10-K 1 ge10-k2017.htm 10-K Document

United States Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2017
or
¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ___________to ___________
 
Commission file number 001-00035
geicon.jpg
General Electric Company 
(Exact name of registrant as specified in charter)

New York
 
 
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
41 Farnsworth Street, Boston, MA
 
02210
 
(617) 443-3000
(Address of principal executive offices)
 
(Zip Code)
 
(Telephone No.)
 
 
 
 
 
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, par value $0.06 per share
 
New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
 
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10‑K. ¨
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
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 Act). Yes ¨ No þ
The aggregate market value of the outstanding common equity of the registrant not held by affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was at least $231.5 billion. There were 8,682,576,000 shares of voting common stock with a par value of $0.06 outstanding at January 31, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners, to be held April 25, 2018, is incorporated by reference into Part III to the extent described therein.



TABLE OF CONTENTS




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See “Key Performance Indicators” section on page 18 and “Consolidated Results” section on page 20



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See “2017 Significant Developments” section on page 20 and “Supplemental Information” section on page 93



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See “Segment Operations” section on page 25



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See “Segment Operations” section on page 25



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See "Segment Operations" section on page 25



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See "GE Corporate Items & Eliminations" section on page 58, “Financial Resources & Liquidity” section on page 71 and “Other Items” section on page 89



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See “Risk Factors” section on page 106



FORWARD LOOKING STATEMENTS
 
 

FORWARD LOOKING STATEMENTS

Our public communications and SEC filings may contain "forward-looking statements" - that is, statements related to future, not past, events. In this context, 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 our intention to exit $20 billion or more of assets in 2018 and 2019; charges and capital contributions that may be required in connection with GE Capital’s run-off insurance operations, and related GE Capital portfolio actions; revenues; organic growth; cash flows and cash conversion, including the impact of working capital, contract assets and pension funding contributions; earnings per share, including the impact of the new revenue recognition accounting standard; growth and productivity associated with our Digital and Additive businesses; profit margins; cost structure and plans to reduce costs; restructuring, goodwill impairment or other financial charges; tax rates; transaction-related synergies, proceeds and gains; returns on capital and investment; capital allocation, including liquidity, organic investment, dividends and other priorities; or capital structure and access to funding, including credit ratings, debt-to-earnings ratios and leverage.

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our execution of Industrial and GE Capital business or asset dispositions, including sale prices, the timing of disposition proceeds and potential trailing liabilities, as well as our ongoing portfolio review;
the amount and timing of our Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
our capital allocation plans, as such plans may change including with respect to the timing and amount of GE dividends, organic investments, including research and development, investments in Digital and capital expenditures, pension funding contributions, acquisitions, joint ventures and other strategic actions;
our ability to maintain our current short- and long-term credit ratings and the impact on our funding costs and competitive position if we do not do so;
customer actions or market developments such as reduced demand for equipment and services in our Power business as a result of increased market penetration by renewables, shifts in the competitive landscape for our products and services, changes in economic conditions, including oil prices, early aircraft retirements and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;
changes in law, economic and financial conditions, including the enactment of tax reform or other tax law changes, interest and exchange rate volatility, commodity and equity prices and the value of financial assets;
the impact of conditions in the financial and credit markets on GE Capital’s ability to sell financial assets, the availability and cost of GE Capital funding and GE Capital’s exposure to counterparties;
pending and future mortgage loan repurchase claims, other litigation claims and the U.S. Department of Justice’s investigation under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and other investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates;
our ability to launch new products in a cost-effective manner;
our ability to increase margins through restructuring and other cost reduction measures;
our ability to convert pre-order commitments/wins into orders/bookings;
the price we realize on orders/bookings since commitments/wins are stated at list prices;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of WMC, Alstom and other investigative and legal proceedings;
our success in completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced transactions, such as our plans to sell our Industrial Solutions business, the substantial majority of our Lighting segment or other dispositions that we may pursue;
our success in integrating acquired businesses and operating joint ventures, and our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and Baker Hughes, a GE company (BHGE);
the impact of potential information technology, cybersecurity or data security breaches;
the other factors that are described in “Forward-Looking Statements” in Baker Hughes, a GE company’s, most recent earnings release or SEC filing; and
the other factors that are described in the Risk Factors section of this Form 10-K report.

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.

GE 2017 FORM 10-K 11


ABOUT GENERAL ELECTRIC
 

geicon.jpgABOUT GENERAL ELECTRIC

OUR BUSINESS AND HOW WE TALK ABOUT IT

We are a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. With products and services ranging from aircraft engines, power generation and oil and gas production equipment to medical imaging, financing and industrial products, we serve customers in over 180 countries and employ approximately 313,000 people worldwide. Since our incorporation in 1892, we have developed or acquired new technologies and services that have considerably broadened and changed the scope of our activities.

OUR INDUSTRIAL OPERATING SEGMENTS
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Power(a)
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Aviation
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Lighting(a)
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Renewable Energy
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Healthcare
 
 
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Oil & Gas(b)
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Transportation
 
 

OUR FINANCIAL SERVICES OPERATING SEGMENT
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Capital

(a)
Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of this combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting.
(b)
Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in BHGE. We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders.

Business, operation and financial overviews for our operating segments are provided in the Segment Operations section within the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section.

COMPETITIVE CONDITIONS AND ENVIRONMENT

In all of our global business activities, we encounter aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development. With respect to manufacturing operations, we believe that, in general, we are one of the leading firms in most of the major industries in which we participate. The businesses in which GE Capital engages are subject to competition from various types of financial institutions.

As a diverse global company, we are affected by world economies, instability in certain regions, commodity prices, such as the price of oil, foreign currency volatility and policies regarding trade and imports. Other factors impacting our business include:

product development cycles for many of our products are long and product quality and efficiency are critical to success,
research and development expenditures are important to our business,
many of our products are subject to a number of regulatory standards and
changing end markets, including shifts in energy sources and demand and the impact of technology changes.

These factors are discussed throughout MD&A.


12 GE 2017 FORM 10-K


ABOUT GENERAL ELECTRIC
 

OUR EMPLOYEES AND EMPLOYEE RELATIONS

At year-end 2017, General Electric Company and consolidated affiliates employed approximately 313,000 persons, of whom approximately 106,000 were employed in the United States.

Approximately 8,600 GE manufacturing and service employees in the United States are represented for collective bargaining purposes by one of 9 unions (approximately 41 different locals within such unions). A majority of such employees are represented by union locals that are affiliated with the IUE-CWA, The Industrial Division of the Communication Workers of America, AFL-CIO, CLC. In June 2015, we negotiated new four-year collective bargaining agreements with most of our U.S. unions. These agreements continue to provide employees with good wages and benefits while addressing competitive realities facing the Company.

Other GE affiliates are parties to labor contracts with various labor unions, also with varying terms and expiration dates that cover approximately 1,700 employees.

PROPERTIES

Manufacturing operations are carried out at 191 manufacturing plants located in 38 states in the United States and Puerto Rico and at 348 manufacturing plants located in 43 other countries.

CORPORATE INFORMATION AND WEBSITES

General Electric’s address is 1 River Road, Schenectady, NY 12345-6999; we also maintain executive offices at 41 Farnsworth Street, Boston, MA 02210.

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 Facebook page, Twitter accounts and other social media, 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.

Additional information on non-financial matters, including environmental and social matters and our integrity policies, is available in GE's Integrated Summary Report and at www.ge.com/sustainability.

Website references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this report.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available, without charge, on our website, www.ge.com/investor-relations/events-reports, as soon as reasonably practicable after they are filed electronically with the U.S. Securities and Exchange Commission (SEC). Copies are also available, without charge, from GE Corporate Investor Communications, 41 Farnsworth Street, Boston, MA 02210.

Reports filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

GE 2017 FORM 10-K 13


MD&A
 
 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)


PRESENTATION

The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE) with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital or Financial Services) and its predecessor, General Electric Capital Corporation.

We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. Because of the diversity in our businesses, we present our financial statements in a three-column format, which allows investors to see our industrial operations separately from our Financial Services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use the terms to mean the following:

General Electric or the Company – the parent company, General Electric Company.
GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated statements of earnings, financial position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).
General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
GE Capital Global Holdings, LLC or GECGH – the adding together of all affiliates of GECGH, giving effect to the elimination of transactions among such affiliates.
GE Capital or Financial Services – refers to GECGH, or its predecessor GECC, and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated statements of earnings, financial position and cash flows.
GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated statements of earnings, financial position and cash flows.
GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial CFOA (Non-GAAP), as defined in Other Terms Used by GE below.
Industrial segment – the sum of our seven industrial reporting segments, without giving effect to the elimination of transactions among such segments and between these segments and our Financial Services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth.
Baker Hughes, a GE company or BHGE - following the combination of our Oil & Gas business with Baker Hughes Incorporated, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the new company formed in the transaction, Baker Hughes, a GE Company (BHGE). We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment profit and net income are derived net of minority interest of approximately 37.5% attributable to BHGE's Class A shareholders. References to "Baker Hughes" represent legacy Baker Hughes Incorporated operating activities which, in certain cases, have been excluded from our results for comparative purposes.
Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.
Verticals or GE Capital Verticals – the adding together of GE Capital businesses, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Industrial Finance (which includes Healthcare Equipment Finance, Working Capital Solutions and Industrial Financing Solutions)—that relate to the Company’s core industrial domain and other operations, including our run-off insurance operations, and allocated corporate costs.


14 GE 2017 FORM 10-K


MD&A
 
 

We integrate acquisitions as quickly as possible. Revenues and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses.

Amounts reported in billions in graphs within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding.  Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented 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.

OTHER TERMS USED BY GE

Backlog – unfilled customer orders for products and product services (expected life of contract sales for product services).
Borrowings as a percentage of total capital invested – for GE, the sum of borrowings and mandatorily redeemable preferred stock, divided by the sum of borrowings, mandatorily redeemable preferred stock, redeemable noncontrolling interest, noncontrolling interests and total shareowners’ equity.
Continuing earnings – we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings.
Continuing earnings per share (EPS) – when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.”
Digital revenues – revenues related to internally developed software (including PredixTM) and associated hardware, and software solutions that improve our customers’ asset performance. In 2016, we reassessed the span of our digital product offerings, which now excludes software-enabled product upgrades. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.
Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.
GE Capital Exit Plan - our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
GE Industrial CFOA (Non-GAAP) – GE CFOA excluding the effects of dividends from GE Capital. Adjusted GE Industrial CFOA (Non-GAAP) is GE Industrial CFOA excluding deal-related taxes, GE Pension Plan funding and Oil & Gas CFOA, and including dividends received from BHGE.
GE Industrial free cash flow (Non-GAAP) – Adjusted GE Industrial CFOA (Non-GAAP) adjusted for gross GE additions to property, plant and equipment and internal-use software, which are included in cash flows from investing activities, and excluding gross Oil & Gas additions to property, plant and equipment and internal-use software.
GE Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (GE Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by GE Industrial revenues.
GE Industrial operating profit margin (Non-GAAP) – Industrial segment profit plus corporate items and eliminations (excluding gains, restructuring, and pre-tax non-operating pension cost) divided by industrial segment revenues plus corporate items and eliminations (excluding gains and GE-GE Capital eliminations).
GE Industrial return on total capital (GE Industrial ROTC) (Non-GAAP) – earnings from continuing operations attributable to GE common shareowners less GE Capital earnings from continuing operations plus GE after-tax interest, divided by average GE shareowners’ equity, less average GE Capital’s shareowners’ equity, plus average debt and other, net.
GE Industrial structural costs (Non-GAAP) – Industrial structural costs include segment structural costs excluding the impact of business acquisitions and dispositions, plus total Corporate operating profit excluding pre-tax non-operating pension cost, restructuring and other charges and gains.
GE shareowners’ equity and GE Capital shareowner's equity – for purposes of the GE Industrial ROTC calculation excludes the effects of discontinued operations and is calculated on an annual basis using a five-point average.
Global Growth Organization (GGO) – The GGO provides leadership in global markets, particularly within emerging and developing markets. The organization creates and identifies cross-business commercial opportunities and collaborates with businesses to capitalize on them. The GGO is heavily involved in government advocacy, shaping policy and regulation. Additionally, the GGO provides regional commercial finance capabilities and customer financing solutions, in collaboration with certain of our GE Capital businesses, and works to build the GE brand and protect GE’s reputation.
Net earnings – we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.

