Newswires
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
FIRST QUARTER 2023 RESULTS. Total revenues were
for the quarter, driven primarily by increases at Aerospace and Power.
Continuing earnings (loss) per share was$5.56 . Excluding the results from our run-off Insurance business, non-operating benefit costs, gains (losses) on purchases and sales of business interests, gains (losses) on equity securities, restructuring costs and separation costs, Adjusted earnings per share* was$0.27 . For the three months endedMarch 31, 2023 , profit margin was 44.8% and profit was up$7.7 billion , primarily due to an increase in gains on equity securities of$6.1 billion , the nonrecurrence of the Steam asset sale impairment of$0.8 billion , an increase in segment profit of$0.4 billion , an increase in non-operating benefit income of$0.3 billion and the nonrecurrence ofRussia andUkraine charges of$0.2 billion . These increases were partially offset by an increase in restructuring and other charges and separation costs of$0.2 billion . Adjusted organic profit* increased$0.5 billion , driven primarily by increases at Aerospace, Renewable Energy and Power. Cash flows from operating activities (CFOA) were$0.2 billion and$(0.9) billion for the three months endedMarch 31, 2023 and 2022, respectively. Cash flows from operating activities increased primarily due to an increase in net income (after adjusting for depreciation of property, plant, and equipment, amortization of intangible assets and non-cash (gains) losses related to our retained ownership interests inGE HealthCare , AerCap andBaker Hughes ) and a decrease in cash used for working capital. Free cash flows* (FCF) were$0.1 billion and$(1.2) billion for three months endedMarch 31, 2023 and 2022, respectively. FCF* increased primarily due to the same reasons as noted for CFOA above. See the Capital Resources and Liquidity - Statement of Cash Flows section for further information. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 4
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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 March 31, 2023 December 31, 2022
Equipment $ 47,991 $ 44,198
Services 194,063 192,385
Total RPO $ 242,054 $ 236,582
As of March 31, 2023 , RPO increased $5.5 billion (2%) from December 31, 2022 ,
primarily at Renewable Energy, from new orders at Grid and Onshore Wind
exceeding sales; at Aerospace, from engines contracted under long-term service
agreements that have now been put into service and an increase in Commercial
orders; and at Power, driven by Gas Power equipment.
REVENUES Three months ended March 31
2023 2022
Equipment revenues $ 5,287 $ 4,608
Services revenues 8,407 7,302
Insurance revenues 791 764
Total revenues $ 14,486 $ 12,675
For the three months ended March 31, 2023 , total revenues increased $1.8 billion
(14%). Equipment revenues increased, primarily at Aerospace, due to an increase
in commercial install and spare engine unit shipments; at Renewable Energy, due
to higher revenue at Grid and Offshore Wind; and at Power, due to higher Gas
Power Heavy-duty gas turbine deliveries. Services revenues increased, primarily
at Aerospace, due to increased internal shop visit volume and commercial spare
part shipments and higher prices, and at Power, due to growth in Gas Power
non-contractual services, partially offset by a decrease at Renewable Energy,
due to fewer repower unit deliveries at Onshore Wind.
Excluding the change in Insurance revenues, the net effects of acquisitions and
dispositions and the effects of a weaker U.S. dollar of $0.2 billion , organic
revenues* increased $2.0 billion (17%), with equipment revenues up $0.8 billion
(18%) and services revenues up $1.2 billion (16%). Organic revenues* increased
at Aerospace, Power and Renewable Energy.
Three months
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE ended March 31
(Per-share in dollars and diluted) 2023 2022
Continuing earnings (loss) attributable to GE common shareholders
Continuing earnings (loss) per share
For the three months endedMarch 31, 2023 , continuing earnings increased$7.4 billion , primarily due to an increase in gains on equity securities of$6.1 billion , the nonrecurrence of the Steam asset sale impairment of$0.8 billion , an increase in segment profit of$0.4 billion , an increase in non-operating benefit income of$0.3 billion and the nonrecurrence ofRussia andUkraine charges of$0.2 billion . These increases were partially offset by an increase in provision for income tax of$0.2 billion and an increase in restructuring and other charges and separation costs of$0.2 billion . Adjusted earnings* were$0.3 billion , an increase of$0.4 billion . Profit margin was 44.8%, an increase from (9.3)%. Adjusted profit* was$0.9 billion , an increase of$0.5 billion organically*, due to increases at Aerospace, Renewable Energy and Power. Adjusted profit margin* was 6.4%, an increase of 330 basis points organically*. We continue to experience inflation pressure in our supply chain, as well as delays in sourcing key materials needed for our products and skilled labor shortages. This has delayed our ability to convert RPO to revenue and negatively impacted our profit margins. While the impact of inflation is expected to be challenging, we continue to take actions to limit this pressure, including lean initiatives to drive cost productivity, partnering with our suppliers and adjusting the pricing of our products and services. Also, geopolitical uncertainties, including the ongoingRussia andUkraine conflict, are introducing additional challenges. As ofMarch 31, 2023 , we had approximately$0.3 billion of remaining assets inRussia andUkraine , mainly in our Power business, which primarily relate to activity not subject to sanctions or restricted under Company policy. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 5
-------------------------------------------------------------------------------- SEGMENT OPERATIONS. Refer to our Annual Report on Form 10-K for the year endedDecember 31, 2022 for further information regarding our determination of segment profit for continuing operations and for our allocations of corporate costs to our segments. SUMMARY OF REPORTABLE SEGMENTS
Three months ended
2023 2022 V % Aerospace$ 6,981 $ 5,603 25 % Renewable Energy 2,837 2,871 (1) % Power 3,820 3,501 9 % Total segment revenues 13,638 11,975 14 % Corporate 848 700 21 % Total revenues$ 14,486 $ 12,675 14 % Aerospace$ 1,326 $ 908 46 % Renewable Energy (414) (434) 5 % Power 75 63 19 % Total segment profit (loss) 987 538 83 % Corporate(a) 5,456 (1,419) F Interest and other financial charges
(257) (371) 31 %
Non-operating benefit income (cost) 385 105 F Benefit (provision) for income taxes (322) (76) U Preferred stock dividends (145) (52) U
Earnings (loss) from continuing operations attributable to GE
common shareholders
6,103 (1,276) F
Earnings (loss) from discontinued operations attributable to GE
common shareholders
1,257 88 F
Net earnings (loss) attributable to GE common shareholders
F
(a) Includes interest and other financial charges of
and benefit for income taxes of
within Corporate for the three months ended
respectively.
