10-Q 1 ge1q201910-q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
                                 (Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-00035
geform10q3qfinal1image1a09.jpg
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

New York
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
41 Farnsworth Street, Boston, MA
 
02210
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (617) 443-3000

_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
There were 8,720,808,000 shares of common stock with a par value of $0.06 per share outstanding at March 31, 2019.




TABLE OF CONTENTS
 



FORWARD LOOKING STATEMENTS
 
 

FORWARD LOOKING STATEMENTS
Our public communications and SEC filings may contain "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast," "target," "preliminary," or "range."

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about our expected financial performance; 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, pension funding contributions and other factors, as well as the timing of cash flows; 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 and other 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, aircraft fleet groundings 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 "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018 and in this quarterly report on Form 10-Q.

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.

2019 1Q FORM 10-Q 3


MD&A
 
 


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 five 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.

Refer to the Glossary for a list of key terms used in our MD&A and financial statements.
OUR INDUSTRIAL OPERATING SEGMENTS
Power
Oil & Gas
Renewable Energy
Healthcare
Aviation
 
OUR FINANCIAL SERVICES OPERATING SEGMENT
Capital

Operational and financial overviews for our operating segments are provided in the “Segment Operations” section within this MD&A.

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures.

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.

GE’s Internet address at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts and other social media, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.

4 2019 1Q FORM 10-Q


MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS
2019 REVENUES PERFORMANCE
Three months ended March 31
Industrial Segment
(2
)%
Industrial Segment Organic (Non-GAAP)
5
 %
GE INDUSTRIAL ORDERS AND BACKLOG
Three months ended March 31
(In billions)
2019

2018

 
 
 
Equipment
$
12.3

$
12.2

Services
14.0

13.7

Total orders
$
26.2

$
25.9

 
 
 
Equipment
$
84.4

$
80.4

Services
289.8

273.1

Total backlog
$
374.2

$
353.5

GE INDUSTRIAL PROFIT MARGIN
 
 
 
 
 
GE Industrial profit margin (GAAP)
4.8
%
2.3
%
Adjusted GE Industrial profit margin (Non-GAAP)
8.8
%
10.0
%
EARNINGS (In billions; per-share amounts in dollars and diluted; attributable to GE common shareowners)
 
 
 
 
 
Continuing earnings (loss) (GAAP)
$
1.0

$
0.3

Net earnings (loss) (GAAP)
3.5

(1.2
)
Adjusted earnings (loss) (Non-GAAP)
1.2

1.3

 
 
 
Continuing earnings (loss) per share (GAAP)
$
0.11

$
0.03

Net earnings (loss) per share (GAAP)
0.40

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

0.15

GE CFOA AND GE INDUSTRIAL FREE CASH FLOWS (In billions)
 
 
 
 
 
GE CFOA (GAAP)
$
(0.9
)
$
(1.1
)
GE Industrial free cash flows (Non-GAAP)
(1.8
)
(1.8
)
Adjusted GE Industrial free cash flows (Non-GAAP)
(1.2
)
(1.8
)

2019 1Q FORM 10-Q 5


MD&A
CONSOLIDATED RESULTS
 

CONSOLIDATED RESULTS
SIGNIFICANT DEVELOPMENTS
On November 13, 2017, the Company announced its intention to exit approximately $20 billion of GE Industrial assets over one to two years. Since this announcement, GE has classified various businesses across our Power, Aviation and Healthcare segments and Corporate as held for sale. In the first quarter of 2019, we closed two transactions within our Power segment and Corporate for total net proceeds of $0.6 billion and recognized a pre-tax gain of $0.2 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.

In November 2018, and 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. 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. Any reduction in our ownership interest below 50% will result in us losing control of BHGE. At that point, we would deconsolidate our Oil & Gas segment, recognize any remaining interest at fair value and recognize any difference between carrying value and fair value of our interest in earnings. Depending on the form and timing of our separation, and if BHGE’s stock price remains below our current carrying value, we may recognize a significant loss in earnings. Based on BHGE's share price at April 26, 2019 of $25.58 per share, the incremental loss upon deconsolidation from a sale of our interest would be approximately $7.3 billion. See Note 15 to the consolidated financial statements for further information.

On February 25, 2019, we completed the spin-off and subsequent merger of our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. In the transaction, participating GE shareholders received shares of Wabtec common stock representing an approximate 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. GE is also entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction. As a result, we reclassified our Transportation segment to discontinued operations in the first quarter of 2019 and recorded a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. See Note 2 to the consolidated financial statements for further information.

Also 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. At March 31, 2019, we classified BioPharma as a business held for sale. The transaction is expected to close in the fourth quarter of 2019, subject to regulatory approvals and customary closing conditions, and provides us flexibility and optionality with respect to our remaining Healthcare business.

Effective the first quarter of 2019, Corporate items and eliminations includes the results of our Lighting segment for all periods presented.

On February 19, 2019, the Board of Directors elected Ms. Catherine Lesjak, the former Chief Financial Officer of HP, Inc., to the Board, effective March 1, 2019.

FIRST QUARTER 2019 RESULTS
Consolidated revenues were $27.3 billion, down $0.5 billion, or 2%, for the quarter. The decrease in revenues was largely a result of the the absence of Industrial Solutions, Value-Based Care and Distributed Power following their sales in June 2018, July 2018 and November 2018, respectively. Industrial segment organic revenues* increased $1.3 billion, or 5%, driven by our Aviation, Oil & Gas, Healthcare and Renewable Energy segments, partially offset by our Power segment.

Continuing earnings per share was $0.11. Excluding non-operating benefit costs, gains on business dispositions, restructuring and other charges and the impact of U.S. tax reform, Adjusted earnings per share* was $0.14.

For the three months ended March 31, 2019, GE Industrial profit was $1.2 billion and GE Industrial profit margins were 4.8%, up $0.6 billion or 250 basis points, driven by increased net gains from disposed or held for sale businesses of $0.4 billion and decreased restructuring and other costs of $0.1 billion, partially offset by increased adjusted Corporate operating costs* of $0.1 billion. Industrial segment profit decreased 1%, primarily due to lower results within our Renewable Energy and Power segments, partially offset by the performance of our Aviation, Healthcare and Oil & Gas segments. Industrial segment organic profit* decreased $0.2 billion, or 7%.







*Non-GAAP Financial Measure

6 2019 1Q FORM 10-Q


MD&A
CONSOLIDATED RESULTS
 

GE CFOA from continuing operations was $(0.9) billion and $(1.1) billion for the three months ended March 31, 2019 and 2018, respectively. The increase in GE CFOA is primarily due to lower net disbursements for equipment project costs and no GE Pension Plan contributions in 2019 compared to $0.3 billion in 2018, partially offset by higher cash used for working capital and contract and other deferred assets compared to 2018. Adjusted GE Industrial free cash flows (FCF)* were $(1.2) billion and $(1.8) billion for the three months ended March 31, 2019 and 2018, respectively. The decrease in cash used was primarily due to lower net disbursements for equipment project costs and lower additions to property, plant and equipment and internal-use software, partially offset by higher cash used for working capital and contract and other deferred assets compared to 2018. See the Capital Resources and Liquidity - Statement of Cash Flows section within this MD&A for further information.

