes the results of our Lighting segment and GE Digital business for all periods presented. |
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Revenues | | | | | |
| Corporate revenues | $ | 395 |
| $ | 625 |
| | $ | 1,395 |
| $ | 2,035 |
|
| Eliminations and other | (515 | ) | (371 | ) | | (1,356 | ) | (1,504 | ) |
| Total Corporate Items and Eliminations | $ | (120 | ) | $ | 254 |
| | $ | 39 |
| $ | 531 |
|
| | | | | | |
| Operating profit (cost) | | | | | |
| Gains (losses) on disposals and held for sale businesses | $ | (97 | ) | $ | 207 |
| | $ | 153 |
| $ | 470 |
|
| Restructuring and other charges | (322 | ) | (1,491 | ) | | (924 | ) | (2,343 | ) |
| Unrealized gains (losses) | (86 | ) | (73 | ) | | (125 | ) | 193 |
|
| Goodwill impairments (Note 8) | (740 | ) | (21,973 | ) | | (1,484 | ) | (21,973 | ) |
| Adjusted total corporate operating costs (Non-GAAP) | (303 | ) | (165 | ) | | (1,117 | ) | (916 | ) |
| Total Corporate Items and Eliminations (GAAP) | $ | (1,548 | ) | $ | (23,496 | ) | | $ | (3,497 | ) | $ | (24,570 | ) |
| Less: gains (losses) and restructuring & other | (1,245 | ) | (23,331 | ) | | (2,380 | ) | (23,654 | ) |
| Adjusted total corporate operating costs (Non-GAAP) | $ | (303 | ) | $ | (165 | ) | | $ | (1,117 | ) | $ | (916 | ) |
Adjusted total corporate operating costs* excludes gains (losses) on disposals and held for sale businesses, restructuring and other charges, unrealized gains (losses) and goodwill impairments. We believe that adjusting corporate costs* to exclude the effects of items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
Unrealized gains (losses) are primarily related to our mark to market impact on our Baker Hughes shares for the three and nine months ended September 30, 2019, and to our Pivotal software equity investment for the three and nine months ended September 30, 2018.
For the three months ended September 30, 2019, revenues decreased by $0.4 billion, primarily as a result of a $0.2 billion decrease in revenue largely attributable to the sale of our Current business in April 2019 and $0.1 billion increase in inter-segment eliminations.
Corporate costs decreased by $21.9 billion, primarily as a result of $21.2 billion lower net goodwill impairment charges due to a $22.0 billion goodwill impairment charge related to our Power and Renewable Energy segments in the third quarter of 2018 partly offset by a $0.7 billion goodwill impairment charge related to our Renewable Energy segment in the third quarter of 2019. In addition, Corporate costs decreased due to $1.2 billion of lower restructuring and other charges primarily within our Power segment. These decreases were partly offset by $0.3 billion of lower net gains from disposed or held for sale businesses, which is primarily related to a $0.7 billion gain from the sale of our Value Based Care business to Veritas Capital in the third quarter of 2018 partly offset by $0.4 billion of held for sale losses related to our Lighting and Aviation segments in the third quarter of 2018 and a $0.1 billion realized loss on our Wabtec investment in the third quarter of 2019. In addition, corporate costs also increased by $0.1 billion due to an increase in our intercompany profit eliminations related to higher volume of spare LEAP 1-B engines sold from our Aviation segment to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification.
For the nine months ended September 30, 2019, revenues decreased by $0.5 billion, primarily as a result of a $0.6 billion decrease in revenue largely attributable to the sale of our Current business in April 2019, partly offset by $0.1 billion decrease in inter-segment eliminations.
Corporate costs decreased $21.1 billion primarily as a result of $20.5 billion lower net goodwill impairment charges due to a $22.0 billion goodwill impairment charge related to our Power and Renewable Energy segments in the third quarter of 2018 partly offset by $1.5 billion of goodwill impairment charges related to our Renewable Energy segment during the nine months ended September 30, 2019. In addition, Corporate costs decreased by $1.4 billion related to lower restructuring and other charges primarily within our Power segment. These decreases were partly offset by $0.3 billion of higher net unrealized losses due to $0.2 billion of unrealized gains related to our equity investment in Pivotal Software in the first nine months of 2018 and $0.1 billion unrealized losses primarily related to our mark-to-market impact on our Baker Hughes shares in 2019. Corporate costs also decreased due to $0.3 billion of lower net gains from disposed or held for sale businesses, which is primarily related to a $0.7 billion gain from the sale of our Value Based Care business to Veritas Capital in the third quarter of 2018 partly offset by $0.4 billion of held for sale losses related to our Lighting and Aviation segments in 2018. In addition, corporate costs increased by $0.2 billion due to a $0.1 billion increase in costs associated with existing environmental, health and safety matters in the second quarter of 2019 and $0.1 billion due to higher intercompany profit eliminations as the result of higher volume of spare LEAP 1-B engines sold from our Aviation segment to our GECAS business to have an appropriate level of spare engines available in the market to meet customer needs in anticipation of the Boeing 737 MAX aircraft recertification.
*Non-GAAP Financial Measure
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| | |
| MD&A | CORPORATE ITEMS AND ELIMINATIONS |
RESTRUCTURING.Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of acquisitions, and certain other asset write-downs such as those associated with product line exits. We continue to closely monitor the economic environment and expect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
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| | | | | | | | | | | | | |
| RESTRUCTURING & OTHER CHARGES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 | 2018 |
| | | | | | |
| Workforce reductions | $ | 0.1 |
| $ | 0.3 |
| | $ | 0.5 |
| $ | 0.7 |
|
| Plant closures & associated costs and other asset write-downs | 0.2 |
| 1.0 |
| | $ | 0.3 |
| 1.2 |
|
| Acquisition/disposition net charges | — |
| 0.2 |
| | $ | 0.1 |
| 0.5 |
|
| Total | $ | 0.3 |
| $ | 1.5 |
| | $ | 0.9 |
| $ | 2.3 |
|
For the three months ended September 30, 2019, restructuring and other charges were $0.3 billion of which approximately $0.1 billion was reported in cost of products/services and $0.3 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate $0.2 billion and Renewable Energy $0.1 billion. Cash expenditures for restructuring and other charges were approximately $0.2 billion for the three months ended September 30, 2019.
For the three months ended September 30, 2018, restructuring and other charges were $1.5 billion of which approximately $0.5 billion was reported in cost of products/services, $0.9 billion was reported in SG&A. These activities were primarily at Power $0.9 billion, Corporate $0.4 billion and Renewable Energy $0.2 billion. Cash expenditures for restructuring and other charges were approximately $0.4 billion for the three months ended September 30, 2018.
For the nine months ended September 30, 2019, restructuring and other charges were $0.9 billion of which approximately $0.2 billion was reported in cost of products/services and $0.7 billion was reported in SG&A. These activities were primarily at Corporate $0.5 billion, Power $0.2 billion and Healthcare $0.1 billion. Cash expenditures for restructuring and other charges were approximately $0.9 billion for the nine months ended September 30, 2019.
For the nine months ended September 30, 2018, restructuring and other charges were $2.3 billion of which approximately $0.8 billion was reported in cost of products/services, $1.4 billion was reported in SG&A. These activities were primarily at Power $1.1 billion, Corporate $0.7 billion and Renewable Energy $0.3 billion. Cash expenditures for restructuring and other charges were approximately $1.0 billion for the nine months ended September 30, 2018.
COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS.As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. These costs relate primarily to restructuring and acquisition and disposition activities.
For the three months ended September 30, 2019, costs not included in segment results were $0.9 billion, of which $0.8 billion was related to the Renewable Energy segment primarily as a result of a goodwill impairment charge of $0.7 billion. In addition to the segment results, there was $0.2 billion of costs and $0.2 billion of losses related to Corporate.
For the three months ended September 30, 2018, costs not included in segment results were $23.1 billion, of which $20.0 billion was related to the Power segment which was primarily due to a $19.1 billion goodwill impairment charge, $3.0 billion was related to the Renewable Energy segment which was primarily due to a $2.9 billion goodwill impairment charge and $0.1 billion was related to the Healthcare segment. Gains not included in segment results were $0.5 billion, of which $0.7 billion of gains were related to the Healthcare segment partly offset by $0.1 billion of losses related to the Aviation segment. In addition to the segment results, there was $0.4 billion of costs and $0.4 billion of losses related to Corporate.
For the nine months ended September 30, 2019, costs not included in segment results were $1.9 billion, of which $1.6 billion was related to the Renewable Energy segment primarily as a result of goodwill impairment charges of $1.5 billion, $0.2 billion was related to the Power segment and $0.1 billion was related to the Healthcare segment. In addition to the segment results, there was $0.5 billion of costs related to Corporate.
For the nine months ended September 30, 2018, costs not included in segment results were $23.6 billion, of which $20.2 billion was related to the Power segment which was primarily due to a $19.1 billion goodwill impairment charge, $3.2 billion was related to the Renewable Energy segment which was primarily due to a $2.9 billion goodwill impairment charge and $0.2 billion was related to the Healthcare segment. Gains not included in segment results were $0.8 billion of which, $0.7 billion of gains were related to the Healthcare segment, $0.3 billion of gains were related to the Power segment and $0.1 billion of losses were related to the Aviation segment. In addition to segment results, there was $0.8 billion of costs and $0.2 billion of losses related to Corporate.
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| | |
| MD&A | OTHER CONSOLIDATED INFORMATION |
OTHER CONSOLIDATED INFORMATION
|
| | | | | | | | | | | | | |
| INTEREST AND OTHER FINANCIAL CHARGES | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GE | $ | 0.8 |
| $ | 0.6 |
| | $ | 1.7 |
| $ | 1.8 |
|
| GE Capital | 0.6 |
| 0.7 |
| | 1.9 |
| 2.3 |
|
| Total | $ | 1.3 |
| $ | 1.2 |
| | $ | 3.3 |
| $ | 3.6 |
|
The increase in GE interest and other financial charges for the three months ended September 30, 2019, was driven primarily by the $0.3 billion loss resulting from the completion of a tender offer to purchase $4.8 billion of GE senior notes (including fees and other costs associated with the tender), partially offset by lower expense related to lower sales of GE receivables. The reduction in GE interest and other financial charges for the nine months ended September 30, 2019, was driven primarily by the reversal of $0.1 billion of accrued interest on tax liabilities due to the completion of the 2012-2013 Internal Revenue Service (IRS) audit in June 2019 as well as lower expenses on sales of GE current and long-term receivables, partially offset by the $0.3 billion loss resulting from the completion of a tender offer to purchase GE senior notes (including fees and other costs associated with the tender). The primary components of GE interest and other financial charges are interest on short- and long-term borrowings and financing costs on sales of receivables. Total GE interest and other financial charges of $0.6 billion and $0.4 billion was recorded at Corporate and $0.2 billion and $0.2 billion was recorded by GE segments for the three months ended September 30, 2019 and 2018, respectively, and $1.1 billion and $1.1 billion was recorded at Corporate and $0.6 billion and $0.7 billion was recorded by GE segments for the nine months ended September 30, 2019 and 2018, respectively.
The decreases in GE Capital interest and other financial charges for the three and nine months ended September 30, 2019 were primarily due to lower average borrowings balances due to maturities and lower net interest on assumed debt resulting from an increase in intercompany loans to GE which bear the right of offset (see the Borrowings section of Capital Resources and Liquidity for an explanation of assumed debt and right-of-offset loans), partially offset by an increase in average interest rates due to changes in market rates.
CONSOLIDATED INCOME TAXES.Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in over 180 countries and the majority of our revenue is earned outside the U.S. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, like research and development; and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates. See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
For the three months ended September 30, 2019, the consolidated income tax rate was (3.3)% compared to (0.2)% for the three months ended September 30, 2019. The negative rate for both periods reflect tax expense on a pre-tax loss.
The consolidated provision (benefit) for income taxes was an insignificant amount in the third quarter of 2019 and $0.1 billion in the third quarter of 2018, reflecting a decrease in tax provision due to lower expense from global activities including the nonrecurrence of an increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted earnings in our Power business in the third quarter of 2018 partially offset by the effect of higher pretax income excluding non-tax deductible impairment charges.
The consolidated tax provision (benefit) includes $0.2 billion and $0.1 billion for GE (excluding GE Capital) for the third quarters of 2019 and 2018, respectively.
For the nine months ended September 30, 2019, the consolidated income tax rate was 0.2% compared to (2.2)% for the nine months ended September 30, 2018. The positive rate for 2019 reflects a tax benefit on a pre-tax loss. The negative rate for 2018 reflects a tax expense on a pre-tax loss.
The consolidated provision (benefit) for income taxes was an insignificant amount for the nine months of 2019 and $0.5 billion for the nine months of 2018. The decrease in tax provision was primarily due to lower expense from global activities including the nonrecurrence of an increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business and a change in deferred taxes resulting from the decision to execute an internal restructuring to separate the Healthcare business in 2018 and from the completion of the IRS audit of the 2012-2013 consolidated U.S. income tax returns. This was partially offset by the lower benefit to adjust the year-to-date tax rate to be in-line with the lower projected full-year rate.
In June 2019, the IRS completed the audit of our consolidated U.S. income tax returns for 2012-2013, which resulted in a decrease in our balance of unrecognized tax benefits (i.e., the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of $0.4 billion plus an additional net interest benefit of $0.1 billion. Of these amounts, GE recorded $0.4 billion of tax benefits and $0.1 billion of net interest benefits, and GE Capital recorded insignificant amounts of tax and net interest benefits. GE Capital also recorded a non-cash benefit in discontinued operations of $0.3 billion of tax benefits and an insignificant amount of net interest benefits. See Notes 2 and 14 of the consolidated financial statements for further information.
|
| | |
| MD&A | OTHER CONSOLIDATED INFORMATION |
The consolidated tax provision (benefit) includes $0.3 billion and $0.6 billion for GE (excluding GE Capital) for the nine months of 2019 and 2018, respectively.
DISCONTINUED OPERATIONS.Discontinued operations primarily include our Baker Hughes and Transportation segments, residual assets and liabilities related to our exited U.S. mortgage business (WMC), as discussed in Legal Proceedings and Notes 2 and 19 to the consolidated financial statements, our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses.
In September 2019, we sold a total of 144.1 million shares in Baker Hughes for $3.0 billion in cash (net of expenses) which reduced our ownership interest in Baker Hughes from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified results to discontinued operations for all periods presented. In addition, as disclosed in prior filings, including our 2018 Form 10-K, we expected to record a significant loss upon deconsolidation. In the third quarter of 2019, we recorded a loss of $8.7 billion ($8.2 billion after-tax) in discontinued operations.
In February 2019, as a result of the spin-off and subsequent merger of our Transportation business with Wabtec, we reclassified our Transportation segment to discontinued operations for all periods presented. In the first quarter of 2019, we recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. See Notes 2 and 3 to the consolidated financial statements for further information.
In June 2019, GE Capital recorded $0.3 billion of tax benefits and an insignificant amount of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See the Consolidated Income Tax section above.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion.
The mortgage portfolio in Poland (Bank BPH) comprises floating rate residential mortgages, with approximately 86% of the portfolio indexed to or denominated in foreign currencies (primarily Swiss francs) and the remaining 14% denominated in the local currency in Poland. At September 30, 2019, the total portfolio had a carrying value of $2.6 billion with a 1.4% 90-day delinquency rate and an average loan to value ratio of approximately 73%. The portfolio is recorded at fair value less cost to sell and includes a $0.3 billion impairment, which reflects our best estimate of the effects of potential legislative relief to borrowers and of ongoing litigation in Poland related to foreign currency-denominated mortgages. In October 2019, the European Court of Justice (ECJ) issued a decision about the approach to remedy in a case involving a Polish bank’s foreign currency loans. While it is uncertain how it will influence the Polish courts as they consider individual cases, we expect that the decision could lead to an increase in the number of lawsuits brought against Bank BPH and other banks in Poland with similar portfolios. Future adverse developments in the potential for legislative relief or in litigation across the Polish banking industry as a result of the recent ECJ decision or otherwise could result in further impairment or other losses related to these loans in future reporting periods.
|
| | | | | | | | | | | | | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | Three months ended September 30 | | Nine months ended September 30 |
| (In billions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| Earnings (loss) of discontinued operations, net of taxes | $ | 107 |
| $ | 155 |
| | $ | 436 |
| $ | (1,529 | ) |
| Gain (loss) on disposal, net of taxes | (8,201 | ) | — |
| | (5,648 | ) | 3 |
|
| Earnings (loss) from discontinued operations, net of taxes | $ | (8,093 | ) | $ | 155 |
| | $ | (5,212 | ) | $ | (1,526 | ) |
See Note 2 to the consolidated financial statements for further financial information for our businesses in discontinued operations.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY.We intend to maintain a disciplined financial policy, targeting a sustainable long-term credit rating in the Single-A range with a GE Industrial net debt*/EBITDA ratio of less than 2.5x and a dividend in line with our peers over time, as well as a less than 4-to-1 debt-to-equity ratio for GE Capital. GE Capital is on track to meet its leverage goal by the end of 2020, and GE expects to make significant progress towards meeting its leverage goal by the end of 2020. GE Industrial net debt* was $49.0 billion and $55.3 billion at September 30, 2019 and December 31, 2018, respectively.
GE realized a total of approximately $10.3 billion of disposition proceeds for the nine months ended September 30, 2019, comprised of $4.7 billion in the third quarter of 2019 primarily from the sale of a portion of our stake in Baker Hughes and our remaining stake in Wabtec, $2.2 billion in the second quarter of 2019 primarily from the sale of a portion of our stake in Wabtec, and $3.4 billion in the first quarter of 2019 primarily from the completion of the merger of our Transportation business with Wabtec and the sale of our Digital ServiceMax business. We also expect to realize future proceeds from the sale of our BioPharma business within our Healthcare segment and the sale of our remaining stake in Baker Hughes. GE total cash, cash equivalents and restricted cash was $16.7 billion at September 30, 2019.
GE made progress towards reducing its debt in third quarter of 2019 through the completion of a tender offer to purchase $4.8 billion of long-term debt and the repayment of $0.5 billion of intercompany loans from GE Capital.
Additionally, in October 2019, we announced changes to the U.S. GE Pension Plan and the U.S. GE Supplementary Plan whereby the benefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and thereafter these employees will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan and benefits for approximately 700 employees that became executives before 2011 will be frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to new executives since 2011. Finally, we announced our intent to pre-fund approximately $4 to $5 billion of our estimated 2021 and 2022 minimum ERISA funding requirements in 2020 and offer approximately 100,000 former U.S. employees with a vested pension benefit a limited-time option to take a lump sum distribution in lieu of future monthly payments. We expect these actions will reduce our future unfunded pension deficit, however, their impact on our unfunded pension deficit is currently offset primarily by the decline in interest rates since December 31, 2018. In the fourth quarter of 2019, we will perform our annual update of the funded status of our benefit plans, which will likely increase our GE Industrial net debt* at December 31, 2019 as a result of current market conditions. See Note 13 to the consolidated financial statements for further information on the financial statement impact of these actions.
GE Capital generated approximately $3.6 billion from asset reductions for the nine months ended September 30, 2019, and with the announced sale of PK AirFinance which is expected to close in the fourth quarter of 2019, we expect to complete our plan to execute total asset reductions of approximately $10 billion by the end of 2019 to meet our overall $25 billion target. GE Capital also expects to receive approximately $2.5 billion of additional capital contributions from GE in the fourth quarter of 2019, totaling $4.0 billion for the full year 2019. GE Capital total cash, cash equivalents and restricted cash was $11.2 billion at September 30, 2019.
LIQUIDITY POLICY.We maintain a strong focus on liquidity, and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At both GE and GE Capital, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.
Our liquidity plans are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also consider our capital allocation and growth objectives, including funding debt maturities and insurance obligations, investing in research and development, and dividend payments.
Following is an overview of the primary sources of liquidity for GE and GE Capital as well as significant transactions that affect their respective liquidity positions. See the Liquidity Sources section for details of GE and GE Capital liquidity and the Statement of Cash Flows section for information regarding GE and GE Capital cash flow results.
GE LIQUIDITY.GE's primary sources of liquidity consist of cash and cash equivalents, free cash flows from our operating businesses, monetization of receivables, proceeds from announced dispositions, and short-term borrowing facilities. Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions.
As mentioned above, GE has available a variety of short-term borrowing facilities to fund its operations, including a commercial paper program, revolving credit facilities and short-term intercompany loans from GE Capital, which are generally repaid within the same quarter. See the Liquidity Sources section for details of our credit facilities and borrowing activity in our external short-term borrowing facilities.
*Non-GAAP Financial Measure
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE CAPITAL LIQUIDITY.GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from asset reductions and cash flows from our businesses. Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2021. We expect to maintain an adequate liquidity position to fund our insurance obligations and debt maturities primarily as a result of cash generated from asset reductions and dispositions, as well as from repayments of intercompany loans and capital contributions from GE. Additionally, while we maintain adequate liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our interest expense. See the Segment Operations - Capital section for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.
GE Capital provided capital contributions to its insurance subsidiaries of approximately $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. These contributions are subject to ongoing monitoring by Kansas Insurance Department (KID), and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements. Going forward, we anticipate funding any capital needs for insurance through a combination of GE Capital asset sales, GE Capital liquidity, GE Capital future earnings and capital contributions from GE.
LIQUIDITY SOURCES.Consolidated cash, cash equivalents and restricted cash totaled $27.8 billion at September 30, 2019, comprising $14.7 billion and $13.1 billion held in the U.S. and outside the U.S., respectively.Cash held in non-US entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, if there is a change in reinvestment, we would expect to be able to repatriate that cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.
GE cash, cash equivalents and restricted cash totaled $16.7 billion at September 30, 2019, including $2.2 billion of cash held in countries with currency control restrictions and $0.6 billion of restricted use cash. Cash held in countries with currency controls represents amounts held in countries which may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. Restricted use cash represents amounts that are not available to fund operations, and primarily comprises collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
GE Capital cash, cash equivalents and restricted cash totaled $11.2 billion at September 30, 2019, including $0.9 billion which was subject to regulatory restrictions, primarily in insurance entities.
GE has in place committed credit lines which it may use from time to time to meet its short-term liquidity needs. The following table provides a summary of committed and available credit lines.
|
| | | | | | |
GE COMMITTED AND AVAILABLE CREDIT FACILITIES (In billions) | September 30, 2019 | December 31, 2018 |
| | | |
| Unused back-up revolving credit facility | $ | 20.0 |
| $ | 20.0 |
|
| Revolving credit facilities (exceeding one year) | 18.9 |
| 23.9 |
|
| Bilateral revolving credit facilities (364-day) | 3.1 |
| 3.6 |
|
| Total committed credit facilities | $ | 42.0 |
| $ | 47.5 |
|
| Less offset provisions | 6.7 |
| 6.7 |
|
| Total net available credit facilities | $ | 35.3 |
| $ | 40.8 |
|
Included in our credit facilities is an unused $20.0 billion back-up syndicated credit facility extended by 36 banks, expiring in 2021, and an unused $14.8 billion syndicated credit facility extended by six banks, expiring in 2020. The commitments under these syndicated credit facilities may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both facilities.
In 2019 and 2020, the amount committed and available under the syndicated credit facility expiring in 2020 will periodically be reduced by the greater of specified contractual commitment reductions or calculated commitment reductions, which is determined based on any potential specified issuances of equity and incurrences of incremental debt by GE or its subsidiaries, as well as a portion of industrial business disposition proceeds. In the first quarter of 2019, the amount committed and available under this facility was reduced by the calculated commitment reduction of $5.0 billion to $14.8 billion. Remaining contractual commitment reductions are $7.4 billion in the fourth quarter of 2019, $2.5 billion in the second quarter of 2020, and $5.0 billion in the fourth quarter of 2020. On March 12, 2019, GE entered into an amendment to the facility, which provides for a deferral of the timing of the fourth quarter 2019 and second quarter 2020 contractual commitment reductions if the BioPharma transaction does not close prior to those reduction dates. The $20.0 billion syndicated back-up revolving credit facility expiring in 2021 does not contain any contractual commitment reduction features.
Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under all credit facilities except the syndicated facility expiring in 2020 (see below for details of GE credit facilities), and transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital has not exercised this right.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
The following table provides a summary of the activity in the primary external sources of short-term liquidity for GE in the third quarter of 2019 and 2018.
|
| | | | | | | | | |
| (In billions) | GE Commercial Paper | Revolving Credit Facilities | Total |
| | | | |
| 2019 | | | |
| Average borrowings during the third quarter | $ | 3.0 |
| $ | 1.3 |
| $ | 4.3 |
|
| Maximum borrowings outstanding during the third quarter | 3.1 |
| 1.9 |
| 4.9 |
|
| Ending balance at September 30 | 3.0 |
| — |
| 3.0 |
|
| | | | |
| 2018 | | | |
| Average borrowings during the third quarter | $ | 9.8 |
| $ | 1.8 |
| $ | 11.6 |
|
| Maximum borrowings outstanding during the third quarter | 11.7 |
| 2.0 |
| 13.7 |
|
| Ending balance at September 30 | 3.0 |
| — |
| 3.0 |
|
Total average and maximum borrowings in the table above are calculated based on the daily outstanding balance of the sum of commercial paper and revolving credit facilities.
The reduction in total GE average and maximum short-term borrowings during the third quarter of 2019 compared to the third quarter of 2018 was driven by holding higher cash balances and improvements in our global funding and cash management operations.
In addition to its external liquidity sources, GE may from time to time enter into short-term intercompany loans from GE Capital to utilize GE Capital’s excess cash as an efficient source of liquidity. These loans are repaid within the same quarter. No such loans were made in 2019.
BORROWINGS.Consolidated total borrowings were $93.2 billion and $103.6 billion at September 30, 2019 and December 31, 2018, respectively. The reduction was driven primarily by completion of a tender offer to purchase GE long-term debt of $4.8 billion and net repayments of GE Capital debt of $7.5 billion (including $6.8 billion of long-term debt maturities), partially offset by an increase of $1.9 billion in fair value adjustments for GE Capital debt in fair value hedge relationships as a result of lower interest rates.
In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital. Under the conditions of the 2015 assumed debt agreement, GE Capital agreed to continue making required principal and interest payments on behalf of GE, resulting in the establishment of an intercompany receivable and payable between GE and GE Capital. In addition, GE Capital has periodically made intercompany loans to GE with maturity terms that mirror the assumed debt. As these loans qualify for right-of-offset presentation, they reduce the assumed debt intercompany receivable and payable between GE and GE Capital, as noted in the table below.
The following table provides a reconciliation of total short- and long-term borrowings as reported on the respective GE and GE Capital Statements of Financial Position to borrowings adjusted for assumed debt and intercompany loans: |
| | | | | | | | | |
September 30, 2019 (In billions) | GE |
| GE Capital |
| Consolidated(a) |
|
| | | | |
| Total short- and long-term borrowings | $ | 54.1 |
| $ | 40.0 |
| $ | 93.2 |
|
| | | | |
| Debt assumed by GE from GE Capital | (33.5 | ) | 33.5 |
| — |
|
| Intercompany loans with right of offset | 13.3 |
| (13.3 | ) | — |
|
| Total intercompany payable (receivable) between GE and GE Capital | (20.2 | ) | 20.2 |
| — |
|
| | | | |
| Total borrowings adjusted for assumed debt and intercompany loans | $ | 33.8 |
| $ | 60.3 |
| $ | 93.2 |
|
| |
| (a) | Included elimination of other GE borrowings from GE Capital, primarily related to timing of cash settlements associated with GE receivables monetization programs. |
When measuring the individual financial positions of GE and GE Capital, assumed debt should be considered a GE Capital debt obligation, and the intercompany loans with the right of offset mentioned above should be considered a GE debt obligation and a reduction of GE Capital’s total debt obligations. The following table illustrates the primary components of GE and GE Capital borrowings, adjusted for assumed debt and intercompany loans.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
|
| | | | | | | | | | | | | | |
GE (In billions) | September 30, 2019 |
| December 31,
2018 |
| | GE Capital (In billions) | September 30, 2019 |
| December 31, 2018 |
|
| Commercial paper | $ | 3.0 |
| $ | 3.0 |
| | Commercial paper | $ | — |
| $ | — |
|
| GE senior notes | 15.4 |
| 20.4 |
| | Senior and subordinated notes | 37.1 |
| 39.1 |
|
Intercompany loans from GE Capital | 13.3 |
| 13.7 |
| | Senior and subordinated notes assumed by GE | 33.5 |
| 36.3 |
|
| Other GE borrowings | 2.2 |
| 2.6 |
| | Intercompany loans to GE | (13.3 | ) | (13.7 | ) |
| | | | | Other GE Capital borrowings | 2.9 |
| 3.9 |
|
| | | | | Total GE Capital | | |
| Total GE adjusted borrowings | $ | 33.8 |
| $ | 39.7 |
| | adjusted borrowings | $ | 60.3 |
| $ | 65.5 |
|
Other GE Capital borrowings included $1.5 billion and $1.9 billion at September 30, 2019 and December 31, 2018, respectively, of non-recourse borrowings of consolidated securitization entities where GE Capital has securitized financial assets as an alternative source of funding.
The intercompany loans from GE Capital to GE bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement and can be prepaid by GE at any time, in whole or in part, without premium or penalty. These loans are priced at market terms and have a collective weighted average interest rate of 3.6% and term of approximately 10.8 years at September 30, 2019. In the third quarter of 2019, GE repaid $0.5 billion of intercompany loans from GE Capital.
CREDIT RATINGS AND CONDITIONS.We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and long-term debt.
The credit ratings of GE and GE Capital as of the date of this filing are set forth in the table below.
|
| | | |
| Moody's | S&P | Fitch |
| | | |
| GE | | | |
| Outlook | Stable | Stable | Negative |
| Short term | P-2 | A-2 | F2 |
| Long term | Baa1 | BBB+ | BBB+ |
| GE Capital | | | |
| Outlook | Stable | Stable | Negative |
| Short term | P-2 | A-2 | F2 |
| Long term | Baa1 | BBB+ | BBB+ |
There were no changes in GE or GE Capital ratings from the end of the first quarter of 2019 through the date of this filing.
We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.
The following table provides a summary of the estimated potential liquidity impact in the event of further downgrades with regards to the most significant credit ratings conditions of the Company based on their proximity to our current ratings.
|
| | | | |
| (In billions) | Triggers Below | At September 30, 2019 |
|
| | | |
| Derivatives | | |
| Terminations | BBB/Baa2 | $ | (0.3 | ) |
| Cash margin posting | BBB/Baa2 | (0.7 | ) |
| Receivables Sales Programs | | |
| Loss of cash commingling | A-2/P-2/F2 | $ | (1.0 | ) |
| Alternative funding sources | A-2/P-2/F2 | (1.1 | ) |
The timing within the quarter of the potential liquidity impact of these areas may differ, as described in the following sections which provide additional details regarding the significant credit rating conditions of the Company.
DEBT CONDITIONS.Substantially all of our debt agreements do not contain material credit rating covenants.
If our short-term credit ratings were to fall below A-2/P-2/F2, it is possible that we would lose all or part of our access to the tier-2 commercial paper markets, which would reduce our borrowing capacity in those markets. This may result in increased utilization of our revolving credit facilities to fund our intra-quarter operations.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
DERIVATIVE CONDITIONS.Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration of collateral posted by us and outstanding interest payments was $0.3 billion at September 30, 2019. This excludes exposure related to embedded derivatives, which are not subject to these provisions.
In addition, certain of our derivatives, primarily interest rate swaps, are subject to additional cash margin posting requirements if our credit ratings were to fall below BBB/Baa2. The amount of additional margin will vary based on, among other factors, market movements and changes in our positions. At September 30, 2019, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.7 billion.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
OTHER CONDITIONS.Where we provide servicing for third-party investors, GE is contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-2/P-2/F2. In the event any of our ratings were to fall below such levels, we may be required to segregate certain of these cash collections owed to third-party investors into restricted bank accounts and would lose the short-term liquidity benefit of commingling with respect to such collections. The financial impact to our intra-quarter liquidity would vary based on collections activity for a given quarter and may result in increased utilization of our revolving credit facilities. The loss of cash commingling would have resulted in an estimated maximum reduction of approximately $1.0 billion to GE intra-quarter liquidity during the third quarter of 2019. In October 2019, we entered into amendments with third-party investors which removed the minimum ratings requirements for cash commingling for certain of our receivables programs; had these amendments been in place during the third quarter of 2019, the loss of cash commingling would have resulted in an estimated maximum reduction of approximately $0.3 billion to GE intra-quarter liquidity.
In addition, we have relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of liquidity generated by these programs could be adversely impacted. In the second quarter of 2019, the estimated maximum reduction to our ending liquidity had our credit ratings fallen below these levels was approximately $1.1 billion.
FOREIGN CURRENCY.As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies include the euro, the pound sterling, the Brazilian real and the Chinese renminbi, among others. The effects of foreign currency fluctuations on earnings, excluding the earnings impact of the underlying hedged item, was less than $0.1 billion for the three and nine months ended September 30, 2019 and less than $0.2 billion for the three and nine months ended September 30, 2018. This analysis excludes any offsetting effect from the forecasted future transactions that are economically hedged.
See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
STATEMENT OF CASH FLOWS – NINE MONTHS ENDED SEPTEMBER 30, 2019 VERSUS 2018.We manage the cash flow performance of our industrial and financial services businesses separately. We therefore believe it is useful to report separate GE and GE Capital columns in our Statement of Cash Flows because it enables us and our investors to evaluate the cash from operating activities of our industrial businesses (the principal source of cash generation for our industrial businesses) separately from the cash flows of our financial services business, as well as to evaluate the cash flows between our industrial businesses and GE Capital.
In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the effects of currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.
All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 20 to the consolidated financial statements for further information regarding All other operating activities, All other investing activities and All other financing activities.
The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in the nine months ended September 30, 2019: the ownership interest received and tax benefits receivable as a result of the spin-off and subsequent merger of our Transportation segment with Wabtec; our retained ownership interest in Baker Hughes; additional non-cash deferred purchase price received by GE Capital related to sales of current receivables; and right-of-use assets obtained in operating leases. See Notes 2, 4 and 7, respectively, to the consolidated financial statements.
See the Intercompany Transactions between GE and GE Capital section and Notes 4 and 21 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE CASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities, contribute to post retirement plans and others for a wide range of material, services and taxes.
GE cash from operating activities was $0.1 billion in 2019 compared with cash used of $4.5 billion in 2018 (including $0.3 billion and $0.4 billion cash received for Baker Hughes Class B shareholder dividends in 2019 and 2018, respectively). The $4.5 billion increase in cash was primarily due to: the nonrecurrence of GE Pension Plan contributions of $6.0 billion in 2018 (which are excluded from GE Industrial free cash flows*); a decrease in payments of equipment project cost accruals of $0.7 billion; a net decrease in payments of Aviation-related customer allowance accruals of $0.6 billion; and a decrease in cash used for contract & other deferred assets of $0.4 billion, primarily due to higher billings on our long-term service agreements, including the impact of a contract modification resulting in increased billings of $0.2 billion, partially offset by lower liquidations of deferred inventory.
These decreases in cash used were partially offset by: an increase in cash used for working capital of $2.1 billion; an increase in cash used for employee related liabilities of $0.4 billion; and an increase in cash paid for income taxes of $0.4 billion.
The increase in cash used for working capital was due to: an increase in cash used for current receivables of $1.8 billion, primarily driven by lower sales of receivables and receivables growth resulting from the 737 MAX grounding; higher inventory build of $0.5 billion, mainly as a result of expected deliveries in the fourth quarter of 2019 and the first quarter of 2020; and a decrease in cash from accounts payable of $0.5 billion. These increases in cash used for working capital were partially offset by higher progress collections of $0.7 billion, mainly as a result of higher net utilization in 2018, including the impact of the timing of progress collections received in the fourth quarter of 2017.
GE cash from investing activities was $6.9 billion in 2019 compared with $0.7 billion in 2018. The $6.2 billion increase was primarily due to: proceeds from the spin-off of our Transportation business of $6.2 billion (including the secondary offerings of Wabtec common stock shares in the second and third quarters of 2019), the sale of a portion of our stake in Baker Hughes of $3.0 billion and from other business dispositions in Aviation, Corporate and Power (net of cash transferred) of $1.1 billion in 2019, compared with proceeds of $3.3 billion in 2018, primarily from the sale of businesses at Power and Healthcare; the nonrecurrence of the purchase of an aviation technology joint venture of $0.6 billion in 2018; a decrease in net cash paid for settlements of derivative hedges of $0.5 billion; partially offset by the 2019 capital contribution to GE Capital of $1.5 billion; business acquisitions of $0.4 billion, related to the transfer of the HEF business from GE Capital to our Healthcare segment in 2019; and an increase in cash used related to net settlements between our continuing operations and discontinued operations of $0.2 billion. Cash used for additions to property, plant and equipment and internal-use software, which is a component of GE Industrial free cash flows*, decreased by $0.1 billion compared with 2018.
GE cash used for financing activities was $6.9 billion in 2019 compared with cash from financing activities of $1.4 billion in 2018. The $8.3 billion increase in cash used was primarily due to: the nonrecurrence of intercompany loans from GE Capital to GE of $6.5 billion in 2018 (including $6.0 billion to fund contributions to the GE Pension Plan); completion of a tender offer to purchase GE long-term debt of $4.8 billion in 2019; the nonrecurrence of dispositions of noncontrolling interests in Baker Hughes of $0.6 billion in 2018; partially offset by a decrease in common dividends paid to shareowners of $2.9 billion.
GE CASH FLOWS FROM DISCONTINUED OPERATIONS.GE cash used for operating activities of discontinued operations was an insignificant amount in 2019 compared with cash of $0.7 billion in 2018. The $0.7 billion decrease was primarily as a result of the disposition of our Transportation business in the first quarter of 2019, due to cash used in the business compared with cash generated in 2018.
GE cash used for investing activitiesof discontinued operations was $3.5 billion in 2019 compared with $0.2 billion in 2018. The $3.3 billion increase in cash used was primarily due to the deconsolidation of Baker Hughes cash of $3.1 billion as a result of the reduction in our ownership interest in the third quarter of 2019.
GE cash used for financing activitiesof discontinued operations was $0.4 billion in 2019 compared with $2.7 billion in 2018. The $2.4 billion decrease of cash used was primarily due to: Baker Hughes share repurchases of $1.0 billion in 2018; and an increase in Baker Hughes borrowings of $0.3 billion in 2019 compared with net repayments of Baker Hughes borrowings of $0.9 billion in 2018.
GE CAPITAL CASH FLOWS FROM CONTINUING OPERATIONS. GE Capital cash from operating activities was $1.2 billion in 2019 compared with $0.5 billion in 2018. The increase of $0.7 billion was primarily due to: a net increase in cash collateral received from counterparties on derivative contracts of $2.2 billion; partially offset by a general decrease in cash generated from earnings (loss) from continuing operations.
GE Capital cash from investing activities was $2.7 billion in 2019 compared with $6.5 billion in 2018. The decrease of $3.8 billion was primarily due to: lower collections of financing receivables of $4.3 billion; an increase of net purchases of investment securities of $3.7 billion; lower proceeds from business dispositions $1.6 billion; and an increase in cash used related to net settlements between our continuing operations (primarily our Corporate function) and businesses in discontinued operations (primarily WMC) of $2.1 billion; partially offset by the nonrecurrence of intercompany loans from GE Capital to GE of $6.5 billion in 2018 and an increase in cash related to our current receivables and supply chain finance programs with GE of $2.3 billion.
*Non-GAAP Financial Measure
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| MD&A | CAPITAL RESOURCES AND LIQUIDITY |
GE Capital cash used for financing activities was $7.3 billion in 2019 compared with $19.0 billion in 2018. The decrease of $11.7 billion was primarily due to lower net repayments of borrowings of $9.9 billion; a capital contribution from GE to GE Capital of $1.5 billion; and lower cash settlements on derivatives hedging foreign currency debt of $1.0 billion.
INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL.Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. See Note 21 to the consolidated financial statements for further information.
Sales of Receivables. In order to manage short-term liquidity and credit exposure, GE sells current and long-term customer receivables to GE Capital and other third parties. These transactions are made on arm's length terms and any discount related to time value of money, is recognized within the respective GE Industrial business in the period these receivables were sold to GE Capital or third parties. See Note 4 to the consolidated financial statements for further information.
Supply Chain Finance Programs. GE’s industrial businesses participate in a supply chain finance program with GE Capital where GE Capital may settle supplier invoices early in return for early pay discounts. In turn, GE settles invoices with GE Capital in accordance with the original supplier payment terms. The GE liability associated with the funded participation in the program is presented as accounts payable and amounted to $3.4 billion and $4.4 billion at September 30, 2019 and December 31, 2018, respectively.
On February 28, 2019, GE Capital sold its supply chain finance program platform to MUFG Union Bank, N.A (MUFG) and is transitioning this program to them. The GE funded participation in the GE Capital program will continue to be settled following the original invoice payment terms with an expectation that the majority of the transition will occur by the second half of 2020. GE CFOA could be adversely affected in the short term should certain suppliers not transition to the new third-party program and we elect to take advantage of early pay discounts on trade payables offered by those suppliers. For the three and nine months ended September 30, 2019, the effect on GE CFOA related to the MUFG transition was insignificant.
In addition to the supply chain finance program with MUFG, GE also facilitates other voluntary supply chain finance programs with third parties (collectively, the programs) to provide certain of its suppliers the opportunity to sell their receivables from GE to third parties at the sole discretion of both the suppliers and the third parties. The terms of these arrangements do not alter GE’s obligations to its suppliers which arise from the independently negotiated contractual supply agreements. GE's obligation remains limited to making payment on its supplier invoices on the terms originally negotiated with its suppliers, regardless of whether the supplier sells its receivable to a third party. At September 30, 2019 and December 31, 2018, included in GE's accounts payable is $1.5 billion and $0.4 billion, respectively, of supplier invoices that are subject to the programs with MUFG and other third parties. GE accounts for all payments made under the programs as reductions of CFOA. Total GE supplier invoices paid to MUFG and other third parties under these programs were $0.9 billion and an insignificant amount for the nine months ended September 30, 2019 and 2018, respectively.
GE Capital Finance Transactions. During the nine months ended September 30, 20182019 and 2017,2018, GE Capital acquired from third parties 39 aircraft with a list price totaling $5.0 billion and 28 aircraft (listwith a list price totaling $3.4 billion) and 34 aircraft (list price totaling $4.6 billion),billion, respectively, from third parties that will be leased to others whichand are powered by engines that were manufactured by GE Aviation and affiliates andaffiliates. GE Capital also made payments to GE Aviation and affiliates related to spare engines and engine parts to GE Aviation and affiliates of $0.3 billion during both the nine months ended September 30, 2019 and $0.1 billion, respectively.2018. Additionally, GE Capital had $1.7 billion and $1.2 billion of net book value of engines, originally manufactured by GE Aviation and affiliates and subsequently leased back to GE Aviation and affiliates at both September 30, 20182019 and December 31, 2017.2018, respectively.
PENSIONS
GE Capital is a member of certain GE Pension Plans. As a result of the GE Capital Exit Plan, GE Capital will have additional funding obligations for these pension plans. These obligations are recognized as an expense in GE Capital’s other continuing operations when they become probable and estimable. There was no additional funding obligations recognized by GE Capital forAlso, during the nine months ended September 30, 2018. The additional funding obligation2019 and 2018, GE recognized byequipment revenues of $1.0 billion and $0.4 billion, respectively, from customers within our Power and Renewable Energy segments in which GE Capital wereis an insignificant amount and $0.3 billion forinvestee or is committed to be an investee in the three and nine months ended September 30, 2017, respectively.underlying projects.
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 reductionFor certain 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 primarilythese investments, in connection with enabled orders. In order to meet its underwriting criteria, GE Capital may obtain a direct guarantee from GE related to the performance of the third party. GE guarantees can take many forms and may include but not be limited to, direct performance or payment guarantees, return on investment guarantees and asset value guarantees and loss pool arrangements.guarantees. As of September 30, 20182019, GE had outstanding guarantees to GE Capital on $2.0$1.4 billion of funded exposure and $1.0$1.4 billion of unfunded commitments, which included guarantees issued by industrial businesses. The recorded amount ofcontingent liability for these contingent liabilitiesguarantees was $0.2 billioninsignificant as of September 30, 20182019 and is dependent uponbased on individual transaction level defaults, losses and/or returns.
GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicit and explicit support to GE Capital through commitments, capital contributions and operating support. As previously discussed, debt assumed by GE from GE Capital in connection with the merger of GE Capital into GE was $37.0 billion, and GE guaranteed $37.9 billion of GE Capital debt at September 30, 2018.
See Note 21 to the consolidated financial statements for additional information about the eliminations of intercompany transactions between GE and GE Capital.
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MD&A | CRITICAL ACCOUNTING ESTIMATES |
CRITICAL ACCOUNTING ESTIMATES
We utilized significant estimates in the preparation of the third quarter financial statements.
Please refer to the Critical Accounting Estimates sectionand Other Items sections within MD&A and Note 1 to the consolidated financial statements of our Annual Report on Form 10-K Report filed on February 23, 2018,26, 2019, for a discussion of our accounting policies and the critical accounting estimates we use to: assess the recoverability of assets such as financing receivables and goodwill; determine the fair value of financial assets; determine our provision for income taxes and recoverability of deferred tax assets and determine the liability for future policy benefits.estimates.
REVENUE RECOGNITION ON LONG-TERM PRODUCT SERVICES AGREEMENTS
On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and the related amendments (ASC 606), which supersedes most previous U.S. GAAP revenue guidance. The standard requires us to make certain estimates that affect the amount and timing of revenue recognized in a given period, primarily related to equipment and service contracts that are recognized on an overtime basis (refer to Note 1 and Note 9 to the consolidated financial statements for further discussion of our accounting policy for these contracts). The most critical estimates relevant to our revenue accounting are related to our long-term product service agreements as discussed below.
We enter into long-term product service agreements with our customers primarily within our Aviation, Power, Oil & Gas and Transportation segments. These agreements require us to provide preventative maintenance, asset overhaul / updates, and standby "warranty-type" services that include certain levels of assurance regarding asset performance and uptime throughout the contract periods, which generally range from 5 to 25 years. Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract).
Our revenue recognition on long-term product services agreements requires estimates of both customer payments expected to be received over the contract term as well as the costs expected to be incurred to perform required maintenance services. We routinely review estimates under product services agreements and regularly revise them to adjust for changes in outlook as described below.
We recognize revenue as we perform under these arrangements using an over time accounting model based on costs incurred relative to total expected costs. Throughout the life of a contract, this measure of progress captures the nature of the timing and extent of our underlying performance activities as our stand-ready services often fluctuate between routine inspections and maintenance, unscheduled service events and major overhauls at pre-determined usage intervals.
Customers generally pay us based on the utilization of the asset (per hour of usage for example) or upon the occurrence of a major event within the contract such as an overhaul. As a result, a significant estimate in determining expected revenues of a contract is estimating how customers will utilize their assets over the term of the agreement. Changes in customer utilization can influence the timing and extent of overhauls and other service events over the life of the contract. As a result, the revenue recognized each period is dependent on our estimate of how a customer will utilize their assets over the term of the agreement. We generally use a combination of both historical utilization trends as well as forward-looking information such as market conditions and potential asset retirements in developing our revenue estimates. This estimate of customer utilization will impact both the total contract billings and costs to satisfy our obligation to maintain the equipment. To the extent required, we limit the amount of variable consideration used to estimate our transaction price such that it is improbable that a significant revenue reversal will occur in future periods.
To develop our cost estimates, we consider the timing and extent of future maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.
We regularly assess customer credit risk inherent in the carrying amounts of receivables and contract assets and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods.
See Notes 1, 9 and 10 to the consolidated financial statements for further information.
201826 2019 3Q FORM 10-Q47
OTHER ITEMS
INSURANCE. The run-off insurance operations of North American Life and Health (NALH) primarily include Employers Reassurance Corporation (ERAC) and Union Fidelity Life Insurance Company (UFLIC). ERAC was formerly part of Employers Reinsurance Corporation (ERC) until the sale of ERC to Swiss Re in 2006. UFLIC was formerly part of Genworth Financial Inc. (Genworth) but was retained by GE after Genworth’s initial public offering in 2004.
ERAC primarily assumes long-term care insurance and life insurance from numerous cedents under various types of reinsurance
treaties and stopped accepting new policies after 2008. UFLIC primarily assumes long-term care insurance, structured settlement
annuities with and without life contingencies and variable annuities from Genworth and has been closed to new business since 2004.
The vast majority of NALH’s reinsurance exposures are long-duration arrangements that still involve substantial levels of premium
collections and benefit payments even though ERAC and UFLIC have not entered into new reinsurance treaties in about a decade. These long-duration arrangements involve a number of direct writers and contain a range of risk transfer provisions and other contractual elements. In many instances, these arrangements do not transfer to ERAC or to UFLIC 100 percent of the risk embodied in the encompassed underlying policies issued by the direct writers. Furthermore, we cede insurance risk to third-party reinsurers for a portion of our insurance contracts, primarily on long-term care insurance policies.
Our run-off insurance liabilities primarily relate to individual long-term care insurance, structured settlement annuities and life insurance
products. Long-term care insurance provides defined benefit levels of protection against the cost of long-term care services provided in
the insured’s home or in assisted living or nursing home facilities. Structured settlement annuities typically provide fixed monthly or
annual annuity payments for a set period of time or, in the case of a life-contingent structured settlement, for the life of the annuitant and
may include a guaranteed minimum number of payments. Traditional life insurance triggers a payment in the event of death of a
covered life.
Insurance liabilities and annuity benefits amounted to $40.1 billion and $35.6 billion and, as further described below, are supported by investment securities of $38.2 billion and $32.9 billion and commercial mortgage loans of $1.8 billion and $1.7 billion at September 30, 2019 and December 31, 2018, respectively. Additionally, we expect to purchase approximately $9 billion of new assets through 2024 in conjunction with expected capital contributions from GE Capital to our insurance subsidiaries, excluding approximately $1.9 billion which was received in the first quarter of 2019. The insurance liabilities and annuity benefits primarily comprise a liability for future policy benefits for those insurance contract claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported. Presented in the table below are the reserve balances by insurance product.
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September 30, 2019 (In billions) | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other
contracts(a) | Other adjustments | Total |
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|
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|
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|
| Future policy benefit reserves | $ | 16.8 |
| $ | 9.6 |
| $ | 0.2 |
| $ | 5.9 |
| $ | 32.4 |
|
| Claim reserves | 4.1 |
| 0.2 |
| 1.2 |
| — |
| 5.5 |
|
| Investment contracts(b) | — |
| 1.2 |
| 1.1 |
| — |
| 2.2 |
|
| Unearned premiums and other | — |
| 0.2 |
| 0.1 |
| — |
| 0.4 |
|
| | 20.9 |
| 11.2 |
| 2.5 |
| 5.9 |
| 40.6 |
|
| Eliminations | — |
| — |
| (0.5 | ) | — |
| (0.5 | ) |
| Total | $ | 20.9 |
| $ | 11.2 |
| $ | 2.1 |
| $ | 5.9 |
| $ | 40.1 |
|
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December 31, 2018 (In billions) |
|
|
|
|
|
|
|
|
|
|
|
| Future policy benefit reserves | $ | 16.0 |
| $ | 9.5 |
| $ | 0.2 |
| $ | 2.2 |
| $ | 27.9 |
|
| Claim reserves | 3.9 |
| 0.2 |
| 1.2 |
| — |
| 5.3 |
|
| Investment contracts(b) | — |
| 1.2 |
| 1.1 |
| — |
| 2.4 |
|
| Unearned premiums and other | — |
| 0.2 |
| 0.1 |
| — |
| 0.3 |
|
| | 20.0 |
| 11.2 |
| 2.6 |
| 2.2 |
| 36.0 |
|
| Eliminations | — |
| — |
| (0.4 | ) | — |
| (0.4 | ) |
| Total | $ | 20.0 |
| $ | 11.2 |
| $ | 2.2 |
| $ | 2.2 |
| $ | 35.6 |
|
(a) Other contracts included claim reserves of $0.3 billion related to short-duration contracts at EIC, net of eliminations, at both September 30, 2019 and December 31, 2018.
(b) Investment contracts are contracts without significant mortality or morbidity risks.
We regularly monitor emerging experience in our run-off insurance operations and industry developments to identify trends that may help us refine our reserve assumptions and evaluate opportunities to reduce our insurance risk profile and improve the results of our run-off insurance operations. These opportunities may include the pursuit of future premium rate increases and benefit reductions on long-term care insurance contracts with our ceding companies; recapture and reinsurance transactions to reduce risk where economically justified; investment strategies to improve asset and liability matching and enhance investment portfolio yields; and managing our expense levels.
In calculating our future policy benefit reserves, we are required to consider the impact of net unrealized gains and losses on our available-for-sale investment securities supporting our insurance contracts as if those unrealized amounts were realized. To the extent that the realization of gains would result in a premium deficiency, an increase to future policy benefit reserves is recorded with an after-tax offset to Other comprehensive income and included within Other adjustments above. At September 30, 2019, the entire $5.9 billion balance of net unrealized gains on our investment securities required a related increase to future policy benefit reserves. This adjustment increased from $2.2 billion at December 31, 2018 primarily from higher unrealized gains within the investment security portfolio supporting our insurance contracts in response to decreased market yields. See Note 3 to our consolidated financial statements for further information about our investment securities.
For additional information see Key Portfolio Characteristics in Other Items in our Annual Report on Form 10-K for the year ended December 31, 2018.
Critical Accounting Estimates. Our insurance reserves include the following key accounting estimates and assumptions described below.
Future policy benefit reserves. Future policy benefit reserves represent the present value of future policy benefits less the present value of future gross premiums based on actuarial assumptions including, but not limited to, morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates); morbidity improvement (i.e., assumed rate of improvement in morbidity in the future); mortality (i.e., life expectancy or longevity); mortality improvement (i.e., assumed rate that mortality is expected to reduce over time); policyholder persistency or lapses (i.e., the length of time a policy will remain in force); anticipated premium increases or benefit reductions associated with future in-force rate actions, including actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated on future filings through 2028, on long-term care insurance policies; and interest rates. Assumptions are locked-in throughout the remaining life of a contract unless a premium deficiency develops.
Claim reserves. Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the present value of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claim, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss estimates with the support of qualified actuaries, and any changes are recorded in earnings in the period in which they are determined.
Reinsurance recoverables. We cede insurance risk to third-party reinsurers for a portion of our insurance contracts, primarily on long-term care insurance policies, and record receivables as we are not relieved from our primary obligation to policyholders or cedents. These receivables are estimated in a manner consistent with the future policy benefit reserves and claim reserves. Reserves ceded to reinsurers, net of allowance, were $2.4 billion and $2.3 billion at September 30, 2019 and December 31, 2018, respectively, and are included in the caption “Other GE Capital receivables” on our consolidated Statement of Financial Position.
Premium Deficiency Testing. We annually perform premium deficiency testing in the third quarter in the aggregate across our run-off insurance portfolio. The premium deficiency testing assesses the adequacy of future policy benefit reserves, net of unamortized capitalized acquisition costs, using current assumptions without provision for adverse deviation. A comprehensive review of premium deficiency assumptions is a complex process and depends on a number of factors, many of which are interdependent and require evaluation individually and in the aggregate across all insurance products. The vast majority of our run-off insurance operations consists of reinsurance from multiple ceding insurance entities pursuant to treaties having complex terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers the reinsurance treaties and underlying policies. In order to utilize that information for purposes of completing experience studies covering all key assumptions, we perform detailed procedures to conform and validate the data received from the ceding entities. Our long-term care insurance business includes coverage where credible claim experience for higher attained ages is still emerging, and to the extent future experience deviates from current expectations, new projections of claim costs extending over the expected life of the policies may be required. Significant uncertainties exist in making projections for these long-term care insurance contracts, which requires that we consider a wide range of possible outcomes.
The primary assumptions used in the premium deficiency tests include:
Morbidity. Morbidity assumptions used in estimating future policy benefit reserves are based on estimates of expected incidences of disability among policyholders and the costs associated with these policyholders asserting claims under their contracts, and these estimates account for any expected future morbidity improvement. For long-term care exposures, estimating expected future costs includes assessments of incidence (probability of a claim), utilization (amount of available benefits expected to be incurred) and continuance (how long the claim will last). Prior to 2017, premium deficiency assumptions considered the risk of anti-selection by including issue age adjustments to morbidity based on an actuarial assumption that long-term care policies issued to younger individuals would exhibit lower expected incidences and claim costs than those issued to older policyholders. Recent claim experience and the development of reconstructed claim cost curves indicated issue age differences had minimal impact on claim cost projections, and, accordingly, beginning in 2017, issue age adjustments were eliminated in developing morbidity assumptions. Higher morbidity increases, while lower morbidity decreases, the present value of expected future benefit payments.
Rate of Change in Morbidity. Our annual premium deficiency testing incorporates our best estimates of projected future changes in the morbidity rates reflected in our base cost curves. These estimates draw upon a number of inputs, some of which are subjective, and all of which are interpreted and applied in the exercise of professional actuarial judgment in the context of the characteristics specific to our portfolios. This exercise of judgment considers factors such as the work performed by internal and external independent actuarial experts engaged to advise us in our annual testing, the observed actual experience in our portfolios measured against our base projections, industry developments, and other trends, including advances in the state of medical care and health-care technology development. With respect to industry developments, we take into account that there are differences between and among industry peers in portfolio characteristics (such as demographic features of the insured populations), the aggregate effect of improvement or deterioration as applied to base claim cost projections, the extent to which such base cost projections reflect the most current experience, and the accepted diversity of practice in actuarial professional judgment. We assess the potential for any change in morbidity with reference to our existing base claim cost projections, reconstructed in 2017. Projected improvement or deterioration in morbidity can have a material impact on our future claim cost projections, both on a stand-alone basis and also by virtue of influencing other variables such as discount rate and premium rate increases.
