This article, originally published in 2019, was republished on Nov. 9, 2021, when General Electric Co. announced that it would split into three separate companies. GE plans to retain its aviation business while spinning off the health-care and energy operations by early 2024.
General Electric Co. has unraveled. The onetime icon of American industry last year suffered its biggest annual stock decline of the modern era as it was booted from the Dow Jones Industrial Average; investors were blindsided by multiple multibillion-dollar charges against earnings; and the board ousted the chief executive officer, handing the reins to an outsider for the first time ever. Meanwhile, the company’s pension remains the most underfunded in the country, its accounting is under federal investigation and its power segment is searching for a way out of a terrible slump.
New CEO Larry Culp is looking to put GE back on the right path. After posting fourth-quarter earnings Thursday, Culp gave Wall Street a reason to cheer as he stepped up efforts to pare the company’s debt load and tackled a thorny overhang from last decade’s subprime mortgage debacle. Shortly after the open, shares rose the most intraday since 2009, as much as 18 percent, as the new chief gave investors a glimpse of his vision for GE’s future.
He isn’t just trying to undo one bad year. The company—a household name practically since it was founded by Thomas Edison in the 19th century—has been headed the wrong way for decades. After legendary CEO Jack Welch grew GE into a banking titan with a peak market value of $594 billion in 2000, from less than $15 billion when he started in 1981, the ensuing stock slide has wiped out more than half a trillion dollars in shareholder value—about the same as erasing Warren Buffett’s Berkshire Hathaway Inc. The dramatic decline under former CEO Jeffrey Immelt continued under John Flannery and now Culp, cutting the market value to about $75 billion as of mid-January. Over the same period, the company’s net leverage—debt as a multiple of a measure of earnings—has nearly doubled.
Falling Behind
GE’s market cap vs. Dow Jones Industrial Average (100 = 1981–2019 average)
CEO tenure: Welch
Immelt
Flannery
Culp
Dot−com crash
Great recession
300
200
100
June 2018: GE removed from the DJIA
0
’82
’86
’90
’94
’98
’02
’06
’10
’14
’18
CEO tenure: Jack Welch
Jeffrey Immelt
John Flannery
Lawrence Culp
Dot−com crash
Great recession
300
200
100
June 2018:
GE removed from the DJIA
0
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
CEO tenure: Jack Welch
Jeffrey Immelt
John Flannery
Lawrence Culp
Dot−com crash
Great recession
300
200
100
June 2018:
GE removed from the DJIA
0
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
Note: Data as of Jan. 23, 2019.
Source: Bloomberg data and reporting
To understand the causes and casualties of GE’s tumultuous recent history, Bloomberg News analyzed more than 1,300 mergers and acquisitions and investment deals since 1990 and pored over dozens of years of annual reports and regulatory filings. Here’s the company’s constantly changing financial picture as its portfolio was reshaped around several key business areas:
Energy
Aviation
Capital
Healthcare
Industrial
NBC Universal
Plastics
Oil & Gas
RevenueRevenue
1990’90
2017’17
/
Acquisitions / SalesAcq. / Sales
1990’90
2017’17
DebtDebt
1990’90
2017’17
0
$25B
$50B
$75B
$100B
$125B
$150B
$175B
Revenue
Peak in 2008 $184B
$5.6B
$7.5B
$14.8B
$4.3B
