UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2023
OR
For the transition period from ____ to ____
Commission file number 001-00035
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(Registrant’s telephone number, including area code) (617 ) 443-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
☑ | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 1,088,386,043 shares of common stock with a par value of $0.01 per share outstanding at September 30, 2023.
TABLE OF CONTENTS
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Note 19 Other Income (Loss) | |||||
FORWARD-LOOKING STATEMENTS. Our public communications and SEC filings may contain statements related to future, not past, events. These forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range." Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about planned and potential transactions, including our plan to pursue a spin-off of our portfolio of energy businesses that are planned to be combined as GE Vernova; the impacts of macroeconomic and market conditions and volatility on our business operations, financial results and financial position and on the global supply chain and world economy; our expected financial performance, including cash flows, revenues, organic growth, margins, earnings and earnings per share; impacts related to the COVID-19 pandemic; our de-leveraging plans, including leverage ratios and targets, the timing and nature of actions to reduce indebtedness and our credit ratings and outlooks; our funding and liquidity; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; or tax rates.
For us, particular areas where risks or uncertainties could cause our actual results to be materially different than those expressed in our forward-looking statements include:
•our success in executing planned and potential transactions, including our plan to pursue a spin-off of GE Vernova, and sales or other dispositions of our equity interests in AerCap Holdings N.V. (AerCap) and GE HealthCare, the timing for such transactions, the ability to satisfy any applicable pre-conditions, and the expected proceeds, consideration and benefits to GE;
•changes in macroeconomic and market conditions and market volatility, including risk of recession, inflation, supply chain constraints or disruptions, interest rates, perceived weakness or failures of banks, the value of securities and other financial assets (including our equity interests in AerCap and GE HealthCare), oil, natural gas and other commodity prices and exchange rates, and the impact of such changes and volatility on our business operations, financial results and financial position;
•global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related sanctions and other measures and risks related to conflict in the Middle East, decreases in the rates of investment or economic growth globally or in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our businesses' global supply chains and strategies;
•the status of the ongoing recovery from the impact of the COVID-19 pandemic, including impacts of virus variants and resurgences, and of government, business and individual responses, and in particular any adverse impacts to the aviation industry and its participants;
•our capital allocation plans, including de-leveraging actions to reduce GE's indebtedness, the capital structures of the public companies that we plan to form from our businesses with the planned spin-off, the timing and amount of dividends, share repurchases, acquisitions, organic investments, and other priorities;
•downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our funding profile, costs, liquidity and competitive position;
•the amount and timing of our cash flows and earnings, which may be impacted by macroeconomic, customer, supplier, competitive, contractual and other dynamics and conditions;
•capital and liquidity needs associated with our financial services operations, including in connection with our run-off insurance operations and mortgage portfolio in Poland (Bank BPH), the amount and timing of any required capital contributions and any strategic actions that we may pursue;
•market developments or customer actions that may affect demand and the financial performance of major industries and customers we serve, such as demand for air travel and other aviation industry dynamics; pricing, cost, volume and the timing of investment by customers or industry participants and other factors in renewable energy markets; conditions in key geographic markets; technology developments; and other shifts in the competitive landscape for our products and services;
•operational execution by our businesses, including the success at our Renewable Energy business in improving product quality and fleet availability, executing on our product and project cost estimates and delivery schedule projections and other aspects of operational performance, as well as the performance of GE Aerospace amidst the ongoing market recovery;
•changes in law, regulation or policy that may affect our businesses, such as trade policy and tariffs, regulation and incentives related to climate change (including the impact of the Inflation Reduction Act and other policies), and the effects of tax law changes;
•our decisions about investments in research and development, and new products, services and platforms, and our ability to launch new products in a cost-effective manner;
•our ability to increase margins through implementation of operational improvements, restructuring and other cost reduction measures;
•the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of shareholder and related lawsuits, Alstom, Bank BPH and other investigative and legal proceedings;
•the impact of actual or potential quality issues or failures of our products or third-party products with which our products are integrated, and related costs and reputational effects;
•the impact of potential information technology, cybersecurity or data security breaches at GE or third parties; and
•the other factors that are described in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2022, as such descriptions may be updated or amended in any future reports we file with the SEC.
These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.
2023 3Q FORM 10-Q 3
ABOUT GENERAL ELECTRIC. General Electric Company (General Electric, GE or the Company) is a high-tech industrial company that operates worldwide through its three segments, Aerospace, Renewable Energy, and Power. Our products include commercial and defense aircraft engines and systems; wind and other renewable energy generation equipment and grid solutions; and gas, steam, nuclear and other power generation equipment. We have significant global installed bases of equipment across these sectors, and services to support these products are also an important part of our business alongside new equipment sales.
We previously announced a strategic plan to form three industry-leading, global, investment-grade public companies from (i) our Aerospace business, which we plan to refer to as GE Aerospace, (ii) our portfolio of energy businesses, including our Renewable Energy and Power businesses, which we plan to combine and refer to as GE Vernova, and (iii) our former HealthCare business. For purposes of this report, we refer to our reporting segments as Aerospace, Renewable Energy and Power. The composition of these reporting segments is unchanged. On January 3, 2023, we completed the separation of the HealthCare business from GE through the spin-off of GE HealthCare Technologies Inc. (GE HealthCare). See Notes 2 and 3 for further information. The historical results of GE HealthCare and certain assets and liabilities included in the spin-off are now reported in GE's consolidated financial statements as discontinued operations. Additionally, on January 1, 2023, we adopted Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. See Note 13 for further information.
GE’s Internet address at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s LinkedIn and other social media accounts, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A). The consolidated financial statements of General Electric Company are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Unless otherwise noted, tables are presented in U.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” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.
CONSOLIDATED RESULTS
THIRD QUARTER 2023 RESULTS. Total revenues were $17.3 billion, up $2.9 billion for the quarter, driven primarily by increases at Aerospace and Renewable Energy.
Continuing earnings (loss) per share was $0.08. Excluding the results from our run-off Insurance business, gains (losses) on retained and sold ownership interests, non-operating benefit costs, interest and other financial charges, separation costs and restructuring costs, Adjusted earnings per share* was $0.82. For the three months ended September 30, 2023, profit margin was 1.7% and profit was up $0.5 billion, primarily due to an increase in segment profit of $1.1 billion, an increase in non-operating benefit income of $0.3 billion, a decrease in Adjusted total Corporate operating costs* of $0.1 billion and a decrease in interest and other financial charges of $0.1 billion. These increases were partially offset by an increase in losses on retained and sold ownership interests of $1.0 billion and an increase in separation costs of $0.1 billion. Adjusted organic profit* increased $1.3 billion, driven primarily by increases at Renewable Energy, including the nonrecurrence of a prior year warranty and related charge of $0.5 billion, primarily at Onshore Wind, and Aerospace.
Cash flows from operating activities (CFOA) were $2.4 billion and $0.4 billion for the nine months ended September 30, 2023 and 2022, respectively. CFOA 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 and sold ownership interests in GE HealthCare, AerCap and Baker Hughes) and an increase in cash from working capital. Free cash flows* (FCF) were $2.2 billion and $(0.3) billion for the nine months ended September 30, 2023 and 2022, respectively. FCF* increased primarily due to the same reasons as noted for CFOA above, after adjusting for an increase in separation cash expenditures, which are excluded from FCF*, partially offset by an increase in cash used for additions to property, plant and equipment and internal-use software. See the Capital Resources and Liquidity - Statement of Cash Flows section for further information.