GE AEROSPACE. Our results in the first quarter of 2023 reflect continued growth in demand for commercial air travel. A key underlying driver of our commercial engine and services business is global commercial departures, which improved 21% during the first quarter of 2023 compared to the first quarter of 2022, and now stands at approximately 97% of 2019 levels. The air traffic growth trends vary by region given economic conditions, airline competition and government regulations. Consistent with industry projections, we estimate both narrowbody and widebody air traffic to return to 2019 levels in late 2023 and grow in line with the global economic conditions. 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. TheU.S. Department of Defense and foreign governments have continued flight operations, and have allocated budgets to upgrade and modernize their existing fleets. We increased our Commercial engine sales units in the first quarter of 2023, however, Military engine sales units decreased compared to the first quarter of 2022 partly due to material availability and supplier challenges. Global material availability and labor shortages continue to cause disruptions for us and our suppliers, and have impacted our production and delivery. We continue to partner with our customers on future production rates. Aerospace is proactively managing the impact of inflationary pressure by deploying lean initiatives to drive cost productivity, partnering with our suppliers and adjusting the pricing of our products and services. We expect the impact of inflation will continue and we are taking actions to mitigate the impact. Total engineering, comprising company, customer and partner-funded and nonrecurring engineering costs, increased compared to the prior year. We remain committed to investing in developing and maturing technologies that enable a more sustainable future of flight. We continue to take actions to serve our customers now and as demand in the global airline industry increases. Our deep history of innovation and technology leadership and a commercial and military engine installed base, including units produced by joint ventures, of approximately 67,000 units, with approximately 11,800 units under long-term service agreements, represents strong long-term fundamentals. We believe Aerospace is well-positioned to drive long-term profitable growth and higher cash generation over time. 2023 1Q FORM 10-Q 6
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Three months ended March 31
Sales in units, except where noted 2023 2022
Commercial Engines(a) 481 343
LEAP Engines(b) 366 239
Military Engines 80 184
Spare Parts Rate(c) $ 31.1 $ 22.8
(a) Commercial Engines now includes Business Aviation and Aeroderivative units for all periods
presented.
(b) LEAP engines are subsets of commercial engines.
(c) Commercial externally shipped spare parts and spare parts used in time and material shop visits
in millions of dollars per day.
RPO March 31, 2023 December 31, 2022
Equipment $ 14,316 $ 13,748
Services 123,114 121,511
Total RPO $ 137,430 $ 135,260
SEGMENT REVENUES AND PROFIT Three months ended March 31
2023
2022
Commercial Engines & Services$ 5,194 $
3,853
Military 1,018 1,036
Systems & Other 770 714
Total segment revenues $ 6,981 $ 5,603
Equipment $ 1,974 $ 1,654
Services 5,007 3,949
Total segment revenues $ 6,981 $ 5,603
Segment profit $ 1,326 $ 908
Segment profit margin 19.0 % 16.2 %
For the three months ended
(25%) and segment profit was up
RPO as ofMarch 31, 2023 increased$2.2 billion (2%) fromDecember 31, 2022 , due to increases in both equipment and services. Equipment increased primarily due to an increase in Commercial orders sinceDecember 31, 2022 . 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$1.4 billion (25%) organically*. Commercial Services revenues increased, primarily due to increased internal shop visit volume and commercial spare part shipments, and higher prices. Commercial Engines revenues increased, primarily driven by 138 more commercial install and spare engine unit shipments, including 127 more LEAP units versus the prior year. Military revenues decreased, primarily due to 104 fewer engine shipments than the prior year, partially offset by product mix and growth in services. Profit increased$0.4 billion (43%) organically*, primarily due to increased internal shop visit volume and commercial spare part shipments, higher prices, and cost productivity. These increases in profit were partially offset by inflation in our supply chain, product mix and additional growth investment. RENEWABLE ENERGY - will be part of GE Vernova. The recently enacted Inflation Reduction Act of 2022 (IRA) introduces new and extends existing tax incentives for at least 10 years. The IRA is expected to resolve recentU.S. policy uncertainty that resulted in project delays and deferral of customer investments in Onshore Wind and significantly increase near- and longer-term demand in theU.S. for onshore and offshore wind projects. While the offshore wind industry continues to expect global growth through the decade, cost pressures and the ability to compete with the rapid pace of innovation remain key challenges. Finally, ourGrid Solutions business is positioned to support grid expansion and modernization needs. At Onshore Wind, we are focused on improving our overall quality and fleet availability through reducing product variants and deploying repairs and other corrective measures across the fleet. We intend to operate in fewer markets and focus on those markets with better pricing and margins. Approximately half of Onshore Wind's equipment RPO is associated withU.S. projects where we expect to receive IRA benefits that would reduce product costs as qualifying turbines manufactured in theU.S. in 2023 are delivered. Concurrently, we are undertaking a restructuring program to reduce our fixed costs. Our financial results are dependent on costs to address fleet availability and quality at Onshore Wind and the execution of cost reduction initiatives and pricing actions to mitigate the inflationary environment across all our businesses. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 7
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New product introductions account for a large portion of our RPO in Onshore and
Offshore Wind, such as our 3 MW and 5 MW Onshore units, and our 12-14 MW
Haliade-X Offshore units. Improving Onshore fleet availability and reducing the
cost of new product platforms and blade technologies remain key priorities. We
are also focused on our production capabilities and execution of our initial
Haliade-X projects given the complexity and challenging nature of these new
product introductions.
At Grid, we observed strong European demand for High Voltage Direct Current
(HVDC) solutions and are securing our position in the rapid growth offshore and
onshore interconnection markets with products meeting the 2GW HVDC solution
standard and developing new technology that solves for a denser, more resilient,
stable and efficient electric grid and lower greenhouse gas emissions.
