10-Q 1 ge3q201810-q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
                                 (Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
 
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
geform10q3qfinal1image1a09.jpg
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its 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
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (617) 443-3000

_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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 Exchange Act). Yes ¨ No þ
There were 8,698,115,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2018.



TABLE OF CONTENTS
 



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 potential business or asset dispositions, including plans to separate GE Healthcare into a standalone company, the timing and structure for that separation, the characteristics of the business to be separated and the expected benefits to GE; plans to exit our equity ownership position in Baker Hughes, a GE company (BHGE) and the expected benefits to GE; capital allocation, including our plans with respect to the timing and amount of GE dividends, organic investment and other priorities; our capital structure and access to funding, including leverage ratios and targets, debt repayment plans and credit ratings and outlooks; divestiture proceeds expectations; GE and GE Capital liquidity; future corporate performance; leverage targets; future 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 and U.S. tax reform; future business growth and productivity gains; profit margins; the benefits of restructuring, the new GE operating system and the future cost profile and performance of Corporate; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; tax rates; transaction-related synergies, proceeds and gains; or returns on capital and investment.
For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, GE Industrial and GE Capital business or asset dispositions or other announced transactions, including our planned separation of GE Healthcare and dispositions of GE Transportation and BHGE, the pricing, gain or loss recognition, timing, and anticipated proceeds from those or other transactions and potential trailing liabilities;
GE’s liquidity and the amount and timing of our GE 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, the repayment or allocation of our outstanding debt obligations, pension funding contributions, acquisitions, joint ventures and other strategic actions;
further downgrades of our current short- and long-term credit ratings or ratings outlooks and the related impact on our funding profile, costs and competitive position;
customer actions or market developments such as reduced demand for equipment and services and other challenges in our Power business, other 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 effect of enactment of U.S. tax reform or other tax law changes, trade policy and tariffs, interest and exchange rate volatility, commodity and equity prices and the value of financial assets;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations, the amount and timing of required capital contributions and related strategic actions that we may pursue, the WMC-related matters described below, the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets, GE Capital’s leverage and credit ratings, 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 implementation of the new GE operating system, restructuring and other cost reduction measures;
our ability to convert pre-order commitments/wins into orders/bookings; and 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, SEC and other investigative and legal proceedings;
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 BHGE;
the impact of potential product failures and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches;
the other factors that are described in "Forward-Looking Statements" in BHGE’s most recent earnings release or SEC filings; and
the other factors that are described in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2018 and September 30, 2018.
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.

2018 3Q FORM 10-Q 3


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).

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 (loss), financial position and cash flows. An example of a GE metric is GE Industrial free cash flows (Non-GAAP).
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 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 (loss), 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 (loss), 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 free cash flows (Non-GAAP).
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 comprises 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.

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. However, in the case of BHGE, which was acquired on July 3, 2017, we consider the results to be organic for the third quarter of 2018.
                        
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.


4 2018 3Q FORM 10-Q


MD&A
 
 


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 and remaining performance obligation (RPO) – backlog is unfilled customer orders for products and product services (expected life of contract sales for product services). RPO, a defined term under GAAP, is backlog excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty, even if the likelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders.
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. 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 Cash Flows from Operating Activities (GE CFOA) - unless otherwise indicated, GE CFOA is from continuing operations.
GE Industrial profit margin (GAAP) – GE total revenues plus other income minus GE total costs and expenses divided by GE total revenues.
Net earnings (loss) – we refer to the caption “net earnings (loss) attributable to GE common shareowners” as net earnings.
Net earnings (loss) per share (EPS) – when we refer to net earnings (loss) per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners.”
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Aviation, Oil & Gas 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 for our industrial businesses and GE Capital revenues from services for our financial services businesses.
Segment profit – refers to the profit of the industrial segments and the net earnings of the financial services segment, both of which include other income. 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.


2018 3Q FORM 10-Q 5


MD&A
 
 


OUR OPERATING SEGMENTS

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, locomotives, power generation and oil and gas production equipment to medical imaging, financing and industrial products. Operational and financial overviews for our operating segments are provided in the “Segment Operations” section within this MD&A.

OUR INDUSTRIAL OPERATING SEGMENTS
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Power
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Oil & Gas(a)
gear1710klightinga10.jpg
Lighting
gear1710krenewableenergya10.jpg
Renewable Energy
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Healthcare
 
 
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Aviation
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Transportation
 
 

OUR FINANCIAL SERVICES OPERATING SEGMENT
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Capital
(a)
Beginning in the third quarter of 2017, our Oil & Gas segment comprises 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.

CORPORATE INFORMATION

GE’s Internet address at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page and 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.

6 2018 3Q FORM 10-Q


MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS

2018 REVENUES PERFORMANCE
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
Industrial Segment
(5
)%
 
2
 %
Industrial Segment Organic (Non-GAAP)
1
 %
 
(3
)%
Financial Services
3
 %
 
(6
)%
GE INDUSTRIAL ORDERS
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Orders
 
 
 
 
 
Equipment
$
15.9

$
14.0

 
$
44.2

$
40.1

Services
15.6

15.4

 
45.7

42.3

Total
$
31.4

$
29.3

 
$
89.9

$
82.4

GE INDUSTRIAL BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Backlog
 
 
Equipment
$
89.0

$
84.1

Services
289.9

272.2

Total
$
378.9

$
356.3

GE COSTS (GAAP) AND GE INDUSTRIAL STRUCTURAL COSTS (NON-GAAP)
 
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
GE total costs and expenses (GAAP)
$
50.4

$
30.0

 
$
104.4

$
81.0

GE Industrial structural costs (Non-GAAP)
5.7

6.1

 
17.5

19.0

GE INDUSTRIAL PROFIT MARGIN (GAAP) AND ADJUSTED GE INDUSTRIAL PROFIT MARGIN (NON-GAAP)
 
Three months ended September 30
 
Nine months ended September 30
 
2018

2017

 
2018

2017

 
 
 
 
 
 
