What is the primary impact of adopting the new revenue standard (ASC 606)?

The primary impact of ASC 606 is a change in the timing of revenue recognition, particularly for long-term service agreements and aviation commercial engines. While the core economics and cash flows of contracts remain the same, this change can lead to earlier or later recognition of revenue and costs, impacting reported earnings and balance sheet items like contract assets. For investors, it means prior periods are restated, and new engine programs may show lower earnings or higher losses in their early stages.

How does the change from LIFO to FIFO for inventory affect GE's financials?

GE voluntarily changed its U.S. inventory accounting from Last-In, First-Out (LIFO) to First-In, First-Out (FIFO). This is intended to provide a better reflection of current inventory values and improve consistency. Retrospectively, this change led to a decrease in retained earnings and a slight adjustment to historical earnings. While it doesn't alter the underlying business economics, it changes how inventory costs are expensed against revenue.

Did these accounting changes affect GE's reported earnings per share (EPS)?

Yes, the adoption of ASC 606 and the LIFO to FIFO change had a retrospective impact on reported EPS. For instance, the 'As Reported' diluted EPS for 2017 was $(0.68), but after restatement for these changes and U.S. tax reform, it became $(0.99). The filing details specific EPS reductions related to each accounting change for 2016 and 2017.

Are these changes in accounting standards impacting the underlying business operations or cash flows?

The company states that, in most cases, the underlying economics and cash flows of customer contracts remain unchanged by these accounting standard adoptions. The changes primarily affect the timing and presentation of revenue and expenses on the financial statements. For example, ASC 606 alters recognition timing but not the total revenue or cash received over the life of a contract. Similarly, the pension cost standard changes presentation but not total costs.

GE 8-K SEC Disclosure — Apr 13, 2018

Summary

This 8-K filing from General Electric (GE) on April 13, 2018, details the company's adoption of several new accounting standards effective January 1, 2018, and a voluntary change in inventory accounting. The most significant change is the adoption of ASC 606, the new revenue recognition standard, which has resulted in a retrospective adjustment decreasing prior period revenues and earnings. This change impacts the timing of revenue recognition, particularly for long-term service agreements and aviation commercial engines, and has led to a substantial decrease in contract assets and other balance sheet items. While the core economics of GE's contracts remain unchanged, investors should note the altered presentation of financial results and the potential for lower reported earnings on early program engine deliveries due to this new standard. Other adopted standards include changes in pension cost presentation (ASU 2017-07), reclassification of restricted cash in the statement of cash flows (ASU 2016-18), reclassification of certain securitization cash inflows (ASU 2016-15), and a change in accounting for intra-entity asset transfers (ASU 2016-16). GE also voluntarily shifted its U.S. inventories from LIFO to FIFO, aiming for better inventory valuation and consistency. Furthermore, 'other income' will now be presented outside of total revenue for clarity. These adjustments, while primarily affecting presentation and timing, lead to restated historical financial data with a notable impact on retained earnings and prior period EPS.

Key Highlights

1GE adopted new accounting standards ASC 606 (Revenue from Contracts with Customers) and ASU 2017-07 (Pension and Benefit Costs) effective January 1, 2018.
2The adoption of ASC 606 resulted in a retrospective decrease to prior period revenues and earnings, and a significant reduction in contract assets and total assets as of December 31, 2017.
3The new revenue standard impacts the timing of revenue recognition, especially for long-term service agreements and aviation commercial engines, potentially leading to lower reported earnings on early engine deliveries.
4GE voluntarily changed its U.S. inventory accounting method from LIFO to FIFO, aiming for improved inventory valuation and consistency.
5The adoption of ASC 606 and the LIFO to FIFO change resulted in retrospective decreases to retained earnings as of January 1, 2016.
6Other accounting changes include reclassifications for restricted cash, securitization cash flows, and intra-entity asset transfers.
7'Other income' will now be presented as a separate line item outside of total revenue for improved clarity.

GENERAL ELECTRIC CO 8-K Report, Corporate Update (Apr 13, 2018)

Summary

Key Highlights

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