10-K 1 ge10-k2018.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, 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
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 every Interactive Data File required to be submitted 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 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 $116.2 billion. There were 8,705,080,100 shares of voting common stock with a par value of $0.06 outstanding at January 31, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners, to be held May 8, 2019, is incorporated by reference into Part III to the extent described therein.



TABLE OF CONTENTS
 
Page
 
 
Forward-Looking Statements
About General Electric
Capital Resources and Liquidity
Non-GAAP Financial Measures
Risk Factors
Management and Auditor's Reports
Directors, Executive Officers and Corporate Governance
Exhibits and Financial Statement Schedules
Form 10-K Cross Reference Index




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 the planned sale of our BioPharma business within our Healthcare segment and plans to exit our equity ownership positions in Baker Hughes, a GE company (BHGE) and Wabtec, and the expected benefits to GE; our strategy and plans for the remaining portion of our Healthcare business, and the characteristics of that business in the future; capital allocation plans; GE’s and GE Capital’s capital structure, liquidity and access to funding; our de-leveraging plans, including leverage ratios and targets, the timing and nature of specific actions to reduce indebtedness, credit ratings and credit outlooks; divestiture proceeds expectations; future charges and capital contributions that may be required in connection with GE Capital’s run-off insurance operations or other 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; future business growth and productivity gains; profit margins; the benefits of restructuring and other transformational internal actions; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; tax rates; 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, announced GE Industrial and GE Capital business or asset dispositions or other transactions, including the planned sale of our BioPharma business within our Healthcare segment and plans to exit our equity ownership positions in BHGE and Wabtec, the timing of closing for those transactions and the expected proceeds and benefits to GE;
our strategy and plans for the remaining portion of our Healthcare business, including the structure, form, timing and nature of potential actions with respect to that business in the future and the characteristics of the business going forward;
our capital allocation plans, as such plans may change including with respect to de-leveraging actions, the timing and amount of GE dividends, organic investments, and other priorities;
further downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our liquidity, funding profile, costs and competitive position;
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;
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, strategic actions that we may pursue, WMC-related claims, liabilities and payments, 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;
customer actions or market developments such as secular and cyclical pressures in our Power business, pricing pressures in the renewable energy market, 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;
operational execution by our businesses, including our ability to improve the operations and execution of our Power business, and the continued strength of our Aviation business;
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;
our decisions about investments in new products, services and platforms, and our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of operational changes, restructuring and other cost reduction measures;
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;
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 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 2018 FORM 10-K 3


ABOUT GENERAL ELECTRIC
 

geicon.jpgABOUT GENERAL ELECTRIC
We are a leading global high-tech industrial company. 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 283,000 people worldwide. Manufacturing operations are carried out at 162 manufacturing plants located in 34 states in the United States and Puerto Rico and at 297 manufacturing plants located in 41 other countries. 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
gepower20.jpg
Power
geoilgas10k.jpg
Oil & Gas
gelighting10k.jpg
Lighting
gerenewable.jpg
Renewable Energy
gehealthcare10k.jpg
Healthcare
 
 
geaviation.jpg
Aviation
getransportation10k.jpg
Transportation
 
 

OUR FINANCIAL SERVICES OPERATING SEGMENT
gecapital10k.jpg
Capital

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.

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. In particular, Power markets have been particularly challenging as significant overcapacity in the industry has resulted in decreased utilization of our power equipment, lower market penetration, increased price concessions, uncertain timing of deal closures due to financing and the complexities of working in emerging markets as well as increasing energy efficiency and renewable energy penetration. See the Power segment section within MD&A for further information.

At year-end 2018, General Electric Company and consolidated affiliates employed approximately 283,000 people, of whom approximately 97,000 were employed in the United States.

Approximately 9,900 GE and GE affiliate manufacturing and service employees in the United States are represented for collective bargaining purposes by a union. 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, GE negotiated four-year collective bargaining agreements with most of its U.S. unions (including the IUE-CWA) and these agreements are scheduled to terminate in June 2019. GE will hold negotiations to enter into new agreements that month. While the outcome of the 2019 negotiations cannot be predicted, GE’s recent past negotiations have resulted in agreements that provide employees with good wages and benefits while addressing the competitive realities facing GE.

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 2018 FORM 10-K 4



ABOUT GENERAL ELECTRIC
 

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 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
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 are prepared in conformity with U.S. generally accepted accounting principles (GAAP).

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 GE 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 50.4% 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 49.6% 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.


GE 2018 FORM 10-K 5



MD&A
 
 

ORGANIC
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 as of the third quarter of 2018.

ROUNDING
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
FINANCIAL TERMS
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 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 attributable to GE common shareowners” as net earnings.
Net earnings (loss) 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-GAAP Financial MeasuresIn 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 GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial measures section within this MD&A for reconciliations.
Segment profit – refers to the profit of the industrial segments, which includes other income, 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.
OPERATIONAL TERMS
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.
Global Growth Organization (GGO) – The GGO provides leadership in global markets, particularly within emerging and developing markets. 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.
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.
Orders, backlog and remaining performance obligation (RPO) – orders are contractual commitments with customers to provide specified goods or services for an agreed upon price. 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.
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. See Revenues from Services section within Note 1 to the consolidated financial statements for further information.
Services – for purposes of the financial statement display of sales and costs of sales in our consolidated 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.

GE 2018 FORM 10-K 6



MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS
REVENUES PERFORMANCE
2018 versus 2017

2017 versus 2016

Industrial Segment (GAAP)
2
%
1
 %
Industrial Segment Organic (Non-GAAP)
%
(2
)%
GE INDUSTRIAL ORDERS AND BACKLOG (In billions)
2018

2017

2016

Orders
 
 
 
Equipment
$
61.9

$
57.7

$
54.9

Services(a)
62.1

59.1

54.8

Total
$
124.0

$
116.8

$
109.7

 
 
 
 
Backlog
 
 
 
Equipment
$
88.8

$
85.1

$
83.9

Services(a)
302.2

286.6

264.0

Total
$
391.0

$
371.7

$
347.9

(a)    Includes spare parts.
GE INDUSTRIAL COSTS (In billions)
2018

2017

2016

GE total costs and expenses (GAAP)
$
135.7

$
111.7

$
105.8

GE Industrial structural costs (Non-GAAP)
$
23.7

$
25.2

$
25.0

GE INDUSTRIAL PROFIT MARGIN
2018

2017

2016

GE Industrial profit margin (GAAP)
(17.4
)%
1.3
%
8.2
%
Adjusted GE Industrial profit margin (Non-GAAP)
9.0
 %
10.1
%
12.5
%
EARNINGS (In billions; per-share in dollars and diluted)
2018

2017

2016

Continuing earnings (loss) (GAAP)
$
(21.1
)
$
(8.6
)
$
7.8

Net earnings (loss) (GAAP)
(22.8
)
(8.9
)
6.8

Adjusted earnings (loss) (Non-GAAP)
5.7

8.7

9.4

 
 
 
 
Continuing earnings (loss) per share (GAAP)
$
(2.43
)
$
(0.99
)
$
0.85

Net earnings (loss) per share (GAAP)
(2.62
)
(1.03
)
0.75

Adjusted earnings (loss) per share (Non-GAAP)
0.65

1.00

1.03

GE CFOA AND GE INDUSTRIAL FREE CASH FLOWS (In billions)
2018

2017

2016

GE CFOA (GAAP)
$
2.3

$
11.0

$
30.0

GE Industrial free cash flows (Non-GAAP)
4.8

4.3

7.1

Adjusted GE Industrial free cash flows (Non-GAAP)
4.5

5.6

7.1

FIVE-YEAR PERFORMANCE GRAPH
fiveyearperformancegrapha01.jpg
chart-2eea720d2a105607888.jpg
The annual changes for the five-year period shown in the above graph 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, 2013, 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.

GE 2018 FORM 10-K 7


MD&A
KEY PERFORMANCE INDICATORS
 

With respect to “Market Information,” in the United States, General Electric common stock is listed on the New York Stock Exchange under the ticker symbol "GE" (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.

As of January 31, 2019, there were approximately 397,000 shareowner accounts of record.

On February 15, 2019, our Board of Directors approved a quarterly dividend of $0.01 per share of common stock, which is payable April 25, 2019, to shareowners of record at close of business on March 11, 2019.

General Electric's 2019 Annual Meeting of Shareowners will be held on May 8, 2019 in Tarrytown, NY.

CONSOLIDATED RESULTS
2018 SIGNIFICANT DEVELOPMENTS
On April 25, 2018, 12 directors were elected to the Board of Directors (the Board) with increased focus on relevant industry expertise, capital allocation and accounting and financial reporting, including three new directors, H. Lawrence Culp, Jr., Thomas W. Horton and Leslie F. Seidman.

On June 26, 2018, we announced Mr. Culp, former CEO of Danaher, was elected as lead director effective that same date, succeeding John J. Brennan, who was completing his last term on the Board. Mr. Culp was also selected to chair the Board’s Management Development and Compensation Committee. 

