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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A). The consolidated financial statements of General Electric
Company are prepared in conformity withU.S. generally accepted accounting principles (GAAP). Unless otherwise noted, tables are presented inU.S. dollars in millions. 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 this 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. 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" underSEC 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
THIRD QUARTER 2022 RESULTS. Total revenues were
for the quarter, driven primarily by increases at Aerospace and HealthCare,
partially offset by decreases at Renewable Energy and Power.
Continuing earnings (loss) per share was$(0.14) . Excluding the results from our run-off Insurance business, separation costs, restructuring costs, non-operating benefit costs, gains (losses) on equity securities and gains (losses) on purchases and sales of business interests, Adjusted earnings per share* was$0.35 . For the three months endedSeptember 30, 2022 , profit margin was (0.3)% and profit was down$0.6 billion , primarily due to a net loss on the value of equity securities of$0.5 billion compared to the prior year gain, a decrease in segment profit of$0.4 billion , a decrease in Insurance profit of$0.4 billion and separation costs of$0.2 billion , partially offset by a decrease in non-operating benefit costs of$0.6 billion and a net gain on purchases and sales of businesses of$0.2 billion compared to the prior year loss. Adjusted organic profit* decreased$0.3 billion (20%), driven primarily by a decrease at Renewable Energy, partially offset by an increase at Aerospace and lower adjusted total corporate operating costs*. Cash flows from operating activities (CFOA) were$1.3 billion and$(1.5) billion for the nine months endedSeptember 30, 2022 and 2021, respectively. Cash flows from operating activities increased primarily due to a decrease in cash collateral paid net of settlements on interest rate derivative contracts, an increase in net income (after adjusting for amortization of intangible assets, non-cash losses related to our interests in AerCap andBaker Hughes and non-operating debt extinguishment costs) and an increase in cash from all other operating activities. Free cash flows* (FCF) were$0.5 billion and$(1.8) billion for the nine months endedSeptember 30, 2022 and 2021, respectively. FCF* increased primarily due to the same reasons as noted for CFOA above, partially offset by an increase in cash used for working capital (after adjusting for the impact from discontinued factoring programs and eliminations related to our receivables factoring and supply chain finance programs). See the Capital Resources and Liquidity - Statement of Cash Flows section for further information.
Remaining performance obligation (RPO) is unfilled customer orders for products
and product services (expected life of contract sales for product services)
excluding any purchase order that provides the customer with the ability to
cancel or terminate without incurring a substantive penalty. See Note 8 for
further information.
RPO September 30, 2022 December 31, 2021
Equipment $ 44,734 $ 45,065
Services 196,029 194,755
Total RPO $ 240,763 $ 239,820
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 4
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As of September 30, 2022 , RPO increased $0.9 billion from December 31, 2021 ,
primarily at Aerospace, from engines contracted under long-term service
agreements that have now been put into service and contract modifications;
partially offset by decreases at Power, from the continued wind down of the
Steam Power new build coal business and sales outpacing new orders in Gas Power
contractual services; at Renewable Energy, from the overall impact of a stronger
U.S. dollar and sales exceeding new orders at Onshore Wind; and at HealthCare,
from the impact of contract renewal timing in services.
Three months ended Nine months ended
REVENUES September 30 September 30
2022 2021 2022 2021
Equipment revenues$ 8,082 $ 8,903 $ 22,549 $ 25,172 Services revenues 10,356 8,910 30,041 26,427 Insurance revenues 646 756 2,179 2,295 Total revenues$ 19,084 $ 18,569 $ 54,769 $ 53,893 For the three months endedSeptember 30, 2022 , total revenues increased$0.5 billion (3%). Equipment revenues decreased, primarily at Renewable Energy, due to fewer wind turbine deliveries at Onshore Wind; and at Power, due to decreases in Gas Power HA turbine and aeroderivative deliveries and decreases inSteam Power equipment on the exit of new build coal; partially offset by increases at HealthCare, due to Imaging and Ultrasound, mainly due to strong growth in theU.S. andEurope , theMiddle East andAfrica ; and at Aerospace, due to an increase in commercial install and spare engine unit shipments versus the prior year. Services revenues increased, primarily at Aerospace, due to higher prices, increased shop visit volume and higher volume of commercial spare part shipments; at Renewable Energy, primarily due to higher core services and more repower unit deliveries at Onshore Wind; and at HealthCare, primarily due to the continued growth ofPharmaceutical Diagnostics (PDx) and Healthcare Systems (HCS); partially offset by a decrease at Power, due to lower planned contractual services outages atGas Power and prior yearSteam Power services volume that did not repeat. Insurance revenues decreased$0.1 billion (15%). Excluding the change in Insurance revenues, the net effects of acquisitions of$0.1 billion , the net effects of dispositions of$0.1 billion and the effects of a strongerU.S. dollar of$0.6 billion , organic revenues* increased$1.3 billion (7%), with equipment revenues down$0.5 billion (6%) and services revenues up$1.8 billion (20%). Organic revenues* increased at Aerospace and HealthCare, partially offset by decreases at Renewable Energy and Power. For the nine months endedSeptember 30, 2022 , total revenues increased$0.9 billion (2%). Equipment revenues decreased, primarily at Renewable Energy, due to fewer wind turbine deliveries at Onshore Wind and lower revenue at Grid; at Power, due to a decrease inSteam Power equipment on the exit of new build coal; and at Aerospace, due to lower GEnx engine production rates and product transition with fewer engine shipments on legacy programs; partially offset by an increase at HealthCare, driven by Imaging, mainly due to strong growth in theU.S. andEurope , theMiddle East andAfrica , partially offset byChina . Services revenues increased, primarily at Aerospace, due to higher prices, increased shop visit volume and higher volume of commercial spare part shipments; at Renewable Energy, primarily due to higher services revenue at Onshore Wind from a larger installed base and more repower unit deliveries; and at HealthCare, driven by the continued growth of HCS; partially offset by a decrease at Power, due to prior yearSteam Power services volume that did not repeat. Insurance revenues decreased$0.1 billion (5%). Excluding the change in Insurance revenues, the net effects of acquisitions of$0.2 billion , the net effects of dispositions of$0.2 billion and the effects of a strongerU.S. dollar of$1.3 billion , organic revenues* increased$2.3 billion (4%), with equipment revenues down$2.1 billion (8%) and services revenues up$4.4 billion (17%). Organic revenues* increased at Aerospace and HealthCare, partially offset by decreases at Renewable Energy and Power. Three months ended Nine months ended EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE September 30 September 30 (Per-share in dollars and diluted) 2022 2021 2022 2021 Continuing earnings (loss) attributable toGE common shareholders$ (153) $ 603 $ (1,609) $ (1) Continuing earnings (loss) per share$ (0.14) $ 0.54
For the three months endedSeptember 30, 2022 , continuing earnings decreased$0.8 billion primarily due to a net loss on the value of equity securities of$0.5 billion compared to the prior year gain, a decrease in segment profit of$0.4 billion , a decrease in Insurance profit of$0.4 billion and separation costs of$0.2 billion , partially offset by a decrease in non-operating benefit costs of$0.6 billion and a net gain on purchases and sales of businesses of$0.2 billion compared to the prior year loss. Adjusted earnings* was$0.4 billion , a decrease of$0.2 billion . Profit margin was (0.3)%, a decrease from 3.1%. Adjusted profit* was$1.1 billion , a decrease of$0.3 billion organically*, due to a decrease at Renewable Energy, partially offset by an increase at Aerospace and lower adjusted total corporate operating costs*. Adjusted profit margin* was 5.8%, a decrease of 190 basis points organically*. For the nine months endedSeptember 30, 2022 , continuing earnings decreased$1.6 billion primarily due to a net loss on the value of equity securities of$3.1 billion compared to the prior year gain, an increase in provision for income taxes of$0.9 billion , the Steam asset sale impairment of$0.8 billion , separation costs of$0.6 billion andRussia andUkraine charges of$0.3 billion , partially offset by a decrease in non-operating benefit costs of$1.8 billion , the nonrecurrence of debt extinguishment costs of$1.4 billion , lower adjusted total corporate operating costs of$0.5 billion , lower interest and other financial charges of$0.3 billion and an increase in segment profit of$0.2 billion . Adjusted earnings* were$1.5 billion , an increase of$0.5 billion . Profit margin was (1.5)%, a decrease from (0.4)%. Adjusted profit* was$3.7 billion , an increase of$0.7 billion organically*, due to increases at Aerospace and Power, and lower adjusted total corporate operating costs*, partially offset by decreases Renewable Energy and HealthCare. Adjusted profit margin* was 7.0%, an increase of 100 basis points organically*.
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 5
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We continue to experience inflation pressure in our supply chain, as well as
delays in sourcing key materials needed for our products. This has delayed our
ability to convert RPO to revenue and negatively impacted our profit margins.