GE 2017 FORM 10-K 15


MD&A
 
 

Net earnings per share (EPS) – when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners.”
Non-operating pension cost (Non-GAAP) – comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial gain (loss) amortization for our principal pension plans.
Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension cost.
Operating earnings per share (Non-GAAP) – when we refer to operating earnings per share, it is the diluted per-share amount of “operating earnings.”
Operating pension cost (Non-GAAP) – comprises the service cost of benefits earned, prior service cost amortization and curtailment gain (loss) for our principal pension plans.
Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Oil & Gas, Aviation and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant.
Revenues – revenues comprise sales of goods, sales of services and other income for our industrial businesses and GE Capital revenues from services for our financial services businesses.
Segment profit – refers to the operating profit of the industrial segments and the net earnings of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
Services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and “services” must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of our operations.
Shared Services – sharing of business processes in order to standardize and consolidate services to provide value to the businesses in the form of simplified processes, reduced overall costs and increased service performance.


16 GE 2017 FORM 10-K


MD&A
 
 

NON-GAAP FINANCIAL MEASURES

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 U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the SEC rules. Specifically, we have referred, in various sections of this report, to:

Industrial segment organic revenues
Industrial segment organic operating profit
Operating and non-operating pension cost
GE Industrial structural costs and GE Industrial structural costs, excluding acquisitions and dispositions
GE pre-tax earnings (loss) from continuing operations, excluding GE Capital earnings (loss) from continuing operations and the corresponding effective tax rates, and the reconciliation of the U.S. federal statutory income tax rate to GE effective tax rate, excluding GE Capital earnings
GE Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS
GE Industrial operating + Verticals earnings and EPS
GE Industrial operating profit and operating profit margin (excluding certain items)
Average GE shareowners’ equity, excluding effects of discontinued operations
Average GE Capital shareowner's equity, excluding effects of discontinued operations
GE Industrial return on total capital (GE Industrial ROTC)
GE Industrial cash flows from operating activities (GE Industrial CFOA), adjusted GE Industrial CFOA and GE Industrial free cash flow (FCF)
2018 operating framework including 2018 Adjusted EPS and GE Industrial free cash flow

The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the Supplemental Information section within the MD&A. Non-GAAP financial measures referred to in this report are either labeled as “non-GAAP” or designated as such with an asterisk (*).

GE 2017 FORM 10-K 17


MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS

REVENUES PERFORMANCE
 
 
 
2017

2016

Industrial Segment
3
 %
4
%
Industrial Segment Organic (Non-GAAP)(a)
 %
(1)% / 1%

Financial Services
(17
)%
1
%
(a)    Included the results of Alstom for November and December of both 2016 and 2015.
GE INDUSTRIAL ORDERS AND BACKLOG
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Orders
 
 
 
Equipment
$
58.2

$
55.2

$
56.5

Services
60.6

55.7

49.5

Total(a)
$
118.8

$
110.9

$
105.9

 
 
 
 
Backlog
 
 
 
Equipment
$
84.7

$
84.1

$
88.6

Services
256.7

236.8

225.9

Total
$
341.3

$
320.9

$
314.5

(a)    Included $5.2 billion related to Baker Hughes in 2017.
GE INDUSTRIAL COSTS
 
 
(Dollars in billions)
2017

2016

 
 
 
GE Industrial costs excluding interest and financial charges (GAAP)
$
108.3

$
101.8

GE Industrial structural costs, excluding business development activity (Non-GAAP)
23.0

24.7

GE INDUSTRIAL MARGINS (GAAP) AND GE INDUSTRIAL OPERATING PROFIT MARGINS (NON-GAAP)
(Dollars in billions)
2017

2016

2015

 
 
 
 
GE Industrial margins (GAAP)
5.7
%
11.4
%
11.7
%
GE Industrial operating profit margins (Non-GAAP)(a)
12.1
%
14.0
%
14.8
%
(a)
Excluded gains on disposals, non-operating pension cost, restructuring and other charges, noncontrolling interests and GE Capital preferred stock dividends
EARNINGS
(Dollars in billions; per-share amounts in dollars)
2017

2016

2015

 
 
 
 
Continuing earnings (loss) (GAAP)
$
(5.9
)
$
9.1

$
1.7

Net earnings (loss) (GAAP)
(6.2
)
8.2

(6.1
)
Operating earnings (loss) (Non-GAAP)
(4.4
)
10.5

3.5

GE Industrial operating + verticals earnings (loss) (Non-GAAP)
(3.9
)
13.6

13.1

 
 
 
 
Continuing earnings (loss) per share (GAAP)
$
(0.68
)
$
1.00

$
0.17

Net earnings (loss) per share (GAAP)
(0.72
)
0.89

(0.61
)
Operating earnings (loss) per share (Non-GAAP)
(0.51
)
1.14

0.35

GE Industrial operating + verticals earnings (loss) per share (Non-GAAP)
(0.45
)
1.49

1.31

GE CFOA AND GE INDUSTRIAL FREE CASH FLOW (NON-GAAP)
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
GE CFOA (GAAP)(a)
$
11.0

$
30.0

$
16.4

GE Industrial CFOA (Non-GAAP)(a)
7.0

9.9

12.1

Adjusted Industrial CFOA (Non-GAAP)
9.7

11.6

12.2

GE Industrial free cash flow (Non-GAAP)
5.6

7.1

7.7

(a)
Included $0.5 billion related to Baker Hughes in 2017.

18 GE 2017 FORM 10-K


MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS
(Dollars in billions; per-share amounts in dollars)
SHAREOWNER INFORMATION
RETURNED $12.1 BILLION TO
SHAREOWNERS IN 2017

Dividends $8.4 billion
Stock buyback $3.8 billion

ANNUAL MEETING


General Electric’s 2018 Annual Meeting of
Shareowners will be held on April 25, 2018,
in Imperial, PA
FIVE-YEAR PERFORMANCE GRAPH
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The annual changes for the five-year period shown in the graph on this page are based on the assumption that $100 had been invested in General Electric common stock, the Standard & Poor’s 500 Stock Index (S&P 500) and the Dow Jones Industrial Average (DJIA) on December 31, 2012, and that all quarterly dividends were reinvested. The cumulative dollar returns shown on the graph represent the value that such investments would have had on December 31 for each year indicated.
STOCK PRICE RANGE AND DIVIDENDS
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With respect to “Market Information,” in the United States, General Electric common stock is listed on the New York Stock Exchange (its principal market). General Electric common stock is also listed on the London Stock Exchange, Euronext Paris, the SIX Swiss Exchange and the Frankfurt Stock Exchange. The chart above shows trading prices, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape.

As of January 31, 2018, there were approximately 418,000 shareowner accounts of record.
On February 9, 2018, our Board of Directors approved a quarterly dividend of $0.12 per share of common stock, which is payable April 25, 2018, to shareowners of record at close of business on February 26, 2018.

GE 2017 FORM 10-K 19

 
MD&A
CONSOLIDATED RESULTS

CONSOLIDATED RESULTS

PRESENTATION

When used in this report, unless otherwise indicated by the context, we use the terms to mean the following:

Continuing earnings – we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings.
Continuing earnings per share (EPS) – when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.”
GE Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (GE Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by GE Industrial revenues.
Net earnings – we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.
Net earnings per share (EPS) – when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners.”
Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension costs.
Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
Revenues – revenues comprise sales of goods, sales of services and other income for our industrial businesses and GE Capital revenues from services for our financial services businesses.
Segment profit – refers to the operating profit of the industrial segments and the net earnings of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
Services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and “services” must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of our operations.

2017 SIGNIFICANT DEVELOPMENTS

LEADERSHIP CHANGES
As announced on June 12, 2017, Jeffery R. Immelt retired as Chief Executive Officer (CEO) on July 31, 2017, and John L. Flannery succeeded Mr. Immelt as CEO effective August 1, 2017. Mr. Flannery also joined the Board of Directors (the Board) on that date. Mr. Immelt remained Chairman of the Board for a transition period through October 2, 2017, at which point Mr. Flannery succeeded Mr. Immelt as Chairman.

On October 6, 2017, we announced that, effective November 1, 2017, Jamie S. Miller, would become Chief Financial Officer, succeeding Jeffrey S. Bornstein. Mr. Bornstein remained a Vice Chairman through December 31, 2017. Ms. Miller also serves as a director at Baker Hughes, a GE company.

On October 9, 2017, we announced that Robert Lane retired from the Board after 12 years of service, effective that same date. In addition, the Board elected Edward P. Garden as a director to fill the resulting vacancy, effective on that date. Mr. Garden is the Chief Investment Officer and a Founding Partner of Trian Fund Management, L.P. (Trian), an investment management firm. On December 8, 2017, we announced that Lowell C. McAdam resigned from the Board. We are also planning to significantly reduce the size of our Board at the 2018 annual meeting of shareowners and will nominate new directors with fresh perspectives and relevant expertise.


20 GE 2017 FORM 10-K

 
MD&A
CONSOLIDATED RESULTS

2017 SIGNIFICANT DEVELOPMENTS
On January 10, 2017, we completed the acquisition of ServiceMax, a leader in cloud-based field service management (FSM) solutions, for $0.9 billion, net of cash acquired.
On April 20, 2017, we completed the acquisition of LM Wind Power, one of the world’s largest wind turbine blade manufacturers for approximately $1.7 billion, net of cash acquired.
On July 3, 2017, we completed the transaction to create Baker Hughes, a GE company (BHGE). We combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownership interest of approximately 62.5% and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Baker Hughes shareholders also received a cash dividend funded by a $7.5 billion cash contribution from GE. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment.
On March 8, 2017, we signed an agreement to sell our Water business within our Power segment to Suez Environnement S.A. (Suez). On September 30, 2017, we completed the sale for consideration of $3.1 billion, net of obligations assumed and cash transferred (including $0.1 billion from the sale of receivables originated in our Water business and sold from GE Capital to Suez), and recognized a pre-tax gain of $1.9 billion in the third quarter of 2017.
In the first quarter of 2017, we classified our Industrial Solutions business within our Power segment as held for sale. In September 2017, we announced an agreement to sell the business for approximately $2.6 billion to ASEA Brown Boveri (ABB), a Swiss-based engineering company. The deal is expected to close in mid-2018, subject to customary closing conditions and regulatory approval.
In the fourth quarter of 2017, we classified the substantial majority of our Lighting segment and two nonstrategic Aviation businesses as held for sale. In connection with this determination, we adjusted the carrying value of each business classified as held for sale to fair value, less cost to sell, which resulted in a pre-tax loss of $0.8 billion related to Lighting and $0.6 billion related to Aviation. These losses have been recorded at Corporate. In February 2018, we entered into an agreement to sell our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business to a company controlled by a former GE executive in the region. The proposed transaction is expected to close in mid-2018, subject to customary closing conditions and local agreements.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowers the statutory tax rate on U.S. earnings, taxes historic foreign earnings at a reduced rate of tax, establishes a territorial tax system and enacts new taxes associated with global operations.  As a result of the enactment of U.S. tax reform, we have recorded tax expense of $3.3 billion in 2017 to reflect our provisional estimate of both the transition tax on historic foreign earnings ($1.2 billion) and the revaluation of deferred taxes ($2.2 billion).
On January 16, 2018, GE reported the results of a review of premium deficiency assumptions related to GE Capital’s run-off insurance business. With the completion of that review and of the annual premium deficiency test, GE recorded an increase in future policy benefit reserves of $8.9 billion and $0.6 billion of related intangible asset write-off for the fourth quarter of 2017. This resulted in an after-tax charge of $6.2 billion to GE’s earnings in the fourth quarter of 2017. In addition, GE Capital will contribute approximately $15 billion of capital to its run-off insurance business over the next seven years. GE Capital plans to make its first contribution of approximately $3.5 billion in the first quarter of 2018 and expects to make further contributions of approximately $2 billion per year in each of the six following years, subject to ongoing monitoring by the Kansas Insurance Department, its primary regulator. GE Capital plans to fund the capital contributions with its excess liquidity and other GE Capital portfolio actions and does not expect to make a common share dividend distribution to GE for the foreseeable future.
GE also announced that it plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s Energy Financial Services and Industrial Finance businesses over the next 24 months. Those actions resulted in goodwill and other asset impairment charges of $1.8 billion on an after-tax basis in the fourth quarter of 2017.
SUMMARY OF 2017 RESULTS
Overall, our consolidated results for the year were significantly below our expectations. After adjusting for incremental Baker Hughes revenues of $5.2 billion, the Water gain of $1.9 billion, fair market value adjustments on businesses classified as held for sale of $1.4 billion and the 2016 gains on Appliances and GE Asset Management of $3.1 billion and $0.4 billion, respectively, adjusted consolidated revenues*, which includes other income, were $116.3 billion, down $3.8 billion or 3%. This decrease was largely driven by the net effect of dispositions on industrial segment revenues of $3.3 billion, primarily attributable to Appliances. Industrial segment revenues increased $0.1 billion organically* driven principally by our Aviation, Renewable Energy and Healthcare segments. Excluding our Power and Oil & Gas segments, industrial segment revenues increased $1.7 billion, or 3%, organically*.
Continuing earnings (loss) per share was $(0.68), and Industrial operating plus Verticals earnings per share* was $(0.45), driven by a 16% decrease in industrial segment profit as well as $1.49 of charges recognized in the fourth quarter as follows: GE Capital insurance-related charges of $0.91 per share, including $0.71 related to the completion of GE Capital's insurance premium deficiency review and $0.20 related to EFS impairments; tax-reform related charges of $0.40 per share; Industrial portfolio-related charges of $0.18 per share, including $0.15 per share related to fair market value adjustments on businesses classified as held for sale and $0.13 related to goodwill impairment in our Power Conversation business.