Remaining performance obligation (RPO) includes unfilled customer orders for equipment, excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty. Services RPO includes the estimated life of contract sales related to long-term service agreements which remain unsatisfied at the end of the reporting period, the estimated amount of unsatisfied performance obligations for time and material agreements, material services agreements, spare parts under purchase order, multi-year maintenance programs and other services agreements, excluding any order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty. See Note 8 for further information.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 4
| RPO | September 30, 2023 | December 31, 2022 | ||||||
| Equipment | $ | 53,285 | $ | 44,198 | ||||
| Services | 199,807 | 194,496 | ||||||
| Total RPO | $ | 253,092 | $ | 238,693 | ||||
As of September 30, 2023, RPO increased $14.4 billion (6%) from December 31, 2022, primarily at Renewable Energy, from new orders at Grid and a new Offshore Wind project in the U.S.; at Aerospace, from increases in both equipment and services; and at Power, driven by increases in Gas Power and Power Conversion equipment.
| REVENUES | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Equipment revenues | $ | 6,939 | $ | 5,731 | $ | 18,915 | $ | 15,605 | |||||||||
| Services revenues | 9,565 | 8,095 | 27,136 | 23,493 | |||||||||||||
| Insurance revenues | 842 | 645 | 2,480 | 2,175 | |||||||||||||
| Total revenues | $ | 17,346 | $ | 14,470 | $ | 48,531 | $ | 41,272 | |||||||||
For the three months ended September 30, 2023, total revenues increased $2.9 billion (20%). Equipment revenues increased, primarily at Renewable Energy, due to higher equipment revenue across Grid and Offshore Wind and improved pricing on units delivered at Onshore Wind; at Aerospace, due to an increase in commercial install and spare engine unit shipments; and at Power, due to increases at Gas Power and Power Conversion. Services revenues increased, primarily at Aerospace, due to increased commercial spare part shipments and higher prices; and at Power, due to growth in Power Conversion and Steam; 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, organic revenues* increased $2.5 billion (18%), with equipment revenues up $1.1 billion (19%) and services revenues up $1.4 billion (17%). Organic revenues* increased at Aerospace, Renewable Energy and Power.
For the nine months ended September 30, 2023, total revenues increased $7.3 billion (18%). Equipment revenues increased, primarily at Renewable Energy, due to higher equipment revenue at Offshore Wind associated with Haliade-X ramp up, as well as at Grid; at Aerospace, due to an increase in commercial install and spare engine unit shipments; and at Power, due to higher extended scope on projects at Gas Power. Services revenues increased, primarily at Aerospace, due to increased commercial spare part shipments, internal shop visit volume and higher prices; and at Power, due to growth in Gas Power and Steam; 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, organic revenues* increased $7.0 billion (18%), with equipment revenues up $3.4 billion (22%) and services revenues up $3.6 billion (15%). Organic revenues* increased at Aerospace, Renewable Energy and Power.
| EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
(Per-share in dollars and diluted) | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Continuing earnings (loss) attributable to GE common shareholders | $ | 84 | $ | (316) | $ | 7,183 | $ | (2,792) | |||||||||
| Continuing earnings (loss) per share | $ | 0.08 | $ | (0.29) | $ | 6.54 | $ | (2.54) | |||||||||
For the three months ended September 30, 2023, continuing earnings increased $0.4 billion primarily due to an increase in segment profit of $1.1 billion, an increase in non-operating benefit income of $0.3 billion, a decrease in Adjusted total Corporate operating costs* of $0.1 billion and a decrease in interest and other financial charges of $0.1 billion. These increases were partially offset by an increase in losses on retained and sold ownership interests of $1.0 billion, an increase in provision for income tax of $0.1 billion and an increase in separation costs of $0.1 billion. Adjusted earnings* were $0.9 billion, an increase of $1.1 billion. Profit margin was 1.7%, an increase from (1.6)%. Adjusted profit* was $1.6 billion, an increase of $1.3 billion organically*, due to increases at Renewable Energy, including the nonrecurrence of a prior year warranty and related charge of $0.5 billion, primarily at Onshore Wind, and Aerospace. Adjusted profit margin* was 9.8%, an increase of 760 basis points organically*.
For the nine months ended September 30, 2023, continuing earnings increased $10.0 billion, primarily due to an increase in gains on retained and sold ownership interests of $7.0 billion, an increase in segment profit of $2.0 billion, an increase in non-operating benefit income of $0.9 billion, the nonrecurrence of the Steam asset sale impairment of $0.8 billion and a decrease in interest and other financial charges of $0.3 billion. These increases were partially offset by an increase in provision for income tax of $0.5 billion, an increase in restructuring and other charges of $0.3 billion and an increase in separation costs of $0.2 billion. Adjusted earnings* were $1.9 billion, an increase of $1.8 billion. Profit margin was 16.9%, an increase from (5.8)%. Adjusted profit* was $3.9 billion, an increase of $2.3 billion organically*, due to increases at Aerospace, Renewable Energy and Power. Adjusted profit margin* was 8.4%, an increase of 420 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 we expect the impact of inflation to continue to be challenging, we have taken and 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, because we operate in many countries around the world, we are subject to complex global geopolitical forces. Due to an expansion of U.S. sanctions related to the ongoing Russia and Ukraine conflict, we recorded a charge of $0.2 billion in the nine months ended September 30, 2023, primarily related to our Power segment, and as a result our remaining net asset exposure to Russia is not material.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 5
SEGMENT OPERATIONS. Refer to the revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023 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 September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| 2023 | 2022 | V | % | 2023 | 2022 | V | % | ||||||||||||||||||||||
| Aerospace | $ | $ | % | $ | $ | % | |||||||||||||||||||||||
| Renewable Energy | % | % | |||||||||||||||||||||||||||
| Power | % | % | |||||||||||||||||||||||||||
| Total segment revenues | % | % | |||||||||||||||||||||||||||
| Corporate | % | % | |||||||||||||||||||||||||||
| Total revenues | $ | $ | % | $ | $ | % | |||||||||||||||||||||||
| Aerospace | $ | $ | % | $ | $ | % | |||||||||||||||||||||||
| Renewable Energy | ( | ( | % | ( | ( | % | |||||||||||||||||||||||
| Power | % | % | |||||||||||||||||||||||||||
| Total segment profit (loss) | F | % | |||||||||||||||||||||||||||
| Corporate(a) | ( | ( | U | ( | F | ||||||||||||||||||||||||
| Interest and other financial charges | ( | ( | % | ( | ( | % | |||||||||||||||||||||||
| Non-operating benefit income (cost) | F | F | |||||||||||||||||||||||||||
| Benefit (provision) for income taxes | ( | ( | U | ( | ( | U | |||||||||||||||||||||||
| Preferred stock dividends | ( | ( | ( | % | ( | ( | ( | % | |||||||||||||||||||||
Earnings (loss) from continuing operations attributable to GE common shareholders | ( | F | ( | F | |||||||||||||||||||||||||
| Earnings (loss) from discontinued operations attributable to GE common shareholders | ( | % | ( | % | |||||||||||||||||||||||||
Net earnings (loss) attributable to GE common shareholders | $ | $ | F | $ | $ | ( | F | ||||||||||||||||||||||
(a) Includes interest and other financial charges of $11 million and $13 million and $36 million and $45 million; and benefit for income taxes of $42 million and $52 million and $153 million and $160 million related to Energy Financial Services (EFS) within Corporate for the three and nine months ended September 30, 2023 and 2022, respectively.
GE AEROSPACE. Our results in the third quarter of 2023 reflect robust demand for commercial air travel and continued strength in services, which represents 73% of Aerospace’s revenue this quarter. A key underlying driver of our commercial engine and services business is global commercial departures, which grew mid-teens during the third quarter of 2023 compared to the third quarter of 2022. The air traffic growth trends vary by region given economic conditions, airline competition and government regulations. Consistent with industry projections, we estimate air traffic to 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 defense environment, we continue to forecast strong demand creating future growth opportunities for our Defense business (previously referred to as our Military business). The U.S. Department of Defense and foreign governments have continued flight operations and have allocated budgets to upgrade and modernize their existing fleets, including support for next generation large-combat engine architecture such as Aerospace’s XA100 program. More recently, Aerospace achieved a significant milestone with the U.S. Army's acceptance of the first two T901 flight test engines that will power the Future Attack Reconnaissance Aircraft prototypes.
We increased our Commercial engine sales this quarter compared to prior year, however, Defense engine sales decreased compared to prior year. Global material availability, supplier delivery performance and skilled 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.