REVENUES
Three months ended March 31
(In billions)
2019

2018

 
 
 
Consolidated revenues
$
27.3

$
27.8

 
 
 
Industrial segment revenues
25.5

26.1

Corporate items and Industrial eliminations
(0.1
)

GE Industrial revenues
$
25.4

$
26.0

 
 
 
Financial services revenues
$
2.2

$
2.2

REVENUES COMMENTARY: 2019 – 2018
Consolidated revenues decreased $0.5 billion, or 2%, primarily driven by decreased industrial segment revenues of $0.6 billion, partially offset by increased Financial Services revenues of $0.1 billion. The overall foreign currency impact on consolidated revenues was a decrease of $0.7 billion.

Industrial segment revenues decreased $0.6 billion, or 2%, as decreases at Power, Renewable Energy and Healthcare were partially offset by increases at Aviation and Oil & Gas. This decrease was driven by the net effects of dispositions of $1.2 billion, primarily attributable to the absence of Industrial Solutions, Value-Based Care and Distributed Power following their sales in June 2018, July 2018 and November 2018, respectively, and the effects of a stronger U.S. dollar of $0.7 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $1.3 billion, or 5%.

Financial Services revenues increased $0.1 billion, or 2%, primarily due to higher gains and lower impairments, partially offset by volume declines.
EARNINGS (LOSS) AND EARNINGS (LOSS) PER SHARE
Three months ended March 31
(In billions; per-share in dollars and diluted)
2019

2018

 
 
 
Continuing earnings
$
1.0

$
0.3

 
 
 
Continuing earnings per share
$
0.11

$
0.03

EARNINGS COMMENTARY: 2019 – 2018
Consolidated continuing earnings increased $0.7 billion due to increased GE Industrial continuing earnings of $0.4 billion, decreased Financial Services losses of $0.4 billion, decreased non-operating benefit costs of $0.1 billion and decreased interest and other financial charges of $0.1 billion, partially offset by increased provision for GE Industrial income taxes of $0.3 billion.

GE Industrial continuing earnings increased $0.4 billion, or 23%. Corporate items and eliminations increased $0.5 billion primarily attributable to increased net gains from disposed or held for sale businesses of $0.4 billion and decreased restructuring and other costs of $0.1 billion, partially offset by increased adjusted Corporate operating costs* of $0.1 billion. Industrial segment profit decreased 1%, with decreases at Renewable Energy and Power, partially offset by higher profit at Aviation, Healthcare and Oil & Gas. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.1 billion, primarily associated with the absence of Industrial Solutions, Value-Based Care and Distributed Power following their sales in June 2018, July 2018 and November 2018, respectively, offset by lower restructuring and business development costs related to Baker Hughes of $0.3 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $0.2 billion, or 7%.

Financial Services continuing losses decreased $0.4 billion, primarily due to lower excess interest costs, tax law change, higher gains and lower impairments.






*Non-GAAP Financial Measure

2019 1Q FORM 10-Q 7


MD&A
CONSOLIDATED RESULTS
 

AVIATION AND GECAS 737 MAX
Aviation develops, produces, and sells LEAP aircraft engines through CFM International, a company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the Safran Group of France. The LEAP-1B engine is the exclusive engine for the Boeing 737 MAX. In March 2019, global regulatory authorities ordered a temporary fleet grounding of the Boeing 737 MAX. Boeing has announced a temporary reduction in the 737 MAX production rate, and while CFM intends to continue its current production rate for the LEAP-1B, the announcement may impact the timing of those related cash flows.

GECAS owns 29 of these aircraft, all of which are leased to various lessees that remain obligated to make contractual rental payments. In addition, GECAS has made pre-delivery payments to Boeing related to 150 of these aircraft on order and has made financing commitments to acquire a further 19 aircraft under purchase and leaseback contracts with airlines.

As of March 31, 2019, we have approximately $1.5 billion of net assets related to the 737 MAX program that primarily comprises pre-delivery down payments and owned aircraft subject to lease offset by progress collections. No impairment charges were incurred related to the 737 MAX aircraft and related balances in the first quarter of 2019 as we continue to believe these assets are fully recoverable. We continue to monitor these developments with our airline customers, lessees and Boeing.

SEGMENT OPERATIONS
Segment revenues include sales of products and services related to the segment. Industrial segment profit is determined based on internal performance measures used by our Chief Operating Decision Maker, who is our 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.

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.

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). Remaining performance obligations (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.

March 31, 2019
(In billions)
Equipment

Services

Total





Backlog
$
84.4

$
289.8

$
374.2

Adjustments
(38.3
)
(94.6
)
(132.9
)
Remaining Performance Obligation
$
46.1

$
195.2

$
241.4

Adjustments to reported backlog of $(132.9) billion as of March 31, 2019 are largely driven by adjustments of $(118.6) 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.


8 2019 1Q FORM 10-Q


MD&A
SEGMENT OPERATIONS
 

SUMMARY OF OPERATING SEGMENTS
Three months ended March 31
(Dollars in millions)
2019

2018

V%

 
 
 
 
Revenues
 
 
 
Power
$
5,659

$
7,222

(22)
 %
Renewable Energy
1,604

1,646

(3)
 %
Aviation
7,954

7,112

12
 %
Oil & Gas
5,616

5,385

4
 %
Healthcare
4,683

4,702

 %
      Total industrial segment revenues
25,517

26,067

(2)
 %
Capital
2,227

2,173

2
 %
      Total segment revenues
27,743

28,240

(2)
 %
Corporate items and eliminations(a)
(458
)
(452
)
(1
)%
Consolidated revenues
$
27,286

$
27,788

(2)
 %
 
 
 
 
Segment profit (loss)
 
 
 
Power
$
80

$
273

(71)
 %
Renewable Energy
(162
)
77

U

Aviation
1,660

1,603

4
 %
Oil & Gas(b)
163

(144
)
F

Healthcare
781

735

6
 %
      Total industrial segment profit
2,523

2,544

(1)
 %
Capital
135

(215
)
F

      Total segment profit (loss)
2,658

2,328

14
 %
Corporate items and eliminations(a)
(204
)
(659
)
69
 %
GE interest and other financial charges
(588
)
(639
)
8
 %
GE non-operating benefit costs
(562
)
(681
)
17
 %
GE benefit (provision) for income taxes
(350
)
(89
)
U

Earnings (loss) from continuing operations attributable to GE common shareowners
954

261

F

Earnings (loss) from discontinued operations, net of taxes
2,592

(1,441
)
F

      Less net earnings attributable to noncontrolling interests, discontinued operations
(2
)
4

U

   Earnings (loss) from discontinued operations, net of tax and noncontrolling interest
2,595

(1,444
)
F

Consolidated net earnings (loss) attributable to the GE common shareowners
$
3,549

$
(1,184
)
F

(a)
Effective the first quarter of 2019, Corporate items and eliminations includes the results of our Lighting segment for all periods presented.
(b)
Oil & Gas segment profit excluding restructuring and other charges* was $222 million and $181 million for the three months ended March 31, 2019 and 2018, respectively.





