*Non-GAAP Financial Measure

GE 2017 FORM 10-K 21

 
MD&A
CONSOLIDATED RESULTS

For the twelve months ended December 31, 2017, restructuring and other charges were $0.46 per share, including $0.05 per share related to BHGE integration and synergy investment. In total, restructuring and other items were $5.3 billion before tax, with restructuring charges totaling about $2.7 billion and businesses development charges totaling $0.8 billion. Subsequent to the Baker Hughes transaction and beginning in the third quarter of 2017, $0.5 billion of restructuring charges and $0.2 billion of business development charges related to BHGE are reported under our Oil & Gas segment. Restructuring charges were higher than originally planned, driven by the accelerated restructuring actions taken at Corporate. Additionally, within restructuring and other charges, we recognized two significant impairments in the year totaling $0.16 per share, which included non-cash pre-tax impairment charges of $1.2 billion related to goodwill in our Power Conversion business and $0.3 billion related to a power plant asset. See Note 8 to the consolidated financial statements for further information.

For the twelve months ended December 31, 2017, GE Industrial profit was $6.6 billion and GE Industrial margins were 5.7%, down $6.5 billion, or 570 basis points, primarily driven by a reduction in industrial segment profit of $2.9 billion, or 16%, as well as increased non-cash charges recorded at Corporate of $2.9 billion, including impairment charges and charges associated with businesses classified as held for sale, and lower gains of $1.5 billion from disposed businesses, partially offset by decreased restructuring and other charges of $0.5 billion and lower Corporate costs of $0.5 billion. The decline in industrial segment profit was primarily due to lower results within our Power and Oil & Gas segments, partially offset by the performance of our Aviation and Healthcare segments. In 2017, we exceeded our structural cost* reduction target for the year of $1.0 billion, delivering $1.7 billion of structural cost* reduction, excluding the effects of acquisition and disposition activity.

Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. For the year ended December 31, 2017, the Power segment experienced a revenue decline of 2% and a segment profit decline of 45% versus 2016. Power revenues were $36.0 billion, with service revenues down 6% and equipment revenues up 2%.

The decline in Power segment results was primarily driven by market demands that were softer than expected, resulting in 55 fewer shipments of aeroderivative units as well as 65 fewer Advanced Gas Path upgrades when compared to the year ended December 31, 2016. In addition, we recorded pre-tax charges of $0.9 billion in the fourth quarter primarily related to slow moving and obsolete inventory across several businesses within Power, a litigation settlement and a bankruptcy of a distributor.

In response to these conditions, in 2017, Power focused on cost reduction actions, removing $0.8 billion of structural costs, excluding the effects of acquisition and disposition activity. Refer to the Power segment results section within this MD&A for further information.

Beginning in the third quarter of 2017, our Oil & Gas segment is comprised of our ownership interest of approximately 62.5% in the combined BHGE entity. We consolidate 100% of BHGE’s revenues and cash flows while segment profit and net income are derived net of minority ownership interest of approximately 37.5% attributable to BHGE’s Class A shareholders. Also, the segment profit we report for our Oil & Gas segment is adjusted for GE reporting conventions, such as excluding restructuring and other charges. Therefore, our segment profit of approximately 62.5% will differ from BHGE's operating income as reported in its standalone financial statements.

For the year ended December 31, 2017, Oil & Gas reported revenues of $17.2 billion, an increase of 34% versus the year ended December 31, 2016, driven by the effects of the Baker Hughes transaction. Adjusting for the Baker Hughes transaction, segment revenues* were $12.0 billion in the year, down 7% due to continued weakness in the oil and gas market. Segment profit was $220 million, or $899 million after adjusting for restructuring and other charges reported in the segment*. The decline in segment profit (after adjusting for restructuring and other charges reported in the segment*) of 35% was primarily driven by longer cycle oilfield equipment business. Refer to the Oil & Gas segment results section within this MD&A for further information.

GE CFOA was $11.0 billion and $29.9 billion for the twelve months ended December 31, 2017 and 2016, respectively. The decline in GE CFOA is primarily due to a $16.1 billion decrease in dividends from GE Capital, reflecting a decrease in proceeds from disposals related to the GE Capital Exit Plan. GE CFOA was also impacted by lower earnings from Power and Oil & Gas, as well as lower cash generated from working capital compared to 2016. Additionally, GE CFOA was negatively impacted by GE Pension Plan payments of $1.7 billion in 2017, compared to $0.3 billion in the prior year. GE did not receive a common share dividend distribution from GE Capital in the second half of 2017, and it does not expect to receive such dividend distributions from GE Capital for the foreseeable future. Refer to the GE Cash Flows and Critical Accounting Estimates sections within this MD&A for further information.








*Non-GAAP Financial Measure

22 GE 2017 FORM 10-K

 
MD&A
CONSOLIDATED RESULTS

CONSOLIDATED RESULTS

REVENUES
REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Consolidated revenues(a)
$
122.1

$
123.7

$
117.4

 
 
 
 
Industrial segment revenues(b)
$
116.2

$
112.8

$
108.6

Corporate revenues and Industrial eliminations
(1.2
)
2.1

(0.2
)
GE Industrial revenues(b)
$
114.9

$
114.9

$
108.4

 
 
 
 
Financial services revenues
$
9.1

$
10.9

$
10.8

(a)
Included $1.6 billion, $4.0 billion, and $2.2 billion of Other income primarily attributable to net gains on purchases and sales of business interests of $0.7 billion, $3.7 billion, and $1.0 billion in 2017, 2016, and 2015, respectively. See Note 17 to the consolidated financial statements for further information.
(b)
GE Industrial refers to GE excluding the continuing operations of GE Capital. Industrial segment refers to the sum of our seven industrial reporting segments, without giving effect to corporate items or the elimination of transactions among such segments and between these segments and our Financial Services segment.
REVENUES COMMENTARY: 2017 – 2016
Consolidated revenues decreased $1.6 billion, or 1%, primarily driven by decreased Financial Services revenues of $1.8 billion and decreased Corporate revenues of $3.1 billion, partially offset by increased industrial segment revenues of $3.3 billion. The overall foreign currency impact on consolidated revenues was an increase of $0.6 billion. Below are descriptions of the components:
GE Industrial revenues remained flat for the year due to an increase in industrial segment revenues of $3.3 billion offset by a decrease in Corporate revenues and Industrial eliminations of $3.3 billion.
Industrial segment revenues increased $3.3 billion, or 3%, as increases at Oil & Gas, Renewable Energy, Aviation and Healthcare were partially offset by decreases at Power, Transportation and Lighting. This increase was driven by the net effects of acquisitions of $6.0 billion, primarily attributable to Baker Hughes, and the effects of a weaker U.S. dollar of $0.6 billion, partially offset by the net effects of dispositions of $3.4 billion, primarily attributable to Appliances. Excluding the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues* increased $0.1 billion.
Corporate revenues and Industrial eliminations decreased $3.3 billion primarily driven by lower gains on disposed businesses and higher non-cash held for sale charges. Included in 2016 were gains of $3.1 billion from the sale of our Appliances business and $0.4 billion from the sale of GE Asset Management, while 2017 included a gain of $1.9 billion from the sale of our Water business as well as charges associated with businesses classified as held for sale including the substantial majority of our Lighting segment for $0.8 billion and two nonstrategic Aviation businesses for $0.6 billion.
Financial Services revenues decreased $1.8 billion, or 17%, primarily due to higher impairments and organic revenue declines.
REVENUES COMMENTARY: 2016 – 2015
Consolidated revenues increased $6.3 billion, or 5%, primarily driven by increased industrial segment revenues of $4.2 billion, increased Corporate revenues of $2.0 billion and increased Financial Services revenues of $0.1 billion. The overall foreign currency impact on consolidated revenues was a decrease of $1.3 billion. Below are descriptions of the components:
GE Industrial revenues increased $6.6 billion, or 6%, driven by increased industrial segment revenues of $4.2 billion and increased Corporate revenues and Industrial eliminations of $2.3 billion.
Industrial segment revenues increased $4.2 billion, or 4%, as increases at Power, Renewable Energy, Aviation and Healthcare were partially offset by decreases at Oil & Gas, Transportation and Lighting. This increase in industrial segment revenues was driven by the net effects of acquisitions of $11.2 billion, primarily attributable to Alstom, offset by the net effects of dispositions of $5.6 billion, primarily attributable to Appliances, and the effects of a stronger U.S. dollar of $0.8 billion. Excluding the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues* decreased $0.5 billion.
Corporate revenues and Industrial eliminations increased $2.3 billion driven by higher gains of $1.9 billion. Included in 2016 are gains of $3.1 billion from the sale of our Appliances business and $0.4 billion from the sale of GE Asset Management, while 2015 included gains of $0.6 billion from the sale of our Signaling business and $0.5 billion from a settlement related to the NBCU transaction.
Financial Services revenues increased $0.1 billion, or 1%, primarily due to lower impairments, higher gains and the effects of acquisitions, partially offset by organic revenue declines, the effects of dispositions and the effects of translational currency exchange.