Mortality. Mortality assumptions used in estimating future policy benefit reserves are based on published mortality tables as adjusted for the results of our experience studies and estimates of expected future mortality improvement. For life insurance products, higher mortality increases the present value of expected future benefit payments, while for annuity and long-term care insurance contracts, higher mortality decreases the present value of expected future benefit payments.
Discount rate. Interest rate assumptions used in estimating the present value of future policy benefit reserves are based on expected investment yields, net of related investment expenses and expected defaults. In estimating future yields, we consider the actual yields on our current investment securities held by our run-off insurance operations and the future rates at which we expect to reinvest any proceeds from investment security maturities, net of other operating cash flows, and the projected future capital contributions into our run-off insurance operations. Lower future yields result in a lower discount rate and a higher present value of future policy benefit reserves.
Future long-term care premium rate increases. As a reinsurer, we rely upon the primary insurers that issued the underlying policies to file proposed premium rate increases on those policies with the relevant state insurance regulators, as we have no ability to seek or to institute such premium rate increases. We consider recent experience of rate increase filings made by our ceding companies along with state insurance regulatory processes and precedents in establishing our current expectations. Higher future premium rate increases lower the present value of future policy benefit reserves.
Terminations. Terminations refers to the rate at which the underlying policy is cancelled due to either mortality, lapse (non-payment of premiums by a policyholder), or, in the case of long-term care insurance, benefit exhaustion. Termination rate assumptions used in estimating the present value of future policy benefit reserves are based on the results of our experience studies and reflect actuarial judgment. Lower termination rates increase, while higher termination rates decrease, the present value of expected future benefit payments.
In 2017, based on elevated claim experience for a portion of our long-term care insurance contracts, we initiated a comprehensive review of all premium deficiency testing assumptions across all insurance products, resulting in a reconstruction of our future claim cost projections for long-term care insurance products. Our internal claim experience has been consistent with those reconstructed projections, although the extent of actual experience since 2017 to date is limited in the context of a long-tailed, multi-decade portfolio.
2019 Premium Deficiency Testing. We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we planned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. These procedures included updating experience studies since our last test completed in the fourth quarter of 2018, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency in 2018, our 2019 premium deficiency testing started with a zero margin and, accordingly, any net adverse development would result in a future charge to earnings. Using our most recent future policy benefit reserve assumptions, including changes to our assumptions related to discount rate and future premium rate increases, as described below, we identified a premium deficiency resulting in a $1.0 billion pre-tax charge to earnings in the third quarter 2019. The increase to future policy benefit reserves resulting from our 2019 testing was primarily attributable to the following key assumption changes:
We have observed a significant decline in market interest rates this year, which has resulted in a lower discount rate and adversely impacted our reserve margin by $1.3 billion. As noted above, our discount rate is based upon the actual yields on our investment portfolio and our forecasted reinvestment rates, which comprise the future rates at which we expect to invest proceeds from investment maturities, net of operating cash flows, and projected future capital contributions. Market interest rates have declined by approximately 130 basis points since our 2018 premium deficiency test, with 60 basis points of this reduction occurring since the second quarter 2019. Although the movement in market rates impacts the reinvestment rate, it does not materially impact the actual yield on our existing investments. Furthermore, our assumed reinvestment rate on future fixed income investments is based both on current expected long-term average rates and market interest rates. Thus, a decline in market interest rates will not result in an equivalent decline in our discount rate assumption. Our discount rate assumption for purposes of performing the premium deficiency assessment resulted in a weighted average rate of 5.74% compared to 6.04% in 2018. This decline in the discount rate from 2018 to 2019 reflected a lower reinvestment rate increasing to an expected long-term average investment yield over a longer period, lower prospective expected returns on higher yielding assets classes introduced with our 2018 strategic initiatives, and slightly lower actual yields on our investment security portfolio.
Higher levels of projected long-term care premium rate increases due to larger rate filings by some ceding companies than previously planned, which favorably impacted our reserve margin by $0.3 billion. Since our premium deficiency testing performed in 2018, we have implemented approximately $0.2 billion of previously approved rate increase actions. Our 2019 premium deficiency test includes approximately $2.0 billion of anticipated future premium increases or benefit reductions associated with future in-force rate actions. This represents an increase of $0.3 billion from our 2018 premium deficiency test to account for actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated on future filings through 2028, and includes the effect of the lower discount rate mentioned above.
As noted above, our observed claim experience in the period since the 2017 reconstruction of our future claim cost projections has been consistent with those projections. Based on the application of professional actuarial judgment to the factors discussed above, we have made no substantial change to our assumptions concerning morbidity, morbidity improvement, mortality, mortality improvement, or terminations in 2019.
As with all assumptions underlying our premium deficiency testing, we will continue to monitor these factors, which may result in future changes in our assumptions.
GAAP Reserve Sensitivities. The results of our premium deficiency testing are sensitive to the assumptions described above. Certain future adverse changes in our assumptions could result in the unlocking of reserves, resetting of actuarial assumptions to current assumptions, an increase to future policy benefit reserves and a charge to earnings. Considering the results of the 2019 premium deficiency test which reset our margin to zero, any future net adverse changes in our assumptions will result in an increase to future policy benefit reserves. For example, adverse changes in key assumptions to our future policy benefits reserves, holding all other assumptions constant, would have the following effects as presented in the table below. Any favorable changes to these assumptions could result in additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income. The assumptions within our future policy benefit reserves are subject to significant uncertainties, including those inherent in the complex nature of our reinsurance treaties. Many of our assumptions are interdependent and require evaluation individually and in the aggregate across all insurance products. Small changes in the amounts used in the sensitivities or the use of different factors could result in materially different outcomes from those reflected below.
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| | | | |
| | 2018 assumption | 2019 assumption | Hypothetical change in 2019 assumption | Estimated increase to future policy benefit reserves (In billions, pre-tax) |
| Long-term care insurance morbidity improvement | 1.25% per year over 12 to 20 years | 1.25% per year over 12 to 20 years | 25 basis point reduction
No morbidity improvement | $0.7 $3.7 |
| Long-term care insurance morbidity | Based on company experience | Based on company experience | 5% increase in dollar amount of paid claims | $1.1 |
| Long-term care insurance mortality improvement | 0.5% per year for 10 years with annual improvement graded to 0% over next 10 years | 0.5% per year for 10 years with annual improvement graded to 0% over next 10 years | 1.0% per year for 10 years with annual improvement graded to 0% over next 10 years | $0.4 |
| Total terminations: | | | | |
| Long-term care insurance mortality | Based on company experience | Based on company experience | Any change in termination assumptions that reduce total terminations by 10% | $1.0 |
| Long-term care insurance lapse rate | Varies by block, attained age and benefit period; average 0.5 - 1.15% | Varies by block, attained age and benefit period; average 0.5 - 1.15% |
| Long-term care insurance benefit exhaustion | Based on company experience | Based on company experience |
| Long-term care insurance future premium rate increases | Varies by block based on filing experience | Varies by block based on filing experience | 25% adverse change in premium rate increase success rate | $0.5 |
| Discount rate: | | | | |
| Overall discount rate | 6.04% | 5.74% | 25 basis point reduction | $1.0 |
| Reinvestment rate | 4.35%; grading to a long-term average investment yield of 6.0% | 3.05%; grading to a long-term average investment yield of 5.9% | 25 basis point reduction; grading to long-term investment yield of 5.9% | Less than $0.1 |
| Structured settlement annuity mortality | Based on company experience | Based on company experience | 5% decrease in mortality | $0.1 |
| Life insurance mortality | Based on company experience | Based on company experience | 5% increase in mortality | $0.3 |
Statutory Considerations. Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices. Statutory accounting practices, not GAAP, determine the required statutory capital levels of our insurance legal entities. We annually perform statutory asset adequacy testing and expect our next testing process to be completed in the first quarter of 2020, the results of which may affect the amount or timing of capital contributions from GE Capital to the insurance legal entities.
See Other Items - New Accounting Standards and Note 12 to the consolidated financial statements and Other Items within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
NEW ACCOUNTING STANDARDS
ASU 2018-12, FINANCIAL SERVICES - INSURANCE (TOPIC 944): TARGETED IMPROVEMENTS TO THE ACCOUNTING FOR LONG-DURATION CONTRACTS
STANDARDS.In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. In October 2019, the FASB affirmed its decision to defer the effective date to periods beginning after December 31, 2021, with an election to adopt early. We are evaluating the effect of the standard on our consolidated financial statements and anticipate that its adoption will significantly change the accounting for measurements of our long-duration insurance liabilities. The ASU requires cash flow assumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidence indicates previous assumptions need to be revised with any required changes recorded in earnings. TheUnder the current accounting guidance, the discount rate is based on expected investment yields, while under the ASU the discount rate will be equivalent to the upper-medium grade (i.e., single A) fixed-income instrument yield reflecting the duration characteristics of the liability and is required to be updated in each reporting period with changes recorded in accumulated other comprehensive income. In measuring the insurance liabilities under the new standard, contracts shall not be grouped together from different issue years. These changes result in the elimination of premium deficiency testing and shadow adjustments. While we continue to evaluate the effect of the standard on our ongoing financial reporting, we anticipate that the adoption of the ASU maywill materially affect our financial statements.
ASU NO. 2018-02, INCOME STATEMENT - REPORTING COMPREHENSIVE INCOME (TOPIC 220): RECLASSIFICATION OF CERTAIN TAX EFFECTS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME
In February 2018, As the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides that the stranded tax effects from the Tax Cuts and Jobs Act on the balance of other comprehensive income (OCI) may be reclassified to retained earnings. The ASU is effective for periods beginning after December 15, 2018, with an election to adopt early. We are evaluating the effect of the standard on our consolidated financial statements which we estimate on a preliminary basis, will increase retained earnings by approximately $2 billion.
ASU NO. 2017-12, DERIVATIVES AND HEDGING (TOPIC 815): TARGETED IMPROVEMENTS TO ACCOUNTING FOR HEDING ACTIVITIES
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU is effective for periods beginning after December 15, 2018, with an election to adopt early. The ASU requires certain changesonly applicable to the presentationmeasurements of hedgeour long-duration insurance liabilities under GAAP, it will not affect the accounting in the financial statements and some new or modified disclosures. The ASU also simplifies the application of hedge accounting and expands the strategies that qualify for hedge accounting. The ASU is not expected to have a material effect to our financial statements.
ASU NO. 2016-02, LEASES
In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU 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. We are planning to elect the new transition method approved by the FASB on July 30, 2018, which allows companies to apply the provisions of the new leasing standard as of January 1, 2019, without adjusting the comparative periods presented by recognizing a cumulative-effect adjustment to the opening balance of retained earnings. We are currently in the process of accumulating and evaluating all the necessary information required to properly account for our lease portfolioinsurance reserves or the levels of capital and surplus under the new standard. Additionally, we are implementing an enterprise-wide lease management system to support the ongoingstatutory accounting requirements. Development and testing of our selected systems solution is ongoing. We are working closely with the software system developer as the timely readiness of the lease software system is critical to ensure an efficient and effective adoption of the standard. We are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. While we continue to evaluate the effect of the standard on our consolidated financial statements, the adoption of the ASU will result in the recognition of a right of use asset and related liability in the range of approximately $5 billion to $6 billion with an estimated immaterial effect to our retained earnings and cash flows.practices.
ASU NO. 2016-13, FINANCIAL INSTRUMENTS - CREDIT LOSSES
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables, as well as reinsurance recoverables at GE Capital's run-off insurance operations and is effective for fiscal years beginning after December 15, 2019. The standard will be applied prospectively with an adjustment to retained earnings. We continue to evaluate the effect of the standard on our consolidated financial statements, however do not expect the ASU to have a material effect on our financial statements.
MINE SAFETY DISCLOSURES
We have no mine safety violations or other regulatory matters required by Section 1503(a)OUR EMPLOYEES AND EMPLOYEE RELATIONS. In August 2019, most of GE's U.S. unions, including the Industrial Division of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104Communications Workers of Regulation S-KAmerica (IUE-CWA), ratified new four-year labor agreements to report forreplace the current quarter.agreements.
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934. Under Section 13(r) of the Securities Exchange Act of 1934, enacted in 2012, GE is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in business activities relating to Iran, even if those activities are conducted in accordance with authorizations subsequently issued by the U.S. Government. Reportable activities include investments that significantly enhance Iran’s ability to develop petroleum resources valued at $20 million or more in the aggregate during a twelve-month period. Reporting is also required for transactions related to Iran’s domestic production of refined petroleum products or Iran’s ability to import refined petroleum products valued at $5 million or more in the aggregate during a twelve-month period.
In January 2016, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License H authorizing U.S.-owned or controlled foreign entities to engage in transactions with Iran if these entities meet the requirements of the general license. On May 8, 2018, President Trump announced that the United States will cease participation in the Joint Comprehensive Plan of Action (JCPOA) and begin re-imposing the U.S. nuclear-related sanctions. On June 27, 2018, OFAC revoked General License H and added Section 560.537 to the Iranian Transactions and Sanctions Regulations (ITSR), which authorizes all transactions and activities that are ordinarily incident and necessary to the winding down of activities previously approved under General License H through November 4, 2018. Prior to May 8, 2018, certain non-U.S. affiliates of GE conducted limited activities as described below in accordance with General License H. Non-U.S. affiliates of GE expect to wind down activities in Iran by November 4, which may include the collection of payments for previously completed work. These activities are conducted in accordance with all applicable laws and regulations.
A non-U.S. affiliate of GE’s Oil & Gas business attributed €3.8 million ($4.4 million) in gross revenues and €0.7 million ($0.8 million) in net profits during the quarter ending September 30, 2018 against previously reported transactions related to the sale of valves and parts for industrial machinery and equipment used in gas plants, petrochemical plants and gas production projects in Iran.
A second non-U.S. affiliate of GE’s Oil & Gas business revised four previously received purchase orders during the third quarter of 2018 in order to reflect a reduction in scope to only spare parts that can be delivered prior to November 4, 2018. Each of the four previously reported purchase orders are now valued at less than €0.1 million ($0.1 million). This non-U.S. affiliate attributed less than €0.1 million ($0.1 million) in gross revenues and less than €0.1 million ($0.1 million) in net profits during the quarter ending September 30, 2018 against previously reported transactions.
A non-U.S. affiliate of GE’s Power business attributed €2.2 million ($2.6 million) in gross revenues and less than €0.1 million ($0.1 million) in net profits during the quarter ending September 30, 2018 against a previously reported received purchase order for the sale of a generator to a petrochemical company in Iran.
A second non-U.S. affiliate of GE's Power business attributed €0.1 million ($0.1 million) in gross revenues and less than €0.1 million ($0.1 million) in net profits during the quarter ending September 30, 2018 against a previously reported sale of protection relays for an Iranian oil refinery project.
These non-U.S. affiliates do not intend to continue the activities described above beyond November 4, 2018. The Company will wind down all of these activities by that date in full compliance with U.S. sanctions; revenues associated with previously reported projects can only be collected after November 4 if specific U.S. Government authorization is obtained.
For additional information on business activities related to Iran, please refer to the Other Items section within MD&A in our quarterly report on Form 10-Q for the quarter ended June 30, 2018.
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MD&A | NON-GAAP FINANCIAL INFORMATION |
NON-GAAP FINANCIAL MEASURES
We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the total company and its businesses. This includes adjustments in recent periods to GAAP financial measures to increase period-to-period comparability following actions to strengthen our overall financial position and how we manage our business.
FINANCIAL MEASURES THAT SUPPLEMENT U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 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”addition, management recognizes that certain non-GAAP terms may be interpreted differently by other companies under SEC rules. Specifically, we have referred, indifferent circumstances. In various sections of this report to:
we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically GE Industrial segment organic revenues – revenues excluding the effects of acquisitions, dispositionsrevenues; and translational foreign currency exchange.
GE Industrial structural costs – organic revenues, (2) profit, specifically GE Industrial structural costs include segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions, foreign exchange, plus total Corporate operating profit excluding restructuring and other charges and gains. The Baker Hughes acquisition is represented on a pro-forma basis, which means we calculated our structural costs by including legacy Baker Hughes results for the three and six months ended June 30, 2017.
Adjusted earnings (loss) – continuing earnings excluding the impact of non-operating benefit costs, gains (losses), restructuring and other items and goodwill impairment, after tax, and the impact of U.S. tax reform.
Adjusted earnings (loss) per share (EPS) – when we refer to adjusted earnings per share, it is the diluted per-share amount of “adjusted earnings.”
organic profit; Adjusted GE Industrial profit and profit margin (excluding certain items) – GE Industrial profit margin excluding interest and other financial charges, non-operating benefit costs, gains (losses), restructuring and other charges and goodwill impairment plus noncontrolling interests.
; Adjusted GE Industrial organic profit – and profit excluding the effects of acquisitions, business dispositionsmargin; Adjusted earnings (loss); and translational foreign currency exchange.
Adjusted Oil & Gas segment profit – Reported Oil & Gas segment profit less GE's share of restructuring & other charges.
GE effective tax rates, excluding GE Capital earnings –GE provision for income taxes divided by GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations.
GE Industrial Free Cash Flows (FCF) and Adjusted GE Industrial FCF –per share (EPS), (3) cash flows, specifically GE Industrial free cash flows (Non-GAAP) is GE CFOA adjusted for gross GE additions to property, plant(FCF), and equipment and internal-use software, which are included in cash flows from investing activities, and excluding dividends from GE Capital, GE Pension Plan funding, and taxes related to business sales. Adjusted GE Industrial free cash flows (Non-GAAP) is GE Industrial free cash flows adjusted for Oil & Gas CFOA, gross Oil & Gas additions to property, plant and equipment and internal-use software, and including the BHGE Class B shareholder dividend.
(4) debt balances, specifically GE Industrial net debt – GE Industrial net debt reflects the total of gross debt, after-tax net pension liabilities, adjustments for operating lease obligations, and adjustments for 50% of preferred stock, less 75% of GE’s cash balance.
debt.
The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
50 201832 2019 3Q FORM 10-Q
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| MD&A | NON-GAAP FINANCIAL INFORMATIONMEASURES |
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| | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL SEGMENT ORGANIC REVENUES (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V% | | 2018 |
| 2017 |
| V% |
| | | | | | | | |
| GE Industrial segment revenues (GAAP) | $ | 27,785 |
| $ | 29,171 |
| (5 | )% | | $ | 83,837 |
| $ | 81,967 |
| 2 | % |
| Adjustments: | | | | | | | |
| Less: acquisitions | 4 |
| 1 |
| | | 5,588 |
| 92 |
| |
| Less: business dispositions (other than dispositions acquired for investment) | 10 |
| 1,408 |
| | | 13 |
| 2,479 |
| |
| Less: Currency exchange rate(a) | (285 | ) | — |
| | | 1,121 |
| — |
| |
| GE Industrial segment organic revenues (Non-GAAP) | $ | 28,057 |
| $ | 27,762 |
| 1 | % | | $ | 77,116 |
| $ | 79,396 |
| (3 | )% |
| (a) Translational foreign exchange | | | | | | | |
| | | | | | | | |
| Organic revenues* measure revenues 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 revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenues" 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. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | | Revenue | | Segment profit (loss) | | Profit margin |
Three months ended September 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | | |
| Power (GAAP) | | $ | 3,926 |
| | $ | 4,559 |
| | (14 | )% | | $ | (144 | ) | | $ | (676 | ) | | 79 | % | | (3.7 | )% | | (14.8 | )% | 11.1pts |
| Less: acquisitions | | 3 |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 1 |
| | 446 |
| | | | 2 |
| | 69 |
| | | | | | | |
| Less: foreign currency effect | | (68 | ) | | — |
| | | | — |
| | — |
| | | | | | | |
| Power organic (Non-GAAP) | | $ | 3,990 |
| | $ | 4,113 |
| | (3 | )% | | $ | (145 | ) | | $ | (745 | ) | | 81 | % | | (3.6 | )% | | (18.1 | )% | 14.5pts |
| | | | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | | $ | 4,425 |
| | $ | 3,920 |
| | 13 | % | | $ | (98 | ) | | $ | 116 |
| | U |
| | (2.2 | )% | | 3.0 | % | (5.2)pts |
| Less: acquisitions | | 1 |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: foreign currency effect | | (69 | ) | | — |
| | | | 5 |
| | — |
| | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 4,492 |
| | $ | 3,920 |
| | 15 | % | | $ | (103 | ) | | $ | 117 |
| | U |
| | (2.3 | )% | | 3.0 | % | (5.3)pts |
| | | | | | | | | | | | | | | | | | |
| Aviation (GAAP) | | $ | 8,109 |
| | $ | 7,480 |
| | 8 | % | | $ | 1,718 |
| | $ | 1,665 |
| | 3 | % | | 21.2 | % | | 22.3 | % | (1.1)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 25 |
| | 117 |
| | | | 6 |
| | 17 |
| | | | | | | |
| Less: foreign currency effect | | (3 | ) | | — |
| | | | 5 |
| | — |
| | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 8,086 |
| | $ | 7,363 |
| | 10 | % | | $ | 1,707 |
| | $ | 1,648 |
| | 4 | % | | 21.1 | % | | 22.4 | % | (1.3)pts |
| | | | | | | | | | | | | | | | | | |
| Healthcare (GAAP) | | $ | 4,923 |
| | $ | 4,707 |
| | 5 | % | | $ | 974 |
| | $ | 861 |
| | 13 | % | | 19.8 | % | | 18.3 | % | 1.5pts |
| Less: acquisitions | | 22 |
| | — |
| | | | (8 | ) | | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 2 |
| | 14 |
| | | | 15 |
| | (9 | ) | | | | | | | |
| Less: foreign currency effect | | (43 | ) | | — |
| | | | 10 |
| | — |
| | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 4,942 |
| | $ | 4,693 |
| | 5 | % | | $ | 957 |
| | $ | 870 |
| | 10 | % | | 19.4 | % | | 18.5 | % | 0.9pts |
| | | | | | | | | | | | | | | | | | |
| GE Industrial segment (GAAP) | | 21,383 |
| | 20,665 |
| | 3 | % | | 2,450 |
| | 1,967 |
| | 25 | % | | 11.5 | % | | 9.5 | % | 2.0pts |
| Less: acquisitions | | 27 |
| | — |
| | | | (9 | ) | | — |
| | | | | | | |
| Less: business dispositions | | 28 |
| | 577 |
| | | | 23 |
| | 77 |
| | | | | | | |
| Less: foreign currency effect | | (183 | ) | | — |
| | | | 20 |
| | — |
| | | | | | | |
| GE Industrial segment organic (Non-GAAP) | | 21,510 |
| | 20,088 |
| | 7 | % | | 2,417 |
| | 1,890 |
| | 28 | % | | 11.2 | % | | 9.4 | % | 1.8pts |
| | | | | | | | | | | | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
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| | | | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL STRUCTURAL COSTS (NON-GAAP) | | | | | |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V$ | | 2018 |
| 2017 |
| V$ |
|
| | | | | | | | |
| GE total costs and expenses (GAAP) | $ | 50,449 |
| $ | 29,978 |
| $ | 20,471 |
| | $ | 104,390 |
| $ | 80,977 |
| $ | 23,412 |
|
| Less: GE interest and other financial charges (GAAP) | 662 |
| 718 |
| | | 1,995 |
| 1,918 |
| |
| Less: goodwill impairment (GAAP) | 21,973 |
| 947 |
| | | 21,973 |
| 947 |
| |
| Less: non-operating benefit costs (GAAP) | 804 |
| 610 |
| | | 2,178 |
| 1,811 |
| |
| GE Industrial costs excluding interest and other financial charges, goodwill impairment and non-operating benefit costs (Non-GAAP) | $ | 27,009 |
| $ | 27,703 |
| $ | (693 | ) | | $ | 78,243 |
| $ | 76,300 |
| $ | 1,943 |
|
| Less: Segment variable costs | 19,895 |
| 20,196 |
| | | 58,291 |
| 55,694 |
| |
| Less: Segment restructuring & other | 188 |
| 363 |
| | | 709 |
| 388 |
| |
| Less: Segment acquisitions/dispositions structural costs and impact from foreign exchange | (13 | ) | 334 |
| | | 539 |
| (369 | ) | |
| Less: Corporate restructuring & other charges | 1,501 |
| 1,079 |
| | | 2,328 |
| 2,761 |
| |
| Add: Corporate revenue (ex. GE-GE Capital eliminations), other income and noncontrolling interests | 176 |
| (1,529 | ) | | | 486 |
| (744 | ) | |
| Less: Corporate (gains) losses(a) | (207 | ) | (1,885 | ) | | | (450 | ) | (1,887 | ) | |
| Less: Corporate unrealized (gains) losses | 73 |
| — |
| | | (193 | ) | — |
| |
| GE Industrial structural costs (Non-GAAP) | $ | 5,748 |
| $ | 6,087 |
| $ | (339 | ) | | $ | 17,504 |
| $ | 18,969 |
| $ | (1,465 | ) |
| | | | | | | | |
| (a) Includes gains (losses) on disposed or held for sale businesses. | | | | | | | |
| | | | | | | | |
| Industrial structural costs* includes segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions, foreign exchange, plus total Corporate operating profit excluding restructuring and other charges and gains. The Baker Hughes acquisition is represented on a pro-forma basis, which means we calculated our structural costs by including legacy Baker Hughes results for the three and six months ended June 30, 2017. |
| Segment variable costs are those costs within our industrial segments that vary with volume. The most significant variable costs would be material and direct labor costs incurred to produce our products and deliver our services that are recorded in the Statement of Earnings line items of cost of goods and cost of services sold. |
| We believe that Industrial structural costs* is a meaningful measure as it is broader than selling, general and administrative costs and represents the total costs in the Industrial segments and Corporate that generally do not vary with volume and excludes the effect of segment acquisitions, dispositions, and foreign exchange movements. |
| This measure was first introduced in March 2017 as disclosed in our Form 8-K filed on March 22, 2017. |
*Non-GAAP Financial Measure
20182019 3Q FORM 10-Q 5133
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| MD&A | NON-GAAP FINANCIAL INFORMATIONMEASURES |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) (NON-GAAP) | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V% |
| | 2018 |
| 2017 |
| V% |
|
| | | | | | | | |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | (22,847 | ) | $ | 1,429 |
| U |
| | $ | (21,742 | ) | $ | 2,579 |
| U |
|
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | 19 |
| 24 |
| | | (403 | ) | (195 | ) | |
| GE Industrial earnings (loss) (Non-GAAP) | (22,866 | ) | 1,405 |
| U |
| | (21,339 | ) | 2,774 |
| U |
|
| | | | | | | | |
| Non-operating benefits costs (pre-tax) (GAAP) | (804 | ) | (610 | ) | | | (2,178 | ) | (1,811 | ) | |
| Tax effect on non-operating benefit costs(a) | 169 |
| 214 |
| | | 457 |
| 634 |
| |
| Less: non-operating benefit costs (net of tax) | (636 | ) | (397 | ) | | | (1,721 | ) | (1,177 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | 207 |
| 1,885 |
| | | 450 |
| 1,887 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(b) | (89 | ) | (45 | ) | | | (190 | ) | (46 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 118 |
| 1,840 |
| | | 260 |
| 1,841 |
| |
| Restructuring & other (pre-tax) | (1,568 | ) | (1,347 | ) | | | (2,734 | ) | (3,029 | ) | |
| Tax effect on restructuring & other(b) | 337 |
| 448 |
| | | 398 |
| 953 |
| |
| Less: restructuring & other (net of tax) | (1,231 | ) | (898 | ) | | | (2,337 | ) | (2,076 | ) | |
| Goodwill impairment (pre-tax) | (21,973 | ) | (947 | ) | | | (21,973 | ) | (947 | ) | |
| Tax effect on goodwill impairment(b) | (246 | ) | 7 |
| | | (246 | ) | 7 |
| |
| Less: goodwill impairment (net of tax) | (22,220 | ) | (940 | ) | | | (22,220 | ) | (940 | ) | |
| Unrealized gains (losses) (pre-tax) | (73 | ) | — |
| | | 193 |
| — |
| |
| Tax effect on unrealized gains (losses)(a) | 15 |
| — |
| | | (41 | ) | — |
| |
| Less: unrealized gains (losses) (net of tax) | (58 | ) | — |
| | | 153 |
| — |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (55 | ) | — |
| |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,160 |
| $ | 1,801 |
| (36 | )% | | $ | 4,581 |
| $ | 5,127 |
| (11 | )% |
| | | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | 19 |
| 24 |
| (21 | )% | | (403 | ) | (195 | ) | U |
|
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | (45 | ) | — |
| |
| Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | 19 |
| $ | 24 |
| (21 | )% | | $ | (358 | ) | $ | (195 | ) | (84 | )% |
| | | | | | | | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,160 |
| $ | 1,801 |
| (36 | )% | | $ | 4,581 |
| $ | 5,127 |
| (11 | )% |
| Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | 19 |
| 24 |
| | | (358 | ) | (195 | ) | |
| Adjusted earnings (loss) (Non-GAAP) | $ | 1,179 |
| $ | 1,825 |
| (35 | )% | | $ | 4,223 |
| $ | 4,932 |
| (14 | )% |
| | | | | | | | |
| (a) The tax effect was calculated using a 21% and 35% U.S. federal statutory tax rate in 2018 and 2017, respectively, based on its applicability to such cost. |
| (b) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges. |
| Adjusted earnings (loss)* excludes non-operating benefit costs, gains (losses) and impairments for disposed or held for sale businesses, restructuring and other, goodwill impairment, and unrealized gains (losses), after tax, excluding the effects of U.S. tax reform enactment adjustment. The service cost of 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, and we manage these separately from the operational performance of our businesses. Gains 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 activities. Prior to the third quarter of 2018, goodwill impairment was included as a component of restructuring and other charges; for the third quarter of 2018, on a comparable basis, we reported it separately in the Statement of Earnings (Loss) because of the significance of the charge that quarter, and Adjusted earnings (loss)* continues to exclude amounts related to goodwill impairment as separate from the ongoing operations of our businesses. We believe that the retained costs in Adjusted earnings (loss)* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We believe that presenting Adjusted Industrial earnings (loss) separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| | | Revenue | | Segment profit (loss) | | Profit margin |
| Nine months ended September 30 (In millions) | | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| | V% |
| | 2019 |
| | 2018 |
| V pts |
| | | | | | | | | | | | | | | | | | |
| Power (GAAP) | | $ | 13,224 |
| | $ | 16,768 |
| | (21 | )% | | $ | 84 |
| | $ | (22 | ) | | F |
| | 0.6 | % | | (0.1 | )% | 0.7pts |
| Less: acquisitions | | 22 |
| | — |
| | | | (3 | ) | | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 10 |
| | 2,621 |
| | | | (2 | ) | | 226 |
| | | | | | | |
| Less: foreign currency effect | | (444 | ) | | — |
| | | | 36 |
| | — |
| | | | | | | |
| Power organic (Non-GAAP) | | $ | 13,635 |
| | $ | 14,147 |
| | (4 | )% | | $ | 52 |
| | $ | (249 | ) | | F |
| | 0.4 | % | | (1.8 | )% | 2.2pts |
| | | | | | | | | | | | | | | | | | |
| Renewable Energy (GAAP) | | $ | 10,590 |
| | $ | 9,642 |
| | 10 | % | | $ | (469 | ) | | $ | 312 |
| | U |
| | (4.4 | )% | | 3.2 | % | (7.6)pts |
| Less: acquisitions | | 3 |
| | — |
| | | | 6 |
| | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | — |
| | — |
| | | | — |
| | (2 | ) | | | | | | | |
| Less: foreign currency effect | | (437 | ) | | — |
| | | | 54 |
| | — |
| | | | | | | |
| Renewable Energy organic (Non-GAAP) | | $ | 11,024 |
| | $ | 9,642 |
| | 14 | % | | $ | (528 | ) | | $ | 315 |
| | U |
| | (4.8 | )% | | 3.3 | % | (8.1)pts |
| | | | | | | | | | | | | | | | | | |
| Aviation (GAAP) | | $ | 23,940 |
| | $ | 22,111 |
| | 8 | % | | $ | 4,764 |
| | $ | 4,743 |
| | — | % | | 19.9 | % | | 21.5 | % | (1.6)pts |
| Less: acquisitions | | — |
| | — |
| | | | — |
| | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 25 |
| | 222 |
| | | | 6 |
| | 32 |
| | | | | | | |
| Less: foreign currency effect | | (19 | ) | | — |
| | | | 24 |
| | — |
| | | | | | | |
| Aviation organic (Non-GAAP) | | $ | 23,933 |
| | $ | 21,889 |
| | 9 | % | | $ | 4,734 |
| | $ | 4,711 |
| | — | % | | 19.8 | % | | 21.5 | % | (1.7)pts |
| | | | | | | | | | | | | | | | | | |
| Healthcare (GAAP) | | $ | 14,540 |
| | $ | 14,387 |
| | 1 | % | | $ | 2,714 |
| | $ | 2,522 |
| | 8 | % | | 18.7 | % | | 17.5 | % | 1.2pts |
| Less: acquisitions | | 62 |
| | — |
| | | | (18 | ) | | — |
| | | | | | | |
| Less: business dispositions (other than dispositions acquired for investment) | | 2 |
| | 231 |
| | | | (27 | ) | | 42 |
| | | | | | | |
| Less: foreign currency effect | | (313 | ) | | — |
| | | | 9 |
| | — |
| | | | | | | |
| Healthcare organic (Non-GAAP) | | $ | 14,789 |
| | $ | 14,156 |
| | 4 | % | | $ | 2,750 |
| | $ | 2,480 |
| | 11 | % | | 18.6 | % | | 17.5 | % | 1.1pts |
| | | | | | | | | | | | | | | | | | |
| GE Industrial segment (GAAP) | | 62,293 |
| | 62,908 |
| | (1 | )% | | 7,092 |
| | 7,555 |
| | (6 | )% | | 11.4 | % | | 12.0 | % | (0.6)pts |
| Less: acquisitions | | 87 |
| | — |
| | | | (15 | ) | | — |
| | | | | | | |
| Less: business dispositions | | 38 |
| | 3,074 |
| | | | (24 | ) | | 298 |
| | | | | | | |
| Less: foreign currency effect | | (1,213 | ) | | — |
| | | | 123 |
| | — |
| | | | | | | |
| GE Industrial segment organic (Non-GAAP) | | 63,381 |
| | 59,834 |
| | 6 | % | | 7,007 |
| | 7,257 |
| | (3 | )% | | 11.1 | % | | 12.1 | % | (1.0)pts |
| | | | | | | | | | | | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial companies. |
*Non-GAAP Financial Measure
52 201834 2019 3Q FORM 10-Q
|
| | |
| MD&A | NON-GAAP FINANCIAL INFORMATIONMEASURES |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) (NON-GAAP) | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| | 2018 |
| 2017 |
| V% |
| | 2018 |
| 2017 |
| V% |
|
| | | | | | | | |
| Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | (2.63 | ) | $ | 0.16 |
| U |
| | (2.50 | ) | 0.29 |
| U |
|
| Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | — |
| — |
| | | (0.05 | ) | (0.02 | ) | |
| GE Industrial EPS (Non-GAAP) | $ | (2.63 | ) | $ | 0.16 |
| U |
| | $ | (2.46 | ) | $ | 0.32 |
| U |
|
| | | | | | | | |
| Non-operating benefits costs (pre-tax) (GAAP) | (0.09 | ) | (0.07 | ) | | | (0.25 | ) | (0.21 | ) | |
| Tax effect on non-operating benefit costs(a) | 0.02 |
| 0.02 |
| | | 0.05 |
| 0.07 |
| |
| Less: non-operating benefit costs (net of tax) | (0.07 | ) | (0.05 | ) | | | (0.20 | ) | (0.13 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | 0.02 |
| 0.22 |
| | | 0.05 |
| 0.21 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(b) | (0.01 | ) | (0.01 | ) | | | (0.02 | ) | (0.01 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | 0.01 |
| 0.21 |
| | | 0.03 |
| 0.21 |
| |
| Restructuring & other (pre-tax) | (0.18 | ) | (0.15 | ) | | | (0.31 | ) | (0.34 | ) | |
| Tax effect on restructuring & other(b) | 0.04 |
| 0.05 |
| | | 0.05 |
| 0.11 |
| |
| Less: restructuring & other (net of tax) | (0.14 | ) | (0.10 | ) | | | (0.27 | ) | (0.24 | ) | |
| Goodwill impairment (pre-tax) | (2.53 | ) | (0.11 | ) | | | (2.53 | ) | (0.11 | ) | |
| Tax effect on goodwill impairment(b) | (0.03 | ) | — |
| | | (0.03 | ) | — |
| |
| Less: goodwill impairment (net of tax) | (2.56 | ) | (0.11 | ) | | | (2.56 | ) | (0.11 | ) | |
| Unrealized gains (losses) (pre-tax) | (0.01 | ) | — |
| | | 0.02 |
| — |
| |
| Tax effect on unrealized gains (losses)(a) | — |
| — |
| | | — |
| — |
| |
| Less: unrealized gains (losses) (net of tax) | (0.01 | ) | — |
| | | 0.02 |
| — |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (0.01 | ) | — |
| |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.21 |
| (38 | )% | | $ | 0.53 |
| $ | 0.58 |
| (9 | )% |
| | | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | — |
| — |
| — | % | | (0.05 | ) | (0.02 | ) | U |
|
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | (0.01 | ) | — |
| |
| Adjusted GE Capital EPS (Non-GAAP) | $ | — |
| $ | — |
| — | % | | $ | (0.04 | ) | $ | (0.02 | ) | (100 | )% |
| | | | | | | | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.21 |
| (38 | )% | | $ | 0.53 |
| $ | 0.58 |
| (9 | )% |
| Add: Adjusted GE Capital EPS (Non-GAAP) | — |
| — |
| | | (0.04 | ) | (0.02 | ) | |
| Adjusted EPS (Non-GAAP)(c) | $ | 0.14 |
| $ | 0.21 |
| (33 | )% | | $ | 0.49 |
| $ | 0.56 |
| (13 | )% |
| | | | | | | | |
| (a) The tax effect was calculated using a 21% and 35% U.S. federal statutory tax rate in 2018 and 2017, respectively, based on its applicability to such cost. |
| (b) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges. |
| (c) Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
| Adjusted EPS* excludes non-operating benefit costs, gains (losses) and impairments for disposed or held for sale businesses, restructuring and other, goodwill impairment, and unrealized gains (losses), after tax, excluding the effects of U.S. tax reform enactment adjustment. The service cost of 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, and we manage these separately from the operational performance of our businesses. Gains 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 activities. Prior to the third quarter of 2018, goodwill impairment was included as a component of restructuring and other charges; for the third quarter of 2018, on a comparable basis, we reported it separately in the statement of earnings (loss) because of the significance of the charge that quarter, and Adjusted EPS* continues to exclude amounts related to goodwill impairment as separate from the ongoing operations of our businesses. We believe that the retained costs in Adjusted EPS* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2018. We believe that presenting Adjusted EPS separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. |
|
| | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN | Three months ended September 30 | | Nine months ended September 30 |
(EXCLUDING CERTAIN ITEMS) (NON-GAAP) (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| GE total revenues (GAAP) | $ | 21,519 |
| $ | 21,273 |
| | $ | 63,259 |
| $ | 64,601 |
|
| | | | | | |
| Costs | | | | | |
| GE total costs and expenses (GAAP) | $ | 22,128 |
| $ | 44,566 |
| | $ | 64,201 |
| $ | 87,001 |
|
| Less: GE interest and other financial charges | 791 |
| 590 |
| | 1,693 |
| 1,773 |
|
| Less: non-operating benefit costs | 562 |
| 760 |
| | 1,684 |
| 2,132 |
|
| Less: restructuring & other | 322 |
| 1,412 |
| | 933 |
| 2,230 |
|
| Less: goodwill impairments | 740 |
| 21,973 |
| | 1,484 |
| 21,973 |
|
| Add: noncontrolling interests | (5 | ) | (139 | ) | | 17 |
| (130 | ) |
| Adjusted GE Industrial costs (Non-GAAP) | $ | 19,708 |
| $ | 19,691 |
| | $ | 58,423 |
| $ | 58,762 |
|
| | | | | | |
| Other Income | | | | | |
| GE other income (GAAP) | $ | 153 |
| $ | 274 |
| | $ | 1,177 |
| $ | 1,350 |
|
| Less: unrealized gains (losses) | (86 | ) | (73 | ) | | (125 | ) | 193 |
|
| Less: restructuring & other | — |
| (80 | ) | | 9 |
| (113 | ) |
| Less: gains (losses) and impairments for disposed or held for sale businesses | (97 | ) | 207 |
| | 153 |
| 470 |
|
| Adjusted GE other income (Non-GAAP) | 336 |
| 220 |
| | 1,140 |
| 800 |
|
| | | | | | |
| GE Industrial profit (GAAP) | $ | (456 | ) | $ | (23,019 | ) | | $ | 236 |
| $ | (21,050 | ) |
| GE Industrial profit margin (GAAP) | (2.1 | )% | (108.2 | )% | | 0.4 | % | (32.6 | )% |
| | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,147 |
| $ | 1,801 |
| | $ | 5,976 |
| $ | 6,639 |
|
| Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 8.5 | % | | 9.4 | % | 10.3 | % |
| | | | | | |
| We believe that GE Industrial profit and profit margins adjusted for the items included in the above reconciliation are meaningful measures because they increase the comparability of period-to-period results. |
|
| | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORGANIC REVENUES (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| GE Industrial revenues (GAAP) | $ | 21,519 |
| $ | 21,273 |
| 1 | % | | $ | 63,259 |
| $ | 64,601 |
| (2 | )% |
| Adjustments: | — |
| — |
| | | — |
| — |
| |
| Less: acquisitions | 27 |
| — |
| | | 87 |
| — |
| |
| Less: business dispositions | 28 |
| 837 |
| | | 45 |
| 3,697 |
| |
| Less: foreign currency effect | (184 | ) | — |
| | | (1,226 | ) | — |
| |
| GE Industrial organic revenues (Non-GAAP) | $21,648 | $20,435 | 6 | % | | $64,353 | $60,904 | 6 | % |
| | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL ORGANIC PROFIT | Three months ended September 30 | | Nine months ended September 30 |
(NON-GAAP) (In millions) | 2019 |
| 2018 |
| V% | | 2019 |
| 2018 |
| V% |
| | | | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,147 |
| $ | 1,801 |
| 19 | % | | $ | 5,976 |
| $ | 6,639 |
| (10 | )% |
| Adjustments: | | | | | | | |
| Less: acquisitions | (9 | ) | — |
|
|
| | (15 | ) | — |
|
|
|
| Less: business dispositions | 23 |
| 85 |
|
|
| | (32 | ) | 284 |
|
|
|
| Less: foreign currency effect | 25 |
| — |
|
|
| | 136 |
| — |
|
|
|
| Adjusted GE Industrial organic profit (Non-GAAP) | $ | 2,108 |
| $ | 1,716 |
| 23 | % | | $ | 5,887 |
| $ | 6,355 |
| (7 | )% |
| | | | | | | | |
| Adjusted GE Industrial profit margin (Non-GAAP) | 10.0 | % | 8.5 | % | 1.5pts |
| | 9.4 | % | 10.3 | % | 0.9pts |
|
| Adjusted GE Industrial organic profit margin (Non-GAAP) | 9.7 | % | 8.4 | % | 1.3pts |
| | 9.1 | % | 10.4 | % | (1.3)pts |
|
| | | | | | | | |
| We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, as these activities can obscure underlying trends. |
*Non-GAAP Financial Measure
20182019 3Q FORM 10-Q 5335
|
| | |
| MD&A | NON-GAAP FINANCIAL INFORMATIONMEASURES |
|
| | | | | | | | | | | | | |
| ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| GE total revenues (GAAP) | $ | 27,456 |
| $ | 28,774 |
| | $ | 82,429 |
| $ | 80,683 |
|
| | | | | | |
| Costs | | | | | |
| GE total costs and expenses (GAAP) | $ | 50,449 |
| $ | 29,978 |
| | $ | 104,390 |
| $ | 80,977 |
|
| Less: GE interest and other financial charges | 662 |
| 718 |
| | 1,995 |
| 1,918 |
|
| Less: non-operating benefit costs | 804 |
| 610 |
| | 2,178 |
| 1,811 |
|
| Less: restructuring & other | 1,488 |
| 1,347 |
| | 2,789 |
| 3,029 |
|
| Less: goodwill impairment | 21,973 |
| 947 |
| | 21,973 |
| 947 |
|
| Add: noncontrolling interests | (132 | ) | (168 | ) | | (228 | ) | (316 | ) |
| Adjusted GE Industrial costs (Non-GAAP) | $ | 25,389 |
| $ | 26,188 |
| | $ | 75,227 |
| $ | 72,955 |
|
| | | | | | |
| Other Income | | | | | |
| GE other income (GAAP) | $ | 201 |
| $ | 2,160 |
| | $ | 1,237 |
| $ | 2,659 |
|
| Less: unrealized gains (losses) | (73 | ) | — |
| | 193 |
| — |
|
| Less: restructuring & other | (80 | ) | — |
| | (80 | ) | — |
|
| Less: gains (losses) and impairments for disposed or held for sale businesses | 207 |
| 1,885 |
| | 450 |
| 1,887 |
|
| Adjusted GE other income (Non-GAAP) | $ | 147 |
| $ | 275 |
| | $ | 674 |
| $ | 772 |
|
| | | | | | |
| GE Industrial profit (GAAP) | $ | (22,793 | ) | $ | 957 |
| | $ | (20,725 | ) | $ | 2,365 |
|
| GE Industrial profit margin (GAAP) | (83.0 | )% | 3.3 | % | | (25.1 | )% | 2.9 | % |
| | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,213 |
| $ | 2,861 |
| | $ | 7,875 |
| $ | 8,500 |
|
| Adjusted GE Industrial profit margin (Non-GAAP) | 8.1 | % | 9.9 | % | | 9.6 | % | 10.5 | % |
| | | | | | |
| We have presented our Adjusted GE Industrial profit* and profit margin* excluding interest and other financial charges, non-operating benefit costs, restructuring and other, goodwill impairment, non-controlling interests, unrealized gains (loss) on Pivotal equity investment and gains (losses) and impairment for disposed or held for sale businesses. We believe that GE Industrial profit and profit margins adjusted for these items are meaningful measures because they increase the comparability of period-to-period results. |
|
| | | | | | | | | | | | | | | | | |
| GE INDUSTRIAL ORGANIC PROFIT (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V% | | 2018 |
| 2017 |
| V% |
| | | | | | | | |
| Adjusted GE Industrial profit (Non-GAAP) | $ | 2,213 |
| $ | 2,861 |
| (23 | )% | | $ | 7,875 |
| $ | 8,500 |
| (7 | )% |
| Adjustments: | | | | | | | |
| Less: acquisitions | (1 | ) | (1 | ) | | | 293 |
| (19 | ) | |
| Less: business dispositions (other than dispositions acquired for investment) | (11 | ) | 176 |
| | | (26 | ) | 257 |
| |
| Less: Currency exchange rate(a) | (2 | ) | — |
| | | (60 | ) | — |
| |
| Adjusted GE Industrial organic profit (Non-GAAP) | $ | 2,226 |
| $ | 2,687 |
| (17) | % | | $ | 7,669 |
| $ | 8,262 |
| (7 | )% |
| (a) Translational foreign exchange | | | | | | | |
| | | | | | | | |
| Organic profit* measures profit excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. Management recognizes that the term "organic profit" 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 our Industrial businesses and may therefore be a useful tool in assessing period-to-period performance trends. |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED OIL & GAS SEGMENT PROFIT (NON-GAAP) |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| V% | | 2018 |
| 2017 |
| V% |
| | | | | | | | |
| Reported segment profit (GAAP) | $ | 180 |
| $ | (57 | ) | F |
| | $ | 110 |
| $ | 322 |
| (66 | )% |
| Less: restructuring & other (GE share) | (67 | ) | (267 | ) | | | (540 | ) | (267 | ) | |
| Adjusted Oil & Gas segment profit (Non-GAAP) | $ | 247 |
| $ | 210 |
| 18 | % | | $ | 650 |
| $ | 590 |
| 10 | % |
| | | | | | | | |
| Adjusted GE Oil & Gas segment profit* measures Oil & Gas reported segment profit excluding the effects of restructuring and other charges. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations of our Oil & Gas segment. |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | $ | (1,325 | ) | $ | (22,956 | ) | 94 | % | | $ | (707 | ) | $ | (21,947 | ) | 97 | % |
| Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (645 | ) | 19 |
| | | (599 | ) | (403 | ) | |
| GE Industrial earnings (loss) (Non-GAAP) | (680 | ) | (22,975 | ) | 97 | % | | (108 | ) | (21,544 | ) | 99 | % |
| Non-operating benefits costs (pre-tax) (GAAP) | (562 | ) | (760 | ) | | | (1,684 | ) | (2,132 | ) | |
| Tax effect on non-operating benefit costs | 118 |
| 160 |
| | | 354 |
| 448 |
| |
| Less: non-operating benefit costs (net of tax) | (444 | ) | (601 | ) | | | (1,331 | ) | (1,684 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (97 | ) | 207 |
| | | 153 |
| 470 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | (34 | ) | (89 | ) | | | 3 |
| (194 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (130 | ) | 118 |
| | | 156 |
| 276 |
| |
| Restructuring & other (pre-tax) | (322 | ) | (1,491 | ) | | | (924 | ) | (2,343 | ) | |
| Tax effect on restructuring & other(a) | 68 |
| 315 |
| | | 208 |
| 272 |
| |
| Less: restructuring & other (net of tax) | (254 | ) | (1,176 | ) | | | (716 | ) | (2,071 | ) | |
| Goodwill impairments (pre-tax) | (740 | ) | (21,973 | ) | | | (1,484 | ) | (21,973 | ) | |
| Tax effect on goodwill impairments(a) | — |
| (246 | ) | | | (55 | ) | (246 | ) | |
| Less: goodwill impairments (net of tax) | (740 | ) | (22,220 | ) | | | (1,539 | ) | (22,220 | ) | |
| Unrealized gains (losses) | (86 | ) | (73 | ) | | | (125 | ) | 193 |
| |
| Tax on unrealized gains (losses) | 18 |
| 15 |
| | | 26 |
| (41 | ) | |
| Less: unrealized gains (losses) | (68 | ) | (58 | ) | | | (98 | ) | 153 |
| |
| Debt extinguishment costs | (255 | ) | — |
| | | (255 | ) | — |
| |
| Tax effect on debt extinguishment costs | 53 |
| — |
| | | 53 |
| — |
| |
| Less: debt extinguishment costs (net of tax) | (201 | ) | — |
| | | (201 | ) | — |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (101 | ) | (55 | ) | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,158 |
| $ | 961 |
| 20 | % | | $ | 3,722 |
| $ | 4,058 |
| (8 | )% |
| | | | | | | | |
| GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP) | (645 | ) | 19 |
| U |
| | (599 | ) | (403 | ) | (49 | )% |
| Insurance premium deficiency test charge (pre-tax) | (972 | ) | — |
| | | (972 | ) | — |
| |
| Tax effect on insurance premium deficiency test charge(a) | 204 |
| — |
| | | 204 |
| — |
| |
| Less: Insurance premium deficiency test charge (net of tax) | (768 | ) | — |
| | | (768 | ) | — |
| |
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 99 |
| (45 | ) | |
| Adjusted GE Capital earnings (loss) (Non-GAAP) | $ | 123 |
| $ | 19 |
| F |
| | $ | 70 |
| $ | (358 | ) | F |
|
| | | | | | | | |
| Adjusted GE Industrial earnings (loss) (Non-GAAP) | $ | 1,158 |
| $ | 961 |
| 20 | % | | $ | 3,722 |
| $ | 4,058 |
| (8 | )% |
| Add: Adjusted GE Capital earnings (loss) (Non-GAAP) | 123 |
| 19 |
| F |
| | 70 |
| (358 | ) | F |
|
| Adjusted earnings (loss) (Non-GAAP) | $ | 1,282 |
| $ | 980 |
| 31 | % | | $ | 3,792 |
| $ | 3,699 |
| 3 | % |
| | | | | | | | |
| (a) The tax effect was calculated using a 21% U.S. federal statutory tax rate, based on its applicability to such cost. |
*Non-GAAP Financial Measure
54 201836 2019 3Q FORM 10-Q
|
| | |
| MD&A | NON-GAAP FINANCIAL INFORMATIONMEASURES |
|
| | | | | | | | | | | | | |
| GE EFFECTIVE TAX RATES, EXCLUDING GE CAPITAL EARNINGS (NON-GAAP) |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| GE earnings (loss) from continuing operations before income taxes (GAAP) | $ | (22,774 | ) | $ | 981 |
| | $ | (21,128 | ) | $ | 2,170 |
|
| Less: GE Capital earnings (loss) from continuing operations | 19 |
| 24 |
| | $ | (403 | ) | $ | (195 | ) |
| GE Industrial earnings (loss) from continuing operations before income taxes (Non-GAAP) | (22,793 | ) | 957 |
| | $ | (20,725 | ) | $ | 2,365 |
|
| | | | | | |
| GE provision (benefit) for income taxes (GAAP) | $ | 205 |
| $ | (281 | ) | | $ | 842 |
| $ | (93 | ) |
| GE effective tax rate, excluding GE Capital earnings (Non-GAAP) | (1 | )% | (29 | )% | | (4 | )% | (4 | )% |
| | | | | | |
| 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 13 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2017, 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. |
|
| | | | | | | | | | | | | | | | | |
| ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) | Three months ended September 30 | | Nine months ended September 30 |
| (NON-GAAP) | 2019 |
| 2018 |
| V% |
| | 2019 |
| 2018 |
| V% |
|
| | | | | | | | |
| Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP) | $ | (0.15 | ) | $ | (2.64 | ) | 94 | % | | $ | (0.08 | ) | $ | (2.53 | ) | 97 | % |
| Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.07 | ) | — |
| | | (0.07 | ) | (0.05 | ) | |
| GE Industrial EPS (Non-GAAP) | $ | (0.08 | ) | $ | (2.64 | ) | 97 | % | | $ | (0.01 | ) | $ | (2.48 | ) | 100 | % |
| Non-operating benefits costs (pre-tax) (GAAP) | (0.06 | ) | (0.09 | ) | | | (0.19 | ) | (0.25 | ) | |
| Tax effect on non-operating benefit costs | 0.01 |
| 0.02 |
| | | 0.04 |
| 0.05 |
| |
| Less: non-operating benefit costs (net of tax) | (0.05 | ) | (0.07 | ) | | | (0.15 | ) | (0.19 | ) | |
| Gains (losses) and impairments for disposed or held for sale businesses (pre-tax) | (0.01 | ) | 0.02 |
| | | 0.02 |
| 0.05 |
| |
| Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a) | — |
| (0.01 | ) | | | — |
| (0.02 | ) | |
| Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax) | (0.01 | ) | 0.01 |
| | | 0.02 |
| 0.03 |
| |
| Restructuring & other (pre-tax) | (0.04 | ) | (0.17 | ) | | | (0.11 | ) | (0.27 | ) | |
| Tax effect on restructuring & other(a) | 0.01 |
| 0.04 |
| | | 0.02 |
| 0.03 |
| |
| Less: restructuring & other (net of tax) | (0.03 | ) | (0.14 | ) | | | (0.08 | ) | (0.24 | ) | |
| Goodwill impairments (pre-tax) | (0.08 | ) | (2.53 | ) | | | (0.17 | ) | (2.53 | ) | |
| Tax effect on goodwill impairments(a) | — |
| (0.03 | ) | | | (0.01 | ) | (0.03 | ) | |
| Less: goodwill impairments (net of tax) | (0.08 | ) | (2.56 | ) | | | (0.18 | ) | (2.56 | ) | |
| Unrealized gains (losses) | (0.01 | ) | (0.01 | ) | | | (0.01 | ) | 0.02 |
| |
| Tax on unrealized gains (losses) | — |
| — |
| | | — |
| — |
| |
| Less: unrealized gains (losses) | (0.01 | ) | (0.01 | ) | | | (0.01 | ) | 0.02 |
| |
| Debt extinguishment costs | (0.03 | ) | — |
| | | (0.03 | ) | — |
| |
| Tax effect on debt extinguishment costs | 0.01 |
| — |
| | | 0.01 |
| — |
| |
| Less: debt extinguishment costs (net of tax) | (0.02 | ) | — |
| | | (0.02 | ) | — |
| |
| Less: GE Industrial U.S. tax reform enactment adjustment | — |
| — |
| | | (0.01 | ) | (0.01 | ) | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.11 |
| 18 | % | | $ | 0.43 |
| $ | 0.47 |
| (9 | )% |
| | | | | | | | |
| GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP) | (0.07 | ) | — |
| U |
| | (0.07 | ) | (0.05 | ) | (40 | )% |
| Insurance premium deficiency test charge (pre-tax) | (0.11 | ) | — |
| | | (0.11 | ) | — |
| |
| Tax effect on insurance premium deficiency test charge(a) | 0.02 |
| — |
| | | 0.02 |
| — |
| |
| Less: Insurance premium deficiency test charge (net of tax) | (0.09 | ) | — |
| | | (0.09 | ) | — |
| |
| Less: GE Capital U.S. tax reform enactment adjustment | — |
| — |
| | | 0.01 |
| (0.01 | ) | |
| Adjusted GE Capital EPS (Non-GAAP) | $ | 0.01 |
| $ | — |
| F |
| | $ | 0.01 |
| $ | (0.04 | ) | F |
|
| | | | | | | | |
| Adjusted GE Industrial EPS (Non-GAAP) | $ | 0.13 |
| $ | 0.11 |
| 18 | % | | $ | 0.43 |
| $ | 0.47 |
| (9 | )% |
| Add: Adjusted GE Capital EPS (Non-GAAP) | 0.01 |
| — |
| F |
| | 0.01 |
| (0.04 | ) | F |
|
| Adjusted EPS (Non-GAAP) | $ | 0.15 |
| $ | 0.11 |
| 36 | % | | $ | 0.43 |
| $ | 0.42 |
| 2 | % |
| | | | | | | | |
| (a) The tax effect was calculated using a 21% U.S. federal statutory tax rate, based on its applicability to such cost. |
| Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
| The service cost for our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe that the retained costs in Adjusted earnings and EPS* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2019. We believe that presenting Adjusted Industrial earnings and EPS* separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. |
*Non-GAAP Financial Measure
|
| | | | | | |
| GE INDUSTRIAL FREE CASH FLOWS (FCF) AND ADJUSTED GE INDUSTRIAL FCF (NON-GAAP) |
| | Nine months ended September 30 |
| (Dollars in millions) | 2018 |
| 2017 |
|
| GE CFOA (GAAP) | $ | (4,128 | ) | $ | 4,051 |
|
| Add: gross additions to PP&E | (2,419 | ) | (3,051 | ) |
| Add: gross additions to internal-use software | (262 | ) | (396 | ) |
| Less: common dividends from GE Capital | — |
| 4,016 |
|
| Less: GE Pension Plan funding | (6,000 | ) | (1,431 | ) |
| Less: taxes related to business sales | (91 | ) | (112 | ) |
| GE Industrial Free Cash Flows (Non-GAAP) | $ | (718 | ) | $ | (1,869 | ) |
| | | |
| Less: Oil & Gas CFOA | 669 |
| (242 | ) |
| Less: Oil & Gas gross additions to PP&E | (630 | ) | (250 | ) |
| Less: Oil & Gas gross additions to internal-use software | (23 | ) | (24 | ) |
| Add: BHGE Class B shareholder dividend | 399 |
| 122 |
|
| Adjusted GE Industrial Free Cash Flows (Non-GAAP) | $ | (335 | ) | $ | (1,230 | ) |
| | | |
| In 2018, GE transitioned from reporting an Adjusted GE Industrial CFOA metric to measuring itself on a GE Industrial Free Cash Flows basis*. This metric includes GE CFOA plus investments in property, plant and equipment and additions to internal-use software; this metric excludes any dividends received from GE Capital and any cash received from dispositions of property, plant and equipment. |
| | | |
| We believe that investors may also find it useful to compare GE’s Industrial free cash flows* performance without the effects of cash used for taxes related to business sales and contributions to the GE Pension Plan. We believe that this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. In addition, we report Adjusted GE Industrial Free Cash Flows* in order to provide a more fair representation of the cash that we are entitled to utilize in a given period. We also use Adjusted GE Industrial Free Cash Flows* as a performance metric at the company-wide level for our annual executive incentive plan for 2018. |
| | | |
| Management recognizes that the term free cash flows may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends. |
|
| | |
GE INDUSTRIAL NET DEBT (NON-GAAP)MD&A | NON-GAAP FINANCIAL MEASURES |
In this document we use GE Industrial net debt*. We cannot provide an equivalent GAAP guidance range for our Industrial net debt target, which is calculated based on rating agency methodologies, without unreasonable effort. GE Industrial net debt reflects the total of gross debt, after-tax net pension liabilities, adjustments for operating lease obligations, and adjustments for 50% of preferred stock, less 75% of GE’s cash balance. There is significant uncertainty on the timing and amount of events that could give rise to items included in the determination of this metric, including the timing of pension funding, proceeds from dispositions, and the impact of interest rates on our pension assets and liabilities. |
| | | | | | |
| GE INDUSTRIAL FREE CASH FLOWS (FCF) (NON-GAAP) | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| GE CFOA (GAAP) | $ | 77 |
| $ | (4,458 | ) |
| Add: gross additions to property, plant and equipment | (1,596 | ) | (1,702 | ) |
| Add: gross additions to internal-use software | (203 | ) | (233 | ) |
| Less: GE Pension Plan funding | — |
| (6,000 | ) |
| Less: taxes related to business sales | (160 | ) | (91 | ) |
| GE Industrial free cash flows (Non-GAAP) | $ | (1,562 | ) | $ | (303 | ) |
| | | |
| We believe that investors may find it useful to compare GE's Industrial free cash flows* performance without the effects of cash used for taxes related to business sales and contributions to the GE Pension Plan. We believe that this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. |
|
| | | | | | |
GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions) | September 30, 2019 |
| December 31, 2018 |
|
| | | |
| Total GE short- and long-term borrowings (GAAP) | $ | 54,086 |
| $ | 62,212 |
|
| Less: GE Capital short- and long-term debt assumed by GE | 33,514 |
| 36,262 |
|
| Add: intercompany loans from GE Capital | 13,269 |
| 13,749 |
|
| Total adjusted GE borrowings | $ | 33,842 |
| $ | 39,700 |
|
| Total pension and retiree benefit plan liabilities (pre-tax)(a) | 27,159 |
| 27,159 |
|
| Less: taxes at 21% | 5,703 |
| 5,703 |
|
| Total pension and retiree benefit plan liabilities (net of tax) | $ | 21,456 |
| $ | 21,456 |
|
| GE operating lease liabilities(b) | 3,389 |
| 3,868 |
|
| GE preferred stock | 5,695 |
| 5,573 |
|
| Less: 50% of GE preferred stock | 2,848 |
| 2,787 |
|
| 50% of preferred stock | $ | 2,848 |
| $ | 2,787 |
|
| Deduction for total GE cash, cash equivalents and restricted cash | (16,656 | ) | (16,632 | ) |
| Less: 25% of GE cash, cash equivalents and restricted cash | (4,164 | ) | (4,158 | ) |
| Deduction for 75% of GE cash, cash equivalents and restricted cash | $ | (12,492 | ) | $ | (12,474 | ) |
| Total GE Industrial net debt (Non-GAAP) | $ | 49,042 |
| $ | 55,336 |
|
| | | |
| (a) Represents the total underfunded status of Principal pension plans ($18,491 million), Other pension plans ($3,877 million), and Retiree health and life benefit plans ($4,791 million) at December 31, 2018. The funded status of our benefit plans is updated annually in the fourth quarter. |
(b) Operating lease liabilities at December 31, 2018 were derived using the former rating agency methodology of multiplying annual rental expense by 3. With the January 1, 2019 adoption of ASU No. 2016-02, Leases, operating lease liabilities are now presented on the Statement of Financial Position. |
| |
| In this document we use GE Industrial net debt*, which is calculated based on rating agency methodologies. There is significant uncertainty around the timing and events that could give rise to items included in the determination of this metric, including the timing of pension funding, proceeds from dispositions, and the impact of interest rates on our pension assets and liabilities. We are including the calculation of GE industrial net debt* to provide investors more clarity regarding how the credit rating agencies measure GE Industrial leverage. |
*Non-GAAP FinancialFInancial Measure
201838 2019 3Q FORM 10-Q55
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, 2018,2019, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2018,2019, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
Effective January 1, 2018, we adopted the new revenue guidance under ASC Topic 606, Revenue from Contracts with Customers, using the full retrospective method of adoption. The adoption of this guidance required the implementation of new accounting policies and processes, including enhancements to our information systems, which changed the Company’s internal controls over financial reporting for revenue recognition and related disclosures for both our recast historical financial statements and current period reporting.
OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSPURCHASERS.GE did not repurchase any equity securities during the three months ended September 30, 2019, and no repurchase program has been authorized.
|
| | | | | | | | | | |
| 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) | | | | |
| | | | | |
| 2018 | | | | |
| July | 1,125 |
| $ | 13.49 |
| 1,125 |
| |
| August | 1,356 |
| 12.69 |
| 1,356 |
| |
| September | 1,104 |
| 12.18 |
| 1,104 |
| |
| Total | 3,585 |
| $ | 12.78 |
| 3,585 |
| $ | 20.7 | billion |
| |
(a) | Shares were repurchased through the GE Share Repurchase Program that we announced on April 10, 2015 (the Program). Under the Program, we are authorized to repurchase up to $50 billion of our common stock through 2018 and, as of September 30, 2018, we had repurchased a total of approximately $29.3 billion under the Program. The Program is flexible and shares will be acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. |
RISK FACTORS
The risk factor set forth below updates the corresponding risk factor in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018. In addition to the risk factor below, you should carefully consider the risk factors discussed in our most recent Form 10-K and Form 10-Q reports, which could materially affect our business, financial position and results of operations.
Funding & liquidity - Failure to maintain our credit ratings, or conditions in the financial and credit markets, could adversely affect our access to capital markets, funding costs and related margins, liquidity, capital allocation plans and competitive position.
We rely on cash from operations and proceeds from planned dispositions and business separations, as well as access to the short- and long-term debt markets, to fund our operations, maintain liquidity and meet our financial obligations and capital allocation priorities, such as funding GE dividend payments. In particular, we have relied on significant short-term borrowings in the commercial paper market to fund our operations on an intra-quarter basis. If we do not meet our cash flow objectives, whether through improved cash performance in our businesses or successful execution of planned dispositions and other portfolio actions, our financial condition could be adversely affected. Our access to the debt markets, and to the commercial paper markets in particular, depends on our credit ratings. On October 2, 2018, S&P lowered the credit ratings of GE and GE Capital short- and long-term debt from A-1 to A-2 and from A to BBB+, respectively, with a Stable outlook. In addition, Moody’s and Fitch changed their respective outlooks to “review for a potential downgrade” and “Rating Watch Negative” for both GE and GE Capital. The reduction in our short-term ratings has resulted in GE transitioning to a split tier-1/tier-2 commercial paper issuer, which will reduce our borrowing capacity in the commercial paper markets. To accommodate GE’s short-term liquidity needs, we are increasing utilization of our revolving credit facilities, which will result in an overall increase to our cost of funds. There can also be no assurance that we will not face additional credit downgrades, and future downgrades could further adversely affect our cost of funds and related margins, liquidity, competitive position and, potentially, access to capital markets. A significant increase in our cost of capital could require us to consider changes to our capital allocation plans, such as our planned dividend levels. Also, in certain securitization transactions where we provide servicing for third-party investors, we are contractually permitted to commingle cash collected from customers on financing receivables sold or pledged to third-party investors with our own cash prior to making required payments to third-party investors, provided our short-term credit rating does not fall below A-2/P-2. In the event our ratings were to fall below such levels, we would be required to segregate certain of these cash collections owed to third-party investors into restricted bank accounts and would lose the short-term liquidity benefit of commingling with respect to such collections. In addition, under various debt and derivative instruments, guarantees and covenants, we could be required to post additional capital or collateral in the event of a ratings downgrade, which would increase the impact of a ratings downgrade on our liquidity and capital position. Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. For additional discussion about our current credit ratings and related considerations, refer to the Financial Resources and Liquidity - Debt and Derivative Instruments, Guarantees and Covenants section of this report.
External conditions in the financial and credit markets may also limit the availability of funding at particular times or increase the cost of funding, which could adversely affect our business, financial position and results of operations. Factors that may affect the availability of funding or cause an increase in our funding costs include disruptions in the commercial paper market, and potential market impacts arising in the United States, Europe or China from developments in sovereign debt situations, currency movements or other potential market disruptions. If our cost of funding were to increase, it may adversely affect our competitive position and result in lower net interest margins, earnings and cash flows as well as lower returns on shareowners' equity and invested capital.
LEGAL PROCEEDINGS
The following information supplements and amends our discussion set forth under “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 20182019 and June 30, 2018. We also incorporate the information reported under "Legal Proceedings" in Baker Hughes, a GE company's most recent Form 10-K report and updates in its Form 10-Q reports.2019.
WMC.At September 30, 2018,2019, there were two pending lawsuitswas one active lawsuit in which our discontinued U.S. mortgage business, WMC, is a party. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. 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.
One lawsuit is pending in the United States District Court for the District of Connecticut. TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, is asserting claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of $425 million. Trial in this case commenced onin January 16, 2018. The parties have concluded their presentation of evidence and delivered closing arguments in June 2018. Based on June 12, 2018.
At September 30, 2018, one case was pending against WMCa joint application by the parties and subsequent renewals, the District Court has stayed the proceedings in New York State Supreme Court. This lawsuit was initiated by Deutsche Banklight of ongoing settlement negotiations. In April 2019, the securitization trustee notified the bondholders in SABR 2006-WM2, 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 securitizationssecuritization trust at issue in thisthe lawsuit, subject to judicial approvals. In October 2016, Deutsche Bank filed petitions for instruction in California state court seeking judicial instructionsof a proposed settlement of the lawsuit and requested that Deutsche Bank’s entry intobondholders express any view on whether the settlement agreements was a reasonable exercise of its discretion and approving the distribution of settlement proceeds pursuant to the terms of each trust’s governing documents. Bondholders in these two securitizations filed objections totrustee should accept or reject the proposed settlements, and the court approved both settlements over the bondholder objections on April 3, 2018. The court issued an order approving the settlements on May 14, 2018, and the objecting bondholders filed notices of appeal on July 10, 2018. On October 1, 2018, Deutsche Bank waived final court approval as a condition to its acceptance of the settlement, rendering the settlement final. WMC made the settlement payment on October 10, 2018, and Deutsche Bank filed a notice of dismissal of the underlying lawsuit on October 15, 2018.
settlement. The amount of the claim at issue in the TMI case (discussed above) reflects the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and does not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. AllAs previously reported, WMC commenced a case in April 2019 under Chapter 11 of the mortgage loans involvedU.S. Bankruptcy Code in this lawsuit are includedthe United States Bankruptcy Court for the District of Delaware. WMC has filed a Chapter 11 plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor, including the claim at issue in WMC’s reported claims at September 30, 2018.the TMI case. A hearing to approve the Chapter 11 plan is scheduled for early November 2019. See Note 19 to the consolidated financial statements for further information.
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 (DOJ) 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 DOJ subsequently issued subpoenas to WMC and GE Capital, and we are cooperating with the DOJ’s investigation, including providing documents and witnesses for interviews. Following DOJ's assertion that WMC and GE Capital violated FIRREA in connection with WMC’s origination and sale of subprime mortgage loans in 2006 and 2007, WMC and GE Capital are exploring whether an acceptable settlement of this matter can be reached. In the event that an acceptable settlement cannot be reached, we believe the DOJ would initiate legal proceedings against WMC and GE Capital. WMC and GE Capital believe they would have defenses to any such lawsuit.
Alstom legacy matters.In connection with our acquisition of Alstom’s Thermal, Renewables and Grid businesses in November 2015, we are subject to legacy legal proceedings and legal compliance risks that relate to claimed anti-competitive conduct or improper payments by Alstom in the pre-acquisition period. See Note 19 to the consolidated financial statements for further information.
Shareholder lawsuits.Since November 2017, several putative shareholder class actions under the federal securities laws have been filed against GE and certain affiliated individuals. All of those actions filed to date have beenindividuals and consolidated into a single action currently pending in the U.S. District Court for the Southern District of New York (Hachem v. GE et al.)(the Hachem case). In May 2018, the court appointed Sjunde AP-Fonden (AP7) as Lead Plaintiff and Kessler Topaz Meltzer & Check, LLP as Lead Counsel for the consolidated shareholder actions. In October 2018, AP7the lead plaintiff filed a Fourth Amended Consolidated Class Action Complaintfourth amended consolidated class action complaint naming as defendants GE Jeffrey R. Immelt, Jeffrey S. Bornstein, Jamie S. Miller, Keith S. Sherin, Jan R. Hauser and Richard A. Laxer.current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to insurance reserves and accounting for long-term service agreements and seeks damages on behalf of shareowners who acquired GE stock between February 27, 2013 and January 23, 2018. GE has filed a motion to dismiss, on behalfand in August 2019 the court dismissed a majority of the claims, including all defendants,of the claims related to insurance reserves. The court, however, granted the plaintiffs leave to amend their complaint, and briefing on that motion concluded in October 2018.we expect the plaintiffs to file a fifth amended complaint during the fourth quarter of 2019.
Since February 2018, sixmultiple shareholder derivative lawsuits have also been filed against current and former GE executive officers and members of GE’s Board of Directors and GE (as nominal defendant). Two ofshareholder derivative lawsuits are currently pending: the lawsuits (consolidated as the Gammel case) were filed in New York state court, one lawsuit (the Bennett case)case, which was filed in Massachusetts state court, and three lawsuits (consolidated as the Raul case) wereCuker case, which was filed in the U.S. District Court for the Southern District of New York. TheYork state court. These lawsuits allegehave alleged violations of securities laws, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement.mismanagement, although the specific matters underlying the allegations in the lawsuits have varied. The allegations in the Bennett case relate to substantially the same facts as those underlying the securities class actionsaction described above, as well asand the oversight of past GE practices regardingallegations in the use of its corporate aircraft.Cuker case relate to alleged corruption in China. The Bennett complaint also includes a claim for professional negligence and accounting malpractice against GE’s auditor, KPMG. The plaintiffs seek unspecified damages and improvements in GE’s corporate governance and internal procedures. The Bennett case has been stayed pending final resolution of another shareholder derivative lawsuit (the Gammel case) that was previously dismissed. In June and October 2018, respectively,August 2019, the Cuker plaintiffs filed an amended complaint. In September 2019, GE filed a motion to dismiss the Gammel case on behalf of all defendants, and the plaintiffs in the Raul case agreed to the dismissal of that case. The Bennett case has been stayed pending resolution of the motion to dismiss in the Gammel case.amended complaint.
In June 2018, an additionala lawsuit (the Bezio case) was filed in New York state court derivatively on behalf of participants in theGE’s 401(k) plan (the GE Retirement Savings Plan (the GE RSP)(RSP)), and alternatively as a class action on behalf of shareowners who acquired GE stock between February 26, 2013 and January 24, 2018, alleging violations of Section 11 of the Securities Act of 1933 based on alleged misstatements and omissions related to insurance reserves and performance of GE’s business segments in a GE RSP registration statement and documents incorporated therein by reference. In OctoberNovember 2018, the plaintiffs filed an amended derivative complaint naming as defendants GE, former GE executive officers and Fidelity Management Trust Company, as trustee for the GE RSP. In January 2019, GE filed a motion to dismiss.
In July 2018, an additionala putative class action (the Mahar case) was filed in New York state court naming as defendants GE, Jeffrey R. Immelt, Jeffrey S. Bornstein, Jan R. Hauser, John L. Flannery, Douglas A. Warner IIIformer GE executive officers, a former member of GE’s Board of Directors and KPMG. It allegesalleged violations of Sections 11, 12 and 15 of the Securities Act of 1933 based on alleged misstatements related to insurance reserves and performance of GE’s business segments in GE Stock Direct Plan registration statements and documents incorporated therein by reference and seeks damages on behalf of shareowners who acquired GE stock between July 20, 2015 and July 19, 2018 through the GE Stock Direct Plan. In October 2018,February 2019, this case was dismissed. In March 2019, plaintiffs filed an amended derivative complaint naming the same defendants. In April 2019, GE filed a motion to dismiss the amended complaint. In October 2019, the court denied GE's motion to dismiss and stayed the case pending the outcome of the Hachem case.
In October 2018, a putative class action (the Houston case) was filed in New York state court naming as defendants GE, certain GE subsidiaries and current and former GE executive officers and employees. It alleges violations of Sections 11, 12 and 15 of the Securities Act of 1933 and seeks damages on behalf of all defendants.purchasers of senior notes issued in 2016 and rescission of transactions involving those notes. This case has been stayed pending resolution of the motion to dismiss the Hachem case.
In December 2018, a putative class action (the Varga case) was filed in the U.S. District Court for the Northern District of New York naming GE and a former GE executive officer as defendants in connection with the oversight of the GE RSP. It alleges that the defendants breached fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) by failing to advise GE RSP participants that GE Capital insurance subsidiaries were allegedly under-reserved and continued to retain a GE stock fund as an investment option in the GE RSP. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from January 1, 2010 through January 19, 2018 or later. In April 2019, GE filed a motion to dismiss.
In February 2019, two putative class actions (the Birnbaum case and the Sheet Metal Workers Local 17 Trust Funds case) were filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. In April 2019, the court issued an order consolidating these two actions. In June 2019, the lead plaintiff filed an amended consolidated complaint. It alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged misstatements regarding GE's H-class turbines and goodwill related to GE's Power business. The lawsuit seeks damages on behalf of shareowners who acquired GE stock between December 4, 2017 and December 6, 2018. In August 2019, the lead plaintiff filed a second amended complaint. In September 2019, GE filed a motion to dismiss the second amended complaint.
In February 2019, a securities action (the Touchstone case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1707.43 of the Ohio Securities Act and common law fraud based on alleged misstatements regarding insurance reserves, GE Power’s revenue recognition practices related to long term service agreements, GE’s acquisition of Alstom, and the goodwill recognized in connection with that transaction. The lawsuit seeks damages on behalf of six institutional investors who purchased GE common stock between August 1, 2014 and October 30, 2018 and rescission of those purchases. This case has been stayed pending resolution of the motion to dismiss the Hachem case.
As previously reported by Baker Hughes, a GE company (BHGE), in March 2019, two derivative lawsuits were filed in the Delaware Court of Chancery naming as defendants GE, directors of BHGE (including former members of GE’s Board of Directors and current and former GE executive officers) and BHGE (as nominal defendant), and the court issued an order consolidating these two actions (the Schippnick case). The complaint as amended in May 2019 alleges, among other things, that GE and the BHGE directors breached their fiduciary duties and that GE was unjustly enriched by entering into transactions and agreements related to GE's sales of approximately 12% of its ownership interest in BHGE in November 2018. The complaint seeks declaratory relief, disgorgement of profits, an award of damages, pre- and post-judgment interest and attorneys’ fees and costs. In May 2019, the plaintiffs voluntarily dismissed their claims against the directors who were members of BHGE’s Conflicts Committee and a former BHGE director. In October 2019, the Court denied the remaining defendants’ motions to dismiss, except with respect to the unjust enrichment claim against GE, which has been dismissed.
In August 2019, a putative class action (the Tri-State case) was filed in the Delaware Court of Chancery naming as defendants GE and the former Board of Directors of Baker Hughes Incorporated (BHI). It alleges fraud, aiding and abetting breaches of fiduciary duty, and aiding and abetting breaches of duty of disclosure by GE based on allegations regarding financial statements that GE provided the former BHI board, management and shareholders in connection with BHI’s merger with GE’s Oil and Gas Business in July 2017. The plaintiff seeks damages on behalf of BHI shareholders during the period between October 7, 2016 and July 5, 2017.
These cases are at an early stage; we believe we have defenses to the claims and are responding accordingly.
SEC investigation. In late November 2017, staff of the Boston office of the U.S. Securities & Exchange Commission (SEC) notified us that they are conducting an investigation of GE’s revenue recognition practices and internal controls over financial reporting related to long-term service agreements. Following our investor update on January 16, 2018 about the increase in future policy benefit reserves for GE Capital’s run-off insurance operations, as discussed in the Critical Accounting Estimates section of our Annual Report on Form 10-K, the SEC staff expanded the scope of its investigation to encompass the reserve increase and the process leading to the reserve increase. Following our announcement on October 1, 2018 about the expected non-cash goodwill impairment charge related to GE’s Power business, as discussed further in Note 8 to the consolidated financial statements, the SEC expanded the scope of its investigation to include that charge as well. We are providing documents and other information requested by the SEC staff, and we are cooperating with the ongoing investigation. Staff from the DOJ are also investigating these matters, and we are providing them with requested documents and information as well.
GE Retirement Savings Plan class actions. 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 with claims regarding the oversight of GE’s 401(k) plan (the GE RSP). From October 30 to November 15, 2017, three similar class action suits were filed in the U.S. District Court for the District of Massachusetts. All four actions have been consolidated into a single action in the District of Massachusetts. The consolidated complaint names as defendants GE, GE Asset Management, current and former GE and GE Asset Management employees who served on fiduciary bodies responsible for overseeing the GE RSP during the class period and current and former members of GE's Board of Directors. Like similar lawsuits that have been brought against other companies in recent years, this action 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, principally by retaining five proprietary funds that plaintiffs allege were underperforming as investment options for plan participants and charging higher management fees than some alternative funds. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from October 30, 2011 through the date of any judgment. In August 2018, the court issued an order denying GE's motion to dismiss as to a majority of the counts and taking GE's motion under further advisement regarding two counts. We believe we have defenses to the claims and are responding accordingly.
60 201840 2019 3Q FORM 10-Q
FINANCIAL STATEMENTS AND NOTES
| | | | | | |
| | | | |
| Consolidated Statement of Changes in Shareowners' Equity | | Consolidated Statement of Changes in Shareowners' Equity | |
| | | | |
| | | | |
| | | | |
| | 1 | | | 1 | | |
| | 2 | | | 2 | | |
| | 3 | | | 3 | | |
| | 4 | Current Receivables | | 4 | Current and Long-Term Receivables | |
| | 5 | | | 5 | | |
| | 6 | | | 6 | Inventories | |
| | 7 | | | 7 | | |
| | 8 | Goodwill and Other Intangible Assets | | 8 | Goodwill and Other Intangible Assets | |
| | 9 | Revenues | | 9 | Revenues | |
| | 10 | Contract and Other Deferred Assets and Progress Collections and Deferred Income | | 10 | Contract and Other Deferred Assets & Progress Collections and Deferred Income | |
| | 11 | | | 11 | | |
| | 12 | Investment contracts, insurance liabilities and insurance annuity benefits | | 12 | Insurance Liabilities and Annuity Benefits | |
| | 13 | | | 13 | | |
| | 14 | | | 14 | | |
| | 15 | | | 15 | | |
| | 16 | | | 16 | | |
| | 17 | | | 17 | | |
| | 18 | | | 18 | | |
| | 19 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | | 19 | Commitments, Guarantees, Product Warranties and Other Loss Contingencies | |
| | 20 | Cash Flows Information | | 20 | Cash Flows Information | |
| | 21 | | | 21 | | |
| | 22 | | | 22 | | |
Certain columns and rows within the financial statements and accompanying notes may not add due to the use of rounded numbers.
20182019 3Q FORM 10-Q 6141
FINANCIAL STATEMENTS
| | | STATEMENT OF EARNINGS (LOSS) | | Three months ended September 30 |
| (UNAUDITED) | | General Electric Company and consolidated affiliates |
| | Three months ended September 30 | |
| | General Electric Company and consolidated affiliates | |
| (In millions; per-share amounts in dollars) | 2018 |
| 2017 |
| 2019 |
| 2018 |
|
| | | |
| Revenues | | |
| Sales of goods | $ | 18,095 |
| $ | 19,244 |
| $ | 14,869 |
| $ | 14,524 |
|
| Sales of services | 9,370 |
| 9,521 |
| 6,635 |
| 6,758 |
|
| GE Capital revenues from services | 2,109 |
| 1,898 |
| 1,856 |
| 2,110 |
|
| Total revenues (Note 9) | 29,573 |
| 30,662 |
| 23,360 |
| 23,392 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 15,991 |
| 16,361 |
| 12,503 |
| 12,804 |
|
| Cost of services sold | 6,855 |
| 7,310 |
| 4,825 |
| 5,043 |
|
| Selling, general and administrative expenses | 4,855 |
| 4,741 |
| 3,293 |
| 4,100 |
|
| Interest and other financial charges | 1,227 |
| 1,232 |
| 1,279 |
| 1,155 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 710 |
| 617 |
| |
| Goodwill impairment | 21,973 |
| 947 |
| |
| Insurance losses and annuity benefits | | 1,463 |
| 710 |
|
| Goodwill impairments | | 740 |
| 21,973 |
|
| Non-operating benefit costs | 807 |
| 611 |
| 565 |
| 763 |
|
| Other costs and expenses | 98 |
| 261 |
| 99 |
| 85 |
|
| Total costs and expenses | 52,515 |
| 32,082 |
| 24,767 |
| 46,633 |
|
| | | |
| Other income | 205 |
| 2,165 |
| 158 |
| 279 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
| — |
| — |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | (22,736 | ) | 746 |
| (1,249 | ) | (22,962 | ) |
| Benefit (provision) for income taxes | (162 | ) | 551 |
| (41 | ) | (52 | ) |
| Earnings (loss) from continuing operations | (22,899 | ) | 1,297 |
| (1,290 | ) | (23,014 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | 39 |
| (106 | ) | (8,093 | ) | 155 |
|
| Net earnings (loss) | (22,859 | ) | 1,191 |
| (9,383 | ) | (22,859 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (90 | ) | (169 | ) | 40 |
| (90 | ) |
| Net earnings (loss) attributable to the Company | (22,769 | ) | 1,360 |
| (9,423 | ) | (22,769 | ) |
| Preferred stock dividends | (39 | ) | (36 | ) | (42 | ) | (39 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (22,808 | ) | $ | 1,324 |
| $ | (9,465 | ) | $ | (22,808 | ) |
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | (22,899 | ) | $ | 1,297 |
| $ | (1,290 | ) | $ | (23,014 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (90 | ) | (169 | ) | (7 | ) | (97 | ) |
| Earnings (loss) from continuing operations attributable to the Company | (22,808 | ) | 1,465 |
| (1,283 | ) | (22,917 | ) |
| Preferred stock dividends | (39 | ) | (36 | ) | (42 | ) | (39 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | (22,847 | ) | 1,429 |
| (1,325 | ) | (22,956 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 39 |
| (106 | ) | (8,093 | ) | 155 |
|
| Less net earnings (loss) attributable to | | |
| noncontrolling interests, discontinued operations | — |
| (1 | ) | 46 |
| 7 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | (22,808 | ) | $ | 1,324 |
| $ | (9,465 | ) | $ | (22,808 | ) |
| | | |
| Per-share amounts (Note 16) | | |
| Earnings (loss) from continuing operations | | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | $ | (2.63 | ) | $ | 0.16 |
| $ | (0.15 | ) | $ | (2.64 | ) |
| Basic earnings (loss) per share | $ | (2.63 | ) | $ | 0.16 |
| $ | (0.15 | ) | $ | (2.64 | ) |
| | | |
| Net earnings (loss) | | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | $ | (2.62 | ) | $ | 0.15 |
| $ | (1.08 | ) | $ | (2.62 | ) |
| Basic earnings (loss) per share | $ | (2.62 | ) | $ | 0.15 |
| $ | (1.08 | ) | $ | (2.62 | ) |
| | | |
| Dividends declared per common share | $ | 0.12 |
| $ | 0.24 |
| $ | 0.01 |
| $ | 0.12 |
|
Amounts may not add due to rounding.
See accompanying notes.
62 201842 2019 3Q FORM 10-Q
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Three months ended September 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Sales of goods | $ | 14,879 |
| $ | 14,501 |
| | $ | 22 |
| $ | 37 |
|
| Sales of services | 6,640 |
| 6,772 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 2,075 |
| 2,436 |
|
| Total revenues | 21,519 |
| 21,273 |
| | 2,097 |
| 2,473 |
|
| | | | | | |
| Cost of goods sold | 12,519 |
| 12,789 |
| | 17 |
| 28 |
|
| Cost of services sold | 4,341 |
| 4,560 |
| | 510 |
| 502 |
|
| Selling, general and administrative expenses | 3,172 |
| 3,905 |
| | 199 |
| 332 |
|
| Interest and other financial charges | 791 |
| 590 |
| | 590 |
| 704 |
|
| Insurance losses and annuity benefits | — |
| — |
| | 1,469 |
| 732 |
|
| Goodwill impairments | 740 |
| 21,973 |
| | — |
| — |
|
| Non-operating benefit costs | 562 |
| 760 |
| | 3 |
| 2 |
|
| Other costs and expenses | 4 |
| (13 | ) | | 103 |
| 115 |
|
| Total costs and expenses | 22,128 |
| 44,566 |
| | 2,890 |
| 2,416 |
|
| | | | | | |
| Other income | 153 |
| 274 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (645 | ) | 19 |
| | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | (1,101 | ) | (23,000 | ) | | (793 | ) | 57 |
|
| Benefit (provision) for income taxes | (229 | ) | (95 | ) | | 188 |
| 43 |
|
| Earnings (loss) from continuing operations | (1,330 | ) | (23,095 | ) | | (604 | ) | 99 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (8,093 | ) | 155 |
| | (18 | ) | 40 |
|
| Net earnings (loss) | (9,424 | ) | (22,940 | ) | | (623 | ) | 139 |
|
| Less net earnings (loss) attributable to noncontrolling interests | 41 |
| (132 | ) | | (2 | ) | 42 |
|
| Net earnings (loss) attributable to the Company | (9,465 | ) | (22,808 | ) | | (621 | ) | 98 |
|
| Preferred stock dividends | — |
| — |
| | (42 | ) | (39 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | | $ | (663 | ) | $ | 59 |
|
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | (1,330 | ) | $ | (23,095 | ) | | $ | (604 | ) | $ | 99 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (5 | ) | (139 | ) | | (2 | ) | 42 |
|
| Earnings (loss) from continuing operations attributable to the Company | (1,325 | ) | (22,956 | ) | | (603 | ) | 58 |
|
| Preferred stock dividends | — |
| — |
| | (42 | ) | (39 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | (1,325 | ) | (22,956 | ) | | (645 | ) | 19 |
|
| Earnings (loss) from discontinued operations, net of taxes | (8,093 | ) | 155 |
| | (18 | ) | 40 |
|
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | 46 |
| 7 |
| | — |
| — |
|
| Net earnings (loss) attributable to GE common shareowners | $ | (9,465 | ) | $ | (22,808 | ) | | $ | (663 | ) | $ | 59 |
|
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) |
| (UNAUDITED) | | | | | |
| | | | | | |
| | Three months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Sales of goods | $ | 18,072 |
| $ | 19,216 |
| | $ | 37 |
| $ | 39 |
|
| Sales of services | 9,383 |
| 9,558 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 2,436 |
| 2,359 |
|
| Total revenues | 27,456 |
| 28,774 |
| | 2,473 |
| 2,397 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 15,976 |
| 16,343 |
| | 28 |
| 30 |
|
| Cost of services sold | 6,373 |
| 6,756 |
| | 502 |
| 592 |
|
| Selling, general and administrative expenses | 4,660 |
| 4,604 |
| | 332 |
| 284 |
|
| Interest and other financial charges | 662 |
| 718 |
| | 704 |
| 790 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 732 |
| 640 |
|
| Goodwill impairment | 21,973 |
| 947 |
| | — |
| — |
|
| Non-operating benefit costs | 804 |
| 610 |
| | 2 |
| 1 |
|
| Other costs and expenses | — |
| — |
| | 115 |
| 271 |
|
| Total costs and expenses | 50,449 |
| 29,978 |
| | 2,416 |
| 2,608 |
|
| | | | | | |
| Other income | 201 |
| 2,160 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | 19 |
| 24 |
| | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | (22,774 | ) | 981 |
| | 57 |
| (211 | ) |
| Benefit (provision) for income taxes | (205 | ) | 281 |
| | 43 |
| 270 |
|
| Earnings (loss) from continuing operations | (22,979 | ) | 1,261 |
| | 99 |
| 59 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | 39 |
| (105 | ) | | 40 |
| (106 | ) |
| Net earnings (loss) | (22,940 | ) | 1,156 |
| | 139 |
| (47 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (132 | ) | (168 | ) | | 42 |
| (2 | ) |
| Net earnings (loss) attributable to the Company | (22,808 | ) | 1,324 |
| | 98 |
| (46 | ) |
| Preferred stock dividends | — |
| — |
| | (39 | ) | (36 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (22,808 | ) | $ | 1,324 |
| | $ | 59 |
| $ | (81 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | (22,979 | ) | $ | 1,261 |
| | $ | 99 |
| $ | 59 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (132 | ) | (168 | ) | | 42 |
| (1 | ) |
| Earnings (loss) from continuing operations attributable to the Company | (22,847 | ) | 1,429 |
| | 58 |
| 60 |
|
| Preferred stock dividends | — |
| — |
| | (39 | ) | (36 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | (22,847 | ) | 1,429 |
| | 19 |
| 24 |
|
| Earnings (loss) from discontinued operations, net of taxes | 39 |
| (105 | ) | | 40 |
| (106 | ) |
| Less net earnings (loss) attributable to | | | | | |
| noncontrolling interests, discontinued operations | — |
| — |
| | — |
| (1 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (22,808 | ) | $ | 1,324 |
| | $ | 59 |
| $ | (81 | ) |
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
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) 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.
20182019 3Q FORM 10-Q 6343
| | | STATEMENT OF EARNINGS (LOSS) | STATEMENT OF EARNINGS (LOSS) | Nine months ended September 30 |
| (UNAUDITED) | (UNAUDITED) | General Electric Company
and consolidated affiliates |
| | Nine months ended September 30 | |
| | General Electric Company
and consolidated affiliates | |
| (In millions; per-share amounts in dollars) | 2018 |
| 2017 |
| 2019 |
| 2018 |
|
| | | |
| Revenues | | |
| Sales of goods | $ | 53,377 |
| $ | 54,348 |
| $ | 42,220 |
| $ | 42,886 |
|
| Sales of services | 29,055 |
| 26,108 |
| 20,912 |
| 21,717 |
|
| GE Capital revenues from services | 5,905 |
| 6,184 |
| 5,845 |
| 5,909 |
|
| Total revenues | 88,337 |
| 86,640 |
| |
| Total revenues (Note 9) | | 68,976 |
| 70,513 |
|
| | | |
| Costs and expenses | | |
| Cost of goods sold | 45,103 |
| 45,911 |
| 35,123 |
| 35,780 |
|
| Cost of services sold | 21,692 |
| 19,614 |
| 15,825 |
| 16,464 |
|
| Selling, general and administrative expenses | 13,547 |
| 13,180 |
| 10,120 |
| 11,013 |
|
| Interest and other financial charges | 3,807 |
| 3,545 |
| 3,272 |
| 3,585 |
|
| Investment contracts, insurance losses and insurance annuity benefits | 2,009 |
| 1,908 |
| |
| Goodwill impairment | 21,973 |
| 947 |
| |
| Insurance losses and insurance annuity benefits | | 2,712 |
| 2,009 |
|
| Goodwill impairments | | 1,484 |
| 21,973 |
|
| Non-operating benefit costs | 2,188 |
| 1,824 |
| 1,694 |
| 2,141 |
|
| Other costs and expenses | 286 |
| 584 |
| 337 |
| 253 |
|
| Total costs and expenses | 110,604 |
| 87,512 |
| 70,568 |
| 93,219 |
|
| | | |
| Other income | 1,275 |
| 2,692 |
| 1,170 |
| 1,388 |
|
| GE Capital earnings (loss) from continuing operations | — |
| — |
| — |
| — |
|
| | | |
| Earnings (loss) from continuing operations before income taxes | (20,992 | ) | 1,820 |
| (422 | ) | (21,318 | ) |
| Benefit (provision) for income taxes | (677 | ) | 693 |
| 1 |
| (460 | ) |
| Earnings (loss) from continuing operations | (21,670 | ) | 2,513 |
| (421 | ) | (21,777 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (1,634 | ) | (490 | ) | (5,212 | ) | (1,526 | ) |
| Net earnings (loss) | (23,304 | ) | 2,023 |
| (5,634 | ) | (23,304 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (188 | ) | (312 | ) | 73 |
| (188 | ) |
| Net earnings (loss) attributable to the Company | (23,116 | ) | 2,334 |
| (5,707 | ) | (23,116 | ) |
| Preferred stock dividends | (260 | ) | (252 | ) | (270 | ) | (260 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (23,376 | ) | $ | 2,082 |
| $ | (5,977 | ) | $ | (23,376 | ) |
| | | |
| Amounts attributable to GE common shareowners | | |
| Earnings (loss) from continuing operations | $ | (21,670 | ) | $ | 2,513 |
| $ | (421 | ) | $ | (21,777 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| continuing operations | (188 | ) | (318 | ) | 16 |
| (90 | ) |
| Earnings (loss) from continuing operations attributable to the Company | (21,482 | ) | 2,831 |
| (437 | ) | (21,687 | ) |
| Preferred stock dividends | (260 | ) | (252 | ) | (270 | ) | (260 | ) |
| Earnings (loss) from continuing operations attributable | | |
| to GE common shareowners | (21,742 | ) | 2,579 |
| (707 | ) | (21,947 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (1,634 | ) | (490 | ) | (5,212 | ) | (1,526 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | |
| discontinued operations | — |
| 6 |
| 58 |
| (97 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (23,376 | ) | $ | 2,082 |
| $ | (5,977 | ) | $ | (23,376 | ) |
| | | |
| Per-share amounts (Note 15) | | |
| Earnings (loss) from continuing operations | | |
| Earnings (loss) per share from continuing operations (Note 16) | | |
| Diluted earnings (loss) per share | $ | (2.50 | ) | $ | 0.29 |
| $ | (0.08 | ) | $ | (2.53 | ) |
| Basic earnings (loss) per share | $ | (2.50 | ) | $ | 0.30 |
| $ | (0.08 | ) | $ | (2.53 | ) |
| | | |
| Net earnings (loss) | | |
| Net earnings (loss) per share (Note 16) | | |
| Diluted earnings (loss) per share | $ | (2.69 | ) | $ | 0.24 |
| $ | (0.69 | ) | $ | (2.69 | ) |
| Basic earnings (loss) per share | $ | (2.69 | ) | $ | 0.24 |
| $ | (0.69 | ) | $ | (2.69 | ) |
| | | |
| Dividends declared per common share | $ | 0.36 |
| $ | 0.72 |
| $ | 0.03 |
| $ | 0.36 |
|
Amounts may not add due to rounding.
See accompanying notes.
64 201844 2019 3Q FORM 10-Q
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) (CONTINUED) | Nine months ended September 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Sales of goods | $ | 42,312 |
| $ | 42,815 |
| | $ | 56 |
| $ | 100 |
|
| Sales of services | 20,948 |
| 21,786 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 6,589 |
| 6,975 |
|
| Total revenues | 63,259 |
| 64,601 |
| | 6,645 |
| 7,075 |
|
| | | | | | |
| Cost of goods sold | 35,233 |
| 35,723 |
| | 44 |
| 78 |
|
| Cost of services sold | 14,372 |
| 14,975 |
| | 1,508 |
| 1,573 |
|
| Selling, general and administrative expenses | 9,734 |
| 10,457 |
| | 677 |
| 987 |
|
| Interest and other financial charges | 1,693 |
| 1,773 |
| | 1,913 |
| 2,296 |
|
| Insurance losses and insurance annuity benefits | — |
| — |
| | 2,771 |
| 2,071 |
|
| Goodwill impairments | 1,484 |
| 21,973 |
| | — |
| — |
|
| Non-operating benefit costs | 1,684 |
| 2,132 |
| | 10 |
| 9 |
|
| Other costs and expenses | — |
| (33 | ) | | 380 |
| 328 |
|
| Total costs and expenses | 64,201 |
| 87,001 |
| | 7,303 |
| 7,342 |
|
| | | | | | |
| Other income | 1,177 |
| 1,350 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (599 | ) | (403 | ) | | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | (363 | ) | (21,454 | ) | | (658 | ) | (268 | ) |
| Benefit (provision) for income taxes | (327 | ) | (624 | ) | | 327 |
| 165 |
|
| Earnings (loss) from continuing operations | (690 | ) | (22,078 | ) | | (331 | ) | (103 | ) |
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (5,212 | ) | (1,526 | ) | | 255 |
| (1,579 | ) |
| Net earnings (loss) | (5,902 | ) | (23,604 | ) | | (76 | ) | (1,682 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | 75 |
| (228 | ) | | (2 | ) | 40 |
|
| Net earnings (loss) attributable to the Company | (5,977 | ) | (23,376 | ) | | (74 | ) | (1,722 | ) |
| Preferred stock dividends | — |
| — |
| | (270 | ) | (260 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) | | $ | (344 | ) | $ | (1,982 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | (690 | ) | $ | (22,078 | ) | | $ | (331 | ) | $ | (103 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | 17 |
| (130 | ) | | (2 | ) | 40 |
|
| Earnings (loss) from continuing operations attributable to the Company | (707 | ) | (21,947 | ) | | (329 | ) | (143 | ) |
| Preferred stock dividends | — |
| — |
| | (270 | ) | (260 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | (707 | ) | (21,947 | ) | | (599 | ) | (403 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (5,212 | ) | (1,526 | ) | | 255 |
| (1,579 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | 58 |
| (97 | ) | | — |
| — |
|
| Net earnings (loss) attributable to GE common shareowners | $ | (5,977 | ) | $ | (23,376 | ) | | $ | (344 | ) | $ | (1,982 | ) |
|
| | | | | | | | | | | | | |
| STATEMENT OF EARNINGS (LOSS) |
| (UNAUDITED) |
| | | | | | |
| | Nine months ended September 30 |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions; per-share amounts in dollars) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Revenues | | | | | |
| Sales of goods | $ | 53,305 |
| $ | 54,408 |
| | $ | 100 |
| $ | 101 |
|
| Sales of services | 29,123 |
| 26,275 |
| | — |
| — |
|
| GE Capital revenues from services | — |
| — |
| | 6,975 |
| 7,424 |
|
| Total revenues | 82,429 |
| 80,683 |
| | 7,075 |
| 7,525 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Cost of goods sold | 45,046 |
| 45,993 |
| | 78 |
| 79 |
|
| Cost of services sold | 20,207 |
| 18,108 |
| | 1,573 |
| 1,673 |
|
| Selling, general and administrative expenses | 12,990 |
| 12,199 |
| | 987 |
| 1,346 |
|
| Interest and other financial charges | 1,995 |
| 1,918 |
| | 2,296 |
| 2,373 |
|
| Investment contracts, insurance losses and insurance annuity benefits | — |
| — |
| | 2,071 |
| 1,958 |
|
| Goodwill impairment | 21,973 |
| 947 |
| | — |
| — |
|
| Non-operating benefit costs | 2,178 |
| 1,811 |
| | 9 |
| 12 |
|
| Other costs and expenses | — |
| — |
| | 328 |
| 629 |
|
| Total costs and expenses | 104,390 |
| 80,977 |
| | 7,342 |
| 8,070 |
|
| | | | | | |
| Other income | 1,237 |
| 2,659 |
| | — |
| — |
|
| GE Capital earnings (loss) from continuing operations | (403 | ) | (195 | ) | | — |
| — |
|
| | | | | | |
| Earnings (loss) from continuing operations before income taxes | (21,128 | ) | 2,170 |
| | (268 | ) | (545 | ) |
| Benefit (provision) for income taxes | (842 | ) | 93 |
| | 165 |
| 600 |
|
| Earnings (loss) from continuing operations | (21,970 | ) | 2,263 |
| | (103 | ) | 55 |
|
| Earnings (loss) from discontinued operations, net of taxes (Note 2) | (1,634 | ) | (497 | ) | | (1,579 | ) | (494 | ) |
| Net earnings (loss) | (23,604 | ) | 1,766 |
| | (1,682 | ) | (439 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (228 | ) | (316 | ) | | 40 |
| 5 |
|
| Net earnings (loss) attributable to the Company | (23,376 | ) | 2,082 |
| | (1,722 | ) | (443 | ) |
| Preferred stock dividends | — |
| — |
| | (260 | ) | (252 | ) |
| Net earnings (loss) attributable to GE common shareowners | $ | (23,376 | ) | $ | 2,082 |
| | $ | (1,982 | ) | $ | (695 | ) |
| | | | | | |
| Amounts attributable to GE common shareowners: | | | | | |
| Earnings (loss) from continuing operations | $ | (21,970 | ) | $ | 2,263 |
| | $ | (103 | ) | $ | 55 |
|
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| continuing operations | (228 | ) | (316 | ) | | 40 |
| (2 | ) |
| Earnings (loss) from continuing operations attributable to the Company | (21,742 | ) | 2,579 |
| | (143 | ) | 57 |
|
| Preferred stock dividends | — |
| — |
| | (260 | ) | (252 | ) |
| Earnings (loss) from continuing operations attributable | | | | | |
| to GE common shareowners | (21,742 | ) | 2,579 |
| | (403 | ) | (195 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (1,634 | ) | (497 | ) | | (1,579 | ) | (494 | ) |
| Less net earnings (loss) attributable to noncontrolling interests, | | | | | |
| discontinued operations | — |
| — |
| | — |
| 6 |
|
| Net earnings (loss) attributable to GE common shareowners | $ | (23,376 | ) | $ | 2,082 |
| | $ | (1,982 | ) | $ | (695 | ) |
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
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.
20182019 3Q FORM 10-Q 6545
| | | 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) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
| |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF | | GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
| COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions, net of tax) | | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | | |
| Net earnings (loss) | $ | (22,859 | ) | $ | 1,191 |
| | $ | (23,304 | ) | $ | 2,023 |
| $ | (9,383 | ) | $ | (22,859 | ) | | $ | (5,634 | ) | $ | (23,304 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (90 | ) | (169 | ) | | (188 | ) | (312 | ) | 40 |
| (90 | ) | | 73 |
| (188 | ) |
| Net earnings (loss) attributable to the Company | $ | (22,769 | ) | $ | 1,360 |
| | $ | (23,116 | ) | $ | 2,334 |
| $ | (9,423 | ) | $ | (22,769 | ) | | $ | (5,707 | ) | $ | (23,116 | ) |
| | | | | | | |
| Other comprehensive income (loss) | | | | |
| Investment securities | $ | (57 | ) | $ | 21 |
| | $ | 68 |
| $ | 213 |
| $ | 18 |
| $ | (57 | ) | | $ | 116 |
| $ | 67 |
|
| Currency translation adjustments | (633 | ) | 501 |
| | (1,471 | ) | 1,829 |
| 762 |
| (633 | ) | | 1,044 |
| (1,471 | ) |
| Cash flow hedges | (9 | ) | 100 |
| | (35 | ) | 109 |
| (2 | ) | (9 | ) | | 10 |
| (35 | ) |
| Benefit plans | 863 |
| 423 |
| | 2,521 |
| 2,032 |
| 655 |
| 862 |
| | 1,838 |
| 2,521 |
|
| Other comprehensive income (loss) | 164 |
| 1,046 |
| | 1,082 |
| 4,184 |
| 1,433 |
| 164 |
| | 3,010 |
| 1,082 |
|
| Less other comprehensive income (loss) attributable to noncontrolling interests | (39 | ) | 124 |
| | (92 | ) | 131 |
| |
| Less: other comprehensive income (loss) attributable to noncontrolling interests | | (58 | ) | (39 | ) | | (43 | ) | (93 | ) |
| Other comprehensive income (loss) attributable to the Company | $ | 203 |
| $ | 922 |
| | $ | 1,174 |
| $ | 4,053 |
| $ | 1,491 |
| $ | 203 |
| | $ | 3,053 |
| $ | 1,174 |
|
| | | | | | | |
| Comprehensive income (loss) | $ | (22,695 | ) | $ | 2,236 |
| | $ | (22,222 | ) | $ | 6,207 |
| $ | (7,950 | ) | $ | (22,695 | ) | | $ | (2,624 | ) | $ | (22,222 | ) |
| Less comprehensive income (loss) attributable to noncontrolling interests | (129 | ) | (46 | ) | | (280 | ) | (181 | ) | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | | (19 | ) | (129 | ) | | 30 |
| (281 | ) |
| Comprehensive income (loss) attributable to the Company | $ | (22,566 | ) | $ | 2,282 |
| | $ | (21,941 | ) | $ | 6,387 |
| $ | (7,931 | ) | $ | (22,566 | ) | | $ | (2,654 | ) | $ | (21,941 | ) |
Amounts presented net of taxes.
Amounts may not add due to rounding.
See accompanying notes.
66 201846 2019 3Q FORM 10-Q
[PAGE INTENTIONALLY LEFT BLANK]
|
| | | | | | | | | | | | | | |
| GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES CONSOLIDATED STATEMENT OF |
| CHANGES IN SHAREOWNERS' EQUITY (UNAUDITED) | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2019 | | 2018 | 2019 | | 2018 |
|
| | | | | | | |
| Preferred stock issued | $ | 6 |
| | $ | 6 |
| $ | 6 |
| | $ | 6 |
|
| Common stock issued | $ | 702 |
| | $ | 702 |
| $ | 702 |
| | $ | 702 |
|
| | | | | | | |
| Beginning balance | (12,852 | ) | | (13,432 | ) | (14,414 | ) | | (14,404 | ) |
| Investment securities | 18 |
| | (56 | ) | 116 |
| | 67 |
|
| Currency translation adjustments | 824 |
| | (595 | ) | 1,084 |
| | (1,379 | ) |
| Cash flow hedges | (2 | ) | | (8 | ) | 11 |
| | (35 | ) |
| Benefit plans | 650 |
| | 863 |
| 1,842 |
| | 2,521 |
|
| Accumulated other comprehensive income (loss) ending balance | $ | (11,361 | ) | | $ | (13,229 | ) | $ | (11,361 | ) | | $ | (13,229 | ) |
| Beginning balance | 34,324 |
| | 37,352 |
| 35,504 |
| | 37,384 |
|
| Gains (losses) on treasury stock dispositions | (160 | ) | | (210 | ) | (817 | ) | | (518 | ) |
| Stock-based compensation | 118 |
| | 107 |
| 382 |
| | 315 |
|
| Other changes | 33 |
| | 62 |
| (753 | ) | | 131 |
|
| Other capital ending balance | $ | 34,315 |
| | $ | 37,311 |
| $ | 34,315 |
| | $ | 37,311 |
|
| Beginning balance | 96,773 |
| | 114,913 |
| 93,109 |
| | 117,245 |
|
| Net earnings (loss) attributable to the Company | (9,423 | ) | | (22,769 | ) | (5,707 | ) | | (23,116 | ) |
| Dividends and other transactions with shareowners | (138 | ) | | (1,276 | ) | (557 | ) | | (3,762 | ) |
| Changes in accounting (Note 1) | — |
| | — |
| 368 |
| | 501 |
|
| Retained earnings ending balance | $ | 87,213 |
| | $ | 90,867 |
| $ | 87,213 |
| | $ | 90,867 |
|
| Beginning balance | (83,137 | ) | | (84,471 | ) | (83,925 | ) | | (84,902 | ) |
| Purchases | (8 | ) | | (55 | ) | (53 | ) | | (198 | ) |
| Dispositions | 204 |
| | 324 |
| 1,038 |
| | 897 |
|
| Common stock held in treasury ending balance | $ | (82,940 | ) | | $ | (84,202 | ) | $ | (82,940 | ) | | $ | (84,202 | ) |
| GE shareowners' equity balance | 27,935 |
| | 31,454 |
| 27,935 |
| | 31,454 |
|
| Noncontrolling interests balance (Note 15) | 1,219 |
| | 16,383 |
| 1,219 |
| | 16,383 |
|
| Total equity balance at September 30(a) | $ | 29,153 |
| | $ | 47,837 |
| $ | 29,153 |
| | $ | 47,837 |
|
| |
| (a) | Total equity balance decreased by $(18,684) million in the last twelve months from September 30, 2018, primarily due to reduction of non-controlling interest balance of $(15,192) million attributable to Baker Hughes Class A shareholders at September 30, 2018 and after-tax loss of $(8,190) million in discontinued operations due to deconsolidation of Baker Hughes in the third quarter of 2019, partially offset by after-tax gain of $2,508 million in discontinued operations due to spin-off and subsequent merger of our Transportation business with Wabtec in the first quarter of 2019. See Note 2 for further information. |
|
| | | | | | |
| STATEMENT OF FINANCIAL POSITION (UNAUDITED) | General Electric Company
and consolidated affiliates |
| (In millions, except share amounts) | September 30, 2019 |
| December 31, 2018 |
|
| |
|
| |
| Cash, cash equivalents and restricted cash | $ | 27,810 |
| $ | 31,124 |
|
| Investment securities (Note 3) | 48,225 |
| 33,508 |
|
| Current receivables (Note 4) | 16,018 |
| 14,645 |
|
| Financing receivables – net (Note 5) | 3,321 |
| 7,699 |
|
| Inventories (Note 6) | 15,203 |
| 13,803 |
|
| Other GE Capital receivables | 7,387 |
| 7,143 |
|
| Property, plant and equipment – net (Note 7) | 42,886 |
| 43,611 |
|
| Operating lease assets (Note 7) | 2,970 |
| — |
|
| Receivable from GE Capital | — |
| — |
|
| Investment in GE Capital | — |
| — |
|
| Goodwill (Note 8) | 26,666 |
| 33,974 |
|
| Other intangible assets – net (Note 8) | 10,766 |
| 12,178 |
|
| Contract and other deferred assets (Note 10) | 17,133 |
| 17,431 |
|
| All other assets | 18,043 |
| 18,357 |
|
| Deferred income taxes (Note 14) | 9,570 |
| 12,117 |
|
| Assets of businesses held for sale (Note 2) | 12,832 |
| 1,629 |
|
| Assets of discontinued operations (Note 2) | 4,178 |
| 63,853 |
|
| Total assets | $ | 263,009 |
| $ | 311,072 |
|
| | | |
| Short-term borrowings (Note 11) | $ | 17,046 |
| $ | 12,776 |
|
| Short-term borrowings assumed by GE (Note 11) | — |
| — |
|
| Accounts payable, principally trade accounts | 14,493 |
| 14,257 |
|
| Progress collections and deferred income (Note 10) | 19,041 |
| 18,983 |
|
| Other GE current liabilities | 13,675 |
| 14,453 |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | 1,498 |
| 1,875 |
|
| Long-term borrowings (Note 11) | 74,701 |
| 88,949 |
|
| Long-term borrowings assumed by GE (Note 11) | — |
| — |
|
| Operating lease liabilities (Note 7) | 3,169 |
| — |
|
| Insurance liabilities and annuity benefits (Note 12) | 40,084 |
| 35,562 |
|
| Non-current compensation and benefits | 31,194 |
| 32,740 |
|
| All other liabilities | 17,026 |
| 20,008 |
|
| Liabilities of businesses held for sale (Note 2) | 1,543 |
| 708 |
|
| Liabilities of discontinued operations (Note 2) | 387 |
| 19,281 |
|
| Total liabilities | 233,856 |
| 259,591 |
|
| | | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2019
and December 31, 2018) | 6 |
| 6 |
|
Common stock (8,733,549,000 and 8,702,227,000 shares outstanding
at September 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
|
| Accumulated other comprehensive income (loss) – net attributable to GE | (11,361 | ) | (14,414 | ) |
| Other capital | 34,315 |
| 35,504 |
|
| Retained earnings | 87,213 |
| 93,109 |
|
| Less common stock held in treasury | (82,940 | ) | (83,925 | ) |
| Total GE shareowners’ equity | 27,935 |
| 30,981 |
|
| Noncontrolling interests | 1,219 |
| 20,500 |
|
| Total equity (Note 15) | 29,153 |
| 51,481 |
|
| Total liabilities and equity | $ | 263,009 |
| $ | 311,072 |
|
|
| | | | | | |
| STATEMENT OF FINANCIAL POSITION |
| | General Electric Company
and consolidated affiliates |
| (In millions, except share amounts) | September 30, 2018 |
| December 31, 2017 |
|
| | (Unaudited) |
| |
| Assets | | |
| Cash, cash equivalents and restricted cash(a) | $ | 26,932 |
| $ | 43,967 |
|
| Investment securities (Note 3) | 34,761 |
| 38,696 |
|
| Current receivables (Note 4) | 20,414 |
| 24,209 |
|
| Inventories (Note 5) | 20,642 |
| 19,419 |
|
| Financing receivables – net (Note 6) | 7,918 |
| 10,336 |
|
| Other GE Capital receivables | 6,115 |
| 6,301 |
|
| Property, plant and equipment – net (Note 7) | 50,638 |
| 53,874 |
|
| Receivable from GE Capital | — |
| — |
|
| Investment in GE Capital | — |
| — |
|
| Goodwill (Note 8) | 60,377 |
| 83,968 |
|
| Other intangible assets – net (Note 8) | 18,838 |
| 20,273 |
|
| Contract and other deferred assets (Note 10) | 20,905 |
| 20,356 |
|
| All other assets | 24,491 |
| 28,949 |
|
| Deferred income taxes (Note 14) | 10,354 |
| 8,819 |
|
| Assets of businesses held for sale (Note 2) | 4,588 |
| 4,164 |
|
| Assets of discontinued operations (Note 2) | 4,716 |
| 5,912 |
|
| Total assets(b) | $ | 311,691 |
| $ | 369,245 |
|
| | | |
| Liabilities and equity | | |
| Short-term borrowings (Note 11) | $ | 15,206 |
| $ | 24,036 |
|
| Accounts payable, principally trade accounts | 15,748 |
| 15,172 |
|
| Progress collections and deferred income | 20,579 |
| 22,117 |
|
| Dividends payable | 1,054 |
| 1,052 |
|
| Other GE current liabilities | 17,930 |
| 16,919 |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | 2,699 |
| 1,980 |
|
| Long-term borrowings (Note 11) | 97,060 |
| 108,575 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 12) | 35,575 |
| 38,136 |
|
| Non-current compensation and benefits | 34,342 |
| 41,630 |
|
| All other liabilities | 19,913 |
| 20,784 |
|
| Liabilities of businesses held for sale (Note 2) | 1,360 |
| 1,248 |
|
| Liabilities of discontinued operations (Note 2) | 2,002 |
| 706 |
|
| Total liabilities(b) | 263,468 |
| 292,355 |
|
| | | |
| Redeemable noncontrolling interests (Note 15) | 386 |
| 3,391 |
|
| | | |
Preferred stock (5,939,874 shares outstanding at both September 30, 2018
and December 31, 2017) | 6 |
| 6 |
|
Common stock (8,698,115,000 and 8,680,571,000 shares outstanding
at September 30, 2018 and December 31, 2017, respectively) | 702 |
| 702 |
|
| Accumulated other comprehensive income (loss) – net attributable to GE(c) | | |
| Investment securities | (36 | ) | (102 | ) |
| Currency translation adjustments | (6,040 | ) | (4,661 | ) |
| Cash flow hedges | 27 |
| 62 |
|
| Benefit plans | (7,181 | ) | (9,702 | ) |
| Other capital | 37,311 |
| 37,384 |
|
| Retained earnings | 90,867 |
| 117,245 |
|
| Less common stock held in treasury | (84,202 | ) | (84,902 | ) |
| Total GE shareowners’ equity | 31,454 |
| 56,030 |
|
| Noncontrolling interests(d) (Note 15) | 16,383 |
| 17,468 |
|
| Total equity (Note 15) | 47,837 |
| 73,498 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 311,691 |
| $ | 369,245 |
|
| |
(a) | Includes restricted cash of $454 million and $668 million at September 30, 2018 and December 31, 2017, respectively. |
| |
(b) | Our consolidated assets at September 30, 2018 included total assets of $5,248 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 $2,986 million within continuing operations and assets of discontinued operations of $109 million. Our consolidated liabilities at September 30, 2018 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 $(1,622) million within continuing operations. See Note 18. |
| |
(c) | The sum of accumulated other comprehensive income (loss) (AOCI) attributable to the Company was $(13,229) million and $(14,404) million at September 30, 2018 and December 31, 2017, respectively. |
| |
(d) | Included AOCI attributable to noncontrolling interests of $(318) million and $(226) million at September 30, 2018 and December 31, 2017, respectively. |
Amounts may not add due to rounding.