*Non-GAAP Financial Measure

2019 1Q FORM 10-Q 9


MD&A
SEGMENT OPERATIONS | POWER

POWER
Effective the first quarter of 2019, we reorganized the businesses within our Power segment into Gas Power and Power Portfolio, and effectively eliminated the Power headquarters structure to allow us to reduce costs and improve operations. Gas Power is a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio comprises our Steam Power Systems (including services previously reported in Power Services), Power Conversion, Grid Solutions and GE Hitachi Nuclear businesses. Power Portfolio's 2018 results also include our former Industrial Solutions and Distributed Power businesses which were sold in June 2018 and November 2018, respectively. We also announced our intention to reorganize Grid Solutions into our Renewable Energy segment. We anticipate this reorganization will be completed later in 2019 and will be reflected in all prior periods presented.

As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power is driven by the significant overcapacity in the industry, our market penetration and uncertainty in timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook could be 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. We believe the overall market for new gas units will be between 25 to 30 gigawatts per year.

Three months ended March 31
(Dollars in billions)
2019

2018

 
 
 
Equipment
$
2.4

$
3.5

Services
3.2

3.7

Total segment revenues
$
5.7

$
7.2

 
 
 
Segment profit
$
0.1

$
0.3

Segment profit margin
1.4
%
3.8
%
Gas Power
$
3.3

$
3.5

Power Portfolio
2.4

3.7

Total sub-segment revenues
$
5.7

$
7.2

Equipment
$
1.9

$
2.3

Services
2.9

3.2

Total orders
$
4.8

$
5.6

 
 
 
Equipment
$
24.7

$
25.8

Services
68.2

70.2

Total backlog
$
92.9

$
95.9

Gas Turbine unit orders
11

4

H-Turbine(a) unit orders
3


 
 
 
Gas Turbine unit sales
7

12

H-Turbine(a) unit sales
1

1

(a) H-Turbines are a subset of Gas Turbines.
2019 – 2018 COMMENTARY:
Segment revenues were down $1.6 billion (22%) and segment profit was down $0.2 billion (71%).
Equipment revenues decreased $1.1 billion due to lower unit sales, including five fewer gas turbines, as well as the absence of $0.6 billion of revenues for Industrial Solutions and Distributed Power combined following their sales in June 2018 and November 2018. Services revenues also decreased $0.5 billion, despite seven more AGP upgrades, primarily due to the absence of $0.3 billion of revenues for Industrial Solutions and Distributed Power. Revenues further decreased due to the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to lower unit sales and the absence of $0.1 billion of profit for Industrial Solutions and Distributed Power. These decreases were partially offset by improving total cost fundamentals and favorable contractual settlements of $0.1 billion each.

10 2019 1Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

RENEWABLE ENERGY
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 to drive down costs and compete with other power generation options. Despite the competitive nature of the market, onshore wind pricing continued to stabilize in the quarter due to demand caused by the anticipated expiration of Production Tax Credits (PTCs) in the U.S. in 2020 and auction stabilization in international markets. We expect a significant production ramp for 2019 deliveries and are monitoring our operational risk as we execute.

Three months ended March 31
(Dollars in billions)
2019

2018

 
 
 
Equipment
$
1.1

$
1.2

Services
0.5

0.4

Total segment revenues
$
1.6

$
1.6

 
 
 
Segment profit (loss)
$
(0.2
)
$
0.1

Segment profit margin
(10.1
)%
4.7
%
Onshore Wind
$
1.4

$
1.3

Hydro and Offshore Wind
0.2

0.4

Total sub-segment revenues
$
1.6

$
1.6

Equipment
$
2.0

$
2.1

Services
0.4

0.3

Total orders
$
2.4

$
2.4

 
 
 
Equipment
$
9.6

$
8.5

Services
9.0

7.5

Total backlog
$
18.5

$
16.0

Wind Turbine unit orders
970

936

Wind Turbine unit sales
353

352

2019 – 2018 COMMENTARY:
Segment revenues were down 3% and segment profit was down $0.2 billion.

Equipment revenues decreased, despite one more wind turbine shipment on a unit basis, or 13% more megawatts shipped, than in the prior year, as a result of $0.1 billion of liquidated damages related to an Offshore Wind project. Services revenues increased due to the larger installed base resulting in increased contractual revenues, as well as an increase in repower pricing which was only partially offset by 20 fewer repower units at Onshore Wind than in the prior year. Revenues also decreased due to the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to project cost overruns in Offshore Wind and Hydro including liquidated damages related to an Offshore Wind project, increased research and development spend for Haliade-X and Cypress and higher losses in Hydro and Offshore as we began fully consolidating these entities in the fourth quarter of 2018. Results were also impacted by pricing pressure and the impact of tariffs, partially offset by a $0.1 billion non-cash gain from the termination of two Offshore Wind contracts, as well as cost productivity and higher volume.


2019 1Q FORM 10-Q 11


MD&A
SEGMENT OPERATIONS | AVIATION

AVIATION
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 decreased, particularly in international markets, driven by economic conditions and slowing global trade. We shipped 424 LEAP engines during the quarter and remain on track to ship 1,800+ engines in 2019. Total engineering, comprised of both company and customer funded spending, continues to grow in line with revenue growth. Company funded research and development spend has remained flat as more costs have transitioned to external funding, primarily in our Military business.

Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's related exposure.
 
Three months ended March 31
(Dollars in billions)
2019

2018

 
 
 
Equipment
$
3.1

$
2.5

Services
4.8

4.6

Total segment revenues
$
8.0

$
7.1

 
 
 
Segment profit
$
1.7

$
1.6

Segment profit margin
20.9
%
22.5
%
Commercial Engines & Services
$
5.9

$
5.3

Military
1.0

1.0

Systems & Other
1.0

0.9

Total sub-segment revenues
$
8.0

$
7.1

Equipment
$
3.2

$
3.2

Services
5.5

5.0

Total orders
$
8.7

$
8.1

 
 
 
Equipment
$
38.0

$
34.5

Services
185.4

167.1

Total backlog
$
223.5

$
201.6

Commercial Engines unit orders
799

1,175

LEAP Engines(a) unit orders
636

994

Military Engines unit orders
26

251

 
 
 
Commercial Engines unit sales
751

651

LEAP Engines(a) unit sales
424

186

Military Engines unit sales
161

138

Spares Rate(b) unit sales
$
30.6

$
25.2

(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.
2019 – 2018 COMMENTARY:
Segment revenues were up $0.8 billion (12%) and segment profit was up $0.1 billion (4%).
Equipment revenues increased primarily due to 100 more commercial units, including 238 more LEAP units, and 23 more military engine shipments versus the prior year, partially offset by lower legacy commercial output in the CFM product line. Services revenues also increased primarily due to a higher commercial spares shipment rate driven by higher aircraft utilization, as well as increased price.
The increase in profit was mainly due to increased volume, increased price and manufacturing cost productivity. These increases were partially offset by the continued negative mix from the CFM to LEAP engine transition and Passport engine shipments.





