General Electric Company — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. GE is a global industrial company operating in Power, Renewable Energy, Aviation and Healthcare, alongside its Capital financial-services business. The filing presents GAAP results and certain separately identified non-GAAP measures.
Financial performance and position
| Metric | 2019 | 2018 | Change and context |
|---|---|---|---|
| Consolidated revenue | $95.2 billion | $97.0 billion | Down 2%; foreign exchange reduced revenue by $1.4 billion. Industrial segment organic revenue increased 5.5%. |
| Continuing earnings (loss) attributable to GE common shareholders | $(44) million; $(0.01) per share | $(21.4) billion; $(2.47) per share | Improved substantially, largely because goodwill impairment charges fell by $20.6 billion. |
| Net earnings (loss) attributable to GE common shareholders | $(5.44) billion; $(0.62) per share | $(22.80) billion; $(2.62) per share | Includes a $5.34 billion after-tax loss from discontinued operations, principally the Baker Hughes deconsolidation loss. |
| Adjusted earnings per share | $0.65 | $0.57 | Non-GAAP; excludes specified items, including benefit costs, impairments, restructuring and insurance charges. |
| GE Industrial profit and margin | $1.8 billion; 2.1% | $(20.6) billion; (23.1)% | GAAP result was heavily affected by goodwill impairment and other excluded items. Adjusted GE Industrial profit was $8.7 billion, with a 10.0% margin, versus $8.4 billion and 9.4%. |
| Industrial segment profit | $10.4 billion; 12.0% margin | $9.6 billion; 11.1% margin | Profit rose 8%; organic profit increased 11%. |
| GE cash from operating activities, continuing operations | $4.6 billion | $0.7 billion | Increase mainly reflected no GE Pension Plan contribution in 2019, versus $6.0 billion in 2018. |
| GE Industrial free cash flow | $2.3 billion | $4.3 billion | Non-GAAP; declined primarily due to higher working-capital use. |
| Consolidated cash, cash equivalents and restricted cash | $36.4 billion | $31.1 billion | Includes $17.6 billion at GE and $18.8 billion at GE Capital; some balances are restricted or subject to currency controls. |
| Consolidated borrowings | $90.9 billion | $103.6 billion | Reduced through debt repayments and a $4.8 billion debt tender offer. GE Industrial net debt, a non-GAAP measure, was $47.9 billion versus $55.1 billion. |
Business segment highlights
- Aviation: Revenue increased 8% to $32.9 billion; segment profit rose 5% to $6.8 billion. Backlog increased 22% to $273.2 billion, primarily from long-term service agreements.
- Power: Revenue decreased 16% to $18.6 billion. Segment profit improved to $386 million from an $808 million loss, but the market remained challenging amid overcapacity and pricing pressure.
- Renewable Energy: Revenue rose 7% to $15.3 billion, while the segment recorded a $666 million loss, compared with $292 million profit. Execution challenges, project costs and price pressure weighed on results.
- Healthcare: Revenue increased 1% to $19.9 billion and segment profit rose 5% to $3.9 billion. BioPharma was classified as held for sale.
- Capital: Revenue declined 8% to $8.7 billion and segment loss was $530 million. GE Capital continued reducing assets and managing run-off insurance obligations.
Material changes and unusual items
- GE sold part of its Baker Hughes stake in September, reducing ownership from 50.2% to 36.8% and deconsolidating the business. GE recorded an $8.7 billion pre-tax loss in discontinued operations; its remaining interest was measured at fair value.
- GE completed the Transportation spin-off and merger with Wabtec, recording a $3.5 billion pre-tax gain in discontinued operations. Total proceeds from the transaction and Wabtec share sales were $6.2 billion.
- GE recorded $1.0 billion pre-tax ($0.8 billion after tax) for the 2019 run-off insurance premium deficiency test, primarily reflecting lower discount rates. Insurance liabilities and annuity benefits totaled $39.8 billion at year-end.
- Pension plan changes led to $0.6 billion of additional pre-tax non-operating benefit costs. GE also recorded $1.5 billion of goodwill impairments in Renewable Energy and a $255 million debt-extinguishment loss.
- GE paid a $1.5 billion civil penalty to the U.S. Department of Justice to settle the WMC/GE Capital FIRREA investigation, without admitting liability or wrongdoing.
Outlook, liquidity and key risks
- Management expected to complete the approximately $21.4 billion BioPharma sale in the first quarter of 2020, subject to regulatory approval, and anticipated approximately $20 billion of proceeds. Planned uses included repaying $12.2 billion of GE Capital intercompany loans, contributing $4–$5 billion to the GE Pension Plan and taking about $5 billion of additional deleveraging actions.
- Management expected incremental improvement in Power in 2020, with further acceleration in 2021 and beyond. Renewable Energy expected improved contribution margins in Grid and Hydro in 2020. These expectations are subject to market and execution risks.
- GE expected to contribute $4–$5 billion to its principal pension plan in 2020. GE Capital expected approximately $7 billion of additional contributions to run-off insurance subsidiaries through 2024; amounts and timing could change following reserve testing or regulatory action.
- The 737 MAX grounding adversely affected GE operating cash flow by approximately $1.4 billion in 2019. GE disclosed about $2.5 billion of net assets related to the program and said recovery and 2020 cash effects depend on return-to-service timing and production rates.
- Other significant risks include insurance reserve assumptions and low interest rates, pension funding, execution of asset sales and deleveraging, credit-rating pressure, Power and Renewable Energy turnarounds, litigation and regulatory investigations, tariffs, and the coronavirus outbreak’s potential effects on China operations and supply chains.
- At filing, GE and GE Capital had Baa1/BBB+ long-term ratings, with Fitch outlook negative and Moody’s and S&P outlooks stable. GE reported $35.3 billion of net available committed credit facilities.
- KPMG issued an unqualified audit opinion on the financial statements and internal control over financial reporting; management also concluded internal controls were effective at year-end.
Investor verification priorities
- Track whether the BioPharma sale closed on schedule, the net proceeds received, and actual allocation to debt repayment, pension funding and deleveraging.
- Reconcile reported GAAP earnings and cash generation with management’s non-GAAP adjusted earnings, margins, free cash flow and net-debt measures.
- Monitor industrial working capital, receivables sales and cash conversion, especially the effects of the 737 MAX and equipment project costs.
- Assess the run-off insurance portfolio’s reserve assumptions, future premium increases, statutory capital requirements and contributions through 2024.
- Review debt maturities, credit ratings and liquidity access, as well as the progress and proceeds from remaining Baker Hughes and other asset dispositions.
- Follow the legal and regulatory matters, including the SEC and DOJ investigations, Alstom-related claims, shareholder litigation and Polish mortgage exposure.