GE Industrial profit margin (GAAP)
(83.0
)%
3.3
%
 
(25.1
)%
2.9
%
Adjusted GE Industrial profit margin (Non-GAAP)
8.1
 %
9.9
%
 
9.6
 %
10.5
%
EARNINGS
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In billions; per-share amounts in dollars; attributable to GE common shareowners)
2018

2017

 
2018

2017

 
 
 
 
 
 
Continuing earnings (loss) (GAAP)
$
(22.8
)
$
1.4

 
$
(21.7
)
$
2.6

Net earnings (loss) (GAAP)
(22.8
)
1.3

 
(23.4
)
2.1

Adjusted earnings (loss) (Non-GAAP)
1.2

1.8

 
4.2

4.9

 
 
 
 
 
 
Continuing earnings (loss) per share (GAAP)
$
(2.63
)
$
0.16

 
$
(2.50
)
$
0.29

Net earnings (loss) per share (GAAP)
(2.62
)
0.15

 
(2.69
)
0.24

Adjusted earnings (loss) per share (Non-GAAP)
0.14

0.21

 
0.49

0.56

GE CFOA (GAAP) AND GE INDUSTRIAL AND ADJUSTED GE INDUSTRIAL FREE CASH FLOWS (NON-GAAP)
 
Nine months ended September 30
(In billions)
2018

2017

 
 
 
GE CFOA (GAAP)
$
(4.1
)
$
4.1

GE Industrial free cash flows (Non-GAAP)
(0.7
)
(1.9
)
Adjusted GE Industrial free cash flows (Non-GAAP)
(0.3
)
(1.2
)

2018 3Q FORM 10-Q 7


MD&A
CONSOLIDATED RESULTS
 

CONSOLIDATED RESULTS

2018 SIGNIFICANT DEVELOPMENTS

During the third quarter of 2018, we recognized a non-cash pre-tax goodwill impairment charge of $22.0 billion related to our Power Generation and Grid Solutions businesses within our Power segment. See Note 8 to the consolidated financial statements for further information.
On October 30, 2018 we announced plans to reduce our quarterly dividend from $0.12 cents to $0.01 cent per share beginning with the Board’s next dividend declaration, which is expected to occur in December 2018. This change will allow us to retain approximately $3.9 billion of cash per year compared to the prior payout level.
On October 1, 2018, we announced that H. Lawrence Culp, Jr. was named Chairman and Chief Executive Officer (CEO), succeeding John L. Flannery, effective September 30, 2018. Additionally, Thomas W. Horton was elected as lead director, succeeding Mr. Culp, effective that same date.
On July 26, 2018, we announced that Jan R. Hauser, GE's Vice President, Controller and Chief Accounting Officer, had communicated her intention to retire from GE. Thomas S. Timko, formerly the Chief Accounting Officer of General Motors Company, was appointed as her successor, effective September 10, 2018.

ANNOUNCED TRANSACTIONS

In April 2018, we announced an agreement to sell our Enterprise Financial Management, Ambulatory Care Management and Workforce Management assets, comprising our Healthcare segment’s Value-Based Care Division, to Veritas Capital, a private equity investment firm, for net proceeds of approximately $1.0 billion in cash. This transaction closed on July 10, 2018 and resulted in the recognition of a pre-tax gain of approximately $0.7 billion in the third quarter of 2018.
In May 2018, we announced an agreement to merge our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. Under the agreement, which has been approved by the Boards of Directors of Wabtec and GE, GE will receive $2.9 billion in cash at closing, and GE and its shareholders will receive a 50.1% ownership interest in the combined company, with GE holding 9.9% and GE shareholders holding the remaining 40.2%. Wabtec shareholders will retain 49.9% of the combined company. The deal is expected to close in early 2019, subject to customary closing conditions and regulatory approval.
In June 2018, we announced an agreement to sell our Distributed Power business within our Power segment to Advent International, a global private equity investor, for $3.3 billion. The deal is expected to close by the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.
In June 2018, we announced the results of our strategic review and our intention to focus on our Power, Renewable Energy and Aviation businesses. We plan to separate GE Healthcare into a standalone company over the next 12 to 18 months, pursue an orderly separation from BHGE over the next two to three years and substantially reduce GE Industrial net debt*. In addition, we announced our plan for a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance, a move which is expected to generate at least $500 million in corporate savings by the end of 2020. While we announced the strategic portfolio actions for Transportation, GE Healthcare and BHGE, these businesses have not met the accounting criteria for held for sale classification. That classification will depend on the nature and timing of the transaction.
In August 2018, we announced an agreement to sell Energy Financial Services' (EFS) debt origination business within our Capital segment for proceeds of approximately $2.0 billion to Starwood Property Trust, Inc., an affiliate of a leading global private investment firm, Starwood Capital Group. In September 2018, we completed the sale and recognized a pre-tax gain of approximately $0.3 billion in the third quarter of 2018. In addition, we completed the sale of various EFS equity investments and recognized a pre-tax gain of approximately $0.2 billion in the third quarter of 2018.
In September 2018, we announced an agreement to sell our Middle River Aircraft Systems business within our Aviation segment to Singapore Technologies Engineering, a global technology, defense and engineering group, for $0.6 billion. The deal is expected to close early 2019, subject to customary closing conditions and regulatory approvals.
In October 2018, we announced an agreement to sell a portfolio of approximately $1.0 billion, including certain assumed obligations, of predominately equity investments in energy assets to Apollo Global Management, LLC. This EFS portfolio within our Capital segment comprises investments in renewable energy, contracted natural gas-fired generation and midstream energy infrastructure assets, primarily in the U.S. The deal is expected to close in the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.


*Non-GAAP Financial Measure

8 2018 3Q FORM 10-Q


MD&A
CONSOLIDATED RESULTS
 

THIRD QUARTER 2018 RESULTS
Consolidated revenues were $29.6 billion, down $1.1 billion, or 4%, for the quarter. The decline in revenues was largely a result of the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Industrial segment organic revenues* increased $0.3 billion driven principally by our Aviation, Renewable Energy, Oil & Gas and Healthcare segments, partially offset by our Power, Lighting and Transportation segments.