On July 26, 2018, we announced 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.

On October 1, 2018, we announced Mr. Culp was named Chairman and Chief Executive Officer (CEO), succeeding John L. Flannery, effective September 30, 2018. Additionally, Mr. Horton was elected as lead director, succeeding Mr. Culp, effective that same date.

On December 10, 2018, we announced Mr. Brennan retired from the Board after six years of service, effective December 7, 2018. In addition, the Board elected Paula Rosput Reynolds as a director to fill the resulting vacancy, effective on that date.

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 dividend declared in December 2018, which was paid on January 25, 2019. This change will allow us to retain approximately $4 billion of cash per year compared to the prior payout level.

During second half of 2018, we recognized non-cash pre-tax goodwill impairment charges of $22.1 billion related to our Power Generation and Grid Solutions reporting units within our Power segment and our Hydro reporting unit within our Renewable Energy segment. See Note 8 to the consolidated financial statements for further information.

On November 13, 2017, the Company announced its intention to exit approximately $20 billion of assets over the next one to two years. Since this announcement, GE has classified various businesses at Corporate and across our Power, Lighting, Aviation and Healthcare segments as held for sale. To date, we have recorded a cumulative pre-tax loss on the planned disposals of $1.7 billion ($1.5 billion after-tax), of which $0.6 billion was recorded in 2018. Through the fourth quarter of 2018, we closed several of these transactions within our Power, Healthcare, and Lighting segments for total net proceeds of $6.4 billion, recognized a pre-tax gain of $1.2 billion in the caption "Other income" in our consolidated Statement of Earnings (Loss). These transactions are subject to customary working capital and other post-close adjustments. See Note 2 to the consolidated financial statements for further information. We also expect to generate net cash proceeds of at least $30 billion from the following transactions:
On May 21, 2018, we announced an agreement to spin- or split-off and merge our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. The agreement was subsequently amended on January 25, 2019. On February 25, 2019, we completed the spin-off and subsequent merger. In the transaction, participating GE shareholders received shares of Wabtec common stock representing an approximately 24.3% ownership interest in Wabtec common stock. GE received approximately $2.9 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent an approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction.
In June 2018, we announced a plan to separate GE Healthcare into a standalone company. On February 25, 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion, subject to certain adjustments. The transaction is expected to close in the fourth quarter of 2019, subject to regulatory approvals and customary closing conditions. We intend to retain the remaining portion of our Healthcare business which provides us full flexibility for growth and optionality with respect to the business.

GE 2018 FORM 10-K 8


 
MD&A
CONSOLIDATED RESULTS

Pursuant to our announced plan of an orderly separation from BHGE over time, BHGE completed an underwritten public offering in which we sold 101.2 million shares of BHGE Class A common stock. BHGE also repurchased 65 million BHGE LLC units from us. The total consideration received by us from these transactions was $3.7 billion. The transaction closed in November 2018 and, as a result, our economic interest in BHGE reduced from 62.5% to 50.4% and we recognized a pre-tax loss in equity of $2.2 billion. See Note 15 to the consolidated financial statements for further information.

Additional significant transactions that closed in 2018 include the following:
The sale of our Industrial Solutions business within our Power segment for approximately $2.3 billion to ASEA Brown Boveri (ABB), a Swiss-based engineering company. We recognized a resulting pre-tax gain of $0.3 billion in the second quarter of 2018.
The sale of 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. We closed substantially all of this transaction in the second quarter of 2018.
In 2018, the Company announced its intention to exit approximately $25 billion in energy and industrial finance assets within our Capital segment by 2020. With respect to this announcement, we completed $15 billion of asset reduction during 2018 including:
The sale of Energy Financial Services' (EFS) debt origination business within our Capital segment for proceeds of approximately $2.0 billion to Starwood Property Trust, Inc. and recognized a pre-tax gain of approximately $0.3 billion. In addition, we completed the sale of various EFS investments for proceeds of approximately $4.7 billion and recognized an insignificant pre-tax loss.
The sale of Healthcare Equipment Finance (HEF) financing receivables within our Capital segment for proceeds of approximately $1.6 billion to various buyers, including $1.4 billion to TIAA Bank, a U.S. lender and recognized an insignificant pre-tax loss.

SUMMARY OF 2018 RESULTS
Consolidated revenues were $121.6 billion, up $3.4 billion, or 3%, for the year. The increase in revenues was largely a result of incremental Baker Hughes revenues of $5.4 billion through the first half of 2018, partially offset by the absence of Water following the sale in September 2017 and Industrial Solutions following the sale in June 2018. Industrial segment organic revenues* increased $0.1 billion driven principally by our Aviation, Healthcare, Renewable Energy and Oil & Gas segments, partially offset by our Power, Transportation and Lighting segments.

Continuing earnings per share was $(2.43) primarily due to non-cash after-tax impairment charges of $22.4 billion recorded in the second half of 2018 related to goodwill in our Power Generation, Grid Solutions and Hydro reporting units as well as decreased Industrial segment profit of $1.4 billion. Excluding the goodwill impairment charge and other items, Adjusted earnings per share* was $0.65.

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 resulting in decreased utilization of our power equipment, lower market penetration, increased price concessions on certain long-term contracts 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 second half of the year, we recorded a non-cash pre-tax impairment loss of $22.0 billion related to goodwill in our Power Generation and Grid Solutions reporting units. 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 and have significantly impacted operating results. See the Corporate Items and Eliminations section within this MD&A and Note 8 to the consolidated financial statements for further information.

For the year ended December 31, 2018, GE Industrial loss was $19.8 billion and GE Industrial profit margins were (17.4)%, down $21.2 billion, driven by increased non-cash goodwill impairment charges of $21.0 billion, partially offset by decreased adjusted Corporate operating costs* of $0.4 billion, increased net gains from disposed or held for sale businesses of $0.4 billion and decreased restructuring and other costs of $0.4 billion. Industrial segment profit decreased $1.4 billion, or 12%, primarily due to lower results within our Power, Renewable Energy and Transportation segments, partially offset by the performance of our Aviation, Oil & Gas, Healthcare and Lighting segments.

GE CFOA was $2.3 billion and $11.0 billion for the years ended December 31, 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 $1.7 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. See the Capital Resources and Liquidity - Statement of Cash Flows section within this MD&A for further information.


*Non-GAAP Financial Measure

GE 2018 FORM 10-K 9

 
MD&A
CONSOLIDATED RESULTS

REVENUES (In billions)
2018

2017

2016

 
 
 
 
Consolidated revenues
$
121.6

$
118.2

$
119.5

 
 
 
 
Industrial segment revenues
$
115.7

$
113.2

$
112.3

Corporate revenues and Industrial eliminations
(2.0
)
(1.9
)
(1.7
)
GE Industrial revenues
$
113.6

$
111.3

$
110.6

 
 
 
 
Financial services revenues
$
9.6

$
9.1

$
10.9

REVENUES COMMENTARY: 2018 – 2017
Consolidated revenues increased $3.4 billion, or 3%, primarily driven by increased industrial segment revenues of $2.5 billion and increased Financial Services revenues of $0.5 billion. The overall foreign currency impact on consolidated revenues was an increase of $0.6 billion.
GE Industrial revenues increased $2.4 billion, or 2%.
Industrial segment revenues increased $2.5 billion, or 2%, as increases at Oil & Gas, Aviation, Healthcare and Renewable Energy were partially offset by decreases at Power, Lighting and Transportation. 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 $0.6 billion, partially offset by the net effects of dispositions of $3.7 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* increased $0.1 billion.
Financial Services revenues increased $0.5 billion, or 5%, primarily due to lower impairments and volume growth, partially offset by lower gains.
REVENUES COMMENTARY: 2017 – 2016
Consolidated revenues decreased $1.2 billion, or 1%, primarily driven by decreased Financial Services revenues of $1.8 billion, partially offset by increased industrial segment revenues of $0.8 billion. The overall foreign currency impact on consolidated revenues was an increase of $0.6 billion.
GE Industrial revenues increased $0.6 billion, or 1%.
Industrial segment revenues increased $0.8 billion, or 1%, as increases at Oil & Gas, Healthcare and Aviation were partially offset by decreases at Lighting, Power, Transportation and Renewable Energy. This increase was driven by the net effects of acquisitions of $6.0 billion, primarily attributable to the acquisition of Baker Hughes in the third quarter of 2017, and the effects of a weaker U.S. dollar of $0.6 billion, partially offset by the net effects of dispositions of $3.5 billion, primarily attributable to the absence of Appliances following its sale in the second quarter of 2016. Excluding the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues* decreased $2.3 billion.
Financial Services revenues decreased $1.8 billion, or 17%, primarily due to higher impairments and volume declines.


