Notably, CFM’s Revolutionary Innovation for Sustainable Engines (RISE) program represents our single largest efficiency step change, aiming to reduce fuel consumption and CO2 emissions by at least 20% compared to today’s most efficient engines.
We continue to take actions to serve our customers as demand in the global airline industry increases. Aerospace has a deep history of innovation and technology leadership. Our commercial and defense engine installed base, including units produced by joint ventures, of approximately 67,000 units, with approximately 12,400 units under long-term service agreements, supports recurring, profitable services growth for the future. We believe these strong fundamentals position Aerospace to generate long-term profitable growth and higher cash flow over time.
2023 3Q FORM 10-Q 6
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||
| Sales in units, except where noted | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Commercial Engines(a) | 520 | 489 | 1,544 | 1,187 | |||||||||||||
| LEAP Engines(b) | 389 | 347 | 1,174 | 812 | |||||||||||||
| Defense Engines | 95 | 151 | 403 | 466 | |||||||||||||
| Spare Parts Rate(c) | $ | 42.4 | $ | 29.4 | $ | 35.4 | $ | 25.2 | |||||||||
(a) Commercial Engines now includes Business Aviation and Aeroderivative units for all periods presented. (b) LEAP engines are subsets of commercial engines. (c) Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day. | |||||||||||||||||
| RPO | September 30, 2023 | December 31, 2022 | ||||||
| Equipment | $ | 15,909 | $ | 13,748 | ||||
| Services | 126,863 | 121,511 | ||||||
| Total RPO | $ | 142,772 | $ | 135,260 | ||||
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Commercial Engines & Services | $ | 6,399 | $ | 4,971 | $ | 17,293 | $ | 13,130 | |||||||||||||||||||||
| Defense | 1,111 | 1,027 | 3,470 | 3,159 | |||||||||||||||||||||||||
| Systems & Other | 900 | 707 | 2,487 | 2,146 | |||||||||||||||||||||||||
| Total segment revenues | $ | 8,409 | $ | 6,705 | $ | 23,250 | $ | 18,434 | |||||||||||||||||||||
| Equipment | $ | 2,299 | $ | 1,968 | $ | 6,806 | $ | 5,379 | |||||||||||||||||||||
| Services | 6,111 | 4,736 | 16,445 | 13,055 | |||||||||||||||||||||||||
| Total segment revenues | $ | 8,409 | $ | 6,705 | $ | 23,250 | $ | 18,434 | |||||||||||||||||||||
| Segment profit | $ | 1,712 | $ | 1,284 | $ | 4,516 | $ | 3,341 | |||||||||||||||||||||
| Segment profit margin | 20.4 | % | 19.1 | % | 19.4 | % | 18.1 | % | |||||||||||||||||||||
For the three months ended September 30, 2023, segment revenues were up $1.7 billion (25%) and segment profit was up $0.4 billion (33%).
Revenues increased $1.7 billion (25%) organically*. Commercial Services revenues increased, primarily due to increased commercial spare part shipments and higher prices. Commercial Engines revenues increased, from 31 more commercial install and spare engine unit shipments, including 42 more LEAP units compared to the prior year. Defense revenues increased, primarily due to growth in spare part shipments and development contract revenue, partially offset by 56 fewer engine shipments than the prior year.
Profit increased $0.4 billion (33%) organically*, primarily due to benefits from increased commercial spare part shipments and higher prices. These increases in profit were partially offset by additional growth investment, inflation in our supply chain and product mix.
For the nine months ended September 30, 2023, segment revenues were up $4.8 billion (26%) and segment profit was up $1.2 billion (35%).
RPO as of September 30, 2023 increased $7.5 billion (6%) from December 31, 2022, due to increases in both equipment and services. Equipment increased primarily due to an increase in both Commercial and Defense equipment orders since December 31, 2022. Services increased primarily due to contract modifications and as a result of engines contracted under long-term service agreements that have now been put into service.
Revenues increased $4.8 billion (26%) organically*. Commercial Services revenues increased, primarily due to increased commercial spare part shipments, internal shop visit volume and higher prices. Commercial Engines revenue increased, from 357 more commercial install and spare engine unit shipments, including 362 more LEAP units compared to the prior year. Defense revenues increased, primarily due to product mix and growth in services, partially offset by 63 fewer engine shipments than the prior year.
Profit increased $1.1 billion (33%) organically*, primarily due to benefits from increased commercial spare part shipments, internal shop visit volume and higher prices. These increases in profit were partially offset by additional growth investment, inflation in our supply chain and product mix.
RENEWABLE ENERGY – will be part of GE Vernova. During the three months ended September 30, 2023, the segment experienced higher orders and revenue from increased demand at Grid and higher revenue at Offshore Wind. The Inflation Reduction Act of 2022 (IRA) introduces new and extends existing tax incentives for at least 10 years. It is expected to resolve recent U.S. policy uncertainty that resulted in project delays and deferral of customer investments in Onshore Wind and increase near- and longer-term demand in the U.S. for onshore and offshore wind projects. Included in our RPO of $40.8 billion at September 30, 2023 are service agreements on approximately 25,000 of our onshore wind turbine installed base of approximately 57,000 units. New product introductions, such as our 3 MW, 5 MW and 6 MW Onshore units, and our 12-14 MW Haliade-X Offshore units, account for approximately half of our RPO in Onshore and Offshore Wind.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 7
At Onshore Wind, we continue to focus on improving our overall quality and fleet availability. We are reducing product variants and deploying repairs and other corrective measures across the fleet. Concurrently, we intend to operate in fewer geographies and focus on those markets that align better with our products and manufacturing footprint. We are realizing the favorable impact of the IRA through a reduction in product costs as qualifying turbines manufactured in the U.S. in 2023 are delivered. Approximately half of Onshore Wind’s equipment RPO is associated with U.S. projects where we expect to receive additional IRA benefits as incremental qualifying turbines are delivered. Finally, we are continuing our restructuring program to reduce our operating costs and are beginning to see the benefits of the above programs.
The Offshore Wind industry, where we expect global growth through the coming decades, currently faces challenges as companies attempt to increase output and reduce costs of new product introductions. Our Offshore Wind business continues to experience pressure related to our product and project cost estimates, as well as in our delivery schedule projections. Although we are deploying countermeasures to combat these pressures and are committed to driving improvement, the increase in production levels for our new larger turbines remains a key challenge that could result in future losses. In the third quarter of 2023, the first 13 MW Haliade-X units are now producing electricity.
Our Grid Solutions business is positioned to support grid expansion and modernization needs globally. We are experiencing strong European demand for High Voltage Direct Current (HVDC) solutions and are securing our position in the rapid growth offshore and onshore interconnection markets. Our HVDC transmission products help customers meet the 2GW HVDC solution standard, and we are developing new technology that solves for a denser, more resilient, stable and efficient electric grid; a grid with lower future greenhouse gas emissions. We also benefited from higher growth in orders from other transmission and grid automation related products within our Grid Solutions business.
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||
| Sales in units, except where noted | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Wind Turbines | 666 | 640 | 1,718 | 1,703 | |||||||||||||
| Wind Turbine Gigawatts | 2.5 | 2.2 | 6.4 | 5.8 | |||||||||||||
| Repower units | 50 | 140 | 179 | 415 | |||||||||||||
| RPO | September 30, 2023 | December 31, 2022 | ||||||
| Equipment(a) | $ | 26,627 | $ | 20,142 | ||||
| Services | 14,150 | 14,799 | ||||||
| Total RPO | $ | 40,777 | $ | 34,941 | ||||
(a) Includes $5.9 billion and $5.3 billion related to Offshore Wind at September 30, 2023 and December 31, 2022, respectively.
