The General Electric Co. (GE) logo is displayed during the opening of the company's iCenter facility in Kuala Lumpur, Malaysia, on Tuesday, Oct. 21, 2014. GE surged the most in a year after beating analysts’ profit estimates as Chief Executive Officer Jeffrey Immelt squeezes more costs from the manufacturing units. Photographer: Goh Seng Chong/Bloomberg
© Bloomberg

General Electric has published restated earnings for 2016 and 2017 to reflect new accounting standards, cutting 17 per cent from reported profits of its industrial operations for last year, and disclosed a new tax charge of $1.2bn.

The tax charge is on top of a previously reported $3.5bn hit that GE took because of the US corporate tax cut passed at the end of last year, which reduced the value of past losses that the company can offset against tax.

The hit to GE has increased because of the interaction of the tax cuts with the new Financial Accounting Standards Board rule for recognising revenues from long-term contracts, according to a filing to the Securities and Exchange Commission on Friday evening.

GE said in its annual 10-K filing in February that it expected the accounting standard, agreed in 2014, to cut its reported earnings per share by 13 cents for 2016 and 16 cents for 2017, excluding any tax effects.

Including the tax impact, the hit to 2017 earnings was much greater. Reported earnings per share were restated 31 cents lower, from a fully diluted loss of 72 cents to a loss of $1.03. 

The new standard has also meant a sharp reduction in reported industrial segment profits before tax, which have been cut by $2.5bn. The rules restrict the rate at which companies can book revenues on long-term contracts, tying them more closely to cash payments.

GE said in its 2016 10-K that it would apply the new accounting standard retrospectively to “provide investors with a consistent view of historical trends, as 2016 and 2017 will be on a basis consistent with 2018”.

In its filing on Friday evening, the company stressed that “the new standard does not impact cash or the economics of our underlying customer contracts”.

The restatements were greatest in the divisions making aero engines and other aircraft components, where profits were cut by 18 per cent, in products for the power generation industry, where they were cut by 30 per cent, and in locomotives and mining equipment, where they were cut by 31 per cent.

GE has been hit by problems in its power division and in its operations providing products and services for the oil and gas industry. It was also forced to take a $6.2bn after-tax charge to cover liabilities on insurance policies, a business that it pulled out of in 2006.

Since the beginning of last year its shares have lost 55 per cent of their value, closing at $13.49 on Friday.

The company in January said it expected earnings per share, adjusted for one-off items, to be in the range $1-$1.07. The most recent average of analysts’ forecasts was that adjusted earnings this year would be 94 cents, according to predictions compiled by Bloomberg.

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