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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 June 30, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 001-00035
GEFORM10QIMAGE.JPG
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

New York
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
5 Necco 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:
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
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. Yes þ No ¨
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). Yes þ No ¨
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):
Large accelerated filer
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 
There were 8,753,289,000 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2020.




TABLE OF CONTENTS
 
Page
 
 



ABOUT GENERAL ELECTRIC
 
 


ABOUT GENERAL ELECTRIC. General Electric Company (General Electric or the 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. See the Consolidated Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the consolidated financial statements for information regarding our results of operations and recent business portfolio actions. Results of segments reclassified to discontinued operations have been recast for all periods presented.

GE’s Internet address at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A). The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of GE with the financial services businesses of GE Capital and are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Certain columns and rows within tables may not add due to the use of rounded numbers. Percentages presented in this report are calculated from the underlying numbers in millions. Discussions throughout 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. For purposes of the financial statement display of sales and costs of sales in our consolidated 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. Throughout MD&A 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.

We believe 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 GE Industrial operations separately from our GE Capital operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use these terms to mean the following:

Consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present consolidated results in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
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.
GE Capital – 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 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.

This document contains “forward-looking statements” - for details about the uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements, see the Risk Factors and Forward-Looking Statements sections.

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. 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.

CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS. Coronavirus Disease 2019 (COVID-19) Pandemic. The COVID-19 pandemic has significantly impacted global economies, resulting in workforce and travel restrictions, supply chain and production disruptions and reduced demand and spending across many sectors. Since the latter part of the first quarter, these factors have had a material adverse impact on our operations, financial performance and prices of our securities, as well as on the operations and financial performance of many of the customers and suppliers in industries that we serve. This section provides a brief overview of how we are responding to current and potential impacts related to COVID-19 on GE’s operations and financial condition and results, with additional details provided throughout the MD&A and other relevant sections of this report.


2020 2Q FORM 10-Q 3

MD&A
CONSOLIDATED RESULTS
 

We have adopted operational and governance rhythms across the Company, and with our Board of Directors, to coordinate and oversee actions related to the COVID-19 pandemic, including an internal task force to protect the health and safety of our employees globally and maintain business continuity; the assessment of financial and operating impacts, financial planning and mitigating cost, cash, and other actions in response; funding and liquidity management and related treasury actions; enterprise risk management and other functional activities across our global commercial, supply chain, human resources, controllership, government affairs, and other organizations. In particular, we took a series of actions during the second quarter to enhance and extend our liquidity at both GE and GE Capital (as described under "Debt offerings and tenders" below), and we continue to evaluate market conditions as they evolve and take precautionary measures to strengthen our financial position. We ended the second quarter of 2020 with $41.4 billion of consolidated cash, cash equivalents and restricted cash, in addition to our available credit lines. See the Capital Resources and Liquidity section for further information.

While factors related directly and indirectly to the COVID-19 pandemic have been impacting operations and financial performance at varying levels across all our businesses, the most significant impact to date has been at our Aviation segment and our GE Capital Aviation Services (GECAS) aircraft leasing business within our Capital segment. The pandemic is having a material adverse effect on the global airline industry, resulting in reduced flight schedules worldwide, an increased number of idle aircraft, lower utilization, workforce reductions and declining financial performance within the airline industry, as well as requests for government financial assistance by various industry participants. This has decreased demand for higher margin service revenues within our Aviation segment directly impacting our profitability and cash flows during 2020. Our Healthcare segment experienced increased demand for certain types of products and services, including ventilators, monitoring solutions, x-ray, anesthesia and point-of-care ultrasound product lines, partially offset by decreased demand in other parts of the business as patients have postponed certain procedures and hospitals have deferred spending. Our other businesses were also adversely impacted by market developments, including delays or cancellations of new projects, new orders and related down payments. In addition, workplace, travel and supply chain disruptions have caused delays of deliveries and the achievement of other billing milestones directly impacting our profitability and cash flows for the six months ended June 30, 2020. We anticipate many of these impacts experienced in the first half of 2020 related to demand, profitability and cash flows will continue in future periods depending on the severity and duration of the pandemic. For additional details about impacts related to Aviation and GECAS, Healthcare and our other businesses, refer to the respective segment sections within MD&A.

Each of GE's businesses and Corporate are taking cost and cash actions to manage risk and proactively mitigate the financial impact from COVID-19, as supply and demand dynamics continue to shift. In 2020, we are targeting more than $2 billion in operational cost out and more than $3 billion in cash preservation actions across the company, including more than $1 billion in cost out and more than $2 billion in cash preservation actions in Aviation, to right-size its cost structure and preserve its ability to serve customers. To date, we have realized more than one-third of savings from actions at the total company level, with further results expected in the second half of 2020. During the six months ended June 30, 2020, excluding business dispositions, we reduced consolidated headcount by approximately 8,700, including 5,300 at Aviation and 1,500 at Power.

At this time, GE cannot forecast the full duration and magnitude of COVID-19 impacts, or the pace of recovery from the pandemic across our end markets, operations, and supply chains. See the Risk Factors section for further information about related risks and uncertainties.

BioPharma. On March 31, 2020, we completed the sale of our BioPharma business within our Healthcare segment to Danaher Corporation. See the Segment Operations - Healthcare section and Note 2 for further information.

Baker Hughes. We recognized a pre-tax unrealized gain of $1.8 billion ($1.6 billion after tax) and a pre-tax unrealized loss of $3.9 billion ($3.1 billion after tax) for the three and six months ended June 30, 2020, respectively, on our investment in Baker Hughes. See Notes 2, 3 and 21 for further information.

Goodwill impairments. In the second quarter of 2020, we recognized a non-cash pre-tax impairment charge of $0.9 billion related to goodwill at our Additive reporting unit within our Aviation segment, that was recorded within earnings from continuing operations at Corporate. We also recognized a non-cash pre-tax impairment charge of $0.8 billion related to our GECAS reporting unit within our Capital segment. See Note 8 for further information.

Debt offerings and tenders. In the second quarter of 2020, we took a series of actions to enhance and extend our liquidity at both GE and GE Capital, issuing a total of $13.5 billion of longer-dated debt and reducing near-term debt maturities by $10.5 billion, with the remaining $3 billion to be leverage neutral by the end of 2021. The total pre-tax loss from these actions was $0.2 billion. Following these actions, GE Industrial has no remaining debt maturities in 2020 and 2021 and GE Capital has $5 billion of remaining debt maturities in 2020 and $3 billion in 2021.

We have also reduced debt by $9 billion year to date between GE and GE Capital, and we have cumulatively decreased our debt by approximately $22 billion between GE and GE Capital since the beginning of 2019. See the Borrowings section of Capital Resources and Liquidity and Note 11 for further information.

SECOND QUARTER 2020 RESULTS. Consolidated revenues were $17.7 billion, down $5.7 billion for the quarter, driven by decreased GE Industrial and GE Capital revenues. GE Industrial revenues decreased $5.3 billion (25%), driven primarily by decreases at our industrial segments.




4 2020 2Q FORM 10-Q

MD&A
CONSOLIDATED RESULTS
 

Continuing earnings per share was $(0.27). Excluding unrealized gains (losses), goodwill impairments, non-operating benefit costs, restructuring and other charges and debt extinguishment costs, Adjusted earnings per share* was $(0.15).

For the three months ended June 30, 2020, GE Industrial profit was $(0.9) billion and profit margins were (5.7)%, down $0.5 billion, driven primarily by decreases at our industrial segments, partially offset by an unrealized gain in the quarter on our investment in Baker Hughes of $1.8 billion and a decrease in adjusted Corporate operating costs* of $0.3 billion. Adjusted GE Industrial organic profit* decreased $2.0 billion, primarily as a result of the impacts of COVID-19, particularly at our Aviation segment, as well as a decrease at Power.

GE cash flows from operating activities (CFOA) was $(3.3) billion and $(1.1) billion for the six months ended June 30, 2020 and 2019, respectively. GE CFOA decreased primarily due to lower net income, primarily due to COVID-19 impacts, and higher cash used for working capital, partially offset by changes in contract and other deferred assets, increases in customer allowance accruals and lower cash paid for taxes. GE Industrial free cash flows* were $(4.3) billion and $(2.2) billion for the six months ended June 30, 2020 and 2019, respectively. The decrease was primarily due to the same decreases in GE CFOA as noted above. See the Capital Resources and Liquidity - Statement of Cash Flows section for further information.

Orders are contractual commitments with customers to provide specified goods or services for an agreed upon price.
GE INDUSTRIAL ORDERS
Three months ended June 30
 
Six months ended June 30
(In billions)
2020

2019

 
2020

2019

Equipment
$
7.1

$
11.3

 
$
16.3

$
21.3

Services
6.6

10.9

 
16.9

21.5

Total orders(a)
$
13.8

$
22.2

 
$
33.3

$
42.8

Total organic orders
$
13.9

$
21.3

 
$
33.5

$
41.4

(a) Included $0.8 billion related to BioPharma for the three months ended June 30, 2019, and $1.1 billion and $1.8 billion for the six months ended June 30, 2020 and 2019, respectively.

For the three months ended June 30, 2020, orders decreased $8.5 billion (38%) on a reported basis and decreased $7.4 billion (35%) organically primarily at Aviation, driven by declines in both commercial equipment and service orders due to COVID-19 and the 737 MAX grounding, and at Power due to decreases in equipment orders. Equipment orders were down $3.3 billion (31%) organically and services orders were down $4.1 billion (38%) organically.

