*Non-GAAP Financial Measure
SEGMENT OPERATIONS. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021, for further information regarding our determination of segment profit for continuing operations, and for our allocations of corporate costs to our segments.
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | |
SUMMARY OF REPORTABLE SEGMENTS | | | | | | 2022 | 2021 | V | % | |
Aviation | | | | | | $ | 5,603 | | $ | 4,992 | | 12 | | % | |
Healthcare | | | | | | 4,363 | | 4,308 | | 1 | | % | |
Renewable Energy | | | | | | 2,871 | | 3,248 | | (12) | | % | |
Power | | | | | | 3,501 | | 3,921 | | (11) | | % | |
Total segment revenues | | | | | | 16,337 | | 16,468 | | (1) | | % | |
Corporate | | | | | | 702 | | 603 | | 16 | | % | |
Total revenues | | | | | | $ | 17,040 | | $ | 17,071 | | — | | % | |
| | | | | | | | | | |
Aviation | | | | | | $ | 908 | | $ | 641 | | 42 | | % | |
Healthcare | | | | | | 538 | | 698 | | (23) | | % | |
Renewable Energy | | | | | | (434) | | (234) | | (85) | | % | |
Power | | | | | | 63 | | (87) | | F | | |
Total segment profit (loss) | | | | | | 1,075 | | 1,019 | | 5 | | % | |
Corporate(a) | | | | | | (1,328) | | 160 | | U | | |
| | | | | | | | | | |
Interest and other financial charges | | | | | | (390) | | (485) | | 20 | | % | |
| | | | | | | | | | |
Non-operating benefit income (cost) | | | | | | 137 | | (430) | | F | | |
Benefit (provision) for income taxes | | | | | | (251) | | (173) | | (45) | | % | |
Preferred stock dividends | | | | | | (52) | | (72) | | 28 | | % | |
Earnings (loss) from continuing operations attributable to GE common shareholders | | | | | | (809) | | 20 | | U | | |
| | | | | | | | | | |
| | | | | | | | | | |
Earnings (loss) from discontinued operations attributable to GE common shareholders | | | | | | (286) | | (2,894) | | 90 | | % | |
Net earnings (loss) attributable to GE common shareholders | | | | | | $ | (1,094) | | $ | (2,874) | | 62 | | % | |
(a) Includes interest and other financial charges of $16 million and $15 million and benefit for income taxes of $47 million and $31 million related to EFS within Corporate for the three months ended March 31, 2022 and 2021, respectively.
AVIATION. Aviation’s results in first quarter 2022 reflect the continued recovery of the commercial market, although the global COVID-19 pandemic continues to have an adverse effect on the global airline industry, as well as on the global industrial supply chain with disruptions in material and labor. A key underlying driver of Aviation’s commercial engine and services business is global commercial air traffic, which in turn is driven by economic activity and consumer and business propensity to travel. Since the beginning of the pandemic in the first quarter of 2020, we have seen varied levels of recovery in global markets. Aviation regularly tracks global departures, which improved 39% during the first quarter of 2022 compared to the first quarter of 2021, and now stands at approximately 75% of 2019 levels as of March 31, 2022. However, government travel restrictions, public health advisories, individuals' propensity to travel and continued cases of the virus drive varied levels of recovery regionally, due in large part to the emergence of COVID-19 virus variants. Aviation remains confident in the recovery, while actively monitoring the impact of travel restrictions, quarantine requirements, and economic and industry forecasts. We are in frequent dialogue with our airline, airframe, and maintenance, repair and overhaul customers about the outlook for commercial air travel, new aircraft production, fleet retirements, and after-market services, including shop visit and spare parts demand. Current trends are in line with our recovery forecast, and we continue to expect domestic travel routes primarily served by single-aisle aircraft to recover before long-haul, international travel routes, which are primarily served by twin-aisle aircraft. Consistent with industry projections, Aviation continues to estimate single-aisle air traffic to recover to 2019 levels in early 2023, with twin-aisle air traffic recovering in early 2024, dependent on containing the spread of the virus, effective inoculation programs and government collaboration to encourage travel, particularly around reducing quarantine requirements.
Aviation has taken several actions to respond to the current environment and is actively monitoring the pace of demand recovery to ensure the business is appropriately sized for the future. In addition, we continue to partner with our airline and leasing customers and collaborate with our airframe partners on production rates for 2022 and beyond.
As it relates to the military environment, Aviation continues to forecast strong military demand creating future growth opportunities for our Military business unit 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. During the first quarter of 2022, Aviation achieved significant testing milestones on two future military engines. Aviation met the First Engine to Test milestone for the T901-GE-900 engine, the next-generation rotorcraft engine, and initiated Phase 2 testing of the XA100 adaptive cycle engine. Additionally, as a result of lean initiatives, Aviation saw improvement from the supply chain challenges impacting the delivery of military engines experienced in the prior year, and the business continues to actively address the issues and monitor progress to recovery.
Total engineering, comprising company, customer and partner-funded and nonrecurring engineering costs, increased compared to the prior year. Aviation continues to be committed to investment in developing and maturing technologies that enable a more sustainable future of flight. In February 2022, Airbus selected CFM International, Aviation’s joint venture with Safran Aircraft Engines, to collaborate on a program to develop and test direct hydrogen combustion engine technologies with flight tests expected in the middle of this decade. Additionally, during the first quarter of 2022, Aviation selected Boeing to support flight tests of its hybrid electric propulsion system using a modified Saab 340B aircraft and CT7-9B turboprop engines.
Aviation continues to take actions to protect its ability to serve its customers now and as the global airline industry recovers. Aviation’s deep history of innovation and technology leadership, commercial engine installed base of approximately 39,400 units, with approximately 10,900 units under long-term service agreements, and military engine installed base of approximately 26,200 units represents strong long-term fundamentals. Aviation expects to emerge from the current environment well-positioned to drive long-term profitable growth and cash generation over time.
| | | | | | | | | | | | | | | | | |
| Three months ended March 31 | | |
| | | | | | | |
Sales in units, except where noted | 2022 | 2021 | | | | | | | | | |
Commercial Engines(a) | 343 | | 359 | | | | | | | | | | |
LEAP Engines(b) | 239 | | 188 | | | | | | | | | | |
Military Engines | 184 | | 96 | | | | | | | | | | |
Spare Parts Rate(c) | 22.8 | 13.2 | | | | | | | | | |
(a) Commercial Engines now includes Business Aviation and Aeroderivative units for all periods presented. (b) LEAP engines are subsets of commercial engines. (c) Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day. |
| | | | | | | | | |
RPO | March 31, 2022 | December 31, 2021 | |
Equipment | $ | 11,924 | | $ | 11,139 | | |
Services | 115,576 | | 114,133 | | |
Total RPO | $ | 127,501 | | $ | 125,272 | | |
| | | | | | | | | | | | | | | | | | | | | |
SEGMENT REVENUES AND PROFIT | Three months ended March 31 | | | | | |
| 2022 | | 2021 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Commercial Engines & Services | $ | 3,853 | | | $ | 3,354 | | | | | | | | | |
Military | 1,036 | | | 956 | | | | | | | | | |
Systems & Other | 714 | | | 682 | | | | | | | | | |
Total segment revenues | $ | 5,603 | | | $ | 4,992 | | | | | | | | | |
| | | | | | | | | | | |
Equipment | $ | 1,654 | | | $ | 1,847 | | | | | | | | | |
Services | 3,949 | | | 3,145 | | | | | | | | | |
Total segment revenues | $ | 5,603 | | | $ | 4,992 | | | | | | | | | |
| | | | | | | | | | | |
Segment profit | $ | 908 | | | $ | 641 | | | | | | | | | |
Segment profit margin | 16.2 | | % | 12.8 | | % | | | | | | | |
For the three months ended March 31, 2022, segment revenues were up $0.6 billion (12%) and segment profit was up $0.3 billion (42%).