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

12 2019 1Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | OIL & GAS

OIL & GAS
The oil and gas markets experienced a mixed first quarter. Commodity prices increased over 30% through the quarter due to OPEC production cuts and geo-political events, but on average were 8% lower than the fourth quarter of 2018. Rig counts in the quarter were up 2% versus the first quarter of 2018. From an offshore and liquefied natural gas (LNG) perspective, in the first quarter of 2019, major equipment projects were awarded in the Oilfield Equipment and Turbomachinery & Process Solutions businesses.
 
Three months ended March 31
(Dollars in billions)
2019

2018

 
 
 
Equipment
$
2.3

$
2.2

Services
3.3

3.2

Total segment revenues
$
5.6

$
5.4

 
 
 
Segment profit
$
0.2

$
(0.1
)
Segment profit margin
2.9
%
(2.7
)%
Turbomachinery & Process Solutions (TPS)
$
1.3

$
1.4

Oilfield Services (OFS)
3.0

2.7

Oilfield Equipment (OFE)
0.7

0.7

Digital Solutions
0.6

0.6

Total sub-segment revenues
$
5.6

$
5.4

Equipment
$
2.3

$
1.9

Services
3.4

3.3

Total orders
$
5.7

$
5.2

 
 
 
Equipment
$
5.4

$
5.3

Services
15.5

16.6

Total backlog
$
20.9

$
21.8

2019 – 2018 COMMENTARY:
Segment revenues were up $0.2 billion (4%) and segment profit was up $0.3 billion.

Services and equipment revenues increased primarily resulting from higher OFS activity of $0.3 billion in international and North America markets and higher OFE activity of $0.1 billion driven by higher volume in subsea production systems, services and drilling. These increases were partially offset by decreased revenues of $0.1 billion at TPS due to lower equipment installation volume, lower services upgrades and the sale of the Natural Gas Solutions business in October 2018 as well as the effects of a stronger U.S. dollar versus certain currencies.
The increase in profit was primarily driven by volume growth, synergies delivered from combining our Oil & Gas business with Baker Hughes Incorporated and lower restructuring and other charges of $0.3 billion.


2019 1Q FORM 10-Q 13


MD&A
SEGMENT OPERATIONS | HEALTHCARE

HEALTHCARE
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, which encompasses Bioprocess and Pharmaceutical diagnostics, continues to be strong. The Bioprocess market is growing at a high single digit rate, driven by growth in biologic drugs. The Pharmaceutical diagnostics business is positioned in the contrast agent and nuclear tracer markets. This market is expected to grow at low- to mid-single digit rates, driven by continued diagnostic imaging procedure growth and increasing contrast and tracer-enhancement of these same procedures, as these products help to increase the precision of the diagnostic information provided to clinicians. Effective January 1, 2019, the Healthcare Equipment Finance (HEF) financing business within our Capital segment was transferred to our Healthcare segment and is presented within Healthcare Systems.
 
Three months ended March 31
(Dollars in billions)
2019

2018

 
 
 
Equipment
$
2.7

$
2.6

Services
2.0

2.1

Total segment revenues
$
4.7

$
4.7

 
 
 
Segment profit
$
0.8

$
0.7

Segment profit margin
16.7
%
15.6
%
Healthcare Systems
$
3.4

$
3.6

Life Sciences
1.3

1.1

Total sub-segment revenues
$
4.7

$
4.7

Equipment
$
2.9

$
2.7

Services
2.0

2.1

Total orders
$
4.9

$
4.7

 
 
 
Equipment
$
6.6

$
6.1

Services
11.3

11.5

Total backlog
$
17.9

$
17.7

2019 – 2018 COMMENTARY:
Segment revenues were flat and segment profit was up 6%.

Equipment revenues increased $0.1 billion due to higher volume in Life Sciences, driven by Bioprocess and Pharmaceutical Diagnostics. Services revenues decreased primarily attributable to the absence of $0.1 billion of revenues for the Value-Based Care Division following its sale in July 2018. Revenues further decreased due to the effects of a stronger U.S. dollar versus certain currencies as well as price pressure at Healthcare Systems.
The increase in profit was primarily driven by volume growth and cost productivity due to cost reduction actions including increased 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, the impact of tariffs, investments in programs including digital product innovations and Healthcare Systems new product introductions, and the absence of the Value-Based Care Division following its sale in July 2018.


14 2019 1Q FORM 10-Q


MD&A
SEGMENT OPERATIONS | CAPITAL

CAPITAL
GE Capital provided capital contributions to its insurance subsidiaries of approximately $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. See the Capital Resources and Liquidity section within this MD&A for further information.
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 Energy Financial Services (EFS) and Industrial Finance (IF) businesses (GE Capital strategic shift). With respect to this announcement, we completed $15 billion of asset reductions during 2018 and $1.1 billion of asset reductions during the first quarter of 2019. We expect to execute total asset reductions of approximately $10 billion in 2019, primarily comprising receivables held by WCS, supply chain finance program and EFS assets. We continue to evaluate strategic options to accelerate the further reduction in the size of GE Capital, some of which could have a material financial charge depending on the timing, negotiated terms and conditions of any ultimate arrangements.
GE Capital paid no common dividends in 2018 and in the first quarter of 2019 and does not expect to make a common dividend distribution to GE for the foreseeable future.
Effective January 1, 2019, the HEF business within our Capital segment was transferred to our Healthcare segment.
Refer to the Aviation and GECAS 737 MAX discussion in Consolidated Results for information regarding the Company's related exposure.
 
Three months ended March 31
(In billions)
2019

2018

 
 
 
GE Capital Aviation Services (GECAS)
$
1.2

$
1.2

Energy Financial Services


Industrial Finance and WCS
0.3

0.3

Insurance
0.7

0.7

Other continuing operations


Total sub-segment revenues
$
2.2

$
2.2

GECAS
$
0.3

$
0.3

EFS


Industrial Finance and WCS
0.1

0.1

Insurance


Other continuing operations(a)
(0.3
)
(0.5
)
Total sub-segment profit
$
0.1

$
(0.2
)
 
March 31, 2019
December 31, 2018
GE Capital debt to equity ratio
5.4:1
5.7:1
(a)
Other continuing operations 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 (our plan announced in 2015 to reduce the size of our financial services businesses), 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 that have a carrying value of $5.3 billion at March 31, 2019 and will convert into common equity. The 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.

20192018 COMMENTARY:
Capital revenues increased $0.1 billion, or 2%, primarily due to higher gains and lower impairments, partially offset by volume declines.

Capital losses decreased $0.4 billion, primarily due to lower excess interest costs, tax law changes, higher gains and lower impairments. Gains were $0.2 billion and $0.1 billion in the first quarter of 2019 and 2018, respectively, which primarily related to sales of GECAS aircraft and engines resulting in gains of $0.1 billion in both 2019 and 2018.