Continuing earnings per share was $(2.63) primarily due to non-cash after-tax impairment charges of $22.2 billion related to goodwill in our Power Generation and Grid Solutions businesses, as well as decreased net gains on business dispositions of $1.7 billion and decreased industrial segment profit of $0.6 billion. Excluding the goodwill impairment charge and other items, Adjusted earnings per share* was $0.14.
 
As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry, lower market penetration as well as the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges. Finally, market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. These conditions have resulted in downward revisions of our forecasts on current and future projected earnings and cash flows at these businesses. As a result, during the third quarter, we recorded our best estimate of a non-cash pre-tax impairment loss of $22.0 billion related to goodwill in our Power Generation and Grid Solutions businesses. Included in this amount is a non-cash impairment loss of $0.8 billion related to goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power Generation and Grid Solutions reporting units. The aforementioned charges were all recorded at Corporate. See the Corporate Items and Eliminations section within this MD&A and Note 8 to the consolidated financial statements for further information.

For the three months ended September 30, 2018, GE Industrial loss was $22.8 billion and GE Industrial profit margins were (83.0)%, down $23.8 billion, driven by increased non-cash goodwill impairment charges of $21.0 billion, decreased net gains from disposed or held for sale businesses of $1.7 billion, increased restructuring and other costs of $0.4 billion, including non-cash intangible asset and property, plant and equipment impairment charges at our Power Conversion business of $0.6 billion, and unrealized losses on investments of $0.1 billion, partially offset by decreased adjusted Corporate operating costs* of $0.2 billion. Industrial segment profit decreased $0.6 billion, or 21%, primarily due to lower results within our Power and Renewable Energy segments, partially offset by the performance of our Aviation, Oil & Gas, Transportation, Healthcare and Lighting segments.

GE CFOA was $(4.1) billion and $4.1 billion for the nine months ended September 30, 2018 and 2017, respectively. The decline in GE CFOA is primarily due to GE Pension Plan contributions of $6.0 billion in 2018, compared to $1.4 billion in 2017 as well as a $4.0 billion decrease in common dividends from GE Capital. GE did not receive a common dividend distribution from GE Capital in 2018, and it does not expect to receive such dividend distributions from GE Capital for the foreseeable future. Refer to the GE Cash Flows section within this MD&A for further information.






















*Non-GAAP Financial Measure

2018 3Q FORM 10-Q 9


MD&A
CONSOLIDATED RESULTS
 

REVENUES
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Consolidated revenues
$
29.6

$
30.7

 
$
88.3

$
86.6

 
 
 
 
 
 
Industrial segment revenues(a)
27.8

29.2

 
83.8

82.0

Corporate items and Industrial eliminations
(0.3
)
(0.4
)
 
(1.4
)
(1.3
)
GE Industrial revenues(a)
$
27.5

$
28.8

 
$
82.4

$
80.7

 
 
 
 
 
 
Financial services revenues
$
2.5

$
2.4

 
$
7.1

$
7.5

(a)
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.
COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30

Consolidated revenues decreased $1.1 billion, or 4%, primarily driven by decreased industrial segment revenues of $1.4 billion, partially offset by an increase in Financial Services revenues of $0.1 billion. The overall impact of foreign currency movements on consolidated revenues was a decrease of $0.3 billion. Below are descriptions of the components:
GE Industrial revenues decreased $1.3 billion, or 5%.
Industrial segment revenues decreased $1.4 billion, or 5%, as decreases at Power, Lighting and Transportation were partially offset by increases at Aviation, Renewable Energy and Oil & Gas. This decrease was driven by the net effects of dispositions of $1.4 billion, primarily attributable to the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, and the effects of a stronger U.S. dollar of $0.3 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $0.3 billion.
Financial Services revenues increased $0.1 billion, or 3%, primarily due to higher gains and lower impairments, partially offset by volume declines.
COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30

Consolidated revenues increased $1.7 billion, or 2%, primarily driven by increased industrial segment revenues of $1.9 billion, partially offset by decreased Financial Services revenues of $0.5 billion. The overall impact of foreign currency movements on consolidated revenues was an increase of $1.1 billion. Below are descriptions of the components:
GE Industrial revenues increased $1.7 billion, or 2%.
Industrial segment revenues increased $1.9 billion, or 2%, as increases at Oil & Gas, Aviation and Healthcare were partially offset by decreases at Power, Renewable Energy, Transportation and Lighting. This increase was driven by the net effects of acquisitions of $5.5 billion, primarily attributable to Baker Hughes through the first half of 2018, and the effects of a weaker U.S. dollar of $1.1 billion, partially offset by the net effects of dispositions of $2.5 billion, primarily attributable to the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* decreased $2.3 billion.
Financial Services revenues decreased $0.5 billion, or 6%, primarily due to volume declines and lower gains, partially offset by lower impairments.













*Non-GAAP Financial Measure


10 2018 3Q FORM 10-Q


MD&A
CONSOLIDATED RESULTS
 

EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In billions; per-share amounts in dollars; attributable to GE common shareowners)
2018

2017

 
2018

2017

 
 
 
 
 
 
Continuing earnings(a)
$
(22.8
)
$
1.4

 
$
(21.7
)
$
2.6

 
 
 
 
 
 