RPO as of March 31, 2022 increased $2.2 billion (2%) from December 31, 2021, primarily due to increases in services. Services increased primarily as a result of engines contracted under long-term service agreements that have now been put into service and contract modifications.
Revenues increased $0.6 billion (12%) organically*. Commercial Services revenues increased, primarily due to increased shop visit volume and higher volume of commercial spare part shipments. Commercial Engines revenues decreased, primarily driven by lower GEnx engine production rates, supply chain constraints and product transition with fewer engine shipments on legacy programs, partially offset by more shipments on newer programs, including 51 more LEAP units versus the prior year. Military revenues increased, primarily due to 88 more engine shipments than the prior year, partially offset by product mix.
Profit increased $0.3 billion (39%) organically*, primarily due to increased shop visit volume and higher volume of commercial spare part shipments. These increases in profit were partially offset by lower profit on Commercial Engine shipments driven by product transition with fewer engine shipments on legacy programs and more shipments on newer programs, inflation in our supply chain and additional growth investment.
HEALTHCARE. U.S. healthcare market demand continues to be strong, however, Europe, the Middle East and Africa are still seeing the lingering effects of COVID-19, and China has seen impacts in certain regions during the first quarter of 2022. We continue to see growth in hospital spending to increase capacity and improve quality of care. Both Healthcare Systems (HCS) and Pharmaceutical Diagnostics (PDx) demand has recovered to at or above pre-pandemic levels. We are experiencing substantial inflation and delays in sourcing key materials needed for our products, such as electronics and resins, delaying our ability to convert RPO to revenue. We have proactively managed sourcing and logistics, material and design costs to partially mitigate supply chain impacts. Delivering for our customers remains a top priority. In response to the inflation pressures we are experiencing, we have continued to manage price and value for our customers, as well as discretionary and structural cost in our business, in order to invest in research and development to drive long-term growth.
*Non-GAAP Financial Measure
We continue to grow and invest in precision health, with a focus 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. We announced a partnership with AliveCor to deliver medical-grade electrocardiograms (ECGs) taken by patients on an AliveCor device outside of the hospital setting, which will connect directly into GE Healthcare’s MUSE Cardiac Management System so physicians can view and evaluate clinical readings remotely. We received U.S. Food and Drug Administration pre-market approval for our End-tidal (Et) Control software for general anesthesia delivery on the Aisys CS2 Anesthesia Delivery System. The Et Control software improves anesthesia delivery accuracy and simplifies workflows while reducing drug waste, lowering the cost of care and greenhouse gas emissions. We remain committed to innovate and invest to create more integrated, efficient, and personalized precision healthcare.
| | | | | | | | | |
RPO | March 31, 2022 | December 31, 2021 | |
Equipment | $ | 4,282 | | $ | 4,232 | | |
Services | 10,118 | | 10,375 | | |
Total RPO | $ | 14,399 | | $ | 14,606 | | |
| | | | | | | | | | | | | | | | | | | | | |
SEGMENT REVENUES AND PROFIT | Three months ended March 31 | | | | |
| 2022 | | 2021 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Healthcare Systems | $ | 3,875 | | | $ | 3,825 | | | | | | | | | |
Pharmaceutical Diagnostics | 487 | | | 482 | | | | | | | | | |
| | | | | | | | | | | |
Total segment revenues | $ | 4,363 | | | $ | 4,308 | | | | | | | | | |
| | | | | | | | | | | |
Equipment | $ | 2,256 | | | $ | 2,227 | | | | | | | | | |
Services | 2,107 | | | 2,081 | | | | | | | | | |
Total segment revenues | $ | 4,363 | | | $ | 4,308 | | | | | | | | | |
| | | | | | | | | | | |
Segment profit | $ | 538 | | | $ | 698 | | | | | | | | | |
Segment profit margin | 12.3 | | % | 16.2 | | % | | | | | | | |
| | | | | | | | | | | |
| | |
| | |
For the three months ended March 31, 2022, segment revenues were up $0.1 billion (1%) and segment profit was down $0.2 billion (23%).
RPO as of March 31, 2022 decreased $0.2 billion (1%) from December 31, 2021, primarily due to an increase in equipment orders, more than offset by the impact of contract renewal timing in services.
Revenues increased $0.1 billion (2%) organically*. Services revenues increased, driven by a return to pre-pandemic volume in PDx and the continued growth of HCS services. Equipment revenues were flat, driven by continued supply chain constraints, COVID-19 impacts in certain China regions and impacts from the Russia and Ukraine conflict.
Profit decreased $0.1 billion (15%) organically*, driven by decreased volume for LCS and Ultrasound products, and increased material inflation and logistics cost across all product lines. We also continued to make research and development and commercial investments.
RENEWABLE ENERGY. While we continue to expect long-term growth in U.S onshore wind, the expiry of U.S. Production Tax Credits (PTC) in 2021 and U.S. policy uncertainty, together with rising inflation has resulted in project delays and deferral of customer investments. The offshore wind industry continues to expect strong global growth through the decade and our Grid business is positioned to support grid modernization needs. We have experienced significant cost inflation in materials and logistics costs across the entire business that impact price and customer demand, and our financial results are dependent on U.S. tax credit policy, the inflationary environment, execution of cost reduction initiatives and improved pricing.
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 have observed significant market demand for our 5-6 MW Cypress and 3-4 MW Sierra Onshore units and our 12-14 MW Haliade-X Offshore units. Commissioned in 2019, our Haliade-X test unit is currently operating at 14 MW. We expect to start shipping units for commercial projects in the second half of this year. Preparing for large scale production, while reducing the cost of these new product platforms and blade technologies remains a key priority. At Grid Solutions, new technology such as flexible transformers and g³ switchgears are solving for a more resilient and efficient electric grid and lower greenhouse gas emissions, respectively.
| | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31 | |
| | | | | | | |
Onshore and Offshore sales in units | | | | | | | | | 2022 | 2021 | |
Wind Turbines | | | | | | | | | 502 | | 778 | | |
Wind Turbine Gigawatts | | | | | | | | | 1.7 | | 2.4 | | |
Repower units | | | | | | | | | 151 | | — | | |
*Non-GAAP Financial Measure
| | | | | | | | | |
RPO | March 31, 2022 | December 31, 2021 | |
Equipment | $ | 18,728 | | $ | 18,639 | | |
Services | 12,682 | | 12,872 | | |
Total RPO | $ | 31,410 | | $ | 31,511 | | |
| | | | | | | | | | | | | | | | | | | | | |
SEGMENT REVENUES AND PROFIT | Three months ended March 31 | | | | | |
| 2022 | | 2021 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Onshore Wind | $ | 1,906 | | | $ | 2,118 | | | | | | | | | |
Grid Solutions equipment and services | 668 | | | 795 | | | | | | | | | |
| | | | | | | | | | | |
Hydro, Offshore Wind and Hybrid Solutions | 297 | | | 335 | | | | | | | | | |
Total segment revenues | $ | 2,871 | | | $ | 3,248 | | | | | | | | | |
| | | | | | | | | | | |
Equipment | $ | 2,173 | | | $ | 2,844 | | | | | | | | | |
Services | 698 | | | 404 | | | | | | | | | |
Total segment revenues | $ | 2,871 | | | $ | 3,248 | | | | | | | | | |
| | | | | | | | | | | |
Segment profit (loss) | $ | (434) | | | $ | (234) | | | | | | | | | |
Segment profit margin | (15.1) | | % | (7.2) | | % | | | | | | | |
For the three months ended March 31, 2022, segment revenues were down $0.4 billion (12%) and segment losses were up $0.2 billion (86%).
RPO as of March 31, 2022 decreased $0.1 billion from December 31, 2021 primarily from sales exceeding new orders at Onshore Wind and the impact of a stronger U.S. dollar at Offshore Wind, partially offset by new orders at Grid and Onshore Services exceeding sales. The decline in new equipment orders at Onshore Wind is primarily attributable to the U.S. market decline and increased commercial selectivity internationally.
Revenues decreased $0.3 billion (10%) organically* across all businesses, primarily from 276 fewer wind turbine deliveries at Onshore Wind and lower revenue at Grid due to increased commercial selectivity, partially offset by higher services revenue at Onshore Wind from a larger installed base and 151 more repower unit deliveries.
Segment losses increased $0.2 billion (91%) organically*, primarily from lower volume at Onshore Wind in the U.S. and Grid, lower margins at Onshore Wind and cost inflation across all businesses, partially offset by the impact of cost reduction initiatives. Onshore Wind results were adversely impacted by execution of lower margin RPO in North America and the impact of transitioning to newer product offerings internationally.
POWER. During the current period, global gas generation and gas turbine utilization were both up mid-single-digits due to retirements and availability of coal and nuclear units and weather in select markets, even as the market manages through the uncertainty and disruptions from the conflict in Ukraine. Looking ahead, we anticipate the power market to continue to be impacted by overcapacity in the industry, continued 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, as well as the ongoing impacts of COVID-19. Although market factors related to the energy transition such as greater renewable energy penetration and the adoption of climate change-related policies continue to impact long-term demand (and related financing), to differing degrees across markets globally, we expect the gas market to remain stable over the next decade with gas generation continuing to grow low-single-digits. We believe gas will play a critical role in the energy transition and are encouraged by the growth in Gas Power Services. We remain focused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdles and we have high confidence to deliver for our customers.
We continue to invest in new product development, such as our HA-Turbines and Nuclear small modular reactors. Our fundamentals remain strong with approximately $67.8 billion in RPO and a gas turbine installed base greater than 7,000 units, including approximately 1,750 units under long-term service agreements.
| | | | | | | | | | | | | | | | | | |
| | | | | | Three months ended March 31 | |
| | | | | | | | |
Sales in units | | | | | | | | | | 2022 | 2021 | |
GE Gas Turbines | | | | | | | | | | 20 | | 11 | | |
Heavy-Duty Gas Turbines(a) | | | | | | | | | | 13 | | 11 | | |
HA-Turbines(b) | | | | | | | | | | 2 | | 5 | | |
Aeroderivatives(a) | | | | | | | | | | 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. | |
*Non-GAAP Financial Measure
| | | | | | | | | |
RPO | March 31, 2022 | December 31, 2021 | |
Equipment | $ | 11,812 | | $ | 12,169 | | |
Services | 55,941 | | 56,569 | | |
Total RPO | $ | 67,752 | | $ | 68,738 | | |
| | | | | | | | | | | | | | | | | | | | | |
SEGMENT REVENUES AND PROFIT | Three months ended March 31 | | | | |
| 2022 | | 2021 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Gas Power | $ | 2,489 | | | $ | 2,829 | | | | | | | | | |
Steam Power | 636 | | | 706 | | | | | | | | | |
Power Conversion, Nuclear and other | 377 | | | 385 | | | | | | | | | |
Total segment revenues | $ | 3,501 | | | $ | 3,921 | | | | | | | | | |
| | | | | | | | | | | |
Equipment | $ | 965 | | | $ | 1,241 | | | | | | | | | |
Services | 2,536 | | | 2,679 | | | | | | | | | |
Total segment revenues | $ | 3,501 | | | $ | 3,921 | | | | | | | | | |
| | | | | | | | | | | |
Segment profit (loss) | $ | 63 | | | $ | (87) | | | | | | | | | |
Segment profit margin | 1.8 | | % | (2.2) | | % | | | | | | | |
For the three months ended March 31, 2022, segment revenues were down $0.4 billion (11%) and segment profit was up $0.1 billion.
RPO as of March 31, 2022 decreased $1.0 billion (1%) from December 31, 2021, primarily driven by the continued wind down of the Steam Power new build coal business, sales outpacing new orders in Gas Power contractual services and the impact of the Russia and Ukraine conflict at Power Conversion.
Revenues decreased $0.2 billion (6%) organically*, primarily due to decreased Gas Power equipment revenues on fewer HA shipments and Steam Power equipment on the exit of new build coal, partially offset by higher Gas Power Aeroderivative deliveries.
Profit increased $0.1 billion organically* due to increases in Steam Power from prior year project and legal charges that did not repeat.
CORPORATE. The Corporate amounts related to revenues and earnings include the results of disposed businesses, certain amounts not included in operating segment results because they are excluded from measurement of their operating performance for internal and external purposes and the elimination of intersegment activities. In addition, the Corporate amounts related to earnings include certain costs of our principal retirement plans, significant, higher-cost restructuring programs, separation costs, and other costs reported in Corporate.
Corporate includes the results of the GE Digital business and our remaining GE Capital businesses including our run-off Insurance business (see Other Items - Insurance for further information).
| | | | | | | | | | | | | |
REVENUES AND OPERATING PROFIT (COST) | Three months ended March 31 | | | | |
| 2022 | 2021 | | | | | |
Corporate revenues | $ | 220 | | $ | 227 | | | | | | |
Insurance revenues | 767 | | 755 | | | | | | |
Eliminations and other | (285) | | (379) | | | | | | |
Total Corporate revenues | $ | 702 | | $ | 603 | | | | | | |
| | | | | | | |
Gains (losses) on purchases and sales of business interests | $ | 4 | | $ | 3 | | | | | | |
Gains (losses) on equity securities | (219) | | 347 | | | | | | |
Restructuring and other charges | (35) | | (106) | | | | | | |
Separation costs | (119) | | — | | | | | | |
Steam asset sale impairment (Notes 6 and 7) | (824) | | — | | | | | | |
Russia and Ukraine charges | (230) | | — | | | | | | |
| | | | | | | |
| | | | | | | |
Insurance profit (loss) (Note 12) | 225 | | 138 | | | | | | |
Adjusted total corporate operating costs (Non-GAAP) | (129) | | (221) | | | | | | |
Total Corporate operating profit (cost) (GAAP) | $ | (1,328) | | $ | 160 | | | | | | |
Less: gains (losses), impairments, Insurance, and restructuring & other | (1,199) | | 382 | | | | | | |
Adjusted total corporate operating costs (Non-GAAP) | $ | (129) | | $ | (221) | | | | | | |
| | | | | | | |
Functions & operations | $ | (78) | | $ | (188) | | | | | | |
Environmental, health and safety (EHS) and other items | (51) | | (55) | | | | | | |
Eliminations | (1) | | 23 | | | | | | |
Adjusted total corporate operating costs (Non-GAAP) | $ | (129) | | $ | (221) | | | | | | |
*Non-GAAP Financial Measure
Adjusted total corporate operating costs* excludes gains (losses) on purchases and sales of business interests, significant, higher-cost restructuring programs, separation costs, gains (losses) on equity securities, impairments and our run-off Insurance business profit. 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.