2019 1Q FORM 10-Q 15


MD&A
CORPORATE ITEMS AND ELIMINATIONS

CORPORATE ITEMS AND ELIMINATIONS
 
 
 
 
REVENUES AND OPERATING PROFIT (COST)(a)
Three months ended March 31
(In millions)
2019

2018

 
 
 
 
Revenues
 
 
 
Eliminations and other
$
(458
)
$
(452
)
Total Corporate Items and Eliminations
$
(458
)
$
(452
)
 
 
 
 
Operating profit (cost)
 
 
 
Gains (losses) on disposals(b)
$
365

$
(67
)
 
Restructuring and other charges(c)
(239
)
(339
)
 
Unrealized gains (losses)(d)
13


 
Adjusted total corporate costs (operating) (Non-GAAP)
(343
)
(253
)
Total Corporate Items and Eliminations (GAAP)
$
(204
)
$
(659
)
(a)
Effective the first quarter of 2019, Corporate items and eliminations includes the results of our Lighting segment for all periods presented.
(b)
Includes gains (losses) on disposed or held for sale businesses.
(c)
Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.
(d)
Amount is related to our retained Wabtec equity investment for the first three months of 2019.

We believe that adjusting operating corporate costs* to exclude the effects of items that are not closely associated with ongoing corporate operations (see reconciliation below), such as earnings of previously divested businesses, gains and losses on disposed and held for sale businesses, restructuring and other charges provides management and investors with a meaningful measure that increases the period-to-period comparability of our ongoing corporate costs.
CORPORATE COSTS (OPERATING)
Three months ended March 31
(In millions)
2019

2018

 
 
 
Total Corporate Items and Eliminations (GAAP)
$
(204
)
$
(659
)
Less: restructuring and other charges
(239
)
(339
)
Less: gains (losses) on disposals
365

(67
)
Less: unrealized gains (losses)
13


Adjusted total corporate costs (operating) (Non-GAAP)
$
(343
)
$
(253
)

2019 - 2018 COMMENTARY: THREE MONTHS ENDED MARCH 31
Revenues remained flat at $0.5 billion, primarily as a result of a $0.1 billion decrease in inter-segment eliminations and a $0.1 billion decrease in revenue related to our Lighting business now reported within Corporate Items and Eliminations.

Operating costs decreased $0.5 billion, primarily as a result of $0.4 billion of higher net gains from disposed or held for sale businesses, which is primarily related to the $0.2 billion gain from the sale of our Digital ServiceMax business to Silver Lake in the first quarter of 2019, $0.1 billion gain due to a tax indemnity release related to our legacy NBCU business in the first quarter of 2019 and $0.1 billion of lower held for sale losses within our Corporate segment. Operating costs also decreased due to $0.1 billion of lower restructuring and other charges primarily related to our Power segment, partially offset by $0.1 billion of higher adjusted total Corporate operating costs.

Restructuring actions are an essential component of our cost improvement efforts to both existing operations and those recently acquired. Restructuring and other charges relate primarily to workforce reductions, facility exit costs associated with the consolidation of sales, service and manufacturing facilities, the integration of recent acquisitions, including Alstom, the Baker Hughes transaction, and certain other asset write-downs such as those associated with product line exits. We continue to closely monitor the economic environment and expect to undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.

RESTRUCTURING & OTHER CHARGES
Three months ended March 31
(In billions)
2019

2018

 
 
 
Workforce reductions
$
0.2

$
0.2

Plant closures & associated costs and other asset write-downs
0.1

0.2

Acquisition/disposition net charges
0.1

0.2

Other


Total
$
0.3

$
0.6

*Non-GAAP Financial Measure

16 2019 1Q FORM 10-Q


MD&A
CORPORATE ITEMS AND ELIMINATIONS

2019 - 2018 COMMENTARY: THREE MONTHS ENDED MARCH 31
For the three months ended March 31, 2019, restructuring and other charges were $0.3 billion of which approximately $0.1 billion was reported in cost of products/services and $0.2 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate, Healthcare and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $0.3 billion for the three months ended March 31, 2019. Of the total $0.3 billion restructuring and other charges, $0.1 billion was recorded in the Oil & Gas segment, which amounted to $0.1 billion net of noncontrolling interest.

For the three months ended March 31, 2018, restructuring and other charges were $0.6 billion of which approximately $0.3 billion was reported in cost of products/services, $0.3 billion was reported in SG&A. These activities were primarily at Oil & Gas, Power and Corporate. Cash expenditures for restructuring and other charges were approximately $0.4 billion for the three months ended March 31, 2018. Of the total $0.6 billion restructuring and other charges, $0.3 billion was recorded in the Oil & Gas segment, which amounted to $0.2 billion net of noncontrolling interest.

As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. These costs relate primarily to restructuring and acquisition and disposition activities. The amount of costs and gains (losses) not included in segment results are as follows:
COSTS
Three months ended March 31
(In billions)
2019

2018

 
 
 
Power
$

$
0.1

Renewable Energy


Aviation


Oil & Gas


Healthcare
0.1

0.1

Total Segments
$
0.1

$
0.2

Corporate Items & Eliminations
$
0.1

$
0.1

Total Industrial
$
0.2

$
0.3

GAINS (LOSSES)
Three months ended March 31
(In billions)
2019

2018

 
 
 
Power
$

$

Renewable Energy


Aviation


Oil & Gas


Healthcare


Total Segments
$

$

Corporate Items & Eliminations(a)
$
0.4

$

Total Industrial
$
0.4

$
(0.1
)
(a)
For the three months ended March 31, 2018, there were $0.1 billion of losses not represented in the segment results, primarily within the Power segment and Corporate.

2019 1Q FORM 10-Q 17


MD&A
OTHER CONSOLIDATED INFORMATION

OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES
Consolidated interest and other financial charges amounted to $1.1 billion and $1.3 billion for the three months ended March 31, 2019 and 2018, respectively.

GE interest and other financial charges (which excludes interest on assumed debt) amounted to $0.6 billion and $0.6 billion for the three months ended March 31, 2019 and 2018, respectively, as interest expense on a higher balance of intercompany loans from GE Capital was offset by a lower average commercial paper balance for the quarter. The primary components of GE interest and other financial charges are interest on short- and long-term borrowings and financing costs on sales of receivables. Total GE interest and other financial charges of $0.3 billion and $0.4 billion was recorded at Corporate and $0.3 billion and $0.3 billion was recorded by GE segments for the three months ended March 31, 2019 and 2018, respectively.

GE Capital interest and other financial charges (which includes interest on debt assumed by GE), was $0.7 billion and $0.8 billion for the three months ended March 31, 2019 and 2018, respectively. The decrease in 2019 compared to 2018 was primarily due to lower average borrowings balances due to maturities and lower net interest on assumed debt resulting from an increase in intercompany loans to GE which bear the right of offset (see the Borrowings section of Capital Resources and Liquidity within this MD&A for an explanation of assumed debt and right-of-offset loans), partially offset by an increase in average interest rates due to changes in market rates.