Three months ended March
31
Onshore and Offshore sales in units 2023 2022 Wind Turbines 405 502 Wind Turbine Gigawatts 1.5 1.7 Repower units 50 151 RPO March 31, 2023 December 31, 2022 Equipment$ 23,019 $ 20,142 Services 12,775 12,688 Total RPO$ 35,795 $ 32,830 SEGMENT REVENUES AND PROFIT Three months ended March 31 2023 2022 Onshore Wind$ 1,502 $ 1,906 Grid Solutions equipment and services 824 668 Offshore Wind, Hydro and Hybrid Solutions 511 297 Total segment revenues$ 2,837 $ 2,871 Equipment$ 2,311 $ 2,173 Services 527 698 Total segment revenues$ 2,837 $ 2,871 Segment profit (loss)$ (414) $ (434) Segment profit margin (14.6) % (15.1) %
For the three months ended
segment losses were down 5%.
RPO as of
primarily from new HVDC orders at Grid and orders exceeding revenue at Onshore
Wind, primarily in
Revenues increased$0.1 billion (5%) organically*, primarily from higher revenue at Grid and Offshore Wind, partially offset by fewer wind turbine and repower unit deliveries at Onshore Wind, primarily attributable to customer delays and deferrals during 2022 due toU.S. tax policy uncertainty.
Segment losses decreased 10% organically*, primarily attributable to higher
volume at Grid and improved pricing and impact of cost reduction initiatives at
Onshore Wind and Grid, partially offset by higher losses at Offshore Wind
associated with Haliade-X ramp up and lower volume at Onshore Wind.
POWER - will be part of GE Vernova. During the three months endedMarch 31, 2023 , GE gas turbine utilization grew low-single digits with strength in theU.S. , while global electricity demand was down mid-single digits due to a milder winter. Utilization of the fleet continues to follow growing gas power generation despite lower demand, capturing decreases coming from coal and resilient asset usage with a dynamicEurope environment. Looking ahead, we anticipate H-class units to be commissioned into the serviceable installed base. As we continue to work in emerging markets, there could be uncertainty in the timing of deal closures due to financing and other complexities. Power has proactively managed the impact of inflationary pressure by deploying lean initiatives to drive cost productivity, partnering with our suppliers and adjusting the pricing of our products and services. We expect the impact of inflation will continue to be challenging and we will continue to take actions to manage. 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 power market to remain stable over the next decade with gas power generation continuing to grow low-single-digits. We believe gas power 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 forGE Steam Power to sell a portion of its business to Électricité deFrance S.A. (EDF), which resulted in a reclassification of that business to held for sale. In the fourth quarter of 2022, we signed a binding agreement and expect to complete the sale, subject to regulatory approvals and other customary closing conditions, in the second half of 2023. OnApril 3, 2023 , ourGas Power business acquired Nexus Controls, a business specializing in aftermarket control system upgrades and controls field services that is expected to strengthen our quality, service, and delivery of our customers' assets. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 8 -------------------------------------------------------------------------------- We continue to invest in new product development. In Nuclear we are investing in the design of small modular reactors where we signed an agreement in the period for the deployment of the technology. InGas Power , our HA-Turbines have over 1.8 million operating hours across the installed base. Our fundamentals remain strong with approximately$69.4 billion in RPO, including 28 HA-Turbines, and a gas turbine installed base of approximately 7,000 units, including 80 HA-Turbines, which has nearly doubled since 2019, and approximately 1,800 units under long-term service agreements. We also continue to invest for the long-term, including decarbonization pathways that will provide customers with cleaner, more reliable power.
Three months ended
Sales in units 2023 2022 GE Gas Turbines 23 20 Heavy-Duty Gas Turbines(a) 18 13 HA-Turbines(b) 4 2 Aeroderivatives(a) 5 7
(a) Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas
Turbines.
(b) HA-Turbines are a subset of Heavy-Duty Gas Turbines.
RPO March 31, 2023 December 31, 2022 Equipment$ 12,056 $ 11,561 Services 57,382 57,420 Total RPO$ 69,438 $ 68,981 SEGMENT REVENUES AND PROFIT Three months ended March 31 2023 2022 Gas Power$ 2,867 $ 2,489 Steam Power 541 636 Power Conversion, Nuclear and other 412 377 Total segment revenues$ 3,820 $ 3,501 Equipment$ 1,102 $ 965 Services 2,718 2,536 Total segment revenues$ 3,820 $ 3,501 Segment profit (loss)$ 75 $ 63 Segment profit margin 2.0 % 1.8 %
For the three months ended
(9%) and segment profit was up 19%.
RPO as of
primarily driven by
Revenues increased
Heavy-duty gas turbine deliveries, partially offset by a reduction in
Power
Profit increased 35% organically* primarily due to growth in
non-contractual services.
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 Note 13 for further information).
*Non-GAAP Financial Measure
2023 1Q FORM 10-Q 9
-------------------------------------------------------------------------------- REVENUES AND OPERATING PROFIT (COST)
Three months ended
2023 2022
GE Digital revenues $ 237 $ 220
Insurance revenues (Note 13) 791 764
Eliminations and other (181) (284)
Total Corporate revenues $ 848 $ 700
Gains (losses) on purchases and sales of business interests $ (55) $ 4
Gains (losses) on equity securities 5,906 (219)
Restructuring and other charges (Note 20) (151) (35)
Separation costs (Note 20) (205) (99)
Steam asset sale impairment - (824)
Russia and Ukraine charges - (230)
Insurance profit (loss) (Note 13) 70 106
Adjusted total Corporate operating costs (Non-GAAP) (109) (122)
Total Corporate operating profit (cost) (GAAP) $ 5,456 $ (1,419)
Less: gains (losses), impairments, Insurance, and restructuring & 5,565 (1,297)
other
Adjusted total Corporate operating costs (Non-GAAP) $
(109)
Functions & operations$ (145) $ (71) Environmental, health and safety (EHS) and other items 30 (51) Eliminations 6 (1) Adjusted total Corporate operating costs (Non-GAAP) $
(109)
Adjusted total corporate operating costs* excludes gains (losses) on purchases and sales of business interests, significant, higher-cost restructuring programs, separation costs, gains (losses) on equity securities, impairments and our run-off Insurance business profit. We believe that adjusting corporate costs to exclude the effects of items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs. For the three months endedMarch 31, 2023 , revenues increased by$0.1 billion due to lower intersegment eliminations. Corporate operating profit increased by$6.9 billion due to$6.1 billion of higher gains on equity securities, primarily related to a gain on ourGE HealthCare investment, lower losses on our AerCap investments, partially offset by lower gains on ourBaker Hughes investments. Corporate operating profit increased as the result of a$0.8 billion 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. Corporate operating profit also increased due to$0.2 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 in the first quarter of 2022. These decreases were partially offset by$0.1 billion of higher separation costs and$0.1 billion of higher restructuring and other charges.