While we are taking actions to limit this pressure, we may continue to
experience impacts in future periods. Also, geopolitical uncertainties with the
ongoing Russia and Ukraine conflict, as well as recent COVID-19 impacts in
China , are introducing additional challenges. As of September 30, 2022 , we have
approximately $0.5 billion of remaining assets in Russia and Ukraine , primarily
in our Power and HealthCare businesses, which relate to activity not subject to
sanctions or restricted under Company policy.
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 September 30 Nine months ended September 30
SUMMARY OF REPORTABLE SEGMENTS 2022 2021 V % 2022 2021 V %
Aerospace $ 6,705 $ 5,398 24 % $ 18,434 $ 15,230 21 %
HealthCare 4,613 4,339 6 % 13,494 13,100 3 %
Renewable Energy 3,594 4,208 (15) % 9,564 11,505 (17) %
Power 3,529 4,026 (12) % 11,233 12,242 (8) %
Total segment revenues 18,440 17,970 3 % 52,725 52,076 1 %
Corporate 643 599 7 % 2,044 1,816 13 %
Total revenues $ 19,084 $ 18,569 3 % $ 54,769 $ 53,893 2 %
Aerospace $ 1,284 $ 846 52 % $ 3,341 $ 1,664 F
HealthCare 712 704 1 % 1,901 2,203 (14) %
Renewable Energy (934) (151) U (1,786) (484) U
Power 141 204 (31) % 524 416 26 %
Total segment profit (loss) 1,204 1,603 (25) % 3,980 3,799 5 %
Corporate(a) (960) (40) U (3,947) 361 U
Interest and other financial charges (377) (446) 15
% (1,146) (1,403) 18 % Debt extinguishment costs - - F - (1,416) F Non-operating benefit income (cost) 125 (427) F 396 (1,374) F Benefit (provision) for income taxes (72) (35) U (701) 211 U Preferred stock dividends (73) (52) (40) % (192) (180) (7) % Earnings (loss) from continuing operations attributable toGE common shareholders (153) 603 U (1,609) (1) U Earnings (loss) from discontinued operations attributable toGE common shareholders (85) 602 U (580) (2,856) 80 % Net earnings (loss) attributable toGE common shareholders$ (238) $ 1,205 U$ (2,189) $ (2,857) 23 % (a) Includes interest and other financial charges of$13 million and$16 million , and$45 million and$47 million ; and benefit for income taxes of$52 million and$33 million , and$160 million and$111 million related toEnergy Financial Services (EFS) within Corporate for the three and nine months endedSeptember 30, 2022 and 2021, respectively. GE AEROSPACE. Our results in the third quarter of 2022 reflect the continued recovery of the commercial markets from the effects of the COVID-19 pandemic. Global industrial supply chain disruptions in material and labor continued to affect performance, however, Aerospace saw signs of improved flow through our factories. A key underlying driver of our commercial engine and services business is global commercial air traffic. We regularly track global departures, which improved 19% during the third quarter of 2022 compared to the third quarter of 2021, and stand at approximately 85% of 2019 levels as ofSeptember 30, 2022 . Global supply chain constraints and labor shortages, in part driven by the pandemic, are causing disruptions for us and our suppliers, which have impacted our production and delivery. We continue to partner with our airline and leasing customers and collaborate with our airframe partners on future production rates. However, supply chain output improved this quarter, and we increased our Commercial and Military engine sales units by 32% compared to the second quarter of 2022 and 21% compared to the same quarter last year. Government travel restrictions and COVID-19 virus variants have driven varied levels of recovery regionally. We remain confident in the recovery, and current trends are in line with our recovery forecast. Consistent with updated industry projections, although overall traffic recovery remains unchanged, we now estimate both single-aisle and twin-aisle air traffic to recover to 2019 levels in late 2023. 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. As it relates to the military environment, we continue to forecast strong military demand creating future growth opportunities for our Military business as theU.S. Department of Defense and foreign governments have continued flight operations, and have allocated budgets to upgrade and modernize their existing fleets. InSeptember 2022 , Aerospace and theU.S. Air Force successfully concluded testing on the second XA100 adaptive cycle engine, marking the final major contract milestone of theAir Force's Adaptive Engine Transition Program (AETP). 2022 3Q FORM 10-Q 6
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Total engineering, comprising company, customer and partner-funded and
nonrecurring engineering costs, increased compared to the prior year. We
continue to be committed to investment in developing and maturing technologies
that enable a more sustainable future of flight.
We continue to take actions to protect our ability to serve our customers now
and as the global airline industry recovers. Our deep history of innovation and
technology leadership, commercial engine installed base of approximately 39,400
units, with approximately 11,500 units under long-term service agreements, and
military engine installed base of approximately 26,200 units represents strong
long-term fundamentals. We believe Aerospace is well-positioned to drive
long-term profitable growth and cash generation over time.
Three months ended September 30
Nine months ended
Sales in units, except where noted 2022 2021 2022 2021 Commercial Engines(a) 489 377 1,187 1,119 LEAP Engines(b) 347 226 812 625 Military Engines 151 154 466 405 Spare Parts Rate(c)$ 29.4 $ 19.3 $ 25.2$ 15.8 (a) Commercial Engines now includesBusiness 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 September 30, 2022 December 31, 2021 Equipment $ 12,324 $ 11,139 Services 117,785 114,133 Total RPO $ 130,109 $ 125,272 SEGMENT REVENUES AND PROFIT Three months ended September 30
Nine months ended
2022 2021 2022 2021
Commercial Engines & Services
$ 13,130 $ 10,071 Military 1,027 1,107 3,159 3,104 Systems & Other 707 689 2,146 2,055 Total segment revenues$ 6,705 $ 5,398 $ 18,434 $ 15,230 Equipment$ 1,968 $ 1,837 $ 5,379 $ 5,549 Services 4,736 3,562 13,055 9,681 Total segment revenues$ 6,705 $ 5,398 $ 18,434 $ 15,230 Segment profit$ 1,284 $ 846 $ 3,341 $ 1,664 Segment profit margin 19.1 % 15.7 % 18.1 % 10.9 %
For the three months ended
billion
Revenues increased$1.3 billion (25%) organically*. Commercial Services revenues increased, primarily due to higher prices, increased shop visit volume and higher volume of commercial spare part shipments. Commercial Engines revenues increased, primarily driven by 112 more commercial install and spare engine unit shipments, including 121 more LEAP units, versus the prior year. Military revenues decreased, primarily due to product mix and 3 fewer engine shipments than the prior year. Profit increased$0.4 billion (47%) organically*, primarily due to higher prices, 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.
For the nine months ended
billion
RPO as ofSeptember 30, 2022 increased$4.8 billion (4%) fromDecember 31, 2021 , due to increases in both equipment and services. Equipment increased primarily due to an increase in Commercial orders sinceDecember 31, 2021 . 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$3.3 billion (21%) organically*. Commercial Services revenues increased, primarily due to higher prices, increased shop visit volume and higher volume of commercial spare part shipments. Commercial Services revenues also increased due to a net favorable change of$0.1 billion for its long-term service agreements compared to a net unfavorable change of$0.3 billion for the same period in the prior year. Commercial Engines revenues increased, primarily driven by 68 more commercial install and spare engine unit shipments, including 187 more LEAP units versus the prior year, partially offset by lower GEnx engine production rates and product transition with fewer engine shipments on legacy programs. Military revenues increased, primarily due to growth in services and 61 more engine shipments than the prior year, partially offset by product mix. *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 7
-------------------------------------------------------------------------------- Profit increased$1.6 billion (96%) organically*, primarily due to higher prices, increased shop visit volume and higher volume of commercial spare part shipments. Profit also increased due to the impact of favorable contract margin reviews for long-term service agreements. 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.GE HEALTHCARE . Market demand and RPO conversion remain positive despite inflationary and supply challenges continuing to impact the industry. Global public spending in healthcare is solid, particularly inEurope andAsia . In theU.S. , customers are taking a more cautious approach as they monitor the economic environment. Overall, continued patient demand is leading providers to invest in products and services that increase productivity and reduce operating costs, an important dynamic as healthcare systems modernize post-pandemic and prepare for increased demand longer-term. Actions of our supply chain and engineering teams as well as proactive supplier engagement are driving fewer delays in securing key materials. However, shortages are still impacting our ability to deliver certain products. Our expectation is that supply chain pressures will continue to improve. We have proactively managed inflation across material and logistics costs. We have continued to adjust pricing of our products, manage discretionary and structural cost in our business, as well as prioritize research and development investments. Delivering for patients and our customers remains a top priority. 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. During the third quarter of 2022, we announced an equity investment inAliveCor , further deepening our ability to deliver connected care so clinicians can make faster, more informed decisions, and help improve patient outcomes. We also announced a collaboration withAMC Health allowing clinicians to offer remote monitoring as a virtual care solution that extends patient care to the home. We remain committed to innovate and invest to create more integrated, efficient and personalized precision care. RPO September 30, 2022 December 31, 2021 Equipment $ 4,554 $ 4,232 Services 9,557 10,375 Total RPO $ 14,110 $ 14,606 SEGMENT REVENUES AND PROFIT Three months ended September 30 Nine months ended September 30 2022 2021 2022 2021 Healthcare Systems (HCS)$ 4,086 $ 3,832 $ 11,998 $ 11,572 Pharmaceutical Diagnostics (PDx) 527 507 1,496 1,528 Total segment revenues$ 4,613 $ 4,339 $ 13,494 $ 13,100 Equipment$ 2,352 $ 2,187 $ 6,945 $ 6,671 Services 2,261 2,151 6,549 6,429 Total segment revenues$ 4,613 $ 4,339 $ 13,494 $ 13,100 Segment profit$ 712 $ 704 $ 1,901 $ 2,203 Segment profit margin 15.4 % 16.2 % 14.1 % 16.8 %
For the three months ended
billion
Revenues increased$0.4 billion (10%) organically*. Equipment revenues increased driven by Imaging and Ultrasound mainly due to strong growth in theU.S. andEurope , theMiddle East andAfrica . Services revenues increased, driven by the continued growth of PDx and HCS. Profit increased 4% organically*, driven by increased volume and HCS price, partially offset by material inflation and logistics cost across all product lines. We also continued to make planned research and development and commercial investments.