*Non-GAAP Financial Measure

GE 2018 FORM 10-K 10


 
MD&A
CONSOLIDATED RESULTS

EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE (In billions; per-share in dollars and diluted)
2018

2017

2016

 
 
 
 
Continuing earnings (loss)
$
(21.1
)
$
(8.6
)
$
7.8

 
 
 
 
Continuing earnings (loss) per share
$
(2.43
)
$
(0.99
)
$
0.85

EARNINGS COMMENTARY: 2018 – 2017
Consolidated continuing earnings decreased $12.5 billion, due to increased goodwill impairment charges of $21.0 billion, increased non-operating benefit costs of $0.4 billion and decreased GE Industrial continuing earnings of $0.2 billion, partially offset by decreased Financial Services losses of $6.3 billion and decreased provision for GE Industrial income taxes of $2.7 billion.
GE Industrial continuing earnings decreased $0.2 billion, or 2%.
Corporate items and eliminations increased $1.3 billion primarily attributable to decreased adjusted Corporate operating costs* of $0.4 billion, increased net gains from disposed or held for sale businesses of $0.4 billion and decreased restructuring and other costs of $0.4 billion.
Industrial segment profit decreased $1.4 billion, or 12%, with decreases at Power, Renewable Energy and Transportation, partially offset by higher profit at Aviation, Oil & Gas, Healthcare and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.5 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 the net effects of acquisitions of $0.3 billion, largely associated with Baker Hughes through the first half of the year, and lower restructuring and business development costs related to Baker Hughes of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $1.3 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services continuing losses decreased $6.3 billion, or 93%, primarily due to the nonrecurrence of the 2017 charges associated with the GE Capital insurance premium deficiency review and EFS strategic actions, partially offset by the nonrecurrence of 2017 tax benefits.
EARNINGS COMMENTARY: 2017 – 2016
Consolidated continuing earnings decreased $16.4 billion driven by decreased GE Industrial continuing earnings of $5.6 billion, increased Financial Services losses of $5.5 billion, increased provision for GE Industrial income taxes of $3.4 billion, increased goodwill impairment charges of $1.2 billion and increased interest and other financial charges of $0.7 billion.
GE Industrial continuing earnings decreased $5.6 billion, or 41%.
Corporate items and eliminations decreased $2.0 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $2.6 billion, partially offset by decreased adjusted Corporate operating costs* of $0.4 billion and decreased restructuring and other costs of $0.2 billion.
Industrial segment profit decreased $3.6 billion, or 23%, with decreases at Power, Oil & Gas, Transportation, Renewable Energy and Lighting, partially offset by higher earnings at Healthcare and Aviation. This decrease in industrial segment profit was driven in part by restructuring and business development costs related to Baker Hughes of $0.7 billion and the net effects of dispositions of $0.3 billion, primarily associated with the absence of Appliances following its sale in the second quarter of 2016, partially offset by the net effects of acquisitions $0.3 billion, largely associated with the acquisition of Baker Hughes in the third quarter of 2017. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $2.8 billion, primarily driven by negative variable cost productivity, pricing pressure and lower volume at Power.
Financial Services continuing 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.

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 PredixTM 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.

On December 13, 2018, we announced our intention to establish a new, GE-owned, independently operated business to bring together GE Digital’s core software business including the PredixTM platform, Asset Performance Management, Historian, Automation (HMI/SCADA), Manufacturing Execution Systems and Operations Performance Management with the GE Power Digital and Grid Software Solutions businesses. The new business will be established with its own brand, equity structure and Board of Directors and will deliver software for the power, renewable energy, aviation, oil and gas, food and beverage, chemicals, consumer packaged goods and mining markets.

*Non-GAAP Financial Measure

GE 2018 FORM 10-K 11

 
MD&A
CONSOLIDATED RESULTS

On February 1, 2019, we sold a majority stake in ServiceMax for approximately $0.4 billion to Silver Lake, a global technology investment firm, a private equity firm focused on technology investments. Under the agreement, GE will retain a 10% equity ownership in ServiceMax. We expect to recognize a resulting pre-tax gain of $0.2 billion during the first quarter of 2019.

Revenues were $3.9 billion for the year ended December 31, 2018, a decrease of $0.1 billion or 2% compared to revenues of $4.0 billion for the year ended December 31, 2017. This decrease was principally driven by Power. 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 and Non-GE Verticals.

Orders were $4.2 billion for the year ended December 31, 2018, a decrease of $1.0 billion or 19% compared to orders of $5.2 billion for the year ended December 31, 2017. This decrease was principally driven by Power and Oil & Gas. 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.

SEGMENT OPERATIONS
REVENUES AND PROFIT
Segment revenues include sales of products and services related to the segment.

Industrial 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 goodwill impairments 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.

BACKLOG AND REMAINING PERFORMANCE OBLIGATION
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.
RECONCILIATION OF INDUSTRIAL BACKLOG TO REMAINING PERFORMANCE OBLIGATION
 
December 31, 2018
(In billions)
Equipment

Services

Total

 
 
 
 
Backlog
$
88.8

$
302.2

$
391.0

Adjustments
(37.0
)
(100.9
)
(137.9
)
Remaining Performance Obligation
$
51.9

$
201.3

$
253.2


GE 2018 FORM 10-K 12


 
MD&A
SEGMENT OPERATIONS
 

Adjustments to reported backlog of $(137.9) billion as of December 31, 2018 are largely driven by adjustments of $(122.0) billion in our Aviation segment: (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 substantive 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.

SUMMARY OF OPERATING SEGMENTS
 
General Electric Company and consolidated affiliates
(In millions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Power
$
27,300

$
34,878

$
35,835

Renewable Energy
9,533

9,205

9,752

Aviation
30,566

27,013

26,240

Oil & Gas
22,859

17,180

12,938

Healthcare
19,784

19,017

18,212

Transportation
3,898

3,935

4,585

Lighting(a)
1,723

1,941

4,762

Total industrial segment revenues
115,664

113,168

112,324

Capital
9,551

9,070

10,905

Total segment revenues
125,215

122,239

123,229

Corporate items and eliminations
(3,600
)
(3,995
)
(3,760
)
Consolidated revenues
$
121,615

$
118,243

$
119,469

 
 
 
 
Segment profit
 
 
 
Power
$
(808
)
$
1,947

$
4,187

Renewable Energy
287

583

631

Aviation
6,466

5,370

5,324

Oil & Gas(b)
429

158

1,302

Healthcare
3,698

3,488

3,210

Transportation
633

641

966

Lighting(a)
70

27

165

Total industrial segment profit
10,774

12,213

15,785

Capital
(489
)
(6,765
)
(1,251
)
Total segment profit
10,285

5,448

14,534

Corporate items and eliminations
(2,796
)
(4,060
)
(2,064
)
GE goodwill impairments
(22,136
)
(1,165
)

GE interest and other financial charges
(2,708
)
(2,753
)
(2,026
)
GE non-operating benefit costs
(2,764
)
(2,385
)
(2,349
)
GE benefit (provision) for income taxes
(957
)
(3,691
)
(298
)
Earnings (loss) from continuing operations
 
 
 
  attributable to GE common shareowners
(21,076
)
(8,605
)
7,797

Earnings (loss) from discontinued operations, net of taxes
(1,726
)
(309
)
(954
)
   Less net earnings (loss) attributable to noncontrolling interests, discontinued operations

6

(1
)
Earnings (loss) from discontinued operations,
 
 
 
   net of taxes and noncontrolling interests
(1,726
)
(315
)
(952
)
Consolidated net earnings (loss)
 
 
 
   attributable to GE common shareowners
$
(22,802
)
$
(8,920
)
$
6,845

(a)
Lighting segment included Appliances 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 $1,045 million and $837 million for the years ended December 31, 2018 and 2017, respectively.






*Non-GAAP Financial Measure

GE 2018 FORM 10-K 13

  
MD&A
SEGMENT OPERATIONS | POWER

gepower20.jpg POWER
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. We employ approximately 59,700 people, serve customers in 150+ countries, and our headquarters is located in Schenectady, NY.
During the fourth quarter of 2018, we announced our intention to reorganize the businesses within our Power segment into GE Gas Power and Power Portfolio, and effectively eliminate the Power headquarters structure in order to reduce costs and improve operations. Upon completion, GE Gas Power will be a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio will comprise our Steam Power Systems (including services currently reported in Power Services), Power Conversion and GE Hitachi Nuclear businesses. We anticipate the reorganization to be completed by the second half of 2019.
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. Long-term service agreements for both Gas Power Systems and Steam Power Systems are collectively managed in Power Services.
Grid Solutions - 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 and gas, telecommunication, mining and water. We announced our intention to reorganize Grid Solutions into our Renewable Energy segment.
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 and 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. We announced our intention to reorganize Automation & Controls into our Grid Solutions, Steam Power Systems and Gas Power Systems businesses.
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.
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.
Significant Trends & Developments
In September 2017, we announced an agreement to sell our Industrial Solutions business for approximately $2.2 billion (net of cash transferred) to ASEA Brown Boveri (ABB), a Swiss-based engineering company. On June 29, 2018, we completed the sale and recognized a pre-tax gain of $0.3 billion in the second quarter of 2018. This gain was recorded within Corporate.
In June 2018, we announced an agreement to sell our Distributed Power business to Advent International, a global private equity investor, for approximately $2.8 billion (net of cash transferred). On November 6, 2018, we completed the sale and recognized a pre-tax gain of $0.7 billion. This gain was recorded within Corporate.
During the second half of 2018, we recognized non-cash pre-tax goodwill impairment charges of $22.0 billion related to our Power Generation and Grid Solutions reporting units. These charges were all recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
The Power market as well as its operating environment continues to be challenging, and our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry resulting in decreased utilization of our power equipment, lower market penetration, increased price concessions on certain long-term contracts 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.
Market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. We believe the overall market for annual heavy-duty gas orders will be between 25 and 30 gigawatts for 2019 and the foreseeable future.