For the six months ended June 30, 2020, orders decreased $9.6 billion (22%) on a reported basis and decreased $8.0 billion (19%) organically with declines at Aviation, primarily driven by declines in both commercial equipment and service orders due to COVID-19 and the 737 MAX grounding, at Power, due to decreases in equipment orders, and at Renewable Energy, partially offset by an increase at Healthcare. Equipment orders were down $3.6 billion (18%) organically and services orders were down $4.4 billion (21%) organically. Excluding BioPharma, orders decreased $8.1 billion (20%) organically.

Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services).
GE INDUSTRIAL BACKLOG (In billions)
June 30, 2020

December 31, 2019

June 30, 2019

Equipment
$
73.3

$
79.0

$
79.4

Services
307.3

325.6

295.9

Total backlog(a)
$
380.5

$
404.6

$
375.3

(a) Backlog as of June 30, 2020 excludes the BioPharma business due to its disposition in the first quarter of 2020. Backlog as of December 31, 2019 and June 30, 2019 included $1.2 billion and $1.1 billion, respectively, related to BioPharma.

As of June 30, 2020, backlog decreased $24.0 billion (6%) from December 31, 2019, primarily driven by Aviation due to a reduction in our Commercial Services backlog and cancellations of commercial engine orders, in addition to sales outpacing new orders. The reduction in Commercial Services reflects the cancellation of equipment unit orders, lower anticipated engine utilization, customer fleet restructuring and contract modifications. Power and Renewable Energy decreased due to sales outpacing new orders, and Healthcare decreased with the disposition of the BioPharma business of $1.2 billion. Backlog increased $5.2 billion (1%) from June 30, 2019, due to an increase in services backlog of $11.4 billion (4%), primarily at Aviation, partially offset by Power, and a decrease in equipment backlog of $6.2 billion (8%), primarily at Power, Aviation and Healthcare. Excluding the BioPharma disposition, backlog increased $6.3 billion (2%) from June 30, 2019.

Remaining performance obligation (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. 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 for further information.





*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 5

MD&A
CONSOLIDATED RESULTS
 

June 30, 2020 (In billions)
Equipment

Services

Total

Backlog
$
73.3

$
307.3

$
380.5

Adjustments
(28.8
)
(124.1
)
(152.9
)
Remaining performance obligation
$
44.4

$
183.2

$
227.6


Adjustments to reported backlog of $152.9 billion as of June 30, 2020 are largely driven by adjustments of $142.6 billion in our Aviation segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable; (2) our services backlog includes contracts that are cancelable without substantive 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.

REVENUES
Three months ended June 30
 
Six months ended June 30
(In billions)
2020

2019

 
2020

2019

Consolidated revenues
$
17.7

$
23.4

 
$
38.3

$
45.6

 
 
 
 
 
 
Equipment
8.3

10.3

 
17.5

19.9

Services
7.8

11.1

 
17.4

21.9

GE Industrial revenues
$
16.1

$
21.4

 
$
34.9

$
41.7

 
 
 
 
 
 
GE Capital revenues
$
1.8

$
2.3

 
$
3.8

$
4.5


For the three months ended June 30, 2020, consolidated revenues were down $5.7 billion, driven by decreased GE Industrial revenues of $5.3 billion and decreased GE Capital revenues of $0.5 billion.
GE Industrial revenues decreased $5.3 billion (25%), with decreases in services and equipment. The decrease in services was primarily at Aviation; driven by commercial services due to lower part shipments and decreased shop visits, and Gas Power; due to declines in transactional and upgrades revenues. The decrease in equipment was primarily at Aviation; due to 403 fewer commercial install and spare engine unit shipments, at Healthcare; due to the disposition of the BioPharma business, and within Renewable Energy's Grid and Hydro businesses, partially offset by increases in Gas Power equipment revenues related to an increase in Heavy-Duty gas turbine unit shipments. This decrease included the net effects of dispositions of $0.9 billion and the effects of a stronger U.S. dollar of $0.3 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, GE Industrial organic revenues* decreased $4.2 billion (20%), with a decrease in services revenues of $3.2 billion (29%) and equipment revenues of $0.9 billion (10%).
GE Capital revenues decreased $0.5 billion (20%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, and lower gains, partially offset by mark-to-market effects and impairments as a result of COVID-19 and related market impacts.

For the six months ended June 30, 2020, consolidated revenues were down $7.3 billion, driven by decreased GE Industrial revenues of $6.8 billion and decreased GE Capital revenues of $0.8 billion.
GE Industrial revenues decreased $6.8 billion (16%), with decreases in services and equipment. The decrease in services was primarily at Aviation; driven by commercial services due to lower part shipments and decreased shop visits, as well as Gas Power; due to declines in transactional and upgrades revenues. The decrease in equipment was primarily at Aviation; due to 682 fewer commercial install and spare engine unit shipments, at Healthcare; due to the disposition of the BioPharma business, and within Renewable Energy's Grid and Hydro businesses, partially offset by increases in Gas Power; due to equipment revenues related to an increase in Heavy-Duty gas turbine unit shipments and Renewable Energy's Onshore Wind from higher turbine shipments. This decrease included the net effects of dispositions of $1.3 billion and the effects of a stronger U.S. dollar of $0.4 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, GE Industrial organic revenues* decreased $5.1 billion (13%), with a decrease in services revenues of $4.2 billion (19%) and a decrease in equipment revenues of $1.0 billion (5%). Excluding the BioPharma disposition, GE Industrial organic revenues* decreased $5.2 billion (13%).
GE Capital revenues decreased $0.8 billion (17%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, lower gains and mark-to-market effects and impairments as a result of COVID-19 and related market impacts.
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
Three months ended June 30
 
Six months ended June 30
(In billions; per-share in dollars and diluted)
2020

2019

 
2020

2019

Continuing earnings
$
(2.2
)
$
(0.3
)
 
$
4.1

$
0.6

Continuing earnings per share
$
(0.27
)
$
(0.03
)
 
$
0.46

$
0.07


For the three months ended June 30, 2020, consolidated continuing earnings decreased $1.9 billion due to a decrease in GE Industrial profit of $0.5 billion and a decrease in GE Capital earnings of $1.4 billion.



*Non-GAAP Financial Measure

6 2020 2Q FORM 10-Q

MD&A
CONSOLIDATED RESULTS
 

GE Industrial profit decreased $0.5 billion driven by decreases at our industrial segments and higher goodwill impairments, partially offset by an unrealized gain in the quarter on our investment in Baker Hughes of $1.8 billion and a decrease in Adjusted Corporate operating costs* of $0.3 billion. GE Industrial profit margin was (5.7)%, a decrease of 390 basis points primarily due to the same net decreases as described above. Adjusted GE Industrial profit* was $(0.5) billion, a decrease of $2.0 billion organically*, due to decreases at our industrial segments, primarily in Aviation and Power, partially offset by a decrease in Adjusted Corporate operating costs*. Adjusted GE industrial profit margin* was (3.2)%, a decrease of 1,030 basis points organically*, primarily due to the same net decreases as described above. At Aviation, the primary drivers were lower volume on commercial spare part and commercial spare engine shipments, decreased shop visits and a $0.6 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, and expected future losses related to customer credit risk. At Power, the primary drivers were lower revenues and a charge of approximately $0.1 billion related to an under-performing joint venture (JV), partially offset by improved cost productivity.
GE Capital continuing earnings decreased $1.4 billion primarily due to an impairment of goodwill, mark-to-market effects and other impairments, including on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts, volume declines, debt tender costs and lower gains. Gains were $0.1 billion and $0.2 billion in the second quarters of 2020 and 2019, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in the second quarters of both 2020 and 2019, and the nonrecurrence of a sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.

For the six months ended June 30, 2020, consolidated continuing earnings increased $3.5 billion due to an increase in GE Industrial profit of $5.0 billion and a decrease in GE Capital earnings of $1.6 billion.
GE Industrial profit increased $5.0 billion driven primarily by the gain on the sale of our BioPharma business of $12.3 billion and a decrease in Adjusted Corporate operating costs* of $0.3 billion, partially offset by an unrealized loss on our investment in Baker Hughes of $3.9 billion, decreases at our industrial segments and higher goodwill impairments. GE Industrial profit margin was 16.2%, an increase of 1,450 basis points, primarily due to the same net increases as described above. Adjusted GE Industrial profit* was $0.6 billion, a decrease of 84% organically*, primarily due to decreases at our Aviation, Power and Renewable Energy segments, partially offset by a decrease in Adjusted Corporate operating costs*. Adjusted GE industrial profit margin* was 1.6%, a decrease of 710 basis points organically*, primarily due to the same net decreases as described above. At Aviation, the primary drivers were lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits and a $0.8 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, and expected future losses related to customer credit risk. At Power, the primary drivers were lower revenues and a charge of approximately $0.1 billion related to an under-performing JV, partially offset by improved cost productivity. At Renewable Energy, higher sales at Onshore Wind were more than offset by lower sales volume at Grid and Hydro, and the nonrecurrence of a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts in the first quarter of 2019.
GE Capital continuing earnings decreased $1.6 billion primarily due to an impairment of goodwill, mark-to-market effects and other impairments, including on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts, volume declines, debt tender costs, lower gains and the nonrecurrence of a 2019 tax reform enactment adjustment, partially offset by the tax benefit related to the BioPharma sale and lower excess interest cost. Gains were $0.3 billion and $0.4 billion in the first half of 2020 and 2019, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.2 billion in the first half of both 2020 and 2019, and the nonrecurrence of a sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.