For the three months ended March 31, 2022, revenues increased by $0.1 billion due to lower intersegment eliminations. Corporate operating profit decreased by $1.5 billion due to $0.8 billion of non-cash impairment charges related to property, plant and equipment and intangible assets as a result of reclassification of a portion of our Steam Power business to held for sale in the first quarter of 2022 (See Note 2). In addition, operating profit decreased due to a $0.6 billion change in gains (losses) on equity securities, primarily related to $1.7 billion of mark to market losses on our AerCap shares and note, partially offset by $1.2 billion of higher mark to market gains on our BKR shares. Operating profit decreased $0.2 billion from contracts and recoverability of assets in connection with the conflict between Russia and Ukraine and resulting sanctions, primarily within our Aviation and Power businesses, and $0.1 billion of incurred expenses related to business separation costs. These decreases were partially offset by $0.1 billion of lower restructuring and other charges in 2022, primarily related to our Aviation segment, and $0.1 billion of higher income in our run-off Insurance business, primarily driven by lower claims and strong investment results.
Adjusted total corporate operating costs* decreased by $0.1 billion primarily as the result of favorable operating results in EFS and core reductions.
OTHER CONSOLIDATED INFORMATION
RESTRUCTURING. This table is inclusive of all restructuring charges in our segments and at Corporate, and the charges are shown below for the business where they originated. Separately, in our reported segment results, significant, higher-cost restructuring programs are excluded from measurement of segment operating performance for internal and external purposes; those excluded amounts are reported in Restructuring and other charges for Corporate (see the Corporate section).
| | | | | | | | | | | | |
RESTRUCTURING AND OTHER CHARGES | Three months ended March 31 | | | |
| 2022 | 2021 | | | | |
Workforce reductions | $ | 23 | | $ | 211 | | | | | |
Plant closures & associated costs and other asset write-downs | 29 | | 26 | | | | | |
Acquisition/disposition net charges and other | 12 | | 5 | | | | | |
Other | (3) | | — | | | | | |
Total restructuring and other charges | $ | 61 | | $ | 242 | | | | | |
| | | | | | |
Cost of equipment/services | $ | 31 | | $ | 101 | | | | | |
Selling, general and administrative expenses | 33 | | 148 | | | | | |
Other income | (3) | | (7) | | | | | |
Total restructuring and other charges | $ | 61 | | $ | 242 | | | | | |
| | | | | | |
Aviation | $ | 5 | | $ | 62 | | | | | |
Healthcare | 13 | | 39 | | | | | |
Renewable Energy | 6 | | 76 | | | | | |
Power | 34 | | 49 | | | | | |
Corporate | 3 | | 16 | | | | | |
| | | | | | |
| | | | | | |
Total restructuring and other charges | $ | 61 | | $ | 242 | | | | | |
Restructuring and other charges cash expenditures | $ | 154 | | $ | 223 | | | | | |
Liabilities associated with restructuring activities were approximately $0.9 billion and $1.0 billion, including actuarial determined post-employment severance benefits of $0.5 billion and $0.5 billion as of March 31, 2022 and December 31, 2021, respectively.
SEPARATION COSTS. In November 2021, the company announced its plan to form three industry-leading, global public companies focused on the growth sectors of aviation, healthcare, and energy. Over the next two years, we expect to incur separation, transition, and operational costs of approximately $2 billion and net tax costs of less than $0.5 billion, which will depend on specifics of the transaction.
We incurred pre-tax separation costs of $119 million, primarily related to business separation and employee cost and $20 million of net tax expense, including taxes associated with planned legal entity restructuring and changes to indefinite reinvestment, for the three months ended March 31, 2022.
INTEREST AND OTHER FINANCIAL CHARGES were $0.4 billion and $0.5 billion for the three months ended March 31, 2022 and 2021, respectively. The decrease was primarily due to lower average borrowings balances, partially offset by a lower allocation of interest expense to discontinued operations. Inclusive of interest expense in discontinued operations, total interest and other financial charges were $0.4 billion and $0.7 billion for the three months ended March 31, 2022 and 2021, respectively. The primary components of interest and other financial charges are interest on short- and long-term borrowings.
*Non-GAAP Financial Measure
POSTRETIREMENT BENEFIT PLANS. Refer to Note 13 for information about our pension and retiree benefit plans.
INCOME TAXES. For the three months ended March 31, 2022, the consolidated income tax rate was (38.8)% compared to 59.7% for the three months ended March 31, 2021. The tax rate for 2022 reflects a tax provision on a pre-tax loss.
The consolidated provision for income taxes was $0.2 billion for the three months ended March 31, 2022 and $0.1 billion for the three months ended March 31, 2021. The provision increased due to a decrease in favorable audit resolutions outside the U.S. and an increase in losses in foreign jurisdictions where they are not likely to be utilized. There was not a significant benefit associated with the change from pre-tax income for the three months ended March 31, 2021 to a pre-tax loss for the three months ended March 31, 2022 as the pre-tax loss for 2022 included asset impairments and a net loss on our interest in AerCap and Baker Hughes which included losses without tax benefit. Excluding these items, there was an increase in pre-tax income from the three months ended March 31, 2021 compared to the three months ended March 31, 2022.
For the three months ended March 31, 2021, the consolidated income tax provision was $0.1 billion compared to $0.1 billion for the three months ended March 31, 2020. The provision increased slightly as there was a tax expense associated with the unrealized gain on our remaining interest in Baker Hughes in the first quarter of 2021 compared to a tax benefit associated with the unrealized loss recorded in the first quarter of 2020. This was largely offset by the nonrecurrence of the tax expense associated with the disposition of the BioPharma business in the first quarter of 2020.
DISCONTINUED OPERATIONS primarily comprise our GE Capital Aviation Services (GECAS) business, discontinued in 2021, our mortgage portfolio in Poland, and other trailing assets and liabilities associated with prior dispositions. Results of operations, financial position and cash flows for these businesses are reported as discontinued operations for all periods presented and the notes to the financial statements have been adjusted on a retrospective basis. See Note 2 for further information regarding our businesses in discontinued operations.