*Non-GAAP Financial Measure

GE 2017 FORM 10-K 23

 
MD&A
CONSOLIDATED RESULTS

EARNINGS
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
 
 
 
(Dollars in billions; per-share amounts in dollars)
2017

2016

2015

 
 
 
 
Continuing earnings (loss)(a)
$
(5.9
)
$
9.1

$
1.7

 
 
 
 
Continuing earnings (loss) per share
$
(0.68
)
$
1.00

$
0.17

(a)    Also referred to as "Earnings (loss) from continuing operations attributable to GE common shareowners"

In the below discussion, GE Industrial refers to GE excluding the continuing operations of GE Capital. Industrial segment refers to the sum of our seven industrial reporting segments, without giving effect to corporate items or the elimination of transactions among such segments and between these segments and our Financial Services segment.
EARNINGS COMMENTARY: 2017 – 2016
Consolidated continuing earnings decreased $15.0 billion, driven by decreased GE Industrial continuing earnings of $6.5 billion, increased Financial Services losses of $5.5 billion, increased GE Industrial income taxes of $2.3 billion and increased interest and other financial charges of $0.7 billion.
GE Industrial earnings decreased $6.5 billion, or 49%, driven by a decrease in Corporate profit of $3.6 billion and a decrease in industrial segment profit of $2.9 billion.
Corporate profit decreased $3.6 billion primarily attributable to increased non-cash charges of $2.9 billion including goodwill impairment of $1.2 billion, a power plant asset impairment of $0.3 billion, and charges associated with businesses classified as held for sale including the substantial majority of our Lighting segment for $0.8 billion and two nonstrategic Aviation businesses for $0.6 billion. In addition, Corporate recorded lower gains of $1.5 billion. Included in 2016 were gains of $3.1 billion from the sale of our Appliances business and $0.4 billion from the disposition of GE Asset Management, while 2017 included a gain of $1.9 billion from the sale of our Water business. Pension costs were also $0.2 billion higher, partially offset by decreased restructuring and other costs of $0.5 billion and decreased adjusted Corporate operating costs* of $0.5 billion.
Industrial segment profit decreased $2.9 billion, or 16%, with decreases at Power, Oil & Gas and Transportation partially offset by higher earnings at Aviation, Healthcare, Renewable Energy and Lighting. This decrease in industrial segment profit was primarily driven by restructuring costs related to Baker Hughes of $0.7 billion and the net effects of dispositions of $0.2 billion, largely associated with Appliances, partially offset by the net effects of acquisitions $0.3 billion, largely associated with Baker Hughes. Excluding these items, industrial segment organic profit* decreased $2.3 billion.
Foreign exchange adversely affected Industrial operating earnings by an insignificant amount in 2017.
Financial Services losses increased $5.5 billion, primarily due to a $6.2 billion after-tax charge related to the completion of GE Capital's insurance premium deficiency review, as well as EFS strategic actions resulting in $1.8 billion of after-tax charges in addition to higher impairments, partially offset by lower headquarters and treasury operation expenses associated with the GE Capital Exit Plan, higher tax benefits including the effects of U.S. tax reform and lower preferred dividend expenses associated with the January 2016 preferred equity exchange.
EARNINGS COMMENTARY: 2016 – 2015
Consolidated continuing earnings increased $7.5 billion, driven by decreased Financial Services losses of $6.7 billion, increased GE Industrial continuing earnings of $0.5 billion and decreased net GE Industrial income taxes, interest and financial charges of $0.2 billion.
GE Industrial earnings increased $0.5 billion due to an increase in Corporate profit of $0.9 billion, partially offset by a decrease in industrial segment profit of $0.4 billion.
Corporate profit increased $0.9 billion, or 17%, driven by higher gains of $1.9 billion. Included in 2016 are gains of $3.1 billion from the sale of our Appliances business and $0.4 billion from the sale of GE Asset Management, while 2015 included gains of $0.6 billion from the sale of our Signaling business and $0.5 billion from a settlement related to the NBCU transaction. In addition, pension costs were $0.7 billion lower, partially offset by $1.8 billion of higher restructuring and other charges primarily related to Alstom.
Industrial segment profit decreased $0.4 billion, or 2%, with decreases at Oil & Gas, Lighting, and Transportation partially offset by increases at Aviation, Power, Healthcare and Renewable Energy. This decrease in industrial segment profit was primarily driven by the net effects of dispositions of $0.5 billion, largely associated with Appliances, offset by the net effect of acquisitions of $0.9 billion, largely associated with Alstom. Excluding these items, industrial segment organic profit* decreased $0.8 billion.
Interest and other financial charges increased $0.3 billion, while GE Industrial income taxes decreased $0.5 billion.
Foreign exchange adversely affected Industrial operating earnings by $0.3 billion in 2016.
Financial Services losses decreased $6.7 billion, or 84%, primarily due to the nonrecurrence of the 2015 charges associated with the GE Capital Exit Plan.
See Segment Results and Corporate Items & Eliminations sections within the MD&A for more information. Also, see the Other Consolidated Information section within the MD&A for a discussion of postretirement benefit plans costs, income taxes and geographic data.
*Non-GAAP Financial Measure

24 GE 2017 FORM 10-K

 
MD&A
CONSOLIDATED RESULTS

GE DIGITAL

GE Digital's activities are focused on assisting in the market development of our digital product offerings through software design, fulfillment and product management, while also interfacing with our customers. Digital revenues include internally developed software and associated hardware, including Predix and software solutions that improve our customers’ asset performance. These revenues and associated costs are largely generated from our operating businesses and are included in their segment results.

Revenues were $4.0 billion for the year ended December 31, 2017, an increase of $0.4 billion or 12% compared to revenues of $3.6 billion for the year ended December 31, 2016. These increases were principally driven by Power, Renewable Energy and Non-GE Verticals. Revenues were $3.6 billion for the year ended December 31, 2016, an increase of $0.5 billion or 16% compared to revenues of $3.1 billion for the year ended December 31, 2015. These increases were principally driven by Power, Oil & Gas and Non-GE Verticals.

Orders were $5.2 billion for the year ended December 31, 2017, an increase of $1.1 billion or 27% compared to orders of $4.1 billion for the year ended December 31, 2016. These increases were principally driven by Oil & Gas, Non-GE Verticals, Power and Renewable Energy. Orders were $4.1 billion for the year ended December 31, 2016, an increase of $0.7 billion or 22% compared to orders of $3.3 billion for the year ended December 31, 2015. These increases were principally driven by Power, Oil & Gas, Non-GE Verticals and Renewable Energy.

SEGMENT OPERATIONS

REVENUES AND PROFIT

Segment revenues include revenues and other income related to the segment.

Segment profit is determined based on internal performance measures used by the Chief Executive Officer (CEO) to assess the performance of each business in a given period. In connection with that assessment, the CEO may exclude matters, such as charges for restructuring, rationalization and other similar expenses, acquisition costs and other related charges, technology and product development costs, certain gains and losses from acquisitions or dispositions, and litigation settlements or other charges, for which responsibility preceded the current management team. Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. See the Corporate Items and Eliminations section within this MD&A for additional information about costs excluded from segment profit.

Segment profit excludes results reported as discontinued operations and material accounting changes. Segment profit also excludes the portion of earnings or loss attributable to noncontrolling interests of consolidated subsidiaries, and as such only includes the portion of earnings or loss attributable to our share of the consolidated earnings or loss of consolidated subsidiaries.

Segment profit excludes or includes interest and other financial charges, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:

Interest and other financial charges, income taxes and GE preferred stock dividends are excluded in determining segment profit (which we sometimes refer to as “operating profit”) for the industrial segments.
Interest and other financial charges, income taxes and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.

Certain corporate costs, such as shared services, employee benefits, and information technology, are allocated to our segments based on usage. A portion of the remaining corporate costs is allocated based on each segment’s relative net cost of operations.

SIGNIFICANT SEGMENT DEVELOPMENTS

INCLUSION OF ENERGY CONNECTIONS IN POWER REPORTING SEGMENT

Beginning in the third quarter of 2017, the Energy Connections business within the former Energy Connections & Lighting segment was combined with the Power segment and presented as one reporting segment called Power. As a result of the combination, our GE Lighting and Current, powered by GE (Current) businesses are now reported as a separate segment called Lighting.

CLASSIFICATION OF THE SUBSTANTIAL MAJORITY OF OUR LIGHTING SEGMENT AS HELD FOR SALE

In the fourth quarter of 2017, we classified the substantial majority of our Lighting segment as held for sale. In connection with this determination, we adjusted the carrying value of each business classified as held for sale to fair value, less cost to sell, which resulted in a pre-tax loss of $0.8 billion. This loss has been recorded at Corporate.

GE 2017 FORM 10-K 25

 
MD&A
SEGMENT OPERATIONS
 

SUMMARY OF OPERATING SEGMENTS
 
 
 
 
 
 
 
General Electric Company and consolidated affiliates
(In millions)
2017

2016

2015

2014

2013

 
 
 
 
 
 
Revenues
 
 
 
 
 
Power
$
35,990

$
36,795

$
28,903

$
27,746

$
26,770

Renewable Energy
10,280

9,033

6,273

6,399

4,824

Oil & Gas
17,231

12,898

16,450

19,085

17,341

Aviation
27,375

26,261

24,660

23,990

21,911

Healthcare
19,116

18,291

17,639

18,299

18,200

Transportation
4,178

4,713

5,933

5,650

5,885

Lighting(a)
1,987

4,823

8,751

8,404

8,338

Total industrial segment revenues
116,157

112,814

108,609

109,574

103,269

Capital
9,070

10,905

10,801

11,320

11,267

Total segment revenues
125,227

123,719

119,410

120,894

114,536

Corporate items and eliminations
(3,135
)
(26
)
(2,024
)
(3,709
)
(1,292
)
Consolidated revenues
$
122,092

$
123,693

$
117,386

$
117,184

$
113,245

 
 
 
 
 
 
Segment profit
 
 
 
 
 
Power
$
2,786

$
5,091

$
4,772

$
4,731

$
4,437

Renewable Energy
727

576

431

694

485

Oil & Gas(b)
220

1,392

2,427

2,758

2,357

Aviation
6,642

6,115

5,507

4,973

4,345

Healthcare
3,448

3,161

2,882

3,047

3,048

Transportation
824

1,064

1,273

1,130

1,166

Lighting(a)
93

199

674

431

381

Total industrial segment profit
14,740

17,598

17,966

17,764

16,220

Capital
(6,765
)
(1,251
)
(7,983
)
1,209

401

Total segment profit
7,975

16,347

9,983

18,973

16,621

Corporate items and eliminations
(7,871
)
(4,226
)
(5,108
)
(6,225
)
(6,002
)
GE interest and other financial charges
(2,753
)
(2,026
)
(1,706
)
(1,579
)
(1,333
)
GE provision for income taxes
(3,259
)
(967
)
(1,506
)
(1,634
)
(1,667
)
Earnings (loss) from continuing operations
 
 
 
 
 
  attributable to GE common shareowners
(5,907
)
9,128

1,663

9,535

7,618

Earnings (loss) from discontinued operations, net of taxes
(309
)
(954
)
(7,495
)
5,855

5,475

   Less net earnings (loss) attributable to
 
 
 
 
 
      noncontrolling interests, discontinued operations
6

(1
)
312

157

36

Earnings (loss) from discontinued operations,
 
 
 
 
 
   net of taxes and noncontrolling interests
(315
)
(952
)
(7,807
)
5,698

5,439

Consolidated net earnings (loss)
 
 
 
 
 
   attributable to GE common shareowners
$
(6,222
)
$
8,176

$
(6,145
)
$
15,233

$
13,057

(a)
Lighting segment included Appliances for the years ended December 31, 2013, 2014, 2015, and through its disposition in the second quarter of 2016.
(b)
Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. Oil & Gas segment profit excluding restructuring and other charges* was $899 million for the year ended December 31, 2017.













*Non-GAAP Financial Measure

26 GE 2017 FORM 10-K

 
MD&A
SEGMENT OPERATIONS
 

SEGMENT RESULTS
INDUSTRIAL SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment(a)(c)
$
58.5

$
60.6

$
60.9

Services(b)(c)
57.7

52.3

47.8

Total(d)
$
116.2

$
112.8

$
108.6

(a)
In 2017, $56.3 billion, excluding $2.2 billion related to Baker Hughes*.
(b)
In 2017, $54.6 billion, excluding $3.1 billion related to Baker Hughes*.
(c)
For the purposes of the MD&A, "services" refers to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs). For the purposes of the financial statement display of sales and costs of sales in our Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and “services” must include all other sales, including other services activities.
(d)
Industrial segment refers to the sum of our seven industrial reporting segments, without giving effect to corporate items or the elimination of transactions among such segments and between these segments and our Financial Services segment. Therefore, industrial segment revenues will not agree to GE revenues as shown in the Statement of Earnings (Loss).
INDUSTRIAL SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit(a)
$
14.7

$
17.6

$
18.0

Segment profit margin
13.3
%
15.6
%
16.5
%
(a)
In 2017, $15.1 billion, excluding $(0.4) billion related to Baker Hughes*.
2017 – 2016 COMMENTARY
Industrial segment revenues increased $3.3 billion, or 3%, driven by increases at Oil & Gas primarily due to Baker Hughes, Renewable Energy, Aviation and Healthcare, partially offset by decreases at Power, Transportation and Lighting.
Industrial segment profit decreased $2.9 billion, or 16%, primarily due to lower earnings at Power driven by negative variable cost productivity, Oil & Gas primarily due to restructuring costs associated with Baker Hughes, and Transportation driven by lower volume and negative variable cost productivity. These decreases were partially offset by higher earnings at Aviation, Healthcare, Renewable Energy and Lighting.
Industrial segment margin decreased 230 basis points to 13.3% in 2017 from 15.6% in 2016 driven by negative cost productivity, price pressure and business mix. The decrease in industrial segment margin reflects decreases at Power, Oil & Gas and Transportation, offset by increases at Aviation, Renewable Energy, Healthcare and Lighting.
2016 – 2015 COMMENTARY
Industrial segment revenues increased $4.2 billion, or 4%, primarily driven by increases at Power and Renewable Energy, mainly due to the effects of the Alstom acquisition, as well as an organic* increase at Renewable Energy, partially offset by lower revenues at Oil & Gas and Transportation, including the effects of foreign currency exchange of $0.3 billion at Oil & Gas.
Industrial segment acquisition revenues, driven by Alstom, were partially offset by the effects of disposition revenues related to the sale of Appliances in the second quarter of 2016 and sales of Meters, Intelligent Platforms Embedded Systems Products and Signaling businesses in 2015.
Industrial segment profit decreased $0.4 billion, or 2%, mainly driven by lower earnings organically* at Oil & Gas, Lighting and Transportation, as well as an unfavorable impact of foreign exchange, partially offset by higher earnings at Aviation, Power, Healthcare and Renewable Energy.
Industrial segment profit margin decreased 90 basis points to 15.6% in 2016 from 16.5% in 2015, primarily driven by the effects of Alstom results. Excluding Alstom*, industrial segment profit margin was 16.8%, compared with 17.0% in 2015, reflecting core decreases at Power, Oil & Gas and Lighting, that more than offset increases at Aviation, Healthcare and Transportation.