For the nine months ended
billion
RPO as ofSeptember 30, 2022 decreased$0.5 billion (3%) fromDecember 31, 2021 , primarily due to an increase in equipment orders, more than offset by the impact of contract renewal timing in services. Revenues increased$0.7 billion (5%) organically*. Equipment revenues increased, driven by Imaging, mainly due to strong growth in theU.S. andEurope , theMiddle East andAfrica , partially offset byChina . Services revenues increased, driven by the continued growth of HCS, offset by PDx, primarily due toChina .
Profit decreased
inflation and logistics cost across all product lines, partially offset by
increased volume and price. We also continued to make planned research and
development and commercial investments.
*Non-GAAP Financial Measure 2022 3Q FORM 10-Q 8
-------------------------------------------------------------------------------- RENEWABLE ENERGY - will be part of GE Vernova,GE's portfolio of energy businesses. OverallU.S. policy uncertainty, rising inflation and permitting challenges has resulted in project delays and deferral of customer investments in Onshore Wind. During the third quarter, the Inflation Reduction Act of 2022 was signed into law, which includes various tax incentives expected to increase longer term demand in theU.S. for onshore and offshore wind projects. The offshore wind industry continues to expect strong global growth through the decade and our Grid business is positioned to support grid expansion and modernization needs. We have experienced significant cost inflation in materials and logistics costs across the entire business that impact price and customer demand. At Onshore Wind, based on experience across our fleet, we are deploying repairs and other corrective measures to improve our overall quality and fleet availability resulting in higher warranty and related reserves. Concurrently, we are undertaking a restructuring program reflecting our selectivity strategy to operate in fewer markets and to simplify and standardize product variants. Our financial results are dependent on costs to address fleet availability, execution of cost reduction initiatives, the inflationary environment, improved selectivity and pricing, andU.S. Treasury tax implementation guidance. New product introductions account for a large portion of our RPO in Onshore and Offshore Wind driven by significant demand for larger turbines that decrease the levelized cost of energy, such as our 5 MW Cypress and 3 MW Sierra Onshore units, and our 12-14 MW Haliade-X Offshore units. We expect to start shipping Haliade-X units for our first commercial project in the fourth quarter of this year. Improving fleet availability while reducing the cost of these new product platforms and blade technologies, remains a key priority. AtGrid Solutions , we are securing our position in the high growth offshore interconnection market with products meeting the 2GW high voltage direct current (HVDC) solution standard and developing new technology such as flexible transformers and eco-friendly g³ switchgears that solve for a denser, more resilient and efficient electric grid and lower greenhouse gas emissions. Three months ended September 30 Nine months ended September 30 Onshore and Offshore sales in units 2022 2021 2022 2021 Wind Turbines 640 1,083 1,703 2,748 Wind Turbine Gigawatts 2.2 3.6 5.8 8.9 Repower units 140 27 415 276 RPO September 30, 2022 December 31, 2021 Equipment $ 17,493 $ 18,639 Services 12,221 12,872 Total RPO $ 29,715 $ 31,511 SEGMENT REVENUES AND PROFIT Three months ended September 30
Nine months ended
2022 2021 2022 2021 Onshore Wind$ 2,445 $ 3,047 $ 6,403 $ 8,048 Grid Solutions equipment and services 744 759 2,145 2,330 Hydro, Offshore Wind and Hybrid Solutions 405 401 1,016 1,126 Total segment revenues$ 3,594 $ 4,208 $ 9,564 $ 11,505 Equipment$ 2,887 $ 3,695 $ 7,505 $ 9,844 Services 707 512 2,059 1,661 Total segment revenues$ 3,594 $ 4,208 $ 9,564 $ 11,505 Segment profit (loss)$ (934) $ (151) $ (1,786) $ (484) Segment profit margin (26.0) % (3.6) % (18.7) % (4.2) %
For the three months ended
billion
Revenues decreased$0.4 billion (10%) organically*, primarily from 443 fewer wind turbine deliveries, primarily at Onshore Wind in theU.S. , partially offset by higher core services and 113 more repower unit deliveries at Onshore Wind, and improved pricing across all businesses. Segment losses increased$0.8 billion organically*, primarily from higher warranty and related reserves of$0.5 billion in response to the deployment of corrective measures and repair campaigns for operating units within our fleet, and lowerU.S. volume at Onshore Wind and cost inflation across all businesses. These increases were partially offset by higher volumes and the impact of cost reduction initiatives at Grid and improved pricing across all businesses.
For the nine months ended
billion
RPO as ofSeptember 30, 2022 decreased$1.8 billion (6%) fromDecember 31, 2021 primarily from the overall impact of a strongerU.S. dollar and sales exceeding new orders at Onshore Wind, partially offset by new orders at Grid and Hydro exceeding sales. The decline in new equipment orders at Onshore Wind is primarily attributable to the U.S. market decline and inflation-related pricing increases negatively impacting near-term demand.
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 9
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Revenues decreased $1.5 billion (13%) organically*, primarily from 1,045 fewer
wind turbine deliveries, primarily 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 139 more repower unit
deliveries.
Segment losses increased $1.4 billion organically*, primarily from lower U.S.
volume and higher warranty and related reserves of $0.5 billion in the third
quarter of 2022 in response to the deployment of corrective measures and repair
campaigns for operating units within our fleet at Onshore Wind and cost
inflation across all businesses, partially offset by the impact of cost
reduction initiatives. Onshore Wind results were also adversely impacted by
execution of lower margin RPO and the impact of transitioning to newer product
offerings internationally.
POWER - will be part of GE Vernova, GE's portfolio of energy businesses. During
the nine months ended September 30, 2022 , global gas generation and GE
utilization grew mid-single digits with strength in Europe and the U.S. The
fleet continues to follow growing gas generation, capturing shortfalls coming
from nuclear outages, coal retirements and hydro and supply disruptions. 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), 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. 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.
In the first quarter of 2022, we signed a non-binding memorandum of
understanding for GE Steam Power to sell a portion of its business to
Électricité de France S.A. (EDF), which resulted in a reclassification of that
business to held for sale. We expect to complete the sale, subject to regulatory
approval, in the first half of 2023. In the second quarter of 2022, we announced
that Gas Power intends to acquire Nexus Controls, a business specializing in
aftermarket control system upgrades and controls field services. The deal, which
is subject to customary closing conditions including regulatory approval and
mandatory information and consultation processes with employees and their
representatives, is expected to close in the second quarter of 2023.
We continue to invest in new product development, such as our HA-Turbines and
Nuclear small modular reactors. Our fundamentals remain strong with
approximately $67.5 billion in RPO and a gas turbine installed base greater than
7,000 units, including approximately 1,800 units under long-term service
agreements.
Three months ended September 30 Nine months ended September 30
Sales in units 2022 2021 2022 2021
GE Gas Turbines 20 22 69 47
Heavy-Duty Gas Turbines(a) 14 14 37 34
HA-Turbines(b) 3 5 6 11
Aeroderivatives(a) 6 8 32 13
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines.
(b) HA-Turbines are a subset of Heavy-Duty Gas Turbines.