Continuing earnings per share
$
(2.63
)
$
0.16

 
$
(2.50
)
$
0.29

(a)    Also referred to as "Earnings 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.
COMMENTARY: THREE MONTHS ENDED SEPTEMBER 30
Consolidated continuing earnings decreased $24.3 billion due to increased goodwill impairment charges of $21.0 billion, decreased GE Industrial continuing earnings of $2.6 billion, increased provision for GE Industrial income taxes of $0.5 billion and increased non-operating benefit costs of $0.2 billion, partially offset by decreased interest and other financial charges of $0.1 billion. The increase in income tax provision was driven by a $0.2 billion tax charge during the third quarter related to goodwill impairment, including a $0.4 billion charge related to an increase in the deferred tax valuation allowance of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business. Below are descriptions of the components:
GE Industrial earnings decreased $2.6 billion, or 77%.
Corporate items and eliminations decreased $2.0 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $1.7 billion, increased restructuring and other costs of $0.4 billion, including non-cash intangible asset and property, plant and equipment impairment charges at our Power Conversion business of $0.6 billion, and unrealized losses on investments of $0.1 billion, partially offset by decreased adjusted Corporate operating costs* of $0.2 billion.
Industrial segment profit decreased $0.6 billion, or 21%, with decreases at Power and Renewable Energy, partially offset by higher profit at Aviation, Oil & Gas, Transportation, Healthcare and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.2 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, partially offset by lower restructuring and business development costs related to Baker Hughes of $0.2 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.6 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services earnings decreased slightly, primarily due to volume declines offset by higher gains associated with the sale of EFS' debt origination business and equity investments.
COMMENTARY: NINE MONTHS ENDED SEPTEMBER 30
Consolidated continuing earnings decreased $24.3 billion due to increased goodwill impairment charges of $21.0 billion, decreased GE Industrial continuing earnings of $1.7 billion and increased provision for GE Industrial income taxes of $0.9 billion driven by a $0.2 billion tax charge during the second quarter related to the planned separation of our Healthcare segment and a $0.2 billion tax charge during the third quarter related to goodwill impairment, including a $0.4 billion charge related to an increase in the deferred tax valuation allowance of our non-U.S. operations as a result of lower forecasted operating earnings in our Power business. Continuing earnings also declined due to increased non-operating benefit costs of $0.4 billion, increased Financial Services losses of $0.2 billion and increased interest and other financial charges of $0.1 billion. Below are descriptions of the components:
GE Industrial earnings decreased $1.7 billion, or 23%.
Corporate items and eliminations decreased $0.4 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $1.4 billion, partially offset by decreased restructuring and other costs of $0.4 billion, decreased adjusted Corporate operating costs* of $0.4 billion as well as unrealized gains on investments of $0.2 billion.
Industrial segment profit decreased $1.3 billion, or 14%, with decreases at Power, Renewable Energy and Oil & Gas, partially offset by higher profit at Aviation, Healthcare, Transportation and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.3 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, and higher restructuring and business development costs related to Baker Hughes of $0.3 billion, partially offset by the net effects of acquisitions $0.3 billion, largely associated with Baker Hughes through the first half of the year. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $1.0 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services losses increased $0.2 billion primarily due to higher impairments primarily at EFS related to its renewables and oil and gas investments, and volume declines including costs associated with calling debt and lower base earnings including a loss related to updates to the U.S. tax reform impact on energy investments, partially offset by higher gains associated with the sale of EFS’ debt origination business and equity investments and lower corporate and restructuring costs.

*Non-GAAP Financial Measure

2018 3Q FORM 10-Q 11


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 $0.9 billion for the three months ended September 30, 2018, a decrease of $0.1 billion or 6% compared to revenues of $1.0 billion for the three months ended September 30, 2017. The decrease was primarily driven by Healthcare.

Revenues were $2.9 billion for the nine months ended September 30, 2018, an increase of $0.1 billion or 2% compared to revenues of $2.8 billion for the nine months ended September 30, 2017. The increase was primarily driven by Oil & Gas and Transportation, offset by decreases in Power and Healthcare.

Orders were $1.0 billion for three months ended September 30, 2018 a decrease of 29%, compared to orders of $1.4 billion for the three months ended September 30, 2017. The decrease was primarily driven by Oil & Gas, Transportation, Healthcare and non-GE Verticals.

Orders were $3.0 billion for the nine months ended September 30, 2018, a decrease of 19% compared to orders of $3.7 billion for the nine months ended September 30, 2017. Decreases in Transportation, Power, Oil & Gas and Healthcare were offset by increases in Transportation and Renewable Energy.

During the quarter, a goodwill impairment loss of $0.8 billion was recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power Generation and Grid Solutions reporting units. We recorded the estimated impairment losses in the caption "Goodwill impairment" in our consolidated Statement of Earnings (Loss).

12 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS
 

SEGMENT OPERATIONS

RECONCILIATION OF INDUSTRIAL BACKLOG TO REMAINING PERFORMANCE OBLIGATION
 
September 30, 2018
(In billions)
Equipment

Services

Total

 
 
 
 
Backlog
$
89.0

$
289.9

$
378.9

Adjustments
(37.4
)
(92.3
)
(129.8
)
Remaining Performance Obligation
$
51.6

$
197.6

$
249.2


Backlog represents unfilled customer orders for products and product services (expected life of contract sales for product services). Remaining performance obligation is a defined term under GAAP and represents backlog excluding any purchase orders that provide the customer with the ability to cancel or terminate without incurring a substantive penalty, even if the likelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders.

Adjustments to reported backlog are largely driven by the Aviation business: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable. We have included these in backlog as our historical experience has shown no net cancellations, as any canceled engines are typically moved by the airframer to other program customers; (2) our services backlog includes contracts that are cancelable without substantial penalty, primarily time and materials contracts; (3) backlog includes engines contracted under long-term service agreements, even if the engines have not yet been put into service. These adjustments to reported backlog are expected to be satisfied beyond one year. See Note 9 to the consolidated financial statements for further information.

REVENUES AND PROFIT

Segment revenues include sales of products and services 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 other than those applied retrospectively. 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, non-operating benefit costs, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:

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

Other income is included in segment profit for the industrial segments.

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.