See accompanying notes.
68 201848 2019 3Q FORM 10-Q
|
| | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) | GE(a) | | Financial Services (GE Capital) |
(UNAUDITED) (In millions, except share amounts) | September 30,
2019 |
| December 31, 2018 |
| | September 30,
2019 |
| December 31, 2018 |
|
| | | | | | |
| Cash, cash equivalents and restricted cash | $ | 16,656 |
| $ | 16,632 |
| | $ | 11,154 |
| $ | 14,492 |
|
| Investment securities (Note 3) | 9,485 |
| 187 |
| | 38,741 |
| 33,393 |
|
| Current receivables (Note 4) | 12,657 |
| 10,262 |
| | — |
| — |
|
| Financing receivables - net (Note 5) | — |
| — |
| | 7,748 |
| 13,628 |
|
| Inventories (Note 6) | 15,203 |
| 13,803 |
| | — |
| — |
|
| Other GE Capital receivables | — |
| — |
| | 12,999 |
| 15,361 |
|
| Property, plant and equipment – net (Note 7) | 14,132 |
| 14,828 |
| | 29,378 |
| 29,510 |
|
| Operating lease assets (Note 7) | 3,187 |
| — |
| | 244 |
| — |
|
| Receivable from GE Capital | 20,244 |
| 22,513 |
| | — |
| — |
|
| Investment in GE Capital | 12,819 |
| 11,412 |
| | — |
| — |
|
| Goodwill (Note 8) | 25,827 |
| 33,070 |
| | 839 |
| 904 |
|
| Other intangible assets – net (Note 8) | 10,560 |
| 11,942 |
| | 206 |
| 236 |
|
| Contract and other deferred assets (Note 10) | 17,166 |
| 17,431 |
| | — |
| — |
|
| All other assets | 9,061 |
| 8,578 |
| | 9,418 |
| 9,869 |
|
| Deferred income taxes (Note 14) | 7,156 |
| 10,176 |
| | 2,415 |
| 1,936 |
|
| Assets of businesses held for sale (Note 2) | 8,755 |
| 1,524 |
| | 3,900 |
| — |
|
| Assets of discontinued operations (Note 2) | 186 |
| 59,169 |
| | 3,993 |
| 4,610 |
|
| Total assets | $ | 183,094 |
| $ | 231,526 |
| | $ | 121,035 |
| $ | 123,939 |
|
| | | | | | |
| Short-term borrowings (Note 11) | $ | 5,465 |
| $ | 5,147 |
| | $ | 5,123 |
| $ | 4,999 |
|
| Short-term borrowings assumed by GE (Note 11) | 7,310 |
| 4,207 |
| | 2,990 |
| 2,684 |
|
| Accounts payable, principally trade accounts | 17,858 |
| 19,148 |
| | 1,397 |
| 1,612 |
|
| Progress collections and deferred income (Note 10) | 19,245 |
| 19,239 |
| | — |
| — |
|
| Other GE current liabilities | 13,886 |
| 14,453 |
| | — |
| — |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
| | 1,498 |
| 1,875 |
|
| Long-term borrowings (Note 11) | 15,107 |
| 20,804 |
| | 33,390 |
| 36,154 |
|
| Long-term borrowings assumed by GE (Note 11) | 26,204 |
| 32,054 |
| | 17,255 |
| 19,828 |
|
| Operating lease liabilities (Note 7) | 3,389 |
| — |
| | 239 |
| — |
|
| Insurance liabilities and annuity benefits (Note 12) | — |
| — |
| | 40,550 |
| 35,994 |
|
| Non-current compensation and benefits | 30,654 |
| 31,875 |
| | 532 |
| 856 |
|
| All other liabilities | 13,371 |
| 14,889 |
| | 4,748 |
| 6,724 |
|
| Liabilities of businesses held for sale (Note 2) | 1,430 |
| 748 |
| | 129 |
| — |
|
| Liabilities of discontinued operations (Note 2) | 159 |
| 17,481 |
| | 228 |
| 1,800 |
|
| Total liabilities | 154,078 |
| 180,045 |
| | 108,079 |
| 112,527 |
|
| | | | | | |
Preferred stock (5,939,875 shares outstanding at both September 30, 2019
and December 31, 2018) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,733,549,000 and 8,702,227,000 shares outstanding
at September 30, 2019 and December 31, 2018, respectively) | 702 |
| 702 |
| | — |
| — |
|
| Accumulated other comprehensive income (loss) - net attributable to GE | (11,361 | ) | (14,414 | ) | | (781 | ) | (783 | ) |
| Other capital | 34,315 |
| 35,504 |
| | 14,500 |
| 12,883 |
|
| Retained earnings | 87,213 |
| 93,109 |
| | (906 | ) | (694 | ) |
| Less common stock held in treasury | (82,940 | ) | (83,925 | ) | | — |
| — |
|
| Total GE shareowners’ equity | 27,935 |
| 30,981 |
| | 12,819 |
| 11,412 |
|
| Noncontrolling interests | 1,082 |
| 20,499 |
| | 137 |
| 1 |
|
| Total equity (Note 15) | 29,016 |
| 51,480 |
| | 12,955 |
| 11,412 |
|
| Total liabilities and equity | $ | 183,094 |
| $ | 231,526 |
| | $ | 121,035 |
| $ | 123,939 |
|
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
|
| | | | | | | | | | | | | |
| STATEMENT OF FINANCIAL POSITION (CONTINUED) |
| | GE(a) | | Financial Services (GE Capital) |
| (In millions, except share amounts) | September 30,
2018 |
| December 31, 2017 |
| | September 30,
2018 |
| December 31, 2017 |
|
| | (Unaudited) | | | (Unaudited) | |
| Assets | | | | | |
| Cash, cash equivalents and restricted cash(b) | $ | 13,862 |
| $ | 18,822 |
| | $ | 13,071 |
| $ | 25,145 |
|
| Investment securities (Note 3) | 874 |
| 569 |
| | 33,961 |
| 38,231 |
|
| Current receivables (Note 4) | 14,877 |
| 14,638 |
| | — |
| — |
|
| Inventories (Note 5) | 20,586 |
| 19,344 |
| | 56 |
| 75 |
|
| Financing receivables - net (Note 6) | — |
| — |
| | 15,663 |
| 21,967 |
|
| Other GE Capital receivables | — |
| — |
| | 14,834 |
| 16,945 |
|
| Property, plant and equipment – net (Note 7) | 22,041 |
| 23,963 |
| | 29,352 |
| 30,595 |
|
| Receivable from GE Capital(c) | 23,250 |
| 39,844 |
| | — |
| — |
|
| Investment in GE Capital | 11,673 |
| 13,493 |
| | — |
| — |
|
| Goodwill (Note 8) | 59,393 |
| 82,985 |
| | 984 |
| 984 |
|
| Other intangible assets – net (Note 8) | 18,597 |
| 20,014 |
| | 242 |
| 259 |
|
| Contract and other deferred assets (Note 10) | 20,905 |
| 20,356 |
| | — |
| — |
|
| All other assets | 10,307 |
| 13,627 |
| | 14,175 |
| 15,606 |
|
| Deferred income taxes (Note 14) | 8,901 |
| 7,815 |
| | 1,449 |
| 999 |
|
| Assets of businesses held for sale (Note 2) | 4,259 |
| 3,799 |
| | — |
| — |
|
| Assets of discontinued operations (Note 2) | — |
| — |
| | 4,716 |
| 5,912 |
|
| Total assets | $ | 229,525 |
| $ | 279,267 |
| | $ | 128,503 |
| $ | 156,716 |
|
| | | | | | |
| Liabilities and equity | | | | | |
| Short-term borrowings (Note 11)(c) | $ | 8,694 |
| $ | 14,548 |
| | $ | 11,223 |
| $ | 19,602 |
|
| Accounts payable, principally trade accounts | 21,026 |
| 21,851 |
| | 2,046 |
| 1,853 |
|
| Progress collections and deferred income | 20,847 |
| 22,221 |
| | — |
| — |
|
| Dividends payable | 1,054 |
| 1,052 |
| | — |
| — |
|
| Other GE current liabilities | 17,930 |
| 16,919 |
| | — |
| — |
|
| Non-recourse borrowings of consolidated securitization entities (Note 11) | — |
| — |
| | 2,699 |
| 1,980 |
|
| Long-term borrowings (Note 11)(c) | 60,863 |
| 67,040 |
| | 56,329 |
| 73,614 |
|
| Investment contracts, insurance liabilities and insurance annuity benefits (Note 12) | — |
| — |
| | 36,070 |
| 38,587 |
|
| Non-current compensation and benefits | 33,530 |
| 40,820 |
| | 804 |
| 801 |
|
| All other liabilities | 15,881 |
| 16,873 |
| | 5,735 |
| 5,886 |
|
| Liabilities of businesses held for sale (Note 2) | 1,399 |
| 1,248 |
| | — |
| — |
|
| Liabilities of discontinued operations (Note 2) | 77 |
| 23 |
| | 1,925 |
| 683 |
|
| Total liabilities | 181,302 |
| 202,595 |
| | 116,831 |
| 143,007 |
|
| | | | | | |
| Redeemable noncontrolling interests (Note 15) | 386 |
| 3,391 |
| | — |
| — |
|
| | | | | | |
Preferred stock (5,939,874 shares outstanding at both September 30, 2018
and December 31, 2017) | 6 |
| 6 |
| | 6 |
| 6 |
|
Common stock (8,698,115,000 and 8,680,571,000 shares outstanding
at September 30, 2018 and December 31, 2017, respectively) | 702 |
| 702 |
| | — |
| — |
|
| Accumulated other comprehensive income (loss) - net attributable to GE | | | | | |
| Investment securities | (36 | ) | (102 | ) | | (28 | ) | (99 | ) |
| Currency translation adjustments | (6,040 | ) | (4,661 | ) | | (234 | ) | (225 | ) |
| Cash flow hedges | 27 |
| 62 |
| | 74 |
| 54 |
|
| Benefit plans | (7,181 | ) | (9,702 | ) | | (504 | ) | (524 | ) |
| Other capital | 37,311 |
| 37,384 |
| | 12,881 |
| 12,806 |
|
| Retained earnings | 90,867 |
| 117,245 |
| | (522 | ) | 1,476 |
|
| Less common stock held in treasury | (84,202 | ) | (84,902 | ) | | — |
| — |
|
| Total GE shareowners’ equity | 31,454 |
| 56,030 |
| | 11,673 |
| 13,493 |
|
| Noncontrolling interests (Note 15) | 16,383 |
| 17,252 |
| | (1 | ) | 217 |
|
| Total equity (Note 15) | 47,837 |
| 73,282 |
| | 11,672 |
| 13,709 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 229,525 |
| $ | 279,267 |
| | $ | 128,503 |
| $ | 156,716 |
|
|
| | | | | | |
| STATEMENT OF CASH FLOWS | Nine months ended September 30 |
| (UNAUDITED) | General Electric Company and consolidated affiliates |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| Net earnings (loss) | $ | (5,634 | ) | $ | (23,304 | ) |
| (Earnings) loss from discontinued operations | 5,212 |
| 1,526 |
|
| Adjustments to reconcile net earnings (loss) | | |
| to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 2,969 |
| 3,357 |
|
| Amortization of intangible assets (Note 8) | 1,220 |
| 1,740 |
|
| Goodwill impairments (Note 8) | 1,484 |
| 21,973 |
|
| (Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
| (Gains) losses on purchases and sales of business interests | (260 | ) | (763 | ) |
| Principal pension plans cost (Note 13) | 2,509 |
| 3,172 |
|
| Principal pension plans employer contributions | (202 | ) | (6,186 | ) |
| Other postretirement benefit plans (net) | (809 | ) | (854 | ) |
| Provision (benefit) for income taxes | (1 | ) | 460 |
|
| Cash recovered (paid) during the year for income taxes | (1,427 | ) | (1,051 | ) |
| Decrease (increase) in contract and other deferred assets | (321 | ) | (750 | ) |
| Decrease (increase) in GE current receivables | (1,857 | ) | (993 | ) |
| Decrease (increase) in inventories | (2,113 | ) | (1,447 | ) |
| Increase (decrease) in accounts payable | 1,259 |
| 775 |
|
| Increase (decrease) in GE progress collections | (216 | ) | (1,081 | ) |
| All other operating activities | 1,606 |
| (908 | ) |
| Cash from (used for) operating activities – continuing operations | 3,423 |
| (4,334 | ) |
| Cash from (used for) operating activities – discontinued operations | (1,390 | ) | 745 |
|
| Cash from (used for) operating activities | 2,033 |
| (3,589 | ) |
| | | |
| Additions to property, plant and equipment | (4,175 | ) | (4,265 | ) |
| Dispositions of property, plant and equipment | 2,796 |
| 2,378 |
|
| Additions to internal-use software | (208 | ) | (249 | ) |
| Net decrease (increase) in financing receivables | 523 |
| 1,281 |
|
| Proceeds from sale of discontinued operations | 5,864 |
| 29 |
|
| Proceeds from principal business dispositions | 1,124 |
| 5,477 |
|
| Net cash from (payments for) principal businesses purchased | — |
| (1 | ) |
| Capital contribution from GE to GE Capital | — |
| — |
|
| All other investing activities | 1,165 |
| 7,480 |
|
| Cash from (used for) investing activities – continuing operations | 7,087 |
| 12,129 |
|
| Cash from (used for) investing activities – discontinued operations | (2,037 | ) | (493 | ) |
| Cash from (used for) investing activities | 5,050 |
| 11,636 |
|
| | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (185 | ) | (1,901 | ) |
| Newly issued debt (maturities longer than 90 days) | 1,449 |
| 2,349 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (13,476 | ) | (17,725 | ) |
| Capital contribution from GE to GE Capital | — |
| — |
|
| Net dispositions (purchases) of GE shares for treasury | 31 |
| (6 | ) |
| Dividends paid to shareowners | (411 | ) | (3,282 | ) |
| All other financing activities | (1,128 | ) | (1,659 | ) |
| Cash from (used for) financing activities – continuing operations | (13,721 | ) | (22,224 | ) |
| Cash from (used for) financing activities – discontinued operations | (368 | ) | (2,743 | ) |
| Cash from (used for) financing activities | (14,089 | ) | (24,967 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (131 | ) | (440 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (7,136 | ) | (17,361 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 35,548 |
| 44,724 |
|
| Cash, cash equivalents and restricted cash at September 30 | 28,412 |
| 27,364 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 602 |
| 5,310 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 27,810 |
| $ | 22,054 |
|
|
| | | | | | | | | | | | | |
| STATEMENT OF CASH FLOWS (CONTINUED) | Nine months ended September 30 |
| (UNAUDITED) | GE(a) | | Financial Services (GE Capital) |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Net earnings (loss) | $ | (5,902 | ) | $ | (23,604 | ) | | $ | (76 | ) | $ | (1,682 | ) |
| (Earnings) loss from discontinued operations | 5,212 |
| 1,526 |
| | (255 | ) | 1,579 |
|
| Adjustments to reconcile net earnings (loss) | | | | | |
| to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment (Note 7) | 1,453 |
| 1,756 |
| | 1,513 |
| 1,593 |
|
| Amortization of intangible assets (Note 8) | 1,176 |
| 1,698 |
| | 44 |
| 42 |
|
| Goodwill impairments (Note 8) | 1,484 |
| 21,973 |
| | — |
| — |
|
| (Earnings) loss from continuing operations retained by GE Capital(b) | 599 |
| 403 |
| | — |
| — |
|
| (Gains) losses on purchases and sales of business interests | (260 | ) | (475 | ) | | — |
| (288 | ) |
| Principal pension plans cost (Note 13) | 2,509 |
| 3,172 |
| | — |
| — |
|
| Principal pension plans employer contributions | (202 | ) | (6,186 | ) | | — |
| — |
|
| Other postretirement benefit plans (net) | (798 | ) | (835 | ) | | (11 | ) | (19 | ) |
| Provision (benefit) for income taxes | 327 |
| 624 |
| | (327 | ) | (165 | ) |
| Cash recovered (paid) during the year for income taxes | (1,346 | ) | (956 | ) | | (81 | ) | (95 | ) |
| Decrease (increase) in contract and other deferred assets | (321 | ) | (750 | ) | | — |
| — |
|
| Decrease (increase) in GE current receivables | (2,370 | ) | (580 | ) | | — |
| — |
|
| Decrease (increase) in inventories | (1,950 | ) | (1,442 | ) | | — |
| — |
|
| Increase (decrease) in accounts payable | 164 |
| 683 |
| | (3 | ) | (12 | ) |
| Increase (decrease) in GE progress collections | (254 | ) | (930 | ) | | — |
| — |
|
| All other operating activities (Note 20) | 554 |
| (537 | ) | | 431 |
| (456 | ) |
| Cash from (used for) operating activities – continuing operations | 77 |
| (4,458 | ) | | 1,235 |
| 497 |
|
| Cash from (used for) operating activities – discontinued operations | (17 | ) | 730 |
| | (1,700 | ) | (101 | ) |
| Cash from (used for) operating activities | 60 |
| (3,729 | ) | | (465 | ) | 395 |
|
| | | | | | |
| Additions to property, plant and equipment | (1,596 | ) | (1,702 | ) | | (2,795 | ) | (2,630 | ) |
| Dispositions of property, plant and equipment | 273 |
| 193 |
| | 2,544 |
| 2,196 |
|
| Additions to internal-use software | (203 | ) | (233 | ) | | (5 | ) | (16 | ) |
| Net decrease (increase) in financing receivables | — |
| — |
| | 2,399 |
| 6,656 |
|
| Proceeds from sale of discontinued operations | 5,864 |
| — |
| | — |
| 29 |
|
| Proceeds from principal business dispositions | 1,083 |
| 3,270 |
| | 380 |
| 2,011 |
|
| Net cash from (payments for) principal businesses purchased | (380 | ) | (1 | ) | | — |
| — |
|
| Capital contribution from GE to GE Capital | (1,500 | ) | — |
| | — |
| — |
|
| All other investing activities (Note 20) | 3,404 |
| (824 | ) | | 211 |
| (1,739 | ) |
| Cash from (used for) investing activities – continuing operations | 6,946 |
| 702 |
| | 2,734 |
| 6,507 |
|
| Cash from (used for) investing activities – discontinued operations | (3,480 | ) | (153 | ) | | 1,770 |
| (224 | ) |
| Cash from (used for) investing activities | 3,466 |
| 550 |
| | 4,504 |
| 6,283 |
|
| | | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,005 | ) | (1,489 | ) | | (539 | ) | (1,765 | ) |
| Newly issued debt (maturities longer than 90 days) | 5 |
| 6,555 |
| | 1,445 |
| 2,288 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (5,342 | ) | (1,007 | ) | | (8,613 | ) | (17,274 | ) |
| Capital contribution from GE to GE Capital | — |
| — |
| | 1,500 |
| — |
|
| Net dispositions (purchases) of GE shares for treasury | 31 |
| (6 | ) | | — |
| — |
|
| Dividends paid to shareowners | (262 | ) | (3,135 | ) | | (266 | ) | (185 | ) |
| All other financing activities (Note 20) | (348 | ) | 432 |
| | (805 | ) | (2,091 | ) |
| Cash from (used for) financing activities – continuing operations | (6,923 | ) | 1,350 |
| | (7,279 | ) | (19,027 | ) |
| Cash from (used for) financing activities – discontinued operations | (368 | ) | (2,743 | ) | | (1 | ) | — |
|
| Cash from (used for) financing activities | (7,290 | ) | (1,393 | ) | | (7,279 | ) | (19,027 | ) |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (103 | ) | (388 | ) | | (28 | ) | (51 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (3,867 | ) | (4,961 | ) | | (3,269 | ) | (12,400 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 20,528 |
| 18,822 |
| | 15,020 |
| 25,902 |
|
| Cash, cash equivalents and restricted cash at September 30 | 16,660 |
| 13,862 |
| | 11,751 |
| 13,502 |
|
Less cash, cash equivalents and restricted cash of discontinued operations
at September 30 | 4 |
| 4,878 |
| | 598 |
| 432 |
|
Cash, cash equivalents and restricted cash of continuing operations
at September 30 | $ | 16,656 |
| $ | 8,983 |
| | $ | 11,154 |
| $ | 13,071 |
|
| |
| (a) | Represents the adding together of all affiliated companies except GE Capital, which is presented on a one-line basis. See Note 1. |
| |
| (b) | GE restricted cash was $380 million and $611 million at September 30, 2018 and December 31, 2017, respectively, and GE Capital restricted cash was $74 million and $57 million at September 30, 2018 and December 31, 2017, respectively. |
| |
(c) | 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 11. |
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) 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) | 2018 |
| 2017 |
|
| | | |
| Cash flows – operating activities | | |
| Net earnings (loss) | $ | (23,304 | ) | $ | 2,023 |
|
| (Earnings) loss from discontinued operations | 1,634 |
| 490 |
|
| Adjustments to reconcile net earnings (loss) | | |
| to cash provided from operating activities | | |
| Depreciation and amortization of property, plant and equipment | 4,222 |
| 3,715 |
|
| Amortization of intangible assets | 2,126 |
| 1,713 |
|
| Goodwill impairment | 21,973 |
| 947 |
|
| (Earnings) loss from continuing operations retained by GE Capital | — |
| — |
|
| Deferred income taxes | (171 | ) | (1,270 | ) |
| Decrease (increase) in contract and other deferred assets | (960 | ) | (2,931 | ) |
| Decrease (increase) in GE current receivables | 2,873 |
| 1,348 |
|
| Decrease (increase) in inventories | (2,016 | ) | (1,726 | ) |
| Increase (decrease) in accounts payable | 1,051 |
| (533 | ) |
| Increase (decrease) in GE progress collections | (1,024 | ) | 924 |
|
| All other operating activities | (6,739 | ) | (1,320 | ) |
| Cash from (used for) operating activities – continuing operations | (333 | ) | 3,381 |
|
| Cash from (used for) operating activities – discontinued operations | (102 | ) | (490 | ) |
| Cash from (used for) operating activities | (435 | ) | 2,892 |
|
| | | |
| Cash flows – investing activities | | |
| Additions to property, plant and equipment | (4,983 | ) | (5,071 | ) |
| Dispositions of property, plant and equipment | 2,707 |
| 3,768 |
|
| Additions to internal-use software | (278 | ) | (418 | ) |
| Net decrease (increase) in GE Capital financing receivables | 1,281 |
| 1,184 |
|
| Proceeds from sale of discontinued operations | 29 |
| 1,018 |
|
| Proceeds from principal business dispositions | 5,564 |
| 3,030 |
|
| Net cash from (payments for) principal businesses purchased | (21 | ) | (6,053 | ) |
| All other investing activities | 3,764 |
| 7,800 |
|
| Cash from (used for) investing activities – continuing operations | 8,064 |
| 5,259 |
|
| Cash from (used for) investing activities – discontinued operations | (224 | ) | (2,515 | ) |
| Cash from (used for) investing activities | 7,840 |
| 2,744 |
|
| | | |
| Cash flows – financing activities | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,975 | ) | 531 |
|
| Newly issued debt (maturities longer than 90 days) | 2,431 |
| 9,337 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (18,563 | ) | (18,418 | ) |
| Net dispositions (purchases) of GE shares for treasury | (6 | ) | (2,620 | ) |
| Dividends paid to shareowners | (3,282 | ) | (6,417 | ) |
| All other financing activities | (2,932 | ) | (640 | ) |
| Cash from (used for) financing activities – continuing operations | (24,326 | ) | (18,228 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| 1,905 |
|
| Cash from (used for) financing activities | (24,326 | ) | (16,323 | ) |
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (440 | ) | 1,253 |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | (17,361 | ) | (9,434 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 44,724 |
| 50,384 |
|
| Cash, cash equivalents and restricted cash at September 30 | 27,364 |
| 40,950 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | 432 |
| 501 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 26,932 |
| $ | 40,449 |
|
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) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Cash flows – operating activities | | | | | |
| Net earnings (loss) | $ | (23,604 | ) | $ | 1,766 |
| | $ | (1,682 | ) | $ | (439 | ) |
| (Earnings) loss from discontinued operations | 1,634 |
| 497 |
| | 1,579 |
| 494 |
|
| Adjustments to reconcile net earnings (loss) | | | | | |
| to cash provided from operating activities | | | | | |
| Depreciation and amortization of property, plant and equipment | 2,621 |
| 1,977 |
| | 1,593 |
| 1,736 |
|
| Amortization of intangible assets | 2,085 |
| 1,662 |
| | 42 |
| 50 |
|
| Goodwill impairment | 21,973 |
| 947 |
| | — |
| — |
|
| (Earnings) loss from continuing operations retained by GE Capital(b) | 403 |
| 4,211 |
| | — |
| — |
|
| Deferred income taxes | 363 |
| (1,002 | ) | | (533 | ) | (267 | ) |
| Decrease (increase) in contract and other deferred assets | (960 | ) | (2,931 | ) | | — |
| — |
|
| Decrease (increase) in GE current receivables | (668 | ) | 772 |
| | — |
| — |
|
| Decrease (increase) in inventories | (2,032 | ) | (1,709 | ) | | 20 |
| — |
|
| Increase (decrease) in accounts payable | 1,243 |
| (995 | ) | | (12 | ) | (97 | ) |
| Increase (decrease) in GE progress collections | (873 | ) | 1,015 |
| | — |
| — |
|
| All other operating activities | (6,315 | ) | (2,160 | ) | | (509 | ) | 577 |
|
| Cash from (used for) operating activities – continuing operations | (4,128 | ) | 4,051 |
| | 497 |
| 2,053 |
|
| Cash from (used for) operating activities – discontinued operations | — |
| — |
| | (101 | ) | (490 | ) |
| Cash from (used for) operating activities | (4,128 | ) | 4,051 |
| | 395 |
| 1,563 |
|
| | | | | | |
| Cash flows – investing activities | | | | | |
| Additions to property, plant and equipment | (2,419 | ) | (3,051 | ) | | (2,630 | ) | (2,422 | ) |
| Dispositions of property, plant and equipment | 522 |
| 825 |
| | 2,196 |
| 3,186 |
|
| Additions to internal-use software | (262 | ) | (396 | ) | | (16 | ) | (22 | ) |
| Net decrease (increase) in GE Capital financing receivables | — |
| — |
| | 6,656 |
| 3,242 |
|
| Proceeds from sale of discontinued operations | — |
| — |
| | 29 |
| 1,018 |
|
| Proceeds from principal business dispositions | 3,357 |
| 2,908 |
| | 2,011 |
| — |
|
| Net cash from (payments for) principal businesses purchased | (21 | ) | (6,053 | ) | | — |
| — |
|
| All other investing activities | (754 | ) | (1,955 | ) | | (1,739 | ) | 3,576 |
|
| Cash from (used for) investing activities – continuing operations | 423 |
| (7,720 | ) | | 6,507 |
| 8,578 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| | (224 | ) | (2,515 | ) |
| Cash from (used for) investing activities | 424 |
| (7,720 | ) | | 6,283 |
| 6,063 |
|
| | | | | | |
| Cash flows – financing activities | | | | | |
| Net increase (decrease) in borrowings (maturities of 90 days or less) | (1,678 | ) | 4 |
| | (1,765 | ) | 243 |
|
| Newly issued debt (maturities longer than 90 days) | 6,638 |
| 16,214 |
| | 2,288 |
| 420 |
|
| Repayments and other debt reductions (maturities longer than 90 days) | (1,846 | ) | (1,532 | ) | | (17,274 | ) | (18,215 | ) |
| Net dispositions (purchases) of GE shares for treasury | (6 | ) | (2,620 | ) | | — |
| — |
|
| Dividends paid to shareowners | (3,135 | ) | (6,269 | ) | | (185 | ) | (4,164 | ) |
| All other financing activities | (841 | ) | (461 | ) | | (2,091 | ) | (168 | ) |
| Cash from (used for) financing activities – continuing operations | (868 | ) | 5,335 |
| | (19,027 | ) | (21,884 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| | — |
| 1,905 |
|
| Cash from (used for) financing activities | (868 | ) | 5,335 |
| | (19,027 | ) | (19,979 | ) |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | (388 | ) | 504 |
| | (51 | ) | 749 |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | (4,961 | ) | 2,170 |
| | (12,400 | ) | (11,603 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 18,822 |
| 11,083 |
| | 25,902 |
| 39,301 |
|
| Cash, cash equivalents and restricted cash at September 30 | 13,862 |
| 13,253 |
| | 13,502 |
| 27,697 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| | 432 |
| 501 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 13,862 |
| $ | 13,253 |
| | $ | 13,071 |
| $ | 27,196 |
|
| |
(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 common dividends paid to GE.Company. |
Amounts may not add due to rounding.
In the consolidating data on this page, “GE” means the basis of consolidation as described in Note 1 to the consolidated financial statements; "GE Capital" means GE Capital Global Holdings, LLC (GECGH) 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 21.
20182019 3Q FORM 10-Q 7151
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements represent the consolidation of General Electric Company (the Company) and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements inour Annual Report on Form 10-K for the year ended December 31, 2017 that discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report),these financial statements, “GE” represents the adding together of all affiliated companies except GE Capital (GE Capital or Financial Services), whose continuing operations are presented on a one-line basis; GE Capital consistsrepresents the adding together of all affiliates of GE Capital Global Holdings, LLC (GECGH) and allwith the effects of its affiliates;transactions among such affiliates eliminated; and “Consolidated” represents the adding together of GE and GE Capital with the effects of transactions between the two eliminated.
The consolidated financial statements and notes thereto are unaudited. These statements include all adjustments that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2018.
We have reclassified certain prior-period amounts to conform to the current-period presentation. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations.
INTERIM PERIOD PRESENTATION
The consolidated financial statements and notes theretoOur significant accounting policies are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reporteddescribed in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2017.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Please refer to Note 1 Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements of our aforementioned Annual Report on Form 10-KReport. We include herein certain updates to those policies.
Cash, cash equivalents and restricted cash.Debt securities and money market instruments with original maturities of three months or less are included in cash, cash equivalents and restricted cash unless designated as available-for-sale and classified as investment securities. The balance includes restricted cash of $633 million and $388 million at September 30, 2019 and December 31, 2018, respectively, primarily comprising collateral for receivables sold and funds restricted in connection with certain ongoing litigation matters.
LEASE ACCOUNTING. We determine if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified we reevaluate our classification.
Lessee. At lease commencement, we record a lease liability and corresponding right-of-use (ROU) asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. We have elected to include lease and non-lease components in determining our lease liability for all leased assets except our vehicle leases. Non-lease components are generally services that the lessor performs for the year ended December 31, 2017Company associated with the leased asset. For those leases with payments based on an index, the lease liability is determined using the index at lease commencement. Lease payments based on increases in the index subsequent to lease commencement are recognized as variable lease expense as they occur. The present value of our lease liability is determined using our incremental collateralized borrowing rate at lease inception. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than 12 months. Over the lease term we use the effective interest rate method to account for the discussionlease liability as lease payments are made and the ROU asset is amortized to earnings in a manner that results in straight-line expense recognition.
Lessor. Equipment leased to others under operating leases are included in "Property, plant and equipment" and leases classified as finance leases are included in "Financing receivables" on our consolidated Statement of our significant accounting policies as well as theFinancial Position. Refer to Notes 5 and 7 for additional revenue accounting policy information provided in Note 9, reflective of our adoption of ASC 606.information.
ACCOUNTING CHANGES
CHANGES. On January 1, 2018,2019, we adopted Accounting Standards Update (ASU) 2014-09, RevenueASU No. 2016-02, Leases. Upon adoption, we recorded a $315 million increase to retained earnings, primarily attributable to the release of deferred gains on sale-lease back transactions. Our ROU assets and lease liabilities for operating leases excluding discontinued operations at adoption were $3,272 million and $3,459 million, respectively. After the adoption date, cash collections of principal on financing leases, are classified as Cash from Contracts with Customers, and the related amendments (ASC 606), which supersedes most previous U.S. GAAP revenue guidance. We elected to adopt the new standard on a retrospective basis to ensure a consistent basis of presentation withinoperating activities in our consolidated Statement of Cash Flows. Previously, such flows were classified as Cash from investing activities.
On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU requires certain changes to the presentation of hedge accounting in the financial statements and some new or modified disclosures. The ASU also simplifies the application of hedge accounting and expands the strategies that qualify for all periods reported. In addition, we elected the practical expedient for contract modifications, which essentially means that the terms of the contract that existed at the beginning of the earliest period presented can be assumed to have been in place since the inception of the contract (i.e., not practical to separately evaluate the effects of all prior contract modifications).
ASC 606 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 transfers to a customer. As a result of thehedge accounting. Upon adoption, of the standard, we recorded significant changes in the timing of revenue recognition and in the classification between revenues and costs. The financial statement effect of the adoption was a decreasean increase to our previously reported retained earnings as of January 1, 2016 of $4,240 million and a decrease to our previously reported revenues and earnings (loss) from continuing operationsborrowings of $2,224$52 million and $2,668 million, respectively, for the year ended December 31, 2017 and $220 million and $1,182 million, respectively, for the year ended December 31, 2016. The effect on our statement of financial position was principally comprised ofrelated to changes to our contract assets, inventories, deferred taxes, deferred income and progress collections balances resulting in an $8,317 million decrease to previously reported total assets asthe measurement of December 31, 2017.hedged interest rate risks.
72 201852 2019 3Q FORM 10-Q
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| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As discussed in prior filings, some of the impacts of adopting the ASC 606 are:
Long-Term Service Agreements - For our long-term service agreements, we will continue to recognize revenue over time using percentage of completion based on costs incurred relative to total expected costs. We will also continue to record cumulative effect adjustments resulting from changes to our estimated contract billings or costs (excluding those resulting from contract modifications as discussed below). Our accounting will be impacted by various changes in the new revenue standard including (1) accounting for contract modifications and their related impacts and (2) changes in the accounting scope and term of our contracts.
Modifications - Under the new revenue standard, contract modifications will generally be accounted for as if we entered into a new contract, resulting in prospective recognition of changes to our estimates of contract billings and costs. That is, cumulative effect adjustments will generally no longer be recognized in the period that modifications occur.
There was limited guidance for accounting for contract modifications under prior U.S. GAAP. As a result, our previous method of accounting for contract modifications was developed with the objective of accounting for the nature of the contract modifications. Generally, contract modifications were accounted for as cumulative effect adjustments, which reflected an update to the contract margin for the impact of the modification (i.e., changes to estimates of future contract billings and costs); however, modifications that substantially changed the economics of the arrangement were effectively accounted for as a new contract.
Scope and term - The new revenue standard provides more prescriptive guidance on identifying the elements of long-term service type contracts that should be accounted for as separate performance obligations. Application of this guidance, which focuses on understanding the nature of the arrangement, including our customers' discretion in purchasing decisions, has resulted in changes to the scope of elements included in our accounting model for long-term service agreements. For example, significant equipment upgrades offered as part of our long-term service agreements will generally be accounted for as separate performance obligations under the new revenue standard.
Also, the term of our contracts is now defined as the shorter of the stated term or the term not subject to customer termination without substantive penalty. Over this contract term, we estimate our revenues and related costs, including estimates of fixed and variable payments related to asset utilization and related costs to fulfill our performance obligations. Historically, our accounting for long-term contracts did not reflect an expectation that a contract would be terminated prior to the stated term, particularly when the probability of termination was considered remote. Under prior U.S. GAAP, while termination rights were considered, more emphasis was placed on expected outcomes (i.e., use of best estimates). For example, we used historical experience with similar types of contracts as well as other evidence (e.g., customer intent, economic compulsion and future plans for operating the asset) to determine the contract term for application of our accounting model.
These changes to our long-term service agreement accounting have significantly impacted all of our industrial businesses except for Renewable Energy, Healthcare, and Lighting and were some of the drivers in the reduction of the related contract asset balance of $8,255 million as of December 31, 2017. While these contract asset balances have been reduced due to the accounting changes, the economics and cash impact of these contracts remain unchanged.
Aviation Commercial Engines - For Aviation Commercial engines our previous method applied contract-specific estimated margin rates, which included the effect of estimated cost improvements over time, to costs incurred to determine the amount of revenue that should be recognized. The new revenue standard will result in a significant change from our previous long-term contract accounting model. While we will continue to recognize revenue at delivery, each engine is now accounted for as a separate performance obligation, reflecting the contractually stated price and manufacturing cost of each engine. The most significant effect of this change is on our new engine launches, where the cost of earlier production units is higher than the cost of later production units driven by expected cost improvements over the life of the engine program, which will generally result in lower earnings or increased losses on our early program engine deliveries to our customers. The effect of this change reduced the related contract asset balance by $1,755 million as of December 31, 2017.
All Other Large Equipment - For the remainder of our equipment businesses, the new revenue standard’s emphasis on transfer of control rather than risks and rewards has resulted in an accelerated timing of revenue recognition versus our previous accounting for certain products. While this change impacts all our businesses, our Renewable Energy business was most significantly impacted on a year over year basis with certain of their products recognized at an earlier point in time compared to historical standards. Our policy under ASC 605 was to defer recognition until all risk had transferred to the customer, which was generally upon product installation or customer acceptance. For these equipment contracts, the customer has control of the equipment in advance of the related installation or acceptance event based on our evaluation of the indicators provided in ASC 606. Consistent with our industry peers, certain of our businesses’ products have transitioned either to a point in time or over time recognition based on the nature of the arrangement. This change in timing of revenue had an effect on inventory, contract assets and progress collections to reflect the transfer of control at an earlier point in time.
Refer to our Form 8-K filed on April 13, 2018 for supplemental information on the effect of the adoption of ASC 606 to our financial statements.
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| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
On January 1, 2018, we adopted ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires the service cost component of the net periodic costs for pension and postretirement plans to be presented in the same line item in the statement of earnings as other employee-related compensation costs. The non-service related costs are now required to be presented separately from the service cost component. This change to the income statement has been reflected on a retrospective basis and had no effect on continuing or net income. The new standard also added guidance requiring entities to exclude these non-service related costs from capitalization in inventory or other internally-developed assets on a prospective basis, which is not expected to have a significant effect.
On January 1, 2018 we adopted ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The ASU requires the changes in the total of cash and restricted cash to be presented in the statement of cash flows. In addition, when cash and restricted cash are presented on separate lines on the balance sheet, an entity is required to reconcile the totals in the statement of cash flows to the related line items in the balance sheet. While not a direct effect of the adoption of the standard, to simplify the reconciliation of the statement of cash flows to the cash balances presented in our statement of financial position, we have elected to present cash and restricted cash as a single line on the balance sheet, which resulted in an increase of $668 million and $654 million to our previously reported December 31, 2017 and December 31, 2016 cash balances, respectively. The change to our cash balances and cash flows has been reflected on a retrospective basis for all periods presented.
On January 1, 2018, we adopted 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 and was required to be adopted on a modified retrospective basis. 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 as they are eliminated in consolidation. This change to our income tax provision has been reflected as a $464 million cumulative catch up adjustment to increase retained earnings as of January 1, 2018 and is not reflected in periods prior to this date.
On January 1, 2018, we adopted ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The ASU is required to be reflected on a retrospective basis and provides guidance on the classification of certain cash receipts and cash payments, including requiring cash payments for debt prepayment or debt extinguishment costs be classified as financing activities and payments from a beneficial interest in securitization transactions be classified as investing activities. As part of the adoption, we reclassified $553 million of cash receipts from our beneficial interest in securitized trade receivables within our consolidated statement of cash flows from cash inflows from operating activities to cash inflows from investing activities for the year ended December 31, 2017 (no effect to periods prior to 2017).
Our only beneficial interest in securitized trade receivables is the deferred purchase price ("DPP") created by transactions between the Company and the third parties that purchase trade receivables from GE Capital under the Receivables Facility. In our accounting under the new guidance, we determined the non-cash activities and cash flows associated with the DPP in accordance with the contractual terms of the Receivables Facility when computing the amount of DPP that we receive, in part, as consideration for the sale of receivables. In the third quarter of 2018 we learned of an interpretation of the ASU under which there may be a requirement to develop a computation of both non-cash activities and cash flows associated with the DPP that is different from the contractual computation of the DPP we have used in our accounting to date. We are currently evaluating whether a change in our accounting is required that would result in a reclassification between previously reported consolidated cash flows from operating and investing activities and, if so, whether the change would be material. We expect to complete this evaluation in the fourth quarter of 2018, and any revision of our presentation to reflect the reclassification between operating and investing cash flows and our disclosures in Note 4 in subsequent filings would be made on a retrospective basis consistent with the requirements of the adoption of a new accounting policy. The adoption of the ASU did not have an effect on our GE Industrial cash flows, nor do we expect the fourth quarter evaluation to have an effect on our GE Industrial cash flows.
On January 1, 2018 we adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU provides guidance related to the recognition and measurement of financial assets and financial liabilities with changes primarily affecting equity investments and disclosure of financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, will be measured at fair value with changes in fair value recognized in earnings. The adoption had an insignificant impact to retained earnings and other comprehensive income.
Effective January 1, 2018, we voluntarily changed the cost method of the GE U.S. inventories that were previously measured on a last-in, first-out (LIFO) basis to first-in, first-out (FIFO) basis. We believe the FIFO method is a preferable measure for our inventories as it is expected to better reflect the current value of inventory reported in the consolidated statement of financial position, improve the matching of costs of goods sold with related revenue, and provide for greater consistency and uniformity across our operations with respect to the method of inventory valuation. While this change will also require us to make a conforming change for U.S. income tax purposes, all existing GE businesses previously using LIFO are expected to be in a deflationary cost environment due to the manufacturing life cycle of the products and continuous reduction in the manufacturing costs due to better efficiencies, which would significantly decrease the tax benefit that LIFO would otherwise provide. Prior to the change and as reported in our 2017 10-K, LIFO was used for approximately 32% of GE inventories as of December 31, 2017.
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As required by U.S. GAAP, we have reflected this change in accounting principle on a retrospective basis resulting in changes to the
historical periods presented. The retrospective application of the change resulted in a decrease to our January 1, 2016 retained
earnings of $105 million and a decrease to our net loss from continuing operations by $28 million, $56 million and $124 million for the three months ended September 30, 2017, nine months ended September 30, 2017 and the year ended December 31, 2017, respectively, and a decrease to our net earnings from continuing operations by $147 million for the year ended December 31, 2016. This change did not affect our previously reported cash flows from operating, investing or financing activities.
NOTE 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
SALE.In the third quarter of 2018,August 2019, we signedannounced an agreement to sell Energy Financial Service’s (EFS) debt originationPK AirFinance, an aviation lending business within our Capital segment, to Starwood Property Trust, Inc. TheApollo Global Management, LLC (Apollo) and Athene Holding Ltd. (Athene). As of the third quarter of 2019, we had assets of $3,900 million and liabilities of $129 million for this business classified as held for sale. We expect to complete the sale was completed on September 19, 2018in the fourth quarter of 2019.
In February 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for proceedstotal consideration of approximately $2,000$21,400 million. As of the third quarter of 2019, we had assets of $8,332 million (including goodwill of $5,523 million) and we recognized a pre-tax gainliabilities of approximately $285 million.$1,174 million for this business classified as held for sale. We expect to complete the sale, subject to regulatory approval, in the first quarter of 2020.
OnIn November 13, 2017, the Company announced its intention to exit approximately $20 billion of assets over the next one to two years.assets. Since this announcement, GE has classified various businesses across our Power, Lighting, Aviation, and Healthcare segments, and Corporate as held for sale. As these businesses met the criteria for held for sale, we presented these businesses as a single asset and liability in our financial statements and recognized a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. To date, we have recorded a cumulative pre-tax loss on the planned disposals of $1,598 million ($1,489 million after-tax), of which $565 million was recorded in 2018. Through the third quarter of 2018,In 2019, we closed certain of these transactions within Corporate and our Power Healthcare, and LightingAviation segments for total net proceeds of $3,439$1,070 million, recognized a pre-tax gain of $458$218 million in the caption “Other income” in our consolidated Statement of Earnings (Loss) and liquidated $546$548 million of our previously recorded valuation allowance. These transactions are subject to customary working capital and other post-close adjustments.
While As of September 30, 2019, we announcedhave closed the strategic portfolio actions for Transportation, GE Healthcare and BHGE,sale of substantially all of these businesses have not metassets in accordance with the accounting criteria for held for sale classification. That classification will depend on the nature and timing of the respective transactions.
plan.
|
| | | | | | |
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
|
|
|
|
| Assets |
|
|
|
| Current receivables(a) | $ | 534 |
| $ | 612 |
|
| Inventories | 823 |
| 931 |
|
| Property, plant, and equipment – net | 779 |
| 931 |
|
| Goodwill | 2,238 |
| 1,619 |
|
| Other intangible assets – net | 356 |
| 403 |
|
| Contract assets | 736 |
| 619 |
|
| Valuation allowance on disposal group classified as held for sale (b) | (962 | ) | (1,000 | ) |
| Other assets | 83 |
| 49 |
|
| Assets of businesses held for sale | $ | 4,588 |
| $ | 4,164 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable(a) | $ | 543 |
| $ | 602 |
|
| Progress collections and deferred income | 294 |
| 179 |
|
| Non-current compensation and benefits | 229 |
| 162 |
|
| Other liabilities | 294 |
| 305 |
|
| Liabilities of businesses held for sale | $ | 1,360 |
| $ | 1,248 |
|
| |
(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 $329 million and $366 million at September 30, 2018 and December 31, 2017 respectively, and GE Capital services for material procurement of $39 million at September 30, 2018. These intercompany balances, included within our held for sale businesses, are reported in the GE and GE Capital columns of our financial statements, and are eliminated in deriving our consolidated financial statements.
|
| |
(b) | We adjusted the carrying value to fair value less cost to sell for certain held for sale businesses.
|
|
| | | | | | |
ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE (In millions) | September 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
| Current receivables | $ | 400 |
| $ | 184 |
|
| Inventories | 707 |
| 529 |
|
| Financing receivables held for sale | 3,849 |
| — |
|
| Property, plant, and equipment – net and Operating leases | 906 |
| 423 |
|
| Goodwill and Other intangible assets - net | 6,285 |
| 884 |
|
| Valuation allowance | (508 | ) | (1,013 | ) |
| Deferred tax asset | 819 |
| — |
|
| Other assets | 376 |
| 622 |
|
| Assets of businesses held for sale | $ | 12,832 |
| $ | 1,629 |
|
|
|
|
| Accounts payable & Progress collections and deferred income | $ | 798 |
| $ | 428 |
|
| Non-current compensation and benefits | 360 |
| 152 |
|
| Other liabilities | 384 |
| 128 |
|
| Liabilities of businesses held for sale | $ | 1,543 |
| $ | 708 |
|
DISCONTINUED OPERATIONS. Discontinued operations include our Baker Hughes and Transportation segments and certain assets and liabilities from legacy financial services businesses.
In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million shares in Baker Hughes for $3,037 million in cash (net of expenses) which, reduced our ownership interest in Baker Hughes from 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and reclassified results to discontinued operations for all periods presented and recognized a loss of $8,667 million ($8,190 million after-tax) in discontinued operations in the third quarter of 2019. The loss represents the sum of the realized loss on sale of the 144.1 million shares as well as the loss upon deconsolidation, which represents the difference between the carrying value and fair value of our remaining interest as of the transaction date.
We elected to account for our remaining interest in Baker Hughes (comprising our 36.8% ownership interest and a promissory note receivable) at fair value. The initial fair value of this investment was $9,631 million based on the Baker Hughes opening share price of $23.53 as of the transaction date and the fair value of the promissory note receivable of $750 million. Our investment is recorded in the caption “Investment securities” in our consolidated Statement of Financial Position and related earnings or loss from subsequent changes in fair value will be recognized in the caption "Other income" in continuing operations in our consolidated Statement of Earnings (Loss). See Note 3 for further information.
We have continuing involvement with Baker Hughes primarily through our remaining interest, ongoing purchases and sales of products and services, as well as the transition services that we provide to Baker Hughes. Since the date of the transaction, our sales and purchases of products and services with Baker Hughes and affiliates was not significant during the third quarter of 2019. They also participated in GE's supply chain finance program up to the date of separation with a current outstanding balance of $312 million. In addition, Baker Hughes has an outstanding promissory note to GE, which represents cash that Baker Hughes is holding on GE’s behalf due to its restricted nature. The restrictions arise as majority of the cash cannot be transferred or converted into a non-restricted market currency due to the lack of market liquidity, capital controls or exchange limitations by a Government entity. As these restrictions lapse, Baker Hughes is obligated to make principal repayments on the promissory note. Since the date of the transaction, we have collected net cash of $157 million from Baker Hughes related to these activities, including $151 million repayment on the promissory note.
20182019 3Q FORM 10-Q 7553
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| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In February 2019, we completed the spin-off and subsequent merger of our Transportation business with Wabtec, a U.S. rail equipment manufacturer. In the transaction, GE shareholders received shares of Wabtec common stock representing an approximate 24.3% ownership interest in Wabtec common stock. GE received $2,827 million in cash (net of certain deal related costs) as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $470 million for tax benefits that Wabtec realizes from the transaction. We reclassified our Transportation segment to discontinued operations in the first quarter of 2019.
DISCONTINUED OPERATIONS
As part of the transaction, we recorded a gain of $3,471 million ($2,508 million after-tax) in discontinued operations and a net after-tax decrease of $852million in additional paid in capital in connection with the spin-off ofapproximately 49.4% of Transportation to our shareholders. The fair value of our interest in Wabtec’s common and preferred shares was $3,513 million based on the opening share price of $73.45 at the date of the transaction and was recorded in the caption “Investment securities” in our consolidated Statement of Financial Position.
Discontinued operations primarily relate tofor our financial services businesses. Discontinued operations primarily comprise residual assets and liabilities relatedrelate to our exited U.S. mortgage business (WMC), our mortgage portfolio in Poland, and trailing liabilities associated with the sale of our GE Capital businesses as a result of the GE Capital Exit Plan (our plan announced in 2015 to reduce the size of our financial services businesses). and were previously reported in the Capital segment. These discontinued operations primarily comprise residual assets and liabilities related to our exited U.S. mortgage business (WMC), our mortgage portfolio in Poland, and trailing liabilities associated with the sale of our GE Capital businesses.
In January 2019, we announced an agreement in principle with the United States to settle the investigation by the U.S. Department of Justice (DOJ) regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1,500 million.
In June 2019, GE Capital recorded in the caption "Earnings (loss) from discontinued operations, net of taxes" in our consolidated Statement of Earnings (Loss), $332 million of tax benefits and $46 million of net interest benefits due to a decrease in our balance of unrecognized tax benefits. See Note 14 for further information.
Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented. See Note 19 for further information about indemnifications and further discussion on WMC.
|
| | | | | | | | | | | | | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
|
|
| |
|
|
|
| Operations |
|
|
|
| |
|
|
|
|
| Total revenues and other income (loss) | $ | 152 |
| $ | 35 |
| | $ | (1,316 | ) | $ | 123 |
|
|
|
| |
|
|
| Earnings (loss) from discontinued operations before income taxes | $ | 61 |
| $ | (191 | ) | | $ | (1,669 | ) | $ | (603 | ) |
| Benefit (provision) for income taxes(a) | (22 | ) | 71 |
| | 32 |
| 198 |
|
| Earnings (loss) from discontinued operations, net of taxes | $ | 39 |
| $ | (120 | ) | | $ | (1,637 | ) | $ | (404 | ) |
|
|
| |
|
|
| Disposal |
|
| |
|
|
| Gain (loss) on disposal before income taxes | $ | — |
| $ | 22 |
| | $ | 4 |
| $ | 3 |
|
| Benefit (provision) for income taxes(a) | — |
| (8 | ) | | (1 | ) | (89 | ) |
| Gain (loss) on disposal, net of taxes | $ | — |
| $ | 14 |
| | $ | 3 |
| $ | (86 | ) |
|
|
| |
|
|
| Earnings (loss) from discontinued operations, net of taxes(b)(c) | $ | 39 |
| $ | (106 | ) | | $ | (1,634 | ) | $ | (490 | ) |
| |
(a) | GE Capital's total tax benefit (provision) for discontinued operations and disposals included current tax benefit (provision) of $(63) million for both the three months ended September 30, 2018 and 2017, and $60 million and $(386) million for the nine months ended September 30, 2018 and 2017, respectively, including current U.S. Federal tax benefit (provision) of $(18) million and $1 million for the three months ended September 30, 2018 and 2017, respectively and $43 million and $(518) million for the nine months ended September 30, 2018 and 2017, respectively. The deferred tax benefit (provision) was $41 million and $126 million for the three months ended September 30, 2018 and 2017, respectively and $(29) million and $495 million for the nine months ended September 30, 2018 and 2017, 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 $61 million and $(168) million for the three months ended September 30, 2018 and 2017, respectively, and $(1,665) million and $(606) million for the nine months ended September 30, 2018 and 2017, respectively.