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Onshore Wind | $ | 2,431 | $ | 2,445 | $ | 6,249 | $ | 6,403 | |||||||||||||||||||||
| Grid Solutions equipment and services | 946 | 744 | 2,693 | 2,145 | |||||||||||||||||||||||||
Offshore Wind, Hydro and Hybrid Solutions | 773 | 405 | 1,895 | 1,016 | |||||||||||||||||||||||||
| Total segment revenues | $ | 4,151 | $ | 3,594 | $ | 10,837 | $ | 9,564 | |||||||||||||||||||||
| Equipment | $ | 3,554 | $ | 2,887 | $ | 9,084 | $ | 7,505 | |||||||||||||||||||||
| Services | 597 | 707 | 1,754 | 2,059 | |||||||||||||||||||||||||
| Total segment revenues | $ | 4,151 | $ | 3,594 | $ | 10,837 | $ | 9,564 | |||||||||||||||||||||
| Segment profit (loss) | $ | (317) | $ | (934) | $ | (1,090) | $ | (1,786) | |||||||||||||||||||||
| Segment profit margin | (7.6) | % | (26.0) | % | (10.1) | % | (18.7) | % | |||||||||||||||||||||
For the three months ended September 30, 2023, segment revenues were up $0.6 billion (15%) and segment losses were down $0.6 billion (66%).
Revenues increased $0.5 billion (14%) organically*, primarily from higher equipment revenue across Grid and Offshore Wind and improved pricing on units delivered at Onshore Wind. Wind turbine deliveries increased by 26 units primarily at Offshore Wind, while repower deliveries decreased by 90 units.
Segment losses decreased $0.7 billion organically*, primarily attributable to the nonrecurrence of a prior year warranty and related charge of $0.5 billion, primarily at Onshore Wind, improved pricing at Onshore Wind, benefits arising from the IRA on product cost at Onshore Wind and the impact of cost reduction initiatives at Grid and Onshore Wind, where both businesses were profitable in the quarter. These increases were partially offset by higher losses at Offshore Wind associated with the Haliade-X ramp up and project losses, as well as lower repower volume at Onshore Wind.
For the nine months ended September 30, 2023, segment revenues were up $1.3 billion (13%) and segment losses were down $0.7 billion (39%).
RPO as of September 30, 2023 increased $5.8 billion (17%) from December 31, 2022 primarily from several new HVDC projects at Grid and a new Offshore Wind project in the U.S., partially offset by reductions at Onshore Wind driven by a decrease in repower, partially offset by increases on new unit orders, primarily in North America.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 8
Revenues increased $1.5 billion (15%) organically*, primarily from higher equipment revenue at Offshore Wind associated with the Haliade-X ramp up, as well as at Grid. These increases were partially offset by fewer repower unit deliveries at Onshore Wind.
Segment losses decreased $0.9 billion (48%) organically*, primarily attributable to the nonrecurrence of a prior year warranty and related charge of $0.5 billion, primarily at Onshore Wind, improved pricing at Onshore Wind and Grid, benefits arising from the IRA on product cost at Onshore Wind, the impact of cost reduction initiatives at Grid and Onshore Wind and higher revenue at Grid. These benefits were partially offset by higher losses at Offshore Wind associated with Haliade-X ramp up and project losses, as well as lower repower volume at Onshore Wind.
POWER – will be part of GE Vernova. During the three months ended September 30, 2023, GE gas turbine utilization was stable, with strength in the U.S. offset by lower utilization in Europe due to nuclear and hydro recoveries as well as renewables growth. Global electricity demand was also stable with record breaking temperatures driving low single digit gains in the U.S. offset in Europe as energy saving policies continue to take effect. Utilization of the fleet remains resilient following global gas power generation trends. 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. Given the long-cycle nature of the business, 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 evolve, 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 by providing a critical foundation of dispatchable, flexible power and system inertia from which the energy transition can build upon. We remain focused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdles, where we have high confidence in delivering for our customers.
In the first quarter of 2022, we signed a non-binding memorandum of understanding for GE Steam Power to sell a part of its nuclear activities to Électricité de France 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, during the fourth quarter of 2023. On April 3, 2023, our Gas 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.
We continue to invest in new product development. In Nuclear, we have signed an agreement with a customer for the deployment of small modular nuclear reactor technology with the potential to enable reductions in nuclear power plant costs and cycle times. In Gas Power, we continue to invest for the long-term, including multiple decarbonization pathways that will provide customers with cleaner, more reliable power. Our fundamentals remain strong with approximately $70.5 billion in RPO and a gas turbine installed base of approximately 7,000 units and approximately 1,700 units under long-term service agreements with an average life of 10 years. This includes 27 HA-Turbines in RPO and 88 HA-Turbines in the installed base with over two million operating hours.
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||
| Sales in units | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| GE Gas Turbines | 19 | 20 | 56 | 69 | |||||||||||||
| Heavy-Duty Gas Turbines(a) | 12 | 14 | 39 | 37 | |||||||||||||
| HA-Turbines(b) | 2 | 3 | 9 | 6 | |||||||||||||
| Aeroderivatives(a) | 7 | 6 | 17 | 32 | |||||||||||||
| (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, 2023 | December 31, 2022 | ||||||
| Equipment | $ | 12,390 | $ | 11,561 | ||||
| Services | 58,146 | 57,420 | ||||||
| Total RPO | $ | 70,536 | $ | 68,981 | ||||
| SEGMENT REVENUES AND PROFIT | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Gas Power | $ | 2,952 | $ | 2,612 | $ | 8,872 | $ | 8,234 | |||||||||||||||||||||
| Steam Power | 571 | 571 | 1,762 | 1,898 | |||||||||||||||||||||||||
| Power Conversion, Nuclear and other | 450 | 346 | 1,311 | 1,101 | |||||||||||||||||||||||||
| Total segment revenues | $ | 3,974 | $ | 3,529 | $ | 11,945 | $ | 11,233 | |||||||||||||||||||||
| Equipment | $ | 1,251 | $ | 954 | $ | 3,426 | $ | 3,116 | |||||||||||||||||||||
| Services | 2,722 | 2,575 | 8,519 | 8,117 | |||||||||||||||||||||||||
| Total segment revenues | $ | 3,974 | $ | 3,529 | $ | 11,945 | $ | 11,233 | |||||||||||||||||||||
| Segment profit (loss) | $ | 238 | $ | 141 | $ | 690 | $ | 524 | |||||||||||||||||||||
| Segment profit margin | 6.0 | % | 4.0 | % | 5.8 | % | 4.7 | % | |||||||||||||||||||||
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 9
For the three months ended September 30, 2023, segment revenues were up $0.4 billion (13%) and segment profit was up $0.1 billion (69%).
Revenues increased $0.3 billion (9%) organically*, primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, increases in Power Conversion equipment and services, and an increase in Steam Power services. Increases were partially offset by a reduction in Steam Power equipment due to the ongoing exit of new build coal.
Profit increased $0.1 billion (61%) organically* primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, partially offset by a decrease in Gas Power contractual services, primarily related to lower contract escalation tied to external indices, more than offsetting increases in contractual services volume.
For the nine months ended September 30, 2023, segment revenues were up $0.7 billion (6%) and segment profit was up $0.2 billion (32%).
RPO as of September 30, 2023 increased $1.6 billion (2%) from December 31, 2022, primarily driven by increases in Gas Power equipment, Power Conversion equipment and growth in Gas Power contractual and non-contractual services, partially offset by decreases due to the impact of expanded sanctions on Gas Power contractual services in Russia.
Revenues increased $0.6 billion (5%) organically*, primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, and increases in Gas Power and Steam services, partially offset by a reduction in Steam Power equipment due to the ongoing exit of new build coal.