$13.8B
$3.2B
$5.1B
$0.0B
$6.2B
$7.8B
$16.4B
$4.7B
$13.5B
$3.1B
$4.7B
$0.0B
$6.4B
$7.4B
$18.4B
$4.7B
$13.5B
$3.4B
$4.9B
$0.0B
$6.7B
$6.6B
$22.1B
$4.2B
$14.1B
$3.1B
$5.0B
$0.0B
$6.4B
$5.8B
$19.9B
$4.3B
$14.6B
$3.4B
$5.7B
$0.0B
$7.0B
$6.1B
$26.5B
$4.4B
$15.3B
$3.9B
$6.6B
$0.0B
$7.7B
$6.3B
$32.7B
$4.7B
$16.0B
$5.2B
$6.5B
$0.0B
$8.0B
$7.8B
$39.9B
$4.9B
$16.6B
$5.2B
$6.9B
$0.0B
$8.5B
$10.3B
$48.7B
$5.3B
$16.7B
$5.3B
$6.8B
$0.0B
$10.1B
$10.7B
$55.7B
$6.9B
$17.1B
$5.8B
$7.1B
$0.0B
$14.9B
$10.8B
$66.2B
$7.9B
$17.5B
$6.8B
$8.0B
$0.0B
$20.2B
$11.4B
$58.4B
$9.0B
$17.5B
$5.8B
$7.1B
$0.0B
$22.9B
$11.1B
$58.2B
$9.3B
$18.2B
$7.1B
$7.0B
$0.0B
$16.6B
$9.8B
$36.8B
$10.2B
$18.5B
$6.9B
$5.5B
$2.8B
$14.6B
$11.1B
$46.0B
$13.4B
$15.4B
$12.9B
$6.1B
$3.1B
$16.5B
$11.8B
$51.5B
$15.0B
$20.1B
$14.7B
$6.6B
$3.6B
$19.4B
$13.0B
$56.4B
$16.6B
$21.3B
$16.2B
$6.6B
$4.3B
$24.8B
$16.8B
$66.3B
$16.8B
$20.0B
$15.4B
$0.0B
$6.8B
$35.0B
$19.2B
$67.0B
$17.4B
$19.0B
$17.0B
$0.0B
$9.9B
$32.6B
$18.7B
$51.1B
$16.0B
$15.6B
$15.4B
$0.0B
$9.7B
$29.9B
$17.6B
$49.2B
$16.9B
$11.3B
$16.9B
$0.0B
$9.4B
$37.0B
$18.9B
$48.3B
$18.1B
$12.6B
$0.0B
$0.0B
$13.9B
$43.1B
$20.0B
$45.4B
$18.3B
$13.6B
$0.0B
$0.0B
$15.5B
$37.1B
$21.9B
$44.1B
$18.2B
$14.2B
$0.0B
$0.0B
$17.3B
$41.3B
$24.0B
$42.7B
$18.3B
$14.1B
$0.0B
$0.0B
$19.1B
$35.2B
$24.7B
$10.8B
$17.6B
$14.7B
$0.0B
$0.0B
$16.4B
$45.6B
$26.2B
$10.9B
$18.2B
$9.3B
$0.0B
$0.0B
$12.9B
$44.1B
$27.0B
$9.1B
$19.0B
$5.9B
$0.0B
$0.0B
$17.2B
March 1993
Aviation
GE sells its aerospace unit, minus the aircraft engine operations, for $3.1 billion to a company that later becomes part of Lockheed Martin.
December 1994
Capital
A rogue trader causes GE to report a $350 million pretax loss and ultimately sell its Kidder, Peabody & Co. securities unit.
1998
GE’s revenues reach $100 billion for the first time.
March 1999
Capital
In one of GE’s largest Asian acquisitions, the company pays $6.9 billion for the assets of bankrupt Japan Leasing Corp.
Feb. 2000
Welch writes in the annual report that GE “is poised to move forward to levels of performance, growth and excitement undreamed of in the past.”
Sept.-Oct. 2001
Jeffrey Immelt takes the helm as CEO just as the dot-com bubble bursts and terrorists attack the U.S. on Sept. 11. One month later, GE and New Jersey-based Honeywell International terminate a proposed $53 billion merger agreement after being blocked by the European Commission.
Feb. 2003
In the 2003 annual report, Immelt writes: “If you are worried about a more volatile world ... GE wins. This is a financially strong, triple-A rated company with a strong culture and values. We will not let you down.”
April 2004
Healthcare
GE buys British medical diagnostic company Amersham for $9.9 billion.
August 2007
Plastics
The plastics division is sold to a Saudi company for $11.6 billion.
November 2008
Capital
Amid the worst recession since the Great Depression, GE receives $139 billion in government loan guarantees to shore up its capital arm and raises $15 billion through an emergency stock sale, a fifth of which comes from billionaire Warren Buffett. The company may not have survived the financial crisis without this backing.
March 2009
GE’s stock falls to less than $7, from $42 in October 2007, and the company loses its sterling AAA credit rating, eventually falling seven levels into the BBB tier, the lowest category of investment grade. The year before, in mid-2008, GE’s outstanding debt peaked at more than half a trillion dollars.