*Non-GAAP Financial Measure

GE 2017 FORM 10-K 27

  
MD&A
SEGMENT OPERATIONS | POWER

gear1710kpowera01.jpg POWER

BUSINESS OVERVIEW
Leader: Russell Stokes

 
Headquarters & Operations

geenergy2a03.jpg

•    Senior Vice President, GE and President & CEO, GE Power
    Over 20 years of service with General Electric
 
powerpie.jpg

•    29% of total segment revenues
•    31% of industrial segment revenues
•    19% of industrial segment profit
•    Headquarters: Schenectady, NY
•    Serving customers in 150+ countries
•    Employees: approximately 83,500
Products & Services
geform10k2016secfina_image53.jpg

Power serves power generation, industrial, government and other customers worldwide with products and services related to energy production and water reuse. Our products and technologies harness resources such as oil, gas, coal, diesel, nuclear and water to produce electric power and include gas and steam turbines, full balance of plant, upgrade and service solutions, as well as data-leveraging software.
Gas Power Systems offers a wide spectrum of heavy-duty and aeroderivative gas turbines for utilities, independent power producers and numerous industrial applications, ranging from small, mobile power to utility scale power plants.
Steam Power Systems offers steam power technology for coal and nuclear applications including boilers, generators, steam turbines and Air Quality Control Systems (AQCS) to help efficiently produce power and provide performance over the life of a power plant.
Power Services delivers maintenance, service and upgrade solutions across total plant assets and over their operational lifecycle, leveraging the Industrial Internet to improve the performance of such solutions.
Distributed Powerprovides technology-based products and services to generate reliable and efficient power at or near the point of use. The product portfolio features highly efficient, fuel flexible industrial gas engines, including Jenbacher and Waukesha engines, that generate power for numerous industries globally.
GE Hitachi Nuclear offers advanced reactor technologies solutions, including reactors, fuels and support services for boiling water reactors, through joint ventures with Hitachi and Toshiba, for safety, reliability and performance for nuclear fleets.
Industrial Solutions - creates advanced technologies that safely, reliably and efficiently distribute and control electricity to protect people, property, and equipment. Offerings include high performance software, control solutions and products such as circuit breakers, relays, arresters, switchgear and panel boards. The portfolio supports the commercial, data center, healthcare, mining, renewable energy, oil & gas, water and telecommunication sectors.
Grid Solutions - a GE and Alstom joint venture that offers products and services, such as high voltage equipment, power electronics, automation and protection equipment and software solutions, and serves industries such as generation, transmission, distribution, oil & gas, telecommunication, mining and water.
Power Conversion - applies the science and systems of power conversion to provide motors, generators, automation and control equipment and drives for energy intensive industries such as marine, oil & gas, renewable energy, mining, rail, metals, test systems and water.
Automation & Controls - serves as the Controls Center of Excellence for GE and partners with GE Digital, the Global Research Center, and GE businesses around the world to provide control solutions to help customers become more productive and efficient.
Water & Process Technologies - provides comprehensive chemical and equipment solutions and services to help manage and optimize water resources across numerous industries and municipalities, including water treatment, wastewater treatment and process system solutions. This business was sold to Suez in September of 2017 for consideration of $3.1 billion, net of obligations assumed and cash transferred.
Competition & Regulation
Worldwide competition for power generation products and services is intense. Demand for power generation is global and, as a result, is sensitive to the economic and political environments of each country in which we do business. Our products and services sold to end customers are often subject to a number of regulatory specification and performance standards under different federal, state, foreign and energy industry standards.

28 GE 2017 FORM 10-K

  
MD&A
SEGMENT OPERATIONS | POWER

Significant Trends & Developments
In June of 2017, we announced the merger of the GE Power and GE Energy Connections businesses to create one power-focused business called GE Power.
In June of 2017, Steve Bolze, former President & CEO of legacy GE Power, announced his retirement with Russell Stokes assuming the role of President & CEO of the new GE Power business unit.
We completed the sale of our Water & Process Technologies business to Suez in October 2017.
We announced our plan to sell our Industrial Solutions business to ABB with a planned completion in the first half of 2018, subject to customary closing conditions and regulatory approval.
The new, combined GE Power business, will and has driven better customer focus, fewer redundancies and lower costs. However, to establish this new structure, we have had to execute significant restructuring actions.
The integration of Alstom’s Thermal and Grid businesses has continued to yield significant efficiencies in supply chain, service infrastructure, new product development and SG&A costs.
Digital offerings have been developed to further complement our equipment and services business and drive value and better outcomes for our customers.
The business has continued to invest in new product development, such as our HA-Turbines, reciprocating engines, advanced upgrades, substation automation, connected controls, micro-grids, energy storage and digital solutions, to expand our equipment and services offerings.
Subsequent to the large investment needed to develop our HA-Turbines, we expect overall research and development costs to decrease going forward in order to better align with the economic realities of the end demand markets.
Changing customer behaviors and shifts in demand to new regional markets are requiring offerings that can include extended scope and financing.
Significant declines in the market have prompted a deeper analysis of inventory utilization and resulted in additional charges related to slow-moving and obsolete inventory in our Power Services, Gas Power Systems and Power Conversion businesses.
Power faces pressure in the market driven by a changing energy mix with more emphasis on renewables and lower demand for thermal generation affecting both new unit additions and installed base services.
Macroeconomic and geopolitical environments, excess capacity in developed markets and continued pressure in oil and gas applications result in uncertainty for the industry and business.
We expect the overall market for new gas orders in 2018 to be less than 35 gigawatts, and we are executing restructuring efforts in 2018 to support a market that could be as low as 30 gigawatts next year. We expect restructuring efforts to continue into 2019.
In 2017, we reduced structural costs* by $0.8 billion, excluding the effects of acquisition and disposition activity, for the year and reduced our manufacturing and repair footprint by 15 sites.
We have made significant changes and are heavily focused on improving our operational and project execution across every business in Power. We expect operations to stabilize in 2018, with improving execution, a refocused services strategy and strong execution on cost reduction.


















*Non-GAAP Financial Measure

GE 2017 FORM 10-K 29

  
MD&A
SEGMENT OPERATIONS | POWER

OPERATIONAL OVERVIEW
GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
11.3

$
11.7

Non-U.S.
 
 
Europe
6.3

6.5

Asia
6.8

7.0

Americas
3.7

4.1

Middle East and Africa
8.0

7.5

Total Non-U.S.
$
24.7

$
25.1

Total
$
36.0

$
36.8

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
69
%
68
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Gas Power Systems(a)
23
%
21
%
Power Services
38
%
39
%
Steam Power Systems
5
%
5
%
Energy Connections(b)
28
%
27
%
Other(c)
6
%
8
%
(a) Includes Distributed Power
(b) Includes Industrial Solutions, Grid Solutions, Power Conversion and Automation & Controls
(c) Includes Water & Process Technologies and GE Hitachi Nuclear

ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
18.0

$
21.8

Services
19.0

20.8

Total
$
37.0

$
42.6

 
 
 
Backlog
 
 
Equipment
$
27.0

$
26.7

Services
71.3

68.9

Total
$
98.4

$
95.6


UNIT SALES
 
2017

2016
V

Gas Turbines
102

104
(2
)

30 GE 2017 FORM 10-K

  
MD&A
SEGMENT OPERATIONS | POWER

FINANCIAL OVERVIEW
SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment
$
17.8

$
17.5

$
13.5

Services
18.2

19.3

15.4

Total
$
36.0

$
36.8

$
28.9

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit
$
2.8

$
5.1

$
4.8

Segment profit margin
7.7
%
13.8
%
16.5
%

COMMENTARY:
2017 – 2016

Segment revenues down $0.8 billion (2%);
Segment profit down $2.3 billion (45%):

The power market continues to be challenged by the increasing penetration of renewable energy, fleet penetration for AGPs, lower capacity payments, utilization, and service outages which decreased 8% from the prior year. In addition, excess capacity in developed markets, continued pressure in oil and gas applications and macroeconomic and geopolitical environments have created uncertainty in the industry.
Services revenues decreased primarily at Power Services due to 65 fewer AGP upgrades. Equipment revenues increased primarily at Gas Power Systems due to higher balance of plant as well as 46 more Heat Recovery Steam Generator shipments, partially offset by two fewer gas turbine and 55 fewer aeroderivative units. Revenues further decreased due to the disposition of the Water business in September 2017 and price pressure, partially offset by the effects of a weaker U.S. dollar versus the euro and the Brazilian real.
The decrease in profit was partially driven by $0.9 billion of charges in the fourth quarter primarily related to slow moving and obsolete inventory in Power Services, Gas Power Systems, and Power Conversion, a litigation settlement and a bankruptcy of a distributor. Profit further declined due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, and price pressure. These decreases were partially offset by positive base cost productivity.
2016 – 2015
Segment revenues up $7.9 billion (27%);
Segment profit up $0.3 billion (7%):

The Alstom acquisition in November 2015 contributed $11.7 billion of inorganic revenue growth in 2016. Core services revenue increased primarily at Power Services due to 40 more AGP upgrades. Core equipment revenues decreased primarily at Gas Power Systems due to 42 fewer generators, 11 fewer gas steam turbines, and three fewer gas turbines, partially offset by nine more aeroderivative units shipped compared to the prior year.
The increase in profit was mainly driven by the effects of the Alstom acquisition. Core profit decreased due to negative variable cost productivity on lower volume and unfavorable business mix attributable to a shift to the newer H-class gas turbines as these units carry a lower margin rate than the more mature gas turbine products. These decreases were partially offset by direct material deflation.






GE 2017 FORM 10-K 31

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

gear1710krenewableenergya01.jpg RENEWABLE ENERGY

BUSINESS OVERVIEW
Leader: Jérôme Pécresse

 
Headquarters & Operations

geform10k2016secfina_image66.jpg

•    Senior Vice President, GE and President & CEO, GE Renewable Energy
•    Former Alstom Renewable Power Executive Vice President

 
renewablespie.jpg

•    8% of total segment revenues
•    9% of industrial segment revenues
•    5% of industrial segment profit
•    Headquarters: Paris, France
•    Serving customers in 80+ countries
•    Employees: approximately 21,000
Products & Services
geform10k2016secfina_image65.jpg
GE Renewable Energy makes renewable power sources affordable, accessible and reliable for the benefit of people everywhere. With one of the broadest technology portfolios in the industry, Renewable Energy creates value for customers with solutions from onshore and offshore wind, hydro and its wind turbine blade manufacturing business. With operations in over 40 countries around the world, Renewable Energy can deliver solutions to where its customers need them most.