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. During the second quarter of 2019, Boeing announced a temporary reduction in the 737 MAX production rate, and CFM reduced its production rate for the LEAP-1B to meet Boeing's revised aircraft build rate. In December 2019, Boeing announced that it would temporarily suspend production of the 737 MAX beginning in January 2020. Aviation commercial equipment backlog as of June 30, 2020 includes over 10,000 LEAP-1A and 1B engines, including the impact of approximately 1,000 LEAP-1B unit order cancellations since year-end. See the Segment Operations - Aviation section for further information. During 2020, CFM and Boeing reached an agreement to align production rates for 2020 and secure payment terms for engines delivered in 2019 and 2020, net of progress collections. In May 2020, Boeing resumed production of the 737 MAX. CFM and Boeing continue to work closely to ensure a successful reentry into service, with a strong commitment to safety while navigating near term industry disruption.

As of June 30, 2020, GECAS owned 29 of these aircraft, 26 of which are contracted for lease to various airlines that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 78 of these aircraft on order and has made financing commitments to acquire a further 18 aircraft under purchase and leaseback contracts with airlines. During April 2020, GECAS agreed with Boeing to restructure its 737 MAX orderbook including previously canceled positions, resulting in 78 orders now remaining.

As of June 30, 2020, we had approximately $2.8 billion of net assets ($5.0 billion of assets and $2.2 billion of liabilities) related to the 737 MAX program that primarily comprised Aviation accounts receivable offset by progress collections and GECAS pre-delivery payments and owned aircraft subject to lease. No impairment charges were incurred related to the 737 MAX aircraft and related balances, as we continue to believe these assets are fully recoverable. We continue to monitor 737 MAX return to service and return to delivery developments with our airline customers, lessees and Boeing.

LEAP continues to be a strong engine program for us, and we delivered 450 engines for Boeing and Airbus platforms in the first half of 2020 and 3,840 engines since inception.
*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 7

MD&A
SEGMENT OPERATIONS
 

SEGMENT OPERATIONS. Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, for further information regarding our determination of Industrial and Capital segment profit for continuing operations, and for our allocations of corporate costs to our segments.
SUMMARY OF REPORTABLE SEGMENTS
Three months ended June 30
 
Six months ended June 30
 
(In millions)
2020

2019

V%

 
 
2020

2019

V%

 
Power
$
4,156

$
4,681

(11
)
%
 
$
8,181

$
9,298

(12
)
%
Renewable Energy
3,505

3,627

(3
)
%
 
6,698

6,165

9

%
Aviation
4,384

7,877

(44
)
%
 
11,276

15,831

(29
)
%
Healthcare
3,893

4,934

(21
)
%
 
8,620

9,616

(10
)
%
Capital
1,845

2,321

(21
)
%
 
3,768

4,548

(17
)
%
Total segment revenues
17,783

23,439

(24
)
%
 
38,544

45,458

(15
)
%
Corporate items and eliminations
(33
)
(25
)
(32
)
%
 
(271
)
158

U

 
Consolidated revenues
$
17,750

$
23,414

(24
)
%
 
$
38,273

$
45,616

(16
)
%





 
 
 
 
 
 
Power
$
(40
)
$
117

U

 
 
$
(168
)
$
228

U

 
Renewable Energy
(195
)
(184
)
(6
)
%
 
(498
)
(371
)
(34
)
%
Aviation
(680
)
1,385

U

 
 
325

3,046

(89
)
%
Healthcare
550

958

(43
)
%
 
1,446

1,740

(17
)
%
Capital
(1,476
)
(89
)
U

 
 
(1,506
)
46

U

 
Total segment profit (loss)
(1,842
)
2,188

U

 
 
(401
)
4,688

U

 
Corporate items and eliminations
1,459

(976
)
F

 
 
7,523

(1,205
)
F

 
GE goodwill impairments
(877
)
(744
)
(18
)
%
 
(877
)
(744
)
(18
)
%
GE interest and other financial charges
(396
)
(382
)
(4
)
%
 
(766
)
(902
)
15

%
GE non-operating benefit costs
(596
)
(558
)
(7
)
%
 
(1,212
)
(1,122
)
(8
)
%
GE benefit (provision) for income taxes
66

170

(61
)
%
 
(121
)
(97
)
(25
)
%
Earnings (loss) from continuing operations attributable to GE common shareholders
(2,186
)
(302
)
U

 
 
4,146

618

F

 
Earnings (loss) from discontinued operations, net of taxes
7

219

(97
)
%
 
(171
)
2,881

U

 
Less net earnings attributable to noncontrolling interests, discontinued operations

(23
)
F

 
 
(2
)
11

U

 
Earnings (loss) from discontinued operations, net of tax and noncontrolling interest
7

241

(97
)
%
 
(168
)
2,870

U

 
Consolidated net earnings (loss) attributable to the GE common shareholders
$
(2,179
)
$
(61
)
U

 
 
$
3,977

$
3,488

14

%


POWER. We continue to monitor the impacts of COVID-19 on near-term demand and the impact it is having on our operations, including the supply chain and our ability to service our installed base. Global electricity demand declined in the second quarter, however, both gas-based electricity generation and GE gas turbine utilization remained stable. As a result, our long-term service agreement billings increased compared with the prior year. Our ability to close transactions has been impacted by constrained customer budgets and access to financing due to oil prices and economic slowdown, especially in Gas Power. We are seeing the impact on our suppliers and within our supply chain, which has resulted in delays in parts and equipment output. In addition, the servicing of our customers' assets has been delayed due to travel and country restrictions. Although there may be market challenges in the near term, we believe the long-term outlook for the role of gas in the power market has not materially changed.

Power is continuing to right size its business to better align with market demand and driving its businesses with an operational rigor and discipline that is focused on its customers’ lifecycle experience. We continue to partner with our customers, working through field service travel disruptions to effectively service their fleets to maintain operability. As a result of expected volume declines from COVID-19 in the near term, we have taken several measures to offset these pressures. In addition, we executed on a hiring freeze, accelerated planned employee reductions where possible, and are initiating meaningful incremental headcount reduction plans in line with the demand profile.

Looking ahead, we anticipate the power market to continue to be impacted by overcapacity in the industry, increased 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 and the ongoing impact of COVID-19. Market factors such as increasing energy efficiency and renewable energy penetration continue to impact long-term demand.

While we navigate the near-term impacts of the COVID-19 pandemic, we will continue to invest in new product development, such as our HA-Turbines, and upgrades as these are critical to our customers and the long-term strategy of the business. Our fundamentals remain strong with approximately $80 billion in backlog and a gas turbine installed base greater than 7,000 units, including approximately 1,800 units under long-term service agreements.

8 2020 2Q FORM 10-Q

MD&A
SEGMENT OPERATIONS
 

 
Three months ended June 30
 
Six months ended June 30
 
Orders
 
Sales
 
Orders
 
Sales
(In units)
2020

2019

 
2020

2019

 
2020

2019

 
2020

2019

GE Gas Turbines
6

20

 
25

11

 
15

35

 
32

20

Heavy-Duty Gas Turbines(a)
2

16

 
15

4

 
8

27

 
20

11

HA-Turbines(b)

7

 
5


 
2

10

 
9

1

Aeroderivatives(a)
4

4

 
10

7

 
7

8

 
12

9

GE Gas Turbine Gigawatts(c)
0.4

4.6

 
 
 
 
2.6

6.7

 
 
 
(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.
(Dollars in billions)
June 30, 2020

December 31, 2019

June 30, 2019

Equipment
$
17.1

$
17.7

$
19.6

Services
63.0

67.6

67.1

Total backlog
$
80.2

$
85.3

$
86.7

 
Three months ended June 30
 
 
Six months ended June 30
 
2020

 
2019

 
 
2020

 
2019

 
Equipment
$
0.3

 
$
2.1

 
 
$
1.8

 
$
3.1

 
Services
2.5

 
2.8

 
 
5.1

 
5.5

 
Total orders
$
2.9

 
$
4.9

 
 
$
7.0

 
$
8.6

 
 
 
 
 
 
 
 
 
 
 
Gas Power
$
3.1

 
$
3.2

 
 
$
5.9

 
$
6.5

 
Power Portfolio
1.1

 
1.4

 
 
2.2

 
2.8

 
Total segment revenues
$
4.2

 
$
4.7

 
 
$
8.2

 
$
9.3

 
 
 
 
 
 
 
 
 
 
 
Equipment
$
1.5

 
$
1.5

 
 
$
3.0

 
$
3.0

 
Services
2.7

 
3.2

 
 
5.2

 
6.3

 
Total segment revenues
$
4.2

 
$
4.7

 
 
$
8.2

 
$
9.3

 
 
 
 
 
 
 
 
 
 
 
Segment profit (loss)
$

 
$
0.1

 
 
$
(0.2
)
 
$
0.2

 
Segment profit margin
(1.0
)
%
2.5

%
 
(2.1
)
%
2.5

%

For the three months ended June 30, 2020, segment orders were down $2.0 billion (42%), segment revenues were down $0.5 billion (11%) and segment profit was down $0.2 billion.
Orders decreased $2.0 billion (41%) organically, primarily due to decreases in Gas Power Heavy-Duty Gas Turbine unit and services orders and Steam equipment orders.
Revenues decreased $0.4 billion (9%) organically*, primarily due to decreases in Gas Power services revenues primarily related to delays in planned outages and transactional part sales and upgrades, partially offset by increases in Gas Power equipment revenues related to 11 more Heavy-Duty gas turbine unit shipments. Steam equipment and service revenues also decreased.
Profit decreased $0.2 billion organically* due to lower revenues, a charge of approximately $0.1 billion related to an under-performing JV in China at Gas Power and a quality reserve in Power Portfolio on the legacy product line that we have since exited in Power Conversion, partially offset by improved cost productivity driven by continued efforts to right size the business.