RPO September 30, 2022 December 31, 2021 Equipment $ 11,611 $ 12,169 Services 55,848 56,569 Total RPO $ 67,459 $ 68,738 SEGMENT REVENUES AND PROFIT Three months ended September 30
Nine months ended
2022 2021 2022 2021 Gas Power$ 2,612 $ 2,861 $ 8,234 $ 8,739 Steam Power 571 790 1,898 2,327 Power Conversion, Nuclear and other 346 376 1,101 1,176 Total segment revenues$ 3,529 $ 4,026 $ 11,233 $ 12,242 Equipment$ 954 $ 1,368 $ 3,116 $ 3,680 Services 2,575 2,658 8,117 8,561 Total segment revenues$ 3,529 $ 4,026 $ 11,233 $ 12,242 Segment profit (loss)$ 141 $ 204 $ 524 $ 416 Segment profit margin 4.0 % 5.1 % 4.7 % 3.4 % *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 10
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For the three months ended
billion
Revenues decreased$0.2 billion (5%) organically*, primarily due to decreases in Gas Power HA turbine and aeroderivative deliveries, lower planned contractual services outages atGas Power and decreases inSteam Power equipment on the exit of new build coal and prior yearSteam Power services volume that did not repeat, partially offset by favorable price escalation in our long-term service agreements. Profit decreased 23% organically* primarily due to lower planned contractual services outages and unfavorable equipment mix atGas Power , partially offset by favorable price escalation in our long-term service agreements.
For the nine months ended
billion
RPO as ofSeptember 30, 2022 decreased$1.3 billion (2%) fromDecember 31, 2021 , primarily driven by the continued wind down of theSteam Power new build coal business, sales outpacing new orders inGas Power contractual services and the impact of theRussia andUkraine conflict atPower Conversion . Revenues decreased$0.2 billion (2%) organically*, primarily due to a reduction inSteam Power equipment on the exit of new build coal and prior yearSteam Power services volume that did not repeat, partially offset by higherGas Power aeroderivative deliveries and favorable price escalation in our long-term service agreements. Profit increased$0.1 billion (27%) organically* primarily due to prior year project and legal charges atSteam Power that did not repeat, favorable price escalation in our long-term service agreements and higherGas Power aeroderivative deliveries, partially offset by lower planned contractual services outages and unfavorable equipment mix atGas Power . 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
Capital
run-off Insurance business (see Other Items - Insurance for further
information).
Nine months ended
REVENUES AND OPERATING PROFIT (COST) Three months ended September 30 September 30
2022 2021 2022 2021
Corporate revenues $ 210 $ 237 $ 635 $ 693
Insurance revenues 646 756 2,179 2,295
Eliminations and other (212) (394) (769) (1,171)
Total Corporate revenues $ 643 $ 599 $ 2,044 $ 1,816
Gains (losses) on purchases and sales of $ 22 $ (156) $ 28 $ (159)
business interests
Gains (losses) on equity securities (89) 412 (1,859) 1,256
Restructuring and other charges (183) (64) (253) (395)
Separation costs (227) - (553) -
Steam asset sale impairment (Notes 6 and 7) - - (825) -
Russia and Ukraine charges (33) - (263) -
Insurance profit (loss) (Note 12) (310) 55 87 426
Adjusted total corporate operating costs (140) (287) (307) (767)
(Non-GAAP)
Total Corporate operating profit (cost) (GAAP) $ (960)$ (40) $ (3,947) $ 361 Less: gains (losses), impairments, Insurance, (820) 247 (3,640) 1,128 and restructuring & other Adjusted total corporate operating costs $ (140)$ (287) $ (307) $ (767) (Non-GAAP) Functions & operations $ (127)$ (173) $ (258) $ (541) Environmental, health and safety (EHS) and other (22) (100) (81) (184)
items
Eliminations 9 (13) 32 (42) Adjusted total corporate operating costs $ (140)$ (287) $ (307) $ (767) (Non-GAAP) 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. *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 11
-------------------------------------------------------------------------------- For the three months endedSeptember 30, 2022 , revenues remained relatively flat due to$0.2 billion of lower inter-segment eliminations offset by$0.1 billion of lower revenue in our run-off insurance business. Corporate operating profit decreased by$0.9 billion due to a$0.5 billion change in gains (losses) on equity securities, primarily related to$0.6 billion of higher mark-to-market losses on ourBaker Hughes shares partially offset by$0.1 billion of mark-to-market gains on our AerCap shares. Operating profit also decreased due to$0.2 billion of separation costs and$0.1 billion of higher restructuring and other charges primarily related to our Renewable Energy and HealthCare segments. Corporate operating profit also decreased by$0.4 billion in our run-off Insurance business, primarily due to a charge related to terminating several reinsurance contracts (see Other Items - Insurance). These decreases were partially offset by$0.2 billion of lower losses on purchases and sales of business interests due to a$0.2 billion held for sale loss within our Power segment in 2021.
Adjusted total corporate operating costs* decreased by
favorability in our functions and lower costs associated with EHS and other
items.
For the nine months endedSeptember 30, 2022 , revenues increased by$0.2 billion due to$0.4 billion of lower intersegment eliminations partially offset by$0.1 billion of lower revenue in our run-off Insurance business and$0.1 billion of lower revenue in our Digital business. Corporate operating profit decreased by$4.3 billion due to a$3.1 billion change in gains (losses) on equity securities, primarily related to$2.7 billion of mark-to-market losses on our AerCap shares and note and$0.3 billion of lower mark-to-market gains on ourBaker Hughes shares. In addition, operating profit decreased 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 ourSteam Power business to held for sale in the first quarter of 2022 (see Note 2) and$0.3 billion of lower operating profit in our run-off Insurance business, primarily due to a charge related to terminating several reinsurance contracts (see Other Items - Insurance). Corporate operating profit also decreased as the result of$0.6 billion of separation costs and$0.3 billion of charges from contracts and recoverability of assets in connection with the conflict betweenRussia andUkraine and resulting sanctions, primarily within our Aerospace and Power businesses. These decreases were partially offset by$0.2 billion of lower losses on purchases and sales of business interests due to a$0.2 billion held for sale loss within our Power segment in 2021 and$0.1 billion of lower restructuring and other charges. Adjusted total corporate operating costs* decreased by$0.5 billion primarily as the result of$0.3 billion of lower functional costs, including favorability from market and foreign exchange dynamics,$0.1 billion of lower costs associated with EHS and other items and$0.1 billion due to lower intercompany eliminations.
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
2022 2021 2022 2021
Workforce reductions $ 76 $ 132 $ 113 $ 634
Plant closures & associated costs and other asset
write-downs 110 23 165 87
Acquisition/disposition net charges and other 14 9 41 16
Other - - (3) -
Total restructuring and other charges $ 200 $ 164 $ 316 $ 736
Cost of equipment/services $ 86 $ 61 $ 135 $ 349
Selling, general and administrative expenses 114 103 184 393
Other (income) loss - - (3) (7)
Total restructuring and other charges $ 200 $ 164 $ 316 $ 736
Aerospace $ 6 $ 3 $ 16 $ 64
HealthCare 88 68 110 127
Renewable Energy 66 14 78 149
Power 30 65 97 341
Corporate 10 14 15 55
Total restructuring and other charges $ 200 $ 164 $ 316 $ 736
Restructuring and other charges cash expenditures $ 76 $ 152 $ 332 $ 565
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 September 30, 2022 and
December 31, 2021 , respectively.
During the third quarter of 2022, we announced plans to undertake a
restructuring program across our businesses planned to be part of GE Vernova,
primarily reflecting the selectivity strategy to operate in fewer markets and to
simplify and standardize product variants at Renewable Energy. The estimated
cost of this multi-year restructuring program is approximately $0.6 billion ,
with the majority to be recognized in the first half of 2023. In October 2022 ,
the company announced restructuring plans to reflect lower Corporate
shared-service and footprint needs as GE HealthCare becomes independent. The
estimated cost of this multi-year restructuring program is approximately $0.7
billion , with the majority to be recognized in the fourth quarter of 2022.
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 12
--------------------------------------------------------------------------------
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. As a result of this plan, 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
transactions.
We incurred pre-tax separation costs of $227 million and $553 million , primarily
related to employee costs, costs to establish certain stand-alone functions and
information technology systems, professional fees, and other transformation and
transaction costs to transition to three stand-alone public companies, for the
three and nine months ended September 30, 2022 , respectively. These costs are
presented as separation costs in our consolidated Statement of Earnings (Loss).
In addition, we incurred $51 million and $59 million of net tax benefit,
including taxes associated with planned legal entity restructuring and changes
to indefinite reinvestment of foreign earnings, for the three and nine months
ended September 30, 2022 , respectively. We spent $96 million and $118 million in
cash for the three and nine months ended September 30, 2022 , respectively.
INTEREST AND OTHER FINANCIAL CHARGES were $0.4 billion and $0.5 billion for the
three months ended and $1.2 billion and $1.4 billion for the nine months ended
September 30, 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 $0.6 billion for the three months ended and $1.2 billion and $2.0
billion for the nine months ended September 30, 2022 and 2021, respectively. The
primary components of interest and other financial charges are interest on
short- and long-term borrowings.
POSTRETIREMENT BENEFIT PLANS. Refer to Note 13 for information about our pension
and retiree benefit plans.