CONSOLIDATED INCOME TAXES
Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in over 180 countries and the majority of our revenue is earned outside the U.S. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, like research and development; and by acquisitions, dispositions and tax law changes. On December 22, 2017, the U.S. enacted legislation commonly known as the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowers the statutory tax rate on our U.S. earnings, taxes historic foreign earnings at a reduced rate of tax, creates a territorial tax system and enacts new taxes associated with global operations. The tax charges associated with the enactment of U.S. tax reform are described in Note 14 to the consolidated financial statements. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.

GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE’s tax payments are due.

See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.

20192018 COMMENTARY: THREE MONTHS ENDED MARCH 31
The consolidated income tax rate was 17.4% and (18.1)% for the quarters ended March 31, 2019 and 2018, respectively. The negative rate for 2018 reflects a tax benefit on pre-tax income.

The consolidated provision (benefit) for income taxes was $0.2 billion in the first quarter of 2019 and $(0.1) billion in the first quarter of 2018. The increase in tax provision was primarily due to the increase in pre-tax income, increased expense from global activities and the nonrecurrence of a tax benefit recorded at Baker Hughes to adjust the provisional estimate of the impact of the 2017 enactment of U.S. tax reform partially offset by favorable audit resolutions.

The consolidated tax provision (benefit) includes $0.4 billion and $0.1 billion for GE (excluding GE Capital*) for the first quarters of 2019 and 2018, respectively.

The effective tax rate in future periods is expected to increase given changes in our income profile including changes in GE Capital earnings.

DISCONTINUED OPERATIONS
Discontinued operations primarily comprise our Transportation segment, residual assets and liabilities related to our exited U.S. mortgage business (WMC), as discussed in Legal Proceedings and Notes 2 and 19 to the consolidated financial statements, our mortgage portfolio in Poland and trailing liabilities associated with the sale of our GE Capital businesses.

In the first quarter of 2019, as a result of the spin-off and subsequent merger of our Transportation business with Wabtec, we recognized a gain of $3.5 billion ($2.5 billion after-tax) in discontinued operations. See Note 2 to the consolidated financial statements for further information.

*Non-GAAP Financial Measure

18 2019 1Q FORM 10-Q


MD&A
OTHER CONSOLIDATED INFORMATION

During the first quarter of 2018, we recorded a reserve of $1.5 billion in discontinued operations in connection with the United States Department of Justice (DOJ) ongoing investigation regarding potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and GE Capital.

In January 2019, we announced an agreement in principle with the United States to settle this matter, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion, on behalf of itself and WMC.

FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS
Three months ended March 31
(In billions)
2019

2018

Earnings (loss) of discontinued operations, net of taxes
$

$
(1.4
)
Gain (loss) on disposal, net of taxes
$
2.6

$

Earnings (loss) from discontinued operations, net of taxes
$
2.6

$
(1.4
)

CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL POLICY
We intend to maintain a disciplined financial policy, targeting a sustainable credit rating in the Single-A range with a GE industrial net debt*/EBITDA ratio of less than 2.5x and a dividend in line with our peers over time, as well as a less than 4-to-1 debt-to-equity ratio for GE Capital. We expect to make significant progress toward our leverage goals over the next two years.

For GE, over the next two years we expect to have significant sources that can be used to de-lever and de-risk the Company, including $3.4 billion realized as proceeds from the completion of the merger of our Transportation business with Wabtec and the sale of our Digital ServiceMax business, and future proceeds from the sale of our BioPharma business within our Healthcare segment and the monetization of our remaining stakes in BHGE and Wabtec. GE industrial net debt* was $54.3 billion and $55.4 billion at March 31, 2019 and December 31, 2018, respectively.

For GE Capital, in addition to $15.4 billion of liquidity at March 31, 2019, we generated approximately $1.1 billion from asset reductions in the first quarter of 2019 as part of our plan to execute total asset reductions of approximately $10 billion in 2019 to meet our overall $25 billion target. In addition, GE Capital expects to receive approximately $4 billion of capital contributions from GE in 2019.

We maintain a strong focus on liquidity, and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At both GE and GE Capital, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.

Our liquidity plans are established within the context of our financial and strategic planning processes and consider the liquidity necessary to fund our operating commitments, which include purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also consider our capital allocation and growth objectives, including funding debt maturities and insurance obligations, investing in research and development, and dividend payments.

Following is an overview of the primary sources of liquidity for GE and GE Capital as well as significant transactions that affect their respective liquidity positions. See the Liquidity Sources section for details of GE and GE Capital liquidity and the Statement of Cash Flows section for information regarding GE and GE Capital cash flow results.

GE LIQUIDITY
GE's primary sources of liquidity consist of cash and cash equivalents, free cash flows from our operating businesses, monetization of receivables, proceeds from announced dispositions, and short-term borrowing facilities (described below). Cash generation can be subject to variability based on many factors, including seasonality, receipt of down payments on large equipment orders, timing of billings on long-term contracts, the effects of changes in end markets and our ability to execute dispositions.

As mentioned above, GE has available a variety of short-term borrowing facilities to fund its operations, including a commercial paper program, revolving credit facilities and short-term intercompany loans from GE Capital, which are generally repaid within the same quarter. See the Liquidity Sources section for details of our credit facilities and borrowing activity in our external short-term borrowing facilities.




*Non-GAAP FInancial Measure

2019 1Q FORM 10-Q 19


MD&A
CAPITAL RESOURCES AND LIQUIDITY

GE CAPITAL LIQUIDITY
GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from asset reductions and cash flows from our businesses. Based on asset and liability management actions we have taken, GE Capital does not plan to issue any incremental GE Capital senior unsecured term debt until 2021. We expect to maintain an adequate liquidity position to fund our insurance obligations and debt maturities primarily as a result of cash generated from asset reductions and dispositions, as well as from repayments of intercompany loans and capital contributions from GE. Additionally, while we maintain adequate liquidity levels, we may engage in liability management actions, such as buying back debt, based on market and economic conditions in order to reduce our interest expense. See the Segment Operations - Capital section within this MD&A for further information regarding allocation of GE Capital interest expense to the GE Capital businesses.

GE Capital provided capital contributions to its insurance subsidiaries of approximately $1.9 billion and $3.5 billion in the first quarters of 2019 and 2018, respectively, and expects to provide further capital contributions of approximately $9 billion through 2024. These contributions are subject to ongoing monitoring by Kansas Insurance Department (KID), and the total amount to be contributed could increase or decrease, or the timing could be accelerated, based upon the results of reserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018. GE maintains specified capital levels at these insurance subsidiaries under capital maintenance agreements. Going forward, we anticipate funding any capital needs for insurance through a combination of GE Capital asset sales, GE Capital liquidity, GE Capital future earnings and capital contributions from GE.

In January 2019, we announced an agreement in principle with the United States to settle the DOJ investigation regarding potential violations of FIRREA by WMC and GE Capital, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion, on behalf of itself and WMC. GE Capital concurrently paid $1.5 billion to GE to indemnify GE for this payment pursuant to the terms of an agreement between GE and GE Capital.