For the six months ended June 30, 2020, segment orders were down $1.6 billion (19%), segment revenues were down $1.1 billion (12%) and segment profit was down $0.4 billion.
Backlog as of June 30, 2020 decreased $5.1 billion (6%) and $6.5 billion (8%) from December 31, 2019 and June 30, 2019, respectively, primarily driven by sales outpacing new orders.
Orders decreased $1.5 billion (18%) organically, primarily due to decreases in Gas Power Heavy-Duty Gas Turbine unit and services orders and Steam equipment orders.
Revenues decreased $1.0 billion (10%) organically*, primarily due to decreases in Gas Power services revenues primarily related to delays in planned outages and transactional part sales and upgrades, partially offset by increases in Gas Power equipment revenues related to 9 more Heavy-Duty gas turbine unit shipments. Steam equipment and service revenues also decreased.
Profit decreased $0.4 billion organically* due to lower revenues, a charge of approximately $0.1 billion related to an under-performing JV in China at Gas Power and a quality reserve in Power Portfolio on the legacy product line that we have since exited in Power Conversion, partially offset by improved cost productivity driven by continued efforts to right size the business.





*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 9

MD&A
SEGMENT OPERATIONS
 

RENEWABLE ENERGY. During the second quarter of 2020, as a result of the COVID-19 pandemic, many of our global manufacturing locations were temporarily closed or production reduced, and delays were observed across our long-term project sites. Accordingly, equipment revenues across the segment and most notably at our Grid and Hydro businesses were negatively impacted. Due to the importance of business continuity and the needs of our customers, we were able to continue maintaining customer assets. With the exception of certain operations in Brazil, all our manufacturing locations have since reopened and are returning to pre-COVID-19 capacity levels. While we do not believe the long-term outlook for renewable energy products and services has materially changed, we are monitoring the impact of the pandemic on the renewable energy industry, including electricity consumption forecasts and customer capital expenditure levels, supply chain, availability of financing and our ability to execute on equipment and long-term projects, including the impact of possible customer related delays. In response to volume declines, we implemented additional cost reduction measures, restructuring and cash preservation actions.

We continue to observe growth across the global onshore wind market together with a positive impact in the U.S. 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 has stabilized globally. In the U.S., in response to COVID-19 related risks to project completion timing, the recent one-year extension of the phase-down further extended the deadline for projects expecting to complete in 2020 and 2021 by one year. Under the current legislation, the PTC phase-down concludes in 2024. We expect to continue high levels of production for 2020 deliveries at Onshore Wind and are closely monitoring our execution during this period including risks of possible project postponements, supply chain and project fulfillment disruptions due to COVID-19 or otherwise.

The grid market remains challenging as we continue to experience pricing pressure in the High Voltage Direct Current (HVDC) and High Voltage (HV) product lines. While we have experienced order declines in both these product lines, in July 2020, we announced Grid Solutions equipment and services (Grid) has been awarded HVDC scope for a 1.4GW offshore wind project in the United Kingdom. Both the Grid and Hydro businesses are executing their turnaround plans.

New product introductions remain important to our onshore and offshore customers who are demonstrating the willingness to adopt the new technology of larger turbines that decrease the levelized cost of energy. We continue to focus on cost reduction initiatives of our products, in-sourcing blade production and developing larger, more efficient turbines like the Haliade-X (Offshore Wind) and Cypress (Onshore Wind), for which we have observed significant market interest. We are preparing for large scale production of Haliade-X and expect it to receive final certification in the second half of 2020.
 
 
Three months ended June 30
 
Six months ended June 30
 
 
Orders
 
Sales
 
Orders
 
Sales
(In units)
 
2020

2019

 
2020

2019

 
2020

2019

 
2020

2019

Onshore
Wind Turbines
645

984

 
830

804

 
1,383

1,954

 
1,561

1,157

 
Wind Turbine Megawatts
2,167

2,670

 
2,311

2,257

 
4,500

5,334

 
4,404

3,245

 
Repower
118

494

 
357

221

 
124

594

 
576

377

(Dollars in billions)
June 30, 2020

December 31, 2019

June 30, 2019

Equipment
$
15.5

$
16.3

$
15.3

Services
10.4

11.2

10.4

Total backlog
$
25.9

$
27.5

$
25.7

 
Three months ended June 30
 
 
Six months ended June 30
 
 
2020

 
2019

 
 
2020

 
2019

 
Equipment
$
2.5

 
$
2.9

 
 
$
5.1

 
$
5.9

 
Services
0.5

 
0.8

 
 
0.9

 
1.3

 
Total orders
$
3.0

 
$
3.7

 
 
$
6.1

 
$
7.2

 
 
 
 
 
 
 
 
 
 
 
Onshore Wind
$
2.5

 
$
2.4

 
 
$
4.6

 
$
3.9

 
Grid Solutions equipment and services
0.8

 
0.9

 
 
1.7

 
1.9

 
Hydro, Offshore Wind and other
0.2

 
0.2

 
 
0.4

 
0.4

 
Total segment revenues
$
3.5

 
$
3.6

 
 
$
6.7

 
$
6.2

 
 
 
 
 
 
 
 
 
 
 
Equipment
$
2.7

 
$
2.9

 
 
$
5.3

 
$
4.8

 
Services
0.8

 
0.8

 
 
1.4

 
1.3

 
Total segment revenues
$
3.5

 
$
3.6

 
 
$
6.7

 
$
6.2

 
 
 
 
 
 
 
 
 
 
 
Segment profit (loss)
$
(0.2
)
 
$
(0.2
)
 
 
$
(0.5
)
 
$
(0.4
)
 
Segment profit margin
(5.6
)
%
(5.1
)
%
 
(7.4
)
%
(6.0
)
%







10 2020 2Q FORM 10-Q

MD&A
SEGMENT OPERATIONS
 

For the three months ended June 30, 2020, segment orders were down $0.7 billion (19%), segment revenues were down $0.1 billion (3%) and segment profit was flat.
Orders decreased $0.6 billion (17%) organically, at Onshore Wind and Grid, partially offset by $0.1 billion higher orders at Hydro. The decline in equipment orders and repower units, included within services, was primarily a result of delays arising from COVID-19.
Revenues increased 1% organically*, with higher revenue from 26 more wind turbine shipments, or 2% more megawatts shipped, and 136 more repower units than in the prior year at Onshore Wind, offset by lower revenue at Hydro and Grid, primarily related to COVID-19 fulfillment delays and execution challenges.
Profit decreased 15% organically*, as the negative impact of supply chain and project fulfillment disruptions at Grid and Hydro and quality-related costs were partially offset by equipment pricing at Onshore Wind and lower project execution losses.

For the six months ended June 30, 2020, segment orders were down $1.1 billion (16%), segment revenues were up $0.5 billion (9%) and segment profit was down $0.1 billion (34%).
Backlog as of June 30, 2020 decreased $1.6 billion (6%) from December 31, 2019 mainly driven by Onshore Wind in North America given the phase down of the U.S. PTC cycle, foreign currency translation and lower orders at Grid and Hydro. Backlog increased $0.2 billion (1%) from June 30, 2019 driven by $1.0 billion higher services backlog associated with a larger Onshore Wind installed equipment base and higher equipment backlog at Onshore and Offshore Wind, partially offset by $0.8 billion lower services backlog from Repower units given the phase down of the U.S. PTC cycle, foreign currency translation and lower orders at Grid and Hydro.
Orders decreased $1.0 billion (14%) organically, primarily due to lower Onshore Wind turbine and repower unit orders, primarily from the U.S. PTC cycle compared to the prior year and the nonrecurrence of a large Grid Automated Control Systems (ACS) order, partially offset by $0.1 billion higher orders at Hydro.
Revenues increased $0.7 billion (12%) organically*, primarily from 404 more wind turbine shipments on a unit basis, or 36% more megawatts shipped, and 199 more repower units than in the prior year at Onshore Wind, partially offset by lower Hydro and Grid revenues, primarily due to COVID-19 fulfillment delays and execution challenges.
Profit decreased $0.1 billion (40%) organically*, as the impact of higher sales volume at Onshore Wind was more than offset by lower sales volume at Grid and Hydro due to supply chain and project fulfillment disruptions, and the nonrecurrence of a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts in the first quarter of 2019.