INCOME TAXES. For the three months endedSeptember 30, 2022 , the income tax rate was (38.2)% compared to 0.3% for the three months endedSeptember 30, 2021 . The tax rate for 2022 reflects a tax expense on a pre-tax loss. The provision for income taxes was an insignificant amount for both the three months endedSeptember 30, 2022 and 2021. The increase in tax was primarily due to the nonrecurrence of the tax benefit associated with an internal restructuring to recognize stock losses in the third quarter of 2021, partially offset by the decrease in pre-tax income excluding the net loss in 2022 on our interest in AerCap andBaker Hughes . There was an insignificant tax effect on the net loss in 2022 on AerCap andBaker Hughes because of our excess capital loss position. For the three months endedSeptember 30, 2022 , the adjusted income tax rate* was 27.7% compared to 25.3% for the three months endedSeptember 30, 2021 . The adjusted income tax rate* increased primarily due to higher tax expense related to stock-based compensation. For the nine months endedSeptember 30, 2022 , the income tax rate was (65.6)% compared to 149.5% for the nine months endedSeptember 30, 2021 . The tax rate for 2022 reflects a tax expense on a pre-tax loss. The tax rate for 2021 reflects a tax benefit on a pre-tax loss. The provision (benefit) for income taxes was$0.5 billion for the nine months endedSeptember 30, 2022 compared to$(0.3) billion for the nine months endedSeptember 30, 2021 . The increase in tax was primarily due to the nonrecurrence of tax benefits associated with internal restructurings to recognize deductible stock and loan losses in 2021 and the increase in pre-tax income excluding the net loss in 2022 on our interest in AerCap andBaker Hughes and asset impairments. There was an insignificant tax effect on the net loss in 2022 on AerCap andBaker Hughes because of our excess capital loss position. For the nine months endedSeptember 30, 2022 , the adjusted income tax rate* was 27.4% compared to 24.5% for the nine months endedSeptember 30, 2021 . The adjusted income tax rate* increased primarily due to the nonrecurrence of a 2021 benefit from planning to utilize non-U.S. loss carryovers. DISCONTINUED OPERATIONS primarily comprise our GE Capital Aviation Services (GECAS) business, discontinued in 2021, our mortgage portfolio inPoland , 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
share buyback 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.
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 13
-------------------------------------------------------------------------------- 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 Aerospace-related customer allowances, market conditions and our ability to execute dispositions. Total cash, cash equivalents and restricted cash was$12.6 billion atSeptember 30, 2022 , of which$7.8 billion was held in theU.S. and$4.8 billion was held outside theU.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 toU.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 theU.S. would potentially be partially offset by aU.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 atSeptember 30, 2022 included$2.3 billion of cash held in countries with currency control restrictions (including a total of$0.1 billion inRussia andUkraine ) 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 theU.S. or limit our ability to transfer funds to theU.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$0.4 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 ourBaker Hughes position over approximately three years, we received proceeds of$4.1 billion during the first nine months 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 theKansas 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 inJanuary 2018 . We are required to maintain specified capital levels at these insurance subsidiaries under capital maintenance agreements. OnMarch 6, 2022 , the Board of Directors authorized the repurchase of up to$3 billion of our common stock. In connection with this authorization, we repurchased 4.5 million shares for$0.3 billion and 9.1 million shares for$0.6 billion for the three months and nine months endedSeptember 30, 2022 , respectively. BORROWINGS. Consolidated total borrowings were$30.4 billion and$35.2 billion atSeptember 30, 2022 andDecember 31, 2021 , respectively, a decrease of$4.8 billion . The reduction in borrowings was driven primarily by$2.9 billion of net maturities and repayments of debt and$1.7 billion related to changes in foreign exchange rates. We have in place committed revolving credit facilities totaling$14.3 billion atSeptember 30, 2022 , comprising a$10.0 billion unused back-up revolving syndicated credit facility and a total of$4.3 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. In connection with the planned spin-off ofGE HealthCare , rating agencies are reviewing ratings for bothGE HealthCare andGE . 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 our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Substantially all of the Company's debt agreements in place atSeptember 30, 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 atSeptember 30, 2022 . *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 14 -------------------------------------------------------------------------------- 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 September 30, 2022 BBB+/A-2/P-2 $ 215 BBB/A-3/P-3 650 BBB- 1,224 BB+ and below 592 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 theU.S. dollar. Such principal currencies include the euro, the Chinese renminbi, the Indian rupee and the Japanese yen, among others. The effects of foreign currency fluctuations on earnings was less than$0.1 billion for both the three and nine months endedSeptember 30, 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 from operating activities was$1.3 billion in 2022, an increase of$2.8 billion compared to 2021, primarily due to: a decrease in financial services-related cash collateral paid net of settlements on interest rate derivative contracts of$1.3 billion , which is a standard market practice to minimize derivative counterparty exposures; an increase in net income (after adjusting for amortization of intangible assets, non-cash losses related to our interests in AerCap andBaker Hughes and non-operating debt extinguishment costs) primarily in our Aerospace business; a decrease in cash used for working capital of$0.2 billion ; and an increase in cash from All other operating activities of$1.3 billion . The components of All other operating activities were as follows: Nine months ended September 30 2022 2021
Increase (decrease) in Aerospace-related customer allowance $
565 $ 543
accruals
Net interest and other financial charges/(cash paid) 7 (474) Increase (decrease) in employee benefit liabilities (170) (111) Net restructuring and other charges/(cash expenditures) (70) 144 Decrease in factoring related liabilities (26) (501) Cash settlement of Alstom legacy legal matter - (175) Other (117) (543) All other operating activities $
189
The cash impacts from changes in working capital compared to prior year were as follows: current receivables of$(3.6) billion , driven by higher volume and lower collections, partially offset by the impact of decreases in sales of receivables to third parties in 2021; inventories, including deferred inventory, of$(1.6) billion , driven by higher material purchases and lower liquidations; current contract assets of$0.3 billion , driven by higher billings on our long-term service agreements, partially offset by lower revenue recognition on those agreements and net favorable changes in estimated profitability; accounts payable and equipment project accruals of$2.3 billion , driven by lower disbursements related to purchases of materials in prior periods and higher volume; and progress collections and current deferred income of$2.8 billion , driven by lower liquidations and higher collections, including$0.6 billion of increased customer collections on equipment orders to support production at our Aerospace business. Cash from investing activities was$1.2 billion in 2022, a decrease of$1.7 billion compared to 2021, primarily due to: cash paid related to net settlements between our continuing operations and businesses in discontinued operations of$0.3 billion in 2022, primarily related to a capital contribution to Bank BPH, as compared to cash received of$1.8 billion in 2021, primarily from our GECAS business (both components of All other investing activities); the nonrecurrence of deferred purchase price collections on our receivable facilities of$0.4 billion ; partially offset by an increase in proceeds of$1.1 billion from the sales of our retained ownership interest inBaker Hughes . Cash used for additions to property, plant and equipment and internal-use software, which are components of free cash flows*, was$1.0 billion in both 2022 and 2021. Cash used for financing activities was$5.1 billion in 2022, a decrease of$7.4 billion compared to 2021, primarily due to: the nonrecurrence of cash paid to repurchase long term debt of$8.7 billion , including cash paid for debt extinguishment costs of$1.7 billion in 2021; partially offset by higher cash paid on derivatives hedging foreign currency debt of$0.6 billion (a component of All other financing activities); and an increase in purchases ofGE common stock for treasury of$0.6 billion .
*Non-GAAP Financial Measure
2022 3Q FORM 10-Q 15
--------------------------------------------------------------------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS. Cash from investing activities in 2022
was primarily due to a capital contribution to Bank BPH from continuing
operations. Cash from operating activities and cash used for investing
activities in 2021 was primarily due to cash generated from earnings in our
GECAS business and net settlements from GECAS to continuing operations,
respectively.
SUPPLY CHAIN FINANCE PROGRAMS. We facilitate voluntary supply chain finance programs with third parties, which provide participating suppliers the opportunity to sell theirGE receivables to third parties at the sole discretion of both the suppliers and the third parties. AtSeptember 30, 2022 andDecember 31, 2021 , included in accounts payable was$4.0 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$5.6 billion and$4.9 billion for the nine months endedSeptember 30, 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 endedDecember 31, 2021 for a discussion of our accounting policies and critical accounting estimates.