2018 3Q FORM 10-Q 13


MD&A
SEGMENT OPERATIONS
 

SUMMARY OF OPERATING SEGMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
(In millions)
2018

2017

V%

 
2018

2017

V%

 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Power
$
5,739

$
8,527

(33)
 %
 
$
20,540

$
25,868

(21
)%
Renewable Energy
2,873

2,507

15
 %
 
6,172

6,587

(6
)%
Aviation
7,480

6,696

12
 %
 
22,111

20,003

11
 %
Oil & Gas
5,670

5,311

7
 %
 
16,609

11,394

46
 %
Healthcare
4,707

4,710

 %
 
14,387

13,703

5
 %
Transportation
932

949

(2)
 %
 
2,746

3,006

(9
)%
Lighting
385

472

(18)
 %
 
1,272

1,407

(10
)%
      Total industrial segment revenues
27,785

29,171

(5)
 %
 
83,837

81,967

2
 %
Capital
2,473

2,397

3
 %
 
7,075

7,525

(6
)%
      Total segment revenues
30,258

31,569

(4)
 %
 
90,912

89,491

2
 %
Corporate items and eliminations
(685
)
(907
)
24
 %
 
(2,575
)
(2,851
)
10
 %
Consolidated revenues
$
29,573

$
30,662

(4)
 %
 
$
88,337

$
86,640

2
 %
 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
 
 
 
 
 
Power
$
(631
)
$
464

U

 
$
64

$
1,896

(97
)%
Renewable Energy
60

217

(72)
 %
 
220

445

(51
)%
Aviation
1,665

1,335

25
 %
 
4,743

3,982

19
 %
Oil & Gas(a)
180

(57
)
F

 
110

322

(66
)%
Healthcare
861

847

2
 %
 
2,522

2,335

8
 %
Transportation
162

141

15
 %
 
448

420

7
 %
Lighting
26

14

86
 %
 
52

41

27
 %
      Total industrial segment profit
2,325

2,961

(21)
 %
 
8,157

9,441

(14
)%
Capital
19

24

(21)
 %
 
(403
)
(195
)
U

      Total segment profit (loss)
2,344

2,985

(21)
 %
 
7,753

9,246

(16
)%
Corporate items and eliminations
(1,546
)
439

U

 
(2,507
)
(2,083
)
(20
)%
Goodwill impairment
(21,973
)
(947
)
U

 
(21,973
)
(947
)
U

GE interest and other financial charges
(662
)
(718
)
8
 %
 
(1,995
)
(1,918
)
(4
)%
GE non-operating benefit costs
(804
)
(610
)
(32)
 %
 
(2,178
)
(1,811
)
(20
)%
GE benefit (provision) for income taxes
(205
)
281

U

 
(842
)
93

U

Earnings (loss) from continuing operations attributable
   to GE common shareowners
(22,847
)
1,429

U

 
(21,742
)
2,579

U

Earnings (loss) from discontinued operations, net of taxes
39

(106
)
F

 
(1,634
)
(490
)
U

   Less net earnings attributable to
 
 
 
 
 
 
 
      noncontrolling interests, discontinued operations

(1
)
F

 

6

U

Earnings (loss) from discontinued operations,
 
 
 
 
 
 
 
   net of tax and noncontrolling interest
39

(105
)
F

 
(1,634
)
(497
)
U

Consolidated net earnings (loss)
attributable to the GE common shareowners
$
(22,808
)
$
1,324

U

 
$
(23,376
)
$
2,082

U

(a)
Oil & Gas segment profit excluding restructuring and other charges* was $247 million and $210 million for the three months ended September 30, 2018 and 2017, respectively, and $650 million and $590 million for the nine months ended September 30, 2018 and 2017, respectively.
 








*Non-GAAP Financial Measure

14 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | POWER

gear1710kpowera13.jpg POWER

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Gas Power Systems(a)
$
1.0

$
2.0

 
$
3.9

$
6.2

Power Services
2.7

2.9

 
8.7

9.1

Steam Power Systems
0.4

0.6

 
1.4

1.5

Energy Connections(b)
1.5

2.4

 
6.0

7.1

Other(c)
0.1

0.7

 
0.5

2.0

Total segment revenues
$
5.7

$
8.5

 
$
20.5

$
25.9

(a) Includes Distributed Power
(b) Includes Grid Solutions, Power Conversion and Automation & Controls. Includes Industrial Solutions through its disposition.
(c) Includes Water & Process Technologies and GE Hitachi Nuclear

ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
3.3

$
3.9

 
$
9.0

$
12.6

Services
3.4

4.2

 
10.5

13.3

Total
$
6.6

$
8.1

 
$
19.5

$
25.9

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
25.0

$
26.1

Services
68.7

73.3

Total
$
93.7

$
99.5


UNIT SALES
 
 
 
 
 
 



3Q 2018

3Q 2017

V

YTD 2018

YTD 2017

V

Gas Turbines
9

22

(13
)
28

63

(35
)

2018 3Q FORM 10-Q 15


MD&A
SEGMENT OPERATIONS | POWER

FINANCIAL OVERVIEW
SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
2.3

$
4.5

 
$
9.3

$
13.3

Services
3.4

4.1

 
11.2

12.6

Total
$
5.7

$
8.5

 
$
20.5

$
25.9

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
(0.6
)
$
0.5

 
$
0.1

$
1.9

Segment profit margin
(11.0
)%
5.4
%
 
0.3
%
7.3
%

20182017 COMMENTARY

As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry, lower market penetration as well as uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges. Finally, market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. These conditions have resulted in downward revisions of our forecasts on current and future projected earnings and cash flows at these businesses.

During the third quarter of 2018, Gas Power Systems recorded a $0.2 billion pre-tax charge related to an oxidation issue within the HA and 9FB Stage 1 turbine blades, resulting in increased warranty and maintenance reserves. In addition, Power recognized pre-tax charges of approximately $0.4 billion associated with an increase in issues on our existing projects driven by execution as well as partner and customer challenges.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $2.8 billion (33%);
Segment profit down $1.1 billion:
Equipment revenues decreased primarily at Gas Power Systems due to lower unit sales, including seven fewer aeroderivative units and 13 fewer gas turbines, as well as the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Services revenues decreased primarily due to the absence of Water and Industrial Solutions, partially offset by three more AGP upgrades. Revenues also decreased due to price pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to negative variable cost productivity driven by warranty and project cost updates as well as liquidated damages recognized by Gas Power Systems, lower volume including the absence of Water and Industrial Solutions, lower prices and negative mix in our long-term service contracts compared to the prior year. These decreases were partially offset by favorable business mix and cost reduction efforts, excluding the effects of acquisition and disposition activity and foreign exchange.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $5.3 billion (21%);
Segment profit down $1.8 billion (97%):
Equipment revenues decreased primarily at Gas Power Systems due to lower unit sales, including 28 fewer aeroderivative units and 35 fewer gas turbines and 18 fewer Heat Recovery Steam Generators, as well as the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Services revenues decreased primarily due to the absence of Water and Industrial Solutions as well as 22 fewer AGP upgrades. Revenues also decreased due to price pressure, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The decrease in profit was due to negative variable cost productivity driven by warranty and project cost updates as well as liquidated damages recognized by Gas Power Systems, lower volume including the absence of Water and Industrial Solutions, lower prices and negative mix in our long-term service contracts compared to the prior year. These decreases were partially offset by favorable business mix and cost reduction efforts, excluding the effects of acquisition and disposition activity and foreign exchange.