Jan. 2011
NBC Universal
GE forms a joint venture with Comcast, which retains 51 percent of NBC Universal. Two years later, GE sells its remaining stake for $16.7 billion.
July 2013
Capital
With so much growth in finance, GE is dubbed a “systemically important financial institution” by U.S. regulators, alongside big banks such as JPMorgan Chase & Co.
April 2014
Energy
GE announces a $17.1 billion bid for Alstom’s energy business, the company’s biggest acquisition ever. Four years later, the company announces a $23 billion writedown of goodwill, mainly related to having overpaid for Alstom.
March–Dec. 2015
Capital
After a decades-long buying spree, Immelt spends 2015 selling off chunks of GE Capital to a series of buyers. Within a few years, the financial arm’s assets would fall to $129 billion, down from more than $600 billion before the financial crisis.
June 2016
Industrial
The home appliance division, one of GE’s best-known brands, is offloaded to China’s Haier Group for $5.6 billion. Since 2010, the company has sold off more than $140 billion worth of businesses, but instead of using the proceeds to pay off debt in recent years, it has funded massive share buybacks.
Nov. 2017
CEO John Flannery announces GE will sell or spin off stakes in GE Healthcare and oil and gas giant Baker Hughes, plus what’s left of the transportation and lighting divisions. “With GE, the future is going to be a more focused industrial company,” Flannery says on an earnings call. “Soon we’re going to be proud of the performance.”
Over the last decade, GE missed out on the longest bull market in history. Having recovered to more than $30 in 2016, the shares fell last year to the lowest level since March 2009—even as the broader market reached new heights.
After Immelt stepped down as CEO in August 2017, John Flannery took the reins. He was gone a little more than a year later as the board turned to Culp. In the new boss’s debut on a third-quarter earnings call, the company revealed an expanded federal probe into its accounting, a vastly diminished dividend and a battered power business.
Sky-High Leverage
Both GE’s financial and core businesses are relatively more indebted than their peers
Financial
Assets to equity
GE Capital
S&P 500 financials
12
10
8
6
4
2
0
2014
2015
2016
2017
2018
Non-financial
Debt to Ebitda
GE Industrial
S&P 500 non-financials
12
10
8
6
4
2
0
2014
2015
2016
2017
2018
Financial
GE Capital
S&P 500 financials
Assets to equity
12
10
8
6
4
2
0
2014
2015
2016
2017
2018
Non-financial
GE Industrial
S&P 500 non-financials
Debt to Ebitda
12
10
8
6
4
2
0
2014
2015
2016
2017
2018
Financial
Non-financial
GE Capital
S&P 500 financials
GE Industrial
S&P 500 non-financials
Assets to equity
Debt to Ebitda
12
12
10
10
8
8
6
6
4
4
2
2
0
0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Note: S&P values are the average of its relevant member companies.
Sources: GE company filings, Bloomberg data
The once-titanic company is now rushing to find solutions to its compounding problems. A big challenge for Culp: narrowing GE’s leverage from five times net debt-to-Ebitda, as calculated by CreditSights, to a target ratio of 2.5. Over the past four months, the cost to protect GE’s debt against default for five years has nearly tripled. While that doesn’t suggest imminent default, the increase suggests that concerns about the company’s finances have intensified.
Under Flannery, GE was trying to cut costs, sell assets and reduce its debt load. A few weeks into his tenure, Culp pledged during a television interview to “look at everything and all of our options again with a sense of urgency.” The company has said that it can service its debt, thanks to planned asset sales, cash flow from remaining operations and credit lines with major U.S. banks, even if it is unable to sell new bonds. What remains to be seen is how much GE can garner from unloading businesses.