Adjusted total corporate operating costs* remained relatively flat due to core
reductions and favorability from higher bank interest, partially offset by
foreign exchange dynamics.
OTHER CONSOLIDATED INFORMATION RESTRUCTURING AND SEPARATION COSTS. 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. In addition, we incur costs associated with separation activities, which are also excluded from measurement of segment operating performance for internal and external purposes. See Note 20 for further information on restructuring and separation costs. INTEREST AND OTHER FINANCIAL CHARGES were$0.3 billion and$0.4 billion for the three months endedMarch 31, 2023 and 2022, respectively. The decrease was primarily due to lower average borrowings balances. The primary components of interest and other financial charges are interest on short- and long-term borrowings.
POSTRETIREMENT BENEFIT PLANS. Refer to Note 14 for information about our pension
and retiree benefit plans.
INCOME TAXES. For the three months endedMarch 31, 2023 , the income tax rate was 4.2% compared to (2.5)% for the three months endedMarch 31, 2022 . The negative tax rate for 2022 reflects a tax expense on a pre-tax loss. The provision for income taxes was$0.3 billion for the three months endedMarch 31, 2023 and an insignificant amount for the three months endedMarch 31, 2022 . The increase in tax was primarily due to the tax effect of the increase in pre-tax income excluding gains (losses) on our interests inGE HealthCare , AerCap andBaker Hughes and separation costs. For the three months endedMarch 31, 2023 , the adjusted income tax rate* was 28.0% compared to 500.0% for the three months endedMarch 31, 2022 . The adjusted provision (benefit) for income taxes* was$0.2 billion in 2023 and an insignificant amount in 2022. The increase in tax was primarily due to the tax effect of the increase in adjusted earnings before taxes*. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 10 -------------------------------------------------------------------------------- DISCONTINUED OPERATIONS primarily comprise our former GE HealthCare business, our mortgage portfolio inPoland , our GE Capital Aviation Services (GECAS) business, 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. During the first quarter of 2023, the financial markets experienced disruption due to certain bank failures. Given the diversification and credit profile ofGE's exposure to banking counterparties, we do not foresee any material financial impact from this disruption at this time, we will continue to monitor and will take action as needed. LIQUIDITY POLICY. We maintain a strong focus on liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our business needs and financial obligations under both normal and stressed conditions. We believe that our consolidated liquidity and availability under our revolving credit facilities will be sufficient to meet our liquidity needs. CONSOLIDATED LIQUIDITY. Our primary sources of liquidity consist of cash and cash equivalents, free cash flows* from our operating businesses, cash generated from asset sales and dispositions, and short-term borrowing facilities, including revolving credit facilities. Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, timing of Aerospace-related customer allowances, market conditions and our ability to execute dispositions. Total cash, cash equivalents and restricted cash was$12.0 billion atMarch 31, 2023 , of which$8.0 billion was held in theU.S. and$4.0 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, the planning for and execution of the separations has impacted and is expected to continue to impact indefinite reinvestment. The impact of such changes will be recorded when there is a specific change in ability and intent to reinvest earnings. Cash, cash equivalents and restricted cash atMarch 31, 2023 included$1.6 billion of cash held in countries with currency control restrictions (including a total of$0.1 billion inRussia andUkraine ) and$0.8 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$0.7 billion of cash in our run-off Insurance business, which was classified as All other assets in the Statement of Financial Position. During the first quarter of 2023, we received total proceeds of$1.8 billion from the sale of AerCap shares. We expect to fully monetize our stake in AerCap over time. We received proceeds of$0.2 billion in the first quarter of 2023, and have now fully monetized ourBaker Hughes position. As part of the spin-off ofGE HealthCare completed in the first quarter of 2023, we retained an approximately 19.9% stake ofGE HealthCare common stock. We intend to exit our stake inGE HealthCare over time, in an orderly manner. Following approval of a statutory permitted accounting practice in 2018 by our primary insurance regulator, theKansas Insurance Department (KID), we provided a total of$13.2 billion of capital contributions to our insurance subsidiaries, including$1.8 billion in the first quarter of 2023. We expect to provide the final capital contribution of approximately$1.8 billion in the first quarter of 2024, pending completion of ourDecember 31, 2023 statutory reporting process. See Note 13 for further information. 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 3.2 million shares for$0.3 billion during the three months endedMarch 31, 2023 . Additionally, during the first quarter of 2023, we elected to redeem 3 million of our outstanding shares of GE series D preferred stock for total cash spend of$3.0 billion . BORROWINGS. Consolidated total borrowings were$22.4 billion and$24.1 billion atMarch 31, 2023 andDecember 31, 2022 , respectively, a decrease of$1.6 billion . The reduction in borrowings was driven by$1.8 billion of net maturities and repayments of debt, partially offset by$0.2 billion primarily related to changes in foreign exchange rates. We have in place committed revolving credit facilities totaling$13.9 billion atMarch 31, 2023 , comprising a$10.0 billion unused back-up revolving syndicated credit facility and a total of$3.9 billion of bilateral revolving credit facilities. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 11