Onshore Wind provides technology and services for the onshore wind power industry by providing wind turbine platforms and hardware and software to optimize wind resources. Wind services help customers improve availability and value of their assets over the lifetime of the fleet. Digital Wind Farm is a site level solution, creating a dynamic, connected and adaptable ecosystem that improves our customers’ fleet operations.
Offshore Wind offers its high-yield offshore wind turbine, Haliade 150-6MW, which is compatible with bottom fixed and floating foundations. It uses the innovative pure torque design and the Advanced High Density direct-drive Permanent Magnet Generator. Wind services support customers over the lifetime of their fleet.
Hydro – provides a full range of solutions, products and services to serve the hydropower industry from initial design to final commissioning, from Low Head / Medium / High Head hydropower plants to pumped storage hydropower plants, small hydropower plants.
LM Wind Power - designs and manufactures blades for onshore and offshore wind turbines. LM became part of GE after a $1.7 billion acquisition in April 2017 and adds value for GE, as well as external customers worldwide, through advanced rotor solutions, improved blade efficiency, increased rotor swept-area, proven reliability and a global manufacturing footprint on or close to all major markets for wind.
Competition & Regulation
Renewable energy is now mainstream and expected to be able to compete subsidy-free with other sources of power generation in time. While many factors, including government incentives and specific market rules, affect how renewable energy can deliver outcomes for customers in a given region, renewable energy is increasingly able to compete with fossil fuels in terms of levelized cost of electricity. However, continued competitive pressure from other wind turbine producers as well as from other energy sources, such as solar photovoltaic, reinforced by a general move to electricity auction mechanisms, increases price pressure and the need for innovation in the wind market. As a result, we are investing to keep renewable energy competitive through wind turbine product improvements, including larger rotors, taller towers and higher nameplate ratings that continue to drive down the cost of wind energy. As industry models continue to evolve, our digital strategy and investments in technical innovation will position us to add value for customers looking for clean, renewable energy.

32 GE 2017 FORM 10-K

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

Significant Trends & Developments
Renewable energy has experienced a surge of development in the last decade. Renewable energy capacity additions account for more than half of all power plant additions worldwide. In the U.S. and beyond, traditional utilities and large brands are increasingly choosing renewable energy options - including onshore and offshore wind - based on cost as well as environmental benefits.
Consequently, the renewable energy market is highly competitive, particularly in onshore wind, resulting in significant pricing pressure.
Visible brands like Amazon, Google and Microsoft are increasingly contracting for output from wind and solar farms directly using Power Purchase Agreements (PPAs). GE’s EFS business has enabled several deals of this nature that use wind turbines from GE Renewable Energy’s Onshore Wind unit.
The onshore wind market continues to see megawatt (MW) growth as customer preference has shifted from 1.X models to larger, more efficient units.
The market to “repower” existing wind turbines – i.e., upgrade units that have been in service for a number of years to increase their efficiency and performance – is growing in the U.S. as the existing onshore wind turbine fleet is aging. Repowering allows customers to increase the annual energy output of their installed base, provide more competitively priced energy and extend the life of their assets.
New Product Introductions (NPIs) continue to be a key lever as our customers show a willingness to invest in new technology that decreases the levelized cost of energy. In September 2017, we introduced a new 4.8 MW turbine with 158 meter rotor diameter designed to reach the onshore industry’s highest Annual Energy Production rate, reducing the cost of energy for customers with low to medium wind speed sites.
In 2016, we introduced a new software applications suite for the Digital Wind Farm that can reduce maintenance costs by up to ten percent and deliver one-to-three percent of additional revenue per site. The company announced in July 2017 that the 2,000 MW Wind Catcher project in Oklahoma, which will be the largest wind farm in the U.S., will use Digital Wind Farm solutions to support Asset Performance Management and Operations Optimization.
While the uncertainty created by the U.S. tax reform debate resulted in certain orders being pushed to 2018, it had limited impact on our fourth quarter of 2017 performance. The final U.S. tax reform legislation preserved the Production Tax Credit (PTC), a positive outcome for the wind industry. However, while the tax equity market continues to function, the legislation has created some near-term uncertainty around the amount of available tax equity financing as financial institutions fully evaluate the impacts of the new tax law.
Pricing for our Onshore Wind business was down in 2017 due to the impact of auctions in many international markets and the competitive environment across all renewable sources.
Looking ahead, with a high level of price pressure likely persisting in 2018, we are continuing to focus on taking cost out of our NPI machines, including the 2.X, in-sourcing blade production and developing larger, more efficient turbines.
We believe that North America will continue to be a solid market in the near term with two main dynamics at play. First, we expect a ramp in 2019-2020 leading up to the expiration of the PTC at 100% value in 2020. Second, we expect Repower upgrades to complement a steadily growing renewable energy market.
Outside of North America, there continues to be solid growth in India, East Asia, Australia and newer markets in Latin America. Europe continues to be stable; however, given our relatively smaller market position, we are investing to grow faster than the market in that region.

GE 2017 FORM 10-K 33

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

OPERATIONAL OVERVIEW
GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
4.8

$
5.2

Non-U.S.
 
 
Europe
1.9

1.5

Asia
1.0

0.8

Americas
2.0

1.0

Middle East and Africa
0.6

0.5

Total Non-U.S.
$
5.4

$
3.8

Total
$
10.3

$
9.0

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
53
%
42
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Onshore Wind
86
%
89
%
Offshore Wind
3
%
3
%
Hydro
11
%
8
%

ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
8.2

$
8.5

Services
2.2

1.7

Total
$
10.4

$
10.3

 
 
 
Backlog
 
 
Equipment
$
8.1

$
7.8

Services
6.9

5.3

Total
$
15.0

$
13.1


UNIT SALES
 
2017

2016

V

Wind Turbines
2,825

3,289

(464
)



34 GE 2017 FORM 10-K

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

FINANCIAL OVERVIEW
SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment
$
8.1

$
8.2

$
5.8

Services
2.2

0.9

0.5

Total
$
10.3

$
9.0

$
6.3

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit
$
0.7

$
0.6

$
0.4

Segment profit margin
7.1
%
6.4
%
6.9
%

COMMENTARY:
2017 – 2016

Segment revenues up $1.2 billion (14%);
Segment profit up $0.2 billion (26%):

The renewable energy market remains competitive, particularly in onshore wind. The onshore wind market continues to see megawatt growth as customer preference has shifted from 1.X models to larger, more efficient units. However, there is significant competitive pricing pressure driven by onshore turbines.
Services volume increased due to 975 more repower units at Onshore Wind. Equipment volume decreased due to 464 fewer wind turbine shipments on a unit basis, including the nonrecurrence of certain orders in Europe and ASEAN, or 3% fewer megawatts shipped than in the prior year. Revenues also increased due to the acquisition of LM Wind in April 2017 which contributed $0.3 billion of inorganic revenue growth in 2017, increased other income including a reduction in foreign exchange transactional losses, and the effects of a weaker U.S. dollar versus the Brazilian real, partially offset by pricing pressure.
The increase in profit was due to positive variable cost productivity, material deflation and increased other income including a reduction in foreign exchange transactional losses. These increases were partially offset by negative base cost productivity and price pressure.
2016 – 2015

Segment revenues up $2.8 billion (44%);
Segment profit up $0.1 billion (34%):

The Alstom acquisition in November 2015 contributed $1.2 billion of inorganic revenue growth in 2016. Core equipment and services revenues increased due to higher volume at Onshore Wind as a result of increased repowering projects, 420 more wind turbines shipments and 32% more megawatts shipped than in the prior year. These increases were partially offset by decreased other income including foreign exchange transactional losses, the effects of a stronger U.S. dollar versus the Brazilian real and lower prices due to competitive pressure from other wind turbine producers and other energy sources.
The increase in profit was due to higher volume in Onshore Wind and Hydro due to the Alstom acquisition, material deflation, and product cost-out actions. These increases were partially offset by increased NPI spending on 2 and 3 megawatt units, price pressure and decreased other income including foreign exchange transactional losses.



GE 2017 FORM 10-K 35


MD&A
SEGMENT OPERATIONS | OIL & GAS

gear1710koilgasa01.jpg OIL & GAS

BUSINESS OVERVIEW
Leader: Lorenzo Simonelli

 
Headquarters & Operations

geform10k2016secfina_image76.jpg

•    Chairman, President & CEO Baker Hughes, a GE company
    Over 20 years of service with General Electric
 
ogpie.jpg

•    14% of total segment revenues
•    15% of industrial segment revenues
•    1% of industrial segment profit
•    Headquarters: London, UK and Houston, TX
•    Serving customers in ~120 countries
•    Employees: over 64,000
Products & Services
oilgasproductservicesa01.jpg
Oil & Gas is a fullstream oilfield technology provider that has a unique mix of integrated oilfield products, services and digital solutions. We conduct business in more than 120 countries. We operate through our four business segments: Oilfield Services, Oilfield Equipment, Turbomachinery & Processing Solutions and Digital Solutions.

Oilfield Services provides equipment and services ranging from well evaluation to decommissioning. Products and services include diamond and tri-cone drill bits, drilling services (including directional drilling technology, measurement while drilling and logging while drilling), downhole completion tools and systems, wellbore intervention tools and services, wireline services, drilling and completions fluids, oilfield and industrial chemicals, pressure pumping and artificial lift technologies (including electrical submersible pumps).
Oilfield Equipment provides a broad portfolio of products and services required to facilitate the safe and reliable flow of hydrocarbons from the subsea wellhead to the surface. Products and services include pressure control equipment and services, subsea production systems and services, drilling equipment and flexible pipeline systems. Oilfield Equipment operation designs and manufactures onshore and offshore drilling and production systems and equipment for floating production platforms and provides a full range of services related to onshore and offshore drilling activities.
Turbomachinery & Process Solutions provides equipment and related services for mechanical-drive, compression and power-generation applications across the oil and gas industry as well as products and services to serve the downstream segments of the industry including refining, petrochemical, distributed gas, flow and process control and other industrial applications. The Turbomachinery & Process Solutions portfolio includes drivers (aero-derivative gas turbines, heavy-duty gas turbines and synchronous and induction electric motors), compressors (centrifugal and axial, direct drive high speed, integrated, subsea compressors, turbo expanders and reciprocating), turn-key solutions (industrial modules and waste heat recovery), pumps, valves and compressed natural gas (CNG) and small-scale liquefied natural gas (LNG) solutions used primarily for shale oil and gas field development.
Digital Solutions provides equipment and services for a wide range of industries, including oil & gas, power generation, aerospace, metals and transportation. The offerings include sensor-based measurement, non-destructive testing and inspection, turbine, generator and plant controls and condition monitoring, as well as pipeline integrity solutions.
Competition & Regulation
Demand for oil and gas equipment and services is global and, as a result, is sensitive to the economic and political environment of each country in which we do business. We are subject to the regulatory bodies of the countries in which we operate. Our products are subject to regulation by U.S. and non-U.S. energy policies.

36 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | OIL & GAS

Significant Trends & Developments
On July 3, 2017, we completed the transaction to create Baker Hughes, a GE company (BHGE). Under the terms of the deal, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds an ownership interest of approximately 62.5% and former Baker Hughes shareholders hold an ownership interest of approximately 37.5%. Effective July 3, 2017, the operations of Baker Hughes are reported in our Oil & Gas segment. The combined business is a leading equipment, technology and services provider in the oil and gas industry.
Continuing market weakness including lower oil prices has led to reductions in customers’ forecasted capital expenditures and lower convertible orders, creating industry challenges, the effects of which are uncertain. In addition, decreased U.S. rig count and lower drilling activity versus prior peaks in the early 2000s has reduced the need for new wells, rigs, and replacement equipment.
We are also impacted by volatility in foreign currency exchange rates mainly due to a high concentration of non-U.S. dollar denominated business as well as long-term contracts denominated in multiple currencies.
In 2017, we experienced several indicators of improvement in activity. Demand for oil was higher than expected due to robust consumption in North American and revisions to Chinese, Russian and European demand growth expectations.
In 2017, total rig count increased 27% to an average of 2,030 from an average of 1,598 in 2016. This increase was driven by an increase in North American rig count from 642 in 2016 to 1,082 in 2017, primarily attributable to an increase in land rig count, partially offset by a decrease in offshore rig count.
Oil prices reached a low early in 2016 due to the impending production increases in Iran after economic sanctions were lifted. However, during the fourth quarter of 2017, OPEC announced extensions to agreed-upon production cuts, shifting Brent oil prices higher towards the end of the year.
In North America, customer spending is highly driven by WTI oil prices, which fluctuated significantly throughout the year. Average WTI oil prices increased to $50.80/Bbl in 2017 from $43.29/Bbl in 2016 and ranged from a low of $42.48/Bbl in June 2017 to a high of $60.46/Bbl in December 2017.
Outside of North America, customer spending is influenced by Brent oil prices, which also fluctuated significantly throughout the year. Average Brent oil prices increased to $54.12/Bbl in 2017 from $43.64/Bbl in 2016 and ranged from a low of $43.98/Bbl in June 2017 to a high of $68.80/Bbl in December 2017.
While we saw an increase in commodity prices during 2017, we have yet to see a sustained change in customer spending behavior, and we expect final investment decisions to continue to remain fluid due to continued oil price volatility.