*Non-GAAP Financial Measure

16 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

gear1710krenewableenergya10.jpg RENEWABLE ENERGY

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Onshore Wind
$
2.6

$
2.2

 
$
5.2

$
5.8

Offshore Wind
0.1

0.1

 
0.4

0.2

Hydro
0.2

0.3

 
0.6

0.6

Total segment revenues
$
2.9

$
2.5

 
$
6.2

$
6.6


ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
1.7

$
2.2

 
$
4.9

$
5.7

Services
1.2

0.7

 
2.1

1.4

Total
$
2.9

$
3.0

 
$
7.0

$
7.1

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
8.1

$
7.2

Services
8.3

6.7

Total
$
16.3

$
14.0


UNIT SALES
 
 
 
 
 
 



3Q 2018

3Q 2017

V

YTD 2018

YTD 2017

V

Wind Turbines
952

637

315

1,655

1,895

(240
)



2018 3Q FORM 10-Q 17


MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY


FINANCIAL OVERVIEW

SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
2.4

$
2.0

 
$
4.8

$
5.4

Services
0.4

0.6

 
1.4

1.2

Total
$
2.9

$
2.5

 
$
6.2

$
6.6

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
0.1

$
0.2

 
$
0.2

$
0.4

Segment profit margin
2.1
%
8.7
%
 
3.6
%
6.8
%

20182017 COMMENTARY

The renewable energy market remains competitive, particularly in onshore wind. The onshore wind market continues to experience megawatt growth as customer preference has shifted from 1.X models to larger, more efficient units. However, overcapacity in the industry, the move to auctions in international markets and U.S. tax reform contributed to continued pricing pressure in the first nine months of 2018. In addition, uncertainty at the end of 2017 related to the impact of U.S. tax reform resulted in a temporary delay in project work during the year. From the third quarter of 2018 onward, we expect project build and shipments to increase in anticipation of the expiration of Production Tax Credits (PTCs) in the U.S. at 100% value in 2020.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $0.4 billion (15%);
Segment profit down $0.2 billion (72%):
Equipment volume increased due to 315 more wind turbine shipments on a unit basis, or 70% more megawatts shipped, than in the prior year. Services volume decreased due to 177 fewer repower units at Onshore Wind driven by project delays as a result of uncertainty related to the impact of U.S. tax reform. Revenues also decreased due to pricing pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was primarily due to pricing pressure in Onshore Wind and negative variable cost productivity, partially offset by cost-out actions, materials deflation and increased equipment volume.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $0.4 billion (6%);
Segment profit down $0.2 billion (51%):
Equipment volume decreased due to 240 fewer wind turbine shipments on a unit basis, despite 1% more megawatts shipped, than in the prior year. Services volume increased due to larger installed base resulting in increased contractual revenues, partially offset by 18 fewer repower units at Onshore Wind than in the prior year. Revenues also increased due to the acquisition of LM Wind in April 2017, which contributed $0.1 billion of inorganic revenue growth in the first half of 2018, and the effects of a weaker U.S. dollar versus certain currencies, partially offset by pricing pressure.
The decrease in profit was due to pricing pressure, partially offset by materials deflation.


18 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | AVIATION

gear1710kaviationa09.jpg AVIATION

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(Dollars in billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Commercial Engines & Services
$
5.6

$
4.8

 
$
16.4

$
14.7

Military
0.9

1.0

 
2.9

2.9

Systems & Other
0.9

0.8

 
2.7

2.4

Total segment revenues
$
7.5

$
6.7

 
$
22.1

$
20.0


ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
4.1

$
2.2

 
$
11.8

$
7.7

Services
5.1

4.5

 
15.0

13.6

Total
$
9.1

$
6.7

 
$
26.8

$
21.3

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
37.8

$
34.7

Services
173.1

153.1

Total
$
210.9

$
187.8


UNIT SALES
 
 
 
 
 
 
 
3Q 2018

3Q 2017

V

YTD 2018

YTD 2017

V

Commercial Engines
714

641

73

2,062

1,895

167

LEAP Engines(a)
303

111

192

739

257

482

Military Engines
160

145

15

502

402

100

Spares Rate(b)
$
28.0

$
23.2

$
4.8

$
26.6

$
22.2

$
4.4

(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



2018 3Q FORM 10-Q 19


MD&A
SEGMENT OPERATIONS | AVIATION


FINANCIAL OVERVIEW

SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
2.8

$
2.4

 
$
8.3

$
7.4

Services
4.6

4.3

 
13.8

12.6

Total
$
7.5

$
6.7

 
$
22.1

$
20.0

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
1.7

$
1.3

 
$
4.7

$
4.0

Segment profit margin
22.3
%
19.9
%
 
21.5
%
19.9
%

20182017 COMMENTARY

Global passenger air travel continued to grow with revenue passenger kilometers (RPK) growth outpacing the five-year average and demand exceeding capacity. Industry-load factors remained above 80%(a). Air freight volume also increased, particularly in international markets. Freight capacity additions slightly exceeded freight volume growth during the year.