GE 2018 FORM 10-K 14


  
MD&A
SEGMENT OPERATIONS | POWER

Advanced Gas Path (AGP) upgrades have also experienced decreased market demand as well as saturation in the North American market given previous penetration; however, we expect upgrade demand to continue in the Middle East, Africa and Southeast Asia markets.
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.
During the fourth quarter of 2018, we recorded pre-tax charges of $0.8 billion, of which $0.4 billion was related to various assumption updates for unfavorable pricing, lower utilization, and cost updates on our long-term service agreements and $0.4 billion related to execution issues resulting in liquidated damages and partner execution issues on our long-term equipment projects at Gas Power Systems.
In 2018, we reduced structural costs* by $0.9 billion, excluding the effects of acquisition and disposition activity, for the year, and we expect restructuring efforts to continue into 2019.
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 2019, with improving execution, a refocused services strategy and strong execution on cost reduction.
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, 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 to better align with the economic realities of the end demand markets.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
8.2

$
10.9

Non-U.S.
 
 
Europe
5.8

6.3

Asia
5.5

6.4

Americas
3.3

3.5

Middle East and Africa
4.6

7.8

Total Non-U.S.
$
19.1

$
24.0

Total Segment Revenues
$
27.3

$
34.9

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
70
%
69
%
SUB-SEGMENT REVENUES(a) (In billions)
2018

2017

 
 
 
Gas Power Systems(b)
$
5.2

$
8.0

Steam Power Systems
1.9

2.2

Power Services
11.8

12.9

Other(c)
8.4

11.8

Total Segment Revenues
$
27.3

$
34.9

(a) Upon completion of our announced reorganization, Gas Power Systems and Power Services will comprise GE Gas Power, while Steam Power
Systems (including services currently reported in Power Services), Power Conversion and GE Hitachi Nuclear will comprise Power Portfolio.
(b) Includes Distributed Power until its disposition in the fourth quarter of 2018.
(c) Includes Grid Solutions, Power Conversion, Automation & Controls, GE Hitachi Nuclear, Water & Process Technologies until its disposition in the
third quarter of 2017 and Industrial Solutions until its disposition in the second quarter of 2018.
ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
13.1

$
17.6

Services
14.4

18.0

Total
$
27.5

$
35.7

 
 
 
Backlog
 
 
Equipment
$
24.3

$
26.3

Services
67.6

71.8

Total
$
91.9

$
98.1



*Non-GAAP Financial Measure

GE 2018 FORM 10-K 15

  
MD&A
SEGMENT OPERATIONS | POWER

GAS TURBINES
2018

2017

V

Unit Orders
43

75

(32
)
Unit Sales
42

102

(60
)
SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
12.3

$
17.5

$
17.4

Services
15.0

17.4

18.5

Total(a)
$
27.3

$
34.9

$
35.8

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
(0.8
)
$
1.9

$
4.2

Segment profit margin
(3.0
)%
5.6
%
11.7
%
(a)
Power segment revenues represent 24% and 22% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2018.
(b)
Power segment profit represents (7)% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:
Segment revenues down $7.6 billion (22%);
Segment profit down $2.8 billion:
The Power market as well as its operating environment continues to be challenging driven by the significant overcapacity in the industry, decreased utilization of our power equipment, increased price concessions, uncertain timing of deal closures due to financing and the complexities of working in emerging markets, as well as increasing energy efficiency and renewable energy penetration.
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, we 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. During the fourth quarter of 2018, we recorded pre-tax charges of $0.8 billion, of which $0.4 billion was related to various assumption updates for unfavorable pricing, lower utilization, and cost updates on our long-term service agreements and $0.4 billion related to execution issues resulting in liquidated damages and partner execution issues on our long-term equipment projects at Gas Power Systems.
Equipment revenues decreased primarily at Gas Power Systems by $2.7 billion due to lower unit sales, including 60 fewer gas turbines, 26 fewer Heat Recovery Steam Generators and 23 fewer aeroderivative units. Services revenues also decreased $1.1 billion at Power Services primarily due to 27 fewer AGP upgrades. In addition, revenues decreased due to the absence of Industrial Solutions which contributed $1.4 billion in the second half of 2017 that did not recur in 2018 following the sale in June 2018 as well as the absence of Water which contributed $1.5 billion in 2017 prior to the sale in September 2017. Revenues further 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 Industrial Solutions $0.1 billion and Water $0.1 billion, 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.
2017 – 2016 COMMENTARY:
Segment revenues down $1.0 billion (3%);
Segment profit down $2.2 billion (53%):
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 by $0.8 billion due to 65 fewer AGP upgrades. Equipment revenues increased primarily at Gas Power Systems by $0.4 billion 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 absence of Water which contributed $0.6 billion in the fourth quarter of 2016 that did not recur following the sale in September 2017 and price pressure, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
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.

GE 2018 FORM 10-K 16


 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

gerenewable.jpg RENEWABLE ENERGY
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 80 countries around the world, Renewable Energy can deliver solutions to where its customers need them most. We employ approximately 22,900 people, serve customers in 80+ countries, and our headquarters is located in Paris, France.
Onshore Wind delivers 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. The 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 X-12MW, the most powerful offshore wind turbine commercially available, driving down offshore wind’s levelized cost of energy with an industry leading capacity factor and digital capabilities to help customers succeed in an increasingly competitive environment
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 and 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 serves both GE and 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 able to compete subsidy-free with other sources of power generation. 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 and hydro turbine manufacturers 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.

As a result, we are investing to keep renewable energy competitive by exploring new ways of further improving the efficiency and flexibility of our hydropower technology with digital solutions and by moving forward with 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.
Significant Trends & Developments
During the fourth quarter of 2018, we recognized non-cash pre-tax goodwill impairment charges of $0.1 billion related to our Hydro reporting unit. This charge was recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
Renewable energy is in a rapid transition period and is on track to become a fully commercialized, unsubsidized source of energy, successfully competing in the marketplace against conventional energy sources. Wind energy is now the second-largest contributor to renewable capacity growth, while hydropower is projected to remain the largest renewable electricity source through 2023.
Influential businesses like Apple, Google, Microsoft and Amazon are increasingly committing to renewable energy, typically contracting for output from various renewable sources 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.
Consequently, the renewable energy market is highly competitive, particularly in onshore wind, resulting in significant pricing pressure. Pricing for our Onshore Wind business was down in 2018 due to the impact of auctions in many international markets and the competitive environment across all renewable sources.
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-up in 2019-2020 leading up to the expiration of the PTC at 100% value in 2020. PTC credits will be phased out after 2020 which we anticipate may have an adverse impact on the U.S. market. Second, we expect additional opportunities to “repower” existing wind turbines. Repowering allows customers to increase the annual energy output of their installed base, provides more competitively priced energy and extends the life of their assets. The repower market remains robust, and we expect continued strong demand through 2019 and beyond. To date, we have commissioned over 1,000 repowered turbines, and we are seeing excellent operating performance of those turbines throughout our broad customer base.

GE 2018 FORM 10-K 17

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

Given price pressure, the need for grid flexibility to accommodate more renewable energy, and the diversification of energy players, the hydropower industry continues to maximize value with new small-scale and pumped storage projects to support both wind and solar expansion.
The onshore wind market continues to see megawatt (MW) growth in turbines as customer preference has shifted from 1.X-2.X models to larger, more efficient units. In 2018, more than 40% of global turbine sales consisted of machines with 3.0MW or higher ratings.
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 2018, we launched our new onshore wind turbine platform Cypress, and the next model from that platform, GE’s 5.3-158 wind turbine. Designed to scale over time to meet customer needs through the 5MW range, Cypress enables significant Annual Energy Production (AEP) improvements, increased efficiency in serviceability and improved logistics and siting potential. We also introduced our next generation Haliade-X offshore wind turbine with a 12 MW generator rating and a 220-meter rotor (107-meter blade designed by LM Wind Power) to meet the needs of customers facing “zero-subsidy” auctions. Looking ahead, we are continuing to focus on taking cost out of our NPI machines, in-sourcing blade production and developing larger, more efficient turbines like the Haliade-X and Cypress.
During the first quarter of 2019, we announced our intention to reorganize our Grid Solutions, Solar and storage assets in our Energy Connections business within our Power segment into our Renewable Energy segment, creating an end-to-end offering for Renewable Energy customers as the demand for renewable power generation and grid integration continues to grow globally.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
4.3

$
4.8

Non-U.S.
 