-------------------------------------------------------------------------------- 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 following table. Moody's S&P Fitch Outlook Negative Stable Stable Short term P-2 A-2 F2 Long term Baa1 BBB+ BBB We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds and access to liquidity. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . Substantially all of the Company's debt agreements in place atMarch 31, 2023 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 atMarch 31, 2023 . 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 March 31, 2023 BBB+/A-2/P-2 $ 18 BBB/A-3/P-3 167 BBB- 1,197 BB+ and below 577 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 AND INTEREST RATE RISK. 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 British pound sterling, among others. The effects of foreign currency fluctuations on earnings was less than$0.1 billion for both the three months endedMarch 31, 2023 and 2022. See Note 21 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$0.2 billion in 2023, an increase of$1.1 billion compared to 2022, primarily due to: an increase in net income (after adjusting for depreciation of property, plant, and equipment, amortization of intangible assets and non-cash (gains) losses related to our retained ownership interests inGE HealthCare , AerCap, andBaker Hughes ) primarily in our Aerospace business; and a decrease in cash used for working capital of$0.5 billion . The components of All other operating activities were as follows: Three months endedMarch 31
2023 2022
Increase (decrease) in Aerospace-related customer allowance accruals
Net interest and other financial charges/(cash paid)
(79) 31
Increase (decrease) in employee benefit liabilities
125 (113)
Net restructuring and other charges/(cash expenditures)
(1) (106)
Other
(54) (5)
All other operating activities
The cash impacts from changes in working capital compared to prior year were as follows: current receivables of$1.1 billion , driven by higher collections, partially offset by higher volume; inventories, including deferred inventory, of$(0.5) billion , driven by higher material purchases, partially offset by higher liquidations; current contract assets of$(0.2) billion , driven by higher billings on our long-term service agreements, partially offset by higher revenue recognition on those agreements; accounts payable and equipment project payables of$0.1 billion , driven by higher volume, partially offset by higher disbursements related to purchases of materials in prior periods; and progress collections and current deferred income of less than$0.1 billion . 2023 1Q FORM 10-Q 12 -------------------------------------------------------------------------------- Cash from investing activities was$1.3 billion in 2023, an increase of$1.3 billion compared to 2022, primarily due to: higher cash received related to net settlements between our continuing operations and businesses in discontinued operations of$0.9 billion , which primarily related toGE HealthCare in connection with the spin-off (a component of All other investing activities); and an increase in proceeds of$0.7 billion from the sales of our retained ownership interests in AerCap andBaker Hughes . Cash used for additions to property, plant and equipment and internal-use software, which are components of free cash flows*, was$0.3 billion in both 2023 and 2022. Cash used for financing activities was$5.2 billion in 2023, an increase of$3.8 billion compared to 2022, primarily due to: cash paid for redemption of GE preferred stock of$3.0 billion in 2023; higher net debt maturities of$0.6 billion ; and an increase in purchases of GE common stock for treasury of$0.3 billion .
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used for operating activities of discontinued operations was$0.4 billion in 2023, an increase of$0.8 billion compared with 2022, primarily driven by higher disbursements related to purchases of materials in prior periods, a decrease in net income and higher separation costs related to our former GE HealthCare business. Cash used for investing activities of discontinued operations was$3.1 billion in 2023, an increase of$2.7 billion compared with 2022, primarily driven by the deconsolidation ofGE HealthCare cash and equivalents of$1.8 billion and higher net settlements between our discontinued operations and businesses in continuing operations of$0.9 billion . Cash from financing activities of discontinued operations was$2.0 billion in 2023, an increase of$2.0 billion compared with 2022, primarily driven byGE HealthCare's long-term debt issuance in connection with the spin-off of$2.0 billion . CRITICAL ACCOUNTING ESTIMATES. Refer to the Other Items - Insurance section for further discussion of the accounting estimates and assumptions in our insurance reserves and their sensitivity to change. See Notes 1 and 13 for further information. Please refer to the Critical Accounting Estimates and Note 1 to the consolidated financial statements of our Annual Report on Form 10-K for the year endedDecember 31, 2022 for additional discussion of accounting policies and critical accounting estimates.
OTHER ITEMS
INSURANCE. The run-off insurance operations of North American Life and Health (NALH) includeEmployers Reassurance Corporation (ERAC) andUnion Fidelity Life Insurance Company (UFLIC). ERAC primarily assumed long-term care insurance and life insurance from numerous cedents under various types of reinsurance treaties and stopped accepting new policies after 2008. UFLIC primarily assumed long-term care insurance, structured settlement annuities with and without life contingencies and variable annuities from Genworth Financial Inc. (Genworth) and has been closed to new business since 2004.
On
Financial Services - Insurance (Topic 944): Targeted Improvements to the
Accounting for Long-Duration Contracts (ASU 2018-12). See Notes 1 and 13 for
further information.
Key Portfolio Characteristics Long-term care insurance contracts. The long-term care insurance contracts we reinsure provide coverage at varying levels of benefits to policyholders and may include attributes (e.g., lifetime benefit periods, inflation protection options, and joint life policies) that could result in claimants being on claim for longer periods or at higher daily claim costs, or alternatively limiting the premium paying period, compared to contracts with a lower level of benefits.
Presented in the table below are reserve balances and key attributes of our
long-term care insurance portfolio.
ERAC UFLIC Total GAAP: Ending balance of reserves at locked-in rate$ 17,750 $ 5,318 $ 23,068 Gross statutory reserves(a) 24,670 6,354 31,024 Number of policies in force 181,700 52,600 234,300 Number of covered lives in force 241,500 52,600 294,100 Average policyholder attained age 77 84 79 GAAP: Ending balance of reserves at locked-in rate per$ 97,700 $ 101,100 $ 98,500 policy (in actual dollars) GAAP: Ending balance of reserves at locked-in rate per 73,500 101,100 78,400 covered life (in actual dollars) Statutory: Gross reserves per policy (in actual 135,800 120,800132,400 dollars )(a) Statutory: Gross reserves per covered life (in actual 102,200 120,800105,500 dollars )(a) Percentage of policies with: Lifetime benefit period 69 % 32 % 61 % Inflation protection option 80 % 91 % 83 % Joint lives 33 % - % 26 % Percentage of policies that are premium paying 69 % 75 % 70 % Policies on claim 9,700 8,200 17,900
(a) Statutory balances reflect recognition of the estimated remaining statutory
increase in reserves of approximately
permitted accounting practice discussed further in Note 13.