Profit increased $0.2 billion (27%) organically* primarily due to an increase in Gas Power equipment from higher price and scope on Heavy-Duty Gas Turbines and scope on Aeroderivatives, and an increase in Gas Power 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 financial services business, including our run-off Insurance business (see Note 13 for further information) and EFS.
| REVENUES AND OPERATING PROFIT (COST) | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| GE Digital revenues | $ | 226 | $ | 210 | $ | 696 | $ | 635 | |||||||||
| Insurance revenues (Note 13) | 842 | 645 | 2,480 | 2,175 | |||||||||||||
| Eliminations and other | (256) | (211) | (678) | (768) | |||||||||||||
| Total Corporate revenues | $ | 812 | $ | 643 | $ | 2,498 | $ | 2,041 | |||||||||
| Gains (losses) on retained and sold ownership interests (Note 19) | $ | (1,109) | $ | (101) | $ | 5,157 | $ | (1,852) | |||||||||
| Gains (losses) on other equity securities | (1) | 12 | (5) | (8) | |||||||||||||
| Gains (losses) on purchases and sales of business interests | 6 | 22 | (13) | 28 | |||||||||||||
| Restructuring and other charges (Note 20) | (149) | (103) | (438) | (173) | |||||||||||||
| Separation costs (Note 20) | (227) | (171) | (658) | (419) | |||||||||||||
| Steam asset sale impairment (Note 7) | — | — | — | (825) | |||||||||||||
| Russia and Ukraine charges | — | (33) | (190) | (263) | |||||||||||||
| Insurance profit (loss) (Note 13) | 99 | 102 | 233 | 264 | |||||||||||||
| Adjusted total Corporate operating costs (Non-GAAP) | (18) | (133) | (228) | (286) | |||||||||||||
| Total Corporate operating profit (cost) (GAAP) | $ | (1,399) | $ | (405) | $ | 3,858 | $ | (3,534) | |||||||||
| Less: gains (losses), impairments, Insurance, and restructuring & other | (1,381) | (272) | 4,086 | (3,247) | |||||||||||||
| Adjusted total Corporate operating costs (Non-GAAP) | $ | (18) | $ | (133) | $ | (228) | $ | (286) | |||||||||
| Functions & operations | $ | (50) | $ | (119) | $ | (312) | $ | (238) | |||||||||
| Environmental, health and safety (EHS) and other items | (2) | (22) | 29 | (81) | |||||||||||||
| Eliminations | 34 | 9 | 55 | 32 | |||||||||||||
| Adjusted total Corporate operating costs (Non-GAAP) | $ | (18) | $ | (133) | $ | (228) | $ | (286) | |||||||||
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
2023 3Q FORM 10-Q 10
For the three months ended September 30, 2023, revenues increased by $0.2 billion due to higher Insurance revenues. Corporate operating profit decreased by $1.0 billion due to $1.0 billion of higher losses on retained and sold ownership interests, primarily related to our AerCap and GE HealthCare investments, partially offset by the nonrecurrence of prior year losses on our Baker Hughes investment. Corporate operating profit also decreased by $0.1 billion due to higher separation costs.
Adjusted total corporate operating costs* decreased by $0.1 billion primarily driven by higher gains from the sale of investments at EFS, favorability from higher bank interest and a reduction in our core functional costs.
For the nine months ended September 30, 2023, revenues increased by $0.5 billion due to $0.3 billion of higher Insurance revenues, $0.1 billion of higher GE Digital revenues and $0.1 billion of lower intersegment eliminations. Corporate operating profit increased by $7.4 billion due to $7.0 billion of higher gains on retained and sold ownership interests, primarily related to our AerCap and GE HealthCare investments, partially offset by lower gains on our Baker Hughes investment. Corporate operating profit also 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 our Steam Power business to held for sale in the first quarter of 2022. Corporate operating profit also increased due to $0.1 billion of lower charges from contracts and recoverability of assets in connection with the conflict between Russia and Ukraine and resulting sanctions, primarily related to our Aerospace and Power businesses. These decreases were partially offset by $0.3 billion of higher restructuring and other charges and $0.2 billion of higher separation costs.
Adjusted total corporate operating costs* decreased by $0.1 billion primarily driven by favorability from higher bank interest, improved performance in our Digital business and a reduction in our core functional costs. These decreases were partially offset by prior year foreign exchange dynamics and cost timing.
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 ended and $0.8 billion and $1.1 billion for the nine months ended September 30, 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 ended September 30, 2023, the income tax rate was 46.0% compared to (5.6)% for the three months ended September 30, 2022. The negative tax rate for 2022 reflects a tax expense on a pre-tax loss. See Note 16 for further information.
The provision for income taxes was $0.1 billion and $0.0 billion for the three months ended September 30, 2023 and 2022, respectively. The increase in tax was primarily due to the tax effect of the increase in pre-tax income excluding gains and losses on our retained and sold ownership interests and an increase in losses in foreign jurisdictions where they are not likely to be utilized, partially offset by a tax benefit related to separation-related entity restructuring.
For the three months ended September 30, 2023, the adjusted income tax rate* was 26.0% compared to (109.1)% for the three months ended September 30, 2022. The adjusted provision (benefit) for income taxes* was $0.3 billion and $0.1 billion for the three months ended September 30, 2023 and 2022, respectively. The increase in tax was primarily due to the tax effect of the increase in adjusted earnings before taxes*.
For the nine months ended September 30, 2023, the income tax rate was 9.1% compared to (8.5)% for the nine months ended September 30, 2022. The negative tax rate for 2022 reflects a tax expense on a pre-tax loss. See Note 16 for further information.
The provision for income taxes was $0.7 billion and $0.2 billion for the nine months ended September 30, 2023 and 2022, respectively. The increase in tax was primarily due to the tax effect of the increase in pre-tax income excluding gains and losses on our retained and sold ownership interests, partially offset by a tax benefit related to separation-related entity restructuring.
For the nine months ended September 30, 2023, the adjusted income tax rate* was 26.2% compared to 44.3% for the nine months ended September 30, 2022. The adjusted provision (benefit) for income taxes* was $0.8 billion and $0.2 billion for the nine months ended September 30, 2023 and 2022, respectively. The increase in tax was primarily due to the tax effect of the increase in adjusted earnings before taxes*.
DISCONTINUED OPERATIONS primarily comprise our former GE HealthCare business, our mortgage portfolio in Poland (Bank BPH), 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.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 11
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.
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 $13.1 billion at September 30, 2023, of which $2.5 billion was held in the U.S. and $10.6 billion was held outside the U.S.
Cash held in non-U.S. entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, if there is a change in reinvestment, we would expect to be able to repatriate available cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit. With regards to our announcement to form three public companies, 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 at September 30, 2023 included $1.7 billion of cash held in countries with currency control restrictions (including a total of $0.1 billion in Russia and Ukraine) and $0.4 billion of restricted use cash. Cash held in countries with currency controls represents amounts held in countries that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. Restricted use cash represents amounts that are not available to fund operations, and primarily comprised funds restricted in connection with certain ongoing litigation matters. Excluded from cash, cash equivalents and restricted cash was $0.7 billion of cash in our run-off Insurance business, which was classified as All other assets in the Statement of Financial Position.
During the nine months ended September 30, 2023, we received total proceeds of approximately $4.6 billion from the sale of a portion of our AerCap shares. We expect to fully monetize our stake in AerCap over time, in an orderly manner. During the first quarter of 2023, we received proceeds of $0.2 billion and completed monetization of our Baker Hughes position. As part of the spin-off of GE HealthCare completed in the first quarter of 2023, we retained an approximately 19.9% stake of GE HealthCare common stock. During the second quarter of 2023, we received total proceeds of $2.2 billion from the disposition of 28.8 million shares of GE HealthCare. We intend to exit our remaining stake in GE HealthCare over time, in an orderly manner. See Notes 3 and 19 for further information.
Following approval of a statutory permitted accounting practice in 2018 by our primary insurance regulator, the Kansas 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 up to $1.8 billion in the first quarter of 2024, pending completion of our December 31, 2023 statutory reporting process. See Note 13 for further information.
On March 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 8.4 million shares for $0.8 billion during the nine months ended September 30, 2023. Additionally, during the third quarter of 2023, we redeemed the remaining outstanding shares of GE preferred stock. We redeemed $2.8 billion and $5.8 billion of GE preferred stock in the three months and nine months ended September 30, 2023.
BORROWINGS. Consolidated total borrowings were $20.8 billion and $24.1 billion at September 30, 2023 and December 31, 2022, respectively, a decrease of $3.2 billion. The reduction in borrowings was driven by $3.2 billion of net maturities and repayments of debt.