 
Europe
1.9

1.6

Asia
1.6

0.8

Americas
1.5

1.5

Middle East and Africa
0.2

0.5

Total Non-U.S.
$
5.2

$
4.4

Total Segment Revenues
$
9.5

$
9.2

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
54
%
48
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Onshore Wind
$
8.3

$
8.1

Offshore Wind
0.4

0.3

Hydro
0.8

0.9

Total Segment Revenues
$
9.5

$
9.2


ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
7.9

$
8.2

Services
3.0

2.2

Total
$
10.9

$
10.4

 
 
 
Backlog
 
 
Equipment
$
8.5

$
7.9

Services
8.7

6.9

Total
$
17.3

$
14.8


WIND TURBINES
2018

2017

V

Unit Orders
3,198

3,017

181

Unit Sales
2,491

2,604

(113
)



GE 2018 FORM 10-K 18


 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
7.0

$
7.0

$
8.9

Services
2.5

2.2

0.9

Total(a)
$
9.5

$
9.2

$
9.8

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.3

$
0.6

$
0.6

Segment profit margin
3.0
%
6.3
%
6.5
%
(a)
Renewable Energy segment revenues represent 8% of both total industrial segment revenues and total segment revenues for the year ended December 31, 2018.
(b)
Renewable Energy segment profit represents 3% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:

Segment revenues up $0.3 billion (4%);
Segment profit down $0.3 billion (51%):

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-2.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 during 2018. In addition, uncertainty at the end of 2017 related to the impact of U.S. tax reform caused a temporary delay in project work, resulting in lower volume during the first half of 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.
Services volume increased due to larger installed base resulting in increased contractual revenues as well as 50 more repower units at Onshore Wind than in the prior year. Equipment volume remained flat with 113 fewer wind turbine shipments on a unit basis, offset by 9% more megawatts shipped, 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, partially offset by pricing pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to pricing pressure, unfavorable business mix as well as liquidated damages related to partner execution and project delays, and higher losses in Hydro and Offshore as we began fully consolidating these entities in the fourth quarter, partially offset by materials deflation and positive base cost productivity.
2017 – 2016 COMMENTARY:

Segment revenues down $0.5 billion (6%);
Segment profit down 8%:

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.
Equipment volume decreased due to 785 fewer wind turbine shipments on a unit basis, including the nonrecurrence of certain orders in Europe and ASEAN, or 17% fewer megawatts shipped than in the prior year. Services volume increased due to 975 more repower units at Onshore Wind. Revenues also increased due to the acquisition of LM Wind in April 2017 which contributed $0.3 billion of inorganic revenue growth in 2017 and the effects of a weaker U.S. dollar versus certain currencies, partially offset by pricing pressure.
The decrease in profit was due to negative base cost productivity and price pressure, partially offset by positive variable cost productivity, material deflation and increased other income including a reduction in foreign exchange transactional losses.



GE 2018 FORM 10-K 19


MD&A
SEGMENT OPERATIONS | AVIATION

geaviation.jpg AVIATION
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. We employ approximately 48,000 people, serve customers in 120+ countries, and our headquarters is located in Cincinnati, OH.
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, and we produce and market engines through CFM International, a company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the Safran Group 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.
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.
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.
Significant Trends & Developments
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.
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.
Global passenger air travel continued to grow during the year. In 2018, revenue passenger kilometers (RPKs) growth outpaced the ten-year average, increasing 6.6%* with strong growth both domestically and internationally. In addition, passenger load factors globally remained above 80%*.
In 2018, air freight volume continued to grow, and freight ton kilometers (FTKs) grew 3.9%*.
The installed base continues to grow with new product launches. In 2018, we shipped the first Passport engines, powering the Bombardier Global 7000 business jet. 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.
During 2018, we delivered 1,118 LEAP engines, meeting our ramp commitments for the year with cost reductions in line with production cost curve expectations. LEAP reliability and performance specification remain on track. While we are behind on production as a result of delays in materials, we are actively working with our customers and airframers to mitigate impacts to their aircraft build schedule, and we continue to see improvement in our supplier yields and our overall output on a week to week basis. We plan to produce more than 2,000 engines by 2020.

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

GE 2018 FORM 10-K 20



MD&A
SEGMENT OPERATIONS | AVIATION

Military shipments grew to 674 engines from 617 engines in 2017. 2018 was a critical year for the contract decision on the next generation combat engine, and the United States Air Force selected Boeing as the contractor to produce 351 new advanced T-X trainer aircraft powered by our F404 engine.
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.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
12.5

$
10.8

Non-U.S.
 
 
Europe
7.0

6.3

Asia
5.8

5.2

Americas
1.5

1.1

Middle East and Africa
3.8

3.6

Total Non-U.S.
$
18.0

$
16.3

Total Segment Revenues
$
30.6

$
27.0

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
59
%
60
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Commercial Engines & Services
$
22.7

$
19.7

Military
4.1

4.0

Systems & Other
3.7

3.3

Total Segment Revenues
$
30.6

$
27.0


ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
15.3

$
10.6

Services
20.2

18.5

Total
$
35.5

$
29.1

 
 
 
Backlog
 
 
Equipment
$
37.8

$
34.1

Services
185.7

166.1

Total
$
223.5

$
200.2


UNIT ORDERS
2018

2017

V

Commercial Engines
4,772

2,565

2,207

LEAP Engines(a)
3,637

1,418

2,219

Military Engines
751

522

229

(a) LEAP engines are a subset of commercial engines
UNIT SALES
2018

2017

V

Commercial Engines
2,825

2,630

195

LEAP Engines(a)
1,118

459

659

Military Engines
674

617

57

Spares Rate(b)
$
27.5

$
23.5

$
4.0

(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


GE 2018 FORM 10-K 21


MD&A
SEGMENT OPERATIONS | AVIATION

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
11.5

$
10.2

$
11.4

Services
19.1

16.8

14.9

Total(a)
$
30.6

$
27.0

$
26.2

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
6.5

$
5.4

$
5.3

Segment profit margin
21.2
%
19.9
%
20.3
%
(a)
Aviation segment revenues represent 26% and 24% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2018.
(b)
Aviation segment profit represents 60% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:

Segment revenues up $3.6 billion (13%);
Segment profit up $1.1 billion (20%):

Global passenger air travel continued to grow with revenue passenger kilometers (RPK) growth outpacing the ten-year average. Industry-load factors remained above 80%*. Air freight volume also increased, particularly in international markets. Freight capacity additions slightly exceeded freight volume growth during the year.
We shipped 1,118 LEAP engines during the year, meeting our commitment to ship 1,100-1,200 engines in 2018.
Services revenues increased primarily due to a higher commercial spares shipment rate, as well as increased price. Equipment revenues increased primarily due to 57 more military engine shipments and 195 more commercial units, including 659 more LEAP units, versus the prior year, partially offset by lower legacy commercial output in the CFM and GE90 product lines.
The increase in profit was mainly due to increased price, increased volume, higher spare engine shipments and product and base 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.
2017 – 2016 COMMENTARY:

Segment revenues up $0.8 billion (3%);
Segment profit up 1%:

Global passenger air travel continued to grow with RPK growth outpacing the five-year average. Air freight volume rebounded, particularly in international markets, with FTK demand also exceeding capacity for the year.
Services revenues 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.











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


GE 2018 FORM 10-K 22



MD&A
SEGMENT OPERATIONS | OIL & GAS

geoilgas10k.jpg OIL & GAS
Products & Services
oilgasproductservicesa01.jpg
Oil & Gas, which represents our 50.4% consolidated interest in BHGE, is a fullstream oilfield technology provider that has a unique mix of integrated oilfield products, services and digital solutions. We operate through our four business segments: Oilfield Services, Oilfield Equipment, Turbomachinery & Processing Solutions and Digital Solutions. We employ approximately 65,800 people, serve customers in 120+ countries, and our headquarters are located in London, UK and Houston, TX.