AVIATION. The global COVID-19 pandemic continues to have a material adverse effect on the global airline industry. A key underlying driver of Aviation’s commercial engine and services businesses is global commercial air traffic, which in turn is driven by economic activity and consumer and business propensity to travel. The pandemic evolved rapidly in March 2020, and resulted in government travel restrictions, public health advisories, and related declines in economic activity. These factors caused a significant decline in commercial aircraft departures, which is a leading indicator for billings and revenue generating shop visits. In April, aircraft departures reduced to approximately 76% below a pre-COVID-19 baseline. As a result, airlines grounded their fleets and, in many cases, temporarily ceased passenger operations. Due to the global airline industry contraction, Aviation’s airline and airframe customers are taking measures to address reduced demand, which, in turn, is having a material adverse impact on Aviation’s business operations and financial performance. Aviation is closely monitoring government actions and economic and industry forecasts, although such forecasts continue to evolve and reflect the uncertainty about the severity and duration of the decline in commercial air traffic. Aviation continues to track global departures, which as of June 30, 2020, were approximately 60% below the pre-COVID-19 baseline and have since improved to approximately 43% below in July 2020. More broadly, we are in frequent dialogue with our airline and airframe customers about the outlook for commercial air travel, new aircraft production, and after-market services. Given the current trend, we expect domestic travel routes primarily served by narrowbody aircraft to recover before international travel routes which are primarily served by widebody aircraft. However, Aviation estimates the duration of the market recovery to be prolonged over multiple years dependent on various factors, including travelers' safety concerns, containment of COVID-19, medical treatment progress, and economic conditions.

Aviation has and is continuing to take several business actions to respond to the current adverse environment, which is estimated to result in more than $1 billion in cost savings and $2 billion in cash preservation actions in 2020. We continue to partner with our airline and leasing customers and are working closely with our airframe customers to align production rates for 2020 and beyond. During the first half of 2020, Aviation took several measures including a hiring freeze, cancellation of salaried merit increases, and a reduction of all non-safety related discretionary spending, including capital expenditures and engineering and development efforts. Aviation also announced a plan for permanent reductions of approximately 25% of its total global employee workforce. During the second quarter of 2020, in addition to the planned permanent reductions, Aviation implemented a 90-day temporary furlough impacting approximately 50% of its U.S. maintenance, repair and overhaul employees and a four-week temporary furlough impacting its U.S. assembly operations and component manufacturing shops.











*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 11

MD&A
SEGMENT OPERATIONS
 

Aviation’s operational and financial performance is impacted by demand for commercial air traffic, oil prices, fleet retirements, and demand for new aircraft. We monitor and forecast each of these factors as part of Aviation’s long-term planning process, which may result in additional business restructuring actions. Given the uncertainty related to the severity and length of the global COVID-19 pandemic and the impact on these factors across the aviation sector, Aviation could be required to record additional charges, impairments, or other adverse financial impacts in future periods if actual results differ significantly from Aviation's current estimates. In the second quarter of 2020, we recognized a non-cash pre-tax impairment charge of $0.9 billion related to goodwill at our Additive reporting unit within our Aviation segment that was recorded within earnings from continuing operations at Corporate.

As it relates to the military environment, Aviation continues to forecast strong military demand creating future growth opportunities for our Military business as the U.S. Department of Defense and foreign governments have continued flight operations, and have allocated budgets to upgrade and modernize their existing fleets.

Total engineering, comprised both company and customer funded spending, decreased compared to prior year in line with the changes in the commercial environment. Company-funded research and development spend decreased compared to the first half of 2019, and we expect the reduction to continue in line with the actions outlined above. However, customer-funded engineering efforts, primarily in our Military business, continued to increase.

Aviation is taking actions to protect its ability to serve its customers now and as the global airline industry recovers. While its near-term focus remains on navigating the COVID-19 pandemic, Aviation’s deep history of innovation and technology leadership, commercial engine installed base of approximately 38,000 units, military engine installed base of approximately 27,000 units, with approximately 12,000 units under long-term service agreements, and $258 billion backlog represents strong long-term fundamentals. Aviation is taking actions to strengthen its business and seeks to emerge from this crisis stronger and drive long-term cash and profitable growth over time.
 
Three months ended June 30
 
Six months ended June 30
 
Orders
 
Sales
 
Orders
 
Sales
(In units, except where noted)
2020

2019

 
2020

2019

 
2020

2019

 
2020

2019

Commercial Engines
58

899

 
320

723

 
203

1,698

 
792

1,474

LEAP Engines(a)
24

693

 
178

437

 
30

1,329

 
450

861

Military Engines
463

53

 
204

143

 
735

79

 
350

304

Spare Parts Rate(b)
 
 
 
$
13.1

$
27.0

 
 
 
 
$
20.0

$
28.5

(a) LEAP engines are subsets of commercial engines.
(b) Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day.
(Dollars in billions)
June 30, 2020

December 31, 2019

June 30, 2019

Equipment
$
36.7

$
39.1

$
38.2

Services
221.6

234.1

205.7

Total backlog
$
258.3

$
273.2

$
243.9

 
Three months ended June 30
 
 
Six months ended June 30
 
 
2020

 
2019

 
 
2020

 
2019

 
Equipment
$
2.0

 
$
3.5

 
 
$
4.3

 
$
6.7

 
Services
1.7

 
5.1

 
 
6.9

 
10.6

 
Total orders
$
3.7

 
$
8.6

 
 
$
11.2

 
$
17.3

 
 
 
 
 
 
 
 
 
 
 
Commercial Engines & Services
$
2.2

 
$
5.8

 
 
$
7.0

 
$
11.8

 
Military
1.2

 
1.0

 
 
2.1

 
2.0

 
Systems & Other
1.0

 
1.1

 
 
2.1

 
2.0

 
Total segment revenues
$
4.4

 
$
7.9

 
 
$
11.3

 
$
15.8

 
 
 
 
 
 
 
 
 
 
 
Equipment
$
2.0

 
$
3.0

 
 
$
4.5

 
$
6.1

 
Services
2.4

 
4.8

 
 
6.8

 
9.7

 
Total segment revenues
$
4.4

 
$
7.9

 
 
$
11.3

 
$
15.8

 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
(0.7
)
 
$
1.4

 
 
$
0.3

 
$
3.0

 
Segment profit margin
(15.5
)
%
17.6

%
 
2.9

%
19.2

%

For the three months ended June 30, 2020, segment orders were down $4.8 billion (56%), segment revenues were down $3.5 billion (44%) and segment profit was down $2.1 billion (149%).
Orders decreased $4.8 billion (56%) organically, primarily driven by declines of more than 80% in both commercial equipment and service orders as airline customers have slowed or deferred new engine orders, as well as delayed maintenance and repair operations while existing fleets have been grounded. Military orders increased 60% compared to the prior year primarily driven by equipment and new development orders.

12 2020 2Q FORM 10-Q

MD&A
SEGMENT OPERATIONS
 

Revenues decreased $3.4 billion (44%) organically*. Equipment revenues decreased primarily due to 403 fewer commercial install and spare engine unit shipments, including 259 fewer LEAP units and 74 fewer CFM56 units versus the prior year, in part due to the 737 MAX grounding and production slowdown. Commercial Services revenues decreased primarily due to lower commercial spare part shipments, decreased shop visits and the cumulative impact of changes in billing and cost assumptions in our long-term service agreements. Military revenues increased primarily due to higher volume of engine shipments and increased revenues on development contracts.
Profit decreased $2.1 billion organically*, primarily due to lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits in our service agreements. During the three months ended June 30, 2020, Aviation recorded expenses of $0.2 billion due to lower production volumes given decreases in demand primarily related to commercial engines. Aviation also recorded pre-tax charges totaling $0.2 billion due to expected future losses related primarily to customer credit risk given the current environment. In addition, Aviation recorded a $0.4 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, reflecting lower engine utilization, anticipated customer fleet restructuring and contract modifications. Additional adjustments could occur in future periods and could be material for certain long-term service agreements if actual customer operating behavior differs significantly from Aviation’s current estimates.