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
RESULTS OF DISCONTINUED OPERATIONS (In millions) | Baker Hughes | | Transportation and Other | | GE Capital | | Total |
| Three months ended September 30 | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
| | | | | | | | | | | | |
| Operations | | | | | | | | | | | |
| Sales of goods and services | $ | 4,478 |
| $ | 5,670 |
| | $ | — |
| $ | 932 |
| | $ | — |
| $ | — |
| | $ | 4,478 |
| $ | 6,602 |
|
| GE Capital revenues and other income (loss) | — |
| — |
| | — |
| — |
| | 16 |
| 152 |
| | 16 |
| 152 |
|
| Cost of goods and services sold | (3,686 | ) | (4,767 | ) | | — |
| (652 | ) | | — |
| — |
| | (3,686 | ) | (5,419 | ) |
| Other costs and expenses | (618 | ) | (830 | ) | | (16 | ) | (127 | ) | | (53 | ) | (90 | ) | | (686 | ) | (1,048 | ) |
| | | | | | | | | | | | |
| Earnings (loss) of discontinued operations before income taxes | 175 |
| 73 |
| | (16 | ) | 152 |
| | (37 | ) | 61 |
| | 121 |
| 287 |
|
| Benefit (provision) for income taxes | (50 | ) | (78 | ) | | 6 |
| (32 | ) | | 29 |
| (22 | ) | | (14 | ) | (132 | ) |
| Earnings (loss) of discontinued operations, net of taxes(a) | $ | 125 |
| $ | (5 | ) | | $ | (9 | ) | $ | 120 |
| | $ | (8 | ) | $ | 40 |
| | $ | 107 |
| $ | 155 |
|
| | | | | | | | | | | | |
| Disposal | | | | | | | | | | | |
| Gain (loss) on disposal before income taxes | (8,667 | ) | — |
| | — |
| — |
| | (10 | ) | — |
| | (8,677 | ) | — |
|
| Benefit (provision) for income taxes | 477 |
| — |
| | — |
| — |
| | — |
| — |
| | 477 |
| — |
|
| Gain (loss) on disposal, net of taxes | $ | (8,190 | ) | $ | — |
| | $ | — |
| $ | — |
| | $ | (10 | ) | $ | — |
| | $ | (8,201 | ) | $ | — |
|
| | | | | | | | | | | | |
| Earnings (loss) from discontinued operations, net of taxes | $ | (8,066 | ) | $ | (5 | ) | | $ | (9 | ) | $ | 120 |
| | $ | (18 | ) | $ | 40 |
| | $ | (8,093 | ) | $ | 155 |
|
|
| | | | | | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
|
|
|
| Assets |
|
|
| Cash, cash equivalents and restricted cash | $ | 432 |
| $ | 757 |
|
| Investment securities | 240 |
| 647 |
|
| Deferred income taxes | 934 |
| 951 |
|
| Financing receivables held for sale | 2,916 |
| 3,215 |
|
| Other assets | 194 |
| 342 |
|
| Assets of discontinued operations | $ | 4,716 |
| $ | 5,912 |
|
|
|
|
| Liabilities |
|
|
| Accounts payable | 46 |
| 51 |
|
| Borrowings | 1 |
| 1 |
|
| Other liabilities | 1,955 |
| 654 |
|
| Liabilities of discontinued operations | $ | 2,002 |
| $ | 706 |
|
76 201854 2019 3Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
RESULTS OF DISCONTINUED OPERATIONS
(In millions) | Baker Hughes | | Transportation and Other | | GE Capital | | Total |
| Nine months ended September 30 | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 |
| | | | | | | | | | | | |
| Operations | | | | | | | | | | | |
| Sales of goods and services | $ | 16,047 |
| $ | 16,609 |
| | $ | 549 |
| $ | 2,746 |
| | $ | — |
| $ | — |
| | $ | 16,596 |
| $ | 19,355 |
|
| GE Capital revenues and other income (loss) | — |
| — |
| | — |
| — |
| | 7 |
| (1,316 | ) | | 7 |
| (1,316 | ) |
| Cost of goods and services sold | (13,317 | ) | (14,140 | ) | | (478 | ) | (1,942 | ) | | — |
| — |
| | (13,795 | ) | (16,082 | ) |
| Other costs and expenses | (2,386 | ) | (2,530 | ) | | (22 | ) | (473 | ) | | (142 | ) | (298 | ) | | (2,550 | ) | (3,301 | ) |
| | | | | | | | | | | | |
| Earnings (loss) of discontinued operations before income taxes | 345 |
| (61 | ) | | 49 |
| 331 |
| | (136 | ) | (1,614 | ) | | $ | 258 |
| $ | (1,343 | ) |
| Benefit (provision) for income taxes | (165 | ) | (124 | ) | | (13 | ) | (93 | ) | | 356 |
| 32 |
| | 178 |
| (186 | ) |
| Earnings (loss) of discontinued operations, net of taxes(a) | $ | 179 |
| $ | (185 | ) | | $ | 36 |
| $ | 237 |
| | $ | 220 |
| $ | (1,582 | ) | | $ | 436 |
| $ | (1,529 | ) |
| | | | | | | | | | | | |
| Disposal | | | | | | | | | | | |
| Gain (loss) on disposal before income taxes | (8,667 | ) | — |
| | 3,471 |
| — |
| | 36 |
| 4 |
| | $ | (5,160 | ) | $ | 4 |
|
| Benefit (provision) for income taxes | 477 |
| — |
| | (963 | ) | — |
| | (2 | ) | (1 | ) | | (488 | ) | (1 | ) |
| Gain (loss) on disposal, net of taxes | $ | (8,190 | ) | $ | — |
| | $ | 2,508 |
| $ | — |
| | $ | 35 |
| $ | 3 |
| | $ | (5,648 | ) | $ | 3 |
|
| |
|
| | | | | | | | | |
| Earnings (loss) from discontinued operations, net of taxes | $ | (8,011 | ) | $ | (185 | ) | | $ | 2,544 |
| $ | 237 |
| | $ | 255 |
| $ | (1,579 | ) | | $ | (5,212 | ) | $ | (1,526 | ) |
(a) Earnings (loss) of discontinued operations attributable to the Company after income taxes was $378 million and $(1,432) million for the nine months ended September 30, 2019 and 2018 respectively.
|
| | | | | | |
ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS (In millions) | September 30, 2019 |
| December 31, 2018 |
|
|
|
|
| Cash, cash equivalents and restricted cash | $ | 602 |
| $ | 4,424 |
|
| Investment securities | 207 |
| 522 |
|
| Current receivables | 81 |
| 6,258 |
|
| Inventories | — |
| 5,419 |
|
| Financing receivables held for sale (Polish mortgage portfolio) | 2,542 |
| 2,745 |
|
| Property, plant and equipment - net and Operating leases | 139 |
| 7,139 |
|
| Goodwill and intangible assets - net | — |
| 31,622 |
|
| Deferred income taxes | 312 |
| 1,174 |
|
| All other assets | 296 |
| 4,550 |
|
| Assets of discontinued operations(a) | $ | 4,178 |
| $ | 63,853 |
|
|
|
|
| Accounts payable and Progress collections and deferred income | $ | 32 |
| $ | 6,806 |
|
| Operating lease liabilities | 217 |
| — |
|
| Other GE current liabilities | 51 |
| 2,002 |
|
| All other liabilities | 88 |
| 10,473 |
|
| Liabilities of discontinued operations(b) | $ | 387 |
| $ | 19,281 |
|
(a) Assets of discontinued operations included $54,596 million and $4,573 million related to our Baker Hughes and Transportation businesses, respectively as of December 31, 2018.
(b) Liabilities of discontinued operations included $15,535 million and $1,871 million related to our Baker Hughes and Transportation businesses, respectively as of December 31, 2018.
Included within all other liabilities of discontinued operations at September 30, 2019 and December 31, 2018 are intercompany tax receivables in the amount of $879 million and $1,141 million, respectively, primarily related to the financial services businesses that were part of the GE Capital Exit Plan, that are offset within all other liabilities of consolidated GE.
NOTE 3. INVESTMENT SECURITIES
Substantially allAll of our investmentdebt securities are classified as available-for-sale and comprise mainlysubstantially all are investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations. We do notChanges in fair value of our debt securities are recorded to other comprehensive income. All of our equity securities have any securities classified as held-to-maturity. readily determinable fair values and changes in fair value are recorded to earnings.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 |
| December 31, 2017 |
| (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 | $ | 21,467 |
| $ | 2,363 |
| $ | (255 | ) | $ | 23,575 |
|
| $ | 20,104 |
| $ | 3,775 |
| $ | (35 | ) | $ | 23,843 |
|
| Non-U.S. corporate | 2,100 |
| 60 |
| (41 | ) | 2,120 |
|
| 5,455 |
| 86 |
| (13 | ) | 5,528 |
|
| State and municipal | 3,411 |
| 329 |
| (68 | ) | 3,672 |
|
| 3,775 |
| 534 |
| (40 | ) | 4,269 |
|
| Mortgage and asset-backed | 3,298 |
| 45 |
| (63 | ) | 3,280 |
|
| 2,820 |
| 81 |
| (23 | ) | 2,878 |
|
| Government and agencies | 1,602 |
| 56 |
| (43 | ) | 1,615 |
|
| 1,927 |
| 75 |
| (2 | ) | 2,000 |
|
| Equity (b) | 499 |
| — |
| — |
| 499 |
|
| 166 |
| 12 |
| — |
| 178 |
|
| Total | $ | 32,378 |
| $ | 2,853 |
| $ | (469 | ) | $ | 34,761 |
|
| $ | 34,246 |
| $ | 4,564 |
| $ | (114 | ) | $ | 38,696 |
|
|
| | |
(a)FINANCIAL STATEMENTS | Includes $874 million and $569 millionNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| December 31, 2018 |
| (In millions) | Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value |
|
| Amortized
cost |
| Gross
unrealized
gains |
| Gross
unrealized
losses |
| Estimated
fair value |
|
|
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
|
|
|
|
|
| U.S. corporate | $ | 22,945 |
| $ | 4,728 |
| $ | (20 | ) | $ | 27,653 |
|
| $ | 21,306 |
| $ | 2,257 |
| $ | (357 | ) | $ | 23,206 |
|
| Non-U.S. corporate | 2,212 |
| 262 |
| (1 | ) | 2,473 |
|
| 1,906 |
| 53 |
| (76 | ) | 1,883 |
|
| State and municipal | 3,207 |
| 705 |
| (19 | ) | 3,893 |
|
| 3,320 |
| 367 |
| (54 | ) | 3,633 |
|
| Mortgage and asset-backed | 3,000 |
| 158 |
| (3 | ) | 3,155 |
|
| 3,325 |
| 51 |
| (54 | ) | 3,322 |
|
| Government and agencies | 1,420 |
| 155 |
| — |
| 1,575 |
|
| 1,314 |
| 62 |
| (20 | ) | 1,357 |
|
| Equity | 9,476 |
| — |
| — |
| 9,476 |
|
| 107 |
| — |
| — |
| 107 |
|
| Total | $ | 42,259 |
| $ | 6,008 |
| $ | (42 | ) | $ | 48,225 |
|
| $ | 31,277 |
| $ | 2,792 |
| $ | (561 | ) | $ | 33,508 |
|
The estimated fair values of investment securities held by GE at September 30, 2018 and December 31, 2017, respectively, of which $464 million and $141 million are equity securities with readily determinable fair value.
| |
(b) | These securities have readily determinable fair values and subsequent to the adoption of ASU 2016-01 on January 1, 2018, changes in fair value are recorded to earnings. Net unrealized gains (losses) recorded to earnings related to these securities were$(60) million and $12 million for the three months ended and $204 million and $41 million for the nine months ended September 30, 2018 and 2017, respectively.
|
Investments with a fair value of $4,176 million and $4,413 million were classified within Level 3 (significant inputs to the valuation model are unobservable) at September 30, 2018 and2019 increased since December 31, 2017, respectively. The2018, primarily due to decreases in market yields and the classification of our remaining investments are substantially all classifiedequity interest in Baker Hughes within Levelinvestment securities. We elected to account for our remaining Baker Hughes interest, comprising our 36.8% ownership interest and a promissory note receivable, at fair value, which is estimated at $9,356 million at September 30, 2019. During the three months ended September 30, 2019, we completed the sale of our remaining Wabtec common stock for proceeds of $1,584 million. See Note 2 (determined based on significant observable inputs). Duringfor further information.
Net unrealized gains (losses) recorded to earnings for equity securities were $(89) million and $(131) million for the three and nine months ended September 30, 2018 and 2017, there were no significant transfers into or out of Level 3.
The estimated fair value and gross unrealized losses of available-for-sale debt securities in2019, respectively, including a loss positionof $(125) million related to our interest in Baker Hughes. Net unrealized gains (losses) recorded to earnings for less than 12 monthsequity securities were $8,872$(57) million and $(261)$210 million and $3,093 million and $(23) million, respectively, at September 30, 2018 and December 31, 2017. The estimated fair value and gross unrealized losses of available-for-sale debt securities in a loss position for 12 months or more were $2,457 million and $(208) million and $4,949 million and $(91) million, respectively, at September 30, 2018 and December 31, 2017. Unrealized losses are not indicative of the amount of credit loss that would be recognized and at September 30, 2018 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell the vast majority of these securities before anticipated recovery of our amortized cost.
Total pre-tax, other-than-temporary impairments on debt securities recognized in earnings were an insignificant amount for the three and nine months ended September 30, 2018, and 2017.respectively.
|
| | | | | | |
| 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 | $ | 942 |
| $ | 948 |
|
| After one year through five years | 2,659 |
| 2,740 |
|
| After five years through ten years | 6,169 |
| 6,580 |
|
| After ten years | 18,871 |
| 20,785 |
|
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
Although we generally do not have the intent to sell any specific debt securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell debt securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. Where we have retained an equity interest in disposed businesses, we intend to sell those equity interests when it's economically advantageous to do so.
Proceeds from debt and equity securities sales, early redemptions by issuers and principal payments on the Baker Hughes promissory note totaled $2,318 million and $1,483 million in the three months ended and $6,652 million and $2,173 million in the nine months ended September 30, 2019 and 2018, respectively. Gross realized gains on available-for-sale debtinvestment securities were $10 million and $32$11 million and gross realized losses and impairments were $(32)$(75) million and $(3)$(32) million in the three months ended September 30, 20182019 and 2017,2018, respectively. Gross realized gains on available-for-sale debtinvestment securities were $32$86 million and $141$49 million and gross realized losses and impairments were $(35)$(181) million and $(7)$(35) million in the nine months ended September 30, 2019 and 2018, respectively. These realized losses included $(70) million and 2017,$(130) million related to the Wabtec sale in the three months and nine months ended September 30, 2019, respectively.
Gross unrealized losses of $(10) million and $(32) million are associated with debt securities with a fair value of $791 million and $333 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at September 30, 2019. Gross unrealized losses of $(310) million and $(251) million are associated with debt securities with a fair value of $7,048 million and $3,856 million that have been in a loss position for less than 12 months and 12 months or more, respectively, at December 31, 2018.
|
| | | | | | |
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 | $ | 390 |
| $ | 396 |
|
| After one year through five years | 2,808 |
| 2,964 |
|
| After five years through ten years | 6,636 |
| 7,628 |
|
| After ten years | 19,950 |
| 24,606 |
|
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
Substantially all of our equity securities are classified within Level 1 and substantially all our debt securities are classified within Level 2 as their valuation is determined based on significant observable inputs. Investments with a fair value of $4,971 million and $4,013 million were classified within Level 3 as significant inputs to the valuation model are unobservable at September 30, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2019 and 2018, there were no significant transfers into or out of Level 3.
In addition to the investment securities described above, we hold $586 million and $542 million of equity securities without readily determinable fair value at September 30, 2019 and December 31, 2018, respectively that are classified within "All other assets" in our consolidated Statement of Financial Position. We recognize these assets at cost and have recorded insignificant fair value increases, net of impairment, for the three and nine months ended September 30, 2019 and 2018, respectively and cumulatively, based on observable transactions.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4. CURRENT AND LONG-TERM RECEIVABLES
|
| | | | | | | | | | | | | |
| CURRENT RECEIVABLES | Consolidated |
| GE |
| (In millions) | September 30, 2019 |
| December 31, 2018 |
|
| September 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
|
|
| Customer receivables | $ | 12,225 |
| $ | 10,742 |
|
| $ | 8,444 |
| $ | 6,355 |
|
| Sundry receivables | 4,638 |
| 4,573 |
| | 5,059 |
| 4,569 |
|
| Allowance for losses | (845 | ) | (670 | ) |
| (845 | ) | (662 | ) |
| Total current receivables | $ | 16,018 |
| $ | 14,645 |
|
| $ | 12,657 |
| $ | 10,262 |
|
Current sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables, certain intercompany balances that eliminate upon consolidation and deferred purchase price. The deferred purchase price represents our retained risk with respect to current customer receivables sold to third parties through one of the Receivable Facilities. The balance of the deferred purchase price held by GE Capital at September 30, 2019 and December 31, 2018, was $368 million and $468 million, respectively.
Sales of GE current customer receivables. During any given period, GE sells customer receivables to manage short-term liquidity and credit exposure. These sales to GE Capital or third parties are made on arm's length terms and any discount related to time value of money is recognized by GE when the customer receivables are sold. During the nine months ended September 30, 2019 and 2018, GE sold approximately 59% and 70%, respectively, of its customer receivables to GE Capital or third parties. Activity related to customer receivables sold by GE is as follows: |
| | | | | | | | | | | | | | | |
Nine months ended September 30 (In millions) | 2019 |
| 2018 |
| GE Capital (a) |
|
| Third Parties |
| GE Capital (a) |
|
| Third Parties |
|
|
|
|
|
|
|
|
| Balance at January 1 | $ | 4,386 |
|
| $ | 7,880 |
|
| $ | 9,656 |
|
| $ | 5,710 |
|
| GE sales to GE Capital | 30,383 |
|
| — |
|
| 37,349 |
|
| — |
|
| GE sales to third parties | — |
|
| 3,002 |
|
| — |
|
| 3,417 |
|
| GE Capital sales to third parties | (20,505 | ) |
| 20,505 |
|
| (22,212 | ) |
| 22,212 |
|
| Collections and other | (10,746 | ) |
| (25,004 | ) |
| (19,395 | ) |
| (24,431 | ) |
| Reclassification from long-term customer receivables | 265 |
|
| — |
|
| 492 |
|
| — |
|
| Balance at September 30 | $ | 3,782 |
|
| $ | 6,382 |
|
| $ | 5,889 |
|
| $ | 6,907 |
|
Proceeds(a) At September 30, 2019 and 2018, $866 million and $1,675 million, respectively, of the current receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse has been insignificant for the nine months ended September 30, 2019 and 2018.
When GE sells customer receivables to GE Capital or third parties it accelerates the receipt of cash that would otherwise have been collected from investment securitiescustomers. In any given period, the amount of cash received from sales and early redemptions by issuers totaled $1,483 million and $659 millionof customer receivables compared to the cash GE would have otherwise collected had those customer receivables not been sold represents the cash generated or used in the three months endedperiod relating to this activity. Sales to GE Capital impact GE CFOA, while sales to third parties impact both GE and $2,189consolidated CFOA. The impact of selling fewer customer receivables to GE Capital, including those subsequently sold by GE Capital to third parties, decreased GE’s CFOA by $1,847 million and $2,433$2,718 million in the nine months ended September 30, 2019 and 2018, respectively.
LONG-TERM RECEIVABLES. In certain circumstances, GE provides customers, primarily within our Power, Renewable Energy and 2017, respectively.
In addition to equity securitiesAviation businesses, with readily determinable fairextended payment terms for the purchase of new equipment, purchases of upgrades and spare parts for our long-term service agreements. These long-term customer receivables are initially recorded at present value we hold $571 millionand have an average remaining duration of equity securities without readily determinable fair value at September 30, 2018 thatapproximately 3 years and are classified within "Allincluded in “All other assets"assets” in ourthe consolidated Statement of Financial Position and are originally recorded at cost and adjusted for observable price changes for identical or similar instruments less any impairment. We recorded fair value increases of $6 million and $49 million to those securities based on observable transactions and impairments of$(22) million and $(37) millionfor the three and nine months ended September 30, 2018, respectively.
NOTE 4. CURRENT RECEIVABLESPosition.
| | | | Consolidated(a)(b) | | GE(c) | Consolidated | | GE |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
| | September 30, 2018 |
| December 31, 2017 |
| September 30, 2019 |
| December 31, 2018 |
| | September 30, 2019 |
| December 31, 2018 |
|
| | | | | | | |
| Current receivables | $ | 21,351 |
| $ | 25,282 |
| | $ | 15,801 |
| $ | 15,693 |
| |
| Long-term customer receivables | | $ | 1,181 |
| $ | 1,442 |
|
| $ | 653 |
| $ | 559 |
|
| Long-term sundry receivables | | 1,545 |
| 1,180 |
| | 1,743 |
| 1,519 |
|
| Allowance for losses | (936 | ) | (1,073 | ) | | (925 | ) | (1,055 | ) | (110 | ) | (145 | ) |
| (110 | ) | (145 | ) |
| Total | $ | 20,414 |
| $ | 24,209 |
| | $ | 14,877 |
| $ | 14,638 |
| |
| Total long-term receivables | | $ | 2,616 |
| $ | 2,477 |
|
| $ | 2,285 |
| $ | 1,933 |
|
| |
(a) | Included GE industrial customer receivables sold to a GE Capital affiliate and recorded on GE Capital’s balance sheet of $6,404 million and $10,370 million at September 30, 2018 and December 31, 2017, respectively. The consolidated total included a deferred purchase price receivable of $417 million and $388 million at September 30, 2018 and December 31, 2017, respectively, related to our Receivables Facility (described below).
|
| |
(b) | In order to manage credit exposure, the Company sells additional current
Long-term sundry receivables include supplier advances, revenue sharing programs receivables, other non-income based tax receivables and certain intercompany balances that eliminate upon consolidation.
Sales of GE long-term customer receivables. GE may sell long-term customer receivables to manage liquidity and credit exposure. Through the second quarter of 2018, these sales were primarily made to GE Capital, while subsequently, GE has sold an insignificant amount to third parties outside the Receivables Facility, substantially all of which are serviced by the Company. The outstanding balance of these current receivables was $3,865 million and $2,541 million at September 30, 2018 and December 31, 2017, respectively. Of these balances, $2,760 million and $1,621 million was sold by GE to GE Capital prior to the sale to third parties at September 30, 2018 and December 31, 2017, respectively. At September 30, 2018 and December 31, 2017, our maximum exposure to loss under the limited recourse arrangements is $17 million and $90 million, respectively. |
| |
(c) | GE current receivables balances at September 30, 2018 and December 31, 2017, before allowance for losses, included $10,535 million and $10,452 million, respectively, from sales of goods and services to customers. The remainder of the balances primarily relates to supplier advances, revenue sharing programs and other non-income based tax receivables.
|
RECEIVABLES FACILITY
The Company has a $3,750 million revolving Receivables Facility under which receivables are sold directly to third-party purchasers. The third-party purchasers have no recourse to other assets of the Company in the event of non-payment by the debtors. Where the purchasing entity is a bank multi-seller commercial paper conduit, assets transferred by other parties to that entity form a majority of the entity’s assets. Upon sale of the receivables, we receive proceeds of cash and a deferred purchase price (DPP). The DPP is an interest in specified assets of the purchasers (the receivables sold by GE Capital) that entitles GE Capital to the residual cash flows of those specified assets.
Duringtransfer economic risk during both the nine months ended September 30, 2018, GE Industrial sold current2019 and 2018. Activity related to long-term customer receivables of $16,705 million topurchased by 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 $16,831 million on previously sold current receivables owed to the purchasing entities. The purchasing entities invested $16,452 million including $14,874 million of collections to purchase newly originated current receivables from the Company. In addition, the purchase of additional receivables by the purchasing entities increased their DPP obligation to the Company by $152 million and they paid $123 million to reduce their DPP obligation. During the nine months ended September 30, 2018, the Company recorded a loss of $106 million on sales of current receivables to the third party purchasers. is as follows:
At September 30, 2018 and December 31, 2017, GE Capital, under the Receivables Facility, serviced $3,096 million and $3,222 million of transferred receivables that remain outstanding, respectively. During the nine months ended September 30, 2018, the purchasers paid GE Capital servicing fees of $25 million.
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 investing activities in the GE Capital and consolidated columns in the Statement of Cash Flows. As the performance of the transferred current receivables is similar to the performance of our other current receivables, delinquencies are not expected to be significant.
78 20182019 3Q FORM 10-Q57
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | |
Nine months ended September 30 (In millions) | 2019 |
| 2018 |
| GE Capital(a) |
|
| GE Capital(a) |
|
|
|
|
|
| Balance at January 1 | $ | 883 |
|
| $ | 1,947 |
|
| GE sales to GE Capital | — |
|
| 123 |
|
| Sales, collections, accretion and other | (90 | ) |
| (272 | ) |
| Reclassification to current customer receivables | (265 | ) |
| (492 | ) |
| Balance at September 30 | $ | 528 |
|
| $ | 1,307 |
|
(a) At September 30, 2019 and 2018, $402 million and $797 million, respectively, of long-term customer receivables purchased and retained by GE Capital, had been sold by GE to GE Capital with recourse (i.e., GE retains all or some risk of default). The effect on GE CFOA of claims by GE Capital on receivables sold with recourse have been insignificant for the nine months ended September 30, 2019 and 2018.
Similar to sales of current customer receivables, sales of long-term customer receivables can result in cash generation or use in our Statements of Cash Flows. The impact from the sale of long-term customer receivables to GE Capital, including those subsequently sold by GE Capital to third parties, decreased GE’s CFOA by $380 million and $629 million in the nine months ended September 30, 2019 and 2018, respectively.
UNCONSOLIDATED RECEIVABLES FACILITIES. GE Capital has 2 revolving Receivables Facilities, with a total program size of $5,100 million, under which customer receivables purchased from GE are sold to third parties. In one of the facilities, upon the sale of receivables, we receive proceeds of cash and deferred purchase price and the Company’s remaining risk with respect to the sold receivables is limited to the balance of the deferred purchase price. In the other facility, upon the sale of receivables, we receive proceeds of cash only and therefore the Company has no remaining risk with respect to the sold receivables. Activity related to these facilities is included in “GE Capital sales to third parties” line in the table above and is as follows:
|
| | | | | | | |
Nine months ended September 30 (In millions) | 2019 |
| | 2018 |
|
| | | | |
| Customer receivables sold to receivables facilities | $ | 16,062 |
| | $ | 17,115 |
|
| Total cash purchase price for customer receivables | 15,824 |
| | 13,096 |
|
| Cash collections re-invested to purchase customer receivables | 13,286 |
| | 11,518 |
|
| | | | |
| Non-cash increases to deferred purchase price | $ | 168 |
| | $ | 3,935 |
|
| Cash payments received on deferred purchase price | 268 |
| | 3,905 |
|
CONSOLIDATED SECURITIZATION ENTITIES. GE Capital consolidates 3 variable interest entities (VIEs) that purchased customer receivables and long-term customer receivables from GE. At September 30, 2019 and December 31, 2018 these VIEs held current customer receivables of $1,976 million and $2,141 million and long-term customer receivables of $456 million and $678 million, respectively that were funded through the issuance of non-recourse debt to third parties. At September 30, 2019 and December 31, 2018, the outstanding debt under their respective debt facilities was $1,498 million and $1,875 million, respectively.
NOTE 5. INVENTORIES
|
| | | | | | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Raw materials and work in process | $ | 11,194 |
| $ | 10,131 |
|
| Finished goods | 9,231 |
| 8,847 |
|
| Unbilled shipments | 217 |
| 441 |
|
| Total Inventories | $ | 20,642 |
| $ | 19,419 |
|
NOTE 6. GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLESALLOWANCES
|
| | | | | | | | | | | | | |
| Consolidated |
| GE Capital |
| (In millions) | September 30, 2019 |
| December 31, 2018 |
|
| September 30, 2019 |
| December 31, 2018 |
|
|
|
|
|
|
|
| Loans, net of deferred income | $ | 1,251 |
| $ | 5,118 |
|
| $ | 5,639 |
| $ | 10,834 |
|
| Investment in financing leases, net of deferred income | 2,120 |
| 2,639 |
|
| 2,120 |
| 2,822 |
|
| 3,371 |
| 7,757 |
|
| 7,759 |
| 13,656 |
|
| Allowance for losses | (50 | ) | (58 | ) |
| (12 | ) | (28 | ) |
| Financing receivables – net | $ | 3,321 |
| $ | 7,699 |
|
| $ | 7,748 |
| $ | 13,628 |
|
|
| | | | | | |
| FINANCING RECEIVABLES, NET |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Loans, net of deferred income | $ | 12,764 |
| $ | 17,404 |
|
| Investment in financing leases, net of deferred income | 2,933 |
| 4,614 |
|
| | 15,697 |
| 22,018 |
|
| Allowance for losses | (34 | ) | (51 | ) |
| Financing receivables – net | $ | 15,663 |
| $ | 21,967 |
|
In August 2019, we announced an agreement to sell PK AirFinance, and as of the third quarter of 2019, we classified related financing receivables of $3,849 million within "Assets of businesses held for sale" in our consolidated Statement of Financial Position. See Note 2 for further information.
We manage our GE Capital financing receivables portfolio using delinquency and nonaccrual data as key performance indicators. At September 30, 2018, 3.0%2019, 3.3%, 2.3% and 2.1%3.7% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively, with the vast majority of nonaccrual financing receivables secured by collateral. At December 31, 2017, 0.6%2018, 2.4%, 1.8% and 1.1%0.9% of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively.
The GE Capital financing receivables portfolio includes $1,702 million and $4,148 million of current receivablesincrease in these key performance indicators at September 30, 2018 and December 31, 2017, respectively, which are purchased from GE with full or limited recourse. These receivables are classified within current receivables at2019 is primarily a consolidated level and are excluded fromresult of the calculation of GE Capital delinquency and nonaccrual data. The portfolio also includes $1,071 million and $1,141 million of financing receivables that are guaranteed by GE, of which $249 million and $239 million of these loans are on nonaccrual at a GE consolidated level at September 30, 2018 and December 31, 2017, respectively. Additional allowance for loan losses of $160 million and $161 million are recorded at GE and on a consolidated level for these guaranteed nonaccrual loans at September 30, 2018 and December 31, 2017, respectively. PK AirFinance reclassification described above.
In 2018, in connection with a strategic shift to make GE Capital smaller and more focused, we classified $1,646 million of Healthcare Equipment Finance financing receivables as held for sale. The related held for sale balance at September 30, 2018 is $1,628 million. Write-offs on financing receivables of $8 million were recorded for the nine months ended September 30, 2018, to reduce the carrying value of these financing receivables to the lower of cost or fair value, less cost to sell.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Original cost | $ | 87,516 |
| $ | 89,607 |
|
| Less accumulated depreciation and amortization | (36,878 | ) | (35,733 | ) |
| Property, plant and equipment – net | $ | 50,638 |
| $ | 53,874 |
|
Consolidated depreciation and amortization on property, plant and equipment was $1,527 million and $1,397 million in the three months ended September 30, 2018 and 2017, respectively and $4,222 million and $3,715 million in the nine months ended September 30, 2018 and 2017, respectively.
201858 2019 3Q FORM 10-Q79
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE Capital financing receivables that comprise receivables purchased from GE are reclassified to either "Current receivables" or "All other assets" in the consolidated Statement of Financial Position. To the extent these receivables are purchased with full or limited recourse, they are excluded from the delinquency and nonaccrual data above. See Note 4 for further information.
The portfolio also includes $385 million and $688 million of financing receivables that are guaranteed by GE, of which $93 million and $96 million of these loans are on nonaccrual at the consolidated level at September 30, 2019 and December 31, 2018, respectively. Additional allowance for loan losses are recorded at GE and at the consolidated level for these guaranteed loans.
NOTE 6. INVENTORIES
|
| | | | | | |
| (In millions) | September 30, 2019 |
| December 31, 2018 |
|
| | | |
| Raw materials and work in process | $ | 8,983 |
| $ | 8,057 |
|
| Finished goods | 6,025 |
| 5,548 |
|
| Unbilled shipments | 195 |
| 197 |
|
| Total inventories | $ | 15,203 |
| $ | 13,803 |
|
NOTE 7. PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES |
| | | | | | |
PROPERTY, PLANT AND EQUIPMENT (In millions) | September 30, 2019 |
| December 31, 2018 |
|
|
|
|
| Original cost | $ | 75,196 |
| $ | 75,618 |
|
| Less accumulated depreciation and amortization | (32,310 | ) | (32,007 | ) |
| Property, plant and equipment – net | $ | 42,886 |
| $ | 43,611 |
|
Consolidated depreciation and amortization on property, plant and equipment was $1,004 million and $1,257 million in the three months ended September 30, 2019 and 2018, respectively, and $2,969 million and $3,357 million for the nine months ended September 30, 2019 and 2018, respectively.
Operating lease income on our equipment leased to others was $934 million and $997 million for the three months ended September 30, 2019 and 2018, respectively, and comprises fixed lease income of $755 million and $828 million and variable lease income of $178 million and $169 million, respectively. Operating lease income on our equipment leased to others was $2,883 million and $3,003 million for the nine months ended September 30, 2019 and 2018, respectively, and comprises of fixed lease income of $2,293 million and $2,457 million and variable lease income of $589 million and $546 million, respectively.
Operating Lease Assets and Liabilities. Our ROU assets and lease liabilities for operating leases were $2,970 million and $3,169 million, respectively, as of September 30, 2019. Substantially all of our operating leases have remaining lease terms of 12 years or less, some of which may include options to extend.
|
| | | | | | | | | | | | | | | |
| OPERATING LEASE EXPENSE | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | | |
| Long-term (fixed) | $ | 180 |
| | $ | 232 |
| | $ | 625 |
| | $ | 733 |
|
| Long-term (variable) | 41 |
| | 26 |
| | 111 |
| | 135 |
|
| Short-term | 60 |
| | 34 |
| | 150 |
| | 100 |
|
| Total operating lease expense | $ | 281 |
| | $ | 292 |
| | $ | 887 |
| | $ | 968 |
|
|
| | | |
MATURITY OF LEASE LIABILITIES (In millions) | Total |
|
| | |
| 2019 (excluding nine months ended September 30, 2019) | $ | 212 |
|
| 2020 | 769 |
|
| 2021 | 636 |
|
| 2022 | 530 |
|
| 2023 | 429 |
|
| Thereafter | 1,195 |
|
| Total undiscounted lease payments | 3,771 |
|
| Less: imputed interest | (602 | ) |
| Total lease liability as of September 30, 2019 | $ | 3,169 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | |
SUPPLEMENTAL INFORMATION RELATED TO OPERATING LEASES (In millions) |
|
|
| | |
| Operating cash flows used for operating leases for the nine months ended September 30, 2019 | $ | 683 |
|
| Right-of-use assets obtained in exchange for new lease liabilities for the nine months ended September 30, 2019 | $ | 459 |
|
| Weighted-average remaining lease term at September 30, 2019 | 6.8 years |
|
| Weighted-average discount rate at September 30, 2019 | 5.1 | % |
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
|
| | | | | | | | | | | | | | | |
GOODWILL (In millions) | January 1, 2019 |
| Dispositions and classification to held for sale |
| Impairments |
| Currency exchange
and other |
| Balance at
September 30, 2019 |
|
|
|
| | |
|
|
| Power | $ | 139 |
| $ | — |
| $ | — |
| $ | 6 |
| $ | 145 |
|
| Renewable Energy | 4,730 |
| — |
| (1,484 | ) | 33 |
| 3,279 |
|
| Aviation | 9,839 |
| — |
| — |
| (31 | ) | 9,808 |
|
| Healthcare | 17,226 |
| (5,532 | ) | — |
| 28 |
| 11,722 |
|
| Capital | 904 |
| (39 | ) | — |
| (25 | ) | 839 |
|
| Corporate | 1,136 |
| — |
| — |
| (263 | ) | 873 |
|
| Total | $ | 33,974 |
| $ | (5,571 | ) | $ | (1,484 | ) | $ | (253 | ) | $ | 26,666 |
|
GOODWILL
|
| | | | | | | | | | | | | | | |
| CHANGES IN GOODWILL BALANCES |
| (In millions) | Balance at
January 1, 2018 |
| Acquisitions |
| Impairments |
| Dispositions,
currency
exchange
and other |
| Balance at
September 30, 2018 |
|
| | | | | | |
| Power | $ | 25,269 |
| $ | — |
| $ | (21,147 | ) | $ | (2,255 | ) | $ | 1,868 |
|
| Renewable Energy | 4,093 |
| — |
| — |
| 13 |
| 4,106 |
|
| Aviation | 10,008 |
| — |
| — |
| (38 | ) | 9,970 |
|
| Oil & Gas | 23,943 |
| 16 |
| — |
| 688 |
| 24,647 |
|
| Healthcare | 17,306 |
| — |
| — |
| (40 | ) | 17,266 |
|
| Transportation | 902 |
| — |
| — |
| (17 | ) | 885 |
|
| Lighting(a) | — |
| — |
| — |
| — |
| — |
|
| Capital | 984 |
| — |
| — |
| — |
| 984 |
|
| Corporate | 1,463 |
| — |
| (827 | ) | 15 |
| 651 |
|
| Total | $ | 83,968 |
| $ | 16 |
| $ | (21,973 | ) | $ | (1,634 | ) | $ | 60,377 |
|
| |
(a) | Substantial majority of Lighting segment classified as held for sale in the fourth quarter of 2017.
|
Goodwill balances decreased primarily as a result of impairments (discussed below), the reclassification of the Distributed Powertransferring our BioPharma business within our PowerHealthcare segment to Assets of businesses held for sale and currency effects of a stronger U.S. dollar, partially offset by adjustments to the allocation of purchase price associated withgoodwill impairments at our acquisitions of Baker HughesHydro and LM Wind Power.Grid Solutions equipment and services reporting units within our Renewable Energy segment.
We test goodwill for impairment annually in the third quarter of each year using data asyear. Subsequent to this year's third quarter testing, and in order to improve alignment of July 1our annual goodwill impairment test and strategic planning processes, we are changing our annual testing date from the third quarter to the fourth quarter. As a result, we will be required to retest each of that year.our reporting units in the fourth quarter of 2019. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied ifwhen 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 by analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our annual reporting unit valuations ranged from 9.5%9.6% to 17.0%22.0%.
Based on the results of our step one testing,annual impairment test, the fair values of each of our reporting units exceeded their carrying values except for the Power Generation and Grid Solutionsour Hydro reporting units,unit within our PowerRenewable Energy segment. The majorityHydro reporting unit continues to experience declines in order growth and increased project costs which resulted in downward revisions to our current and projected earnings and cash flows for this business. Therefore, we performed a step two analysis which resulted in a non-cash goodwill impairment loss of $740 million. We determined the fair value of the Hydro reporting unit using a combination of the income and market approaches. We recorded the impairment loss in the caption “Goodwill impairments” in our consolidated Statement of Earnings (Loss). After the impairment charge, there is 0 remaining goodwill associated with our Hydro reporting unit. All of the goodwill in our Power segmentthis reporting unit was previously recognized as a result of the Alstom acquisition at which time approximately $15,800 million of goodwill was attributed to our Power Generation and Grid Solutions reporting units. As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry, lower market penetration, uncertain timing of deal closures due to deal financing, and the complexities of working in emerging markets. acquisition.
In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges. Finally, market factors such as increasing energy efficiency and renewable energy penetrationwe continue to impact our view of long-term demand. These conditions have resulted in downward revisionsmonitor the operating results and cash flow forecasts of our forecasts on current and future projected earnings and cash flows at these businesses.
Therefore, we conducted step two of the goodwill impairment test for the Power Generation and Grid SolutionsAdditive reporting units. Step two requires that we allocateunit in our Aviation segment as the fair value of thethis reporting unit to identifiable assets and liabilitieswas not significantly in excess of theits carrying value. At September 30, 2019, our Additive reporting unit had goodwill of $1,097 million.
We also continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material charge depending on the timing, negotiated terms and conditions of any agreements, including previously unrecognized intangible assets. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense.$839 million of goodwill.
80 201860 2019 3Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In the second quarter of 2019, we reorganized our Grid Solutions reporting unit in our Power segment by separating our Grid Solutions software business from the Grid Solutions reporting unit. Our Grid Solutions software business was then moved into Corporate and combined with our Digital business. In addition, the remaining Grid Solutions reporting unit (now referred to as Grid Solutions equipment and services) was moved into our Renewable Energy segment as a separate reporting unit. As a result, we allocated goodwill between Grid Solutions software and the Grid Solutions equipment and services reporting unit based on the relative fair values of each business. This resulted in $1,618 million of goodwill transferring from our Power segment to our Renewable Energy segment and our Digital business within Corporate in the amounts of $744 million and $874 million, respectively.
As a consequence of separating the two businesses, the Grid Solutions equipment and services reporting unit’s fair value was below its carrying value. Therefore, we conducted step two of the goodwill impairment test for this reporting unit using a current outlook.
In performing the second step, we identified significant unrecognized intangible assets primarily related to customer relationships, backlog,internally developed technology and trade name. The value of these unrecognized intangible assets is driven by high customer retention rates in our Power business, our contractual backlog, the value of internally created technology, and the GE trade name. The combination of these unrecognized intangibles, adjustments to the carrying value of other assets and liabilities, and reduced reporting unit fair valuesvalue calculated in step one, resulted in an implied fair value of goodwill substantially below the carrying value of goodwill for the Power Generation and Grid Solutions equipment and services reporting units.unit. Therefore, in the third quarter, we recorded our best estimate of a non-cash goodwill impairment loss of $21,973 million. The$744 million in the caption "Goodwill impairments" in our consolidated Statement of Earnings (Loss). After the impairment loss included $827 millioncharge, there is 0 remaining goodwill associated with our Grid Solutions equipment and services reporting unit.
Further, in the second quarter of 2019, a portion of goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power GenerationRenewable Energy, Aviation and Grid Solutions reporting units. We recorded the estimated impairment lossesHealthcare segments in purchase accounting and for goodwill testing purposes is reflected in these segments in the caption "Goodwill impairment" in our consolidated Statement of Earnings (Loss). As a result of ongoing updates to our long-range forecast and the complexity of valuing intangible assets in the second step of the impairment test, the Company has not yet completed its analysis. We will recognize any differences to this estimate in the fourth quarter when we finalize the step two impairment test. After the impairment loss, there is no remaining goodwill associated with our Power Generation reporting unit and $1,653 million related to our Grid Solutions reporting unit at September 30, 2018.table above.
In the second quarter of 2018, we classified a significant portion of Healthcare Equipment Finance’s financing receivables as assets held for sale. Upon disposition of these assets, we expect to recognize a goodwill impairment for a substantial portion of the $111 million of goodwill in our Industrial Finance reporting unit. This charge will be offset against the expected gain on sale of the financing receivables.
As we have previously announced, we plan an orderly separation of our ownership interest in BHGE over time. While the fair value of each of the reporting units in our Oil & Gas segment are in excess of their carrying values, our basis in BHGE’s shares currently exceeds its publicly traded share price. Depending on the form and timing of our separation, as well as BHGE’s stock price at the time and the extent of our remaining interest in BHGE, if any, we may recognize a loss either in shareholders equity or the income statement, or both, and such amounts could be material.
In 2017, we recognized a total non-cash goodwill impairment loss of $22,136 million in our Power ConversionGeneration, Grid Solutions, and Hydro reporting unit of $1,164 million,units in our Power and Renewable Energy segments, of which $947$21,973 million was recorded duringin the third quarter of 2017. After the impairment loss, there was no goodwill in our Power Conversion reporting unit.2018.
EstimatingDetermining the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
|
| | | | | | |
OTHER INTANGIBLE ASSETS - NET (In millions) | September 30, 2019 |
| December 31, 2018 |
|
| | | |
| Intangible assets subject to amortization | $ | 10,766 |
| $ | 12,178 |
|
OTHER INTANGIBLE ASSETS
Intangible assets decreased in the third quarter of 2019, primarily as a result of amortization, impairments, and the transfer of BioPharma within our Healthcare segment to held for sale of $526 million. Consolidated amortization expense was $496 million and $831 million in the three months ended September 30, 2019 and 2018, respectively, and $1,220 million and$1,740 million in the nine months ended September 30, 2019 and 2018, respectively.
Included within amortization expense for the three and nine months ended September 30, 2019 and September 30, 2018 were non-cash impairment charges recorded in Corporate and in our Power segment for $103 million and $428 million, respectively. We determined the fair value of these intangible assets using an income approach. These charges were recorded within the caption "Selling, general, and administrative expense" in our consolidated Statement of Earnings (Loss).
NOTE 9. REVENUES
The equipment and services revenues classification in the table below is consistent with our segment MD&A presentation.
|
| | | | | | |
| OTHER INTANGIBLE ASSETS - NET | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Intangible assets subject to amortization | $ | 16,616 |
| $ | 18,056 |
|
| Indefinite-lived intangible assets(a) | 2,223 |
| 2,217 |
|
| Total | $ | 18,838 |
| $ | 20,273 |
|
| |
(a) | Indefinite-lived intangible assets principally comprise trademarks/trade names and in-process research and development.
|
|
| | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | Three months ended September 30 |
| (In millions) | 2019 | | 2018 |
| | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | | |
| Power | $ | 1,434 |
| $ | 2,492 |
| $ | 3,926 |
| | $ | 1,334 |
| $ | 3,225 |
| $ | 4,559 |
|
| Renewable Energy | 3,609 |
| 816 |
| 4,425 |
| | 3,414 |
| 505 |
| 3,920 |
|
| Aviation | 3,149 |
| 4,960 |
| 8,109 |
| | 2,833 |
| 4,646 |
| 7,480 |
|
| Healthcare | 2,828 |
| 2,095 |
| 4,923 |
| | 2,700 |
| 2,006 |
| 4,707 |
|
| Total Industrial segment revenues | $ | 11,020 |
| $ | 10,363 |
| $ | 21,383 |
| | $ | 10,283 |
| $ | 10,383 |
| $ | 20,665 |
|
|
| | | | | | | | | | | | | | | | | | | |
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION |
| | September 30, 2018 | | December 31, 2017 |
| (In millions) | Gross carrying amount |
| Accumulated amortization |
| Net |
| | Gross carrying amount |
| Accumulated amortization |
| Net |
|
| | | | | | | | |
| Customer-related(a) | $ | 10,370 |
| $ | (3,648 | ) | $ | 6,724 |
| | $ | 10,614 |
| $ | (3,095 | ) | $ | 7,521 |
|
| Patents and technology | 10,651 |
| (4,515 | ) | 6,136 |
| | 10,271 |
| (3,899 | ) | 6,372 |
|
| Capitalized software | 8,189 |
| (5,271 | ) | 2,919 |
| | 8,064 |
| (4,974 | ) | 3,089 |
|
| Trademarks | 1,150 |
| (514 | ) | 636 |
| | 1,280 |
| (421 | ) | 859 |
|
| Lease valuations | 157 |
| (86 | ) | 70 |
| | 170 |
| (80 | ) | 89 |
|
| All other | 231 |
| (100 | ) | 132 |
| | 218 |
| (92 | ) | 125 |
|
| Total | $ | 30,748 |
| $ | (14,134 | ) | $ | 16,616 |
| | $ | 30,618 |
| $ | (12,561 | ) | $ | 18,056 |
|
| |
(a) | Balance includes payments made to our customers, primarily within our Aviation business. |
|
| | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES | Nine months ended September 30 |
| (In millions) | 2019 | | 2018 |
| | Equipment | Services | Total | | Equipment | Services | Total |
| | | | | | | | |
| Power | $ | 4,473 |
| $ | 8,751 |
| $ | 13,224 |
| | $ | 6,224 |
| $ | 10,545 |
| $ | 16,768 |
|
| Renewable Energy | 8,457 |
| 2,133 |
| 10,590 |
| | 7,979 |
| 1,663 |
| 9,642 |
|
| Aviation | 9,295 |
| 14,645 |
| 23,940 |
| | 8,281 |
| 13,830 |
| 22,111 |
|
| Healthcare | 8,320 |
| 6,220 |
| 14,540 |
| | 8,119 |
| 6,268 |
| 14,387 |
|
| Total Industrial segment revenues | $ | 30,545 |
| $ | 31,748 |
| $ | 62,293 |
| | $ | 30,602 |
| $ | 32,305 |
| $ | 62,908 |
|
20182019 3Q FORM 10-Q 8161
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Intangible assets subject to amortization decreased by $1,440 million in the nine months ended September 30, 2018, primarily as a result of amortization, impairments, currency effects of a stronger U.S. dollar and the reclassification of the Distributed Power business to Assets of businesses held for sale, partially offset by the acquisition of a technology intangible asset of $632 million at our Aviation business and the capitalization of new software across several business platforms. Due to the continued decline in the Power industry, we determined that certain intangible assets, primarily technology and customer relationships, were impaired. Therefore, included within amortization expense for the three and nine months ended September 30, 2018, was a $428 million non-cash impairment charge recorded by our Power Conversion business within our Power segment. This charge was recorded within the "Selling, general and administrative expense" caption in our consolidated Statement of Earnings (Loss).
GE amortization expense related to intangible assets subject to amortization was $944 million and $613 million in the three months ended September 30, 2018 and 2017, respectively and $2,085 million and $1,662 million for the nine months ended September 30, 2018 and 2017, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $12 million and $16 million in the three months ended September 30, 2018 and 2017, respectively and $42 million and $50 million for the nine months ended September 30, 2018 and 2017, respectively.
NOTE 9. REVENUES
REVENUES FROM THE SALE OF EQUIPMENT
PERFORMANCE OBLIGATIONS SATISFIED OVER TIME
We recognize revenue on agreements for the sale of customized goods including power generation equipment, larger oil drilling equipment projects, military development contracts, locomotive units, and long-term construction projects on an over time basis. We recognize revenue using percentage of completion based on costs incurred relative to total expected costs. Our estimate of costs to be incurred to fulfill our promise to a customer is based on our history of manufacturing or constructing similar assets for customers and is updated routinely to reflect changes in quantity or pricing of the inputs. We recognize revenue as we customize the customer's equipment during the manufacturing or integration process and obtain right to payment for work performed. We provide for potential losses on any of these agreements when it is probable that we will incur the loss.
Our billing terms for these over-time contracts vary, but are generally based on achieving specified milestones. The differences between the timing of our revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to our contract asset or contract liability positions (see Note 10 for further information).
PERFORMANCE OBLIGATIONS SATISFIED AT A POINT IN TIME
We recognize revenue on agreements for non-customized equipment including commercial aircraft engines, healthcare equipment, resource extraction equipment and other goods we manufacture on a standardized basis for sale to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally no earlier than when the customer has physical possession of the product. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).
In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.
Our billing terms for these point in time equipment contracts vary and generally coincide with delivery to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
REVENUES FROM THE SALE OF SERVICES
Consistent with our discussion in the MD&A and the way we manage our businesses, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of our operations.
PERFORMANCE OBLIGATIONS SATISFIED OVER TIME
We enter into long-term product service agreements with our customers primarily within our Aviation, Power, Oil & Gas and Transportation segments. These agreements require us to provide preventative maintenance, overhauls, and standby "warranty-type" services that include certain levels of assurance regarding asset performance and uptime throughout the contract periods, which generally range from 5 to 25 years. We account for items that are integral to the maintenance of the equipment as part of our service related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). We recognize revenue as we perform under the arrangements using percentage of completion based on costs incurred relative to total expected costs. Throughout the life of a contract, this measure of progress captures the nature, timing and extent of our underlying performance activities as our stand-ready services often fluctuate between routine inspections and maintenance, unscheduled service events and major overhauls at pre-determined usage intervals. Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract).
Our billing terms for these arrangements are generally based on the utilization of the asset (e.g., per hour of usage) or upon the occurrence of a major maintenance event within the contract, such as an overhaul. The differences between the timing of our revenue recognized (based on costs incurred) and customer billings (based on contractual terms) results in changes to our contract asset or contract liability positions (see Note 10 for further information).
Changes in customer utilization can influence the timing and extent of overhauls and other service events over the life of the contract. As a result, the revenue recognized each period is dependent on our estimate of how customers will utilize their assets over the term of the agreement. We generally use a combination of both historical utilization trends as well as forward-looking information such as market conditions and potential asset retirements in developing our revenue estimates. This estimate of customer utilization will impact both the total contract billings and costs to satisfy our obligation to maintain the equipment. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are generally only included in future cost estimates after savings have been observed in actual results or proven to be effective through an extensive regulatory engineering approval process.
We also enter into long-term product services agreements in our Healthcare and Renewable Energy segments. Revenues are recognized for these arrangements on a straight line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.