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.
Significant Trends & Developments
In June 2018, we announced our plan to pursue an orderly separation from BHGE over time. The business has not met the accounting criteria for held for sale classification. That classification will depend on the nature and timing of the transaction.
Pursuant this announcement, BHGE completed an underwritten public offering in which we sold 101.2 million shares of BHGE Class A common stock. BHGE also repurchased 65.0 million BHGE LLC units from us. The total consideration received by us from these transactions was $3.7 billion. The transaction closed in November 2018 and, as a result, our economic interest in BHGE reduced from 62.5% to 50.4% and we recognized a pre-tax loss in equity of $2.2 billion. See Note 15 to the consolidated financial statements for further information.
On November 13, 2018, we entered into a Master Agreement and a series of related ancillary agreements and binding term sheets with BHGE (collectively, the “Master Agreement Framework”) designed to further solidify the commercial and technological collaborations between BHGE and GE. In particular, the Master Agreement Framework contemplates long-term agreements between us and BHGE on technology, fulfillment and other key areas.
Market weakness in recent years 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.
2018 demonstrated the volatility of the oil and gas market. Through the first three quarters of 2018, we experienced stability in the North American and international markets. However, in the fourth quarter of 2018, commodity prices dropped nearly 40%, resulting in increased customer uncertainty. From an offshore standpoint, through most of 2018, we saw multiple large offshore projects reach positive final investment decision, and expect customers to continue to evaluate final investment decisions timing, in light of increased commodity price volatility.

GE 2018 FORM 10-K 23


MD&A
SEGMENT OPERATIONS | OIL & GAS

The liquified natural gas (LNG) market and outlook improved throughout 2018, driven by increased demand globally. In 2018, the first large North American LNG positive final investment decision was reached. Looking to 2019, we expect a significant number of LNG million tons per annum (MTPA) to reach positive final investment decisions.
In 2018, total rig count increased 9% to an average of 2,211 from an average of 2,030 in 2017. This increase was driven by an increase in North American rig count from 1,082 in 2017 to 1,223 in 2018, primarily driven by U.S. rig count, partially offset with a decline in Canadian rig count.
Oil prices generally increased throughout 2018, but sharply declined in the fourth quarter driven by global economic growth forecast revisions, higher than expected production in the U.S., and lower than anticipated production cuts from OPEC.
In North America, customer spending is highly driven by WTI oil prices which on average increased throughout the year. Average WTI oil prices increased to $65.23/Bbl in 2018 from $50.80/Bbl in 2017 and ranged from a low of $44.48/Bbl in December 2018 to a high of $77.41/Bbl in June 2018.
Outside of North America, customer spending is influenced by Brent oil prices, which also increased on average throughout the year. Average Brent oil prices increased to $71.34/Bbl in 2018 from $54.12/Bbl in 2017 and ranged from a low of $50.57/Bbl in December 2018 to a high of $86.07/Bbl in October 2018.
Given the commodity price decline in the fourth quarter of 2018, we continue to expect activity to remain volatile and final investment decisions to remain fluid due to continued oil price volatility.

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
6.6

$
4.4

Non-U.S.
 
 
Europe
4.0

3.0

Asia
3.2

2.5

Americas
3.3

2.5

Middle East and Africa
5.8

4.8

Total Non-U.S.
$
16.3

$
12.8

Total Segment Revenues
$
22.9

$
17.2

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
71
%
74
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Turbomachinery & Process Solutions (TPS)
$
6.0

$
6.3

Oilfield Services (OFS)(a)
11.6

5.9

Oilfield Equipment (OFE)(b)
2.6

2.7

Digital Solutions
2.6

2.3

Total Segment Revenues
$
22.9

$
17.2

(a) Previously referred to as Surface
(b) Previously referred to as Subsea Systems & Drilling



ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
9.9

$
6.9

Services
13.9

10.3

Total
$
23.9

$
17.1

 
 
 
Backlog
 
 
Equipment
$
5.7

$
5.5

Services
15.8

16.4

Total
$
21.5

$
21.9



GE 2018 FORM 10-K 24



MD&A
SEGMENT OPERATIONS | OIL & GAS

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
9.3

$
7.2

$
6.1

Services
13.6

10.0

6.9

Total(a)
$
22.9

$
17.2

$
12.9

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.4

$
0.2

$
1.3

Segment profit margin
1.9
%
0.9
%
10.1
%
(a)
Oil & Gas segment revenues represent 20% and 18% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2018.
(b)
Oil & Gas segment profit represents 4% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:

Segment revenues up $5.7 billion (33%);
Segment profit up $0.3 billion:

The oil and gas market experienced stability through the first three quarters of 2018 leading to continuous improvements. However, in the fourth quarter, commodity prices dropped nearly 40%, demonstrating the volatility of the market and resulting in increased customer uncertainty. From an offshore and liquefied natural gas (LNG) perspective, in 2018, major equipment projects were awarded in the Oilfield Equipment and TPS businesses.
The Baker Hughes acquisition in July 2017 contributed $5.4 billion of inorganic revenue growth in the first half of 2018 compared to the first half of 2017. In addition, Oil & Gas revenues increased due to increased services revenues, primarily resulting from higher OFS activity of $0.3 billion in North America and international markets. Equipment revenues decreased primarily at TPS by $0.3 billion as a result of lower opening backlog, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The increase in profit was primarily driven by synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated and lower restructuring and other charges, partially offset by unfavorable business mix and decreased other income including increased equity income losses in affiliates.
2017 – 2016 COMMENTARY:

Segment revenues up $4.2 billion (33%);
Segment profit down $1.1 billion (88%):

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. Legacy equipment revenues decreased due to lower volume primarily at OFE of $0.8 billion 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 certain currencies.
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.

GE 2018 FORM 10-K 25


MD&A
SEGMENT OPERATIONS | HEALTHCARE

gehealthcare10k.jpg HEALTHCARE
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. We employ approximately 53,800 people, serve customers in 140+ countries, and our headquarters is located in Chicago, IL.
Healthcare Systems develops, manufactures, markets and services a broad suite of products and solutions used in the diagnosis, treatment and monitoring of patients that is encompassed in imaging, ultrasound, life care solutions and enterprise software and solutions. Imaging includes magnetic resonance, computed tomography, molecular imaging, x-ray systems and complementary software and services, for use in general diagnostics, Women’s Health and image-guided therapies. Ultrasound includes high-frequency soundwave systems, and complementary software and services, for use in diagnostics tailored to a wide range of clinical settings. Life Care Solutions (“LCS”) includes clinical monitoring and acute care systems, and complementary software and services, for use in intensive care, anesthesia delivery, diagnostic cardiology and perinatal care. Enterprise Software & Solutions (“ESS”) includes enterprise digital, consulting and healthcare technology management offerings designed to improve efficiency in healthcare delivery and expand global access to advanced health care.
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.
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.
Significant Trends & Developments
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 approximately $1.0 billion (net of cash transferred). 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. This gain was recorded within Corporate.
In June 2018, we announced a plan to separate GE Healthcare into a standalone company. On February 25, 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion, subject to certain adjustments. The transaction is expected to close in the fourth quarter of 2019, subject to regulatory approvals and customary closing conditions. We intend to retain the remaining portion of our Healthcare business which provides us full flexibility for growth and optionality with respect to the business.
In 2018, we sold our remaining shares in Neogenomics and received proceeds of approximately $200 million.
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 imaging agents market growing at low single digit rates.
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 2018, we launched a variety of new products including our ultra-premium radiology ultrasound system, LOGIQ E10, and our AIR technology coil suite. We also enhanced our MR portfolio with SIGNA™ Premier and upgraded our portfolio of premium high power mobile Surgery C-arms featuring CMOS detectors.
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.

GE 2018 FORM 10-K 26



MD&A
SEGMENT OPERATIONS | HEALTHCARE

As expected, the China market was a source of growth in 2018 with strong fundamentals in the public market and an expanding private market. While we expect this growth to continue in 2019, new U.S. tariffs on certain types of medical equipment and components that we import from China have resulted in increased costs. We are taking actions to mitigate this cost impact including moving our sourcing and manufacturing for these parts outside of China.
In the U.S., the underlying market remains stable, with a trend toward customers looking for more complete solutions that offer greater capacity and productivity. However, the market continues to face uncertainties driven by the increasing cost of providing healthcare that has led to a trend of increasing hospital and provider consolidation.
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.

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
8.6

$
8.4

Non-U.S.
 
 
Europe
4.1

3.9

Asia
5.2

4.9

Americas
1.0

1.0

Middle East and Africa
0.9

0.9

Total Non-U.S.
$
11.2

$
10.6

Total Segment Revenues
$
19.8

$
19.0

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
57
%
56
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Healthcare Systems(a)
$
14.9

$
14.5

Life Sciences
4.9

4.6

Total Segment Revenues
$
19.8

$
19.0

(a)    Given the sale of Value-Based Care in the third quarter of 2018, Healthcare Digital is now presented within Healthcare Systems.