LIQUIDITY SOURCES
GE cash, cash equivalents and restricted cash totaled $20.1 billion at March 31, 2019, including $3.1 billion in BHGE that can only be accessed by GE through the declaration of a dividend by BHGE's Board of Directors, our pro-rata share of BHGE stock buybacks, and settlements of any intercompany positions. As a result of these restrictions, GE does not consider BHGE cash a freely available source of liquidity for its purposes.

GE Capital cash, cash equivalents and restricted cash totaled $14.8 billion at March 31, 2019, which excluded $0.6 billion classified within discontinued operations.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH (In billions)
March 31, 2019

 
 
March 31, 2019

 
 
 
 
 
GE(a)
$
20.1

 
U.S.
$
18.0

GE Capital(b)
14.8

 
Non-U.S.
16.9

(a)
At March 31, 2019, $3.9 billion of GE cash, cash equivalents and restricted cash was held in countries with currency controls that may restrict the transfer of funds to the U.S. or limit our ability to transfer funds to the U.S. without incurring substantial costs. These funds are available to fund operations and growth in these countries and we do not currently anticipate a need to transfer these funds to the U.S. Included in this amount was $1.2 billion of BHGE cash and equivalents, which is subject to similar restrictions.
(b)
Included $3.0 billion which was subject to regulatory restrictions, primarily in insurance entities.

Excluding cash held in countries with currency controls and cash in BHGE, total GE cash, cash equivalents and restricted cash was $14.3 billion at March 31, 2019. Cash held in non-US entities has generally been reinvested in active foreign business operations; however, substantially all of our unrepatriated earnings were subject to U.S. federal tax and, if there is a change in reinvestment, we would expect to be able to repatriate that cash (excluding amounts held in countries with currency controls) without additional federal tax cost. Any foreign withholding tax on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.

GE has in place committed credit lines which it may use from time to time to meet its short-term liquidity needs. The following table provides a summary of the committed and available credit lines at March 31, 2019.
GE COMMITTED AND AVAILABLE CREDIT FACILITIES (In billions)
March 31, 2019
December 31, 2018
 
 
 
Unused back-up revolving credit facility
$
20.0

$
20.0

Revolving credit facilities (exceeding one year)
18.9

23.9

Bilateral revolving credit facilities (364-day)
3.1

3.6

Total committed credit facilities
$
42.0

$
47.5

Less offset provisions
(6.7
)
(6.7
)
Total net available credit facilities
$
35.3

$
40.8



20 2019 1Q FORM 10-Q


MD&A
CAPITAL RESOURCES AND LIQUIDITY

Included in our credit facilities is an unused $20.0 billion back-up syndicated credit facility extended by 36 banks, expiring in 2021, and an unused $14.8 billion syndicated credit facility extended by seven banks, expiring in 2020. The commitments under these syndicated credit facilities may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both facilities.

In 2019 and 2020, the amount committed and available under the syndicated credit facility expiring in 2020 will periodically be reduced by the greater of specified contractual commitment reductions or calculated commitment reductions, which is determined based on any potential specified issuances of equity and incurrences of incremental debt by GE or its subsidiaries, as well as a portion of industrial business disposition proceeds. In the first quarter of 2019, the amount committed and available under this facility was reduced by the calculated commitment reduction of $5.0 billion to $14.8 billion. Remaining contractual commitment reductions are $7.4 billion in the fourth quarter of 2019, $2.5 billion in the second quarter of 2020, and $5.0 billion in the fourth quarter of 2020. On March 12, 2019, GE entered into an amendment to the facility, which provides for a deferral of the timing of the fourth quarter 2019 and second quarter 2020 contractual commitment reductions if the BioPharma transaction does not close prior to those reduction dates. The $20 billion syndicated back-up revolving credit facility expiring in 2021 does not contain any contractual commitment reduction features.

Under the terms of an agreement between GE Capital and GE, GE Capital has the right to compel GE to borrow under all credit facilities except the syndicated credit facility expiring in 2020, and transfer the proceeds to GE Capital as intercompany loans, which would be subject to the same terms and conditions as those between GE and the lending banks. GE Capital has not exercised this right.

The following table provides a summary of the activity in the primary external sources of short-term liquidity for GE in the first quarter of 2019 and 2018.
(In billions)
GE Commercial Paper
Revolving Credit Facilities(a)
Total(b)
 
 
 
 
2019
 
 
 
Average borrowings during the first quarter
$
3.2

$
1.3

$
4.4

Maximum borrowings outstanding during the first quarter
3.6

1.5

4.8

Ending balance at March 31
3.0


3.0

 
 
 
 
2018
 
 
 
Average borrowings during the first quarter
$
16.6

$
0.4

$
17.0

Maximum borrowings outstanding during the first quarter
19.5

1.0

20.0

Ending balance at March 31
3.0


3.0

(a)
Consisted of activity in the revolving credit facilities exceeding one year and the bilateral revolving credit facilities (364-day). There was no activity in the $20 billion back-up revolving credit facility, which remains unused.
(b)
Total average and maximum borrowings are calculated based on the daily outstanding balance of the sum of commercial paper and revolving credit facilities.

In addition to its external liquidity sources, GE may from time to time enter into short-term intercompany loans from GE Capital to utilize GE Capital’s excess cash as an efficient source of liquidity. These loans are repaid within the same quarter.

BORROWINGS
Consolidated total borrowings were $107.5 billion and $109.9 billion at March 31, 2019 and December 31, 2018, respectively. The reduction from 2018 to 2019 was driven primarily by net repayments at GE Capital of $3.3 billion, including $2.2 billion of long-term debt maturities, partially offset by the effects of currency exchange of $0.6 billion.

In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital. Under the conditions of the 2015 assumed debt agreement, GE Capital agreed to continue making required principal and interest payments on behalf of GE, resulting in the establishment of an intercompany receivable and payable between GE and GE Capital. In addition, GE Capital has periodically made intercompany loans to GE with maturity terms that mirror the assumed debt; accordingly, these loans qualify for right-of-offset presentation, and therefore reduce the assumed debt intercompany receivable and payable between GE and GE Capital, as noted in the table below.

2019 1Q FORM 10-Q 21


MD&A
CAPITAL RESOURCES AND LIQUIDITY

The following table provides a reconciliation of total short- and long-term borrowings as reported on the respective GE and GE Capital Statements of Financial Position to borrowings adjusted for assumed debt and intercompany loans.
March 31, 2019 (In billions)
GE

GE Capital

Consolidated(a)

 
 
 
 
Total short- and long-term borrowings
$
67.2

$
41.4

$
107.5

 
 
 
 
Debt assumed by GE from GE Capital
(35.4
)
35.4


Intercompany loans with right of offset
13.7

(13.7
)

Total intercompany payable (receivable) between GE and GE Capital
(21.7
)
21.7


 
 
 
 
Total borrowings adjusted for assumed debt and intercompany loans
$
45.5

$
63.1

$
107.5

(a)
Included $1.1 billion elimination of other GE borrowings from GE Capital, primarily related to timing of cash cutoff associated with GE receivables monetization programs.