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY. We intend to maintain a disciplined financial policy with a sustainable investment-grade long-term credit rating. In the fourth quarter of 2021, the Company announced plans to form three industry-leading, global, investment-grade companies, each of which will determine their own financial policies, including capital allocation, dividend, mergers and acquisitions and buy back decisions.
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 business needs and financial obligations under both normal and stressed conditions. We believe that our consolidated liquidity and availability under our revolving credit facilities will be sufficient to meet our liquidity needs.
CONSOLIDATED LIQUIDITY. Our primary sources of liquidity consist of cash and cash equivalents, free cash flows* from our operating businesses, cash generated from asset sales and dispositions, and short-term borrowing facilities, including revolving credit facilities. Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, timing of Aviation-related customer allowances, market conditions and our ability to execute dispositions. Total cash, cash equivalents and restricted cash was $12.8 billion at March 31, 2022, of which $6.8 billion was held in the U.S. and $6.0 billion was held outside the U.S.
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 potentially be partially offset by a U.S. foreign tax credit. With regards to our announcement to form three public companies, we expect that planning for and execution of this separation will impact indefinite reinvestment. The impact of that change will be recorded when there is a specific change in ability and intent to reinvest earnings.
Cash, cash equivalents and restricted cash at March 31, 2022 included $2.3 billion of cash held in countries with currency control restrictions (including a total of $0.1 billion in Russia and Ukraine) and $0.4 billion of restricted use cash. Cash held in countries with currency controls represents amounts held in countries that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. Restricted use cash represents amounts that are not available to fund operations, and primarily comprised funds restricted in connection with certain ongoing litigation matters. Excluded from cash, cash equivalents and restricted cash was $0.8 billion of cash in our run-off Insurance business, which was classified as All other assets in the Statement of Financial Position.
In connection with the program we launched in 2020 to fully monetize our Baker Hughes position over approximately three years, we received proceeds of $1.3 billion in the first quarter of 2022. In addition, we expect to fully monetize our stake in AerCap over time.
We provided a total of $11.4 billion of capital contributions to our insurance subsidiaries since 2018, including $2.0 billion in the first quarter of 2022, and expect to provide further capital contributions of approximately $3.6 billion through 2024. These contributions are subject to ongoing monitoring by the Kansas Insurance Department (KID), and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. We are required to maintain specified capital levels at these insurance subsidiaries under capital maintenance agreements.
*Non-GAAP Financial Measure
BORROWINGS. Consolidated total borrowings were $33.6 billion and $35.2 billion at March 31, 2022 and December 31, 2021, respectively, a decrease of $1.6 billion. The reduction in borrowings was driven primarily by net repayments and maturities of debt of $1.2 billion and $0.3 billion related to changes in foreign exchange rates.
We have in place committed revolving credit facilities totaling $14.4 billion at March 31, 2022, comprising a $10.0 billion unused back-up revolving syndicated credit facility and a total of $4.4 billion of bilateral revolving credit facilities.
CREDIT RATINGS AND CONDITIONS. We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on our short- and long-term debt. Our credit ratings as of the date of this filing are set forth in the table below.
| | | | | | | | | | | |
| Moody's | S&P | Fitch |
Outlook | Negative | CreditWatch Negative | Stable |
Short term | P-2 | A-2 | F3 |
Long term | Baa1 | BBB+ | BBB |
We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds and access to liquidity. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in this report.
Substantially all of the Company's debt agreements in place at March 31, 2022 do not contain material credit rating covenants. Our unused back-up revolving syndicated credit facility and certain of our bilateral revolving credit facilities contain a customary net debt-to-EBITDA financial covenant, which we satisfied at March 31, 2022.
The Company may from time to time enter into agreements that contain minimum ratings requirements. The following table provides a summary of the maximum estimated liquidity impact in the event of further downgrades below each stated ratings level.
| | | | | | |
| Triggers Below | At March 31, 2022 |
| BBB+/A-2/P-2 | $ | 41 | |
| BBB/A-3/P-3 | 247 | |
| BBB- | 1,093 | |
| BB+ and below | 494 | |
Our most significant contractual ratings requirements are related to ordinary course commercial activities. The timing within the quarter of the potential liquidity impact of these areas may differ, as can the remedies to resolving any potential breaches of required ratings levels.
FOREIGN EXCHANGE. As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies include the euro, the Chinese renminbi, the Indian rupee and Japanese yen, among others. The effects of foreign currency fluctuations on earnings was less than $0.1 billion for both the three months ended March 31, 2022 and 2021. See Note 19 for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.
STATEMENT OF CASH FLOWS
CASH FLOWS FROM CONTINUING OPERATIONS. The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and post retirement plans.
Cash used for operating activities was $0.5 billion in 2022, a decrease of $2.1 billion compared with 2021, primarily due to: a decrease in financial services-related cash collateral paid net of settlements on derivative contracts of $1.6 billion, which is a standard market practice to minimize derivative counterparty exposures; a decrease in cash used for All other operating activities primarily due to the nonrecurrence of settlements of factoring related liabilities of $0.4 billion, an increase in Aviation-related customer allowance accruals of $0.3 billion (compared to an insignificant decrease in 2021) and the nonrecurrence of the settlement of an Alstom legacy legal matter of $0.2 billion in 2021; partially offset by an increase in cash used for working capital of $0.4 billion.
The cash impacts from changes in working capital compared to prior year were as follows: current receivables of $(1.7) billion, driven by higher volume and lower collections, partially offset by decreases in sales of receivables to third parties in 2021; inventories, including deferred inventory, of $(0.3) billion, driven by lower liquidations; current contract assets of $0.5 billion, driven by higher billings on our long-term service agreements; accounts payable and equipment project accruals of $0.4 billion, driven by lower disbursements related to purchases of materials in prior periods and progress collections and current deferred income of $0.7 billion, driven by lower liquidations.
Cash used for investing activities was $0.5 billion in 2022, an increase of $1.3 billion compared with 2021, primarily due to: lower cash received related to net settlements between our continuing operations and businesses in discontinued operations (primarily GECAS) of $0.9 billion (a component of All other investing activities); an increase in purchases of insurance investment securities of $0.6 billion; partially offset by an increase in proceeds of $0.6 billion from the sales of our retained ownership interest in Baker Hughes. Cash used for additions to property, plant and equipment and internal-use software, which are components of free cash flows*, was $0.4 billion in both 2022 and 2021.
Cash used for financing activities was $1.5 billion in 2022, a decrease of $0.1 billion compared with 2021, primarily due to: lower net debt maturities of $0.3 billion; partially offset by lower cash received on derivatives hedging foreign currency debt of $0.1 billion.
SUPPLY CHAIN FINANCE PROGRAMS. We facilitate voluntary supply chain finance programs with third parties, which provide participating suppliers the opportunity to sell their GE receivables to third parties at the sole discretion of both the suppliers and the third parties. At March 31, 2022 and December 31, 2021, included in accounts payable was $3.3 billion and $3.4 billion, respectively, of supplier invoices that are subject to the third-party programs. Total supplier invoices paid through these third-party programs were $1.9 billion and $1.6 billion for the three months ended March 31, 2022 and 2021, respectively.