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
12.6

$
12.2

Services
8.3

8.2

Total
$
20.9

$
20.4

 
 
 
Backlog
 
 
Equipment
$
6.3

$
6.4

Services
11.2

11.7

Total
$
17.4

$
18.1


GE 2018 FORM 10-K 27


MD&A
SEGMENT OPERATIONS | HEALTHCARE

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
11.4

$
10.8

$
10.2

Services
8.4

8.2

8.0

Total(a)
$
19.8

$
19.0

$
18.2

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
3.7

$
3.5

$
3.2

Segment profit margin
18.7
%
18.3
%
17.6
%
(a)
Healthcare segment revenues represent 17% and 16% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2018.
(b)
Healthcare segment profit represents 34% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:

Segment revenues up $0.8 billion (4%);
Segment profit up $0.2 billion (6%):

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.
Services and equipment revenues increased due to higher volume in Healthcare Systems of $0.4 billion 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 by $0.3 billion, driven by Bioprocess and Pharmaceutical Diagnostics. 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 absence of the Value-Based Care Division following the sale in July 2018.
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 product innovations 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 absence of the Value-Based Care Division following the sale in July 2018.
2017 – 2016 COMMENTARY:
Segment revenues up $0.8 billion (4%);
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 of $0.5 billion 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 by $0.3 billion, driven by Bioprocess and Pharmaceutical Diagnostics. 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 product innovations and new product offerings.



GE 2018 FORM 10-K 28


 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

getransportation10k.jpg TRANSPORTATION
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 are detailed below. We employ approximately 9,400 people, serve customers in approximately 60 countries, and our headquarters is located in Chicago, IL.
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
On May 21, 2018, we announced an agreement to spin- or split-off and merge our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. The agreement was subsequently amended on January 25, 2019. On February 25, 2019, we completed the spin-off and subsequent merger. In the transaction, participating GE shareholders received shares of Wabtec common stock representing an approximately 24.3% ownership interest in Wabtec common stock. GE received approximately $2.9 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent an approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction.
North American rail carloads increased 3.4% in 2018, driven primarily by an increase in intermodal(a) traffic.
Despite improving carload volume, parked locomotives began to increase in the second half of 2018. This increase of 4.7% from the prior year is attributable to some fleet overcapacity and constrained spending by the railroads limiting fleet expansion.
Global locomotive deliveries were down from 433 units in 2017 to 272 units in 2018 driven primarily by the optimization of existing fleets in North America.
In addition, price increases associated with additional U.S. tariffs imposed on China could negatively affect demand and reduce rail volumes, particularly those linked to farm exports, auto exports, and intermodal flows.









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


GE 2018 FORM 10-K 29

 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
2.2

$
2.2

Non-U.S.
 
 
Europe
0.3

0.2

Asia
0.4

0.3

Americas
0.7

0.6

Middle East and Africa
0.2

0.7

Total Non-U.S.
$
1.7

$
1.7

Total Segment Revenues
$
3.9

$
3.9

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
43
%
44
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Locomotives
$
0.9

$
1.3

Services
2.1

1.9

Mining
0.6

0.4

Other(a)
0.4

0.4

Total Segment Revenues
$
3.9

$
3.9

(a)    Includes Marine, Stationary, Drilling and Digital

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
2.8

$
2.1

Services
2.9

2.8

Total
$
5.7

$
4.9

 
 
 
Backlog
 
 
Equipment
$
6.0

$
4.8

Services
12.9

13.3

Total
$
18.9

$
18.1


LOCOMOTIVES
2018

2017

V

Unit Orders
1,072

438

634

Unit Sales
272

433

(161
)

GE 2018 FORM 10-K 30


 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
1.4

$
1.7

$
2.3

Services
2.5

2.2

2.3

Total(a)
$
3.9

$
3.9

$
4.6

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.6

$
0.6

$
1.0

Segment profit margin
16.2
%
16.3
%
21.1
%
(a)
Transportation segment revenues represent 3% of both total industrial segment revenues and total segment revenues for the year ended December 31, 2018.
(b)
Transportation segment profit represents 6% of total industrial segment profit for the year ended December 31, 2018.

2018 – 2017 COMMENTARY:

Segment revenues down 1%;
Segment profit down 1%:

North American carload volume increased 3.4% during 2018, driven primarily by an increase in intermodal traffic. Despite improving carload volume, the number of parked locomotives began to increase in the second half of 2018. The increase in parked locomotives of 4.7% from the prior year is attributable to some fleet overcapacity and constrained spending by the railroads limiting fleet expansion.
Equipment volume decreased primarily driven by 161 fewer locomotive shipments. This decrease was primarily offset by growth in mining of $0.2 billion and an increase in services revenues of $0.2 billion as railroads are running their locomotives longer. In addition, unparkings did occur in the first half of the year, and these 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 decrease in profit was driven by lower locomotive shipments and cost pressure from material inflation and the impact of tariffs, offset by favorable business mix from a higher proportion of services volume.
2017 – 2016 COMMENTARY:

Segment revenues down $0.7 billion (14%);
Segment profit down $0.3 billion (34%):

The North American market continues to see overcapacity and spending budget cuts by the railroads limiting fleet expansion. However, carload volume increased 4.8% during the year driven by an increase in coal. With improving carload volume, the number of parked locomotives has decreased 18% from the prior year.
Equipment volume decreased primarily driven by 266 fewer locomotive shipments in North America due to continuing challenging market conditions. Services revenues also decreased driven by lower transactional services volume.
The decrease in profit was driven by lower equipment volume, partially offset by favorable business mix from a higher proportion of services volume including an increase in earnings in our long-term service contracts. Additionally, cost reduction actions including restructuring, supply chain initiatives and work transfers to more cost-competitive locations continued during the year.














GE 2018 FORM 10-K 31

 
MD&A
SEGMENT OPERATIONS | LIGHTING

gelighting10k.jpg LIGHTING
Products & Services
energyproductsservicesa01.jpg

Lighting includes the GE Lighting business, which is primarily focused on consumer lighting applications in the U.S. and Canada, and Current, powered by GE (Current), which is focused on providing energy efficiency and productivity solutions for commercial, industrial and municipal customers. We employ approximately 3,000 people, serve customers in 97 countries, and our headquarters are located in East Cleveland, OH for GE Lighting and Boston, MA for Current.
GE Lightingfocused on driving innovation and growth in light emitting diode (LED) and connected home technology. The business offers LEDs in a variety of shapes, sizes, wattages and color temperatures. It is also investing in the growing smart home category, offering a suite of connected lighting products with simple connection points that offer new opportunities to do more at home.
Current combines advanced LED technology with networked sensors and software to make commercial buildings, retail stores, industrial facilities and cities more energy efficient and productive.
Competition & Regulation
Lighting faces competition from businesses operating with global presence and with deep energy domain expertise. 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.
Significant Trends & Developments
We classified the substantial majority of our Lighting segment as held for sale in the fourth quarter of 2017. 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.
In November 2018, we announced an agreement to sell our Current, powered by GE business within our Lighting segment to American Industrial Partners (AIP), a New York-based private equity firm. The deal is expected to close in early 2019, subject to customary closing conditions and regulatory approval.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
1.4

$
1.5

Non-U.S.
 
 
Europe
0.1

0.2

Asia


Americas
0.2

0.2

Middle East and Africa

0.1

Total Non-U.S.
$
0.3

$
0.5

Total Segment Revenues
$
1.7

$
1.9

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
17
%
25
%

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Current
$
1.0

$
1.0

GE Lighting

0.7

0.9

Total Segment Revenues
$
1.7

$
1.9

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
0.9

$
1.1

Services

0.1

Total
$
1.0

$
1.2

 
 
 
Backlog
 
 
Equipment
$
0.2

$
0.2

Services


Total
$
0.2

$
0.2


GE 2018 FORM 10-K 32


 
MD&A
SEGMENT OPERATIONS | LIGHTING

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
1.6

$
1.9

$
4.6

Services
0.1

0.1

0.2

Total(a)(b)
$
1.7

$
1.9

$
4.8

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN(a) (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(c)
$
0.1

$

$
0.2

Segment profit margin
4.1
%
1.4
%
3.5
%
(a)
Lighting segment included Appliances through its disposition in the second quarter of 2016.
(b)
Lighting segment revenues represent 1% of both total industrial segment revenues and total segment revenues for the year ended December 31, 2018.
(c)
Lighting segment profit represents 1% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:

Segment revenues down $0.2 billion (11%);
Segment profit flat:

The traditional lighting market continued to decline in 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.
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.
2017 – 2016 COMMENTARY:

Segment revenues down $2.8 billion (59%);
Segment profit down $0.1 billion (84%):

The traditional lighting market continued to be challenging due to continued U.S. energy efficiency regulations and market shifts away from traditional lighting products in favor of more energy-efficient, cost-saving options.
The main driver of the decrease in revenues was the Appliances disposition which contributed $2.6 billion in the first half of 2016 that did not recur in 2017 following the sale in June 2016. For the remaining Lighting business, equipment revenues decreased due to lower traditional lighting product sales and LED price pressure, partially offset by LED and solar growth in Current. In addition, revenues further decreased due to Lighting regional exits outside of North America.
The decrease in profit was due to lower volume driven by the Appliances disposition in June 2016. Excluding this disposition, profit increased for the remaining Lighting business driven by savings from restructuring, regional exits and decreased investment and controllable spending. These increases were partially offset by pressure in North America from declining traditional lighting product sales being only partially offset by increasing LED sales.