OTHER ITEMS
INSURANCE. Premium Deficiency Testing. We completed our annual premium deficiency testing in the aggregate across our run-off insurance portfolio in the third quarter of 2022. These procedures included updating certain experience studies since our last test completed in the third quarter of 2021, independent actuarial analysis (principally on long-term care insurance exposures) and review of industry benchmarks. Using updated assumptions, the 2022 premium deficiency testing results indicated a positive margin of about 10% of the related future policy benefit reserves recorded atSeptember 30, 2022 , or approximately equivalent to the 2021 premium deficiency testing results. The premium deficiency testing margin in 2022 was impacted by a lower discount rate in ourEmployers Reassurance Corporation (ERAC) portfolio due to the recapture transaction, as explained below, partially offset by higher prevailing benchmark interest rates in theU.S. The portfolio of investment securities expected to be received from the recapture transaction were assumed to be invested at yields below ERAC's current portfolio yield before ultimately grading to the long-term average investment yield as we realign the portfolio over time. This effect was partially offset by the net impact from assumed moderately higher near-term mortality related to COVID-19 in the aggregate across our run-off insurance products (i.e., for life insurance products, higher mortality increases the present value of expected future benefit payments, while for annuity and long-term care insurance contracts, higher mortality decreases the present value of expected future benefit payments). Excluding the net impact from assumed moderately higher near-term mortality related to COVID-19, we have made no substantial change to our assumptions concerning morbidity, morbidity improvement, mortality, mortality improvement, terminations, or long-term care insurance premium rate increases in 2022. As with all assumptions underlying our premium deficiency testing, we will continue to monitor these factors, which may result in future changes in our assumptions. As noted below in Other Items - New Accounting Standards, we are in process of converting our long-term care insurance claim cost projection models to first principles models and expect to maintain a positive margin in connection with these changes. In third quarter of 2022, we agreed to terminate substantially all long-term care insurance exposures previously ceded to a single reinsurance company (recapture transaction). In connection with the recapture transaction, which is effective in the fourth quarter of 2022, we expect to receive a portfolio of investment securities in complete settlement of reinsurance recoverables previously recognized under retrocession agreements with the reinsurance company, which represent substantially all of our reinsurance recoverables balance as ofSeptember 30, 2022 . In the third quarter of 2022, we recorded an increase to our allowance for credit losses on such reinsurance recoverables of$0.4 billion (pre-tax) ($0.3 billion (after-tax)), reflecting terms of the recapture transaction and the$2.5 billion estimated fair value of the portfolio of investment securities expected to be received in the fourth quarter of 2022, and is unrelated to changes in claim experience or projections of future policy benefit reserves. We expect to recoup this over time as the investment securities mature to par value. The recapture transaction reduces both our financial and operational risks by removing the future inherent risk of collectability of reinsurance recoverables, eliminating retrocession contracts having complex terms and conditions, assuming direct control of the portfolio of investment securities held in a trust for our benefit and redeploying those assets consistent with our portfolio realignment strategy and establishing administration service standards intended to enhance claim administration and innovation efforts. The effect of the recapture agreement does not increase our long-term care insurance liabilities as under the existing retrocession agreements we were not previously relieved of our primary obligation to companies from which we originally assumed the liabilities. In addition, we do not expect changes to projected statutory funding as a result of the recapture transaction. GAAP Reserve Sensitivities. The following table provides sensitivities with respect to the impact of changes of key assumptions underlying our 2022 premium deficiency testing, exclusive of the impacts of converting our long-term care insurance claim cost projection models to first principles models as the conversion remains incomplete at the time of our 2022 premium deficiency testing. Many of our assumptions are interdependent and require evaluation individually and in the aggregate across all insurance products. Small changes in the amounts used in the sensitivities could result in materially different outcomes from those reflected below. 2022 3Q FORM 10-Q 16 --------------------------------------------------------------------------------
Estimated adverse
impact to projected
present value of
Hypothetical change in future cash flows
2021 assumption 2022 assumption 2022 assumption (In millions, pre-tax)
Long-term care insurance 1.25% per year over 12 1.25% per year over 12 25 basis point reduction $500
morbidity improvement to 20 years to 20 years No morbidity improvement $2,500
Long-term care insurance Based on company Based on company 5% increase in dollar $900
morbidity experience experience amount of paid claims
Long-term care insurance 0.5% per year for 10 0.5% per year for 10 1.0% per year for 10 $400
mortality improvement years with annual years with annual years with annual
improvement graded to improvement graded to improvement graded to 0%
0% over next 10 years 0% over next 10 years over next 10 years
Total terminations:
Long-term care insurance Based on company Based on company Any change in $900
mortality experience experience termination assumptions
that reduce total
Long-term care insurance Varies by block, Varies by block, terminations by 10%
lapse rate attained age and attained age and
benefit period; average benefit period; average
0.5% - 1.15% 0.5% -1.15%
Long-term care insurance Based on company Based on company
benefit exhaustion experience experience
Long-term care insurance Varies by block based Varies by block based 25% adverse change in $200
future premium rate increases on filing experience on filing experience
success rate on premium
rate increase actions
not yet approved
Overall discount rate 6.15% 6.20% 25 basis point reduction $700
Life insurance mortality Based on company Based on company 5% increase in mortality $300
experience experience
While higher assumed inflation, holding all other assumptions constant, would
result in unfavorable impacts to the projected present value of future cash
flows, it would be expected to be mitigated by a higher discount rate and
contractual daily or monthly benefit caps.
See Other Items - New Accounting Standards, Note 12 and Other Items within MD&A
in our Annual Report on Form 10-K for the year ended
further information related to our run-off insurance operations.
NEW ACCOUNTING STANDARDS. TheFinancial Accounting Standards Board issued new guidance on accounting for long-duration insurance contracts that is effective for our interim and annual periods beginningJanuary 1, 2023 and applied retrospectively toJanuary 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 reinsurance recoverables 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). As reinsurance recoverables are recognized in a manner consistent with the liabilities relating to the underlying reinsurance contracts, changes in reinsurance recoverables from updating the single A discount rate in each reporting period are also recognized in AOCI. The allowance for credit losses on reinsurance recoverables will continue to be based on the locked-in discount rate for purposes of assessing changes in each reporting period. As such, movements in the gross reinsurance recoverable balance resulting from changes in the single A discount rate will not impact the allowance for credit losses. Following the recapture transaction effective in the fourth quarter of 2022, as explained in Other Items - Insurance above, the remaining reinsurance recoverables are not expected to be material. In conjunction with the adoption of the new guidance, we are in process of converting our long-term care insurance claim cost projection models to first principles models that are based on more granular assumptions of expected future experience and will facilitate the new guidance's requirements. 2022 3Q FORM 10-Q 17 -------------------------------------------------------------------------------- As we are approaching the effective date for the new accounting guidance, as well as our implementation of the first principles models, we have estimated the impact of those changes on Shareholders' equity as of the new guidance's transition date ofJanuary 1, 2021 . We currently estimate a decrease in Shareholders' equity at the transition date from adoption of the new guidance to be in an after-tax range of$7.0 billion to$8.0 billion , including approximately$5.5 billion to$6.0 billion in AOCI and$1.5 billion to$2.0 billion in Retained earnings. The decrease in AOCI is primarily attributable to remeasuring our insurance liabilities and reinsurance recoverables using the single A rate required under the new guidance, which is lower than our current locked-in discount rate, and the removal of shadow adjustments. The decrease in Retained earnings at the transition date is primarily attributable to certain long-term care insurance exposures where the projected present value of future cash flows exceeds the reserves at the transition date, based on the required lower level of grouping of contracts, combined with converting our long-term care insurance claim cost projection models to first principles models. To demonstrate the sensitivity of market interest rates on both our insurance liabilities and related assets, if theJanuary 1, 2021 transition date adjustment used rates as ofSeptember 30, 2022 , while holding everything else constant, we estimate the decrease in Shareholders' equity at the transition date would be in an after-tax range of$4.0 billion to$5.0 billion .
The new guidance is only applicable to the measurements of our long-duration
insurance liabilities under GAAP. In addition, we do not expect changes to
statutory insurance reserves, regulatory capital requirements or projected
funding as a result of the implementation of the first principles models.
NON-GAAP FINANCIAL MEASURES. We believe that presenting non-GAAP financial measures provides management and investors useful measures to evaluate performance and trends of the total company and its businesses. This includes adjustments in recent periods to GAAP financial measures to increase period-to-period comparability following actions to strengthen our overall financial position and how we manage our business. In addition, management recognizes that certain non-GAAP terms may be interpreted differently by other companies under different circumstances. In various sections of this report we have made reference to the following non-GAAP financial measures in describing our (1) revenues, specifically organic revenues by segment; organic revenues; and equipment and services organic revenues (2) profit, specifically organic profit and profit margin by segment; Adjusted profit and profit margin; Adjusted organic profit and profit margin; Adjusted earnings (loss); Adjusted income tax rate; and Adjusted earnings (loss) per share (EPS), and (3) cash flows, specifically free cash flows (FCF). The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.
ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP)
Revenues Segment profit (loss) Profit margin
Three months ended
2022 2021 V% 2022 2021 V pts Aerospace (GAAP)$ 6,705 $ 5,398 24 %$ 1,284 $ 846 52 % 19.1 % 15.7 % 3.4pts Less: acquisitions - - - - Less: business dispositions - - - - Less: foreign currency effect (22) - 39 (2) Aerospace organic (Non-GAAP)$ 6,726 $ 5,398 25 %$ 1,245 $ 848 47 % 18.5 % 15.7 % 2.8pts HealthCare (GAAP)$ 4,613 $ 4,339 6 %$ 712 $ 704 1 % 15.4 % 16.2 % (0.8)pts Less: acquisitions 61 - 2 - Less: business dispositions - - - - Less: foreign currency effect (232) - (20) 2 HealthCare organic (Non-GAAP)$ 4,784 $ 4,339 10 %$ 731 $ 702 4 % 15.3 % 16.2 % (0.9)pts Renewable Energy (GAAP)$ 3,594 $ 4,208 (15) %$ (934) $ (151) U (26.0) % (3.6) % (22.4)pts Less: acquisitions - (21) - (5) Less: business dispositions - - - - Less: foreign currency effect (231) (3) 16 (23) Renewable Energy organic (Non-GAAP)$ 3,825 $ 4,231 (10) %$ (950) $ (123) U (24.8) % (2.9) % (21.9)pts Power (GAAP)$ 3,529 $ 4,026 (12) %$ 141 $ 204 (31) % 4.0 % 5.1 % (1.1)pts Less: acquisitions - - - - Less: business dispositions - 158 - - Less: foreign currency effect (145) 5 (6) 13 Power organic (Non-GAAP)$ 3,675 $ 3,863 (5) %$ 148 $ 192 (23) % 4.0 % 5.0 % (1.0)pts 2022 3Q FORM 10-Q 18
--------------------------------------------------------------------------------
ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP)
Revenue Segment profit (loss) Profit
margin
Nine months ended September 30 2022 2021 V% 2022 2021 V% 2022 2021 V pts Aerospace (GAAP)$ 18,434 $ 15,230 21 %$ 3,341 $ 1,664 F 18.1 % 10.9 % 7.2pts Less: acquisitions - - - - Less: business dispositions - - - - Less: foreign currency effect (50) 1 88 5 Aerospace organic (Non-GAAP)$ 18,485 $ 15,229 21 %$ 3,253 $ 1,658 96 % 17.6 % 10.9 % 6.7pts HealthCare (GAAP)$ 13,494 $ 13,100 3 %$ 1,901 $ 2,203 (14) % 14.1 % 16.8 % (2.7)pts Less: acquisitions 175 - (56) (5) Less: business dispositions - - - - Less: foreign currency effect (484) - (90) (17) HealthCare organic (Non-GAAP)$ 13,803 $ 13,100 5 %$ 2,047 $ 2,225 (8) % 14.8 % 17.0 % (2.2)pts Renewable Energy (GAAP)$ 9,564 $ 11,505 (17) %$ (1,786) $ (484) U (18.7) % (4.2) % (14.5)pts Less: acquisitions - (43) - (13) Less: business dispositions - - - - Less: foreign currency effect (442) - 73 (29) Renewable Energy organic (Non-GAAP)$ 10,006 $ 11,547 (13) %$ (1,860) $ (442) U (18.6) % (3.8) % (14.8)pts Power (GAAP)$ 11,233 $ 12,242 (8) %$ 524 $ 416 26 % 4.7 % 3.4 % 1.3pts Less: acquisitions - - - - Less: business dispositions - 476 - - Less: foreign currency effect (321) (4) (24) (15) Power organic (Non-GAAP)$ 11,553 $ 11,770 (2) %$ 548 $ 432 27 % 4.7 % 3.7 % 1.0pts 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 September 30 Nine months ended September 30 2022 2021 V% 2022 2021 V% Total revenues (GAAP)$ 19,084 $ 18,569 3 %$ 54,769 $ 53,893 2 % Less: Insurance revenues 646 756 2,179 2,295 Adjusted revenues (Non-GAAP)$ 18,438 $ 17,813 4 %$ 52,591 $ 51,598 2 % Less: acquisitions 61 (21) 177 (42) Less: business dispositions - 70 - 179 Less: foreign currency effect(a) (638) 2 (1,314) (3) Organic revenues (Non-GAAP)$ 19,015 $ 17,762 7 %$ 53,728 $ 51,465 4 %
(a) Foreign currency impact in 2022 was primarily driven by
yen.
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 revenues from our run-off Insurance business, acquisitions,
dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure
underlying trends.
EQUIPMENT AND SERVICES Three months ended September 30 Nine months ended September 30 ORGANIC REVENUES (NON-GAAP) 2022 2021 V% 2022 2021 V% Total equipment revenues (GAAP)$ 8,082 $ 8,903 (9) %$ 22,549 $ 25,172 (10) % Less: acquisitions 61 - 174 - Less: business dispositions - (45) - (146) Less: foreign currency effect (401) - (811) (1)
Equipment organic revenues (Non-GAAP)
(6) %
Total services revenues (GAAP)$ 10,356 $ 8,910 16 %$ 30,041 $ 26,427 14 % Less: acquisitions - (21) 3 (42) Less: business dispositions - 114 - 324 Less: foreign currency effect (236) 2 (503) (2)
Services organic revenues (Non-GAAP)
20 %
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.
2022 3Q FORM 10-Q 19
--------------------------------------------------------------------------------
ADJUSTED PROFIT AND PROFIT MARGIN (NON-GAAP) Three months ended September 30 Nine months ended September 30
2022 2021 V% 2022 2021 V%
Total revenues (GAAP) $ 19,084 $ 18,569 3% $ 54,769 $ 53,893 2%
Less: Insurance revenues (Note 12) 646 756 2,179 2,295
Adjusted revenues (Non-GAAP) $ 18,438 $ 17,813 4% $ 52,591 $ 51,598 2%
Total costs and expenses (GAAP) $ 19,334 $ 18,337 5% $ 54,653 $ 55,866 (2)%
Less: Insurance cost and expenses (Note 12) 956 701 2,092 1,869
Less: interest and other financial charges(a) 377 446 1,146 1,403
Less: non-operating benefit cost (income) (125) 427 (396) 1,374
Less: restructuring & other(a) 183 64 256 402
Less: debt extinguishment costs (Note 11) - - - 1,416
Less: separation costs(a) 227 - 553 -
Less: Steam asset sale impairment(a) - - 825 -
Less: Russia and Ukraine charges(a) 33 - 263 -
Add: noncontrolling interests 4 (73) 51 (72)
Add: EFS benefit from taxes (52) (33) (160) (111)
Adjusted costs (Non-GAAP) $ 17,637 $ 16,592 6% $ 49,805 $ 49,219 1%
Other income (loss) (GAAP) $ 195 $ 351 (44)% $ (941) $ 1,757 U
Less: gains (losses) on equity securities(a) (89) 412 (1,859) 1,256
Less: restructuring & other(a) - - 3 7
Less: gains (losses) on purchases and sales of 22 (156) 28 (159)
business interests(a)
Adjusted other income (loss) (Non-GAAP) $ 263 $ 95 F $ 888 $ 653 36%
Profit (loss) (GAAP) $ (55) $ 584 U $ (825) $ (216) U
Profit (loss) margin (GAAP) (0.3)% 3.1% (3.4)pts (1.5)% (0.4)% (1.1)pts
Adjusted profit (loss) (Non-GAAP) $ 1,064 $
1,316 (19)% $ 3,673
Adjusted profit (loss) margin (Non-GAAP)
5.8% 7.4% (1.6)pts 7.0% 5.9% 1.1pts
(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 September 30 Nine months ended September 30
2022 2021 V% 2022 2021 V%
Adjusted profit (loss) (Non-GAAP) $ 1,064 $ 1,316 (19) % $ 3,673 $ 3,033 21 %
Less: acquisitions (5) (5) (74) (17)
Less: business dispositions - 5 - 13
Less: foreign currency effect(a) 21 2 35 (21)
Adjusted organic profit (loss) (Non-GAAP)
(20) %$ 3,712 $ 3,058
21 %
Adjusted profit (loss) margin (Non-GAAP) 5.8 % 7.4 % (1.6) pts 7.0 % 5.9 % 1.1 pts Adjusted organic profit (loss) margin 5.5 % 7.4 % (1.9) pts 6.9 % 5.9 % 1.0 pts (Non-GAAP) (a) Included foreign currency negative effect on revenues of$638 million and$1,314 million and positive effect on operating costs and other income (loss) of$658 million and$1,349 million for the three and nine months endedSeptember 30, 2022 , respectively. We believe this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends. 2022 3Q FORM 10-Q 20 -------------------------------------------------------------------------------- ADJUSTED EARNINGS (LOSS) AND Three months ended September 30 Nine months ended September 30 ADJUSTED INCOME TAX RATE (NON-GAAP) 2022 2021 V% 2022 2021 V% Earnings (loss) from continuing operations (GAAP) (Note 17)$ (150) $ 593 U$ (1,606) $ (11) U Insurance earnings (loss) (pre-tax) (310) 56 92 430 Tax effect on Insurance earnings (loss) 63 (14) (24) (95) Less: Insurance earnings (loss) (net of tax) (Note 12) (247) 42 68 334
Earnings (loss) excluding Insurance (Non-GAAP)
(82) %$ (1,674) $ (345) U Non-operating benefit (cost) income (pre-tax) (GAAP) 125 (427) 396 (1,374)
Tax effect on non-operating benefit (cost) income (26) 90
(83) 289 Less: Non-operating benefit (cost) income (net of tax) 99 (337) 313 (1,085) Gains (losses) on purchases and sales of business interests (pre-tax)(a) 22 (156) 28 (159) Tax effect on gains (losses) on purchases and sales of business interests 39 30 68 31 Less: Gains (losses) on purchases and sales of business interests (net of tax) 61 (126) 95 (128)
Gains (losses) on equity securities (pre-tax)(a) (89) 412