PERFORMANCE OBLIGATIONS SATISFIED AT A POINT IN TIME
We sell certain tangible products, largely spare equipment, through our services businesses. We recognize revenues and bill our customers for this equipment at the point in time that the customer obtains control of the good, which is at the point in time we deliver the spare part to the customer.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DISAGGREGATED REVENUES
|
| | | | | | | | | | | | | | | | | | | |
| EQUIPMENT & SERVICES REVENUES(a) | | | | | | | |
| | | | | | | | |
| | Three months ended September 30 |
| (In millions) | 2018 | | 2017 |
| | Equipment Revenues | Services Revenues | Total Revenues | | Equipment Revenues | Services Revenues | Total Revenues |
| | | | | | | | |
| Power | $ | 2,299 |
| $ | 3,441 |
| $ | 5,739 |
| | $ | 4,468 |
| $ | 4,059 |
| $ | 8,527 |
|
| | | | | | | | |
| Renewable Energy | 2,448 |
| 425 |
| 2,873 |
| | 1,957 |
| 550 |
| 2,507 |
|
| | | | | | | | |
| Aviation | 2,834 |
| 4,646 |
| 7,480 |
| | 2,425 |
| 4,270 |
| 6,696 |
|
| | | | | | | | |
| Oil & Gas | 2,221 |
| 3,449 |
| 5,670 |
| | 2,168 |
| 3,143 |
| 5,311 |
|
| | | | | | | | |
| Healthcare | 2,700 |
| 2,006 |
| 4,707 |
| | 2,648 |
| 2,062 |
| 4,710 |
|
| | | | | | | | |
| Transportation | 249 |
| 682 |
| 932 |
| | 364 |
| 585 |
| 949 |
|
| | | | | | | | |
| Lighting | 367 |
| 18 |
| 385 |
| | 454 |
| 18 |
| 472 |
|
| | | | | | | | |
| Total Industrial Segment Revenues | $ | 13,117 |
| $ | 14,668 |
| $ | 27,785 |
| | $ | 14,484 |
| $ | 14,687 |
| $ | 29,171 |
|
| | | EQUIPMENT & SERVICES REVENUES(a) | | | | |
| | | | | |
| | Nine months ended September 30 | |
| SUB-SEGMENT REVENUES | | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 | | 2017 | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | Equipment Revenues | Services Revenues | Total Revenues | | Equipment Revenues | Services Revenues | Total Revenues | | | | | | | |
| | | | | |
| Gas Power | | $ | 2,732 |
| | $ | 2,678 |
| | $ | 9,242 |
| | $ | 9,719 |
|
| Power Portfolio | | 1,194 |
| | 1,882 |
| | 3,982 |
| | 7,050 |
|
| Power | $ | 9,336 |
| $ | 11,205 |
| $ | 20,540 |
| | $ | 13,282 |
| $ | 12,586 |
| $ | 25,868 |
| $ | 3,926 |
| | $ | 4,559 |
| | $ | 13,224 |
| | $ | 16,768 |
|
| | | | | | | | | | | |
| Onshore Wind | | $ | 3,193 |
| | $ | 2,523 |
| | $ | 7,084 |
| | $ | 5,119 |
|
| Grid Solutions equipment and services | | 1,004 |
| | 1,059 |
| | 2,876 |
| | 3,483 |
|
| Hydro and Offshore Wind | | 228 |
| | 337 |
| | 630 |
| | 1,041 |
|
| Renewable Energy | 4,754 |
| 1,418 |
| 6,172 |
| | 5,385 |
| 1,201 |
| 6,587 |
| $ | 4,425 |
| | $ | 3,920 |
| | $ | 10,590 |
| | $ | 9,642 |
|
| | | | | | | | | | | |
| Commercial Engines & Services | | $ | 5,997 |
| | $ | 5,636 |
| | $ | 17,796 |
| | $ | 16,443 |
|
| Military | | 1,061 |
| | 898 |
| | 3,073 |
| | 2,942 |
|
| Systems & Other | | 1,050 |
| | 946 |
| | 3,071 |
| | 2,726 |
|
| Aviation | 8,281 |
| 13,830 |
| 22,111 |
| | 7,375 |
| 12,628 |
| 20,003 |
| $ | 8,109 |
| | $ | 7,480 |
| | $ | 23,940 |
| | $ | 22,111 |
|
| | | | | | | | | | | |
| Oil & Gas | 6,638 |
| 9,971 |
| 16,609 |
| | 4,732 |
| 6,662 |
| 11,394 |
| |
| | | | | |
| Healthcare Systems | | $ | 3,642 |
| | $ | 3,566 |
| | $ | 10,664 |
| | $ | 10,877 |
|
| Life Sciences | | 1,280 |
| | 1,140 |
| | 3,875 |
| | 3,509 |
|
| Healthcare | 8,119 |
| 6,268 |
| 14,387 |
| | 7,605 |
| 6,097 |
| 13,703 |
| $ | 4,923 |
| | $ | 4,707 |
| | $ | 14,540 |
| | $ | 14,387 |
|
| | | | | | | | | | | |
| Transportation | 820 |
| 1,925 |
| 2,746 |
| | 1,373 |
| 1,633 |
| 3,006 |
| |
| | | | | |
| Lighting | 1,227 |
| 45 |
| 1,272 |
| | 1,361 |
| 46 |
| 1,407 |
| |
| | | | | |
| Total Industrial Segment Revenues | $ | 39,175 |
| $ | 44,662 |
| $ | 83,837 |
| | $ | 41,112 |
| $ | 40,854 |
| $ | 81,967 |
| $ | 21,383 |
| | $ | 20,665 |
| | $ | 62,293 |
| | $ | 62,908 |
|
| Capital(a) | | 2,097 |
| | 2,473 |
| | 6,645 |
| | 7,075 |
|
| Corporate items and eliminations | | (120 | ) | | 254 |
| | 39 |
| | 531 |
|
| Consolidated Revenues | | $ | 23,360 |
| | $ | 23,392 |
| | $ | 68,976 |
| | $ | 70,513 |
|
| |
| (a) | Revenues classification consistent withSubstantially all of our MD&A defined Services revenue |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | |
| SUB-SEGMENT REVENUES | | | | | | | |
| | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
| | | | | | | | |
| Power | | | | | | | |
| Gas Power Systems | $ | 961 |
| | $ | 1,965 |
| | $ | 3,897 |
| | $ | 6,175 |
|
| Power Services | 2,727 |
| | 2,901 |
| | 8,737 |
| | 9,101 |
|
| Steam Power Systems | 425 |
| | 577 |
| | 1,413 |
| | 1,504 |
|
| Energy Connections | 1,486 |
| | 2,386 |
| | 6,005 |
| | 7,072 |
|
| Other | 141 |
| | 697 |
| | 489 |
| | 2,015 |
|
| Power Revenues | $ | 5,739 |
| | $ | 8,527 |
| | $ | 20,540 |
| | $ | 25,868 |
|
| | | | | | | | |
| Renewable Energy | | | | | | | |
| Onshore Wind | $ | 2,558 |
| | $ | 2,187 |
| | $ | 5,153 |
| | $ | 5,794 |
|
| Hydro | 197 |
| | 258 |
| | 607 |
| | 641 |
|
| Offshore Wind | 118 |
| | 62 |
| | 412 |
| | 151 |
|
| Renewable Energy Revenues | $ | 2,873 |
| | $ | 2,507 |
| | $ | 6,172 |
| | $ | 6,587 |
|
| | | | | | | | |
| Aviation | | | | | | | |
| Commercial Engines & Services | $ | 5,636 |
| | $ | 4,848 |
| | $ | 16,443 |
| | $ | 14,737 |
|
| Military | 898 |
| | 1,023 |
| | 2,942 |
| | 2,891 |
|
| Systems & Other | 946 |
| | 824 |
| | 2,726 |
| | 2,375 |
|
| Aviation Revenues | $ | 7,480 |
| | $ | 6,696 |
| | $ | 22,111 |
| | $ | 20,003 |
|
| | | | | | | | |
| Oil & Gas | | | | | | | |
| Turbomachinery & Process Solutions (TPS) | $ | 1,393 |
| | $ | 1,422 |
| | $ | 4,231 |
| | $ | 4,657 |
|
| Oilfield Services (OFS) | 2,993 |
| | 2,661 |
| | 8,554 |
| | 3,101 |
|
| Oilfield Equipment (OFE) | 631 |
| | 613 |
| | 1,912 |
| | 2,011 |
|
| Digital Solutions | 653 |
| | 615 |
| | 1,912 |
| | 1,625 |
|
| Oil & Gas Revenues | $ | 5,670 |
| | $ | 5,311 |
| | $ | 16,609 |
| | $ | 11,394 |
|
| | | | | | | | |
| Healthcare | | | | | | | |
| Healthcare Systems | $ | 3,417 |
| | $ | 3,365 |
| | $ | 10,241 |
| | $ | 9,670 |
|
| Life Sciences | 1,140 |
| | 1,099 |
| | 3,509 |
| | 3,273 |
|
| Healthcare Digital | 149 |
| | 246 |
| | 636 |
| | 760 |
|
| Healthcare Revenues | $ | 4,707 |
| | $ | 4,710 |
| | $ | 14,387 |
| | $ | 13,703 |
|
| | | | | | | | |
| Transportation | | | | | | | |
| Locomotives | $ | 133 |
| | $ | 268 |
| | $ | 481 |
| | $ | 1,145 |
|
| Services | 564 |
| | 489 |
| | 1,600 |
| | 1,381 |
|
| Mining | 139 |
| | 106 |
| | 392 |
| | 242 |
|
| Other | 96 |
| | 86 |
| | 273 |
| | 239 |
|
| Transportation Revenues | $ | 932 |
| | $ | 949 |
| | $ | 2,746 |
| | $ | 3,006 |
|
| | | | | | | | |
| Lighting | | | | | | | |
| Current | $ | 213 |
| | $ | 259 |
| | $ | 697 |
| | $ | 745 |
|
| GE Lighting | 172 |
| | 213 |
| | 575 |
| | 662 |
|
| Lighting Revenues | $ | 385 |
| | $ | 472 |
| | $ | 1,272 |
| | $ | 1,407 |
|
| | | | | | | | |
| Total Industrial Segment Revenues | $ | 27,785 |
| | $ | 29,171 |
| | $ | 83,837 |
| | $ | 81,967 |
|
| Capital Revenues (a) | 2,473 |
| | 2,397 |
| | 7,075 |
| | 7,525 |
|
| Corporate items and eliminations | (685 | ) | | (907 | ) | | (2,575 | ) | | (2,851 | ) |
| Consolidated Revenues (a) | $ | 29,573 |
| | $ | 30,662 |
| | $ | 88,337 |
| | $ | 86,640 |
|
| |
(a) | Includes $2,425 million and $2,342 million for the three months ended September 30, 2018 and 2017, respectively, and $6,903 million and $7,346 million for the nine months ended September 30, 2018 and 2017, respectively, of revenues at GE Capital are outside of the scope of ASC 606. |
REMAINING PERFORMANCE OBLIGATION
. As of September 30, 2018,2019, the aggregate amount of the contracted revenues allocated to our unsatisfied (or partially unsatisfied) performance obligations was $249,154 million.$240,536 million. We expect to recognize revenue as we satisfy our remaining performance obligations as follows:
Equipment - total 1) equipment-related remaining performance obligation of $51,55345,809 million of which 52%53%,72%66% and 93% 71% is expected to be satisfied within 1,2 and 5 years, respectively, and the remaining thereafter.
Service - totalthereafter; and 2) services-related remaining performance obligation of $197,602 $194,727 million of which 17%11%, 52%48%, 75%72% and 86%91% is expected to be recognized within 1, 5, 10 and 15 years, respectively, and the remaining thereafter.
Contract modifications could affect both the timing to complete as well as the amount to be received as we fulfill the related remaining performance obligations.
NOTE 10. CONTRACT AND OTHER DEFERRED ASSETS & PROGRESS COLLECTIONS AND DEFERRED INCOME
Contract and other deferred assets decreased$298 million in 2019. Our long-term service agreements decreased primarily due to billings of $8,306 million and a net unfavorable change in estimated profitability of $61 million at Aviation and $57 million at Power, offset by revenues recognized of $8,162 million. Our short-term and other service agreements increased due to the timing of revenue recognition ahead of billings primarily at Aviation.
|
| | | | | | | | | | | | | | | |
September 30, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total |
| | | | | | |
| Revenues in excess of billings | $ | 5,346 |
| $ | 4,901 |
| $ | — |
| $ | — |
| $ | 10,247 |
|
| Billings in excess of revenues | (1,560 | ) | (3,293 | ) | — |
| — |
| (4,853 | ) |
| Long-term service agreements | 3,787 |
| 1,607 |
| — |
| — |
| 5,394 |
|
| Short-term and other service agreements | 172 |
| 343 |
| — |
| 290 |
| 804 |
|
| Equipment contract revenues | 2,670 |
| 93 |
| 1,288 |
| 324 |
| 4,374 |
|
| Total contract assets | 6,628 |
| 2,042 |
| 1,288 |
| 614 |
| 10,573 |
|
| | | | | | |
| Deferred inventory costs | 904 |
| 357 |
| 1,574 |
| 351 |
| 3,186 |
|
| Nonrecurring engineering costs | 42 |
| 2,107 |
| 62 |
| 45 |
| 2,257 |
|
| Customer advances and other | 1 |
| 1,149 |
| — |
| (32 | ) | 1,118 |
|
| Contract and other deferred assets | $ | 7,576 |
| $ | 5,655 |
| $ | 2,924 |
| $ | 978 |
| $ | 17,133 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | |
December 31, 2018 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total |
| | | | | | |
| Revenues in excess of billings | $ | 5,368 |
| $ | 5,412 |
| $ | — |
| $ | — |
| $ | 10,780 |
|
| Billings in excess of revenues | (1,693 | ) | (3,297 | ) | — |
| — |
| (4,989 | ) |
| Long-term service agreements | 3,675 |
| 2,115 |
| — |
| — |
| 5,790 |
|
| Short-term and other service agreements | 167 |
| 272 |
| — |
| 251 |
| 690 |
|
| Equipment contract revenues | 2,761 |
| 80 |
| 1,174 |
| 384 |
| 4,400 |
|
| Total contract assets | 6,603 |
| 2,468 |
| 1,174 |
| 635 |
| 10,880 |
|
| | | | | | |
| Deferred inventory costs | 1,003 |
| 673 |
| 1,267 |
| 365 |
| 3,309 |
|
| Nonrecurring engineering costs | 43 |
| 1,916 |
| 85 |
| 51 |
| 2,095 |
|
| Customer advances and other | — |
| 1,146 |
| — |
| — |
| 1,146 |
|
| Contract and other deferred assets | $ | 7,650 |
| $ | 6,204 |
| $ | 2,525 |
| $ | 1,052 |
| $ | 17,431 |
|
NOTE 10. CONTRACT & OTHER DEFERRED ASSETS AND PROGRESS COLLECTIONS & DEFERRED INCOMEProgress collections represent cash received from customers under ordinary commercial payment terms in advance of delivery. Progress collections on equipment contracts primarily comprises milestone payments received from customer prior to the manufacture and delivery of customized equipment orders. Other progress collections primarily comprise down payments from customers to reserve production slots for standardized inventory orders such as advance payments from customers when they place orders for wind turbines and blades within our Renewable Energy segment and payments from airframers and airlines for install and spare engines, respectively, within our Aviation segment.
|
| | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 (In millions) | Power | Aviation | Oil & Gas | Renewable Energy | Transportation | Other(a) | Total |
| | | | | | | | |
| GE | | | | | | | |
| Revenues in excess of billings | | | | | | | |
| Long-term product service agreements(b) | $ | 3,828 |
| $ | 2,295 |
| $ | 540 |
| $ | — |
| $ | 526 |
| $ | — |
| $ | 7,190 |
|
| Equipment contract revenues(c) | 4,276 |
| 444 |
| 1,124 |
| 297 |
| 207 |
| 543 |
| 6,890 |
|
| Total contract assets | 8,104 |
| 2,739 |
| 1,664 |
| 297 |
| 733 |
| 543 |
| 14,080 |
|
| | | | | | | | |
| Deferred inventory costs(d) | 905 |
| 698 |
| 251 |
| 1,277 |
| 39 |
| 345 |
| 3,515 |
|
| Nonrecurring engineering costs(e) | 108 |
| 1,896 |
| 15 |
| 24 |
| 101 |
| 34 |
| 2,179 |
|
| Customer advances and other | 1 |
| 1,127 |
| 2 |
| — |
| 1 |
| — |
| 1,132 |
|
| Contract and other deferred assets | $ | 9,118 |
| $ | 6,461 |
| $ | 1,933 |
| $ | 1,597 |
| $ | 874 |
| $ | 922 |
| $ | 20,905 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 (In millions) | Power | Aviation | Oil & Gas | Renewable Energy | Transportation | Other(a) | Total |
| | | | | | | | |
| GE | | | | | | | |
| Revenues in excess of billings | | | | | | | |
| Long-term product service agreements(b) | $ | 3,357 |
| $ | 2,614 |
| $ | 517 |
| $ | 1 |
| $ | 413 |
| $ | — |
| $ | 6,902 |
|
| Equipment contract revenues(c) | 4,757 |
| 280 |
| 1,095 |
| 295 |
| 76 |
| 371 |
| 6,874 |
|
| Total contract assets | 8,115 |
| 2,893 |
| 1,612 |
| 296 |
| 488 |
| 371 |
| 13,775 |
|
| | | | | | | | |
| Deferred inventory costs(d) | 1,304 |
| 564 |
| 358 |
| 950 |
| 43 |
| 359 |
| 3,579 |
|
| Nonrecurring engineering costs(e) | 122 |
| 1,696 |
| — |
| — |
| 87 |
| — |
| 1,905 |
|
| Customer advances and other | — |
| 1,098 |
| — |
| — |
| — |
| — |
| 1,098 |
|
| Contract and other deferred assets | $ | 9,539 |
| $ | 6,251 |
| $ | 1,971 |
| $ | 1,246 |
| $ | 619 |
| $ | 729 |
| $ | 20,356 |
|
| |
(a) | Primarily includes our Healthcare segment
|
| |
(b) | Long-term product service agreement balances are presented net of related billings in excess of revenues of $4,932 million and $5,498 million at September 30, 2018 and December 31, 2017, respectively.
|
| |
(c) | Included in this balance are amounts due from customers for the sale of service upgrades, which we collect through higher fixed or usage-based fees from servicing the equipment under long-term product service agreements. Amounts due from these financing arrangements totaled $869 million and $748 million, as of September 30, 2018 and December 31, 2017, respectively.
|
| |
(d) | Represents cost deferral for shipped goods (such as components for wind turbine assembly within our Renewable Energy segment) and labor and overhead costs on time and material service contracts (primarily originating in Power and Aviation) and other costs for which the criteria for revenue recognition has not yet been met.
|
| |
(e) | Includes costs incurred prior to production (e.g., requisition engineering) for equipment production contracts, primarily within our Aviation segment, which are allocated ratably to each unit produced.
|
ContractProgress collections and other deferred assetsincome increased $549$6 million in 2018, which was largely driven by a change in estimated profitability of $225 million within our long-term product service agreements,2019 primarily due to an increasemilestone payments received primarily at Power ($211 million). In addition, revenue in excess of billings on our long-term product service agreements increased $63 million, driven byAviation. These increases at Power ($261 million) and Transportation ($62 million),were partially offset by a decrease at Aviation ($259 million). Non-recurring engineering costs increased $274 million, primarily at Aviation ($200 million). Our equipment related contract assets increased $16 million, primarily due to increases at Healthcare ($175 million), Aviation ($164 million), and Transportation ($131 million), partially offset by a decrease at Power ($481 million). Deferred inventory costs decreased $64 million due to decreases at Power ($399 million) and Oil & Gas ($107 million), partially offset by increases at Renewable Energy ($327 million) and Aviation ($134 million), due to the timing of revenue recognized for work performed relative to the timingrecognition in excess of title transfer of goods. new collections received, primarily at Power and Renewable Energy.
|
| | | | | | | |
| PROGRESS COLLECTIONS & DEFERRED INCOME | | | |
| | | | |
| (In millions) | September 30, 2018 | | December 31, 2017 |
| | | | |
| GE Contract Liabilities | | | |
| | | | |
| Progress collections | $ | 17,036 |
| | $ | 18,310 |
|
| Deferred income | 3,811 |
| | 3,911 |
|
Total progress collections & deferred income
| $ | 20,847 |
| | $ | 22,221 |
|
Revenues recognized for balances that werecontracts included in our contract liabilitiesliability position at the beginning of the periodyear were $13,131$9,565 million and $11,446$10,692 million for the nine months ended September 30, 2019 and 2018, and 2017, respectively.
|
| | | | | | | | | | | | | | | |
September 30, 2019 (In millions) | Power | Aviation | Renewable Energy | Healthcare and Other | Total |
|
|
|
|
|
|
| Progress collections on equipment contracts | $ | 5,568 |
| $ | 95 |
| $ | 1,105 |
| $ | — |
| $ | 6,768 |
|
| Other progress collections | 566 |
| 4,700 |
| 3,297 |
| 464 |
| 9,026 |
|
| Total progress collections | 6,133 |
| 4,795 |
| 4,402 |
| 464 |
| 15,794 |
|
| Deferred income | 40 |
| 1,447 |
| 290 |
| 1,673 |
| 3,450 |
|
| GE Progress collections and deferred income | $ | 6,174 |
| $ | 6,241 |
| $ | 4,692 |
| $ | 2,137 |
| $ | 19,245 |
|
|
| | | | | | | | | | | | | | | |
December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
|
| Progress collections on equipment contracts | $ | 5,536 |
| $ | 114 |
| $ | 1,325 |
| $ | — |
| $ | 6,975 |
|
| Other progress collections | 691 |
| 4,034 |
| 3,557 |
| 500 |
| 8,783 |
|
| Total progress collections | 6,227 |
| 4,148 |
| 4,883 |
| 500 |
| 15,758 |
|
| Deferred income | 112 |
| 1,338 |
| 260 |
| 1,770 |
| 3,480 |
|
| GE Progress collections and deferred income | $ | 6,339 |
| $ | 5,486 |
| $ | 5,143 |
| $ | 2,271 |
| $ | 19,239 |
|
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 11. BORROWINGS
|
| | | | | | |
| (In millions) | September 30, 2019 | December 31, 2018 |
| | | |
| Short-term borrowings | | |
| Commercial paper | $ | 2,997 |
| $ | 3,005 |
|
| Current portion of long-term borrowings | 764 |
| 60 |
|
| Current portion of long-term borrowings assumed by GE | 7,310 |
| 4,207 |
|
| Other | 1,703 |
| 2,081 |
|
| Total GE short-term borrowings | $ | 12,775 |
| $ | 9,354 |
|
| | | |
| Current portion of long-term borrowings | $ | 4,601 |
| $ | 3,984 |
|
| Intercompany payable to GE | 2,990 |
| 2,684 |
|
| Other | 522 |
| 1,015 |
|
| Total GE Capital short-term borrowings | $ | 8,113 |
| $ | 7,684 |
|
| | | |
| Eliminations | (3,842 | ) | (4,262 | ) |
| Total short-term borrowings | $ | 17,046 |
| $ | 12,776 |
|
| | | |
| Long-term borrowings | | |
| Senior notes | $ | 14,690 |
| $ | 20,387 |
|
| Senior notes assumed by GE | 23,384 |
| 29,218 |
|
| Subordinated notes assumed by GE | 2,820 |
| 2,836 |
|
| Other | 418 |
| 417 |
|
| Total GE long-term borrowings | $ | 41,311 |
| $ | 52,858 |
|
| | | |
| Senior notes | $ | 32,537 |
| $ | 35,105 |
|
| Subordinated notes | 199 |
| 165 |
|
| Intercompany payable to GE | 17,255 |
| 19,828 |
|
| Other | 654 |
| 885 |
|
| Total GE Capital long-term borrowings | $ | 50,645 |
| $ | 55,982 |
|
| | | |
| Eliminations | (17,255 | ) | (19,892 | ) |
| Total long-term borrowings | $ | 74,701 |
| $ | 88,949 |
|
| Non-recourse borrowings of consolidated securitization entities | 1,498 |
| 1,875 |
|
| Total borrowings | $ | 93,244 |
| $ | 103,599 |
|
|
| | | | | | |
| (In millions) | September 30, 2018 | December 31, 2017 |
| | | |
| Short-term borrowings | | |
| GE | | |
| Commercial paper | $ | 3,006 |
| $ | 3,000 |
|
| Current portion of long-term borrowings | 3,768 |
| 9,452 |
|
| Other | 1,921 |
| 2,095 |
|
| Total GE short-term borrowings | 8,694 |
| 14,548 |
|
| | | |
| GE Capital | | |
| Commercial paper | 3,011 |
| 5,013 |
|
| Current portion of long-term borrowings(a) | 4,423 |
| 5,781 |
|
| Intercompany payable to GE(c) | 3,181 |
| 8,310 |
|
| Other | 607 |
| 497 |
|
| Total GE Capital short-term borrowings | 11,223 |
| 19,602 |
|
| | | |
| Eliminations | (4,711 | ) | (10,114 | ) |
| Total short-term borrowings | $ | 15,206 |
| $ | 24,036 |
|
| | | |
| Long-term borrowings | | |
| GE | | |
| Senior notes(b) | $ | 57,118 |
| $ | 62,724 |
|
| Subordinated notes | 2,893 |
| 2,913 |
|
| Other | 853 |
| 1,403 |
|
| Total GE long-term borrowings | 60,863 |
| 67,040 |
|
| | | |
| GE Capital | | |
| Senior notes | 35,152 |
| 40,754 |
|
| Subordinated notes | 161 |
| 208 |
|
| Intercompany payable to GE(c) | 20,069 |
| 31,533 |
|
| Other(a) | 946 |
| 1,118 |
|
| Total GE Capital long-term borrowings | 56,329 |
| 73,614 |
|
| | | |
| Eliminations(c) | (20,132 | ) | (32,079 | ) |
| Total long-term borrowings | $ | 97,060 |
| $ | 108,575 |
|
| Non-recourse borrowings of consolidated securitization entities(d) | $ | 2,699 |
| $ | 1,980 |
|
| Total borrowings | $ | 114,966 |
| $ | 134,591 |
|
| |
(a) | Included $189 million and $946 million of short- and long-term borrowings, respectively, at September 30, 2018 and $348 million and $1,118 million of short- and long-term borrowings, respectively, at December 31, 2017, of funding secured by aircraft and other collateral. Of this, $236 million and $458 million is non-recourse to GE Capital at September 30, 2018 and December 31, 2017, respectively. |
| |
(b) | Included $6,181 million and $6,206 million of BHGE senior notes at September 30, 2018 and December 31, 2017, respectively. Total BHGE borrowings were $6,357 million and $7,225 million at September 30, 2018 and December 31, 2017, respectively. |
| |
(c) | Included a reduction of $480 million and zero for short-term intercompany loans from GE Capital to GE at September 30, 2018 and December 31, 2017, respectively, and a reduction of $13,269 million and $7,271 million for long-term intercompany loans from GE Capital to GE at September 30, 2018 and December 31, 2017, respectively. These loans bear the right of offset against amounts owed under the assumed debt agreement and can be prepaid by GE at any time in whole or in part, without premium or penalty. Excluding intercompany loans, the total short- and long-term assumed debt was $3,661 million and $33,338 million at September 30, 2018 and $8,310 million and $38,804 million at December 31, 2017, respectively. |
| |
(d) | Included $424 million and $621 million of current portion of long-term borrowings at September 30, 2018 and December 31, 2017, respectively. See Note 17 for further information. |
At September 30, 2019, the outstanding GE Capital borrowings that had been assumed by GE as part of the GE Capital Exit Plan was $33,514 million ($7,310 million short term and $26,204 long term), for which GE has an offsetting Receivable from GE Capital of $20,244 million. The difference of $13,269 million ($4,320 million in short-term borrowings and $8,949 million in long-term borrowings) represents the amount of borrowings GE Capital had funded with available cash to GE via intercompany loans in lieu of GE issuing borrowings externally. In the third quarter of 2019, GE repaid $480 million of maturing intercompany loans from GE Capital.
On April 10, 2015,
At September 30, 2019, total GE borrowings of $33,842 million was comprised of GE-issued borrowings of $20,572 million and intercompany loans from GE Capital to GE of $13,269 million as described above.
GE has provided a full and unconditional guarantee on the payment of the principal and interest on all tradable senior and subordinated outstanding long-term debt securities and all commercial paper issued or guaranteed by GE Capital. At September 30, 2018,2019, the Guarantee applies to $37,948$34,807 million of GE Capital debt.
On September 30, 2019, GE completed a tender offer to purchase $4,846 million in aggregate principal amount of certain senior unsecured debt, comprised of $1,250 million of 4.500% Notes due 2044, $1,144 million of 4.125% Notes due 2042, €992 million ($1,101 million equivalent) of 2.125% Notes due 2037, €784 million ($870 million equivalent) of 1.500% Notes due 2029, €374 million ($415 million equivalent) of 1.875% Notes due 2027, and €59 million ($66 million equivalent) of 1.250% notes due 2023. The total cash consideration paid for these purchases was $5,031 million and the total carrying amount of the purchased notes was $4,787 million, resulting in a loss of $255 million (including $12 million of accrued fees and other costs associated with the tender) which was recorded in Interest and other financial charges in the GE Statement of Earnings (Loss). In addition to the purchase price, GE paid any accrued and unpaid interest on the purchased notes through the date of purchase.
Non-recourse borrowings of consolidated securitization entities are primarily short term in nature. See Notes 4 and 18 for further information.
See Note 17 for further information about borrowings and associated interest rate swaps.
201864 2019 3Q FORM 10-Q87
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 12. INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Insurance liabilities and investment contract liabilitiesannuity benefits comprise mainly obligations to policyholdersannuitants and annuitantsinsureds in our run-off insurance activities.
| | | (In millions) | September 30, 2018 |
| December 31, 2017 |
| |
September 30, 2019 (In millions) | | Long-term care insurance contracts | Structured settlement annuities & life insurance contracts | Other
contracts | Other adjustments(a) | Total |
| | |
|
| Future policy benefit reserves | | $ | 16,770 |
| $ | 9,578 |
| $ | 182 |
| $ | 5,903 |
| $ | 32,433 |
|
| Long-term care insurance contracts | $ | 16,119 |
| $ | 16,522 |
| |
| Structured settlement annuities with life contingencies and other contracts | 9,450 |
| 9,448 |
| |
| Shadow adjustments(a) | 2,409 |
| 4,582 |
| |
| | 27,978 |
| 30,552 |
| |
| Claim reserves | | 4,130 |
| 236 |
| 1,154 |
| — |
| 5,520 |
|
| Investment contracts | 2,433 |
| 2,569 |
| — |
| 1,165 |
| 1,074 |
| — |
| 2,239 |
|
| Claim reserves(b) | 5,277 |
| 5,094 |
| |
| Unearned premiums and other | 382 |
| 372 |
| 28 |
| 198 |
| 132 |
| — |
| 358 |
|
| | 36,070 |
| 38,587 |
| 20,928 |
| 11,177 |
| 2,542 |
| 5,903 |
| 40,550 |
|
| Eliminations | (495 | ) | (451 | ) | — |
| — |
| (466 | ) | — |
| (466 | ) |
| Total | $ | 35,575 |
| $ | 38,136 |
| $ | 20,928 |
| $ | 11,177 |
| $ | 2,076 |
| $ | 5,903 |
| $ | 40,084 |
|
| |
(a) | To the extent that unrealized gains on debt | | | | | | | | | | | | | | | | | December 31, 2018 (In millions) |
|
|
|
|
|
|
|
|
|
|
| | Future policy benefit reserves | $ | 16,029 |
| $ | 9,495 |
| $ | 169 |
| $ | 2,247 |
| $ | 27,940 |
| | Claim reserves | 3,917 |
| 230 |
| 1,178 |
| — |
| 5,324 |
| | Investment contracts | — |
| 1,239 |
| 1,149 |
| — |
| 2,388 |
| | Unearned premiums and other | 34 |
| 205 |
| 103 |
| — |
| 342 |
|
| 19,980 |
| 11,169 |
| 2,599 |
| 2,247 |
| 35,994 |
| | Eliminations | — |
| — |
| (432 | ) | — |
| (432 | ) | | Total | $ | 19,980 |
| $ | 11,169 |
| $ | 2,167 |
| $ | 2,247 |
| $ | 35,562 |
|
(a) To the extent that unrealized gains on specific investment securities supporting our insurance contracts would result in a premium deficiency should those gains be realized, an increase in future policy benefit reserves is recorded, with an offsetting amount recorded in Other comprehensive income, net of taxes. |
| |
(b) | Includes $3,816 million and $3,590 million related to long-term care insurance contracts and $368 million and $364 million related to short-duration contracts, net of eliminations, at September 30, 2018 and December 31, 2017, respectively.
|
During 2017, in response to elevated claim experience for a portion of our long-term care insurance contracts that was most pronounced for policyholderswould result in a premium deficiency should those gains be realized, an increase in future policy benefit reserves is recorded, with higher attained ages,an after-tax reduction of net unrealized gains recognized through "Accumulated other comprehensive income (loss)" in our consolidated Statement of Earnings (Loss).
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. As previously disclosed in our second quarter 2019 10-Q, we initiated a comprehensiveplanned to perform this year’s testing in the third quarter of 2019, consistent with our historical practice prior to 2017 when we reconstructed our claim cost curves. These procedures included updating experience studies since our last test completed in the fourth quarter of 2018, independent actuarial analysis and review of industry benchmarks. As we experienced a premium deficiency assumptions across all insurance products, which included reconstructingin 2018, our future claim cost assumptions for long-term care contracts utilizing trends observed in our emerging experience for older claimant ages and later duration policies. Certain of our long-term care policyholders only recently started to reach the prime claim paying period and our new claim cost assumptions considered the emerging credibility of this claim data. In addition to the adverse impact from the increased expected future claim cost assumptions over a long-term horizon, our2019 premium deficiency testing started with a zero margin and, accordingly, any net adverse development would result in a future charge to earnings. Using our most recent future policy benefit reserve assumptions, considered mortality, length of timeincluding changes to our assumptions related to discount rate and future premium rate increases, as described below, we identified a policy will remain in force and both near-term and longer-term investment return expectations. Future investment yields estimated in 2017 were lower than in previous premium deficiency tests, primarily due to the effect of near-term yields on approximately $14.5 billion of future expected capital contributions. The indicated premium deficiency resultedresulting in a $9,481$972 million non-cash pre-tax charge to earnings in the fourththird quarter of 2017.
In response2019. The increase to the premium deficiency, our future policy benefit reserves at December 31, 2017 were unlockedresulting from our 2019 testing was primarily attributable to the following key assumption changes:
We have observed a significant decline in market interest rates this year, which has resulted in a lower discount rate and updated to reflectadversely impacted our most recent assumptions. Ourreserve margin by $1,344 million. As noted above, our discount rate is based upon the actual yields on our investment portfolio and our forecasted reinvestment rates, which comprise the future policy benefit reserves are subject to premium deficiency testingrates at least annually, which we expect to completeinvest proceeds from investment maturities, net of operating cash flows, and projected future capital contributions. Market interest rates have declined by approximately 130 basis points since our 2018 premium deficiency test, with 60 basis points of this reduction occurring since the second quarter 2019. Although the movement in market rates impacts the reinvestment rate, it does not materially impact the actual yield on our existing investments. Furthermore, our assumed reinvestment rate on future fixed income investments is based both on current expected long-term average rates and market interest rates. Thus, a decline in market interest rates will not result in an equivalent decline in our discount rate assumption. Our discount rate assumption for purposes of performing the premium deficiency assessment resulted in weighted average rate of 5.74% compared to 6.04% in 2018. This decline in the fourth quarterdiscount rate from 2018 to 2019 reflected a lower reinvestment rate increasing to an expected long-term average investment yield over a longer period, lower prospective expected returns on higher yielding assets classes introduced with our 2018 strategic initiatives, and slightly lower actual yields on our investment security portfolio.
Higher levels of 2018. Anyprojected long-term care premium rate increases due to larger rate filings by some ceding companies than previously planned, which favorably impacted our reserve margin by $263 million. Since our premium deficiency testing performed in 2018, we have implemented approximately $200 million of previously approved rate increase actions. Our 2019 premium deficiency test includes approximately $2,000 million of anticipated future premium increases or benefit reductions associated with future in-force rate actions. This represents an increase of $300 million from our 2018 premium deficiency test to account for actions that are: (a) approved and not yet implemented, (b) filed but not yet approved, and (c) estimated on future filings through 2028, and includes the effect of the lower discount rate mentioned above.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Certain future adverse changes in our assumptions could result in the unlocking of reserves, resetting of actuarial assumptions to current assumptions, an increase to future policy benefit reserves and additional contributions of capital over and above the $11 billion noted below.a charge to earnings. Any favorable changes to these assumptions could result in additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income.
Claim reserves included incurred claims of $1,410 million and $1,641 million and $1,482 million for the nine months ended September 30, 2018 and 2017, of which $1$(16) million and $60$1 million related to the recognition of adjustments to prior year claim reserves arising from our periodic reserve evaluation infor the nine months ended September 30, 20182019 and 2017,2018, respectively. Paid claims were $1,499$1,237 million and $1,260$1,499 million in the nine months ended September 30, 2019 and 2018, and 2017, respectively. The vast majority of paid claims relate to prior year insured events primarily as a result of the length of time long-term care policyholders remain on claim.
When insurance companiesReinsurance recoverables are recorded when we cede insurance risk to third parties such as reinsurers, theybut are not relieved of theirfrom our primary obligation to policyholders and cedents. When losses on ceded risks give rise to claims for recovery, we establishThese amounts, net of allowances, for probable losses on such receivables from reinsurers as required. Reinsurance recoverables, net are included in the caption “Other"Other GE Capital receivables” onreceivables" in our consolidated Statement of Financial Position, and amounted to $2,217$2,365 million and included $749$2,271 million related to ceded claim reserves at September 30, 2018. Reinsurance recoverables amounted to $2,458 million2019 and included $715 million related to ceded claim reserves at December 31, 2017. The vast majority of our remaining net reinsurance recoverables are secured by assets held in a trust for which we are the beneficiary. 2018, respectively.
We recognize reinsurance recoveries as a reduction of the caption “Investment contracts, insurance losses and insurance annuity benefits" in our consolidated Statement of Earnings (Loss). Reinsurance recoveries were $89 million and $104 million for the three months ended September 30, 2018 and 2017, respectively, and $206 million and $339 million for the nine months ended September 30, 2018 and 2017, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices that differ in certain respects from GAAP. Statutory accounting practices are set forth by the National Association of Insurance Commissioners as well as state laws, regulation and general administrative rules. In the fourth quarter of 2017 we recorded a premium deficiency pre-tax charge to earnings of $9,481 million on a GAAP basis. For statutory accounting purposes, the Kansas Insurance Department approved our request for a permitted statutory accounting practice to recognize the reserve increase over a seven-year period. As a result, GE Capital contributed capital to its insurance subsidiaries of $3.5 billion in the first quarter of 2018 and expects to contribute approximately an additional $11 billion through 2024 subject to ongoing monitoring by the Kansas Insurance Department. GE is required to maintain specified capital levels at these insurance subsidiaries under capital maintenance agreements.
NOTE 13. POSTRETIREMENT BENEFIT PLANS
We sponsor a number of pension and retiree health and life insurance benefit plans that we present in three categories, principal pension plans, other pension plans and principal retiree benefit plans. Principal pension plans arerepresent the GE Pension Plan and the GE Supplementary Pension Plan. Other pension plans include U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. Principal retiree benefit plans provide health and life insurance benefits to certain eligible participants and these participants share in the cost of the healthcare benefits. Other pension plans include the U.S. and non-U.S.Smaller pension plans with pension assets or obligations greaterless than $50 million. Smaller pension plansmillion and other retiree benefit plans are not presented as they are not material individually or in the aggregate.
DuringEFFECT ON OPERATIONS OF BENEFIT PLANS.The components of benefit plans costs other than the service cost are included in the caption "Non-operating benefit costs" in our consolidated Statement of Earnings (Loss).
|
| | | | | | | | | | | | | |
| | Principal pension plans |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Service cost for benefits earned | $ | 154 |
| $ | 232 |
| | $ | 472 |
| $ | 667 |
|
| Prior service cost amortization | 34 |
| 36 |
| | 101 |
| 108 |
|
| Expected return on plan assets | (863 | ) | (803 | ) | | (2,588 | ) | (2,443 | ) |
| Interest cost on benefit obligations | 724 |
| 666 |
| | 2,173 |
| 1,999 |
|
| Net actuarial loss amortization | 767 |
| 947 |
| | 2,300 |
| 2,841 |
|
| Curtailment loss (a) | — |
| 46 |
| | 51 |
| 46 |
|
| Benefit plans cost | $ | 816 |
| $ | 1,124 |
| | $ | 2,509 |
| $ | 3,218 |
|
(a) Curtailment loss in the nine months ended September 30, 2019 and September 30, 2018, we funded contributionsresults from the spin-off and subsequent merger of $6,000 millionour Transportation segment with Wabtec and the Baker Hughes decision to no longer participate in the GE Pension Plan.Plan after December 31, 2018, respectively. These curtailment losses are included in "Earnings (loss) from discontinued operations" in our consolidated Statement of Earnings (Loss).
|
| | | | | | | | | | | | | |
| | Other pension plans |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | | |
| Service cost for benefits earned | $ | 61 |
| $ | 85 |
| | $ | 197 |
| $ | 279 |
|
| Prior service cost (credit) amortization | 1 |
| (2 | ) | | 2 |
| (4 | ) |
| Expected return on plan assets | (316 | ) | (342 | ) | | (945 | ) | (1,059 | ) |
| Interest cost on benefit obligations | 154 |
| 150 |
| | 467 |
| 462 |
|
| Net actuarial loss amortization | 83 |
| 78 |
| | 250 |
| 243 |
|
| Settlement/curtailment loss (gain) | — |
| — |
| | 16 |
| (6 | ) |
| Benefit plans cost (income) | $ | (17 | ) | $ | (31 | ) | | $ | (13 | ) | $ | (85 | ) |
|
| | | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PENSION PLANS | | | | | | | | | |
| | Principal pension plans |
| | Three months ended September 30 | | | Nine months ended September 30 | |
| (In millions) | 2018 |
| | 2017 |
| | | 2018 |
| | 2017 |
| |
| | | | | | | | | | |
| Service cost for benefits earned | $ | 232 |
| | $ | 267 |
| | | $ | 667 |
| | $ | 810 |
| |
| Prior service cost amortization | 36 |
| | 73 |
| | | 108 |
| | 218 |
| |
| Expected return on plan assets | (803 | ) | | (847 | ) | | | (2,443 | ) | | (2,545 | ) | |
| Interest cost on benefit obligations | 666 |
| | 715 |
| | | 1,999 |
| | 2,144 |
| |
| Net actuarial loss amortization | 947 |
| | 702 |
| | | 2,841 |
| | 2,109 |
| |
| Curtailment loss | 46 |
| (a) | — |
| | | 46 |
| (a) | 43 |
| (b) |
| Pension plans cost | $ | 1,124 |
| | $ | 910 |
| | | $ | 3,218 |
| | $ | 2,779 |
| |
| |
(a) | Curtailment loss resulting from a BHGE decision to no longer participate in the GE Pension Plan after December 31, 2018. |
| |
(b) | Curtailment loss resulting from the sale of Industrial Solutions business within our Power segment. |
|
| | | | | | | | | | | | | | | | | |
| | Other pension plans |
| | Three months ended September 30 | | | Nine months ended September 30 | |
| (In millions) | 2018 |
| | 2017 |
| | | 2018 |
| | 2017 |
| |
| | | | | | | | | | |
| Service cost for benefits earned | $ | 85 |
| | $ | 156 |
| | | $ | 279 |
| | $ | 430 |
| |
| Prior service credit amortization | (2 | ) | | (2 | ) | | | (4 | ) | | (4 | ) | |
| Expected return on plan assets | (342 | ) | | (324 | ) | | | (1,059 | ) | | (919 | ) | |
| Interest cost on benefit obligations | 150 |
| | 158 |
| | | 462 |
| | 445 |
| |
| Net actuarial loss amortization | 78 |
| | 110 |
| | | 243 |
| | 320 |
| |
| Settlement gain | — |
| | — |
| | | (6 | ) | (a) | — |
| |
| Curtailment loss | — |
| | 11 |
| (b) | | — |
| | 11 |
| (b) |
| Pension plans cost (income) | $ | (31 | ) | | $ | 109 |
| | | $ | (85 | ) | | $ | 283 |
| |
| |
(a) | Settlement gain resulting from the sale of the Industrial Solutions business within our Power segment. |
| |
(b) | Curtailment loss resulting from a Canadian manufacturing plant closure. |
Principal retiree benefit plans income was $31 million and $17 million for the three months ended September 30, 2019 and 2018, and $122 million and $58 million for the nine months ended September 30, 2019 and 2018, respectively, which includes a curtailment gain of $33 million in 2019 resulting from the Transportation transaction which is included in "Earnings (loss) from discontinued operations" in our consolidated Statement of Earnings (Loss).
We also have a defined contribution plan for eligible U.S. employees that provides discretionary contributions. Defined contribution plan costs were $83 million and $104 million for the three months ended September 30, 2019 and 2018, respectively, and $274 million and $320 million for the nine months ended September 30, 2019 and 2018, respectively.
201866 2019 3Q FORM 10-Q89
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In October 2019, we announced changes to the GE Pension Plan whereby the benefits for approximately 20,000 salaried employees will be frozen effective January 1, 2021 and thereafter these employees will receive increased benefits in the company sponsored defined contribution plan in lieu of participation in a defined benefit plan. As a result, we will recognize a non-cash pre-tax curtailment loss of approximately $300 million in the fourth quarter of 2019 as non-operating benefit costs.
|
| | | | | | | | | | | | | | | | | |
| EFFECT ON OPERATIONS OF PRINCIPAL RETIREE BENEFIT PLANS |
| | Principal retiree benefit plans |
| | Three months ended September 30 | | | Nine months ended September 30 | |
| (In millions) | 2018 |
| | 2017 |
| | | 2018 |
| | 2017 |
| |
| | | | | | | | | | |
| Service cost for benefits earned | $ | 19 |
| | $ | 25 |
| | | $ | 48 |
| | $ | 77 |
| |
| Prior service credit amortization | (58 | ) | | (42 | ) | | | (172 | ) | | (128 | ) | |
| Expected return on plan assets | (8 | ) | | (9 | ) | | | (22 | ) | | (27 | ) | |
| Interest cost on benefit obligations | 49 |
| | 55 |
| | | 147 |
| | 168 |
| |
| Net actuarial gain amortization | (19 | ) | | (20 | ) | | | (59 | ) | | (61 | ) | |
| Curtailment loss | — |
| | — |
| | | — |
|
| 3 |
| (a) |
| Retiree benefit plans cost (income) | $ | (17 | ) | | $ | 9 |
| | | $ | (58 | ) | | $ | 32 |
| |
| |
(a) | Curtailment loss resulting from the sale of the Industrial Solutions business within our Power segment. |
In addition, we announced changes to our GE Supplementary Pension Plan whereby the benefits for approximately 700 employees that became executives before 2011 will be frozen effective January 1, 2021 and thereafter these employees will earn future benefits in an installment retirement defined benefit plan currently offered to new executives since 2011. The componentschange in the GE Supplementary Pension Plan is expected to reduce the projected benefit obligation by approximately $300 million and will be treated as a plan amendment that will be amortized over future periods as a reduction to non-operating benefit costs.
As result of these actions, we have remeasured the pension assets and obligations for the affected plans as of the beginning of the fourth quarter. This will result in an increase in our projected benefit obligation and recognition of a net periodicactuarial loss of approximately $5,000 million that will be recorded in Accumulated Other Comprehensive Income. The increase in the projected benefit obligation is primarily driven by a reduction in the discount rate since December 31, 2018, offset by our asset performance through September 30, 2019, and the impact of the GE Pension Plan freeze. This remeasurement and the $300 million curtailment loss associated with the GE Pension Plan described above will increase our non-operating benefit costs other than the service cost component are includedby approximately $600 million in the caption "Non-operatingfourth quarter of 2019.
Finally, we have offered approximately 100,000 former U.S. employees with a vested pension benefit costs"a limited-time option to take a lump sum distribution in lieu of future monthly payments. Those accepting the option will be paid from the assets of the GE Pension Trust in December 2019. This action will accelerate the satisfaction of future pension obligations and could result in a non-cash pre-tax settlement loss in the fourth quarter of 2019, which will be determined based on the rate of acceptance. The settlement loss, if triggered, would be recognized as an additional non-operating benefit cost.
The remeasurement described above is in addition to our annual year-end measurement of the funded status of our benefit plans that we will record as of December 31, 2019. As a result, the change in our consolidated Statementpension benefit obligation and net actuarial loss will differ from the $5,000 million discussed above primarily as a result of Earnings (Loss).any changes in interest rates and actual asset performance different from our expected return on assets in the fourth quarter as well as the amount of lump-sum distributions made to former U.S. employees in connection with the limited-time offer.
NOTE 14. INCOME TAXES
Our consolidated effective income tax rates were (3.2)%rate was 0.2% and (38.1)(2.2)% during the nine months ended September 30, 2019 and 2018, and 2017, respectively. The positive rate for 2019 reflects a tax benefit on a pretax loss. The negative rate for 2018 reflects a tax expense on a pretax loss whereas the negativeloss. The rate for 2017 reflects a2019 is lower than the U.S. statutory rate primarily due to favorable audit resolutions and U.S. business credits, partially offset by the cost of global activities, including the recently enacted base erosion and global intangible low tax benefit on pretax income.income provisions and from largely non-deductible goodwill impairment charges associated with our Hydro and Grid Solutions equipment and services businesses within our Renewable Energy segment. The rate for 2018 differs from the U.S. statutory rate primarily due to the non-deductible impairment of goodwill associated with the Power business and international tax expenses in excess of benefitsthe benefit from other global activities. International tax expenses were impacted by the increase in valuation allowances on the deferred tax assets of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business and the decision to execute an internal restructuring to separate the Healthcare business and the cost of the newly enacted base erosion and global intangible low tax income provisions. This was partially offset by U.S. business credits and an adjustment to decrease the 2018 nine-month tax rate to be in line with the lower expected full-year rate.
The rateInternal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2017 benefited from2014-2015. In June 2019, the IRS completed the audit of our consolidated U.S. income tax difference on global activities,returns for 2012-2013, which resulted in a decrease in our balance of "unrecognized tax benefits" (i.e., the aggregate tax rate oneffect of differences between tax return positions and the dispositionbenefits recognized in our financial statements). The Company recognized a resulting non-cash continuing operations tax benefit of the Water business and U.S. business credits partially offset by$378 million plus an adjustment to increase the 2017 nine-month tax rate to be in line with the higher expected full-year rate and by the non-deductible impairmentadditional net interest benefit of goodwill associated with the Power Conversion business.
On December 22, 2017, the U.S. enacted legislation commonly known as the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowered the statutory tax rate on U.S. earnings to 21%, taxes historic foreign earnings at a reduced rate$107 million. Of these amounts, GE recorded $355 million of tax establishes a territorial tax systembenefits and enacts new taxes associated with global operations.
The impact$98 million of enactment of U.S. tax reform has beennet interest benefits and GE Capital recorded on a provisional basis as the legislation provides for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax. Guidance during 2018 could impact the information required for and the calculation of the transition tax charge and could affect decisions that affect the tax on various U.S. and foreign items, which would further impact the final amounts included in the transition charge and impact the revaluation of deferred taxes. In addition, analysis performed and conclusions reached as part of the tax return filing process and additional guidance on accounting for U.S. tax reform could affect the provisional amount.
Additionally, as part$23 million of tax reform, the U.S. has enacted a minimumbenefits and $9 million of net interest benefits. GE Capital recorded an additional non-cash benefit in discontinued operations of $332 million of tax on foreign earnings (“global intangible low tax income”). We have not made an accounting policy election on the deferred tax treatmentbenefits and consequently, we have not made an accrual$46 million of net interest benefits. See Note 2 for the deferred tax aspects of this provision.further information.
90 20182019 3Q FORM 10-Q67
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| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
With the enactment of U.S. tax reform, we recorded, for the period ending December 31, 2017, tax expense of $4,512 million to reflect our provisional estimate of both the transition tax on historic foreign earnings ($1,155 million including $2,925 million at GE and $(1,770) million at GE Capital) and the revaluation of deferred taxes ($3,357 million including $1,980 million at GE and $1,377 million at GE Capital). We have not significantly adjusted our provisional estimate of the enactment of U.S. tax reform during the third quarter of 2018 as we continue to analyze information related to our operations as well as new guidance and other aspects of the enacted provisions. Based on our on-going analysis of the currently issued guidance on the transition tax on historic foreign earnings and related foreign tax credit impacts through the third quarter, including advice from outside advisors, we believe the provisional estimate of the impact of enactment, as recorded in the fourth quarter of 2017 and adjusted during 2018 remains a reasonable estimate of the effects of enactment including the impact of items in the 2018 tax filings. We will update the impact of enactment during the fourth quarter of 2018 based on available government guidance and additional analysis of our information. However, there were discrete changes in the provisional estimate identified, primarily at Baker Hughes in connection with the measurement period adjustments to purchase price allocation and the associated impact of the change in tax rate on deferred taxes that reduced the provisional amounts recorded by $79 million in the first nine months of 2018. Of this benefit, $134 million relates to non-consolidated operations and did not affect net earnings attributable to the company as there is an offsetting adjustment in income from noncontrolling interests. The net remaining cost of $55 million also relates primarily to the revaluation of deferred taxes corresponding to measurement period adjustments to the purchase price allocation for the Baker Hughes acquisition.
Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.
|
| | | | | | |
| UNRECOGNIZED TAX BENEFITS | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Unrecognized tax benefits | $ | 4,908 |
| $ | 5,449 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 3,771 |
| 3,626 |
|
| Accrued interest on unrecognized tax benefits | 886 |
| 810 |
|
| Accrued penalties on unrecognized tax benefits | 188 |
| 158 |
|
| Reasonably possible reduction to the balance of unrecognized tax benefits | | |
| in succeeding 12 months | 0-1,300 |
| 0-1,100 |
|
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-1,200 |
| 0-900 |
|
| |
(a) | Some portion of such reduction may be reported as discontinued operations. |
The Internal Revenue Service (IRS) is currently auditing our consolidated U.S. income tax returns for 2012-2013 and has begun the audit for 2014-2015. In addition, certain other U.S. tax deficiency issues and refund claims for previous years are still unresolved. It is reasonably possible that a portion of the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balance of "unrecognized tax benefits" - that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. The United Kingdom tax authorities have indicated an intent to disallow interest deductions claimed by GE Capital for the years 2004-2015 that could result in a potential impact of approximately $1 billion, which includes a possible assessment of tax and reduction of deferred tax assets, not including interest and penalties. If assessed, we intend to contest the disallowance. We comply with all applicable tax laws and judicial doctrines of the United Kingdom and believe that the entire benefit is more likely than not to be sustained on its technical merit. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 15. SHAREOWNERS’ EQUITY |
| | | | | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
|
| | | | | | | | |
| Beginning balance | $ | 59 |
| | $ | 21 |
| | $ | (39 | ) | | $ | (102 | ) |
| Other comprehensive income (loss) (OCI) before reclassifications – net of deferred taxes of $15, $(22), $30 and $26(a) | 30 |
| | (74 | ) | | 151 |
| | 66 |
|
| Reclassifications from OCI – net of deferred taxes of $(3), $5, $(9) and $3 | (12 | ) | | 17 |
| | (35 | ) | | 1 |
|
| Other comprehensive income (loss) | 18 |
| | (57 | ) | | 116 |
| | 67 |
|
| Less OCI attributable to noncontrolling interests | — |
| | — |
| | — |
| | 1 |
|
| Investment securities ending balance | $ | 77 |
| | $ | (36 | ) | | $ | 77 |
| | $ | (36 | ) |
| | | | | | | | |
| Beginning balance | $ | (5,874 | ) | | $ | (5,446 | ) | | $ | (6,134 | ) | | $ | (4,661 | ) |
| OCI before reclassifications – net of deferred taxes of $(12), $(24), $27 and $17 | (189 | ) | | (639 | ) | | (191 | ) | | (1,856 | ) |
| Reclassifications from OCI – net of deferred taxes of $(5), $(1), $(9) and $(1)(b) | 951 |
| | 7 |
| | 1,234 |
| | 385 |
|
| Other comprehensive income (loss) | 762 |
| | (632 | ) | | 1,043 |
| | (1,471 | ) |
| Less OCI attributable to noncontrolling interests | (63 | ) | | (38 | ) | | (41 | ) | | (93 | ) |
| Currency translation adjustments ending balance | $ | (5,050 | ) | | $ | (6,040 | ) | | $ | (5,050 | ) | | $ | (6,040 | ) |
| | | | | | | | |
| Beginning balance | $ | 26 |
| | $ | 36 |
| | $ | 13 |
| | $ | 62 |
|
| OCI before reclassifications – net of deferred taxes of $(4), $2, $(1) and $(6) | (30 | ) | | (8 | ) | | (43 | ) | | (35 | ) |
| Reclassifications from OCI – net of deferred taxes of $6, $2, $7 and $9 | 28 |
| | (1 | ) | | 56 |
| | — |
|
| Other comprehensive income (loss) | (2 | ) | | (9 | ) | | 13 |
| | (35 | ) |
| Less OCI attributable to noncontrolling interests | 1 |
| | (1 | ) | | 2 |
| | — |
|
| Cash flow hedges ending balance | $ | 24 |
| | $ | 27 |
| | $ | 24 |
| | $ | 27 |
|
| | | | | | | | |
| Beginning balance | $ | (7,063 | ) | | $ | (8,043 | ) | | $ | (8,254 | ) | | $ | (9,702 | ) |
| OCI before reclassifications – net of deferred taxes of $1, $16, $36 and $71 | 39 |
| | 73 |
| | (72 | ) | | 199 |
|
| Reclassifications from OCI – net of deferred taxes of $170, $230, $517 and $666 | 616 |
| | 789 |
| | 1,910 |
| | 2,322 |
|
| Other comprehensive income (loss) | 655 |
| | 862 |
| | 1,838 |
| | 2,521 |
|
| Less OCI attributable to noncontrolling interests | 4 |
| | — |
| | (4 | ) | | — |
|
| Benefit plans ending balance | $ | (6,412 | ) | | $ | (7,181 | ) | | $ | (6,412 | ) | | $ | (7,181 | ) |
| | | | | | | | |
| Accumulated other comprehensive income (loss) at September 30 | $ | (11,361 | ) | | $ | (13,229 | ) | | $ | (11,361 | ) | | $ | (13,229 | ) |
(a) Included adjustments of $(877) million and $234 million for the three months ended September 30, 2019 and 2018, respectively and $(2,888) million and $1,705 million for the nine months ended September 30, 2019 and 2018, respectively, related to insurance liabilities and annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment security gains been realized. See Note 12 for further information. |
| | | | | | | | | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Preferred stock issued | $ | 6 |
| $ | 6 |
| | $ | 6 |
| $ | 6 |
|
| Common stock issued | $ | 702 |
| $ | 702 |
| | $ | 702 |
| $ | 702 |
|
| Accumulated other comprehensive income (loss) | | | | | |
| Beginning balance | $ | (13,432 | ) | $ | (15,457 | ) | | $ | (14,404 | ) | $ | (18,588 | ) |
| Other comprehensive income (loss) before reclassifications | | | | | |
| Investment securities - net of deferred taxes of $(22), $45, $26 and $204(a) | (74 | ) | 54 |
| | 67 |
| 363 |
|
| Currency translation adjustments (CTA) - net of deferred taxes of $(24), $(407), $17 and $(648) | (639 | ) | 697 |
| | (1,856 | ) | 1,437 |
|
| Cash flow hedges - net of deferred taxes of $2, $55, $(6) and $53 | (8 | ) | 175 |
| | (35 | ) | 239 |
|
| Benefit plans - net of deferred taxes of $16, $(49), $71 and $84 | 73 |
| (132 | ) | | 199 |
| 368 |
|
| Total | $ | (648 | ) | $ | 793 |
| | $ | (1,625 | ) | $ | 2,407 |
|
| Reclassifications from other comprehensive income | | | | | |
| Investment securities - net of deferred taxes of $5, $(17), $3 and $(78)(b) | 17 |
| (32 | ) | | 1 |
| (150 | ) |
| Currency translation on dispositions - net of deferred taxes of $(1), $2, $(1) and $(538)(b) | 7 |
| (196 | ) | | 385 |
| 392 |
|
| Cash flow hedges - net of deferred taxes of $2, $(28), $9 and $(37)(c) | (1 | ) | (75 | ) | | — |
| (129 | ) |
| Benefit plans - net of deferred taxes of $230, $275 $666 and $833(d) | 789 |
| 556 |
| | 2,322 |
| 1,667 |
|
| Total | $ | 812 |
| $ | 253 |
| | $ | 2,708 |
| $ | 1,780 |
|
| Other comprehensive income (loss) | 164 |
| 1,046 |
| | 1,082 |
| 4,184 |
|
| Less other comprehensive income (loss) attributable to noncontrolling interests | (39 | ) | 124 |
| | (92 | ) | 131 |
|
| Other comprehensive income (loss), net, attributable to GE | 203 |
| 922 |
| | 1,174 |
| 4,053 |
|
| Ending Balance | $ | (13,229 | ) | $ | (14,535 | ) | | $ | (13,229 | ) | $ | (14,535 | ) |
| Other capital | | | | | |
| Beginning balance | 37,352 |
| 37,468 |
| | 37,384 |
| 37,224 |
|
| Gains (losses) on treasury stock dispositions and other | (41 | ) | 1,169 |
| | (73 | ) | 1,413 |
|
| Ending Balance | $ | 37,311 |
| $ | 38,637 |
| | $ | 37,311 |
| $ | 38,637 |
|
| Retained earnings | | | | | |
| Beginning balance(e) | 114,913 |
| 130,271 |
| | 117,245 |
| 133,856 |
|
| Net earnings (loss) attributable to the Company | (22,769 | ) | 1,360 |
| | (23,116 | ) | 2,334 |
|
| Dividends and other transactions with shareowners | (1,086 | ) | (2,121 | ) | | (3,395 | ) | (6,514 | ) |
| Redemption value adjustment on redeemable noncontrolling interests(f) | (191 | ) | (70 | ) | | (367 | ) | (236 | ) |
| Other changes(g) | — |
| — |
| | 500 |
| — |
|
| Ending Balance | $ | 90,867 |
| $ | 129,440 |
| | $ | 90,867 |
| $ | 129,440 |
|
| Common stock held in treasury | | | | | |
| Beginning balance | (84,471 | ) | (85,617 | ) | | (84,902 | ) | (83,038 | ) |
| Purchases | (55 | ) | (108 | ) | | (198 | ) | (3,728 | ) |
| Dispositions | 324 |
| 526 |
| | 897 |
| 1,567 |
|
| Ending Balance | $ | (84,202 | ) | $ | (85,199 | ) | | $ | (84,202 | ) | $ | (85,199 | ) |
| Total equity | | | | | |
| GE shareowners' equity balance | 31,454 |
| 69,051 |
| | 31,454 |
| 69,051 |
|
| Noncontrolling interests balance | 16,383 |
| 17,701 |
| | 16,383 |
| 17,701 |
|
| Total equity balance at September 30 | $ | 47,837 |
| $ | 86,751 |
| | $ | 47,837 |
| $ | 86,751 |
|
| |
(a) | Included adjustments of $234 million and $9 million for the three months ended September 30, 2018 and 2017 and $1,705 million and $(180) million for the nine months ended September 30, 2018 and 2017, respectively, to investment contracts, insurance liabilities and annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains been realized. See Note 12 for further information. |
| |
(b) | Primarily recorded in "GE Capital Revenues from Services" and "Other income" and income taxes in "Benefit (provision) for income taxes" in our consolidated Statement of Earnings (Loss). Currency translation gains and losses on dispositions included zero for the three and nine months ended September 30, 2018, and zero and $510 million for the three and nine months ended September 30, 2017, respectively,(b) Currency translation gains and losses included $1,079 million for the nine months ended September 30, 2019 in earnings (loss) from discontinued operations, net of taxes. |
| |
(c) | Cash flow hedges primarily includes impact of foreign exchange contracts and gains and losses on interest rate derivatives, primarily recorded in GE Capital revenue from services, interest and other financial charges and other costs and expenses. See Note 17 for further information. |
| |
(d) | Primarily includes amortization of actuarial gains and losses, amortization of prior service cost and curtailment gain and loss. These components are included in the computation of net periodic pension cost. See Note 13 for further information. |
| |
(e) | January 1, 2018 amount has been adjusted to reflect retrospective adoption of ASC 606 $(8,061) million and preferable accounting change from LIFO to FIFO $(377) million. |
| |
(f) | Amount of redemption value adjustment on redeemable noncontrolling interest shown net of deferred taxes. |
| |
(g) | On January 1, 2018, we adopted several new accounting standards on a modified retrospective basis. Cumulative impact of these changes was recorded in the opening retained earnings and it increased our retained earnings by $500 million, primarily due to an increase of $464 million related to ASU 2016-16. See Note 1 for further information. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
SHARES OF GE PREFERRED STOCK
On January 20,In 2016, we issued $5,694 million of GE Series D preferred stock, following an exchange offer for existing GE series A, B and C. The Series D preferred stockwhich are callable on January 21, 2021 and bear a fixed interest rate of 5.00% through January 21, 2021 and floating rate equal2021. In addition to three-month LIBOR plus 3.33% thereafter. Following the exchange offer,Series D, $250 million of existing GE Series A, B and C preferred stock still remain outstanding with an initial average fixed dividend rate of 4.07%.are also outstanding. The total carrying value of GE preferred stock at September 30, 20182019 was $5,537$5,695 million and will increase to $5,944 million by the respective call dates through periodic accretion. Dividends on GE preferred stock are payable semi-annually, in June and December and accretion is recorded on a quarterly basis. Dividends on GE preferred stock totaled $39$42 million and $36$39 million in the three months ended September 30, 20182019 and 2017,2018, respectively, and $260$270 million, including cash dividends of $147 million, and $252$260 million, including cash dividends of $147 million, infor the nine months ending September 30, 2019 and 2018, and 2017, respectively.