We shipped 739 LEAP engines in the first nine months of the year and remain on track to ship 1,100-1,200 engines in 2018.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $0.8 billion (12%);
Segment profit up $0.3 billion (25%):
Equipment revenues increased primarily due to 73 more commercial units, including 192 more LEAP units partially offset by lower commercial legacy output including the CFM product line, versus the prior year. Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price.
The increase in profit was mainly due to product and structural cost productivity, increased price, and higher spare engine shipments. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin and lower military spare parts sales.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $2.1 billion (11%);
Segment profit up $0.8 billion (19%):
Equipment revenues increased primarily due to 100 more military engine shipments and 167 more commercial units, including 482 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM and GE90 product lines. Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price.
The increase in profit was mainly due to increased volume, increased price, higher spare engine shipments and product and structural cost productivity. These increases were partially offset by an unfavorable business mix driven by negative LEAP margin as well as higher overhaul shop costs due to increased volume and mix.








(a)    Based on the latest available information from the International Air Transport Association

20 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | OIL & GAS

gear1710koilgasa12.jpg OIL & GAS

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Turbomachinery & Process Solutions (TPS)
$
1.4

$
1.4

 
$
4.2

$
4.7

Oilfield Services (OFS)
3.0

2.7

 
8.6

3.1

Oilfield Equipment (OFE)
0.6

0.6

 
1.9

2.0

Digital Solutions
0.7

0.6

 
1.9

1.6

Total segment revenues
$
5.7

$
5.3

 
$
16.6

$
11.4


ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
2.2

$
2.4

 
$
6.7

$
4.6

Services
3.5

3.3

 
10.3

6.8

Total
$
5.8

$
5.8

 
$
17.0

$
11.4

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Backlog
 
 
Equipment
$
5.3

$
5.8

Services
16.0

16.0

Total
$
21.3

$
21.8



2018 3Q FORM 10-Q 21


MD&A
SEGMENT OPERATIONS | OIL & GAS


FINANCIAL OVERVIEW

SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
2.2

$
2.2

 
$
6.6

$
4.7

Services
3.4

3.1

 
10.0

6.7

Total
$
5.7

$
5.3

 
$
16.6

$
11.4

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
0.2

$
(0.1
)
 
$
0.1

$
0.3

Segment profit margin
3.2
%
(1.1
)%
 
0.7
%
2.8
%

20182017 COMMENTARY

Stability in the oil and gas market since the second half of 2017 has led to continued improvements in activity. North American onshore rig count has continued to grow, and international rig count has also seen moderate increases. Offshore projects remain subject to increases in customer spending behavior, and final investment decisions on liquefied natural gas (LNG) projects are also expected to start in late 2018 as the market continues to be oversupplied.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $0.4 billion (7%);
Segment profit up $0.2 billion:
Services and equipment revenues increased primarily at OFS as a result of higher activity in North America and international markets. These increases were partially offset by the effects of a stronger U.S. dollar versus certain currencies.
The increase in profit was primarily driven by lower restructuring and other charges as well as synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated, partially offset by losses in equity of affiliates and the allocation to noncontrolling interests.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $5.2 billion (46%);
Segment profit down $0.2 billion (66%):
The Baker Hughes acquisition in July 2017 contributed $5.4 billion of revenue growth in the first half of 2018 compared to the first half of 2017. Legacy Oil & Gas equipment revenues decreased due to lower volume primarily at TPS and OFE as a result of lower opening backlog, while services revenues increased due to higher OFS activity in North America and international markets. These decreases were partially offset by the effects of a weaker U.S. dollar versus certain currencies in the first half of 2018.
The decrease in profit was primarily driven by restructuring and other charges and unfavorable business mix, partially offset by synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated.










*Non-GAAP Financial Measure

22 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | HEALTHCARE

gear1710khealthcarea13.jpg HEALTHCARE

OPERATIONAL OVERVIEW
SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Healthcare Systems
$
3.4

$
3.4

 
$
10.2

$
9.7

Life Sciences
1.1

1.1

 
3.5

3.3

Healthcare Digital
0.1

0.2

 
0.6

0.8

Total segment revenues
$
4.7

$
4.7

 
$
14.4

$
13.7


ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
3.1

$
3.0

 
$
8.9

$
8.5

Services
2.0

2.0

 
6.2

6.0

Total
$
5.1

$
5.1

 
$
15.1

$
14.6

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
6.2

$
6.1

Services
11.1

12.0

Total
$
17.3

$
18.1




















2018 3Q FORM 10-Q 23


MD&A
SEGMENT OPERATIONS | HEALTHCARE


FINANCIAL OVERVIEW
SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
2.7

$
2.6

 
$
8.1

$
7.6

Services
2.0

2.1

 
6.3

6.1

Total
$
4.7

$
4.7

 
$
14.4

$
13.7

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
0.9

$
0.8

 
$
2.5

$
2.3

Segment profit margin
18.3
%
18.0
%
 
17.5
%
17.0
%

20182017 COMMENTARY

The Healthcare Systems global market continues to expand at low single digit rates, driven by strength in emerging markets, as these economies continue to expand their population’s access to healthcare, and slower growth in developed markets. The Life Sciences market continues to be strong, with the Bioprocess market growing at a high single digit rate, driven by growth in biologic drugs, and the contrast agents market growing at low single digit rates.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues flat;
Segment profit up 2%:
Equipment revenues increased due to higher volume in Healthcare Systems attributable to global growth in Imaging and Ultrasound in both developed regions such as the U.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Contrast Imaging. These increases were offset by a decrease in services revenues due to the disposition of the Value-Based Care Division at the beginning of the third quarter of 2018 as well as price pressure at Healthcare Systems.
The increase in profit was primarily driven by cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions and higher volume. These increases were partially offset by price pressure at Healthcare Systems, investments in programs including Digital and Healthcare Systems new product introductions, the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences and the disposition of the Value-Based Care Division.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues up $0.7 billion (5%);
Segment profit up $0.2 billion (8%):
Services and equipment revenues increased due to higher volume in Healthcare Systems attributable to global growth in Imaging and Ultrasound in both developed regions such as the U.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences, driven by Bioprocess and Contrast Imaging. In addition, revenues increased due to the effects of a weaker U.S. dollar versus certain currencies, partially offset by price pressure at Healthcare Systems and the disposition of the Value-Based Care Division during the quarter.
The increase in profit was primarily driven by 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. These increases were partially offset by price pressure at Healthcare Systems, inflation, investments in programs including Digital and Healthcare Systems new product introductions, the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences and the disposition of the Value-Based Care Division.