(1,859) 1,256 Tax effect on gains (losses) on equity securities(b)(c) (9) 78 (15) 155 Less: Gains (losses) on equity securities (net of tax) (98) 490 (1,874) 1,411 Restructuring & other (pre-tax)(a) (183) (64) (253) (395) Tax effect on restructuring & other 38 7 54 36 Less: Restructuring & other (net of tax) (144) (57) (199) (359) Debt extinguishment costs (pre-tax) (Note 11) - - - (1,416) Tax effect on debt extinguishment costs - - - 298 Less: Debt extinguishment costs (net of tax) - - - (1,119) Separation costs (pre-tax)(a) (227) - (553) - Tax effect on separation costs 51 - 59 - Less: Separation costs (net of tax) (176) - (495) - Steam asset sale impairment (pre-tax)(a) - - (825) - Tax effect on Steam asset sale impairment - - 84 -
Less: Steam asset sale impairment (net of tax) - -
(741) - Russia and Ukraine charges (pre-tax)(a) (33) - (263) - Tax effect on Russia and Ukraine charges - - 15 -
Less:
(248) - Less: Accretion of redeemable noncontrolling interest (pre-tax and net of tax) (Note 17) - (9) - (9) Less: Accretion of preferred share repurchase (pre-tax and net of tax) (Note 17) 3 - 3 -
Less:
(37) 8 Less: Tax loss related to GECAS transaction - - - (44) Adjusted earnings (loss) (Non-GAAP)$ 385 $ 591
(35) %
Earnings (loss) from continuing operations before taxes (GAAP)$ (55) $ 584 $ (825)$ (216) Less: Total adjustments above (pre-tax) (695) (180) (3,239) (1,659)
Adjusted earnings before taxes (Non-GAAP)
$ 2,414 $ 1,443
Provision (benefit) for income taxes (GAAP)
$ 541$ (323) Less: Tax effect on adjustments above (157) (191) (121) (677) Adjusted provision (benefit) for income taxes (Non-GAAP)$ 177 $ 193 $ 662$ 354 Income tax rate (GAAP) (38.2) % 0.3 % (65.6) % 149.5 % Adjusted income tax rate (Non-GAAP) 27.7 % 25.3 % 27.4 % 24.5 % (a) See the Corporate and Other Consolidated Information sections for further information. (b) Includes tax benefits available to offset the tax on gains (losses) on equity securities. (c) Includes related tax valuation allowances. 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 the Adjusted income tax rate* provides management and investors a useful measure to evaluate the performance of the total company and increases period-to-period comparability. *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 21
-------------------------------------------------------------------------------- ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) (NON-GAAP) Three months ended September 30 Nine months ended September 30 (In dollars) 2022 2021 V% 2022 2021 V% Earnings (loss) per share from continuing operations (GAAP) (Note 17)$ (0.14) $ 0.54 U$ (1.46) $ (0.01) U Insurance earnings (loss) (pre-tax) (0.28) 0.05 0.08 0.39 Tax effect on Insurance earnings (loss) 0.06 (0.01) (0.02) (0.09)
Less: Insurance earnings (loss) (net of tax) (Note
12)
(0.23) 0.04 0.06 0.30 Earnings (loss) per share excluding Insurance (Non-GAAP)$ 0.09 $ 0.50 (82) %$ (1.53) $ (0.31) U Non-operating benefit (cost) income (pre-tax) (GAAP) 0.11 (0.39) 0.36 (1.25)
Tax effect on non-operating benefit (cost) income (0.02) 0.08
(0.08) 0.26 Less: Non-operating benefit (cost) income (net of tax) 0.09 (0.31) 0.29 (0.99) Gains (losses) on purchases and sales of business interests (pre-tax)(a) 0.02 (0.14) 0.03 (0.14) Tax effect on gains (losses) on purchases and sales of business interests 0.04 0.03 0.06 0.03 Less: Gains (losses) on purchases and sales of business interests (net of tax) 0.06 (0.11) 0.09 (0.12)
Gains (losses) on equity securities (pre-tax)(a) (0.08) 0.37
(1.69) 1.14 Tax effect on gains (losses) on equity securities(b)(c) (0.01) 0.07 (0.01) 0.14 Less: Gains (losses) on equity securities (net of tax) (0.09) 0.44 (1.71) 1.29 Restructuring & other (pre-tax)(a) (0.17) (0.06) (0.23) (0.36) Tax effect on restructuring & other 0.04 0.01 0.05 0.03 Less: Restructuring & other (net of tax) (0.13) (0.05) (0.18) (0.33) Debt extinguishment costs (pre-tax) (Note 11) - - - (1.29) Tax effect on debt extinguishment costs - - - 0.27 Less: Debt extinguishment costs (net of tax) - - - (1.02) Separation costs (pre-tax)(a) (0.21) - (0.50) - Tax effect on separation costs 0.05 - 0.05 - Less: Separation costs (net of tax) (0.16) - (0.45) - 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) - - (0.68) - Russia and Ukraine charges (pre-tax)(a) (0.03) - (0.24) - Tax effect on Russia and Ukraine charges - - 0.01 - Less: Russia and Ukraine charges (net of tax) (0.03) - (0.23) - Less: Accretion of redeemable noncontrolling interest (pre-tax and net of tax) (Note 17) - (0.01) - (0.01) Less: Accretion of preferred share repurchase (pre-tax and net of tax) (Note 17) - - - - Less: U.S. and foreign tax law change enactment - - (0.03) 0.01 Less: Tax loss related to GECAS transaction - - - (0.04)
Adjusted earnings (loss) per share (Non-GAAP)
(34) %
(a) See the Corporate and Other Consolidated Information sections for further information. (b) Includes tax benefits available to offset the tax on gains (losses) on 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. *Non-GAAP Financial Measure 2022 3Q FORM 10-Q 22
--------------------------------------------------------------------------------
FREE CASH FLOWS (FCF) (NON-GAAP) Nine months ended September 30
2022 2021 V$
CFOA (GAAP) $ 1,293 $ (1,527) $ 2,820
Less: Insurance CFOA 48 40
CFOA excluding Insurance (Non-GAAP) $ 1,245 $ (1,568) $ 2,813
Add: gross additions to property, plant and equipment (957)
(895)
Add: gross additions to internal-use software (78)
(78)
Less: separation costs cash expenditures (118)
-
Less: taxes related to business sales (143)
(6)
Less: CFOA impact from factoring programs discontinued in
2021
-
(3,067)
Less: CFOA impact from receivables factoring and supply chain finance eliminations - 2,352 Free cash flows (Non-GAAP)$ 471 $ (1,819) $ 2,290 We believe investors may find it useful to compare free cash flows* performance without the effects of CFOA 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. 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 ofSeptember 30, 2022 , and (ii) no change in internal control over financial reporting occurred during the quarter endedSeptember 30, 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. OnMarch 6, 2022 , the Board of Directors authorized up to$3 billion of common share repurchases. We repurchased 4,521 thousand shares for$314 million during the three months endedSeptember 30, 2022 under this authorization. Approximate dollar value of shares that may Total number of shares yet be purchased purchased as part of under our share Total number of Average price our share repurchase repurchase Period shares purchased paid per share authorization authorization (Shares in thousands) 2022 July 1,532$ 65.24 1,532 August 1,226 76.78 1,226 September 1,763 67.89 1,763 Total 4,521$ 69.40 4,521$ 2,352 LEGAL PROCEEDINGS. We are reporting the following environmental matter in compliance withSEC requirements to disclose environmental proceedings where a governmental authority is a party and that involve potential monetary sanctions of$300,000 or greater. InJuly 2022 ,GE received a notice of intention to impose an administrative fine of approximately$0.6 million related to aDecember 2019 liquid hazardous waste event at ourRehovot, Israel site. The event involved clean room waste that spilled onto an unsealed floor, leading to an escape of a small amount of liquid to a third-party facility on a lower floor. TheIsraeli Ministry of Environmental Protection (MEP) concluded that the incident breached the site's toxins permit. In accordance with local law,GE has responded to MEP's notice of fine challenging both the basis for, and level of, the fine. A decision from MEP is pending. Refer to Legal Matters and Environmental, Health and Safety Matters in Note 21 to the consolidated financial statements for additional information relating to legal matters.
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