General Electric Company (GE) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 10, 2023. The 10-K reports annual results, with unaudited fourth-quarter figures noted separately below. Amounts are U.S. dollars.
Business context
GE operated Aerospace, Renewable Energy, Power and HealthCare during 2022. HealthCare results are included in the year’s consolidated results. GE completed the spin-off of approximately 80.1% of GE HealthCare on January 3, 2023 and retained approximately 19.9%. GE plans to combine Renewable Energy, Power, Digital and Energy Financial Services as GE Vernova and pursue a further spin-off.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $76.6 billion | $74.2 billion |
| Continuing earnings attributable to GE common shareholders | $581 million | $(3.6) billion |
| Continuing diluted EPS | $0.53 | $(3.25) |
| Net earnings (loss) attributable to GE common shareholders, including discontinued operations | $(64) million | $(6.8) billion |
| GAAP profit margin | 1.8% | (5.0)% |
| Adjusted profit margin (non-GAAP) | 7.9% | 6.5% |
| Cash from operating activities | $5.9 billion | $0.9 billion |
| Free cash flow (non-GAAP) | $4.8 billion | $1.9 billion |
| Total borrowings at year-end | $32.4 billion | $35.2 billion |
| Cash, cash equivalents and restricted cash on balance sheet | $17.3 billion | $15.8 billion |
Revenue rose 3%; organic revenue, excluding insurance revenues and adjusting for acquisitions, dispositions and foreign exchange, increased 6%. Services revenue increased 13% (16% organically), while equipment revenue declined 7% (4% organically). Adjusted earnings were $2.9 billion, or $2.62 per share, versus $1.9 billion, or $1.71 per share, in 2021; these are non-GAAP measures. Total remaining performance obligations increased 5% to $251.0 billion.
Year-end current assets were $66.2 billion and current liabilities were $56.9 billion. GE reported $14.4 billion of committed revolving credit facilities, including a $10.0 billion unused syndicated facility. Borrowings fell partly through maturities and repayment, including a $6.4 billion debt tender. The reported $32.4 billion of borrowings included $8.3 billion issued by GE HealthCare before the spin-off; that debt remained with GE HealthCare after separation.
Fourth quarter, unaudited: Revenue was $21.8 billion; earnings from continuing operations were $2.3 billion and continuing diluted EPS was $1.99. The filing’s quarterly table reports a $2.2 billion net loss for the fourth quarter of 2021.
Segment results and changes
- Aerospace: Revenue increased 22% to $26.1 billion; segment profit rose 66% to $4.8 billion and margin improved to 18.3% from 13.5%. Results benefited from recovering air travel, higher service volume and pricing. Commercial air traffic was about 90% of 2019 levels.
- Renewable Energy: Revenue declined 17% to $13.0 billion; segment loss widened to $2.2 billion from $0.8 billion. Lower wind turbine deliveries, warranty and repair costs, inflation, product transition and execution of lower-margin orders weighed on results. Warranty provisions rose, primarily due to corrective measures across the Onshore Wind fleet.
- Power: Revenue declined 4% to $16.3 billion; segment profit increased to $1.2 billion from $0.7 billion. Profit benefited from prior-year project and legal charges that did not recur, as well as Gas Power service pricing and deliveries.
- HealthCare: Revenue increased 4% to $18.5 billion; segment profit fell 9% to $2.7 billion and margin decreased to 14.7% from 16.7%. Higher volume and pricing were partly offset by material and logistics inflation and planned investment.
GE’s $5.1 billion increase in continuing profit was materially affected by lower debt extinguishment costs (down $6.1 billion) and lower non-operating benefit costs (down $2.3 billion). Offsets included $1.0 billion of separation costs, an $824 million Steam Power asset impairment, higher restructuring charges and lower gains on equity securities. Accordingly, the year-over-year improvement was not solely from underlying segment operations.
Outlook, risks and unusual items
- Management cited persistent inflation, supply constraints, delayed sourcing of materials and skilled-labor shortages, which delayed conversion of orders to revenue and pressured margins. GE said it was using productivity initiatives, supplier engagement and pricing actions to mitigate these pressures.
- Management expected narrowbody and widebody air traffic to return to 2019 levels in late 2023, based on industry projections. It described gas-power demand as expected to remain stable over the coming decade, with generation growing at a low-single-digit rate. These are management expectations, not guaranteed outcomes.
- GE Vernova’s planned separation remained subject to customary approvals, tax opinions or rulings, SEC registration and establishment of capital structures and credit ratings. GE cautioned that timing, completion and expected benefits were uncertain.
- GE expected approximately $3.6 billion of further capital contributions to run-off insurance subsidiaries through 2024, including approximately $1.8 billion anticipated in first-quarter 2023, subject to the statutory reporting and testing process.
- Adoption of the new long-duration insurance accounting standard in 2023 was estimated to reduce shareholders’ equity by approximately $3 billion to $4 billion based on conditions at December 31, 2022. The estimated impact at the standard’s transition date was larger, at $7 billion to $8 billion after tax.
- Material exposures include run-off long-term-care insurance assumptions and funding; Bank BPH litigation over foreign-currency mortgages in Poland; Alstom legacy legal matters, for which GE recorded a $455 million reserve; and environmental, nuclear decommissioning and worker-exposure reserves totaling $2.7 billion. GE said some potential losses could exceed recorded amounts and that meaningful additional-loss estimates were not available for certain matters.
- Other notable items included $263 million of Russia and Ukraine charges and a $0.5 billion loss on the 2022 debt tender. GE reported a positive margin of about 10% in its 2022 insurance premium-deficiency testing, approximately equivalent to 2021.
The company and auditor reported effective internal control over financial reporting. Deloitte issued an unqualified opinion on the 2022 financial statements and internal controls.
Investor verification priorities
- Reconcile GAAP continuing earnings and net loss with adjusted earnings, including the treatment of debt tender costs, separation costs, impairments, insurance and equity-security gains or losses.
- Track Renewable Energy warranty, repair and fleet-availability costs, order conversion, pricing and restructuring execution.
- Monitor Aerospace recovery, supplier capacity, production rates and long-term service agreement profitability estimates.
- Confirm the timing, final capital structure, separation costs, tax treatment and retained-stake monetization plans for GE HealthCare and the proposed GE Vernova spin-off.
- Assess cash generation and debt reduction after GE HealthCare’s separation, accounting for transferred debt, insurance capital contributions and restricted or currency-controlled cash.
- Review developments in long-term-care insurance assumptions and Bank BPH mortgage litigation, including potential funding needs or losses beyond recorded reserves.