For the six months ended June 30, 2020, segment orders were down $6.1 billion (35%), segment revenues were down $4.6 billion (29%) and segment profit was down $2.7 billion (89%).
Backlog as of June 30, 2020 decreased $14.9 billion (5%) from December 31, 2019, primarily due to a reduction in our Commercial Services backlog and cancellations of commercial equipment orders, in addition to sales outpacing new orders. Commercial equipment cancellations included approximately 1,000 LEAP-1B unit order cancellations and 22 GE9X unit order cancellations since year-end. The reduction to Commercial Services backlog reflects the partial cancellation of long-term service agreements related to the equipment unit order cancellations, estimates of lower engine utilization, and anticipated customer fleet restructuring and contract modifications. In addition to cancellations removed from backlog during 2020, there were several public customer announcements that indicate an intent to cancel, however, customer purchase orders with Aviation or the airframer have not been canceled as of June 30, 2020. Based on information currently available, the value of the announced but not canceled orders is less than $2 billion of total backlog. Backlog adjustments could be necessary in future periods for additional cancellations of new commercial engine orders, fleet retirements, or changes to customer aircraft utilization and operating behavior. Backlog increased $14.4 billion (6%) from June 30, 2019, primarily due to an increase in long-term service agreements, offset by decreases in commercial equipment orders.
Orders decreased $5.9 billion (34%) organically, primarily driven by lower commercial equipment and service orders as airline customers have slowed or deferred new engine orders, as well as delayed maintenance and repair operations while existing fleets have been grounded. Military orders increased 60% compared to the prior year primarily driven by equipment and new development orders, including a significant order from the U.S. Department of Navy’s Naval Air Systems Command (NAVAIR) for F414 engines in the first quarter of 2020.
Revenues decreased $4.3 billion (28%) organically*. Equipment revenues decreased, primarily due to 682 fewer commercial install and spare engine unit shipments, including 411 fewer LEAP units and 172 fewer CFM56 units versus the prior year, in part due to the 737 MAX grounding and production slowdown. Commercial Services revenues decreased, primarily due to lower commercial spare part shipments, decreased shop visits and the cumulative impact of changes in billing and cost assumptions in our long-term service agreements. Military revenues increased primarily due to higher volume of engine shipments and increased revenues on development contracts.
Profit decreased $2.7 billion (89%) organically*, primarily due to lower volume on commercial spare part and commercial spare engine shipments, and decreased shop visits in our service agreements. During the six months ended June 30, 2020, Aviation recorded expenses of $0.3 billion due to lower production volumes and initiated restructuring actions given decreases in demand primarily related to commercial engines. Aviation also recorded pre-tax charges totaling $0.3 billion due to expected future losses related primarily to customer credit risk given the current environment. In addition, Aviation recorded a $0.5 billion pre-tax charge to reflect the cumulative impacts of changes to billing and cost assumptions for certain long-term service agreements, reflecting lower engine utilization, anticipated customer fleet restructuring and contract modifications. Additional adjustments could occur in future periods and could be material for certain long-term service agreements if actual customer operating behavior differs significantly from Aviation's current estimates.

















*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 13

MD&A
SEGMENT OPERATIONS
 

HEALTHCARE. During the first half of 2020, there was an increase in demand for certain of our products that are highly correlated to the response to the COVID-19 pandemic, including ventilators, monitoring solutions, x-ray, anesthesia and point-of-care ultrasound product lines. However, we also saw reduction in demand and delays in procurement in other products and services that were not critical to the response efforts or where procedures could be postponed (magnetic resonance, contrast agents and nuclear tracers). The pandemic is driving uncertainty in our markets globally, as well as additional supply chain and logistics costs, and we expect this to continue. In response to expected near term volatility and cost pressures, we have initiated additional cost reduction, restructuring and cash preservation actions.

The global healthcare market has continued to expand, driven by macro trends relating to growing and aging populations, increasing chronic and lifestyle-related diseases, accelerating demand for healthcare in emerging markets, and increasing use of diagnostic imaging. Technological innovation that makes it possible to address an increasing number of diseases, conditions and patients in a more cost-effective manner has also driven growth across each of our global markets.

The Healthcare Systems (HCS) equipment market over the long term continues to expand at low single-digit rates or better, 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, environmental 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 impact of tariffs on certain types of medical equipment and components that we import from China resulted in increased product costs. We continue to take mitigating actions including moving our sourcing and manufacturing for these parts outside of China. There has been some moderation in tariffs in both U.S. and China, however, this is subject to changes in U.S.-China trade relations.

The Pharmaceutical Diagnostics (PDX) business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow over the long-term, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhanced biomarkers of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians. However, in the short-term the reduction in procedures not related to COVID-19 has temporarily reduced demand.

We continue focusing on creating new products and digital solutions as well as expanding uses of existing offerings that are tailored to the different needs of our global customers. In March 2020, we launched two new real-time applications in our Command Center software platform. The Infectious Disease Tile helps hospitals manage COVID-19 patient outcomes and staff safety. The Critical Resource Tile helps manage Intensive Care Units (ICUs), non-ICU beds and ventilators to help ensure resources are best deployed to meet patient needs. In addition, GE partnered with Microsoft to deploy its Mural Virtual Care Solution, which helps centrally manage the status of multiple ICU patients that have COVID-19. We also introduced Air Recon DL, the industry's first FDA 510(k)-cleared deep learning-based MR image reconstruction technology offering shorter scans and better image quality.
(Dollars in billions)
June 30, 2020

December 31, 2019

June 30, 2019

Equipment
$
6.1

$
7.0

$
6.7

Services
11.1

11.5

11.5

Total backlog(a)
$
17.2

$
18.5

$
18.2

 
Three months ended June 30
 
Six months ended June 30
 
2020

 
2019

 
 
2020

 
2019

 
Equipment
$
2.4

 
$
3.2

 
 
$
5.8

 
$
6.1

 
Services
1.8

 
2.0

 
 
3.8

 
4.0

 
Total orders(a)
$
4.2

 
$
5.2

 
 
$
9.5

 
$
10.1

 
 
 
 
 
 
 
 
 
 
 
Healthcare Systems
$
3.5

 
$
3.6

 
 
$
7.0

 
$
7.0

 
Pharmaceutical Diagnostics
0.4


0.5

 
 
0.8


1.0

 
BioPharma


0.8

 
 
0.8


1.6

 
Total segment revenues
$
3.9

 
$
4.9

 
 
$
8.6

 
$
9.6

 
 
 
 
 
 
 
 
 
 
 
Equipment
$
2.0

 
$
2.8

 
 
$
4.7

 
$
5.5

 
Services
1.8

 
2.1

 
 
3.9

 
4.1

 
Total segment revenues
$
3.9

 
$
4.9

 
 
$
8.6

 
$
9.6

 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
0.5

 
$
1.0

 
 
$
1.4

 
$
1.7

 
Segment profit margin
14.1

%
19.4

%
 
16.8

%
18.1

%
 
 
 
 
 
 
 
 
 
 
(a) Backlog as of June 30, 2020 excluded the BioPharma business due to its disposition in the first quarter of 2020. Backlog as of December 31, 2019 and June 30, 2019 included $1.2 billion and $1.1 billion, respectively, related to BioPharma. Orders included $0.8 billion related to BioPharma for the three months ended June 30, 2019, and included $1.1 billion and $1.8 billion related to BioPharma for the six months ended June 30, 2020 and 2019, respectively.





14 2020 2Q FORM 10-Q

MD&A
SEGMENT OPERATIONS
 

For the three months ended June 30, 2020, segment orders were down $1.0 billion (18%), segment revenues were down $1.0 billion (21%) and segment profit was down $0.4 billion (43%).
Orders were down 1% organically, driven by decreases in PDX, partially offset by HCS up 3% due to increases in demand, including a $0.3 billion order from the U.S. Department of Health and Human Services (HHS) to deliver 50,000 ventilators in partnership with Ford.
Revenues decreased $0.1 billion (4%) organically*, primarily driven by reduced volume in PDX from a decrease in non-essential routine procedures.
Profit was down 4% organically*, primarily due to decreases in PDX volume, partially offset by increases in HCS and cost reductions.

For the six months ended June 30, 2020, segment orders were down $0.6 billion (6%), segment revenues were down $1.0 billion (10%) and segment profit was down $0.3 billion (17%).
Backlog as of June 30, 2020 decreased $1.2 billion (7%) from December 31, 2019 and decreased $1.0 billion (5%) from June 30, 2019 primarily due to the BioPharma disposition. Excluding Biopharma, backlog increased $0.1 billion (1%) from June 30, 2019.
Orders increased $0.4 billion (4%) organically, driven by HCS up 5% due to increases in demand, including a $0.3 billion order from the HHS to deliver 50,000 ventilators in partnership with Ford, and BioPharma, partially offset by PDX. Excluding BioPharma, orders increased $0.2 billion (3%) organically.
Revenues were flat organically*, driven by increased demand in HCS products used directly in response to COVID-19 and BioPharma, offset by reduced volume in PDX from a decrease in non-essential routine procedures. Excluding BioPharma, revenues decreased $0.1 billion (1%) organically*.
Profit increased $0.1 billion (4%) organically*, primarily due to increases in HCS and BioPharma, and cost reductions offset by decreases in PDX volume. Excluding BioPharma, profits decreased (1%) organically*.

CAPITAL. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could result in material financial charges depending on the timing, negotiated terms and conditions of any ultimate arrangements.

At GE Capital, the primary effect of the COVID-19 pandemic pertains to its GECAS business. The pandemic has led to worldwide reduction of flight schedules and it is difficult to predict its longer-term impact. In the second quarter of 2020, the estimated fair value of the GECAS reporting unit declined below book value, reflecting downward revisions to internal forecasts and decreases in market multiples. As a result, we recorded a goodwill impairment of $0.8 billion. Of the $0.8 billion of GECAS goodwill, $0.7 billion arose from the acquisition of Milestone Aviation, our helicopter leasing business, in 2015. Additionally, the related market volatility resulted in higher credit spreads on the investment securities held by our run-off insurance business, which resulted in marks and impairments taken in the first quarter, which partially recovered in the second quarter of 2020.

As of June 30, 2020, GECAS owned 965 fixed-wing aircraft, of which 17 with a book value of $0.4 billion were available to lease to customers (aircraft on the ground). We test recoverability of each fixed-wing aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when assets are re-leased or current lease terms have changed.