In conjunction with the 2016 exchange of the GE Capital preferred stock into GE preferred stock and the exchange of Series A, B and C preferred stock into Series D preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirrored the GE external preferred stock held by external investors. On July 1,stock. In 2018, GE Capital and GE exchanged the existing Series D preferred stock issued to GE for new Series D preferred stock, which is mandatorily convertible into GE Capital commonCommon stock on January 21, 2021.The new Series D preferred stock has a carrying value of $5,496 million at September 30, 2018 and After this conversion, GE Capital will no longer be subjectpay preferred dividends to periodic accretion. The cash dividend on the new GE Capital preferred stock will equal the cash dividend and accretion on the GE Series D preferred stock through January 21, 2021, at which time the GE Capital preferred stock will convert to GE Capital common stock.GE. The exchange of GE Capital Series D preferred stock has no impact on the GE Series D preferred stock, which remains callable for $5,694 million on January 21, 2021 or thereafter on dividend payment dates. Additionally, there were no changes to the existing Series A, B or C preferred stock issued to GE. See our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.
NONCONTROLLING INTERESTS
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Noncontrolling interests in equity of consolidated affiliates include commonamounted to $1,219 million and $20,500 million, including 0 and $19,239 million attributable to Baker Hughes Class A shareholder at September 30, 2019 and December 31, 2018, respectively. In September 2019, pursuant to our announced plan of an orderly separation of Baker Hughes over time, we sold a total of 144.1 million shares which, reduced our ownership interest in consolidated affiliatesfrom 50.2% to 36.8%. As a result, we have deconsolidated our Baker Hughes segment and preferred stock issued by our affiliates.reclassified results to discontinued operations for all periods presented. See Note 2 for further information. Net earnings (loss) attributable to noncontrolling interests were $39 million and $54 million, for the three months ended September 30, 2019 and 2018, respectively and $41 million and $105 million for the nine months ended September 30, 2019 and 2018, respectively. Dividends attributable to noncontrolling interests were $(110) million and $(96) million for the three months ended September 30, 2019 and 2018, respectively and $(325) million and $(260) million for the nine months ended September 30, 2019 and 2018, respectively.
|
| | | | | | | | | | | | | |
| CHANGES TO NONCONTROLLING INTERESTS | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | |
| Beginning balance | $ | 16,685 |
| $ | 1,634 |
| | $ | 17,468 |
| $ | 1,663 |
|
| Net earnings (loss) | 54 |
| (114 | ) | | 105 |
| (94 | ) |
| Dividends | (96 | ) | (99 | ) | | (260 | ) | (130 | ) |
| Other(a) | (260 | ) | 16,279 |
| | (930 | ) | 16,261 |
|
| Ending balance at September 30(b) | $ | 16,383 |
| $ | 17,701 |
| | $ | 16,383 |
| $ | 17,701 |
|
| |
(a) | Included impact of AOCI, acquisitions, dispositions and BHGE stock repurchases. |
| |
(b) | Included $15,192 million and $16,158 million attributable to the BHGE Class A Shareholders at September 30, 2018 and 2017, respectively. |
REDEEMABLE NONCONTROLLING INTERESTS
Redeemable noncontrolling interests presented within "All other liabilities" in our consolidated Statement of Financial Position include common shares issued by our affiliates that are redeemable at the option of the holder of those interests.
As partinterests and amounted to$408 million and $378 million as of September 30, 2019 and December 31, 2018, respectively. Net earnings (loss) attributable to redeemable noncontrolling interests was insignificant and $(144) million for the Alstom acquisition in 2015,three months ended September 30, 2019 and 2018, respectively and $32 million and $(293) million for the nine months ended September 30, 2019 and 2018, respectively. On October 2, 2018 we formed three settled the redeemable noncontrolling interest balance associated with 3 joint ventures with Alstom, for a payment amount of $3,105 million in grid technology, renewable energy, and global nuclear and French steam power. Noncontrolling interests in these joint ventures hold certain redemption rights. Our retained earnings is adjusted for subsequent changesaccordance with contractual payment terms.
NOTE 16. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
| Three months ended September 30 | 2019 | | 2018 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Earnings from continuing operations for per-share calculation | $ | (1,283 | ) | $ | (1,283 | ) | | $ | (22,920 | ) | $ | (22,920 | ) |
| Preferred stock dividends | (42 | ) | (42 | ) | | (39 | ) | (39 | ) |
Earnings from continuing operations attributable to
common shareowners for per-share calculation | (1,325 | ) | (1,325 | ) | | (22,959 | ) | (22,959 | ) |
Earnings (loss) from discontinued operations
for per-share calculation | (8,140 | ) | (8,140 | ) | | 144 |
| 144 |
|
Net earnings (loss) attributable to GE common
shareowners for per-share calculation | $ | (9,465 | ) | $ | (9,465 | ) | | $ | (22,812 | ) | $ | (22,812 | ) |
| | | | | | |
| Shares of GE common stock outstanding | 8,730 |
| 8,730 |
| | 8,694 |
| 8,694 |
|
| Employee compensation-related shares (including stock options) | — |
| — |
| | — |
| — |
|
| Total average equivalent shares | 8,730 |
| 8,730 |
| | 8,694 |
| 8,694 |
|
| | | | | | |
| Earnings per share from continuing operations | $ | (0.15 | ) | $ | (0.15 | ) | | $ | (2.64 | ) | $ | (2.64 | ) |
| Earnings (loss) per share from discontinued operations | (0.93 | ) | (0.93 | ) | | 0.02 |
| 0.02 |
|
| Net earnings (loss) per share | (1.08 | ) | (1.08 | ) | | (2.62 | ) | (2.62 | ) |
| | | | | | |
| Potentially dilutive securities(a) | 453 |
| | | 424 |
| |
|
| | | | | | | | | | | | | |
| | | | | | |
| Nine months ended September 30 | 2019 | | 2018 |
| (In millions; per-share amounts in dollars) | Diluted |
| Basic |
| | Diluted |
| Basic |
|
| | | | | | |
| Earnings from continuing operations for per-share calculation | $ | (438 | ) | $ | (438 | ) | | $ | (21,694 | ) | $ | (21,694 | ) |
| Preferred stock dividends | (270 | ) | (270 | ) | | (260 | ) | (260 | ) |
Earnings from continuing operations attributable to
common shareowners for per-share calculation | $ | (708 | ) | $ | (708 | ) | | $ | (21,954 | ) | $ | (21,955 | ) |
Earnings (loss) from discontinued operations
for per-share calculation | (5,270 | ) | (5,270 | ) | | (1,437 | ) | (1,437 | ) |
Net earnings attributable to GE common
shareowners for per-share calculation | $ | (5,977 | ) | $ | (5,977 | ) | | $ | (23,383 | ) | $ | (23,383 | ) |
| | | | | | |
| Shares of GE common stock outstanding | 8,721 |
| 8,721 |
| | 8,689 |
| 8,689 |
|
| Employee compensation-related shares (including stock options) | — |
| — |
| | — |
| — |
|
| Total average equivalent shares | 8,721 |
| 8,721 |
| | 8,689 |
| 8,689 |
|
| | | | | | |
| Earnings from continuing operations | $ | (0.08 | ) | $ | (0.08 | ) | | $ | (2.53 | ) | $ | (2.53 | ) |
| Loss from discontinued operations | (0.60 | ) | (0.60 | ) | | (0.17 | ) | (0.17 | ) |
| Net earnings | (0.69 | ) | (0.69 | ) | | (2.69 | ) | (2.69 | ) |
| | | | | | |
| Potentially dilutive securities(a) | 462 |
| | | 410 |
| |
(a) Outstanding stock awards not included in the redemption valuecomputation of the noncontrolling interest in these entities to the extent that the redemption value exceeds the carrying amount of the noncontrolling interest. diluted earnings per share because their effect was antidilutive.
Alstom had redemption rights with respect to its interest in the grid technology and renewable energy joint ventures, which, if exercised, would require us to purchase all of their interest during September 2018 or September 2019. Alstom also had similar redemption rights for the global nuclear and French steam power joint venture that are exercisable during the first quarter of 2021 or the first quarter of 2022. The redemption price would generally be equal to Alstom's initial investment plus annual accretion of 3% for the grid technology and renewable energy joint ventures and plus annual accretion of 2% for the nuclear and French steam power joint venture, with potential upside sharing based on an EBITDA multiple. Alstom also had additional redemption rights in other limited circumstances as well as a call option to require GE to sell all of its interests in the renewable energy joint venture at the higher of fair value or Alstom's initial investment plus annual accretion of 3% during the month of May in the years 2017 through 2019 and also upon a decision to IPO the joint venture.
20182019 3Q FORM 10-Q 9369
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
GE had a call option on Alstom's interestOur unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities, and, therefore, are included in the global nuclear and French steam power joint venture at the same amount as Alstom's redemption price in the event that Alstom exercises its put option in the grid technology or renewable energy joint ventures. GE also had call options on Alstom's interest in the three joint ventures in other limited circumstances. In addition, the French Government holds a preferred interest in the global nuclear and French steam power joint venture, giving it certain protective rights.
In January 2018, Alstom informed us that they intend to exercise their redemption rights with respectcomputation of earnings per share pursuant to the grid technology and renewable energy joint ventures in September 2018. Pursuant to an agreement signed between Alstom and GE in May 2018, if Alstom exercised its redemption rights in September 2018 with respect to the grid technology and renewable energy joint ventures, GE would be deemed to have exercised its option to acquire Alstom’s interest in the nuclear and French steam power joint venture. On September 5, 2018, Alstom exercised its redemption rights related to grid technology and renewable energy, and accordingly GE also exercised its call option to acquire Alstom’s interest in the nuclear and French steam power joint venture. Accordingly, redeemable noncontrolling interest balance was reclassified to GE current liabilities in the third quarter of 2018, and was settled on October 2, 2018, in accordance with the contractual payment terms. The price GE paid was €1,832 million for the grid technology joint venture, €638 million for the renewable energy joint venture and €125 million for the nuclear and French steam power joint venture.
|
| | | | | | | | | | | | | |
| CHANGES TO REDEEMABLE NONCONTROLLING INTERESTS | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Beginning balance | $ | 3,376 |
| $ | 3,185 |
| | $ | 3,391 |
| $ | 3,017 |
|
| Net earnings (loss) | (144 | ) | (56 | ) | | (293 | ) | (218 | ) |
| Dividends | — |
| (12 | ) | | (19 | ) | (22 | ) |
| Redemption value adjustment | 203 |
| 70 |
| | 401 |
| 236 |
|
| Other(a) | (3,049 | ) | 246 |
| | (3,094 | ) | 420 |
|
| Balance at September 30 | $ | 386 |
| $ | 3,433 |
| | $ | 386 |
| $ | 3,433 |
|
| |
(a) | In 2018, included $(3,028) million reclassified to GE current liabilities related to Alstom joint ventures.
|
OTHER
GE Capital paid no common dividends to GE intwo-class method. For the three and nine months ended September 30, 2018, respectively. Common dividends paid by GE Capital to GE were zero2019 and $4,105 million (including cash dividends of $4,016 million) in the three and nine months ended September 30, 2017, respectively.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 16. EARNINGS PER SHARE INFORMATION
|
| | | | | | | | | | | | | |
| | Three months ended September 30 |
| | 2018 | | 2017 |
| (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) | $ | (22,812 | ) | $ | (22,812 | ) | | $ | 1,459 |
| $ | 1,459 |
|
| Preferred stock dividends | (39 | ) | (39 | ) | | (36 | ) | (36 | ) |
Earnings from continuing operations attributable to
common shareowners for per-share calculation(a)(b) | $ | (22,851 | ) | $ | (22,851 | ) | | $ | 1,423 |
| $ | 1,423 |
|
Loss from discontinued operations
for per-share calculation(a)(b) | 36 |
| 36 |
| | (109 | ) | (109 | ) |
Net earnings attributable to GE common
shareowners for per-share calculation(a)(b) | $ | (22,812 | ) | $ | (22,812 | ) | | $ | 1,318 |
| $ | 1,318 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,694 |
| 8,694 |
| | 8,665 |
| 8,665 |
|
| Employee compensation-related shares (including stock options) | — |
| — |
| | 67 |
| — |
|
| Total average equivalent shares | 8,694 |
| 8,694 |
| | 8,732 |
| 8,665 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | (2.63 | ) | $ | (2.63 | ) | | $ | 0.16 |
| $ | 0.16 |
|
| Loss from discontinued operations | — |
| — |
| | (0.01 | ) | (0.01 | ) |
| Net earnings | (2.62 | ) | (2.62 | ) | | 0.15 |
| 0.15 |
|
|
| | | | | | | | | | | | | |
| | | | | | |
| | Nine months ended September 30 |
| | 2018 | | 2017 |
| (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) | $ | (21,489 | ) | $ | (21,489 | ) | | $ | 2,815 |
| $ | 2,815 |
|
| Preferred stock dividends | (260 | ) | (260 | ) | | (252 | ) | (252 | ) |
Earnings from continuing operations attributable to
common shareowners for per-share calculation(a)(b) | $ | (21,749 | ) | $ | (21,749 | ) | | $ | 2,563 |
| $ | 2,563 |
|
Loss from discontinued operations
for per-share calculation(a)(b) | (1,642 | ) | (1,642 | ) | | (507 | ) | (507 | ) |
Net earnings attributable to GE common
shareowners for per-share calculation(a)(b) | $ | (23,383 | ) | $ | (23,383 | ) | | $ | 2,066 |
| $ | 2,066 |
|
| | | | | | |
| Average equivalent shares | | | | | |
| Shares of GE common stock outstanding | 8,689 |
| 8,689 |
| | 8,689 |
| 8,689 |
|
| Employee compensation-related shares (including stock options) | — |
| — |
| | 85 |
| — |
|
| Total average equivalent shares | 8,689 |
| 8,689 |
| | 8,774 |
| 8,689 |
|
| | | | | | |
| Per-share amounts | | | | | |
| Earnings from continuing operations | $ | (2.50 | ) | $ | (2.50 | ) | | $ | 0.29 |
| $ | 0.30 |
|
| Loss from discontinued operations | (0.19 | ) | (0.19 | ) | | (0.06 | ) | (0.06 | ) |
| Net earnings | (2.69 | ) | (2.69 | ) | | 0.24 |
| 0.24 |
|
| |
(a) | Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities. For the three and nine months ended September 30, 2018 and 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.
|
| |
(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, 2018 and 2017, approximately 424 million and 82 million of outstanding stock awards were not included inallocated to the computation of diluted earnings per share because their effect was antidilutive. For the nine months ended September 30, 2018 and 2017, approximately 410 million and 48 million of outstanding stock awards were not included in the computation of diluted earnings per share because their effect was antidilutive.participating securities.
Earnings per share amounts are computed independently for earnings from continuing operations, lossearnings from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.
NOTE 17. FINANCIAL INSTRUMENTS AND NON-RECURRING FAIR VALUE MEASUREMENTS
The following table provides information about assets and liabilities not carried at fair value. The tablevalue and excludes finance leases, equity investmentssecurities 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
|
| | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (In millions) | Carrying
amount
(net) |
| Estimated
fair value |
| | Carrying
amount
(net) |
| Estimated
fair value |
|
|
|
| |
|
|
| Assets |
|
| |
|
|
| Loans and other receivables | $ | 4,540 |
| $ | 4,638 |
| | $ | 8,811 |
| $ | 8,829 |
|
| Liabilities |
|
| |
|
|
| Borrowings (Note 11) | 93,244 |
| 98,246 |
| | 103,599 |
| 100,492 |
|
| Investment contracts (Note 12) | 2,239 |
| 2,653 |
| | 2,388 |
| 2,630 |
|
Unlike the carrying amount, estimated fair value of borrowings included $1,017 million and $1,324 million of accrued interest at
September 30, 2019 and December 31, 2018, respectively, and excluded the instruments are actively traded and their fair values must often be determined using financial models. Realizationimpact of derivatives designated as hedges of borrowings. Had they been included, the fair value of these instruments depends upon market forces beyondborrowings at September 30, 2019 and December 31, 2018 would be reduced by $1,710 million and $1,300 million, respectively.
DERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for managing risks and not for speculative purposes. Total gross notional was $96,690 million ($58,671 million in GE Capital and $38,019 million in GE) and $117,104 million ($79,082 million in GE Capital and $38,022 million in GE) at September 30, 2019 and December 31, 2018, respectively. GE Capital notional relates primarily to managing interest rate and currency risk between financial assets and liabilities, and GE notional relates primarily to managing currency risk.
|
| | | | | | | | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | September 30, 2019 | | December 31, 2018 |
| (In millions) | Gross Notional |
| All other assets |
| All other liabilities |
| | Gross Notional |
| All other assets |
| All other liabilities |
|
| | | | | | | | |
| Interest rate contracts | $ | 23,819 |
| $ | 1,904 |
| $ | 11 |
| | $ | 22,904 |
| $ | 1,335 |
| $ | 23 |
|
| Currency exchange contracts | 6,661 |
| 89 |
| 98 |
| | 7,854 |
| 175 |
| 114 |
|
| Derivatives accounted for as hedges | $ | 30,480 |
| $ | 1,993 |
| $ | 109 |
| | $ | 30,758 |
| $ | 1,511 |
| $ | 138 |
|
| | | | | | | | |
| Interest rate contracts | $ | 3,413 |
| $ | 28 |
| $ | 3 |
| | $ | 6,198 |
| $ | 28 |
| $ | 2 |
|
| Currency exchange contracts | 61,050 |
| 543 |
| 953 |
| | 77,544 |
| 653 |
| 1,472 |
|
| Other contracts | 1,746 |
| 67 |
| 82 |
| | 2,604 |
| 13 |
| 209 |
|
| Derivatives not accounted for as hedges | $ | 66,210 |
| $ | 639 |
| $ | 1,037 |
| | $ | 86,346 |
| $ | 695 |
| $ | 1,682 |
|
| | | | | | | | |
| Gross derivatives | $ | 96,690 |
| $ | 2,632 |
| $ | 1,146 |
| | $ | 117,104 |
| $ | 2,205 |
| $ | 1,820 |
|
| | | | | | | | |
| Netting and credit adjustments | | $ | (674 | ) | $ | (678 | ) | | | $ | (959 | ) | $ | (967 | ) |
| Cash collateral adjustments | | (1,226 | ) | (202 | ) | | | (1,042 | ) | (267 | ) |
| Net derivatives recognized in statement of financial position | | $ | 732 |
| $ | 266 |
| | | $ | 205 |
| $ | 586 |
|
| �� | | | | | | | |
| Net accrued interest | | $ | 152 |
| $ | 4 |
| | | $ | 205 |
| $ | 1 |
|
| Securities held as collateral | | (567 | ) | — |
| | | (235 | ) | — |
|
| Net amount | | $ | 317 |
| $ | 270 |
| | | $ | 174 |
| $ | 587 |
|
Fair value of derivatives in our control, including marketplace liquidity.consolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $51 million and $786 million at September 30, 2019, respectively, and $3 million and $439 million at December 31, 2018, respectively. Securities held as collateral excluded excess collateral received of $18 million and 0 at September 30, 2019 and December 31, 2018, respectively.
|
| | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| (In millions) | Carrying
amount
(net) |
| Estimated
fair value |
| | Carrying
amount
(net) |
| Estimated
fair value |
|
|
|
| |
|
|
| GE |
|
| |
|
|
| Assets |
|
| |
|
|
| Notes receivable | $ | 680 |
| $ | 674 |
| | $ | 700 |
| $ | 700 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(b) | 32,558 |
| 31,809 |
| | 34,473 |
| 35,416 |
|
| Borrowings (debt assumed)(a)(c) | 37,000 |
| 40,300 |
| | 47,114 |
| 53,502 |
|
|
|
| |
|
|
| GE Capital |
|
| |
|
|
| Assets |
|
| |
|
|
| Loans | 12,744 |
| 12,737 |
| | 17,363 |
| 17,331 |
|
| Other commercial mortgages | 1,783 |
| 1,811 |
| | 1,489 |
| 1,566 |
|
| Loans held for sale | 1,326 |
| 1,328 |
| | 3,274 |
| 3,274 |
|
| Liabilities |
|
| |
|
|
| Borrowings(a)(d)(e)(f) | 47,000 |
| 49,460 |
| | 55,353 |
| 60,415 |
|
| Investment contracts | 2,434 |
| 2,712 |
| | 2,569 |
| 2,996 |
|
| |
(b) | Included $194 million and $217 million of accrued interest in estimated fair value at September 30, 2018 and December 31, 2017, respectively.
|
| |
(c) | Included $397 million and $696 million of accrued interest in estimated fair value at September 30, 2018 and December 31, 2017, respectively.
|
| |
(d) | 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, 2018 and December 31, 2017 would have been reduced by $1,016 million and $1,754 million, respectively.
|
| |
(e) | Included $670 million and $731 million of accrued interest in estimated fair value at September 30, 2018 and December 31, 2017, respectively.
|
| |
(f) | Excluded $23,250 million and $39,844 million of net intercompany payable to GE at September 30, 2018 and December 31, 2017, respectively.
|
|
| | | | | | |
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | | |
| | | |
| (In millions) | September 30, 2018 |
| December 31, 2017 |
|
| | | |
| Ordinary course of business lending commitments(a) | $ | 724 |
| $ | 1,105 |
|
| Unused revolving credit lines | 50 |
| 198 |
|
| |
(a) | Excluded investment commitments of $1,415 million and $677 million at September 30, 2018 and December 31, 2017, respectively.
|
96 201870 2019 3Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DERIVATIVES AND HEDGING
FORMS OF HEDGING
In this section we explain the hedging methods we use and their effects on our financial statements.
Cash flow hedges – FAIR VALUE HEDGES. We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts in our industrial businesses and to convert foreign currency debt that we have issued in our financial services business back to our functional currency.
As part of our ongoing effort to reduce borrowings, we may repurchase debt that was in a cash flow hedge accounting relationship. At the time of determining that the debt cash flows are probable of not occurring any related OCI will be released to earnings.
Fair value hedges – These derivatives are used to hedge the effects of interest rate and currency exchange rate changes on debt that we have issued.
Net investment hedges – We invest in foreign operations that conduct their financial services activities in currencies other thanour borrowings. At September 30, 2019, the U.S. dollar. We hedge the currency risk associated with those investments primarily using non-derivative instruments such as debt denominated in a foreign currency and short-term currency exchange contracts under which we receive U.S. dollars and pay foreign currency.
Economic hedges – These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as othercumulative amount of hedging arrangements. We use economic hedges when we have exposures to currency exchange risk for which we are unable to meet the requirements for hedge accounting or when changesadjustments of $5,118 million (including $2,484 million on discontinued hedging relationships) was included in the carrying amount of the hedged item are already recorded in earningsliability of $57,017 million. At September 30, 2018, the cumulative amount of hedging adjustments of $2,847 million (including $2,844 million on discontinued hedging relationships) was included 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.
NOTIONAL AMOUNT OF DERIVATIVES
The notional amount of a derivative is the number of units of the underlying (for example, the notional principalcarrying amount of the debt in an interest rate swap).hedged liability of $61,292 million. 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 notionalcumulative amount of $134 billion at September 30, 2018 is related to managing interest rate and currency risk between financial assets and liabilitieshedging adjustments was primarily recorded in our financial services business. The remaining derivative notional amount primarily relates to hedges of anticipated sales and purchases in foreign currency, commodity purchases and contractual terms in contracts that are considered embedded derivatives.long-term borrowings.
The table below provides additional information about how derivatives are reflected in our financial statements. Derivative assets and liabilities are recorded at fair value exclusive of interest earned or owed on interest rate derivatives, which is presented separately on our Statement of Financial Position. Cash collateral and securities held as collateral represent assets that have been provided by our derivative counterparties as security for amounts they owe us (derivatives that are in an asset position).
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | |
| FAIR VALUE OF DERIVATIVES | |
| | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| (In millions) | Assets |
| Liabilities |
| | Assets |
| Liabilities |
|
| | | | | | |
| Derivatives accounted for as hedges | | | | | |
| Interest rate contracts | $ | 1,278 |
| $ | 350 |
| | $ | 1,862 |
| $ | 148 |
|
| Currency exchange contracts | 177 |
| 118 |
| | 160 |
| 70 |
|
| | 1,455 |
| 468 |
| | 2,021 |
| 218 |
|
| | | | | | |
| Derivatives not accounted for as hedges | | | | | |
| Interest rate contracts | 32 |
| (1 | ) | | 93 |
| 8 |
|
| Currency exchange contracts | 674 |
| 1,283 |
| | 1,111 |
| 2,043 |
|
| Other contracts | 80 |
| 135 |
| | 139 |
| 91 |
|
| | 787 |
| 1,418 |
| | 1,343 |
| 2,143 |
|
| | | | | | |
| Gross derivatives recognized in statement of financial position | | | | | |
| Gross derivatives | 2,242 |
| 1,885 |
| | 3,364 |
| 2,361 |
|
| Gross accrued interest | 228 |
| (31 | ) | | 469 |
| (38 | ) |
| | 2,471 |
| 1,855 |
| | 3,833 |
| 2,323 |
|
| | | | | | |
| Amounts offset in statement of financial position | | | | | |
| Netting adjustments(a) | (978 | ) | (977 | ) | | (1,457 | ) | (1,456 | ) |
| Cash collateral(b) | (1,152 | ) | (338 | ) | | (1,529 | ) | (578 | ) |
| | (2,129 | ) | (1,315 | ) | | (2,986 | ) | (2,034 | ) |
| | | | | | |
| Net derivatives recognized in statement of financial position | | | | | |
| Net derivatives | 342 |
| 540 |
| | 847 |
| 289 |
|
| | | | | | |
| Amounts not offset in statement of financial position | | | | | |
| Securities held as collateral(c) | (144 | ) | — |
| | (405 | ) | — |
|
| | | | | | |
| Net amount | $ | 198 |
| $ | 540 |
| | $ | 441 |
| $ | 289 |
|
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, 2018 and December 31, 2017, the cumulative adjustment for non-performance risk was zero and $(1) million, respectively. |
| |
(b) | Excluded excess cash collateral received and posted of $50 million and $420 million at September 30, 2018, respectively, and $10 million and $255 million at December 31, 2017, respectively. Excess cash collateral posted includes initial margin for cleared trades. |
| |
(c) | Excluded excess securities collateral received of zero and $16 million at September 30, 2018 and December 31, 2017, respectively. |
|
| | |
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 (a) | Effect on hedging instrument | Effect on underlying | Effect on earnings |
| | | | | | | |
| 2018 | | | | | | |
| Cash flow hedges | $ | (6 | ) | $ | 7 |
| $ | 1 |
| $ | (25 | ) | $ | 27 |
| $ | 2 |
|
| Fair value hedges | (362 | ) | 333 |
| (29 | ) | (1,285 | ) | 1,200 |
| (85 | ) |
| Net investment hedges(b) | (56 | ) | 62 |
| 6 |
| 157 |
| (144 | ) | 14 |
|
| Economic hedges(c) | (677 | ) | 456 |
| (221 | ) | (1,460 | ) | 1,126 |
| (334 | ) |
| Total |
|
| $ | (243 | ) |
|
| $ | (403 | ) |
| | | | | | | |
| 2017 | | | | | | |
| Cash flow hedges | $ | 225 |
| $ | (225 | ) | $ | — |
| $ | 281 |
| $ | (281 | ) | $ | — |
|
| Fair value hedges | (148 | ) | 103 |
| (45 | ) | (430 | ) | 267 |
| (162 | ) |
| Net investment hedges(b) | (1,016 | ) | 1,020 |
| 4 |
| (2,065 | ) | 2,082 |
| 17 |
|
| Economic hedges(c) | 663 |
| (920 | ) | (257 | ) | 1,304 |
| (1,876 | ) | (572 | ) |
| Total |
|
| $ | (298 | ) |
|
| $ | (717 | ) |
The amounts in the table above generally do not include associated derivative accruals in income or expense.
| |
(a) | For cash flow and fair value hedges, the effect on earnings is primarily related to ineffectiveness. For net investment hedges, the effect on earnings is related to ineffectiveness and spot-forward differences. |
| |
(b) | Both non-derivatives and derivatives hedging instruments are included. The carrying value of non-derivative instruments designated as net investment hedges was $(12,894) million and $(13,213) million at September 30, 2018 and 2017, respectively. Total pre-tax reclassifications from CTA to gain (loss) was $(7) million and $78 million at September 30, 2018 and 2017, respectively. Total pre-tax reclassifications from CTA to gain (loss) included zero and $78 million recorded in discontinued operations at September 30, 2018 and 2017, respectively. |
| |
(c) | Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods. |
CASH FLOW HEDGES. Changes in the fair value of cash flow hedges are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income or AOCI)(AOCI) and are recorded in earnings in the period in which the hedged transaction occurs. The table below summarizes this activity by hedging instrument.gain (loss) recognized in AOCI was $(21) million and $(5) million for the three months ended September 30, 2019 and 2018, respectively, and $(24) million and $(25) million for the nine months ended September 30, 2019 and 2018, respectively. The gain (loss) reclassified from AOCI to earnings was $(34) million and $(1) million for the three months ended September 30, 2019 and 2018, respectively, and $(63) million and $(9) million for the nine months ended September 30, 2019 and 2018, respectively. These amounts were primarily related to currency exchange and interest rate contracts.
|
| | | | | | | | | | | | | | | | | | | |
| 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) | 2018 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2016 |
|
|
|
| |
|
|
|
| |
| Interest rate contracts | $ | (4 | ) | $ | 1 |
| $ | 1 |
|
| $ | (4 | ) | $ | (6 | ) | $ | (12 | ) |
| Currency exchange contracts | (3 | ) | 224 |
| — |
|
| 2 |
| 110 |
| (46 | ) |
| Commodity contracts | — |
| — |
| 1 |
|
| — |
| — |
| — |
|
| Total(a) | $ | (7 | ) | $ | 225 |
| $ | 2 |
|
| $ | (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) | 2018 |
| 2017 |
| 2016 |
| | 2018 |
| 2017 |
| 2016 |
|
| | | | | | | | |
| Interest rate contracts | $ | (11 | ) | $ | 3 |
| $ | 32 |
| | $ | (10 | ) | $ | (21 | ) | $ | (67 | ) |
| Currency exchange contracts | (16 | ) | 278 |
| (76) | | 1 |
| 189 |
| (59 | ) |
| Commodity contracts | — |
| — |
| 1 |
| | — |
| — |
| (3 | ) |
| Total(a) | $ | (27 | ) | $ | 281 |
| $ | (43 | ) | | $ | (9 | ) | $ | 167 |
| $ | (128 | ) |
| |
(a) | Gain (loss) is recorded in "GE Capital revenues from services", "Interest and other financial charges", "Sales of goods", "Cost of goods sold" and "Other costs and expenses" in our Statement of Earnings when reclassified. |
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was a $75$64 million gain at September 30, 2018.2019. We expect to transfer $56reclassify $58 million of loss to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. InFor the three months and nine monthsmonths ended September 30, 2019 and 2018, 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, 2018, 20172019 and 2016,2018, the maximum term of derivative instruments that hedge forecasted transactions was 13 years and 14 years, 15 years and 16 years, respectively.
NET INVESTMENT HEDGES. For cash flowthese hedges, the amount of ineffectiveness in the hedging relationship and amountportion of the changes in fair value changes of the derivatives or debt instruments that relates to changes in spot currency exchange rates is recorded in a separate component of AOCI. The portion of the fair value changes of the derivatives related to differences between spot and forward rates is recorded in earnings each period. The amounts recorded in AOCI affect earnings if the hedged investment is sold, substantially liquidated, or control is lost.
The total gain (loss) recognized in AOCI on hedging instruments for the three months ended September 30, 2019 and 2018 was $213 million and $(62) million, respectively, comprising $32 million and $18 million on currency exchange contracts and $181 million and $(79) million on foreign currency debt, respectively. The total gain (loss) recognized in AOCI on hedging instruments for the nine months ended September 30, 2019 and 2018 was $231 million and $144 million, respectively, comprising $7 million and $100 million on currency exchange contracts and $225 million and $43 million on foreign currency debt, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $6 million and $6 million for the three months ended September 30, 2019 and 2018, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $22 million and $14 million for the nine months ended September 30, 2019 and 2018.
The carrying value of foreign currency debt designated as net investment hedges was $9,119 million and $12,894 million at
September 30, 2019 and 2018, respectively. The total reclassified from AOCI into earnings was $338 million and $(7) million for the three months ended September 30, 2019 and 2018, respectively. The total reclassified from AOCI into earnings was $344 million and $(7) million for the nine months ended September 30, 2019 and 2018, respectively.
EFFECTS OF DERIVATIVES ON EARNINGS. All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges. For derivatives not includeddesignated as hedging instruments, substantially all of the gain or loss recognized in earnings is offset by either the current period change in value of underlying exposures which is recorded in earnings in the measurementcurrent period or a future period when the recording of ineffectiveness were insignificant for each reporting period.the exposures occur.
The table below presents the effect of our derivative financial instruments in the consolidated Statement of Earnings:
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2019 | | Three months ended September 30, 2018 |
| (In millions) | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income |
| | | | | | | | | | | | |
| Total amounts presented in the consolidated Statement of Earnings | $ | 23,360 |
| $ | 17,328 |
| $ | 1,279 |
| $ | 3,293 |
| $ | 158 |
| | $ | 23,392 |
| $ | 17,847 |
| $ | 1,155 |
| $ | 4,100 |
| $ | 279 |
|
| | | | | | | | | | | | |
| Total effect of cash flow hedges | $ | (24 | ) | $ | (1 | ) | $ | (8 | ) | $ | (2 | ) | $ | — |
| | $ | 8 |
| $ | 1 |
| $ | (10 | ) | $ | — |
| $ | — |
|
| | | | | | | | | | | | |
| Hedged items | | | $ | (1,000 | ) | | | | | | $ | 333 |
| | |
| Derivatives designated as hedging instruments | | | 1,011 |
| | | | | | (362 | ) | | |
| Total effect of fair value hedges | | | $ | 10 |
| | | | | | $ | (29 | ) | | |
| | | | | | | | | | | | |
| Interest rate contracts | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (11 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Currency exchange contracts | (108 | ) | (8 | ) | (73 | ) | 60 |
| (28 | ) | | (415 | ) | (240 | ) | — |
| — |
| (10 | ) |
| Other | (1 | ) | — |
| — |
| — |
| 9 |
| | — |
| — |
| 38 |
| — |
| (22 | ) |
| Total effect of derivatives not designated as hedges | $ | (109 | ) | $ | (8 | ) | $ | (74 | ) | $ | 60 |
| $ | (18 | ) | | $ | (426 | ) | $ | (240 | ) | $ | 38 |
| $ | — |
| $ | (32 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2019 | | Nine months ended September 30, 2018 |
| (In millions) | Revenues | Cost of sales | Interest Expense | SG&A | Other Income | | Revenues | Cost of sales | Interest Expense | SG&A | Other Income |
| | | | | | | | | | | | |
| Total amounts presented in the consolidated Statement of Earnings | $ | 68,976 |
| $ | 50,949 |
| $ | 3,272 |
| $ | 10,120 |
| $ | 1,170 |
| | $ | 70,513 |
| $ | 52,244 |
| $ | 3,585 |
| $ | 11,013 |
| $ | 1,388 |
|
| | | | | | | | | | | | |
| Total effect of cash flow hedges | $ | (18 | ) | $ | (14 | ) | $ | (27 | ) | $ | (3 | ) | $ | — |
| | $ | 4 |
| $ | 17 |
| $ | (30 | ) | $ | — |
| $ | — |
|
| | | | | | | | | | | | |
| Hedged items | | | $ | (2,186 | ) | | | | | | $ | 1,200 |
| |
|
| Derivatives designated as hedging instruments | | | 2,172 |
| | | | | | (1,285 | ) | |
|
| Total effect of fair value hedges | | | $ | (14 | ) | | | | | | $ | (85 | ) | |
|
| | | | | | | | | | | | |
| Interest rate contracts | $ | (36 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | (46 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Currency exchange contracts | (25 | ) | (29 | ) | (212 | ) | (2 | ) | (52 | ) | | (921 | ) | (484 | ) | — |
| — |
| (6 | ) |
| Other | (1 | ) | — |
| 123 |
| — |
| 10 |
| | (1 | ) | — |
| 27 |
| — |
| (2 | ) |
| Total effect of derivatives not designated as hedges | $ | (62 | ) | $ | (29 | ) | $ | (89 | ) | $ | (2 | ) | $ | (42 | ) | | $ | (967 | ) | $ | (484 | ) | $ | 27 |
| $ | — |
| $ | (8 | ) |
COUNTERPARTY CREDIT RISK
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we net our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasury securities) when our receivables due from the counterparties, measured at current market value, exceeds specified limits. The fair value of such collateral was $1,295 million at September 30, 2018, of which $1,152 million was cash and $144 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 $338 million at September 30, 2018. At September 30, 2018, our Our exposures to counterparties (including accrued interest), net of collateral we hold,held, was $106 million. This excludes$227 million and $95 million at September 30, 2019 and December 31, 2018, respectively. Counterparties' exposures related to embedded derivatives.
Additionally, our master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the credit rating of the counterparty were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration(including accrued interest), net of collateral posted by us, was $250 million and outstanding interest payments was $510$571 million at September 30, 2018. This excludes exposure related2019 and December 31, 2018, respectively.
NOTE 18. VARIABLE INTEREST ENTITIES
In addition to embedded derivatives.the 3 VIEs detailed in Note 4, we have other consolidated VIEs with assets of $1,539 million and $2,321 million, and liabilities of $1,007 million and $1,611 million at September 30 2019 and December 31, 2018, respectively. These entities were created to help our customers facilitate or finance the purchase of GE goods and services. These entities have no features that could expose us to losses that would significantly exceed the difference between the consolidated assets and liabilities. Substantially all the assets of our consolidated VIEs at September 30, 2019 can only be used to settle the liabilities of those VIEs.
100 201872 2019 3Q FORM 10-Q
|
| | |
| 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, 2018 and December 31, 2017.
|
| | | | | | | | | | | | |
| | Remeasured during
the three months ended
September 30, 2018 | Remeasured during
the year ended
December 31, 2017 |
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 |
| | | | | |
| Financing receivables | $ | — |
| $ | 8 |
| $ | — |
| $ | 1,541 |
|
| Equity securities without readily determinable fair value and equity method investments | 479 |
| 1,212 |
| — |
| 2,076 |
|
| Long-lived assets | — |
| 413 |
| 177 |
| 591 |
|
| Goodwill | $ | — |
| $ | 1,653 |
| $ | — |
| $ | — |
|
| Total | $ | 479 |
| $ | 3,286 |
| $ | 177 |
| $ | 4,208 |
|
The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at September 30, 2018 and 2017.
|
| | | | | | | | | | | | | |
| | Three months ended September 30 | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Financing receivables | $ | — |
| $ | (1 | ) | | $ | (2 | ) | $ | (1 | ) |
| Equity securities without readily determinable fair value and equity method investments | (240 | ) | (58 | ) | | (441 | ) | (89 | ) |
| Long-lived assets | (865 | ) | (671 | ) | | (975 | ) | (712 | ) |
| Goodwill | (21,973 | ) | $ | (947 | ) | | $ | (21,973 | ) | $ | (947 | ) |
| Total | $ | (23,079 | ) | $ | (1,676 | ) | | $ | (23,391 | ) | $ | (1,748 | ) |
|
| | | | | | |
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | Range
(weighted-average) |
| | | | | |
| September 30, 2018 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Equity securities without readily determinable fair value and equity method investments | $ | 769 |
| Income approach, market comparables | Discount rate(a) | 6.5%-50%(8.9)% |
| | | | | |
| Long-lived assets | 352 |
| Income approach | Discount rate(a) | 2.9%-40%(22.3)% |
| | | | | |
| | | | | |
| December 31, 2017 | | | | |
| | | | | |
| Non-recurring fair value measurements | | | | |
| Financing receivables | $ | 1,532 |
| Income approach | Discount rate(a) | 3.2%-16.5% (10%) |
| | | | | |
| Equity securities without readily determinable fair value and equity method investments | 2,037 |
| Income approach | Discount rate(a) | 5.0%-50.0% (7.7%) |
| | | | | |
| Long-lived assets | 554 |
| Income approach | Discount rate(a) | 2.7%-18.0% (7.3%) |
| |
(a) | Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
|
At September 30, 2018 and December 31, 2017, non-recurring measurements of $409 million and $83 million, respectively, are valued using non-binding broker quotes or other third-party sources. At September 30, 2018 and December 31, 2017, other non-recurring fair value measurements were $103 million and insignificant, respectively. Other Level 3 fair value measurements utilize a number of different unobservable inputs not subject to meaningful aggregation.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 18. VARIABLE INTEREST ENTITIES
A VIE is an entity that has one of three characteristics: (1) it is controlled by someone other than its shareowners or partners, (2) its shareowners or partners are not economically exposed to the entity's earnings (for example, they are protected against losses), or (3) it was thinly capitalized when it was formed.
In the normal course of business we become involved with VIEs either because we help create them or we invest in them. Our VIEs either provide goods and services to customers or provide financing to third parties for the purchase of GE goods and services. If we control the VIE, we consolidate it and provide disclosure below. However, if the VIE is a business and use of its assets is not limited to settling its liabilities, ongoing disclosures are not required.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Our most significant consolidated VIE is a joint venture, BHGE LLC, which was formed as part of the Baker Hughes transaction. BHGE LLC owns the operating assets of GE Oil & Gas and Baker Hughes. BHGE LLC is a VIE as we hold an economic interest of approximately 62.5% in the partnership, but we hold no voting or participating rights through our direct economic ownership. BHGE LLC is a SEC Registrant with separate filing requirements with the SEC and its separate financial information can be obtained from www.sec.gov.
Previously we reported three joint ventures which were formed as part of the Alstom acquisition as consolidated VIEs. These joint ventures were considered VIEs because equity held by Alstom did not participate fully in the earnings of the ventures due to contractual features allowing Alstom to sell their interests back to GE . We consolidated these joint ventures because we controlled all their significant activities. These joint ventures were in all other respects regular businesses and were therefore exempt from ongoing disclosure requirements for consolidated VIEs provided below. These joint ventures ceased to be VIEs on September 5, 2018 when Alstom exercised their put and are now wholly-owned consolidated voting interest entities (see Note 15 for further information)
The table below provides information about consolidated VIEs that are subject to ongoing disclosure requirements. Substantially all of these entities were created to help our customers finance the purchase of GE goods and services or to purchase GE customer notes receivable arising from sales of GE goods and services. These entities have no features that could expose us to losses that could significantly exceed the difference between the consolidated assets and liabilities.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | |
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs |
| | | GE Capital | |
| (In millions) | GE | Customer Notes receivables(a) | Trade receivables(b) | Other(c) | Total |
| | | | | | |
| September 30, 2018 | | | | | |
| Assets | | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| $ | 1,540 |
| $ | 951 |
| $ | 2,491 |
|
| Current receivables | 83 |
| 457 |
| — |
| — |
| 540 |
|
| Other assets | 455 |
| 862 |
| 138 |
| 1,086 |
| 2,540 |
|
| Total | $ | 538 |
| $ | 1,318 |
| $ | 1,678 |
| $ | 2,037 |
| $ | 5,570 |
|
| | | | | | |
| Liabilities | | | | | |
| Borrowings | $ | 46 |
| $ | — |
| — |
| $ | 938 |
| $ | 984 |
|
| Non-recourse borrowings | — |
| 585 |
| 1,037 |
| — |
| 1,622 |
|
| Other liabilities | 212 |
| 644 |
| 575 |
| 584 |
| 2,015 |
|
| Total | $ | 257 |
| $ | 1,229 |
| 1,612 |
| $ | 1,522 |
| $ | 4,620 |
|
| | | | | | |
| December 31, 2017 | | | | | |
| Assets | | | | | |
| Financing receivables, net | $ | — |
| $ | — |
| — |
| $ | 792 |
| $ | 792 |
|
| Current receivables | 59 |
| 570 |
| — |
| — |
| 630 |
|
| Investment securities | — |
| — |
| — |
| 918 |
| 918 |
|
| Other assets | 586 |
| 1,182 |
| — |
| 1,920 |
| 3,688 |
|
| Total | $ | 646 |
| $ | 1,752 |
| — |
| $ | 3,630 |
| $ | 6,028 |
|
| | | | | | |
| Liabilities | | | | | |
| Borrowings | $ | 39 |
| $ | — |
| — |
| $ | 1,027 |
| $ | 1,066 |
|
| Non-recourse borrowings | — |
| 669 |
| — |
| 16 |
| 685 |
|
| Other liabilities | 345 |
| 1,021 |
| — |
| 1,525 |
| 2,891 |
|
| Total | $ | 384 |
| $ | 1,690 |
| — |
| $ | 2,568 |
| $ | 4,642 |
|
| |
(a) | Two funding vehicles established to purchase customer notes receivable from GE, one of which is partially funded by third-party debt.
|
| |
(b) | In the third quarter of 2018, a funding vehicle was established to provide alternative funding for trade receivables. |
| |
(c) | In January 2018, ownership of the equity shares of Electric Insurance Company ("EIC") were distributed to GE Capital by a bankruptcy. trustee. We have previously reported EIC as a VIE because we received a 100% beneficial interest in the assets, liabilities and operations of EIC, related to an interim distribution in 2001. As EIC is now a consolidated voting interest entity we removed EIC from our VIE disclosure. In 2017, $1,470 million of assets and $959 million of liabilities were included related to EIC.
|
Total revenues from our consolidated VIEs were $141 million and $293 million for the three months ended September 30, 2018 and 2017 and $479 million and $801 million for the nine months ended September 30, 2018 and 2017, respectively. Related expenses consisted primarily of cost of goods and services of $41 million and $78 million for the three months ended September 30, 2018 and 2017 and $174 million and $256 million for the nine months ended September 30, 2018 and 2017, 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-2/P2. These third-party investors also owe us amounts for purchased financial assets and scheduled interest and principal payments. At September 30, 2018 and December 31, 2017, the amounts of commingled cash owed to the third-party investors were $21 million and $60 million, respectively.
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
We become involved with unconsolidated VIEs primarily through assisting in the formation and financing of the entity. We do not consolidate these entities because we do not have power over decisions that significantly affect their economic performance. Our investments in unconsolidated VIEs were $1,859 million and $2,346 million at September 30, 20182019 and December 31, 2017 were $4,3872018, respectively. These investments are primarily owned by GE Capital businesses, $837 million and $5,833$1,670 million respectively. Substantially all of these investments are held by Energy Financial Services of which $217were owned by EFS and $525 million and zero are assets held for sale as0 of which were owned by our run-off insurance operations at September 30, 20182019 and December 31, 2017,2018, respectively. The increase in investments in unconsolidated VIEs in our run-off insurance operations reflects implementation of our revised reinvestment plan which incorporates the introduction of strategic initiatives to invest in higher-yielding asset classes. Obligations to make additional investments in these entities are not significant. total $579 million, of which $483 million relates to our run-off insurance operations.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 19. COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND OTHER LOSS CONTINGENCIES
COMMITMENTS
.The GEGECAS business within the Capital Aviation Services (GECAS) business in GE Capitalsegment has placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $35,412$33,153 million (including 369 new aircraft with estimated delivery dates of 6% in 2019, 18% in 2020 and 76% in 2021 through 2025) and secondary orders with airlines for used aircraft approximating $2,317 million (including 57 used aircraft with estimated delivery dates of approximately $2,64328% in 2019, 47% in 2020 and 25% in 2021 through 2022) at September 30, 2019. When we purchase aircraft, it is at a contractual price, which is usually less than the aircraft manufacturer’s list price and excludes any pre-delivery payments made in advance. As of September 30, 2019, we have made $3,064 million of pre-delivery payments to aircraft manufacturers.
In addition to our obligation to make investments in unconsolidated VIEs described in Note 18, GE Capital had total investment commitments of $2,614 million at September 30, 2018. In2019, that primarily comprise project financing investments in thermal and wind energy projects of $1,395 million and investment commitments related to our run-off insurance operations of $1,189 million.
As of September 30, 2019, in our Aviation segment, we have committed to provide financing assistance of $2,902$2,318 million offor future customer acquisitions of aircraft equipped with our engines.
GUARANTEES
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.
GUARANTEES. At September 30, 2018,2019, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 18.18 for further information.
Credit Support. We At September 30, 2019, we have provided $1,544$1,637 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $80$40 million at September 30, 2018.2019.
Indemnification Agreements – Continuing Operations.We have agreements that require us to fund up to $222 million at At September 30, 2018 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 $6 million at September 30, 2018.
At September 30, 2018,2019, we also had $1,953have $1,654 million of other indemnification commitments, primarily related toincluding representations and warranties in sales of businesses or assets. Theassets, for which we recorded a liability for these indemnification commitments was $259 million at September 30, 2018.of $139 million.
Indemnification Agreements – Discontinued Operations. At September 30, 2018,2019, we provided specific indemnificationsindemnities to buyers of GE Capital’s businesses and assets that, in the aggregate, represent substantially all of thea maximum potential claim of $2,286 $1,136million.The majority with related reserves of these indemnifications relate to the sale of businesses and assets under the GE Capital Exit Plan. We have recorded related liabilities of $264 million, which incorporates our evaluation of risk and the likelihood of making payments under the indemnities. The recognized liabilities represent the estimated fair value of the indemnities when issued as adjusted for any subsequent probable and estimable losses. $148 million. In addition, in connection with the 2015 public offering and sale of Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions related to the acquisition or disposition are achieved. Amount of contingent consideration was insignificant at September 30, 2018.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
PRODUCT WARRANTIES
. We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information, – mostly historical claims experience, – claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.follows.
|
| | | | | | |
| (In millions) | 2019 |
| 2018 |
|
|
|
|
| Balance at January 1 | $ | 2,193 |
| $ | 2,103 |
|
| Current-year provisions | 527 |
| 722 |
|
| Expenditures | (525 | ) | (597 | ) |
| Other changes | 34 |
| 7 |
|
| Balance as of September 30 | $ | 2,229 |
| $ | 2,236 |
|
LEGAL MATTERS. In the normal course of our business, we are involved from time to time in various arbitrations, class actions, commercial litigation, investigations and other legal, regulatory or governmental actions, including the significant matters described below. In many proceedings, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the size or range of the possible loss, and accruals for legal matters are not recorded until a loss for a particular matter is considered probable and reasonably estimable. Given the nature of legal matters and the complexities involved, it is often difficult to predict and determine a meaningful estimate of loss or range of loss until we know, among other factors, the particular claims involved, the likelihood of success of our defenses to those claims, the damages or other relief sought, how discovery or other procedural considerations will affect the outcome, the settlement posture of other parties and other factors that may have a material effect on the outcome. Moreover, it is not uncommon for legal matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
|
| | | |
| Balance at January 1 | $ | 2,348 |
| $ | 1,929 |
|
| Current-year provisions | 788 |
| 606 |
|
| Expenditures | (735 | ) | (598 | ) |
| Other changes(a) | 134 |
| 255 |
|
| Balance as of September 30 | $ | 2,534 |
| $ | 2,191 |
|
(a) Primarily includes effect of currency exchange and acquisitions. |
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 was never a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At September 30, 2018, suchThese claims consisted of $144 million of individual claims generally submitted before the filing of a lawsuit (compared to $462 million at December 31, 2017) and $826 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $3,198 million at December 31, 2017). The total amount of these claims, $970 million, reflects the purchase price or unpaid principal balanceswill be resolved as part of the loans atChapter 11 bankruptcy case described below.
In January 2019, we announced an agreement in principle with the time of purchase and does not give effectUnited States to pay downs or potential recoveries based uponsettle 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 decisions of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc. (June 11, 2015) and Deutsche Bank National Trust Company v. Flagstar Capital Markets Corporation (October 16, 2018), on the statute of limitations period governing such claims.
Reserves related to repurchase claims made against WMC were $245 million at September 30, 2018, reflecting a net decrease to reserves in the nine months ended September 30, 2018 of $171 million due to settlements. The reserve estimate takes into account recent settlement activity and is based upon WMC’s evaluation of the remaining exposures as a percentage of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization for which timely claims have been asserted in litigation against WMC. Settlements in prior periods reduced WMC’s exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements. During the first quarter of 2018, we also recorded a reserve of $1,500 million in connection withinvestigation by the U.S. Department of Justice'sJustice (DOJ) ongoing investigation regarding potential violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital, discussedand in Legal Proceedings. This charge was recordedApril 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1,500 million.
In April 2019, WMC commenced a case under Chapter 11 of the U.S. Bankruptcy Code in the first quarter based upon our estimateUnited States Bankruptcy Court for the District of Delaware. WMC has filed a Chapter 11 Plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor. GE Capital is providing up to $25 million of debtor-in-possession financing to fund administrative expenses associated with the Chapter 11 proceeding. In August 2019, we reached a settlement with WMC to resolve potential claims that WMC may have against certain GE entities. This settlement is incorporated into, and will be approved as part of, the loss contingency at that time, including the status of our settlement discussions with the DOJChapter 11 plan.