Debt vs. Cash
Two possible scenarios show whether or not GE can pay off its obligations
Obligations
$42.7B
Amount due
Optimistic scenario
$64.8B
$13.8B
GE Capital cash reserves
$39.0B
Asset sale proceeds
$12.0B
Free cash flow
Pessimistic scenario
$37.7B
$13.8B
GE Capital cash reserves
$19.9B
Asset sale proceeds
$4.0B
Free cash flow
Obligations
$42.7B
Amount due
Optimistic scenario
$64.8B
$13.8B
GE Capital cash reserves
$39.0B
Asset sale proceeds
$12.0B
Free cash flow
Pessimistic scenario
$37.7B
$13.8B
GE Capital cash reserves
$19.9B
Asset sale proceeds
$4B
Free cash flow
Obligations
$42.7B
Amount due
Optimistic scenario
$64.8B
$13.8B
GE Capital cash reserves
$39.0B
Asset sale proceeds
$12.0B
Free cash flow
Pessimistic scenario
$37.7B
$13.8B
GE Capital cash reserves
$19.9B
Asset sale proceeds
$4.0B
Free cash flow
Sources: Bloomberg, company filings, CreditSights, JPMorgan, Barclays, Gordon Haskett, Moody's, Bloomberg Intelligence
GE has staged a mini rally since mid-December, and Culp’s turnaround effort is still in its early stages. Nicholas Heymann, an analyst at William Blair & Co., sees an “end of apocalypse.” But asset sales will reduce future earnings and have the potential to trigger additional writedowns. JPMorgan Chase & Co.’s Steve Tusa warns that the cards are still stacked against GE and says the industrial giant will need to raise $25 billion of equity to survive. For GE, the never-ending storm may pass, but at the moment, its future looks cloudy.
Photos: (1928) Bettman via Getty Images; (2016) Martin Divisek/Bloomberg
To compile revenue by single business segment over time, Bloomberg scoured two decades of annual filings reported by General Electric. GE frequently bought and sold companies, re-organized or renamed segments, and amended prior revenue numbers in updated filings. For continuity, Bloomberg focused on eight segments, based on how the company’s been structured in recent years:
Aviation
Energy, which includes power and water units, the renewable energy business acquired from Alstom, plus oil and gas activity through 2003, when it started being broken out in company filings
GE Capital, which comprises most finance-related items, including specialty insurance, as well as financing for airplanes, energy equipment or consumer appliances
Healthcare
Industrial, which includes lighting, transportation, rail transportation, consumer appliances, and home and business solutions
NBC Universal, the company’s former broadcasting and entertainment arm
Oil & Gas
Plastics, variously called materials, advanced materials and plastics over the years
Bloomberg used revenue figures for each of the segments and its constituent sub-segments from the most recently available updated filing, unless that number factored in a unit bought or sold after the year in question, in which case the most appropriate filing was used. Segment revenue data became less detailed from 2003-2004 and 2006-2009, but enough historical data was supplied in re-filings or later filings that Bloomberg was able to use the most recent numbers for those years.
The combined segment revenue may not match topline revenue figures, due to accounting adjustments or minor units excluded from the eight segments above.
Acquisition and sales figures are final transaction values, including net debt, for completed deals from the MA function on the Bloomberg Professional service, where available. Otherwise, announced deal values are used.
Calculating maturing debt and other obligations
GE’s obligations include all long-term debt coming due in 2019 and 2020; commercial paper outstanding at the end of the third quarter of 2018, which obligations are short-term and need to be renewed every few months; a $5 billion lawsuit settlement estimate by Bloomberg Intelligence, based on similar legal cases; $3.1 billion in insurance provisions, based on what the company said it will set aside every year to meet regulatory demands; a hypothetical $1.5 billion in additional insurance reserves, assuming regulators demand higher reserves in their next review; plus an estimated$1.5 billion in additional fines, based on similar cases settled by other companies in recent years.
Calculating available assets to pay obligations
The pessimistic scenario is based on a bear case scenario, using JPMorgan Chase & Co. and Gordon Haskett Research Advisors estimates for asset sales, which in some cases expect no proceeds (e.g., health-care spinoff and sale of jet leasing unit), and a JPMorgan estimate for free cash flow.
The optimistic scenario is based on the bull case scenario using best market prices for shares already traded, a Barclays Bank estimate for the jet leasing unit, and a free cash flow estimate from Moody’s Investors Service.
Both scenarios include GE Capital’s current cash reserves as of September, as reported by the company, but exclude the rest of GE’s cash reserves because of the company’s intra-quarter financing needs, as evidenced by surging commercial paper borrowings during each quarter.
Energy
Aviation
Capital
Healthcare
Industrial
NBC Universal
Plastics
Oil & Gas
GE’s stock falls to less than $7, from $42 in October 2007, and the company loses its sterling AAA credit rating, eventually falling seven levels into the BBB tier, the lowest category of investment grade. The year before, in mid-2008, GE’s outstanding debt peaked at more than half a trillion dollars.