We have in place committed revolving credit facilities totaling $13.5 billion at September 30, 2023, comprising a $10.0 billion unused back-up revolving syndicated credit facility and a total of $3.5 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 following table.
| Moody's | S&P | Fitch | |||||||||
| Outlook | Negative | Stable | Stable | ||||||||
| Short term | P-2 | A-2 | F2 | ||||||||
| Long term | Baa1 | BBB+ | BBB | ||||||||
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 12
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 ended December 31, 2022.
Substantially all of the Company's debt agreements in place at September 30, 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 at September 30, 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 | September 30, 2023 | ||||
| BBB+/A-2/P-2 | $ | — | |||
| BBB/A-3/P-3 | 127 | ||||
| BBB- | 1,319 | ||||
| BB+ and below | 641 | ||||
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 the U.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 the three months ended September 30, 2023 and 2022, and $0.2 billion and $0.1 billion for the nine months ended September 30, 2023 and 2022, respectively. 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 postretirement plans.
Cash from operating activities was $2.4 billion in 2023, an increase of $2.0 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 and sold ownership interests in GE HealthCare, AerCap, and Baker Hughes) primarily in our Aerospace business and an increase in cash from working capital of $1.0 billion. The components of All other operating activities were as follows:
| Nine months ended September 30 | 2023 | 2022 | ||||||
| Increase (decrease) in Aerospace-related customer allowance accruals | $ | (147) | $ | 565 | ||||
| Net interest and other financial charges/(cash paid) | (142) | (3) | ||||||
| Increase (decrease) in employee benefit liabilities | 265 | 35 | ||||||
| Net restructuring and other charges/(cash expenditures) | (24) | (115) | ||||||
| Other | 228 | (251) | ||||||
| All other operating activities | $ | 180 | $ | 232 | ||||
The cash impacts from changes in working capital compared to prior year were as follows: current receivables of $2.7 billion, driven by higher collections partially offset by higher volume; inventories, including deferred inventory, of less than $0.1 billion, driven by higher liquidations offset by higher material purchases; current contract assets of $(0.2) billion, driven by higher revenue recognition partially offset by higher billings on our long-term equipment and other service agreements; accounts payable and equipment project payables of $(1.3) billion, driven by higher disbursements related to purchases of materials in prior periods partially offset by higher volume and progress collections and current deferred income of $(0.3) billion driven by higher liquidations partially offset by higher collections.
Cash from investing activities was $5.4 billion in 2023, an increase of $3.3 billion compared to 2022, primarily due to: cash received related to net settlements between our continuing operations and businesses in discontinued operations of $1.1 billion, primarily related to GE HealthCare in connection with its spin-off in 2023 and the nonrecurrence of a capital contribution to Bank BPH in 2022 (a component of All other investing activities); an increase in proceeds from the dispositions of our retained ownership interests in GE HealthCare, AerCap and Baker Hughes of $3.0 billion; partially offset by the acquisition of Nexus Controls in our Power business of $0.3 billion in 2023. Cash used for additions to property, plant and equipment and internal-use software, which are components of free cash flows*, was $1.1 billion and $0.8 billion in 2023 and 2022, respectively.
*Non-GAAP Financial Measure
2023 3Q FORM 10-Q 13
Cash used for financing activities was $10.2 billion in 2023, an increase of $5.2 billion compared to 2022, primarily due to: higher cash paid for redemption of GE preferred stock of $5.7 billion in 2023; an increase in purchases of GE common stock for treasury of $0.3 billion; partially offset by net cash received on derivatives hedging foreign currency debt of $0.1 billion in 2023 compared to net cash paid of $0.5 billion in 2022 (a component of All other financing activities).
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used for operating activities of discontinued operations was $0.3 billion in 2023, an increase of $1.4 billion compared with 2022, primarily driven by decrease in net income, higher disbursements related to purchases of materials in prior periods and higher separation costs related to our former GE HealthCare business partially offset by tax receipts from our trailing operations.
Cash used for investing activities of discontinued operations was $3.1 billion in 2023, an increase of $2.6 billion compared with 2022, primarily driven by the deconsolidation of GE HealthCare cash and equivalents of $1.8 billion and higher net settlements between our discontinued operations and businesses in continuing operations of $1.1 billion.
Cash from financing activities of discontinued operations was $2.0 billion in 2023, an increase of $2.1 billion compared with 2022, primarily driven by GE HealthCare's long-term debt issuance in connection with the spin-off of $2.0 billion.
CRITICAL ACCOUNTING ESTIMATES. 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 ended December 31, 2022 and revised portions of our 2022 Form 10-K on Form 8-K as filed on April 25, 2023 for additional discussion of accounting policies and critical accounting estimates, including accounting estimates and assumptions in our insurance reserves and their sensitivity to change. See Notes 1 and 13 for further information.
OTHER ITEMS
INSURANCE. Our 2023 annual review of future policy benefit reserves cash flow assumptions resulted in an immaterial charge to net earnings, indicating claims experience continues to develop consistently with our models. The sensitivities with respect to the impact of changes of key cash flow assumptions underlying our future policy benefit reserves included in the revised portions of our 2022 Form 10-K as filed on April 25, 2023, have not materially changed. 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.
| ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | Segment profit (loss) | Profit margin | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30 | 2023 | 2022 | V% | 2023 | 2022 | V% | 2023 | 2022 | V pts | |||||||||||||||||||||||||||||||||||||||||
| Aerospace (GAAP) | $ | 8,409 | $ | 6,705 | 25 | % | $ | 1,712 | $ | 1,284 | 33 | % | 20.4 | % | 19.1 | % | 1.3pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | 8 | (5) | 1 | (6) | ||||||||||||||||||||||||||||||||||||||||||||||
| Aerospace organic (Non-GAAP) | $ | 8,401 | $ | 6,710 | 25 | % | $ | 1,711 | $ | 1,290 | 33 | % | 20.4 | % | 19.2 | % | 1.2pts | |||||||||||||||||||||||||||||||||