*Non-GAAP Financial Measure
2023 1Q FORM 10-Q 13
--------------------------------------------------------------------------------
Structured settlement annuities. We reinsure approximately 26,000 structured
settlement annuities with an average attained age of 55. These structured
settlement annuities were primarily underwritten on impaired lives (i.e.,
shorter-than- average life expectancies) at origination and have projected
payments extending decades into the future. Our primary risks associated with
these contracts include mortality (i.e., life expectancy or longevity),
mortality improvement (i.e., assumed rate that mortality is expected to reduce
over time), which may extend the duration of payments on life contingent
contracts beyond our estimates, and reinvestment risk (i.e., a low interest rate
environment). Unlike long-term care insurance, structured settlement annuities
offer no ability to require additional premiums or reduce benefits.
Life Insurance contracts. Our life reinsurance business typically covers the
mortality risk associated with various types of life insurance policies that we
reinsure from approximately 150 ceding company relationships where we pay a
benefit based on the death of a covered life. At December 31, 2022 , across our
U.S. and Canadian life insurance portfolio, we reinsure approximately $59
billion of net amount at risk (i.e., difference between the death benefit and
any accrued cash value) from approximately 1.4 million policies with an average
attained age of 61. In 2022, our incurred claims were approximately $0.5 billion
with an average individual claim of approximately $46,000 . The covered products
primarily include permanent life insurance and 20- and 30-year level term
insurance. We anticipate a significant portion of the 20-year level term
policies, which represent approximately 17% of the net amount of risk, to lapse
through 2024 as the policies reach the end of their 20-year level premium
period.
Critical Accounting Estimates. Our insurance reserves include the following key
accounting estimates and assumptions described below.
Future policy benefit reserves. Future policy benefit reserves represent the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums and are estimated based on actuarial assumptions such as mortality, morbidity, terminations, and expenses. The liability is measured for each group of contracts (i.e. cohorts) using current cash flow assumptions. We regularly monitor emerging experience in our run-off insurance operations and industry developments to identify trends that may help us refine our reserve assumptions. We review at least annually in the third quarter, future policy benefit reserves cash flow assumptions, except related claim expenses which remain locked-in, and if the review concludes that the assumptions need to be updated, future policy benefit reserves are adjusted retroactively to the ASU2018-12 transition date based on the revised net premium ratio using actual historical experience, updated cash flow assumptions, and the locked-in discount rate with the effect of those changes recognized in current period earnings. Our annual review procedures include updating certain experience studies since our last completed review, independent actuarial analysis (principally on long-term care insurance exposures) and review of industry benchmarks. The review of experience and assumptions is a comprehensive and complex process that depends on a number of factors, many of which are interdependent and require evaluation individually and in the aggregate across all insurance products. The vast majority of our run-off insurance operations consists of reinsurance from multiple ceding insurance entities pursuant to treaties having complex terms and conditions. The review relies on claim and policy information provided by these ceding entities and considers the reinsurance treaties and underlying policies. In order to utilize that information for purposes of completing experience studies covering all key assumptions, we perform detailed procedures to conform and validate the data received from the ceding entities. Our long-term care insurance portfolio includes coverage where credible claim experience for higher attained ages is still emerging, and to the extent future experience deviates from current expectations, new projections of claim costs extending over the expected life of the policies may be required. Significant uncertainties exist in making projections for these long-term care insurance contracts, which requires that we consider a wide range of possible outcomes.
The primary cash flow assumptions used in the annual review include:
Morbidity. Morbidity assumptions used in estimating future policy benefit reserves are based on estimates of expected incidences of disability among policyholders and the costs associated with these policyholders asserting claims under their contracts, and these estimates account for any expected future morbidity improvement. For long-term care insurance exposures, estimating expected future costs includes assessments of incidence (probability of a claim), utilization (amount of available benefits expected to be incurred) and continuance (how long the claim will last, including claim terminations due to death or recovery). Rate of Change in Morbidity. Our review incorporates our best estimates of projected future changes in the morbidity rates reflected in our base claim incidence rates. These estimates draw upon a number of inputs, some of which are subjective, and all of which are interpreted and applied in the exercise of professional actuarial judgment in the context of the characteristics specific to our portfolios. This exercise of actuarial judgment considers factors such as the work performed by internal and external independent actuarial experts engaged to advise us in our annual review, the observed actual experience in our portfolios measured against our base assumptions, industry developments, and other trends, including advances in the state of medical care and health-care technology development. Terminations. Terminations include active life mortality and lapse. Mortality assumptions used in estimating future policy benefit reserves are based on published mortality tables as adjusted for the results of our experience studies and estimates of expected future mortality improvement. Lapse refers to the rate at which the underlying policies are cancelled due to non-payment of premiums by a policyholder. Lapse rate assumptions used in estimating the present value of future policy benefit reserves are based on the results of our experience studies and reflect actuarial judgment. Future long-term care premium rate increases. Substantially all long-term care insurance policies that are currently premium paying allow the issuing insurance entity to increase premiums, or alternatively allow the policyholder the option to decrease benefits, with approval by state regulators, should actual experience emerge worse than what was projected when such policies were initially underwritten. As a reinsurer, we rely upon the primary insurers that issued the underlying policies to file proposed premium rate increases on those policies with the relevant state insurance regulators. While we have no direct ability to seek or to institute such premium rate increases, we often collaborate with the primary insurers in accordance with reinsurance contractual terms to file proposed premium rate increases. The amount of times that rate increases have occurred varies by ceding company. We consider recent experience of rate increase filings made by our ceding companies along with state insurance regulatory processes and precedents in establishing our current expectations. 2023 1Q FORM 10-Q 14 -------------------------------------------------------------------------------- Included in Insurance losses and annuity benefits in our Statement of Earnings (Loss) for the years endedDecember 31, 2022 and 2021, are favorable pre-tax adjustments of$404 million and$408 million , respectively, from updating the net premium ratio after updating for actual historical experience each quarter and updating of future cash flow assumptions in the third quarter of each year. Sensitivities. The following table provides sensitivities with respect to the impact of changes of key cash flow assumptions underlying our future policy benefit reserves using the locked-in discount rate assumption and have been estimated across the entire product line rather than at an individual cohort level. As our insurance operations are in run-off, the locked-in discount rate at the ASU 2018-12 transition date is the discount rate used for the computation of interest accretion on future policy benefit reserves. 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. In addition, the effects of changes to cash flow assumptions underlying our future policy benefit reserves may be partially or wholly reflected in the period in which the assumptions are changed and/or over future periods and may vary across cohorts. Estimated adverse impact to projected present value of future cash flows Hypothetical change in (In millions, 2021 assumption 2022 assumption 2022 assumption pre-tax) Morbidity: Long-term care insurance Based on company Based on company 5% increase in incidence$600 incidence rates experience experience rates
Long-term care insurance claim Based on company Based on company
5% reduction in disabled$1,200 continuance experience experience life deaths Long-term care insurance Based on company Based on company 5% increase in$1,100 utilization experience and affected experience and affected utilization by future cost of care by future cost of care inflation inflation Long-term care insurance Decreases with attained Decreases with attained 25 basis point reduction$300 morbidity improvement age, ends at age 100 age, ends at age 100 by age with 0% floor No morbidity improvement$1,300 Active life terminations: Long-term care insurance Based on company Based on company 5% reduction in$300 mortality experience experience mortality 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 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 in the table above, it would be expected to be mitigated by more long-term care insurance policies reaching contractual daily or monthly benefit caps and by increased investment income from higher portfolio yields. Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices. Statutory accounting practices are set forth by theNational Association of Insurance Commissioners (NAIC) as well as state laws, regulation and general administrative rules and can differ in certain respects from GAAP and would result in several of the sensitivities described in the table above being less impactful on our statutory reserves.