We will perform our detailed annual portfolio review in the third quarter of 2020, which will incorporate third party appraisal data, updates to all cash flow assumptions as well as evolving market or customer dynamics that we are monitoring. Given the environment, we accelerated our review in the second quarter to focus on leases with higher risk of repossession based on our assessment of customer credit risk default and any unplaced leased assets rolling-off over the next 12 months, which represented approximately 20% of our fixed-wing aircraft operating lease portfolio. This analysis resulted in a pre-tax impairment of $0.3 billion during both the three and six months ended June 30, 2020, on our fixed-wing aircraft operating lease portfolio. Pre-tax impairments were insignificant for the three and six months ended June 30, 2019. The increase in pre-tax impairments was driven by declining cash flow projections of the future collectability of rents on aircraft and engines currently under contract related to market impacts resulting from the pandemic. We will analyze the remaining portfolio as part of our annual third quarter impairment review process. Continued deterioration in cash flow projections, including current rents, downtime, release rates and residual assumptions could result in future impairments in the operating lease portfolio.

Based on the resulting pressure on its airline customers, GECAS continues to see elevated deferral requests. As of June 30, 2020, we have received deferral requests (primarily short term in nature) from approximately 80% of our airline customers operating in approximately 64 countries, and have granted approximately 60% of requests. We expect to continue to receive requests for rent deferrals and/or lease restructures from our global airline customers as a result of COVID-19 and related market impacts. An extended disruption of regional or international travel could result in an increase in these types of requests in future periods, which could result in an increase to the trade receivable balance. As GECAS evaluates future lease restructures, there is a risk of lease modifications that could have a material adverse effect on GECAS operations, financial position and cash flows.







*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 15

MD&A
SEGMENT OPERATIONS
 

(Dollars in billions)
June 30, 2020

December 31, 2019

GECAS
$
36.0

$
38.0

Energy Financial Services (EFS)
1.8

1.8

Working Capital Solutions (WCS)(a)
6.8

9.0

Insurance
49.6

46.3

Other continuing operations(a)
20.2

22.5

Total segment assets
$
114.5

$
117.5

 
 
 
GE Capital debt to equity ratio
4.2:1

3.9:1

(a) In the first quarter of 2020 the remaining Industrial Finance assets of $0.3 billion were transferred to Other continuing operations.
 
Three months ended June 30
 
Six months ended June 30
(In billions)
2020

2019

 
2020

2019

GECAS
$
1.0

$
1.2

 
$
2.1

$
2.5

EFS

0.1

 
0.1

0.1

WCS
0.1

0.2

 
0.2

0.5

Insurance
0.8

0.7

 
1.4

1.4

Other continuing operations


 


Total segment revenues
$
1.8

$
2.3

 
$
3.8

$
4.5

 
 
 
 
 
 
GECAS
$
(1.0
)
$
0.3

 
$
(0.9
)
$
0.6

EFS
(0.1
)
0.1

 

0.1

WCS

0.1

 

0.1

Insurance
0.1


 


Other continuing operations(a)
(0.5
)
(0.5
)
 
(0.7
)
(0.8
)
Total segment profit
$
(1.5
)
$
(0.1
)
 
$
(1.5
)
$

(a) Other continuing operations primarily comprised 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. Substantially all preferred stock dividend costs will become a GE obligation in January 2021. See Note 15 for further information. In addition, we anticipate unallocated interest costs to gradually decline as debt matures and/or is refinanced.

For the three months ended June 30, 2020, segment revenues decreased $0.5 billion (20%) and segment earnings were down $1.4 billion.
Capital revenues decreased $0.5 billion (20%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, and lower gains, partially offset by mark-to-market effects and impairments as a result of COVID-19 and related market impacts. Capital earnings decreased $1.4 billion, primarily due to an impairment of goodwill, mark-to-market effects and other impairments, including on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts, volume declines, debt tender costs and lower gains. Gains were $0.1 billion and $0.2 billion in the second quarters of 2020 and 2019, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in the second quarters of both 2020 and 2019, and the nonrecurrence of a sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.

For the six months ended June 30, 2020, segment revenues decreased $0.8 billion (17%) and segment earnings were down $1.6 billion.
Capital revenues decreased $0.8 billion (17%), as a result of volume declines, primarily at GECAS related to lower interest income attributable to the sale of PK Air Finance and lower rental revenue, lower gains and mark-to-market effects and impairments as a result of COVID-19 and related market impacts. Capital earnings decreased $1.6 billion, primarily due to an impairment of goodwill, mark-to-market effects and other impairments, including on the GECAS fixed-wing aircraft portfolio as a result of COVID-19 and related market impacts, volume declines, debt tender costs, lower gains and the nonrecurrence of a 2019 tax reform enactment adjustment, partially offset by the tax benefit related to the BioPharma sale and lower excess interest cost. Gains were $0.3 billion and $0.4 billion in the first half of 2020 and 2019, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.2 billion in the first half of both 2020 and 2019, and the nonrecurrence of a sale of an equity method investment resulting in a gain of $0.1 billion in 2019 at EFS.


16 2020 2Q FORM 10-Q

MD&A
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 June 30
 
Six months ended June 30
(In millions)
2020

2019

 
2020

2019

Revenues
 
 
 
 
 
Corporate revenues
$
410

$
408

 
$
788

$
1,000

Eliminations and other
(444
)
(433
)
 
(1,058
)
(841
)
Total Corporate Items and Eliminations
$
(33
)
$
(25
)
 
$
(271
)
$
158

 
 
 
 
 
 
Operating profit (cost)
 
 
 
 
 
Gains (losses) on disposals and held for sale businesses
$
74

$
(116
)
 
$
12,513

$
250

Restructuring and other charges
(433
)
(345
)
 
(641
)
(602
)
Unrealized gains (losses)
1,825

(51
)
 
(3,968
)
(38
)
Goodwill impairments(a) (Note 8)
(728
)
(744
)
 
(728
)
(744
)
Adjusted total corporate operating costs (Non-GAAP)
(156
)
(465
)
 
(530
)
(813
)
Total Corporate Items and Eliminations (GAAP)
$
582

$
(1,720
)
 
$
6,646

$
(1,948
)
Less: gains (losses) and restructuring & other
738

(1,255
)
 
7,176

(1,135
)
Adjusted total corporate operating costs (Non-GAAP)
$
(156
)
$
(465
)
 
$
(530
)
$
(813
)
 
 
 
 
 
 
Functions & operations
$
(163
)
$
(331
)
 
$
(429
)
$
(688
)
Eliminations
(32
)
(34
)
 
(130
)
(28
)
Environmental, health and safety (EHS) and other items
38

(100
)
 
29

(97
)
Adjusted total corporate operating costs (Non-GAAP)
$
(156
)
$
(465
)
 
$
(530
)
$
(813
)
(a) Included non-cash pre-tax impairment charge of $877 million, net of $149 million attributable to noncontrolling interest for our Additive reporting unit within Aviation segment for the three and six months ended June 30, 2020.  

Adjusted total corporate operating costs* excludes gains (losses) on disposals and held for sale businesses, restructuring and other charges including goodwill and unrealized gains (losses). 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 six months ended June 30, 2020, on our Ventures portfolio for the six months ended June 30, 2020, and on our Wabtec equity investment for the three months ended June 30, 2019.

For the three months ended June 30, 2020, revenues remained relatively flat. Corporate costs decreased by $2.3 billion, primarily due to $1.9 billion of higher net unrealized gains, primarily related to a $1.8 billion mark-to market gain on our Baker Hughes shares in the second quarter of 2020, as compared to $0.1 billion of net unrealized losses related to our equity investment in Wabtec in the second quarter of 2019. Corporate costs also decreased as the result of $0.2 billion of higher net realized gains, primarily due to the nonrecurrence of a $0.1 billion realized loss in the second quarter of 2019, primarily related to our Wabtec investment. These decreases were partially offset by $0.1 billion of higher restructuring charges in the second quarter of 2020, primarily due to Aviation, partially offset by lower restructuring costs within Corporate. Goodwill charges were relatively flat year over year. Corporate recognized a $0.7 billion net goodwill impairment charge related to our Aviation segment in the second quarter of 2020, as compared to a $0.7 billion goodwill impairment charge related to our Renewable Energy segment in the second quarter of 2019.

Adjusted total corporate operating costs* decreased by $0.3 billion, primarily due to $0.1 billion of cost reductions in our Digital business, $0.1 billion of lower costs associated with existing EHS matters and $0.1 billion of lower Corporate costs as a result of restructuring and cost reductions actions. Intercompany elimination activity remained flat, reflecting no spare engine sales from our Aviation segment to GECAS business during the second quarter of 2020.

For the six months ended June 30, 2020, revenues decreased by $0.4 billion, primarily as a result of a $0.2 billion decrease in revenue resulting from the sale of our Current business in April 2019, and a $0.2 billion increase in intersegment eliminations. Corporate costs decreased by $8.6 billion, primarily due to $12.3 billion of higher net gains from the sale of our BioPharma business in the first quarter of 2020. This decrease was partly offset by $3.9 billion of higher net unrealized losses primarily related to a $3.9 billion mark-to market impact on our Baker Hughes shares and a $0.1 billion impairment on our Ventures portfolio in the first six months of 2020. Goodwill charges were relatively flat year over year. Corporate recognized a $0.7 billion net goodwill impairment charge related to our Aviation segment in the second quarter of 2020, as compared to a $0.7 billion goodwill impairment charge related to our Renewable Energy segment in the second quarter of 2019.

