General Electric Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. GE is a global industrial company with Power, Renewable Energy, Aviation and Healthcare businesses, alongside its Capital financial-services segment. Results are presented under U.S. GAAP unless identified as non-GAAP.
Financial and operating performance
| Metric | FY2020 | Comparison / context |
|---|---|---|
| Consolidated revenue | $79.6 billion | Down 16% from $95.2 billion in 2019 |
| Continuing earnings attributable to GE common shareholders | $5.36 billion; diluted EPS $0.59 | Compared with a $44 million loss and EPS of $(0.01) in 2019 |
| Net earnings attributable to GE common shareholders | $5.23 billion; diluted EPS $0.58 | Compared with a $5.44 billion loss in 2019; includes discontinued operations |
| Adjusted earnings / adjusted EPS | $109 million / $0.01 | Non-GAAP; compared with $5.33 billion / $0.61 in 2019 |
| GE Industrial profit / margin | $7.3 billion / 10.0% | Includes the BioPharma sale gain; adjusted profit was $2.5 billion and adjusted margin 3.4%, down 65% organically and 520 basis points organically |
| Cash from operating activities | Consolidated continuing operations: $3.6 billion; GE Industrial: $(1.3) billion | GE Industrial CFOA was $4.6 billion in 2019 |
| GE Industrial free cash flow | $0.6 billion | Non-GAAP; down from $2.3 billion in 2019 |
| Cash, cash equivalents and restricted cash | $36.6 billion | At December 31, 2020; includes $23.2 billion at GE Industrial and $13.4 billion at GE Capital |
| Consolidated borrowings | $75.1 billion | Down $15.8 billion from year-end 2019 |
| GE Industrial net debt | $32.3 billion | Non-GAAP; down from $47.9 billion at year-end 2019 |
Segments
- Aviation: Revenue fell 33% to $22.0 billion; segment profit fell 82% to $1.2 billion, with margin down to 5.6% from 20.7%. COVID-19 air-travel disruption and lower service activity were major drivers.
- Power: Revenue declined 6% to $17.6 billion; segment profit was $274 million, roughly level with 2019. Market overcapacity, pricing and project pressures persisted.
- Renewable Energy: Revenue increased 2% to $15.7 billion; segment loss narrowed to $715 million from $791 million. Backlog rose 9% to $30.0 billion.
- Healthcare: Revenue declined 10% to $18.0 billion, reflecting the BioPharma divestiture; segment profit decreased 18% to $3.1 billion. Excluding BioPharma, organic revenue increased 4% and organic profit increased 17%.
- Capital: Revenue declined 17% to $7.2 billion and segment loss widened to $1.7 billion, including goodwill and aircraft-portfolio impairments.
Material changes and unusual items
- GE sold BioPharma to Danaher on March 31, 2020, for $21.1 billion of consideration and recorded a $12.4 billion pre-tax gain ($11.2 billion after tax). This was a principal driver of the return to GAAP continuing profit.
- COVID-19 materially reduced demand and cash generation, most notably in Aviation and GECAS. GE Industrial organic revenue fell 13%; orders fell 17% organically and reported backlog declined 4% to $386.5 billion.
- GE recorded non-cash goodwill impairments of $877 million at Aviation Additive and $839 million at GECAS, plus $429 million of pre-tax Steam property and intangible asset impairments following its decision to exit new-build coal power.
- Unrealized losses on investments were $1.9 billion, primarily reflecting GE’s Baker Hughes holding; the filing reports a $2.0 billion realized and unrealized pre-tax loss on that interest for 2020.
- GE paid a $200 million SEC civil penalty in December 2020. The settlement resolved the SEC investigation; GE neither admitted nor denied the SEC order’s findings, and the order did not require restatement of prior financial statements.
- GE contributed $2.5 billion to its pension plan in December 2020 and $2.0 billion to GE Capital. The company expects an additional approximately $2.0 billion contribution to GE Capital in 2021, subject to the insurance statutory reporting process.
Liquidity, outlook and risks
GE reported $36.6 billion of cash and $20.2 billion of available revolving credit facilities at year-end. Management said liquidity was expected to be sufficient for obligations and emphasized maintaining elevated cash and continuing deleveraging. GE’s stated longer-term objectives include a sustainable Single-A credit rating, GE Industrial net debt-to-EBITDA below 2.5x and GE Capital debt-to-equity below 4-to-1; management said it now expects to reach the industrial leverage target over time. The filing does not provide a consolidated numerical revenue or earnings forecast for 2021.
Management expects aviation recovery to take multiple years and the aftermarket recovery to lag flight activity. Aviation departures were approximately 40% below the pre-pandemic baseline at year-end. GE anticipated 2021 savings from its cost actions. In Power, management cited continuing overcapacity, price pressure and uncertain deal timing; GE announced it would exit new-build coal power while continuing to service the installed base. Renewable Energy management expected 2020’s high Onshore Wind production levels to continue for 2021 deliveries and anticipated improved Grid and Hydro operating results in 2021.
Key risks include the duration and effects of COVID-19; aviation demand, customer credit and lease restructurings; execution and profitability estimates on long-term service agreements; leverage, refinancing access and negative credit-rating outlooks; GE Capital’s run-off insurance capital requirements; legal and regulatory matters; and energy-market transition, project execution, supply-chain, product-quality and cybersecurity risks. GE Capital’s insurance premium-deficiency test had a positive margin of less than 2%, leaving limited cushion against adverse assumption changes. The company expects approximately $7 billion of insurance capital contributions through 2024, subject to regulatory monitoring and reserve testing.
Most important facts for investors to verify
- How much of reported 2020 earnings reflects the BioPharma gain and other non-recurring or mark-to-market items, versus ongoing operating performance; compare GAAP results with the company’s non-GAAP reconciliations.
- Whether GE Industrial can restore positive, sustainable operating cash flow and improve free cash flow after the 2020 decline and pension contribution.
- Progress on Aviation recovery, long-term service agreement estimates, customer credit exposure and backlog cancellations or modifications.
- The timing and proceeds from the planned Baker Hughes stake monetization, and the effect of share-price movements on GE’s results and balance sheet.
- Future GE Capital insurance funding needs, statutory asset-adequacy results and the sensitivity of reserves to interest rates, claims experience and premium-rate approvals.
- Debt reduction progress, credit ratings and outlooks, and the ability to meet planned capital contributions and maturities while preserving liquidity.
- Potential additional exposure from Bank BPH mortgage litigation, Alstom-related matters, environmental obligations and pending shareholder litigation.