See Capital Resources and Liquidity and Notes 1, 3 and 13 for further
information related to our run-off insurance operations.
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 and (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.
2023 1Q FORM 10-Q 15
--------------------------------------------------------------------------------
ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP)
Revenues Segment profit (loss) Profit margin
Three months ended March 31 2023 2022 V% 2023 2022 V% 2023 2022 V pts
Aerospace (GAAP) $ 6,981 $ 5,603 25 % $ 1,326 $ 908 46 % 19.0 % 16.2 % 2.8pts
Less: acquisitions - - - -
Less: business dispositions - - - -
Less: foreign currency
effect (6) (1) 30 4
Aerospace organic (Non-GAAP) $ 6,987 $ 5,604 25 % $ 1,295 $ 904 43 % 18.5 % 16.1 % 2.4pts
Renewable Energy (GAAP) $ 2,837 $ 2,871 (1) % $ (414) $ (434) 5 % (14.6) % (15.1) % 0.5pts
Less: acquisitions - - - -
Less: business dispositions - - - -
Less: foreign currency
effect (159) 7 (22) -
Renewable Energy organic
(Non-GAAP) $ 2,997 $ 2,863 5 % $ (392) $ (434) 10 % (13.1) % (15.2) % 2.1pts
Power (GAAP) $ 3,820 $ 3,501 9 % $ 75 $ 63 19 % 2.0 % 1.8 % 0.2pts
Less: acquisitions - - - -
Less: business dispositions - - - -
Less: foreign currency
effect (67) (16) (37) (20)
Power organic (Non-GAAP) $ 3,887 $ 3,517 11 % $ 112 $ 83 35 % 2.9 % 2.4 % 0.5pts
We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding
the effect of acquisitions, dispositions and foreign currency, which includes translational and transactional impacts, as these activities can obscure underlying trends.
ORGANIC REVENUES (NON-GAAP) Three months ended March 31
2023 2022 V%
Total revenues (GAAP) $ 14,486 $ 12,675 14 %
Less: Insurance revenues 791 764
Adjusted revenues (Non-GAAP) $ 13,695 $ 11,910 15 %
Less: acquisitions - 1
Less: business dispositions - -
Less: foreign currency effect(a) (235) (9)
Organic revenues (Non-GAAP) $
13,929
(a) Foreign currency impact in 2023 was primarily driven byU.S. dollar appreciation against the euro, Chinese renminbi and British pound. 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 ORGANIC REVENUES (NON-GAAP)
Three months ended
2023 2022 V%
Total equipment revenues (GAAP) $ 5,287 $ 4,608 15 %
Less: acquisitions - -
Less: business dispositions - -
Less: foreign currency effect (170) (1)
Equipment organic revenues (Non-GAAP) $
5,458
Total services revenues (GAAP)$ 8,407 $ 7,302 15 % Less: acquisitions - 1 Less: business dispositions - - Less: foreign currency effect (64) (8) Services organic revenues (Non-GAAP)$ 8,471 $ 7,309 16 % 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. 2023 1Q FORM 10-Q 16 -------------------------------------------------------------------------------- Three months ended March ADJUSTED PROFIT AND PROFIT MARGIN (NON-GAAP) 31 2023 2022 V% Total revenues (GAAP)$ 14,486 $ 12,675 14% Less: Insurance revenues (Note 13) 791 764 Adjusted revenues (Non-GAAP)$ 13,695 $ 11,910 15% Total costs and expenses (GAAP)$ 14,075 $ 13,904 1% Less: Insurance cost and expenses (Note 13) 722 658 Less: interest and other financial charges(a) 257 371 Less: non-operating benefit cost (income) (385) (105) Less: restructuring & other(a) 151 38 Less: separation costs(a) 205 99 Less: Steam asset sale impairment(a) - 824 Less: Russia and Ukraine charges(a) - 230 Add: noncontrolling interests (27) 14 Add: EFS benefit from taxes (51) (47) Adjusted costs (Non-GAAP)$ 13,047 $ 11,755 11% Other income (loss) (GAAP)$ 6,081 $ 49 F Less: gains (losses) on equity securities(a) 5,906 (219) Less: restructuring & other(a) - 3 Less: gains (losses) on purchases and sales of business (55) 4
interests(a)
Adjusted other income (loss) (Non-GAAP)
$ 230 $ 260 (12)%
Profit (loss) (GAAP)$ 6,492 $ (1,180) F Profit (loss) margin (GAAP) 44.8% (9.3)% 54.1pts Adjusted profit (loss) (Non-GAAP) $ 877 $ 415 F Adjusted profit (loss) margin (Non-GAAP) 6.4% 3.5% 2.9pts (a) See the Corporate and Other Consolidated Information sections for further information. We believe that adjusting profit to exclude the effects of items that are not closely associated with ongoing operations provides management and investors with a meaningful measure that increases the period-to-period comparability. Gains (losses) and restructuring and other items are impacted by the timing and magnitude of gains associated with dispositions, and the timing and magnitude of costs associated with restructuring and other activities. ADJUSTED ORGANIC PROFIT (NON-GAAP)
Three months ended
2023 2022 V%
Adjusted profit (loss) (Non-GAAP) $ 877 $ 415 F
Less: acquisitions (6) (5)
Less: business dispositions - -
Less: foreign currency effect(a) (81) (14)
Adjusted organic profit (loss) (Non-GAAP) $ 964 $ 434 F
Adjusted profit (loss) margin (Non-GAAP) 6.4 % 3.5 % 2.9 pts