CRITICAL ACCOUNTING ESTIMATES. Please refer to the Critical Accounting Estimates and Other Items sections within MD&A and Note 1 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our accounting policies and critical accounting estimates.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued new guidance on accounting for long-duration insurance contracts that is effective for our interim and annual periods beginning January 1, 2023 and applied retrospectively to January 1, 2021 (i.e., the transition date). We will adopt the new guidance using the modified retrospective transition method where permitted. We expect adoption of the new guidance will significantly change the accounting for measurements of our long-duration insurance liabilities and materially affect our consolidated financial statements and require changes to our actuarial, accounting and financial reporting processes; systems; and internal controls. The new guidance requires cash flow assumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidence indicates previous assumptions warrant revision with any required changes recorded in earnings. These changes will result in the elimination of premium deficiency testing and shadow adjustments. Under the new guidance, the discount rate will be equivalent to the upper-medium grade (i.e., single A) fixed-income instrument yield reflecting the duration characteristics of our insurance liabilities and is required to be updated in each reporting period with changes recorded in Accumulated other comprehensive income (AOCI). At the transition date, we expect the most substantial impact to result in a material decrease to shareholders’ equity, primarily from a reduction in AOCI attributable to remeasuring our insurance liabilities using the single A rate, which is lower than our current locked-in discount rate, partially offset by the removal of shadow adjustments. This reduction to AOCI will be significantly greater than that derived by applying the overall discount rate sensitivity disclosed in the GAAP Reserve Sensitivities within the Other Items section of our Annual Report on Form 10-K for the year ended December 31, 2021.
In conjunction with adoption of the new guidance, we are in process of converting our long-term care insurance claim cost projection models to first principles models. Based on the lower level of grouping of contracts required under the new guidance, combined with the more granular nature of first principles models, the effect on the transition adjustment related to the new guidance may be greater than under our current claim cost models and may result in an additional decrease in Shareholders’ equity, primarily from a reduction in Retained earnings attributable to certain long-term care insurance groupings where the projected present value of future cash flows exceeds the reserves at the transition date.
As the new guidance is only applicable to the measurements of our long-duration insurance liabilities under GAAP and first principles models, in isolation, may result in some initial variances in assumptions that reduce our GAAP insurance premium deficiency margin, we expect to maintain a positive GAAP margin and do not expect changes to statutory insurance reserves, regulatory capital requirements or projected funding.
NON-GAAP FINANCIAL MEASURES. We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the total company and its businesses. This includes adjustments in recent periods to GAAP financial measures to increase period-to-period comparability following actions to strengthen our overall financial position and how we manage our business. In addition, management recognizes that certain non-GAAP terms may be interpreted differently by other companies under different circumstances. In various sections of this report we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically organic revenues by segment; organic revenues, and equipment and services organic revenues (2) profit, specifically organic profit and profit margin by segment; Adjusted profit and profit margin; Adjusted organic profit and profit margin; Adjusted earnings (loss); and Adjusted earnings (loss) per share (EPS), and (3) cash flows, specifically free cash flows (FCF). The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
*Non-GAAP Financial Measure
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) |
| Revenues | | Segment profit (loss) | | Profit margin |
Three months ended March 31 | 2022 | 2021 | V% | | 2022 | 2021 | V% | | 2022 | 2021 | V pts |
Aviation (GAAP) | $ | 5,603 | | $ | 4,992 | | 12 | % | | $ | 908 | | $ | 641 | | 42 | % | | 16.2 | % | 12.8 | % | 3.4pts |
Less: acquisitions | — | | — | | | | — | | — | | | | | | |
Less: business dispositions | — | | — | | | | — | | — | | | | | | |
Less: foreign currency effect | (9) | | 1 | | | | 16 | | 1 | | | | | | |
Aviation organic (Non-GAAP) | $ | 5,612 | | $ | 4,991 | | 12 | % | | $ | 892 | | $ | 640 | | 39 | % | | 15.9 | % | 12.8 | % | 3.1pts |
| | | | | | | | | | | |
Healthcare (GAAP) | $ | 4,363 | | $ | 4,308 | | 1 | % | | $ | 538 | | $ | 698 | | (23) | % | | 12.3 | % | 16.2 | % | (3.9)pts |
Less: acquisitions | 66 | | — | | | | (29) | | — | | | | | | |
Less: business dispositions | — | | — | | | | — | | — | | | | | | |
Less: foreign currency effect | (86) | | — | | | | (29) | | (1) | | | | | | |
Healthcare organic (Non-GAAP) | $ | 4,383 | | $ | 4,308 | | 2 | % | | $ | 595 | | $ | 700 | | (15) | % | | 13.6 | % | 16.2 | % | (2.6)pts |
| | | | | | | | | | | |
Renewable Energy (GAAP) | $ | 2,871 | | $ | 3,248 | | (12) | % | | $ | (434) | | $ | (234) | | (86) | % | | (15.1) | % | (7.2) | % | (7.9)pts |
Less: acquisitions | — | | (11) | | | | — | | (4) | | | | | | |
Less: business dispositions | — | | — | | | | — | | — | | | | | | |
Less: foreign currency effect | (60) | | 1 | | | | 17 | | 7 | | | | | | |
Renewable Energy organic (Non-GAAP) | $ | 2,931 | | $ | 3,258 | | (10) | % | | $ | (451) | | $ | (236) | | (91) | % | | (15.4) | % | (7.2) | % | (8.2)pts |
| | | | | | | | | | | |
Power (GAAP) | $ | 3,501 | | $ | 3,921 | | (11) | % | | $ | 63 | | $ | (87) | | F | | 1.8 | % | (2.2) | % | 4.0pts |
Less: acquisitions | — | | — | | | | — | | — | | | | | | |
Less: business dispositions | — | | 155 | | | | — | | — | | | | | | |
Less: foreign currency effect | (69) | | (17) | | | | (5) | | (23) | | | | | | |
Power organic (Non-GAAP) | $ | 3,570 | | $ | 3,782 | | (6) | % | | $ | 68 | | $ | (64) | | F | | 1.9 | % | (1.7) | % | 3.6pts |
| | | | | | | | | | | |
We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | | |
ORGANIC REVENUES (NON-GAAP) | Three months ended March 31 | | |
| 2022 | 2021 | V% | | | | |
Total revenues (GAAP) | $ | 17,040 | | $ | 17,071 | | — | % | | | | |
Less: Insurance revenues | 767 | | 755 | | | | | | |
Adjusted revenues (Non-GAAP) | $ | 16,272 | | $ | 16,316 | | — | % | | | | |
Less: acquisitions | 67 | | (11) | | | | | | |
Less: business dispositions | — | | 46 | | | | | | |
Less: foreign currency effect(a) | (227) | | (15) | | | | | | |
Organic revenues (Non-GAAP) | $ | 16,433 | | $ | 16,295 | | 1 | % | | | | |
| | | | | | | |
(a) Foreign currency impact in 2022 was primarily driven by U.S. Dollar depreciation against the euro, Japanese yen, and Indian rupee. |