GE 2017 FORM 10-K 37


MD&A
SEGMENT OPERATIONS | OIL & GAS

OPERATIONAL OVERVIEW

GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
4.4

$
3.1

Non-U.S.
 
 
Europe
3.0

2.4

Asia
2.6

2.3

Americas
2.5

1.9

Middle East and Africa
4.8

3.2

Total Non-U.S.
$
12.8

$
9.8

Total
$
17.2

$
12.9

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
75
%
76
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Turbomachinery & Process Solutions (TPS)
37
%
50
%
Oilfield Services (OFS)(a)
35
%
6
%
Oilfield Equipment (OFE)(b)
14
%
27
%
Digital Solutions
14
%
17
%
(a) Previously referred to as Surface
(b) Previously referred to as Subsea Systems & Drilling



ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
6.8

$
3.7

Services
10.4

7.4

Total(a)
$
17.2

$
11.1

(a) Included $5.2 billion related to Baker Hughes in 2017

 
 
 
 
 
Backlog
 
 
Equipment
$
5.4

$
6.5

Services
15.7

14.3

Total
$
21.0

$
20.8



38 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | OIL & GAS

FINANCIAL OVERVIEW

SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment(a)
$
7.2

$
6.0

$
8.3

Services(b)
10.0

6.9

8.1

Total
$
17.2

$
12.9

$
16.5

(a) $5.1 billion, excluding $2.2 billion related to Baker Hughes* in 2017
(b) $7.0 billion, excluding $3.1 billion related to Baker Hughes* in 2017
 
 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit(a)
$
0.2

$
1.4

$
2.4

Segment profit margin
1.3
%
10.8
%
14.8
%
(a) $0.6 billion, excluding $(0.4) billion related to Baker Hughes* in 2017
(b) 4.8%, excluding (6.8)% related to Baker Hughes* in 2017
 
 
 

COMMENTARY:
2017 – 2016

Segment revenues up $4.3 billion (34%);
Segment profit down $1.2 billion (84%):

The oil and gas market remained challenging in 2017. Despite some improvements in activity, there were no significant increases in customer capital commitments, and oil prices remained volatile for the majority of the year. While oil prices stabilized towards the end of 2017 and North American rig count increased, major equipment project awards continued to be pushed out in the Oilfield Equipment and TPS businesses.
The Baker Hughes acquisition in July 2017 contributed $5.2 billion of inorganic revenue growth in 2017. Core equipment revenues decreased due to lower volume primarily at Oilfield Equipment as a result of the market conditions and lower opening backlog. Revenues further decreased due to lower oil prices, partially offset by the effects of a weaker U.S. dollar versus the euro and a reduction in foreign exchange transactional losses.
The decrease in profit was primarily driven by negative variable cost productivity, restructuring and other charges, lower prices and lower organic volume, partially offset by increased volume from Baker Hughes, deflation and increased other income including a reduction in foreign exchange transactional losses.
2016 – 2015

Segment revenues down $3.6 billion (22%);
Segment profit down $1.0 billion (43%):

The oil and gas market continued to be challenging in 2016, primarily due to uncertainty and volatility in oil and gas prices. While there were indications of positive trends, the industry continued to focus on cost rationalization and capital spending reductions to align its cost structure with economics conditions.
Core equipment and services revenues decreased due to lower volume across most product lines, primarily in Oilfield Services and Oilfield Equipment, driven by difficult market conditions resulting in lower capital spending across the oil and gas industry. Revenues further decreased due to lower oil prices and the effects of a stronger U.S. dollar versus the euro. The Alstom acquisition in November 2015 contributed $0.1 billion of inorganic revenue growth in 2016.
The decrease in profit was primarily driven by continuing market weakness resulting in lower core volume across all sub-segments and lower oil prices, which, despite the effects of cost-out initiatives including restructuring actions, drove lower cost productivity. These decreases were partially offset by material deflation.





*Non-GAAP Financial Measure


GE 2017 FORM 10-K 39


MD&A
SEGMENT OPERATIONS | AVIATION

gear1710kaviationa01.jpgAVIATION

BUSINESS OVERVIEW
Leader: David Joyce

 
Headquarters & Operations

geform10k2016secfina_image91.jpg

•    Vice Chairman, GE and President & CEO, GE Aviation
    Over 30 years of service with General Electric
 
aviationpie.jpg

•    22% of total segment revenues
•    24% of industrial segment revenues
•    45% of industrial segment profit
•    Headquarters: Cincinnati, OH
•    Serving customers in 120+ countries
•    Employees: approximately 44,500
Products & Services
geform10k2016secfina_image90.jpg
Aviation designs and produces commercial and military aircraft engines, integrated digital components, electric power and mechanical aircraft systems. We also provide aftermarket services to support our products.

Commercial Enginesmanufactures jet engines and turboprops for commercial airframes. Our commercial engines power aircraft in all categories; regional, narrowbody and widebody. We also manufacture engines and components for business and general aviation segments.
Commercial Services provides maintenance, component repair and overhaul services (MRO), including sales of replacement parts.
Militarymanufactures jet engines for military airframes. Our military engines power a wide variety of military aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft, as well as marine applications. We provide maintenance, component repair and overhaul services, including sales of replacement parts.
Systemsprovides components, systems and services for commercial and military segments. This includes avionics systems, aviation electric power systems, flight efficiency and intelligent operation services, aircraft structures and Avio Aero.
Additive provides a wide variety of products and services including additive machines from Concept Laser and Arcam EBM, additive materials (including metal powders from AP&C), and additive engineering services through our consultancy brand AddWorksTM. In November 2017, GE Additive also acquired software simulation company GeonX.
We also produce and market engines through CFM International, a company jointly owned by GE and Snecma, a subsidiary of SAFRAN of France, and Engine Alliance, LLC, a company jointly owned by GE and the Pratt & Whitney division of United Technologies Corporation. New engines are also being designed and marketed in a joint venture with Honda Aero, Inc., a division of Honda Motor Co., Ltd.
Competition & Regulation
The global businesses for aircraft jet engines, maintenance component repair and overhaul services (including parts sales) are highly competitive. Both U.S. and non-U.S. markets are important to the growth and success of the business. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures are important in this business, as are focused intellectual property strategies and protection of key aircraft engine design, manufacture, repair and product upgrade technologies. Aircraft engine orders and systems tend to follow civil air travel and demand and military procurement cycles.

Our product, services and activities are subject to a number of regulators such as by the U.S. Federal Aviation Administration (FAA), European Aviation Safety Agency (EASA) and other regulatory bodies.

40 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | AVIATION

Significant Trends & Developments
Global passenger air travel continued to grow during the year. In 2017, revenue passenger kilometers (RPKs) growth outpaced the five-year average, increasing 7.6%* with strong growth both domestically and internationally and demand exceeding capacity. RPK growth is expected to remain strong in 2018 although at a lower growth rate.
In 2017, air freight volume rebounded, and freight ton kilometers (FTKs) grew 9.0%*, particularly in international markets with demand exceeding capacity for the year.
Passenger load factors globally remained above 80%*.
Airline fuel costs are expected to rise in 2018 due to rising oil prices.
The installed base continues to grow with new product launches. In 2016, through our CFM joint venture, we successfully launched the LEAP engine for application on the Airbus A320 NEO. Another variant of the engine, applied to the Boeing 737 MAX aircraft entered into in service in 2017. A third variant of the LEAP engine, for the COMAC C919, had its first flight in 2017. We are also continuing development on the Advanced Turbo Prop program and the GE9X engine, incorporating the latest technologies for application in the widebody aircraft space. In 2018, we will ship the first Passport engines, powering the Bombardier Global 7000 business jet.
During 2017, Aviation delivered 459 LEAP engines with cost reductions in line with production cost curve expectations. LEAP reliability and performance specification continued to be on track. We expect to meet our ramp commitments in 2018 with a production volume of more than 2,000 engines by 2020. This ramp is a significant undertaking, and we have made extensive investments through our Supply Chain processes and plant infrastructure to manage the production ramp. In addition, we have utilized a "Run at Rate" program to stress test the system and evaluate materials, manufacturability, training, process maturity, production line readiness, logistics and vertical supply chain readiness.
The LEAP ramp experienced minor issues with limited interruption to airframe delivery in 2017. All issues have been addressed within our Supply Chain and in certain cases, minor engine re-designs and field retrofits are underway.
Our digital industrial business is providing insights and operational value for our customers, allowing us to deliver more productivity beyond our traditional services and assist our customers in solving challenging operational problems. Our digital initiatives, including analytics on flight operations, technical operations, and advanced manufacturing, are enabling our customers, internal operations and suppliers to reduce costs, cycle time and improve quality.
On January 2, 2018, GE purchased additional shares of Arcam, AB to bring GE’s total ownership to 96%. On January 11, 2018, Arcam applied to the Nasdaq Stockholm exchange to commence delisting of the remaining shares. The last day of trading was January 26, 2018, and GE announced the delisting on January 30, 2018.
We expect an uptick in military shipments and continue to advance our next generation science and technology programs. 2018 will be a critical year for contract decisions on the next generation combat and helicopter engines.































* Based on the latest available information from the International Air Transport Association

GE 2017 FORM 10-K 41


MD&A
SEGMENT OPERATIONS | AVIATION

OPERATIONAL OVERVIEW
GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
10.8

$
10.6

Non-U.S.
 
 
Europe
6.2

4.5

Asia
5.6

5.1

Americas
1.2

1.6

Middle East and Africa
3.6

4.5

Total Non-U.S.
$
16.6

$
15.7

Total
$
27.4

$
26.3

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
61
%
60
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Commercial Engines & Services
73
%
74
%
Military
14
%
13
%
Systems & Other
13
%
13
%

ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
10.6

$
10.0

Services
18.9

16.3

Total
$
29.5

$
26.3

 
 
 
Backlog
 
 
Equipment
$
32.8

$
33.3

Services
137.7

121.3

Total
$
170.4

$
154.5



UNIT SALES
 
2017

2016

V

Commercial Engines
2,630

2,747

(117
)
LEAP Engines(a)
459

77

382

Military Engines
617

571

46

Spares Rate(b)
$
23.5

$
18.9

$
4.6

(a) LEAP engines are a subset of commercial engines
(b) Commercial externally shipped spares and spares used in time & material shop visits in millions of dollars per day

42 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | AVIATION

FINANCIAL OVERVIEW

SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment
$
10.8

$
11.6

$
11.8

Services
16.6

14.7

12.9

Total
$
27.4

$
26.3

$
24.7

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit
$
6.6

$
6.1

$
5.5

Segment profit margin
24.3
%
23.3
%
22.3
%

COMMENTARY:
2017 – 2016

Segment revenues up $1.1 billion (4%);
Segment profit up $0.5 billion (9%):

Global passenger air travel continued to grow with RPK growth outpacing the five-year average and demand exceeding capacity. Air freight volume volume rebounded, particularly in international markets, with FTK demand also exceeding capacity for the year.
Services revenue increased primarily due to a higher commercial and military spares shipment rate, as well as higher prices. Equipment revenues decreased due to lower legacy and GEnx Commercial engine shipments, partially offset by more LEAP and Military engine shipments. Revenues also increased due to the acquisitions of Arcam AB and Concept Laser GmbH in the fourth quarter of 2016 which contributed $0.2 billion of inorganic revenue growth in 2017.
The increase in profit was mainly due to higher cost productivity driven by structural cost reductions, as well as material deflation, higher services volume and higher prices. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin impact.
2016 – 2015

Segment revenues up $1.6 billion (6%);
Segment profit up $0.6 billion (11%):

Global passenger air travel continued to grow, particularly in international markets including India and China, with RPKs demand nearly reaching capacity. FTKs also increased despite continuing overcapacity in the market.
Services volume increased due to a higher commercial spares shipment rate, as well as higher pricing in response to higher material and conversion costs. Equipment revenues decreased due lower Military shipments, partially offset by higher Commercial engine shipments driven by the introduction of the LEAP engines.
The increase in profit was mainly due to higher cost productivity driven by favorable SG&A and shop productivity and lower engineering spend, as well as higher services volume and higher prices. These increases were partially offset by material inflation and an unfavorable business mix driven by negative LEAP margin impact.