Adjusted organic profit (loss) margin (Non-GAAP) 6.9
% 3.6 % 3.3 pts
(a) Included foreign currency negative effect on revenues of$235 million and positive effect on operating costs and other income (loss) of$154 million for the three months endedMarch 31, 2023 . 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. 2023 1Q FORM 10-Q 17
-------------------------------------------------------------------------------- ADJUSTED EARNINGS (LOSS) AND ADJUSTED INCOME TAX RATE (NON-GAAP) (Per-share amounts in dollars) 2023 2022 Three months ended March 31 Earnings EPS Earnings EPS
Earnings (loss) from continuing operations (GAAP) (Note
18)
$ 6,097 $ 5.56 $ (1,276) $ (1.16) Insurance earnings (loss) (pre-tax) 71 0.06 108 0.10 Tax effect on Insurance earnings (loss) (16) (0.01) (24) (0.02) Less: Insurance earnings (loss) (net of tax) (Note 13) 54 0.05 84 0.08 Earnings (loss) excluding Insurance (Non-GAAP)$ 6,043 $ 5.51 $ (1,360) $ (1.24) Non-operating benefit (cost) income (pre-tax) (GAAP) 385 0.35 105 0.10 Tax effect on non-operating benefit (cost) income (81) (0.07) (22) (0.02) Less: Non-operating benefit (cost) income (net of tax) 304 0.28 83 0.08 Gains (losses) on purchases and sales of business interests (pre-tax)(a) (55) (0.05) 4 -
Tax effect on gains (losses) on purchases and sales of
business interests
1 - (1) -
Less: Gains (losses) on purchases and sales of business
interests (net of tax)
(53) (0.05) 3 - Gains (losses) on equity securities (pre-tax)(a) 5,906 5.39 (219) (0.20) Tax effect on gains (losses) on equity securities(b)(c) - - (20) (0.02) Less: Gains (losses) on equity securities (net of tax) 5,906 5.39 (239) (0.22) Restructuring & other (pre-tax)(a) (151) (0.14) (35) (0.03) Tax effect on restructuring & other 32 0.03 8 0.01 Less: Restructuring & other (net of tax) (119) (0.11) (27) (0.02) Separation costs (pre-tax)(a) (205) (0.19) (99) (0.09) Tax effect on separation costs (56) (0.05) (24) (0.02) Less: Separation costs (net of tax) (261) (0.24) (123) (0.11) Steam asset sale impairment (pre-tax)(a) - - (824) (0.75) Tax effect on Steam asset sale impairment - - 84 0.08 Less: Steam asset sale impairment (net of tax) - - (740) (0.67) Russia and Ukraine charges (pre-tax)(a) - - (230) (0.21) Tax effect on Russia and Ukraine charges - - 15 0.01 Less: Russia and Ukraine charges (net of tax) - - (215) (0.20) Less: Excise tax on preferred stock redemption (30) (0.03) - - Adjusted earnings (loss) (Non-GAAP) $ 296 $
0.27
Earnings (loss) from continuing operations before taxes
(GAAP)
$ 6,492 $ (1,180) Less: Total adjustments above (pre-tax) 5,950 (1,190) Adjusted earnings before taxes (Non-GAAP) $ 542 $ 9 Provision (benefit) for income taxes (GAAP) $ 271 $ 29 Less: Tax effect on adjustments above 119 (16)
Adjusted provision (benefit) for income taxes (Non-GAAP) $ 152
$ 45 Income tax rate (GAAP) 4.2% (2.5)% Adjusted income tax rate (Non-GAAP) 28.0% 500.0% (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 cost in Adjusted earnings* and the Adjusted tax rate* 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 2023. *Non-GAAP Financial Measure 2023 1Q FORM 10-Q 18
--------------------------------------------------------------------------------
FREE CASH FLOWS (FCF) (NON-GAAP) Three months ended March 31
2023 2022
CFOA (GAAP) $ 155 $ (924)
Less: Insurance CFOA 6 (15)
CFOA excluding Insurance (Non-GAAP) $ 149 $ (909)
Add: gross additions to property, plant and equipment (279) (239)
Add: gross additions to internal-use software (20) (22)
Less: separation cash expenditures (204) (3)
Less: Corporate restructuring cash expenditures (32) -
Less: taxes related to business sales (16) -
Free cash flows (Non-GAAP) $
102
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 cash expenditures, Corporate restructuring cash expenditures (associated with the separation-related program announced inOctober 2022 ) and taxes related to business sales. We believe this measure will better allow management and investors to evaluate the capacity of our operations to generate free cash flows. 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 ofMarch 31, 2023 , and (ii) no change in internal control over financial reporting occurred during the quarter endedMarch 31, 2023 , 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 3,225 thousand shares for$276 million during the three months endedMarch 31, 2023 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) 2023 January - $ - - February 1,786 84.23 1,786 March 1,438 87.62 1,438 Total 3,225$ 85.74 3,225$ 1,749
Consolidated financial statements including group management report for the financial year 2022
Consolidated Financial Statements – Form 8-K
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