Adjusted total corporate operating costs* decreased by $0.3 billion, primarily due to $0.2 billion of cost reductions in our Digital business, $0.1 billion of lower costs associated with existing EHS matters and $0.1 billion of lower Corporate costs as a result of restructuring and cost reductions actions, partially offset by $0.1 billion of higher intercompany elimination activity, primarily from project financing investments associated with wind energy projects in our Renewable Energy segment.

*Non-GAAP Financial Measure

2020 2Q FORM 10-Q 17

MD&A
CORPORATE ITEMS AND ELIMINATIONS

Although there were no significant impacts in the second quarter related to COVID-19, potential future impacts at Corporate may include, but are not limited to, the increase in our long-term liabilities, primarily for pension and certain environmental obligations, or decrease in asset returns subject to interest rate changes, additional asset impairments driven by overall market conditions, and lower revenue in our Digital operations. See the Critical Accounting Estimates section for further information on pension assumptions.

RESTRUCTURING. Restructuring actions are an essential component of our cost improvement efforts. 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 will continue to closely monitor the economic environment, including the impacts of COVID-19, and expect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
 
Three months ended June 30
 
Six months ended June 30
(In billions)
2020

2019

 
2020

2019

Workforce reductions
$
0.3

$
0.2

 
$
0.5

$
0.4

Plant closures & associated costs and other asset write-downs
0.1

0.1

 
0.1

0.1

Acquisition/disposition net charges

0.1

 

0.1

Total restructuring and other charges
$
0.4

$
0.3

 
$
0.6

$
0.6

 
 
 
 
 
 
Cost of product/services
$
0.1

$
0.1

 
$
0.3

$
0.2

Selling, general and administrative expenses
0.3

0.3

 
0.4

0.4

Other income


 

$

Total restructuring and other charges
$
0.4

$
0.3

 
$
0.6

$
0.6

 
 
 
 
 
 
Power
$
0.1

$
0.1

 
$
0.1

$
0.1

Renewable Energy
0.1


 
0.1

0.1

Aviation
0.2


 
0.2


Healthcare


 
0.1

0.1

Corporate
0.1

0.2

 
0.1

0.3

Total restructuring and other charges
$
0.4

$
0.3

 
$
0.6

$
0.6


Cash expenditures for restructuring and other charges were approximately $0.3 billion and $0.3 billion for the three months ended June 30, 2020 and 2019, respectively. Cash expenditures for restructuring and other charges were approximately $0.5 billion and $0.6 billion for the six months ended June 30, 2020 and 2019, respectively.

COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS. As discussed in the Segment Operations section, 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.
 
Three months ended June 30
 
Six months ended June 30
 
Costs
Gains (Losses)
 
Costs
Gains (Losses)
(In billions)
2020

2019

2020

2019

 
2020

2019

2020

2019

Power
$
0.1

$
0.1

$

$

 
$
0.1

$
0.1

$

$

Renewable Energy
0.1

0.8



 
0.1

0.8



Aviation
0.9




 
1.0




Healthcare




 
0.1

0.1

12.3


Total segments
$
1.0

$
0.9

$

$

 
$
1.2

$
1.0

$
12.4

$

Corporate Items & Eliminations
0.1

0.2

1.9

0.1

 
0.1

0.3

(3.8
)
0.2

Total Industrial
$
1.1

$
1.1

$
1.9

$
0.2

 
$
1.3

$
1.3

$
8.5

$
0.2




















18 2020 2Q FORM 10-Q

MD&A
OTHER CONSOLIDATED INFORMATION

OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES
Three months ended June 30
 
Six months ended June 30
(In billions)
2020

2019

 
2020

2019

GE
$
0.4

$
0.4

 
$
0.8

$
0.9

GE Capital
0.7

0.6

 
1.2

1.3


GE interest and other financial charges was unchanged for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, as lower debt expense and financing costs on sales of receivables were offset by the nonrecurrence of the June 2019 reversal of accrued interest on tax liabilities due to the completion of the 2012-2013 Internal Revenue Service (IRS) audit. The decrease in GE interest and other financial charges for the six months ended June 30, 2020, was primarily due to lower debt expense and financing costs on sales of receivables, partially offset by the nonrecurrence of the June 2019 reversal of accrued interest on tax liabilities due to the completion of the 2012-2013 IRS audit. 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 $0.3 billion and $0.2 billion was recorded at Corporate and $0.1 billion and $0.2 billion was recorded by Industrial segments for the three months ended June 30, 2020 and 2019, respectively, and $0.5 billion and $0.5 billion was recorded at Corporate and $0.2 billion and $0.4 billion was recorded by Industrial segments for the six months ended June 30, 2020 and 2019, respectively.

The increase in GE Capital interest and other financial charges for the three months ended June 30, 2020 was primarily due to the loss resulting from the completion of tender offers to purchase debt and higher interest on assumed debt as a result of the repayments of intercompany loans by GE (effectively transferring that interest cost back to GE Capital), partially offset by lower average borrowings balances due to maturities and debt purchases, as well as lower average interest rates due to changes in market rates. The decrease in GE Capital interest and other financial charges for the six months ended June 30, 2020 was primarily due to lower average borrowings balances due to maturities and debt purchases as well as lower average interest rates due to changes in market rates, partially offset by the loss resulting from the completion of tender offers to purchase debt, as well as higher interest on assumed debt as described above.

CONSOLIDATED INCOME TAXES.
For the three months ended June 30, 2020, the consolidated income tax rate was 8.5% compared to 61.1% for the three months ended June 30, 2019.

The consolidated provision (benefit) for income taxes was $(0.2) billion in the three months ended June 30, 2020 and $(0.2) billion in the three months ended June 30, 2019. The provision was essentially unchanged as the nonrecurrence of a 2019 benefit from the completion of the IRS audit of the 2012-2013 consolidated U.S. income tax returns ($0.4 billion) was offset by the decrease in pre-tax income excluding non-deductible impairment charges ($0.2 billion) and a tax benefit associated with the mark-to-market gain recorded in the second quarter on the remaining interest in Baker Hughes taxed at lower than 21% ($0.1 billion).

The consolidated tax provision (benefit) includes $(0.1) billion and $(0.2) billion for GE (excluding GE Capital) for the three months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020, the consolidated income tax rate was (3.3)% compared to (5.0)% for the six months ended June 30, 2019. The negative tax rates for 2020 and 2019 reflect tax benefits on pre-tax income.

The consolidated provision (benefit) for income taxes was $(0.1) billion for the six months ended June 30, 2020 and an insignificant amount for the six months ended June 30, 2019. The decrease in tax provision was primarily due to the decrease in pre-tax income excluding the gain from the sale of our BioPharma business and non-deductible goodwill impairment charges ($1.7 billion) partially offset by the tax expense associated with the disposition of the BioPharma business excluding the amount recognized on preparatory steps in 2019 ($1.1 billion) and the nonrecurrence of a 2019 benefit from the completion of the IRS audit of the 2012-2013 consolidated U.S. income tax returns ($0.4 billion).

The consolidated tax provision (benefit) includes $0.1 billion and $0.1 billion for GE (excluding GE Capital) for the six months ended June 30, 2020 and 2019, respectively.

DISCONTINUED OPERATIONS. Discontinued operations primarily include our Baker Hughes and Transportation segments, and certain businesses in our GE Capital segment (our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses). See Note 2 for further financial information regarding our businesses in discontinued operations.

The mortgage portfolio in Poland (Bank BPH) comprises floating rate residential mortgages, 87% of which are indexed to or denominated in foreign currencies (primarily Swiss francs). At June 30, 2020, the total portfolio had a carrying value of $2.4 billion with a 1.64% 90-day delinquency rate and an average loan to value ratio of approximately 67.5%. The portfolio is recorded at fair value less cost to sell, which reflects market yields as well as our best estimate of the effects of ongoing litigation in Poland related to foreign currency-denominated mortgages. Discontinued operations income for the six months ended June 30, 2020, includes the recognition of an insignificant valuation allowance on the carrying value of the portfolio, primarily driven by a higher discount rate as a result of COVID-19 and related market impacts. Future changes in the economic impact of COVID-19, market yields or changes in estimated legal liabilities could result in further losses related to these loans in future reporting periods.


2020 2Q FORM 10-Q 19

MD&A
CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY. We intend to maintain a disciplined financial policy, including maintaining a high cash balance. We are targeting a sustainable long-term credit rating in the Single-A range, achieving a GE Industrial net debt*-to-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. In addition to net debt*-to-EBITDA, we also evaluate other leverage measures, including gross debt-to-EBITDA, and we will ultimately size our deleveraging actions across a range of measures to ensure we are operating the Company based on a strong balance sheet. We intend to continue to decrease our leverage over time as we navigate this period of uncertainty, although we now expect to achieve our prior targets over a longer period than previously announced.

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. We intend to maintain a high level of cash and maximize flexibility as we navigate the current environment. At both GE and GE Capital, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations, as well as capital allocation and growth objectives, throughout business cycles.

We believe that our consolidated liquidity and availability under our revolving credit facilities will be sufficient to meet our liquidity needs.

CONSOLIDATED LIQUIDITY. Following is a summary of cash, cash equivalents and restricted cash at June 30, 2020.
(In billions)
June 30, 2020

 
 
June 30, 2020

GE
$
25.4

 
U.S.
$
23.9

GE Capital
16.0

 
Non-U.S.
17.6

Consolidated
$
41.4

 
Consolidated
$
41.4


Cash held in non-U.S. 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 available 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 potent