GE 2017 FORM 10-K 43


MD&A
SEGMENT OPERATIONS | HEALTHCARE

gear1710khealthcarea01.jpg HEALTHCARE

BUSINESS OVERVIEW
Leader: Kieran Murphy

 
Headquarters & Operations

kieranmurphy.jpg

•    Senior Vice President, GE and President & CEO, GE Healthcare
    10 years of service with General Electric
 
healthcarepie.jpg

•    15% of total segment revenues
•    16% of industrial segment revenues
•    23% of industrial segment profit
•    Headquarters: Chicago, IL
•    Serving customers in 140+ countries
•    Employees: approximately 52,000
Products & Services
healthcareproductservicesa01.jpg

Healthcare provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging, digital solutions, patient monitoring and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions that are the building blocks of precision health. Products and services are sold worldwide primarily to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market.
Healthcare Systems provides a wide range of technologies and services that include diagnostic imaging and clinical systems. Diagnostic imaging systems such as X-ray, digital mammography, computed tomography (CT), magnetic resonance (MR), surgical and interventional imaging and molecular imaging technologies allow clinicians to see inside the human body more clearly. Clinical systems such as ultrasound, electrocardiography (ECG), bone densitometry, patient monitoring, incubators and infant warmers, respiratory care and anesthesia management enable clinicians to provide better care for patients every day - from wellness screening to advanced diagnostics to life-saving treatment. Healthcare Systems also offers product services that include remote diagnostic and repair services for medical equipment manufactured by GE and by others.
Life Sciences delivers products, services and manufacturing solutions for drug discovery, the biopharmaceutical industry, and cellular and gene therapy technologies, so that scientists and specialists can discover new ways to predict, diagnose and treat disease. It also researches, manufactures and markets innovative imaging agents used during medical scanning procedures to highlight organs, tissue and functions inside the human body, to aid physicians in the early detection, diagnosis and management of disease through advanced in-vivo diagnostics.
Healthcare Digital provides medical technologies, software, analytics, cloud solutions, implementation and services to drive increased access, enhanced quality and more affordable healthcare around the world. Healthcare Digital’s expertise in artificial intelligence and operational excellence combines digital and industrial, software and hardware, to deliver integrated digital solutions that improve outcomes.
Competition & Regulation
Healthcare competes with a variety of U.S. and non-U.S. manufacturers and services providers. Customers require products and services that allow them to provide better access to healthcare, improve the affordability of care and improve the quality of patient outcomes. Technology and solution innovation to provide products that meet these customer requirements and competitive pricing are among the key factors affecting competition for these products and services. New technologies and solutions could make our products and services obsolete unless we continue to develop new and improved offerings.

Our products are subject to regulation by numerous government agencies, including the U.S. Food and Drug Administration (U.S. FDA), as well as various laws and regulations that apply to claims submitted under Medicare, Medicaid or other government funded healthcare programs.

44 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | HEALTHCARE

Significant Trends & Developments
In June 2017, Jeffery R. Immelt, former Chief Executive Officer (CEO), announced his retirement with John L. Flannery, former President & CEO of GE Healthcare, succeeding Mr. Immelt as CEO effective August 1, 2017. Kieran Murphy, former President & CEO of GE Healthcare Life Sciences, assumed the role of President & CEO of GE Healthcare effective June 12, 2017.
Healthcare global markets continued to expand, predominately in China and emerging markets, and our share of these key markets grew from the prior year. The key drivers of this global growth were Ultrasound as well as Imaging across most modalities, as additional hospitals and other healthcare facilities have been built, particularly in emerging markets, and as equipment is replaced in existing facilities, primarily in developed markets.
We continue to lead in technology innovation with greater focus on productivity-based technology, services and IT/cloud-based solutions as healthcare providers seek greater productivity and better outcomes.
In 2017, we launched 26 new products in our Imaging and Clinical Care Solutions markets.
In Life Sciences, we launched new products in our contrast imaging and bioprocess portfolios and expanded our cell therapy business through organic investments and acquisitions.
In Healthcare Digital, we have upgraded our core imaging software, while continuing to enhance our products with new advances in analytics.
Emerging markets are expected to grow over the long-term with short-term volatility, driven by the long-term trend of expanding access to healthcare in these markets.
The China market is expected to continue to be a source of growth in 2018 with strong fundamentals in the public market and an expanding private market.
In the U.S., the Affordable Care Act (ACA) has contributed to accelerated customer consolidation and driven payment reforms, causing our customers to look for more complete solutions and greater efficiency. However, while the market is strong, it continues to face uncertainty regarding the future of the ACA. This uncertainty has contributed to slower demand for smaller Ultrasound and Life Care Solutions purchases that are more subject to near-term decision making.
Underlying demand for biopharmaceuticals is expected to continue to expand with new product introductions complemented by growing access to these treatments in emerging markets. These trends continue to support the underlying growth of our Life Sciences franchise which has significant exposure to these end markets.

GE 2017 FORM 10-K 45


MD&A
SEGMENT OPERATIONS | HEALTHCARE

OPERATIONAL OVERVIEW

GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
8.6

$
8.5

Non-U.S.
 
 
Europe
3.8

3.6

Asia
4.9

4.5

Americas
1.0

0.9

Middle East and Africa
0.9

0.9

Total Non-U.S.
$
10.6

$
9.8

Total
$
19.1

$
18.3

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
55
%
54
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Healthcare Systems
70
%
70
%
Healthcare Digital
6
%
7
%
Life Sciences
24
%
23
%

ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
12.4

$
11.4

Services
8.1

7.8

Total
$
20.4

$
19.2

 
 
 
Backlog
 
 
Equipment
$
6.5

$
5.6

Services
11.6

11.2

Total
$
18.1

$
16.8




46 GE 2017 FORM 10-K


MD&A
SEGMENT OPERATIONS | HEALTHCARE

FINANCIAL OVERVIEW
SEGMENT REVENUES
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Revenues
 
 
 
Equipment
$
11.0

$
10.4

$
9.9

Services
8.1

7.9

7.8

Total
$
19.1

$
18.3

$
17.6

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
 
 
 
(Dollars in billions)
2017

2016

2015

 
 
 
 
Segment profit
$
3.4

$
3.2

$
2.9

Segment profit margin
18.0
%
17.3
%
16.3
%

COMMENTARY:
2017 – 2016

Segment revenues up $0.8 billion (5%);
Segment profit up $0.3 billion (9%):

The Healthcare Systems global market continued to expand, predominately in emerging markets, including China, driven by Ultrasound as well as Imaging across most modalities. In addition, Healthcare Systems launched 26 new products in 2017, and Life Sciences continued to expand its business through product launches, organic investments and acquisitions.
Services and equipment revenues increased due to higher volume in Healthcare Systems attributable to growth in Imaging and Ultrasound supported by new product launches and growth in developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Contrast Imaging. This growth was partially offset by price pressure at Healthcare Systems.
The increase in profit was primarily driven by strong volume growth and cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. In addition, profit further increased due to the recognition of small gains on the disposition of nonstrategic operations. These increases were partially offset by price pressure at Healthcare Systems and investments in programs including Digital and new product offerings.
2016 – 2015

Segment revenues up $0.7 billion (4%);
Segment profit up $0.3 billion (10%):

The Healthcare Systems global market continued to expand, predominately in emerging markets, including China, driven by Ultrasound as well as molecular imaging within Imaging. In addition, Life Sciences continued to expand its business through bioprocess market growth and enterprise solutions.
Services and equipment revenues increased due to higher volume in Life Sciences, driven by Bioprocess growth. Healthcare Systems volume also increased due to increases in Ultrasound and Imaging. Regionally, volume growth was driven by emerging markets, including China. This growth was partially offset by price pressure at Healthcare Systems.
The increase in profit was primarily driven by strong volume growth and high cost productivity due to the effects of cost reduction actions including sourcing and logistic initiatives, design engineering, plant transfers from high cost to low cost countries and restructuring actions. These cost savings were partially offset by price pressure at Healthcare Systems and investments in programs including Digital.


GE 2017 FORM 10-K 47

 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

gear1710ktransportationa01.jpg TRANSPORTATION

BUSINESS OVERVIEW
Leader: Rafael Santana

 
Headquarters & Operations

rafaelsantana.jpg

•    Vice President, GE and President & CEO, GE Transportation
    Over 15 years of service with General Electric
 
transportationpie.jpg

•    3% of total segment revenues
•    4% of industrial segment revenues
•    6% of industrial segment profit
•    Headquarters: Chicago, IL
•    Serving customers in 60+ countries
•    Employees: approximately 8,000
Products & Services
chicagcircle.jpg
Transportation is a global technology leader and supplier to the railroad, mining, marine, stationary power and drilling industries. Products and services offered by Transportation include:

Locomotives provides freight and passenger locomotives as well as rail services to help solve rail challenges. We manufacture high-horsepower, diesel-electric locomotives including the Evolution SeriesTM, which meets or exceeds the U.S. Environmental Protection Agency’s (EPA) Tier 4 requirements for freight and passenger applications.
Services develops partnerships that support advisory services, parts, integrated software solutions and data analytics. Our comprehensive offerings include tailored service programs, high-quality parts for GE and other locomotive platforms, overhaul, repair and upgrade services and wreck repair. Our portfolio provides the people, partnerships and leading software to optimize operations and asset utilization.
Digital Solutions offers a suite of software-enabled solutions to help our customers lower operational costs, increase productivity and improve service quality and reliability.
Mining provides mining equipment and services. The portfolio includes drive systems for off-highway vehicles, mining equipment, mining power and productivity.
Marine, Stationary & Drilling offers marine diesel engines and stationary power diesel engines and motors for land and offshore drilling rigs.
Competition & Regulation
The competitive environment for locomotives and mining equipment and services consists of large global competitors. A number of smaller competitors compete in a limited-size product range and geographic regions. North America will remain a focus of the industry due to the EPA Tier 4 emissions standard that went into effect in 2015.
Significant Trends & Developments
Effective November 1, 2017, Jamie S. Miller, former President & CEO of GE Transportation, assumed the role of Chief Financial Officer, succeeding Jeffrey S. Bornstein. Effective the same date, Rafael Santana, former President & CEO of GE in Latin America, assumed the role of President & CEO of GE Transportation.
Rail carload volumes, especially in North America, began to improve in 2017 from the historical lows reached early in 2017. Parked locomotives have remained historically high in 2017 but have begun to slowly decrease as carload volume has improved and velocity has slowed.
Demand for natural resources began to recover in 2017, but commodity prices and mining sector activity remain well below levels seen during most recent commodity supercycle.
Global locomotive deliveries were down from 749 units in 2016 to 433 units in 2017 due to excess supply of locomotive power in the North American rail market.
Railroads, especially the Class 1s in North America, have begun to see some recovery in volume in both intermodal and commodity carloads. We expect railroads will continue to seek capital-efficient opportunities to improve the efficiency of their assets and network.

48 GE 2017 FORM 10-K

 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

OPERATIONAL OVERVIEW
GEOGRAPHIC REVENUES
 
 
(Dollars in billions)
2017

2016

 
 
 
U.S.
$
2.4

$
3.0

Non-U.S.
 
 
Europe
0.2

0.2

Asia
0.3

0.3

Americas
0.6

0.9

Middle East and Africa
0.7

0.3

Total Non-U.S.
$
1.8

$
1.8

Total
$
4.2

$
4.7

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
43
%
37
%

SUB-SEGMENT REVENUES
 
 
 
2017

2016

 
 
 
Locomotives
31
%
44
%
Services
51
%
42
%
Mining
10
%
7
%
Other(a)
8
%
7
%
(a) Includes Marine, Stationary, Drilling and Digital

ORDERS AND BACKLOG
 
 
(Dollars in billions)
2017

2016

 
 
 
Orders
 
 
Equipment
$
2.1

$
0.4

Services
3.0

3.0

Total
$
5.1

$
3.4

 
 
 
Backlog
 
 
Equipment
$
4.8

$
4.4

Services
13.2

15.7

Total
$
17.9

$
20.1


UNIT SALES
 
2017

2016

V

Locomotives
433

749

(316
)

GE 2017 FORM 10-K 49

 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

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