GE 2018 FORM 10-K 33

 
MD&A
SEGMENT OPERATIONS | CAPITAL

gecapital10k.jpg CAPITAL
Products & Services
Capital is the financial services division of GE focused on customers and markets aligned with GE’s industrial businesses across developed and emerging markets. We provide financial products and services around the globe that build on GE’s industry specific expertise in aviation, power, renewables, healthcare and other activities to capitalize on market-specific opportunities. While there are customer benefits and knowledge sharing advantages linking GE’s industrial and capital businesses, the financial and operational relationships are maintained with arms-length terms as though the businesses were independent. We employ approximately 2,300 people, our headquarters is located in Norwalk, CT, and our businesses include:

GE Capital Aviation Services (GECAS) - is an aviation lessor and financier with over 50 years of experience. GECAS provides a wide range of assets including narrow- or widebody aircraft, regional jets, turboprops, freighters, engines, helicopters, financing and materials. GECAS offers a broad array of financing products and services on these assets including operating leases, sale-leasebacks, secured debt financing, asset trading and servicing, and airframe parts management. GECAS owns, services or has on order more than 1,850 aircraft, plus provides loans collateralized by approximately 320 aircraft. GECAS serves approximately 250 customers in over 75 countries from a network of 24 offices around the world. GECAS acquired Milestone Aviation Group (Milestone) in January 2015, adding helicopter leasing and financing. Milestone provides financing options to operators in the offshore oil & gas industries, search & rescue, EMS, police surveillance, mining and other utility missions. Its current fleet and forward order book of medium and heavy helicopter models include models from AgustaWestland, Airbus and Sikorsky available for lease. Its adjacency businesses - GECAS Engine Leasing and Asset Management Services (Parts) - offer customers solutions and services for spare engine leasing, spare parts financing/management, and aviation consulting services.
Energy Financial Services (EFS) - a global energy investor that provides financial solutions and underwriting capabilities for Power, Renewable Energy, and Oil & Gas to meet rising demand and sustainability imperatives.
Industrial Finance (IF) - its Working Capital Solutions business provides working capital services to GE and through December 31, 2018, it also provided healthcare equipment financing.
Insurance - Refer to the Other Items - Insurance section within this MD&A for a detailed business description.
Competition & Regulation
The businesses in which we engage are highly competitive and are subject to competition from various types of financial institutions including banks, equity investors, leasing companies, finance companies associated with manufacturers and insurance and reinsurance companies. For our GECAS operations, competition is based on lease rate financing terms, aircraft delivery dates, condition and availability, as well as available capital demand for financing. For our EFS operations, competition is primarily based on deal structure and terms. As we compete globally, EFS’ success is sensitive to project execution and merchant electricity prices, as well as the economic and political environment of each country in which we do business.

The businesses in which we engage are subject to a variety of U.S. federal and state laws and regulations. Our insurance operations are regulated by the insurance departments in the states in which they are domiciled or licensed, with the Kansas Insurance Department (KID) being our primary state regulator.
Significant Trends & Developments
In 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital’s EFS and IF businesses (GE Capital strategic shift). We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital. Certain of these options could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements.
In 2018, we completed the sale of EFS' debt origination business, various EFS investments and HEF financing receivables within our Capital segment for proceeds of approximately $8.3 billion and recognized a net pre-tax gain of approximately $0.2 billion. These sales, along with net collections of financing receivables and maturities of liquidity investments primarily provided the cash necessary to reduce the GE Capital balance sheet through net repayment of borrowings of $21.1 billion.
GE Capital paid no common dividends in 2018 and does not expect to make a common dividend distribution to GE for the foreseeable future. GE Capital paid common dividends of $4.0 billion to GE during the year ended December 31, 2017.
Refer to the Other Items - Insurance section within this MD&A for further discussion of the accounting estimates and assumptions in our insurance reserves and their sensitivity to change. Also, see Notes 1 and 12 to the consolidated financial statements for further information.



GE 2018 FORM 10-K 34


 
MD&A
SEGMENT OPERATIONS | CAPITAL

SUB-SEGMENT ASSETS (In billions)
2018

2017

GECAS
$
41.7

$
40.0

EFS
3.0

9.9

Industrial Finance and WCS(a)
15.8

25.8

Insurance
40.3

39.9

Other continuing operations
18.6

35.3

Total segment assets
$
119.3

$
150.8

(a)
In the second quarter of 2018, management of our Working Capital Solutions (WCS) business was transferred to our Treasury operations.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

U.S.
$
5.3

$
4.4

Non-U.S.
 
 
Europe
1.4

1.5

Asia
1.4

1.4

Americas
0.6

0.8

Middle East and Africa
0.9

1.0

Total Non-U.S.
4.3

4.7

Total
$
9.6

$
9.1

 
 
 
Non-U.S. Revenues as a % of Segment Revenues
45
%
52
%
RATIO
2018
2017
GE Capital debt to equity
5.74:1
7.06:1
SUB-SEGMENT REVENUES(a) (In billions)
2018

2017

2016

GECAS
$
4.9

$
5.1

$
5.4

EFS
0.1

(0.5
)
0.7

Industrial Finance and WCS
1.5

1.5

1.2

Insurance
2.9

2.9

2.9

Other continuing operations
0.1


0.7

Total segment revenues
$
9.6

$
9.1

$
10.9

(a)
Capital segment revenues represent 8% of total segment revenues for the year ended December 31, 2018.
SUB-SEGMENT PROFIT(a) (In billions)
2018

2017

2016

GECAS
$
1.2

$
2.1

$
1.4

EFS
0.1

(1.5
)
0.4

Industrial Finance and WCS
0.3

0.5

0.4

Insurance
(0.2
)
(7.2
)
(0.1
)
Other continuing operations(b)
(1.9
)
(0.7
)
(3.3
)
Total segment profit
$
(0.5
)
$
(6.8
)
$
(1.3
)
(a)
Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in determining segment profit for the Capital segment, which is included in continuing operations. See Note 2 to the consolidated financial statements for further information on discontinued operations.
(b)
Other continuing operations in 2018 is primarily driven by excess interest costs from debt previously allocated to assets that have been sold as part of the GE Capital Exit Plan, preferred stock dividend costs and interest costs not allocated to GE Capital segments, which are driven by GE Capital’s interest allocation process. Interest costs are allocated to GE Capital segments based on the tenor of their assets using the market rate at the time of origination. Debt on the GE Capital balance sheet was issued based on the profile of our balance sheet prior to the decision in 2015 to strategically shrink GE Capital. It included long dated maturities that are no longer consistent with a much smaller business. As a result, actual interest expense is higher than interest expense allocated to the remaining GE Capital segments. Preferred stock dividend costs will become a GE obligation in 2021 as the intercompany securities convert into common equity and excess interest costs from debt previously allocated to assets that have been sold are expected to run off by 2020. In addition, we anticipate unallocated interest costs to decline gradually as debt matures and/or is refinanced.
2018 – 2017 COMMENTARY:
Capital revenues increased $0.5 billion, or 5%, primarily due to lower impairments and volume growth, partially offset by lower gains.
Capital losses decreased $6.3 billion, or 93%, primarily due to the nonrecurrence of the 2017 charges associated with the GE Capital insurance premium deficiency review and EFS strategic actions, partially offset by the nonrecurrence of 2017 tax benefits.
2017 – 2016 COMMENTARY:
Capital revenues decreased $1.8 billion, or 17%, primarily due to higher impairments and volume declines.
Capital losses increased $5.5 billion, primarily due to the completion of our insurance premium deficiency review, EFS strategic actions and higher impairments, partially offset by lower headquarters and treasury operations 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.

GE 2018 FORM 10-K 35

 
MD&A
CORPORATE ITEMS AND ELIMINATIONS

GE CORPORATE ITEMS AND ELIMINATIONS
GE Corporate Items and Eliminations is a caption used in the Segment Operations Summary of Operating Segment table to reconcile the aggregated results of our segments to the consolidated results of the Company. As such, it includes corporate activities, including certain GE Digital activities, and the elimination of inter-segment activities. Specifically, the GE Corporate Items and Eliminations amounts related to revenues and earnings include the results of disposed businesses, certain amounts not included in industrial operating segment results because they are excluded from measurement of their operating performance for internal and external purposes and the elimination of inter-segment activities. In addition, the GE Corporate Items and Eliminations amounts related to earnings include certain costs of our principal retirement plans, restructuring and other costs reported in Corporate, and the unallocated portion of certain corporate costs (such as research and development spending and costs related to our Global Growth Organization).
REVENUES AND OPERATING PROFIT (COST) (In millions)
2018

2017

2016

Revenues
 <