We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | | |
EQUIPMENT AND SERVICES ORGANIC REVENUES (NON-GAAP) | Three months ended March 31 | | |
| 2022 | 2021 | V% | | | | |
Total equipment revenues (GAAP) | $ | 6,864 | | $ | 7,971 | | (14) | % | | | | |
Less: acquisitions | 65 | | — | | | | | | |
Less: business dispositions | — | | (62) | | | | | | |
Less: foreign currency effect | (131) | | (7) | | | | | | |
Equipment organic revenues (Non-GAAP) | $ | 6,931 | | $ | 8,040 | | (14) | % | | | | |
| | | | | | | |
Total services revenues (GAAP) | $ | 9,408 | | $ | 8,345 | | 13 | % | | | | |
Less: acquisitions | 1 | | (11) | | | | | | |
Less: business dispositions | — | | 108 | | | | | | |
Less: foreign currency effect | (96) | | (8) | | | | | | |
Services organic revenues (Non-GAAP) | $ | 9,502 | | $ | 8,255 | | 15 | % | | | | |
We believe this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | |
ADJUSTED PROFIT AND PROFIT MARGIN (NON-GAAP) | Three months ended March 31 | |
| 2022 | 2021 | V% | | | |
Total revenues (GAAP) | $ | 17,040 | | $ | 17,071 | | — | % | | | |
Less: Insurance revenues | 767 | | 755 | | | | | |
Adjusted revenues (Non-GAAP) | $ | 16,272 | | $ | 16,316 | | — | % | | | |
| | | | | | |
Total costs and expenses (GAAP) | $ | 17,638 | | $ | 17,506 | | 1 | % | | | |
Less: Insurance cost and expenses | 543 | | 618 | | | | | |
Less: interest and other financial charges | 390 | | 485 | | | | | |
Less: non-operating benefit cost (income) | (137) | | 430 | | | | | |
Less: restructuring & other(a) | 38 | | 113 | | | | | |
Less: separation costs(a) | 119 | | — | | | | | |
Less: Steam asset sale impairment(a) | 824 | | — | | | | | |
Less: Russia and Ukraine charges(a) | 230 | | — | | | | | |
Add: noncontrolling interests | 28 | | 5 | | | | | |
Add: EFS benefit from taxes | (47) | | (31) | | | | | |
Adjusted costs (Non-GAAP) | $ | 15,611 | | $ | 15,834 | | (1) | % | | | |
| | | | | | |
Other income (GAAP) | $ | 73 | | $ | 673 | | (89) | % | | | |
Less: gains (losses) on equity securities(a) | (219) | | 347 | | | | | |
Less: restructuring & other(a) | 3 | | 7 | | | | | |
Less: gains (losses) on purchases and sales of business interests(a) | 4 | | 3 | | | | | |
Adjusted other income (Non-GAAP) | $ | 285 | | $ | 317 | | (10) | % | | | |
| | | | | | |
Profit (loss) (GAAP) | $ | (525) | | $ | 238 | | U | | | |
Profit (loss) margin (GAAP) | (3.1) | % | 1.4 | % | (4.5)pts | | | |
| | | | | | |
Adjusted profit (loss) (Non-GAAP) | $ | 946 | | $ | 798 | | 19 | % | | | |
Adjusted profit (loss) margin (Non-GAAP) | 5.8 | % | 4.9 | % | 0.9pts | | | |
| | | | | | |
(a) See the Corporate and Other Consolidated Information sections for further information. |
We believe that adjusting profit to exclude the effects of items that are not closely associated with ongoing operations provides management and investors with a meaningful measure that increases the period-to-period comparability. Gains (losses) and restructuring and other items are impacted by the timing and magnitude of gains associated with dispositions, and the timing and magnitude of costs associated with restructuring and other activities. |
| | | | | | | | | | | | | | | |
ADJUSTED ORGANIC PROFIT (NON-GAAP) | Three months ended March 31 | | |
| 2022 | 2021 | V% | | | | |
Adjusted profit (loss) (Non-GAAP) | $ | 946 | | $ | 798 | | 19 | % | | | | |
Less: acquisitions | (34) | | (4) | | | | | | |
Less: business dispositions | — | | 4 | | | | | | |
Less: foreign currency effect | 1 | | (5) | | | | | | |
Adjusted organic profit (loss) (Non-GAAP) | $ | 979 | | $ | 803 | | 22 | % | | | | |
| | | | | | | |
Adjusted profit (loss) margin (Non-GAAP) | 5.8 | % | 4.9 | % | 0.9 | pts | | | | |
Adjusted organic profit (loss) margin (Non-GAAP) | 6.0 | % | 4.9 | % | 1.1 | pts | | | | |
| | | | | | | |
We believe this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. |
| | | | | | | | | | | | | | |
ADJUSTED EARNINGS (LOSS) (NON-GAAP) | Three months ended March 31 | |
| 2022 | 2021 | V% | | | |
Earnings (loss) from continuing operations (GAAP)(a) | $ | (809) | | $ | 20 | | U | | | |
Insurance earnings (pre-tax) | 227 | | 142 | | | | | |
Tax effect on Insurance earnings | (49) | | (31) | | | | | |
Less: Insurance earnings (net of tax) | 178 | | 111 | | | | | |
Earnings (loss) excluding Insurance (Non-GAAP) | $ | (987) | | $ | (91) | | U | | | |
Non-operating benefit (cost) income (pre-tax) (GAAP) | 137 | | (430) | | | | | |
Tax effect on non-operating benefit (cost) income | (29) | | 90 | | | | | |
Less: non-operating benefit (cost) income (net of tax) | 108 | | (340) | | | | | |
Gains (losses) on purchases and sales of business interests (pre-tax)(a) | 4 | | 3 | | | | | |
Tax effect on gains (losses) on purchases and sales of business interests | (1) | | (1) | | | | | |
Less: gains (losses) on purchases and sales of business interests (net of tax) | 3 | | 2 | | | | | |
Gains (losses) on equity securities (pre-tax)(a) | (219) | | 347 | | | | | |
Tax effect on gains (losses) on equity securities(b)(c) | (20) | | (118) | | | | | |
Less: gains (losses) on equity securities (net of tax) | (239) | | 229 | | | | | |
Restructuring & other (pre-tax)(a) | (35) | | (106) | | | | | |
Tax effect on restructuring & other | 8 | | 22 | | | | | |
Less: restructuring & other (net of tax) | (27) | | (84) | | | | | |
Separation costs (pre-tax)(a) | (119) | | — | | | | | |
Tax effect on separation costs | (20) | | — | | | | | |
Less: separation costs (net of tax) | (139) | | — | | | | | |
Steam asset sale impairment (pre-tax)(a) | (824) | | — | | | | | |
Tax effect on Steam asset sale impairment | 84 | | — | | | | | |
Less: Steam asset sale impairment (net of tax) | (740) | | — | | | | | |
Russia and Ukraine charges (pre-tax)(a) | (230) | | — | | | | | |
Tax effect on Russia and Ukraine charges | 15 | | — | | | | | |
Less: Russia and Ukraine charges (net of tax) | (215) | | — | | | | | |
Less: Accretion of redeemable noncontrolling interest (pre-tax and net of tax) | — | | 2 | | | | | |
| | | | | | |
Less: Tax loss related to GECAS transaction | — | | (44) | | | | | |
Adjusted earnings (loss) (Non-GAAP) | $ | 262 | | $ | 142 | | 85 | % | | | |
| | | | | | |
(a) See the Corporate section for further information. | | | | |
(b) Includes tax benefits available to offset the tax on gains in equity securities. | | | | |
(c) Includes related tax valuation allowances. | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | |
ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) (NON-GAAP) | Three months ended March 31 | |
(In dollars) | 2022 | 2021 | V% | | | |
Earnings (loss) per share from continuing operations (GAAP)(a) | $ | (0.74) | | $ | 0.02 | | U | | | |
Insurance earnings (pre-tax) | 0.21 | | 0.13 | | | | | |
Tax effect on Insurance earnings | (0.04) | | (0.03) | | | | | |
Less: Insurance earnings (net of tax) | 0.16 | | 0.10 | | | | | |
Earnings (loss) per share excluding Insurance (Non-GAAP) | $ | (0.90) | | $ | (0.08) | | U | | | |
Non-operating benefit (cost) income (pre-tax) (GAAP) | 0.12 | | (0.39) | | | | | |
Tax effect on non-operating benefit (cost) income | (0.03) | | 0.08 | | | | | |
Less: non-operating benefit (cost) income (net of tax) | 0.10 | | (0.31) | | | | | |
Gains (losses) on purchases and sales of business interests (pre-tax)(a) | — | | — | | | | | |