Beginning in the
firstsecond quarter
of 2019, as a result of WMC commencing the Chapter 11 case, we no longer consolidate WMC’s financial results or position on the books and
records of GE Capital. We recognized $67 million of pre-tax charges during the second quarter of 2019, reflecting an
assessmentupdated settlement estimate in the context of
prior settlements reached in similar matters. Therebankruptcy for litigation that was pending when the Chapter 11 case commenced, as well as additional claims that have been
no changes to this estimate since that time. |
| | | | | | | | | | | | | |
ROLLFORWARD OF THE RESERVE RELATED TO REPURCHASE CLAIMS
|
| | | | | | |
| | Three months ended September 30 | | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| | | | | | |
| Balance, beginning of period | $ | 294 |
| $ | 636 |
| | $ | 416 |
| $ | 626 |
|
| Provision | (9 | ) | 11 |
| | (4 | ) | 21 |
|
| Claim resolutions / rescissions | (40 | ) | — |
| | (167 | ) | — |
|
| Balance, end of period | $ | 245 |
| $ | 647 |
| | $ | 245 |
| $ | 647 |
|
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may resultbrought in an increase to these reserves. WMC estimates a rangebankruptcy. In total, we have recognized $211 million of reasonably possible loss from $0 to approximately $500 million over its recorded reserve atliabilities as of September 30, 2018. This estimate involves significant judgment and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal Proceedings and potential changes in WMC’s legal strategy. This estimated range of reasonably possible loss excludes any additional loss beyond the amount of our current reserve for the FIRREA investigation, as2019, associated with amounts we are unable at this timeanticipate paying to develop such a meaningful estimate. With respect to the FIRREA investigation, this inability to develop a meaningful estimate of any additional loss beyond the amount of our current reserve reflects, among other factors, the wide variety and broad range of penalties and other sanctions incurred by various financial institutions in proceedings and settlements involving claims made under FIRREA by the DOJ, and the possibility WMC will file for bankruptcy. In the event of a WMC bankruptcy, GE Capital would be required to reassess its WMC consolidation analysis depending upon the specific facts and circumstances at that time, which might result in GE Capital no longer consolidating WMC’s assets and liabilities in its financial statements. In that circumstance, GE and GE Capital at that time would have to assess their direct exposure, if any, for purposes of determining their respective WMC-related loss contingencies. It is possible, however, that the ultimate liability of GE Capital and/or WMC could be higher than our current reserve if a negotiated settlement of the FIRREA investigation cannot be reached at a level commensurate with the reserve, or if we face adverse litigation outcomes if a negotiated settlement cannot be reached.
Adverse court decisions, including in cases not involving WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.
WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to whichsettlement of potential claims that WMC is not a party, or, in two cases, involving mortgage loan repurchase claims mademay have against RMBS sponsors. WMC believes that it has defenses to these demands.us, as discussed above.
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. Adverse developments under any of these scenarios, or a finding of liability in the TMI case discussed above, could be in an amount exceeding the total value of WMC's assets and could result in WMC filing for bankruptcy.
Alstom legacy matters.matters. On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. Prior to the acquisition, the seller was the subject of two2 significant cases involving anti-competitive activities and improper payments: (1) in January 2007, Alstom was fined €65 million by the European Commission for participating in a gas insulated switchgear cartel that operated from 1988 to 2004 (that fine was later reduced to €59 million), and (2) in December 2014, Alstom pled guilty in the United States to multiple violations of the Foreign Corrupt Practices Act and paid a criminal penalty of $772 million. As part of GE’s accounting for the acquisition, we established a reserve amounting to $858 million for legal and compliance matters related to the legacy business practices that were the subject of these and related cases in various jurisdictions. At September 30, 2018,2019, this reserve balance was $913$859 million. The increase is primarily driven by foreign currency movements.
Regardless of jurisdiction, the allegations relate to claimed anti-competitive conduct or improper payments in the pre-acquisition period as the source of legal violations and/or damages. Given the significant litigation and compliance activity related to these matters and our ongoing efforts to resolve them, it is difficult to assess whether the disbursements will ultimately be consistent with the reserve established. The estimation of this reserve involved significant judgment and may not reflect the full range of uncertainties and unpredictable outcomes inherent in litigation and investigations of this nature.nature, and at this time we are unable to develop a meaningful estimate of the range of reasonably possible additional losses beyond the amount of this reserve. Damages sought may include disgorgement of profits on the underlying business transactions, fines and/or penalties, interest, or other forms of resolution. Factors that can affect the ultimate amount of losses associated with these and related matters include the way cooperation is assessed and valued, prosecutorial discretion in the determination of damages, formulas for determining fines and penalties, the duration and amount of legal and investigative resources applied, and political and social influences within each jurisdiction, and tax consequences of any settlements or previous deductions, among other considerations. Actual losses arising from claims in these and related matters could exceed the amount provided. At this time, we are unable to develop a meaningful estimate of the range of reasonably possible additional losses for this exposure.
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
ENVIRONMENTAL, MATTERS
HEALTH AND SAFETY MATTERS. Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws.laws, as well as litigation involving asbestos and other environmental, health and safety-related claims. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites,matters, such amounts are not reasonably estimable. For further information, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20. CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.
Amounts reported in the “Proceeds from sales of discontinued operations” and “Proceeds from principal business dispositions” lines in theour consolidated Statement of Cash Flows are net of cash transferred and includeincluded certain deal-related costs. Amounts reported in the “Net cash from (payments for) principal businesses purchased” line are net of cash acquired and includeincluded certain deal-related costs and debt assumed and immediately repaid in acquisitions. Amounts reported in the “All other operating activities” line in the Statement of Cash Flows reflect cash sources and uses as well as non-cash adjustments to net income including those related to taxes, pension, gains (losses) on principal business dispositions, and restructuring and other charges. Certain supplemental information related to our cash flows is shown below.
GE
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
|
| | | |
| All other operating activities | | |
| (Gains) losses on purchases and sales of business interests(a) | $ | (476 | ) | $ | (1,955 | ) |
| Other gains on investing activities | (436 | ) | (68 | ) |
| Income taxes(b) | (803 | ) | (897 | ) |
| Principal pension plans(c) | (2,968 | ) | 1,179 |
|
| Other postretirement benefit plans(d) | (916 | ) | (543 | ) |
| Restructuring and other charges(e) | 878 |
| 1,429 |
|
| Change in accruals for contract related costs | (792 | ) | (59 | ) |
| Other(f) | (802 | ) | (1,245 | ) |
| | $ | (6,315 | ) | $ | (2,160 | ) |
| All other investing activities | | |
| Derivative settlements (net) | $ | (436 | ) | $ | (1,420 | ) |
| Investments in intangible assets (net) | (472 | ) | (376 | ) |
| Other | 154 |
| (159 | ) |
| | $ | (754 | ) | $ | (1,955 | ) |
| Net dispositions (purchases) of GE shares for treasury | | |
| Open market purchases under share repurchase program | $ | (180 | ) | $ | (3,394 | ) |
| Other purchases | (18 | ) | (58 | ) |
| Dispositions | 192 |
| 831 |
|
| | $ | (6 | ) | $ | (2,620 | ) |
|
| | | | | | |
| GE | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
|
| | | |
| Increase (decrease) in employee benefit liabilities | $ | (373 | ) | $ | 41 |
|
| Other gains on investing activities | 232 |
| (434 | ) |
| Restructuring and other charges(a) | 763 |
| 1,651 |
|
| Restructuring and other cash expenditures | (854 | ) | (975 | ) |
| Increase (decrease) in equipment project accruals | (76 | ) | (785 | ) |
| Baker Hughes Class B dividends received | 282 |
| 399 |
|
| Other(b) | 580 |
| (434 | ) |
| All other operating activities | $ | 554 |
| $ | (537 | ) |
| Derivative settlements, net | $ | 9 |
| $ | (490 | ) |
| Investments in intangible assets, net | (17 | ) | (472 | ) |
| Sales of retained ownership interests in Wabtec | 3,383 |
| — |
|
| Other(c) | 29 |
| 138 |
|
| All other investing activities | $ | 3,404 |
| $ | (824 | ) |
| Disposition of Baker Hughes noncontrolling interests | $ | — |
| $ | 638 |
|
| Acquisition of noncontrolling interests | (28 | ) | (240 | ) |
| Other(d) | (320 | ) | 34 |
|
| All other financing activities | $ | (348 | ) | $ | 432 |
|
| |
| (a) | Included pre-tax gains on sales of businesses reclassified to "Proceeds from principal business dispositions" within Cash flows from investing activities of $(681) million for Value-Based Care and $(298) million for Industrial Solutions, partially offset by pre-tax losses of $511 million on planned business disposals in the nine months ended September 30, 2018, and included pre-tax gains on sales of businesses of $(1,885) million for Water in the nine months ended September 30, 2017. See Note 2. |
| |
(b) | Reflected the effects of current tax expense of $479 million and $909 million and net cash paid during the year for income taxes of $(1,283) million and $(1,806) million for the nine months ended September 30, 2018 and 2017, respectively. Cash flows effects of deferred tax provisions (benefits) are shown separately within Cash flows from operating activities in the Statement of Cash Flows. |
| |
(c) | Reflected the effects of pension costs of $3,218 million and $2,779 million and employer contributions of $(6,186) million and $(1,600) million for the nine months ended September 30, 2018 and 2017, respectively. See Note 13. |
| |
(d) | Reflected the effects of other postretirement plans costs (income) of $(143) million and $315 million and employer contributions of $(773) million and $(858) million for the nine months ended September 30, 2018 and 2017, respectively. See Note 13. |
| |
(e) | Reflected the effects of restructuring and other charges of $2,211 million and $3,017 million and restructuring and other cash expenditures of $(1,333) million and $(1,588) million for the nine months ended September 30, 2018 and 2017, respectively. Excludes non-cash adjustments reflected as "Depreciation and amortization of property, plant and equipment" or "Amortization of intangible assets" in theour consolidated Statement of Cash Flows. |
| |
(f)(b) | Included other adjustments to net income, such as write-downs of assets and the impacts of acquisition accounting and changes in other assets and other liabilities classified as operating activities, such as the timing of payments of employee-related liabilities and customer allowances. |
| |
| (c) | Other included net activity related to settlements between our continuing operations and discontinued operations. |
| |
| (d) | Other included debt tender expenditures of $(244) million incurred to purchase GE long-term debt in the third quarter of 2019. |
20182019 3Q FORM 10-Q 10775
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 21. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on arm's length terms and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in derivingwhich we believe provide useful supplemental information to our consolidated financial statements. These transactions are eliminated in consolidation and may include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital solutionsservices to optimize GE, cash management,
including current receivables and supply chain finance programs; GE Capital enabled GE industrial orders,finance transactions, including related GE guarantees to GE Capital,
Capital; GE Capital financing of GE long-term receivables,receivables; and
Aircraft aircraft engines, power equipment and 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 expenses related to parent-subsidiary pension plans,
Buildingsplans; buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Informationtransactions; information technology (IT) and other services sold to GE Capital by GE
SettlementsGE; settlements of tax liabilities,liabilities; and
Various 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 flowsflows.
|
| | | | | | |
| | Nine months ended September 30 |
| (In millions) | 2019 |
| 2018 |
|
|
|
|
|
|
| Combined GE and GE Capital cash from (used for) operating activities - continuing operations | $ | 1,311 |
| $ | (3,962 | ) |
| GE current receivables sold to GE Capital | 508 |
| (161 | ) |
| GE long-term receivables sold to GE Capital | 340 |
| 851 |
|
| Supply chain finance programs | 1,062 |
| 152 |
|
| Other reclassifications and eliminations | 201 |
| (1,214 | ) |
| Total cash from (used for) operating activities - continuing operations | $ | 3,423 |
| $ | (4,334 | ) |
| Combined GE and GE Capital cash from (used for) investing activities - continuing operations | $ | 9,680 |
| $ | 7,209 |
|
| GE current receivables sold to GE Capital | (1,167 | ) | (1,016 | ) |
| GE long-term receivables sold to GE Capital | (340 | ) | (851 | ) |
| GE Capital long-term loans to GE | (480 | ) | 6,479 |
|
| Supply chain finance programs | (1,062 | ) | (152 | ) |
| Capital contribution from GE to GE Capital | 1,500 |
| — |
|
| Other reclassifications and eliminations | (1,043 | ) | 460 |
|
| Total cash from (used for) investing activities - continuing operations | $ | 7,087 |
| $ | 12,129 |
|
| Combined GE and GE Capital cash from (used for) financing activities - continuing operations | $ | (14,201 | ) | $ | (17,677 | ) |
| GE current receivables sold to GE Capital | 659 |
| 1,177 |
|
| GE Capital long-term loans to GE | 480 |
| (6,479 | ) |
| Capital contribution from GE to GE Capital | (1,500 | ) | — |
|
| Other reclassifications and eliminations | 842 |
| 755 |
|
| Total cash from (used for) financing activities - continuing operations | $ | (13,721 | ) | $ | (22,224 | ) |
GE current receivables sold to GE Capital excludes $268 million and $3,905 million related to cash payments received on the Receivable facility deferred purchase price in the nine months ended September 30, 2019 and 2018 respectively, which are reflected as "Cash from continuing operations.investing activities" in the GE Capital and the GE columns of our consolidated Statement of Cash Flows. Sales of current and long-term receivables from GE to GE Capital are classified as "Cash from operating activities" in the GE column of our Statement of Cash Flows. See Note 4 for further information.
|
| | | | | | |
| Nine months ended September 30 |
| (In millions) | 2018 |
| 2017 |
|
|
|
|
|
|
| Cash from (used for) operating activities-continuing operations |
|
|
|
|
| Combined | $ | (3,631 | ) | $ | 6,104 |
|
| GE current receivables sold to GE Capital | 3,792 |
| 941 |
|
| GE Capital common dividends to GE | — |
| (4,016 | ) |
| Other reclassifications and eliminations(a) | (494 | ) | 353 |
|
| Total cash from (used for) operating activities-continuing operations | $ | (333 | ) | $ | 3,381 |
|
| Cash from (used for) investing activities-continuing operations |
|
|
| Combined | $ | 6,931 |
| $ | 858 |
|
| GE current receivables sold to GE Capital | (5,085 | ) | (1,358 | ) |
| GE Capital long-term loans to GE | 5,999 |
| 7,271 |
|
| GE Capital short-term loans to GE | 480 |
| (1,329 | ) |
| Other reclassifications and eliminations(a) | (260 | ) | (183 | ) |
| Total cash from (used for) investing activities-continuing operations | $ | 8,064 |
| $ | 5,259 |
|
| Cash from (used for) financing activities-continuing operations |
|
|
| Combined | $ | (19,895 | ) | $ | (16,549 | ) |
| GE current receivables sold to GE Capital | 1,293 |
| 417 |
|
| GE Capital common dividends to GE | — |
| 4,016 |
|
| GE Capital long-term loans to GE | (5,999 | ) | (7,271 | ) |
| GE Capital short-term loans to GE | (480 | ) | 1,329 |
|
| Other reclassifications and eliminations(a) | 754 |
| (170 | ) |
| Total cash from (used for) financing activities-continuing operations | $ | (24,326 | ) | $ | (18,228 | ) |
| |
(a) | Includes eliminations of other cash flows activities, including financing of long-term receivables of $851 million and $(432) million in the nine months ended September 30, 2018 and 2017 respectively, and various investments, loans and allocations of GE corporate overhead costs. |
108 201876 2019 3Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 22. 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 newissued senior unsecured notes for certain outstanding debt securities of General Electric Capital Corporation.
The newregistered notes that were issued wereare 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 The Company is required to provide certain financial information regarding the Issuer and the Guarantors of the registered securities. Included are thesecurities, specifically Condensed Consolidating Statements of Earnings and Comprehensive Income, for the three and nine months ended September 30, 2018 and 2017, Condensed Consolidating Statements of Financial Position as of September 30, 2018 and December 31, 2017 and Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 for:
| |
| • | General Electric Company (the Parent Company Guarantor) – prepared with investments in subsidiaries accounted for under the equity method of accounting and excluding any inter-segment eliminations; |
| |
| • | GE Capital International Funding Company Unlimited Company (the Subsidiary Issuer) – finance subsidiary that issued the guaranteed notes for debt; |
| |
| • | GE Capital International Holdings Limited (GECIHL)(the Subsidiary Guarantor) – prepared with investments in non-guarantor subsidiaries accounted for under the equity method of accounting; |
| |
| • | Non-Guarantor Subsidiaries – prepared on an aggregated basis excluding any elimination or consolidation adjustments and includes predominantly all non-cash adjustments for cash flows; |
| |
| • | Consolidating Adjustments – adjusting entries necessary to consolidate the Parent Company Guarantor with the Subsidiary Issuer, the Subsidiary Guarantor and Non-Guarantor Subsidiaries and in the comparative periods, this category includes the impact of new accounting policies adopted as described in Note 1; and |
| |
| • | Consolidated – prepared on a consolidated basis. |
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;
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 7,169 |
| $ | — |
| $ | — |
| $ | 31,413 |
| $ | (17,077 | ) | $ | 21,504 |
|
| GE Capital revenues from services | — |
| 245 |
| (18 | ) | 2,107 |
| (477 | ) | 1,856 |
|
| Total revenues | 7,169 |
| 245 |
| (18 | ) | 33,519 |
| (17,554 | ) | 23,360 |
|
| | | | | | | |
| Interest and other financial charges | 634 |
| 272 |
| 356 |
| 148 |
| (132 | ) | 1,279 |
|
| Other costs and expenses | 4,945 |
| — |
| (38 | ) | 40,629 |
| (22,048 | ) | 23,488 |
|
| Total costs and expenses | 5,580 |
| 272 |
| 318 |
| 40,777 |
| (22,180 | ) | 24,767 |
|
| Other income (loss) | 1,320 |
| — |
| — |
| 4,458 |
| (5,619 | ) | 158 |
|
| Equity in earnings (loss) of affiliates | (4,476 | ) | — |
| (37 | ) | 31,207 |
| (26,695 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (1,567 | ) | (27 | ) | (373 | ) | 28,406 |
| (27,688 | ) | (1,249 | ) |
| Benefit (provision) for income taxes | (386 | ) | 3 |
| — |
| 339 |
| 3 |
| (41 | ) |
| Earnings (loss) from continuing operations | (1,953 | ) | (24 | ) | (373 | ) | 28,745 |
| (27,685 | ) | (1,290 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 683 |
| — |
| 40 |
| — |
| (8,817 | ) | (8,093 | ) |
| Net earnings (loss) | (1,270 | ) | (24 | ) | (333 | ) | 28,745 |
| (36,502 | ) | (9,383 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (7 | ) | 46 |
| 40 |
|
| Net earnings (loss) attributable to the Company | (1,270 | ) | (24 | ) | (333 | ) | 28,752 |
| (36,548 | ) | (9,423 | ) |
| Other comprehensive income (loss) | 1,491 |
| — |
| (1 | ) | 1,313 |
| (1,312 | ) | 1,491 |
|
| Comprehensive income (loss) attributable to the Company | $ | 221 |
| $ | (24 | ) | $ | (334 | ) | $ | 30,064 |
| $ | (37,860 | ) | $ | (7,931 | ) |
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 in the comparative periods, this category includes the impact of new accounting policies adopted as described in Note 1 ; and
Consolidated - prepared on a consolidated basis.
20182019 3Q FORM 10-Q 10977
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) | FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) | | | (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
| Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | |
| Revenues | | |
| Sales of goods and services | $ | 8,382 |
| $ | — |
| $ | — |
| $ | 39,401 |
| $ | (20,319 | ) | $ | 27,465 |
| $ | 7,301 |
| $ | — |
| $ | — |
| $ | 30,387 |
| $ | (16,407 | ) | $ | 21,282 |
|
| GE Capital revenues from services | — |
| 237 |
| 300 |
| 2,804 |
| (1,233 | ) | 2,109 |
| — |
| 237 |
| 300 |
| 2,508 |
| (936 | ) | 2,110 |
|
| Total revenues | 8,382 |
| 237 |
| 300 |
| 42,205 |
| (21,552 | ) | 29,573 |
| 7,301 |
| 237 |
| 300 |
| 32,895 |
| (17,342 | ) | 23,392 |
|
| | | |
| Costs and expenses | | |
| Interest and other financial charges | 1,796 |
| 236 |
| 725 |
| 1,168 |
| (2,697 | ) | 1,227 |
| 451 |
| 236 |
| 725 |
| 553 |
| (810 | ) | 1,155 |
|
| Other costs and expenses | 9,655 |
| — |
| — |
| 40,331 |
| 1,302 |
| 51,288 |
| 11,780 |
| — |
| — |
| 25,345 |
| 8,352 |
| 45,478 |
|
| Total costs and expenses | 11,451 |
| 236 |
| 725 |
| 41,498 |
| (1,395 | ) | 52,515 |
| 12,231 |
| 236 |
| 725 |
| 25,898 |
| 7,542 |
| 46,633 |
|
| Other income (loss) | 1,705 |
| — |
| — |
| 7,503 |
| (9,002 | ) | 205 |
| 1,193 |
| — |
| — |
| 1,217 |
| (2,132 | ) | 279 |
|
| Equity in earnings (loss) of affiliates | (21,669 | ) | — |
| 705 |
| 16,288 |
| 4,675 |
| — |
| (11,235 | ) | — |
| 705 |
| 28,378 |
| (17,849 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (23,032 | ) | 2 |
| 281 |
| 24,499 |
| (24,485 | ) | (22,736 | ) | (14,971 | ) | 2 |
| 281 |
| 36,593 |
| (44,866 | ) | (22,962 | ) |
| Benefit (provision) for income taxes | 224 |
| — |
| — |
| (536 | ) | 149 |
| (162 | ) | 224 |
| — |
| — |
| (536 | ) | 260 |
| (52 | ) |
| Earnings (loss) from continuing operations | (22,808 | ) | 1 |
| 281 |
| 23,963 |
| (24,335 | ) | (22,899 | ) | (14,748 | ) | 1 |
| 281 |
| 36,057 |
| (44,606 | ) | (23,014 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 39 |
| — |
| 18 |
| — |
| (17 | ) | 39 |
| 39 |
| — |
| 18 |
| — |
| 98 |
| 155 |
|
| Net earnings (loss) | (22,769 | ) | 1 |
| 298 |
| 23,963 |
| (24,353 | ) | (22,859 | ) | (14,708 | ) | 1 |
| 298 |
| 36,057 |
| (44,508 | ) | (22,859 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (81 | ) | (9 | ) | (90 | ) | — |
| — |
| — |
| (81 | ) | (9 | ) | (90 | ) |
| Net earnings (loss) attributable to the Company | (22,769 | ) | 1 |
| 298 |
| 24,044 |
| (24,343 | ) | (22,769 | ) | (14,708 | ) | 1 |
| 298 |
| 36,138 |
| (44,498 | ) | (22,769 | ) |
| Other comprehensive income (loss) | 203 |
| — |
| 12 |
| (751 | ) | 739 |
| 203 |
| 203 |
| — |
| 12 |
| (751 | ) | 739 |
| 203 |
|
| Comprehensive income (loss) attributable to the Company | $ | (22,566 | ) | $ | 1 |
| $ | 310 |
| $ | 23,293 |
| $ | (23,604 | ) | $ | (22,566 | ) | $ | (14,505 | ) | $ | 1 |
| $ | 310 |
| $ | 35,387 |
| $ | (43,759 | ) | $ | (22,566 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 19,993 |
| $ | — |
| $ | — |
| $ | 95,009 |
| $ | (51,871 | ) | $ | 63,132 |
|
| GE Capital revenues from services | — |
| 724 |
| 68 |
| 6,738 |
| (1,685 | ) | 5,845 |
|
| Total revenues | 19,993 |
| 724 |
| 68 |
| 101,747 |
| (53,556 | ) | 68,976 |
|
| | | | | | | |
| Interest and other financial charges | 1,278 |
| 744 |
| 1,068 |
| 899 |
| (716 | ) | 3,272 |
|
| Other costs and expenses | 18,377 |
| — |
| — |
| 85,378 |
| (36,458 | ) | 67,296 |
|
| Total costs and expenses | 19,654 |
| 744 |
| 1,068 |
| 86,276 |
| (37,174 | ) | 70,568 |
|
| Other income (loss) | (1,894 | ) | — |
| — |
| 12,588 |
| (9,524 | ) | 1,170 |
|
| Equity in earnings (loss) of affiliates | (4,430 | ) | — |
| 808 |
| 58,383 |
| (54,761 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (5,985 | ) | (20 | ) | (192 | ) | 86,442 |
| (80,667 | ) | (422 | ) |
| Benefit (provision) for income taxes | (673 | ) | 3 |
| — |
| 46 |
| 624 |
| 1 |
|
| Earnings (loss) from continuing operations | (6,658 | ) | (18 | ) | (192 | ) | 86,489 |
| (80,043 | ) | (421 | ) |
| Earnings (loss) from discontinued operations, net of taxes | 951 |
| — |
| 42 |
| — |
| (6,205 | ) | (5,212 | ) |
| Net earnings (loss) | (5,707 | ) | (18 | ) | (150 | ) | 86,489 |
| (86,248 | ) | (5,634 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (3 | ) | 76 |
| 73 |
|
| Net earnings (loss) attributable to the Company | (5,707 | ) | (18 | ) | (150 | ) | 86,492 |
| (86,324 | ) | (5,707 | ) |
| Other comprehensive income (loss) | 3,053 |
| — |
| (1,105 | ) | 870 |
| 235 |
| 3,053 |
|
| Comprehensive income (loss) attributable to the Company | $ | (2,654 | ) | $ | (18 | ) | $ | (1,255 | ) | $ | 87,362 |
| $ | (86,089 | ) | $ | (2,654 | ) |
|
| | | | | | | | | | | | | | | | | | |
| 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 | | | | | | |
| Sales of goods and services | $ | 8,025 |
| $ | — |
| $ | — |
| $ | 40,741 |
| $ | (20,001 | ) | $ | 28,764 |
|
| GE Capital revenues from services | — |
| 176 |
| 209 |
| 2,785 |
| (1,272 | ) | 1,898 |
|
| Total revenues | 8,025 |
| 176 |
| 209 |
| 43,526 |
| (21,274 | ) | 30,662 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 1,671 |
| 168 |
| 542 |
| 1,279 |
| (2,428 | ) | 1,232 |
|
| Other costs and expenses | 9,418 |
| — |
| — |
| 40,253 |
| (18,822 | ) | 30,850 |
|
| Total costs and expenses | 11,089 |
| 168 |
| 542 |
| 41,533 |
| (21,250 | ) | 32,082 |
|
| Other income (loss) | (1,152 | ) | — |
| — |
| 25,159 |
| (21,842 | ) | 2,165 |
|
| Equity in earnings (loss) of affiliates | 5,219 |
| — |
| 1,019 |
| 21,123 |
| (27,361 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | 1,003 |
| 7 |
| 686 |
| 48,275 |
| (49,226 | ) | 746 |
|
| Benefit (provision) for income taxes | 470 |
| (1 | ) | — |
| (59 | ) | 141 |
| 551 |
|
| Earnings (loss) from continuing operations | 1,473 |
| 6 |
| 686 |
| 48,216 |
| (49,085 | ) | 1,297 |
|
| Earnings (loss) from discontinued operations, net of taxes | (113 | ) | — |
| (562 | ) | 4 |
| 565 |
| (106 | ) |
| Net earnings (loss) | 1,360 |
| 6 |
| 125 |
| 48,220 |
| (48,521 | ) | 1,191 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (21 | ) | (148 | ) | (169 | ) |
| Net earnings (loss) attributable to the Company | 1,360 |
| 6 |
| 125 |
| 48,241 |
| (48,372 | ) | 1,360 |
|
| Other comprehensive income (loss) | 922 |
| — |
| (187 | ) | 19,935 |
| (19,749 | ) | 922 |
|
| Comprehensive income (loss) attributable to the Company | $ | 2,282 |
| $ | 6 |
| $ | (62 | ) | $ | 68,176 |
| $ | (68,121 | ) | $ | 2,282 |
|
110 201878 2019 3Q FORM 10-Q
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Sales of goods and services | $ | 21,127 |
| $ | — |
| $ | — |
| $ | 94,872 |
| $ | (51,395 | ) | $ | 64,604 |
|
| GE Capital revenues from services | — |
| 678 |
| 852 |
| 5,390 |
| (1,011 | ) | 5,909 |
|
| Total revenues | 21,127 |
| 678 |
| 852 |
| 100,263 |
| (52,406 | ) | 70,513 |
|
| | | | | | | |
| Interest and other financial charges | 1,281 |
| 671 |
| 1,889 |
| 2,041 |
| (2,296 | ) | 3,585 |
|
| Other costs and expenses | 32,198 |
| — |
| — |
| 89,228 |
| (31,793 | ) | 89,634 |
|
| Total costs and expenses | 33,479 |
| 672 |
| 1,889 |
| 91,269 |
| (34,090 | ) | 93,219 |
|
| Other income (loss) | 2,450 |
| — |
| — |
| 3,883 |
| (4,945 | ) | 1,388 |
|
| Equity in earnings (loss) of affiliates | (11,761 | ) | — |
| 1,199 |
| 28,378 |
| (17,816 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (21,663 | ) | 7 |
| 161 |
| 41,255 |
| (41,078 | ) | (21,318 | ) |
| Benefit (provision) for income taxes | 47 |
| (1 | ) | — |
| (1,098 | ) | 592 |
| (460 | ) |
| Earnings (loss) from continuing operations | (21,616 | ) | 6 |
| 161 |
| 40,157 |
| (40,486 | ) | (21,777 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (1,634 | ) | — |
| (63 | ) | 1 |
| 170 |
| (1,526 | ) |
| Net earnings (loss) | (23,250 | ) | 6 |
| 98 |
| 40,158 |
| (40,316 | ) | (23,304 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | (134 | ) | — |
| — |
| (202 | ) | 148 |
| (188 | ) |
| Net earnings (loss) attributable to the Company | (23,116 | ) | 6 |
| 98 |
| 40,360 |
| (40,464 | ) | (23,116 | ) |
| Other comprehensive income (loss) | 1,174 |
| — |
| (42 | ) | (2,381 | ) | 2,424 |
| 1,174 |
|
| Comprehensive income (loss) attributable to the Company | $ | (21,941 | ) | $ | 6 |
| $ | 56 |
| $ | 37,978 |
| $ | (38,040 | ) | $ | (21,941 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
| |
| (in millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Revenues | | | | | | |
| Sales of goods and services | $ | 24,033 |
| $ | — |
| $ | — |
| $ | 118,381 |
| $ | (59,983 | ) | $ | 82,432 |
|
| GE Capital revenues from services | — |
| 678 |
| 852 |
| 6,955 |
| (2,579 | ) | 5,905 |
|
| Total revenues and other income (loss) | 24,033 |
| 678 |
| 852 |
| 125,336 |
| (62,562 | ) | 88,337 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 5,043 |
| 671 |
| 1,889 |
| 3,812 |
| (7,609 | ) | 3,807 |
|
| Other costs and expenses | 29,484 |
| — |
| — |
| 116,846 |
| (39,533 | ) | 106,797 |
|
| Total costs and expenses | 34,528 |
| 672 |
| 1,889 |
| 120,658 |
| (47,142 | ) | 110,604 |
|
| Other income (loss) | 3,600 |
| — |
| — |
| 8,600 |
| (10,926 | ) | 1,275 |
|
| Equity in earnings (loss) of affiliates | (14,635 | ) | — |
| 1,199 |
| 28,378 |
| (14,942 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | (21,529 | ) | 7 |
| 161 |
| 41,657 |
| (41,289 | ) | (20,992 | ) |
| Benefit (provision) for income taxes | 47 |
| (1 | ) | — |
| (1,098 | ) | 374 |
| (677 | ) |
| Earnings (loss) from continuing operations | (21,482 | ) | 6 |
| 161 |
| 40,559 |
| (40,914 | ) | (21,670 | ) |
| Earnings (loss) from discontinued operations, net of taxes | (1,634 | ) | — |
| (63 | ) | 1 |
| 62 |
| (1,634 | ) |
| Net earnings (loss) | (23,116 | ) | 6 |
| 98 |
| 40,560 |
| (40,852 | ) | (23,304 | ) |
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (202 | ) | 14 |
| (188 | ) |
| Net earnings (loss) attributable to the Company | (23,116 | ) | 6 |
| 98 |
| 40,762 |
| (40,866 | ) | (23,116 | ) |
| Other comprehensive income (loss) | 1,174 |
| — |
| (42 | ) | (2,382 | ) | 2,425 |
| 1,174 |
|
| Comprehensive income (loss) attributable to the Company | $ | (21,941 | ) | $ | 6 |
| $ | 56 |
| $ | 38,380 |
| $ | (38,442 | ) | $ | (21,941 | ) |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION SEPTEMBER 30, 2019 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 10,001 |
| $ | — |
| $ | — |
| $ | 21,215 |
| $ | (3,406 | ) | $ | 27,810 |
|
| Receivables - net | 41,269 |
| 17,841 |
| 34 |
| 61,998 |
| (94,416 | ) | 26,726 |
|
| Investment in subsidiaries | 143,127 |
| — |
| 40,179 |
| 699,149 |
| (882,455 | ) | — |
|
| All other assets | 31,724 |
| 480 |
| — |
| 316,579 |
| (140,309 | ) | 208,474 |
|
| Total assets | $ | 226,120 |
| $ | 18,322 |
| $ | 40,212 |
| $ | 1,098,942 |
| $ | (1,120,586 | ) | $ | 263,009 |
|
| | | | | | | |
| Short-term borrowings | $ | 130,045 |
| $ | — |
| $ | 1,552 |
| $ | 7,303 |
| $ | (121,854 | ) | $ | 17,046 |
|
| Long-term and non-recourse borrowings | 40,901 |
| 17,019 |
| 25,511 |
| 24,676 |
| (31,909 | ) | 76,199 |
|
| All other liabilities | 65,166 |
| 275 |
| 219 |
| 136,051 |
| (61,100 | ) | 140,612 |
|
| Total liabilities | 236,112 |
| 17,294 |
| 27,282 |
| 168,031 |
| (214,863 | ) | 233,856 |
|
| | | | | | | |
| Total liabilities and equity | $ | 226,120 |
| $ | 18,322 |
| $ | 40,212 |
| $ | 1,098,942 |
| $ | (1,120,586 | ) | $ | 263,009 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2018 |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 9,561 |
| $ | — |
| $ | — |
| $ | 25,975 |
| $ | (4,412 | ) | $ | 31,124 |
|
| Receivables - net | 27,868 |
| 17,467 |
| 2,792 |
| 56,256 |
| (74,895 | ) | 29,488 |
|
| Investment in subsidiaries | 175,071 |
| — |
| 45,832 |
| 733,535 |
| (954,437 | ) | — |
|
| All other assets | 19,165 |
| 12 |
| — |
| 298,493 |
| (67,210 | ) | 250,460 |
|
| Total assets | $ | 231,665 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,114,260 |
| $ | (1,100,954 | ) | $ | 311,072 |
|
| | | | | | | |
| Short-term borrowings | $ | 143,481 |
| $ | — |
| $ | 9,854 |
| $ | 9,653 |
| $ | (150,212 | ) | $ | 12,776 |
|
| Long-term and non-recourse borrowings | 50,705 |
| 16,115 |
| 24,341 |
| 47,014 |
| (47,352 | ) | 90,824 |
|
| All other liabilities | 45,722 |
| 336 |
| 245 |
| 133,203 |
| (23,514 | ) | 155,992 |
|
| Total liabilities | 239,908 |
| 16,452 |
| 34,439 |
| 189,870 |
| (221,078 | ) | 259,591 |
|
| | | | | | | |
| Total liabilities and equity | $ | 231,665 |
| $ | 17,479 |
| $ | 48,623 |
| $ | 1,114,260 |
| $ | (1,100,954 | ) | $ | 311,072 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
| 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 | | | | | | |
| Sales of goods and services | $ | 24,897 |
| $ | — |
| $ | — |
| $ | 114,446 |
| $ | (58,887 | ) | $ | 80,456 |
|
| GE Capital revenues from services | — |
| 505 |
| 583 |
| 7,644 |
| (2,548 | ) | 6,184 |
|
| Total revenues and other income (loss) | 24,897 |
| 505 |
| 583 |
| 122,090 |
| (61,435 | ) | 86,640 |
|
| | | | | | | |
| Costs and expenses | | | | | | |
| Interest and other financial charges | 3,348 |
| 477 |
| 1,485 |
| 3,582 |
| (5,348 | ) | 3,545 |
|
| Other costs and expenses | 27,618 |
| — |
| 22 |
| 113,764 |
| (57,436 | ) | 83,968 |
|
| Total costs and expenses | 30,966 |
| 478 |
| 1,507 |
| 117,346 |
| (62,784 | ) | 87,512 |
|
| Other income (loss) | (1,041 | ) | — |
| — |
| 57,784 |
| (54,051 | ) | 2,692 |
|
| Equity in earnings (loss) of affiliates | 8,956 |
| — |
| 1,711 |
| 71,787 |
| (82,454 | ) | — |
|
| Earnings (loss) from continuing operations before income taxes | 1,846 |
| 27 |
| 787 |
| 134,315 |
| (135,155 | ) | 1,820 |
|
| Benefit (provision) for income taxes | 989 |
| (3 | ) | 115 |
| (758 | ) | 351 |
| 693 |
|
| Earnings (loss) from continuing operations | 2,835 |
| 24 |
| 902 |
| 133,557 |
| (134,804 | ) | 2,513 |
|
| Earnings (loss) from discontinued operations, net of taxes | (501 | ) | — |
| (284 | ) | 7 |
| 287 |
| (490 | ) |
| Net earnings (loss) | 2,334 |
| 24 |
| 618 |
| 133,564 |
| (134,517 | ) | 2,023 |
|
| Less net earnings (loss) attributable to noncontrolling interests | — |
| — |
| — |
| (53 | ) | (258 | ) | (312 | ) |
| Net earnings (loss) attributable to the Company | 2,334 |
| 24 |
| 618 |
| 133,618 |
| (134,259 | ) | 2,334 |
|
| Other comprehensive income (loss) | 4,053 |
| — |
| 463 |
| (7,059 | ) | 6,596 |
| 4,053 |
|
| Comprehensive income (loss) attributable to the Company | $ | 6,387 |
| $ | 24 |
| $ | 1,081 |
| $ | 126,559 |
| $ | (127,663 | ) | $ | 6,387 |
|
20182019 3Q FORM 10-Q 11179
|
| | |
| FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| SEPTEMBER 30, 2018 (UNAUDITED) |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 2,289 |
| $ | — |
| $ | 15 |
| $ | 25,048 |
| $ | (420 | ) | $ | 26,932 |
|
| Investment securities | — |
| — |
| — |
| 35,388 |
| (627 | ) | 34,761 |
|
| Receivables - net | 32,989 |
| 17,585 |
| 33,060 |
| 75,611 |
| (124,797 | ) | 34,448 |
|
| Inventories | 4,938 |
| — |
| — |
| 21,020 |
| (5,316 | ) | 20,642 |
|
| Property, plant and equipment - net | 5,724 |
| — |
| — |
| 46,676 |
| (1,763 | ) | 50,638 |
|
| Investment in subsidiaries(a) | 265,584 |
| — |
| 78,891 |
| 726,516 |
| (1,070,991 | ) | — |
|
| Goodwill and intangible assets | 8,700 |
| — |
| — |
| 85,898 |
| (15,383 | ) | 79,216 |
|
| All other assets | 8,955 |
| 16 |
| — |
| 227,348 |
| (175,980 | ) | 60,339 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 4,716 |
| 4,716 |
|
| Total assets | $ | 329,180 |
| $ | 17,601 |
| $ | 111,965 |
| $ | 1,243,505 |
| $ | (1,390,561 | ) | $ | 311,691 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 177,698 |
| $ | — |
| $ | 47,649 |
| $ | 12,830 |
| $ | (222,971 | ) | $ | 15,206 |
|
| Accounts payable | 7,760 |
| — |
| — |
| 54,412 |
| (46,424 | ) | 15,748 |
|
| Other current liabilities | 14,858 |
| 9 |
| 3 |
| 31,540 |
| (6,847 | ) | 39,562 |
|
| Long-term and non-recourse borrowings | 61,253 |
| 15,894 |
| 35,223 |
| 42,668 |
| (55,279 | ) | 99,760 |
|
| All other liabilities | 36,157 |
| 675 |
| 153 |
| 60,444 |
| (6,239 | ) | 91,190 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 2,002 |
| 2,002 |
|
| Total Liabilities | 297,726 |
| 16,579 |
| 83,027 |
| 201,893 |
| (335,757 | ) | 263,468 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 288 |
| 98 |
| 386 |
|
| | | | | | | |
| GE shareowners' equity | 31,454 |
| 1,022 |
| 28,938 |
| 1,040,130 |
| (1,070,090 | ) | 31,454 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,195 |
| 15,188 |
| 16,383 |
|
| Total equity | 31,454 |
| 1,022 |
| 28,938 |
| 1,041,324 |
| (1,054,902 | ) | 47,837 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 329,180 |
| $ | 17,601 |
| $ | 111,965 |
| $ | 1,243,505 |
| $ | (1,390,561 | ) | $ | 311,691 |
|
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
Cash from (used for) operating activities(a) | $ | 9,148 |
| $ | 400 |
| $ | (1,539 | ) | $ | 6,556 |
| $ | (12,531 | ) | $ | 2,033 |
|
| | | | | | | |
| Cash from (used for) investing activities | $ | 34,181 |
| $ | (400 | ) | $ | 6,072 |
| $ | 108,843 |
| $ | (143,646 | ) | $ | 5,050 |
|
| | | | | | | |
| Cash from (used for) financing activities | $ | (42,889 | ) | $ | — |
| $ | (4,532 | ) | $ | (120,127 | ) | $ | 153,460 |
| $ | (14,089 | ) |
| | | | | | | |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (131 | ) | — |
| (131 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | 440 |
| — |
| — |
| (4,859 | ) | (2,717 | ) | (7,136 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 9,561 |
| — |
| — |
| 26,676 |
| (689 | ) | 35,548 |
|
Cash, cash equivalents and restricted cash
at September 30 | 10,001 |
| — |
| — |
| 21,817 |
| (3,406 | ) | 28,412 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 602 |
| — |
| 602 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 10,001 |
| $ | — |
| $ | — |
| $ | 21,215 |
| $ | (3,406 | ) | $ | 27,810 |
|
| |
| (a) | Included within the subsidiaries of the SubsidiaryParent Company Guarantor are cash andflows included cash equivalent balances of $7,462 million and net assetsfrom (used for) operating activities of discontinued operations of $3,229$(2,382) million. |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
Cash from (used for) operating activities(a) | $ | 11,267 |
| $ | (118 | ) | $ | (381 | ) | $ | 24,135 |
| $ | (38,492 | ) | $ | (3,589 | ) |
| | | | | | | |
| Cash from (used for) investing activities | $ | (625 | ) | $ | 189 |
| $ | (1,052 | ) | $ | (18,293 | ) | $ | 31,417 |
| $ | 11,636 |
|
| | | | | | | |
| Cash from (used for) financing activities | $ | (11,824 | ) | $ | (70 | ) | $ | 1,445 |
| $ | (16,845 | ) | $ | 2,328 |
| $ | (24,967 | ) |
| | | | | | | |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (440 | ) | — |
| (440 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (1,183 | ) | — |
| 12 |
| (11,443 | ) | (4,747 | ) | (17,361 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 3,472 |
| — |
| 3 |
| 41,993 |
| (743 | ) | 44,724 |
|
Cash, cash equivalents and restricted cash
at September 30 | 2,289 |
| — |
| 15 |
| 30,550 |
| (5,490 | ) | 27,364 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 5,310 |
| — |
| 5,310 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 2,289 |
| $ | — |
| $ | 15 |
| $ | 25,240 |
| $ | (5,490 | ) | $ | 22,054 |
|
| |
| (a) | Parent Company Guarantor cash flows included cash from (used for) operating activities of discontinued operations of $185 million. |
112 201880 2019 3Q FORM 10-Q
|
| | |
FINANCIALFORWARD LOOKING STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
FORWARD-LOOKING STATEMENTS
Our public communications and SEC filings may contain statements related to future, not past, events. These forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range." Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; macroeconomic and market conditions; planned and potential business or asset dispositions; our de-leveraging plans, including leverage ratios and targets, the timing and nature of actions to reduce indebtedness and our credit ratings and outlooks; GE's and GE Capital's funding and liquidity; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; or tax rates.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced GE Industrial and GE Capital business or asset dispositions or other transactions, including the planned sale of our BioPharma business within our Healthcare segment and plan to exit our equity ownership position in Baker Hughes, the timing of closing for those transactions and the expected proceeds and benefits to GE;
our de-leveraging and capital allocation plans, including with respect to actions to reduce our indebtedness, the timing and amount of GE dividends, organic investments, and other priorities;
further downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our liquidity, funding profile, costs and competitive position;
GE’s liquidity and the amount and timing of our GE Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations, the amount and timing of required capital contributions to those insurance operations and strategic actions that we may pursue; the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets; the availability and cost of funding; and GE Capital's exposure to particular counterparties and markets;
changes in macroeconomic and market conditions, particularly interest rates, as well as the value of stocks and other financial assets (including our equity ownership positions in Baker Hughes), oil and other commodity prices and exchange rates;
market developments or customer actions that may affect levels of demand and the financial performance of the major industries and customers we serve, such as secular and cyclical pressures in our Power business, pricing and other pressures in the renewable energy market, conditions in China and other key markets, early aircraft retirements, and other shifts in the competitive landscape for our products and services;
operational execution by our businesses, including our ability to improve the operations and execution of our Power business, execution by our Renewable Energy business, and the continued strength of our Aviation business;
changes in law, regulation or policy that may affect our businesses, such as trade policy and tariffs, regulation related to climate change and the effects of U.S. tax reform and other tax law changes;
our decisions about investments in new products, services and platforms, and our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of operational changes, restructuring and other cost reduction measures;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom, SEC and other investigative and legal proceedings;
the impact of actual or potential failures or our products or our customers' products, such as the fleet grounding of the Boeing 737 MAX, and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches; and
the other factors that are described in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, as updated in our Quarterly Reports on Form 10-Q.
These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION |
| DECEMBER 31, 2017 |
| |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Assets | | | | | | |
| Cash, cash equivalents and restricted cash | $ | 3,472 |
| $ | — |
| $ | 3 |
| $ | 41,236 |
| $ | (743 | ) | $ | 43,967 |
|
| Investment securities | 1 |
| — |
| — |
| 39,809 |
| (1,113 | ) | 38,696 |
|
| Receivables - net | 50,923 |
| 17,316 |
| 32,381 |
| 87,776 |
| (147,551 | ) | 40,846 |
|
| Inventories | 4,587 |
| — |
| — |
| 22,215 |
| (7,383 | ) | 19,419 |
|
| Property, plant and equipment - net | 5,808 |
| — |
| — |
| 48,516 |
| (450 | ) | 53,874 |
|
| Investment in subsidiaries(a) | 277,929 |
| — |
| 77,488 |
| 715,936 |
| (1,071,353 | ) | — |
|
| Goodwill and intangible assets | 8,014 |
| — |
| — |
| 90,226 |
| 6,002 |
| 104,242 |
|
| All other assets | 30,737 |
| 16 |
| 32 |
| 236,771 |
| (205,269 | ) | 62,288 |
|
| Assets of discontinued operations | — |
| — |
| — |
| — |
| 5,912 |
| 5,912 |
|
| Total assets | $ | 381,472 |
| $ | 17,332 |
| $ | 109,904 |
| $ | 1,282,485 |
| $ | (1,421,948 | ) | $ | 369,245 |
|
| | | | | | | |
| Liabilities and equity | | | | | | |
| Short-term borrowings | $ | 191,807 |
| $ | — |
| $ | 46,033 |
| $ | 22,603 |
| $ | (236,407 | ) | $ | 24,036 |
|
| Accounts payable | 8,126 |
| — |
| — |
| 77,509 |
| (70,462 | ) | 15,172 |
|
| Other current liabilities | 11,892 |
| 8 |
| 3 |
| 28,218 |
| (34 | ) | 40,088 |
|
| Long-term and non-recourse borrowings | 71,023 |
| 16,632 |
| 34,730 |
| 55,367 |
| (67,197 | ) | 110,556 |
|
| All other liabilities | 42,594 |
| 475 |
| 128 |
| 66,293 |
| (7,694 | ) | 101,797 |
|
| Liabilities of discontinued operations | — |
| — |
| — |
| — |
| 706 |
| 706 |
|
| Total Liabilities | 325,442 |
| 17,116 |
| 80,894 |
| 249,991 |
| (381,088 | ) | 292,355 |
|
| | | | | | | |
| Redeemable noncontrolling interests | — |
| — |
| — |
| 2,627 |
| 764 |
| 3,391 |
|
| | | | | | | |
| GE shareowners' equity | 56,030 |
| 216 |
| 29,010 |
| 1,028,311 |
| (1,057,537 | ) | 56,030 |
|
| Noncontrolling interests | — |
| — |
| — |
| 1,556 |
| 15,912 |
| 17,468 |
|
| Total equity | 56,030 |
| 216 |
| 29,010 |
| 1,029,867 |
| (1,041,625 | ) | 73,498 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 381,472 |
| $ | 17,332 |
| $ | 109,904 |
| $ | 1,282,485 |
| $ | (1,421,948 | ) | $ | 369,245 |
|
| |
(a) | Included within the subsidiaries of the Subsidiary Guarantor are cash and cash equivalent balances of $15,225 million and net assets of discontinued operations of $4,318 million. |
20182019 3Q FORM 10-Q 113
|
| | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
| | | | | | | |
| (In millions) | Parent Company Guarantor |
| Subsidiary Issuer |
| Subsidiary Guarantor |
| Non- Guarantor Subsidiaries |
| Consolidating Adjustments |
| Consolidated |
|
| | | | | | | |
| Cash flows – operating activities | | | | | | |
| Cash from (used for) operating activities - continuing operations | $ | 12,877 |
| $ | (118 | ) | $ | (381 | ) | $ | 43,530 |
| $ | (56,241 | ) | $ | (333 | ) |
| Cash from (used for) operating activities - discontinued operations | (1,634 | ) | — |
| — |
| 1,533 |
| (1 | ) | (102 | ) |
| Cash from (used for) operating activities | 11,243 |
| (118 | ) | (381 | ) | 45,063 |
| (56,242 | ) | (435 | ) |
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | (415 | ) | 189 |
| (1,052 | ) | (33,458 | ) | 42,800 |
| 8,064 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (224 | ) | — |
| (224 | ) |
| Cash from (used for) investing activities | (415 | ) | 189 |
| (1,052 | ) | (33,681 | ) | 42,800 |
| 7,840 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | (12,011 | ) | (70 | ) | 1,445 |
| (27,456 | ) | 13,765 |
| (24,326 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| — |
| — |
| — |
|
| Cash from (used for) financing activities | (12,011 | ) | (70 | ) | 1,445 |
| (27,456 | ) | 13,765 |
| (24,326 | ) |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| (440 | ) | — |
| (440 | ) |
| Increase (decrease) in cash, cash equivalents and restricted cash | (1,183 | ) | — |
| 12 |
| (16,513 | ) | 324 |
| (17,361 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 3,472 |
| — |
| 3 |
| 41,993 |
| (743 | ) | 44,724 |
|
| Cash, cash equivalents and restricted cash at September 30 | 2,289 |
| — |
| 15 |
| 25,479 |
| (420 | ) | 27,364 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 432 |
| — |
| 432 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 2,289 |
| $ | — |
| $ | 15 |
| $ | 25,048 |
| $ | (420 | ) | $ | 26,932 |
|
|
| | |
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 | $ | (26,107 | ) | $ | 39 |
| $ | (81 | ) | $ | 184,255 |
| $ | (154,725 | ) | $ | 3,381 |
|
| Cash from (used for) operating activities - discontinued operations | (501 | ) | — |
| — |
| 8 |
| 3 |
| (490 | ) |
| Cash from (used for) operating activities | (26,608 | ) | 39 |
| (81 | ) | 184,264 |
| (154,722 | ) | 2,892 |
|
| | | | | | | |
| Cash flows – investing activities | | | | | | |
| Cash from (used for) investing activities – continuing operations | (1,723 | ) | (39 | ) | 348 |
| (297,453 | ) | 304,126 |
| 5,259 |
|
| Cash from (used for) investing activities – discontinued operations | — |
| — |
| — |
| (2,515 | ) | — |
| (2,515 | ) |
| Cash from (used for) investing activities | (1,723 | ) | (39 | ) | 348 |
| (299,968 | ) | 304,126 |
| 2,744 |
|
| | | | | | | |
| Cash flows – financing activities | | | | | | |
| Cash from (used for) financing activities – continuing operations | 26,340 |
| — |
| (265 | ) | 104,015 |
| (148,319 | ) | (18,228 | ) |
| Cash from (used for) financing activities – discontinued operations | — |
| — |
| — |
| 1,905 |
| — |
| 1,905 |
|
| Cash from (used for) financing activities | 26,340 |
| — |
| (265 | ) | 105,920 |
| (148,319 | ) | (16,323 | ) |
| Effect of currency exchange rate changes on cash, cash equivalents and restricted cash | — |
| — |
| — |
| 1,253 |
| — |
| 1,253 |
|
| Increase (decrease) in cash, cash equivalents and restricted cash | (1,991 | ) | — |
| 4 |
| (8,531 | ) | 1,084 |
| (9,434 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 2,729 |
| — |
| 41 |
| 49,204 |
| (1,590 | ) | 50,384 |
|
| Cash, cash equivalents and restricted cash at September 30 | 738 |
| — |
| 45 |
| 40,673 |
| (506 | ) | 40,950 |
|
| Less cash, cash equivalents and restricted cash of discontinued operations at September 30 | — |
| — |
| — |
| 501 |
| — |
| 501 |
|
| Cash, cash equivalents and restricted cash of continuing operations at September 30 | $ | 738 |
| $ | — |
| $ | 45 |
| $ | 40,172 |
| $ | (506 | ) | $ | 40,449 |
|
GLOSSARY
FINANCIAL TERMS
| |
| • | Continuing earnings – refers to the caption “earnings from continuing operations attributable to GE common shareowners” |
| |
| • | Continuing earnings per share (EPS) – refers to the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.” |
| |
| • | GE Cash Flows from Operating Activities (GE CFOA) – unless otherwise indicated, GE CFOA is from continuing operations. |
| |
| • | Net earnings (loss) – refers to the caption “net earnings (loss) attributable to GE common shareowners” |
| |
| • | Net earnings (loss) per share (EPS) – refers to the diluted per-share amount of “net earnings attributable to GE common shareowners.” |
| |
| • | Segment profit – refers to the profit of the industrial segments and the net earnings of the financial services segment, both of which include other income. See the Segment Operations section within the MD&A for a description of the basis for segment profits. |
OPERATIONAL TERMS
| |
| • | Organic – excludes the effects of acquisitions, dispositions and foreign currency. |
| |
| • | Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, and Aviation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant. See "Revenues from the Sale of Services" section within Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information. |
| |
| • | Services – for purposes of the financial statement presentation of sales and costs of sales in our consolidated Statement of Earnings (Loss), “sales of goods” per SEC regulations includes all sales of tangible products, and "sales of services" includes all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as "sales of services,” which is an important part of our operations. |
EXHIBITS
|
| | |
| Computation of Per Share Earnings.*
Computation of Ratio of Earnings to Fixed Charges.
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
|
| | |
| |
| | |
| |
| | |
| |
| | |
| Exhibit 101 | The following materials from General Electric Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018,2019, formatted in XBRL (eXtensible Business Reporting Language); (i) Statement of Earnings (Loss) for the three and nine months ended September 30, 20182019 and 2017,2018, (ii) Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018, (iii) Statement of Changes in Shareowners' Equity for the three and 2017, (iii)nine months ended September 30, 2019 and 2018, (iv) Statement of Financial Position at September 30, 20182019 and December 31, 2017,2018, (v) Statement of Cash Flows for the nine months ended September 30, 2019 and 2018, and 2017, and (iv)(vi) Notes to Consolidated Financial Statements. |
| |
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| | | |
| | * | Data required by Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share, is provided in Note 16 to the Consolidated Financial Statements in this Report. |
116 20182019 3Q FORM 10-Q82
FORM 10-Q CROSS REFERENCE INDEX
|
| | | | |
| Item Number | | Page(s) |
| Part I – FINANCIAL INFORMATION |
| Item 1. | | Financial Statements | | 61-11541-80 |
| | | | | |
| Item 2. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 4-554-38 |
| | | | | |
| Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | | Not applicable(a) |
| | | | | |
| Item 4. | | Controls and Procedures | | 5639 |
| | | | | |
Part II – OTHER INFORMATION |
| Item 1. | | Legal Proceedings | | 59-6039-40 |
| | | | | |
| Item 1A. | | Risk Factors | | 58Not applicable(b) |
| | | | | |
| Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | | 5739 |
| | | | | |
| Item 3. | | Defaults Upon Senior Securities | | Not applicable |
| | | | | |
| Item 4. | | Mine Safety Disclosures | | 49Not applicable |
| | | | | |
| Item 5. | | Other Information | | Not applicable |
| | | | | |
| Item 6. | | Exhibits | | 11682 |
| | | | | |
| Signatures | | | 11884 |
| |
| (a) | There have been no significantmaterial changes to our market risk since December 31, 2017.2018. For a discussion of our exposure to market risk, refer to our Annual Report on Form 10-K for the year ended December 31, 2017.2018. |
| |
| (b) | There have been no material changes to our risk factors since June 30, 2019. For a discussion of our risk factors, refer to our Annual Report on Form 10-K for the year ended December 31, 2018 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019. |
20182019 3Q FORM 10-Q 11783
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| | General Electric Company
(Registrant)
|
October 30, 2018 | | /s/ Jamie S. Miller |
Date | | Jamie S. Miller
Senior Vice President and Chief Financial Officer
Principal Financial Officer
|
|
| | |
October 30, 20182019 | | /s/ Thomas S. Timko |
| Date | | Thomas S. Timko Vice President, Chief Accounting Officer and Controller Principal Accounting Officer |
118 201884 2019 3Q FORM 10-Q