24 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | TRANSPORTATION

gear1710ktransportationa10.jpg TRANSPORTATION

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Locomotives
$
0.1

$
0.3

 
$
0.5

$
1.1

Services
0.6

0.5

 
1.6

1.4

Mining
0.1

0.1

 
0.4

0.2

Other(a)
0.1

0.1

 
0.3

0.2

Total segment revenues
$
0.9

$
0.9

 
$
2.7

$
3.0

(a) Includes Marine, Stationary, Drilling and Digital

ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
1.4

$
0.2

 
$
2.6

$
1.0

Services
0.6

0.7

 
2.0

1.7

Total
$
2.0

$
0.9

 
$
4.6

$
2.7

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
6.4

$
4.0

Services
12.5

10.6

Total
$
18.8

$
14.6


UNIT SALES
 
 
 
 
 
 
 
3Q 2018

3Q 2017

V

YTD 2018

YTD 2017

V

Locomotives
40

77

(37
)
154

354

(200
)


2018 3Q FORM 10-Q 25


MD&A
SEGMENT OPERATIONS | TRANSPORTATION


FINANCIAL OVERVIEW

SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
0.2

$
0.4

 
$
0.8

$
1.4

Services
0.7

0.6

 
1.9

1.6

Total
$
0.9

$
0.9

 
$
2.7

$
3.0

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Six months ended June 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$
0.2

$
0.1

 
$
0.4

$
0.4

Segment profit margin
17.4
%
14.9
%
 
16.3
%
14.0
%

20182017 COMMENTARY

While the North American market has experienced some fleet overcapacity and constrained spending by the railroads limiting fleet expansion, there continue to be signs of improvement. North American carload volume increased 5.0% during the third quarter of 2018, driven primarily by an increase in intermodal traffic(a). With improving carload volume, the number of parked locomotives has also improved, decreasing 27% from the prior year.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues down 2%;
Segment profit up 15%:
Equipment volume decreased primarily driven by lower international locomotive shipments. This decrease was partially offset by growth in mining and an increase in services revenues as railroads are running their locomotives longer, and recently unparked locomotives tend to be older units in higher need of servicing and replacement parts, driving an increase in services volume and parts shipped.
The increase in profit was driven by favorable business mix from a higher proportion of services volume, partially offset by lower locomotive volume.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $0.3 billion (9%);
Segment profit up 7%:
Equipment volume decreased primarily driven by lower locomotive shipments. This decrease was partially offset by growth in mining and an increase in services revenues as railroads are running their locomotives longer, and recently unparked locomotives tend to be older units in higher need of servicing and replacement parts, driving an increase in services volume and parts shipped.
The increase in profit was driven by favorable business mix from a higher proportion of services and mining volume as well as lower spend driven by prior year restructuring, partially offset by lower locomotive volume.









(a)    Defined as when at least two modes of transportation are used to move freight.

26 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | LIGHTING

gear1710klightinga14.jpg LIGHTING

OPERATIONAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Current
$
0.2

$
0.3

 
$
0.7

$
0.7

GE Lighting
0.2

0.2

 
0.6

0.7

Total segment revenues
$
0.4

$
0.5

 
$
1.3

$
1.4


ORDERS
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Equipment
$
0.2

$
0.2

 
$
0.7

$
0.8

Services


 

0.1

Total
$
0.2

$
0.2

 
$
0.7

$
0.9

BACKLOG
 
(In billions)
September 30, 2018

September 30, 2017

 
 
 
Equipment
$
0.2

$
0.2

Services


Total
$
0.2

$
0.2














2018 3Q FORM 10-Q 27


MD&A
SEGMENT OPERATIONS | LIGHTING


FINANCIAL OVERVIEW
SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Revenues
 
 
 
 
 
Equipment
$
0.4

$
0.5

 
$
1.2

$
1.4

Services


 


Total
$
0.4

$
0.5

 
$
1.3

$
1.4

 
 
 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Segment profit
$

$

 
$
0.1

$

Segment profit margin
6.8
%
3.0
%
 
4.1
%
2.9
%

20182017 COMMENTARY

The traditional lighting market continued to decline in the nine months of 2018 with corresponding growth in LED lighting as the market shifts away from traditional lighting products in favor of more energy efficient, cost-saving options.

THREE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $0.1 billion (18%);
Segment profit up 86%:
Revenues decreased due to the disposition of our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business in the second quarter of 2018. Excluding the impact of these dispositions, equipment revenues decreased due to lower traditional lighting and solar sales and lower LED prices, partially offset by higher LED volume and Digital sales.   
The increase in profit was driven by savings from restructuring and decreased investment and controllable spending, partially offset by regional exits and lower prices.

NINE MONTHS ENDED SEPTEMBER 30:

Segment revenues down $0.1 billion (10%);
Segment profit up 27%:
Revenues decreased due to the disposition of our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business in the second quarter of 2018. Excluding the impact of these dispositions, equipment revenues increased due to higher LED volume and Digital sales, partially offset by lower traditional lighting and solar sales and lower LED prices. 
The increase in profit was driven by savings from restructuring and decreased investment and controllable spending, partially offset by regional exits and lower prices.


28 2018 3Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | CAPITAL

gear1710kcapitala08.jpg CAPITAL

OPERATIONAL AND FINANCIAL OVERVIEW

SUB-SEGMENT REVENUES
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
GECAS
$
1.2

$
1.2

 
$
3.6

$
3.9

EFS
0.3


 
0.2

0.2

Industrial Finance and WCS(a)
0.3

0.4

 
1.0

1.1

Insurance
0.7

0.7

 
2.2

2.2

Other continuing operations
(0.1
)

 


Total segment revenues
$
2.5

$
2.4

 
$
7.1

$
7.5

(a)
In the second quarter of 2018, management of our Working Capital Solutions (WCS) business was transferred to our Treasury operations.
SEGMENT PROFIT(a)
Three months ended September 30
 
Nine months ended September 30
(In billions)
2018

2017

 
2018

2017

 
 
 
 
 
 
Profit
$

$