Tax effect on gains (losses) on purchases and sales of business interests | — | | — | | | | | |
Less: gains (losses) on purchases and sales of business interests (net of tax) | — | | — | | | | | |
Gains (losses) on equity securities (pre-tax)(a) | (0.20) | | 0.32 | | | | | |
Tax effect on gains (losses) on equity securities(b)(c) | (0.02) | | (0.11) | | | | | |
Less: gains (losses) on equity securities (net of tax) | (0.22) | | 0.21 | | | | | |
Restructuring & other (pre-tax)(a) | (0.03) | | (0.10) | | | | | |
Tax effect on restructuring & other | 0.01 | | 0.02 | | | | | |
Less: restructuring & other (net of tax) | (0.02) | | (0.08) | | | | | |
Separation costs (pre-tax)(a) | (0.11) | | — | | | | | |
Tax effect on separation costs | (0.02) | | — | | | | | |
Less: separation costs (net of tax) | (0.13) | | — | | | | | |
Steam asset sale impairment (pre-tax)(a) | (0.75) | | — | | | | | |
Tax effect on Steam asset sale impairment | 0.08 | | — | | | | | |
Less: Steam asset sale impairment (net of tax) | (0.67) | | — | | | | | |
Russia and Ukraine charges (pre-tax)(a) | (0.21) | | — | | | | | |
Tax effect on Russia and Ukraine charges | 0.01 | | — | | | | | |
Less: Russia and Ukraine charges (net of tax) | (0.20) | | — | | | | | |
Less: Accretion of redeemable noncontrolling interest (pre-tax and net of tax) | — | | — | | | | | |
| | | | | | |
Less: Tax loss related to GECAS transaction | — | | (0.04) | | | | | |
Adjusted earnings (loss) per share (Non-GAAP) | $ | 0.24 | | $ | 0.13 | | 85 | % | | | |
| | | | | | |
(a) See the Corporate section for further information. | | | | | |
(b) Includes tax benefits available to offset the tax on gains in equity securities. | | | | |
(c) Includes related tax valuation allowances. | | | | | | |
| | | | | | |
Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total. |
The service cost for our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance. We believe the retained costs in Adjusted earnings* and Adjusted EPS* provides management and investors a useful measure to evaluate the performance of the total company and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2022. |
| | | | | | | | | | | | | |
FREE CASH FLOWS (FCF) (NON-GAAP) | Three months ended March 31 | | |
| 2022 | 2021 | | | | | |
CFOA (GAAP) | $ | (535) | | $ | (2,640) | | | | | | |
Less: Insurance CFOA | (15) | | 60 | | | | | | |
CFOA excluding Insurance (Non-GAAP) | $ | (520) | | $ | (2,699) | | | | | | |
Add: gross additions to property, plant and equipment | (340) | | (332) | | | | | | |
Add: gross additions to internal-use software | (23) | | (24) | | | | | | |
Less: separation costs cash expenditures | (3) | | — | | | | | | |
| | | | | | | |
| | | | | | | |
Less: CFOA impact from receivables factoring and supply chain finance eliminations | — | | 306 | | | | | | |
| | | | | | | |
Free cash flows (Non-GAAP) | $ | (880) | | $ | (3,361) | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
We believe investors may find it useful to compare free cash flows* performance without the effects of cash used for operating activities related to our run-off Insurance business, separation costs cash expenditures and eliminations related to our receivables factoring and supply chain finance programs. We believe this measure will better allow management and investors to evaluate the capacity of our operations to generate free cash flows. The CFOA impact from receivables factoring and supply chain finance eliminations represents activity related to those internal programs previously facilitated for our industrial segments by our Working Capital Solutions business. We completed the exit from all internal factoring and supply chain finance programs in 2021. |
*Non-GAAP Financial Measure
CONTROLS AND PROCEDURES. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2022, and (ii) no change in internal control over financial reporting occurred during the quarter ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. On March 6, 2022, the Board of Directors authorized up to $3 billion of common share repurchases. There were no share repurchases during the three months ended March 31, 2022.
RISK FACTORS. The risk factor set forth below updates the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2021. These risk factors could materially affect our business, financial position and results of operations.
Global macro-environment - Our growth is subject to global economic, political and geopolitical risks. We operate in virtually every part of the world, serve customers in over 175 countries and received 56% of our revenues for 2021 from outside the United States. Our operations and the execution of our business plans and strategies are subject to the effects of global economic trends, geopolitical risks and demand or supply shocks from events that could include war, a major terrorist attack, natural disasters or actual or threatened public health emergencies (such as COVID-19, including virus variants and resurgences and responses to those developments such as continued or new government-imposed lockdowns and travel restrictions). They are also affected by local and regional economic environments, supply chain constraints and policies in the U.S. and other markets that we serve, including interest rates, monetary policy, inflation, economic growth, recession, commodity prices, currency volatility, currency controls or other limitations on the ability to expatriate cash, sovereign debt levels and actual or anticipated defaults on sovereign debt. For example, the ongoing conflict between Russia and Ukraine and the related sanctions and other measures imposed by the European Union, the U.S. and other countries and organizations in response have led, and may continue to lead, to disruption and instability in global markets, supply chains and industries that could negatively impact our businesses, financial condition and results of operations. Additionally, changes in local economic conditions or outlooks, such as lower rates of investment or economic growth in China, Europe or other key markets, affect the demand for or profitability of our products and services outside the U.S., and the impact on the Company could be significant given the extent of our activities outside the United States. Political changes and trends such as populism, protectionism, economic nationalism and sentiment toward multinational companies and resulting tariffs, export controls or other trade barriers, or changes to tax or other laws and policies, have been and may continue to be disruptive and costly to our businesses, and these can interfere with our global operating model, supply chain, production costs, customer relationships and competitive position. Further escalation of specific trade tensions, including intensified decoupling between the U.S. and China, or in global trade conflict more broadly could be harmful to global economic growth or to our business in or with China or other countries, and related decreases in confidence or investment activity in the global markets would adversely affect our business performance. We also do business in many emerging market jurisdictions where economic, political and legal risks are heightened.