| Renewable Energy (GAAP) | $ | 4,151 | $ | 3,594 | 15 | % | $ | (317) | $ | (934) | 66 | % | (7.6) | % | (26.0) | % | 18.4pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | 72 | 27 | (52) | 8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Renewable Energy organic (Non-GAAP) | $ | 4,078 | $ | 3,567 | 14 | % | $ | (265) | $ | (942) | 72 | % | (6.5) | % | (26.4) | % | 19.9pts | |||||||||||||||||||||||||||||||||
| Power (GAAP) | $ | 3,974 | $ | 3,529 | 13 | % | $ | 238 | $ | 141 | 69 | % | 6.0 | % | 4.0 | % | 2.0pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | 56 | — | 23 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | 59 | (8) | (29) | (11) | ||||||||||||||||||||||||||||||||||||||||||||||
| Power organic (Non-GAAP) | $ | 3,859 | $ | 3,537 | 9 | % | $ | 244 | $ | 152 | 61 | % | 6.3 | % | 4.3 | % | 2.0pts | |||||||||||||||||||||||||||||||||
2023 3Q FORM 10-Q 14
| ORGANIC REVENUES, PROFIT (LOSS) AND PROFIT MARGIN BY SEGMENT (NON-GAAP) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | Segment profit (loss) | Profit margin | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine months ended September 30 | 2023 | 2022 | V% | 2023 | 2022 | V% | 2023 | 2022 | V pts | |||||||||||||||||||||||||||||||||||||||||
| Aerospace (GAAP) | $ | 23,250 | $ | 18,434 | 26 | % | $ | 4,516 | $ | 3,341 | 35 | % | 19.4 | % | 18.1 | % | 1.3pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | 5 | (9) | 69 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||
| Aerospace organic (Non-GAAP) | $ | 23,245 | $ | 18,444 | 26 | % | $ | 4,447 | $ | 3,336 | 33 | % | 19.1 | % | 18.1 | % | 1.0pts | |||||||||||||||||||||||||||||||||
| Renewable Energy (GAAP) | $ | 10,837 | $ | 9,564 | 13 | % | $ | (1,090) | $ | (1,786) | 39 | % | (10.1) | % | (18.7) | % | 8.6pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | (165) | 38 | (148) | 25 | ||||||||||||||||||||||||||||||||||||||||||||||
| Renewable Energy organic (Non-GAAP) | $ | 11,002 | $ | 9,526 | 15 | % | $ | (942) | $ | (1,812) | 48 | % | (8.6) | % | (19.0) | % | 10.4pts | |||||||||||||||||||||||||||||||||
| Power (GAAP) | $ | 11,945 | $ | 11,233 | 6 | % | $ | 690 | $ | 524 | 32 | % | 5.8 | % | 4.7 | % | 1.1pts | |||||||||||||||||||||||||||||||||
| Less: acquisitions and business dispositions | 86 | — | 5 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: foreign currency effect | (28) | (39) | (76) | (75) | ||||||||||||||||||||||||||||||||||||||||||||||
| Power organic (Non-GAAP) | $ | 11,887 | $ | 11,272 | 5 | % | $ | 761 | $ | 599 | 27 | % | 6.4 | % | 5.3 | % | 1.1pts | |||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||
| 2023 | 2022 | V% | 2023 | 2022 | V% | ||||||||||||||||||
| Total revenues (GAAP) | $ | 17,346 | $ | 14,470 | 20 | % | $ | 48,531 | $ | 41,272 | 18 | % | |||||||||||
| Less: Insurance revenues | 842 | 645 | 2,480 | 2,175 | |||||||||||||||||||
| Adjusted revenues (Non-GAAP) | $ | 16,504 | $ | 13,826 | 19 | % | $ | 46,050 | $ | 39,097 | 18 | % | |||||||||||
| Less: acquisitions and business dispositions | 56 | — | 87 | 1 | |||||||||||||||||||
| Less: foreign currency effect(a) | 142 | 13 | (191) | (10) | |||||||||||||||||||
| Organic revenues (Non-GAAP) | $ | 16,306 | $ | 13,813 | 18 | % | $ | 46,154 | $ | 39,107 | 18 | % | |||||||||||
(a) Foreign currency impact was primarily driven by U.S. dollar depreciation against the euro, Brazilian real and British pound and U.S. dollar appreciation against the Chinese renminbi, Canadian dollar and British pound for the three and nine months ended September 30, 2023, respectively. | |||||||||||||||||||||||
| 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 September 30 | Nine months ended September 30 | |||||||||||||||||||||
| 2023 | 2022 | V% | 2023 | 2022 | V% | ||||||||||||||||||
| Total equipment revenues (GAAP) | $ | 6,939 | $ | 5,731 | 21 | % | $ | 18,915 | $ | 15,605 | 21 | % | |||||||||||
| Less: acquisitions and business dispositions | 23 | — | 37 | — | |||||||||||||||||||
| Less: foreign currency effect | 102 | 19 | (143) | 13 | |||||||||||||||||||
| Equipment organic revenues (Non-GAAP) | $ | 6,814 | $ | 5,712 | 19 | % | $ | 19,021 | $ | 15,592 | 22 | % | |||||||||||
| Total services revenues (GAAP) | $ | 9,565 | $ | 8,095 | 18 | % | $ | 27,136 | $ | 23,493 | 16 | % | |||||||||||
| Less: acquisitions and business dispositions | 33 | — | 49 | 1 | |||||||||||||||||||
| Less: foreign currency effect | 40 | (6) | (47) | (23) | |||||||||||||||||||
| Services organic revenues (Non-GAAP) | $ | 9,492 | $ | 8,101 | 17 | % | $ | 27,133 | $ | 23,515 | 15 | % | |||||||||||
| 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 3Q FORM 10-Q 15
| ADJUSTED PROFIT AND PROFIT MARGIN (NON-GAAP) | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||
| 2023 | 2022 | V% | 2023 | 2022 | V% | ||||||||||||||||||
| Total revenues (GAAP) | $ | 17,346 | $ | 14,470 | 20% | $ | 48,531 | $ | 41,272 | 18% | |||||||||||||
| Less: Insurance revenues (Note 13) | 842 | 645 | 2,480 | 2,175 | |||||||||||||||||||
| Adjusted revenues (Non-GAAP) | $ | 16,504 | $ | 13,826 | 19% | $ | 46,050 | $ | 39,097 | 18% | |||||||||||||
| Total costs and expenses (GAAP) | $ | 16,373 | $ | 14,880 | 10% | $ | 46,449 | $ | 42,650 | 9% | |||||||||||||
| Less: Insurance cost and expenses (Note 13) | 742 | 543 | 2,248 | 1,911 | |||||||||||||||||||
| Less: interest and other financial charges(a) | 275 | 361 | 786 | 1,085 | |||||||||||||||||||
| Less: non-operating benefit cost (income) | (396) | (96) | (1,183) | (302) | |||||||||||||||||||
| Less: restructuring & other(a) | 149 | 103 | 438 | 176 | |||||||||||||||||||
| Less: separation costs(a) | 227 | 171 | 658 | 419 | |||||||||||||||||||
| Less: Steam asset sale impairment(a) | — | — | — | 825 | |||||||||||||||||||
| Less: Russia and Ukraine charges(a) | — | 33 | 190 | 263 | |||||||||||||||||||
| Add: noncontrolling interests | (14) | (2) | (37) | 19 | |||||||||||||||||||
| Add: EFS benefit from taxes | (42) | (52) | (153) | (160) | |||||||||||||||||||
| Adjusted costs (Non-GAAP) | $ | 15,320 | $ | 13,711 | 12% | $ | 43,122 | $ | 38,133 | 13% | |||||||||||||
| Other income (loss) (GAAP) | $ | (673) | $ | 178 | U | $ | 6,100 | $ | (1,000) | F | |||||||||||||
| Less: gains (losses) on retained and sold ownership interests and other equity securities(a) | (1,110) | (89) | 5,152 | (1,859) | |||||||||||||||||||
| Less: gains (losses) on purchases and sales of business interests & other(a) | 6 | 22 | (13) | 31 | |||||||||||||||||||
| Adjusted other income (loss) (Non-GAAP) | $ | 431 | $ | 245 | 76% | $ | 961 | $ | 828 | 16% | |||||||||||||
| Profit (loss) (GAAP) | $ | 300 | $ | (232) | F | $ | 8,182 | $ | (2,378) | F | |||||||||||||
| Profit (loss) margin (GAAP) | 1.7% | (1.6)% | 3.3pts | 16.9% | (5.8)% | 22.7pts | |||||||||||||||||
| Adjusted profit (loss) (Non-GAAP) | $ | 1,615 | $ | 359 | F | $ | 3,889 | $ | 1,793 | F | |||||||||||||
| Adjusted profit (loss) margin (Non-GAAP) | 9.8% | 2.6% | 7.2pts | 8.4% | 4.6% | 3.8pts | |||||||||||||||||
| (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 | |||||||||||||||||||||
| 2023 | 2022 | V% | 2023 | 2022 | V% | ||||||||||||||||||
| Adjusted profit (loss) (Non-GAAP) | $ | 1,615 | $ | 359 | F | $ | 3,889 | $ | 1,793 | F | |||||||||||||
| Less: acquisitions and business dispositions | 23 | — | (1) | (5) | |||||||||||||||||||
| Less: foreign currency effect(a) | (88) | (11) | (237) | (38) | |||||||||||||||||||
| Adjusted organic profit (loss) (Non-GAAP) | $ | 1,680 | $ | 370 | F | $ | 4,126 | $ | 1,836 | F | |||||||||||||
| Adjusted profit (loss) margin (Non-GAAP) | 9.8 | % | 2.6 | % | 7.2 | pts | 8.4 | % | 4.6 | % | 3.8 | pts | |||||||||||
| Adjusted organic profit (loss) margin (Non-GAAP) | 10.3 | % | 2.7 | % | 7.6 | pts | 8.9 | % | 4.7 | % | 4.2 | pts | |||||||||||
(a) Included foreign currency positive effect on revenues of $142 million and negative effect on operating costs and other income (loss) of $230 million for the three months ended September 30, 2023. Included foreign currency negative effect on revenues of $191 million and negative effect on operating costs and other income (loss) of $46 million for the nine months ended September 30, 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 3Q FORM 10-Q 16
| ADJUSTED EARNINGS (LOSS) AND ADJUSTED INCOME TAX RATE (NON-GAAP) | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| (Per-share amounts in dollars) | Earnings | EPS | Earnings | EPS | Earnings | EPS | Earnings | EPS | |||||||||||||||||||||
| Earnings (loss) from continuing operations (GAAP) (Note 18) | $ | 84 | $ | 0.08 | $ | (313) | $ | (0.29) | $ | 7,180 | $ | 6.54 | $ | (2,789) | $ | (2.54) | |||||||||||||
| Insurance earnings (loss) (pre-tax) | 100 | 0.09 | 101 | 0.09 | 235 | 0.21 | 269 | 0.25 | |||||||||||||||||||||
| Tax effect on Insurance earnings (loss) | (23) | (0.02) | (23) | (0.02) | (54) | (0.05) | (61) | (0.06) | |||||||||||||||||||||
| Less: Insurance earnings (loss) (net of tax) (Note 13) | 77 | 0.07 | 78 | 0.07 | 181 | 0.17 | 208 | 0.19 | |||||||||||||||||||||
| Earnings (loss) excluding Insurance (Non-GAAP) | $ | 7 | $ | 0.01 | $ | (391) | $ | (0.36) | $ | 6,999 | $ | 6.37 | $ | (2,997) | $ | (2.73) | |||||||||||||
| Non-operating benefit (cost) income (pre-tax) (GAAP) | 396 | 0.36 | 96 | 0.09 | 1,183 | 1.08 | 302 | 0.28 | |||||||||||||||||||||
| Tax effect on non-operating benefit (cost) income | (83) | (0.08) | (20) | (0.02) | (248) | (0.23) | (63) | (0.06) | |||||||||||||||||||||
| Less: Non-operating benefit (cost) income (net of tax) | 313 | 0.28 | 76 | 0.07 | 935 | 0.85 | 239 | 0.22 | |||||||||||||||||||||
| Gains (losses) on purchases and sales of business interests (pre-tax)(a) | 6 | 0.01 | 22 | 0.02 | (13) | (0.01) | 28 | 0.03 | |||||||||||||||||||||
| Tax effect on gains (losses) on purchases and sales of business interests | (7) | (0.01) | 39 | 0.04 | (23) | (0.02) | 56 | 0.05 | |||||||||||||||||||||
| Less: Gains (losses) on purchases and sales of business interests (net of tax) | (1) | — | 61 | 0.06 | (35) | (0.03) | 84 | 0.08 | |||||||||||||||||||||
| Gains (losses) on retained and sold ownership interests and other equity securities (pre-tax)(a) | (1,110) | (1.01) | (89) | (0.08) | 5,152 | 4.69 | (1,859) | (1.69) | |||||||||||||||||||||
| Tax effect on gains (losses) on retained and sold ownership interests and other equity securities(b)(c) | — | — | (9) | (0.01) | 1 | — | (15) | (0.01) | |||||||||||||||||||||
| Less: Gains (losses) on retained and sold ownership interests and other equity securities (net of tax) | (1,110) | (1.01) | (98) | (0.09) | 5,153 | 4.69 | (1,874) | (1.71) | |||||||||||||||||||||
| Restructuring & other (pre-tax)(a) | (149) | (0.14) | (103) | (0.09) | (438) | (0.40) | (173) | (0.16) | |||||||||||||||||||||
| Tax effect on restructuring & other | 31 | 0.03 | 22 | 0.02 | 92 | 0.08 | 37 | 0.03 | |||||||||||||||||||||
| Less: Restructuring & other (net of tax) | (118) | (0.11) | (81) | (0.07) | (346) | (0.31) | (136) | (0.12) | |||||||||||||||||||||
| Separation costs (pre-tax)(a) | (227) | (0.21) | (171) | (0.16) | (658) | (0.60) | (419) | (0.38) | |||||||||||||||||||||
| Tax effect on separation costs | 278 | 0.25 | 39 | 0.04 | 256 | 0.23 | 31 | 0.03 | |||||||||||||||||||||
| Less: Separation costs (net of tax) | 51 | 0.05 | (132) | (0.12) | (402) | (0.37) | (388) | (0.35) | |||||||||||||||||||||
| Steam asset sale impairment (pre-tax)(a) | — | — | — | — | — | — | (825) | (0.75) | |||||||||||||||||||||
| Tax effect on Steam asset sale impairment | — | — | — | — | — | — | 84 | 0.08 | |||||||||||||||||||||
| Less: Steam asset sale impairment (net of tax) | — | — | — | — | — | — | (741) | (0.68) | |||||||||||||||||||||
| Russia and Ukraine charges (pre-tax)(a) | — | — | (33) | (0.03) | (190) | (0.17) | (263) | (0.24) | |||||||||||||||||||||
| Tax effect on Russia and Ukraine charges | — | — | — | — | (5) | — | 15 | 0.01 | |||||||||||||||||||||
| Less: Russia and Ukraine charges (net of tax) | — | — | (33) | (0.03) | (195) | (0.18) | (248) | (0.23) | |||||||||||||||||||||
| Less: Excise tax and accretion of preferred share redemption | (28) | (0.03) | 3 | — | (58) | (0.05) | 3 | — | |||||||||||||||||||||
| Less: U.S. and foreign tax law change enactment | — | — | — | — | — | — | (37) | (0.03) | |||||||||||||||||||||
| Adjusted earnings (loss) (Non-GAAP) | $ | 901 | $ | 0.82 | $ | (187) | $ | (0.17) | $ | 1,947 | $ | 1.77 | $ | 102 | $ | 0.09 | |||||||||||||
| Earnings (loss) from continuing operations before taxes (GAAP) | $ | 300 | $ | (232) | $ | 8,182 | $ | (2,378) | |||||||||||||||||||||
| Less: Total adjustments above (pre-tax) | (984) | (177) | 5,271 | (2,940) | |||||||||||||||||||||||||
| Adjusted earnings before taxes (Non-GAAP) | $ | 1,283 | $ | (55) | $ | 2,910 | $ | 562 | |||||||||||||||||||||
| Provision (benefit) for income taxes (GAAP) | $ | 138 | $ | 13 | $ | 741 | $ | 203 | |||||||||||||||||||||
| Less: Tax effect on adjustments above | (196) | (48) | (19) | (46) | |||||||||||||||||||||||||
| Adjusted provision (benefit) for income taxes (Non-GAAP) | $ | 334 | $ | 60 | $ | 761 | $ | 249 | |||||||||||||||||||||
| Income tax rate (GAAP) | 46.0% | (5.6)% | 9.1% | (8.5)% | |||||||||||||||||||||||||
| Adjusted income tax rate (Non-GAAP) | 26.0% | (109.1)% | 26.2% | 44.3% | |||||||||||||||||||||||||
| (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 3Q FORM 10-Q 17
| FREE CASH FLOWS (FCF) (NON-GAAP) | Nine months ended September 30 | |||||||
| 2023 | 2022 | |||||||
| CFOA (GAAP) | $ | 2,354 | $ | 379 | ||||
| Less: Insurance CFOA | 124 | 48 | ||||||
| CFOA excluding Insurance (Non-GAAP) | $ | 2,229 | $ | 331 | ||||
| Add: gross additions to property, plant and equipment and internal-use software | (1,065) | (801) | ||||||
| Less: separation cash expenditures | (751) | (72) | ||||||
| Less: Corporate restructuring cash expenditures | (128) | — | ||||||
| Less: taxes related to business sales | (145) | (119) | ||||||
| Free cash flows (Non-GAAP) | $ | 2,189 | $ | (279) | ||||
| 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 | ||||||||