When measuring the individual financial positions of GE and GE Capital, assumed debt should be considered a GE Capital debt obligation, and the intercompany loans with the right of offset mentioned above should be considered a GE debt obligation and a reduction of GE Capital’s total debt obligations. The following table illustrates the primary components of GE and GE Capital borrowings, adjusted for assumed debt and intercompany loans.
 
GE
 
 
GE Capital
(In billions)
March 31, 2019

December 31,
2018

 
(In billions)
March 31, 2019

December 31, 2018

Commercial paper
$
3.0

$
3.0

 
Commercial paper
$

$

GE senior notes
20.5

20.5

 
Senior and subordinated notes
38.7

39.1

Intercompany loans from GE Capital(a)
13.7

13.7

 
Senior and subordinated notes assumed by GE
35.4

36.3

Other GE borrowings
1.9

2.5

 
Intercompany loans to GE(a)
(13.7
)
(13.7
)
Total adjusted borrowings excluding BHGE
$
39.2

$
39.7

 
Other GE Capital borrowings(b)
2.7

3.9

Total BHGE borrowings
6.3

6.3

 
 
 
 
Total GE adjusted borrowings
$
45.5

$
46.0

 
Total GE Capital adjusted borrowings
$
63.1

$
65.5

(a)
The intercompany loans from GE Capital to GE bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement and can be prepaid by GE at any time, in whole or in part, without premium or penalty. These loans are priced at market terms and have a collective weighted average interest rate of 3.5% and term of approximately 10.5 years at March 31, 2019.
(b)
Included $1.3 billion and $1.9 billion at March 31, 2019 and December 31, 2018, respectively, of non-recourse borrowings of consolidated securitization entities where GE Capital has securitized financial assets as an alternative source of funding.

CREDIT RATINGS AND CONDITIONS
We have relied, and may continue to rely, on the short- and long-term debt capital markets to fund, among other things, a significant portion of our operations. The cost and availability of debt financing is influenced by our credit ratings. Moody’s Investors Service (Moody’s), Standard and Poor’s Global Ratings (S&P), and Fitch Ratings (Fitch) currently issue ratings on GE and GE Capital short- and long-term debt.

The credit ratings of GE and GE Capital as of the date of this filing are set forth in the table below.
 
Moody's
S&P
Fitch
 
 
 
 
GE
 
 
 
Outlook
Stable
Stable
Negative
Short term
P-2
A-2
F2
Long term
Baa1
BBB+
BBB+
 
 
 
 
GE Capital
 
 
 
Outlook
Stable
Stable
Negative
Short term
P-2
A-2
F2
Long term
Baa1
BBB+
BBB+

On February 7, 2019, Fitch changed its outlook for GE and GE Capital short- and long-term debt from Stable to Negative.


22 2019 1Q FORM 10-Q


MD&A
CAPITAL RESOURCES AND LIQUIDITY

We are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. For a description of some of the potential consequences of a reduction in our credit ratings, see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.

The following sections provide additional details regarding the significant credit rating conditions for the Company and the potential liquidity impact in the event of further downgrades.

DEBT CONDITIONS
Substantially all of our debt agreements do not contain material credit rating covenants.

If our short-term credit ratings were to fall below A-2/P-2/F2, it is possible that we would lose all or part of our access to the tier-2 commercial paper markets, which would reduce our borrowing capacity in those markets. This may result in increased utilization of our revolving credit facilities to fund our intra-quarter operations.

DERIVATIVE CONDITIONS
Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade provisions that provide the ability of the counterparty to require termination if the credit ratings of the applicable GE entity were to fall below specified ratings levels agreed upon with the counterparty, primarily BBB/Baa2. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability subject to such termination provisions, after consideration of collateral posted by us and outstanding interest payments was $0.3 billion at March 31, 2019. This excludes exposure related to embedded derivatives, which are not subject to these provisions.

In addition, certain of our derivatives, primarily interest rate swaps, are subject to additional cash margin posting requirements if our credit ratings were to fall below BBB/Baa2. The amount of additional margin will vary based on, among other factors, market movements and changes in our positions. At March 31, 2019, the amount of additional margin that we could be required to post if we fell below these ratings levels was approximately $0.4 billion.

See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.

OTHER CONDITIONS
Where we provide servicing for third-party investors, GE is contractually permitted to commingle cash collected from customers on financing receivables sold to third-party investors with our own cash prior to payment to third-party investors, provided our short-term credit rating does not fall below A-2/P-2/F2. In the event any of our ratings were to fall below such levels, we may be required to segregate certain of these cash collections owed to third-party investors into restricted bank accounts and would lose the short-term liquidity benefit of commingling with respect to such collections. The financial impact to our intra-quarter liquidity would vary based on collections activity for a given quarter and may result in increased utilization of our revolving credit facilities. The loss of cash commingling would have resulted in an estimated maximum reduction of approximately $1.3 billion to GE intra-quarter liquidity during the first quarter of 2019.

In addition, we have relied, and may continue to rely, on securitization programs to provide alternative funding for sales of GE receivables to third-party investors. If any of our short-term credit ratings were to fall below A-2/P-2/F2, the timing or amount of liquidity generated by these programs could be adversely impacted. In the first quarter of 2019, the estimated maximum reduction to our ending liquidity had our credit ratings fallen below these levels was approximately $1.6 billion.

FOREIGN CURRENCY
As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies are euro, the pound sterling, the Brazilian real and the Chinese renminbi. The results of operating entities reported in currencies other than U.S. dollar are translated to the U.S. dollar at the applicable exchange rate for inclusion in the financial statements. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. The foreign currency effect arising from operating activities outside of the U.S., including the remeasurement of derivatives, can result in significant transactional foreign currency fluctuations at points in time, but will generally be offset as the underlying hedged item is recognized in earnings. The effects of foreign currency fluctuations, excluding the earnings impact of the underlying hedged item, decreased net earnings for the three months ended March 31, 2019 by less than $0.1 billion.

See Note 17 to the consolidated financial statements for further information about our risk exposures, our use of derivatives, and the effects of this activity on our financial statements.

2019 1Q FORM 10-Q 23


MD&A
CAPITAL RESOURCES AND LIQUIDITY

STATEMENT OF CASH FLOWS – THREE MONTHS ENDED MARCH 31, 2019 VERSUS 2018
We manage the cash flow performance of our industrial and financial services businesses separately.  We therefore believe it is useful to report separate GE and GE Capital columns in our Statement of Cash Flows because it enables us and our investors to evaluate the cash from operating activities of our industrial businesses (the principal source of cash generation for our industrial businesses) separately from the financing cash flows of our financial services business, as well as to evaluate the cash flows between our industrial businesses and GE Capital.

In preparing our Statement of Cash Flows, we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statement of Financial Position. These adjustments may include, but are not limited to, the effects of currency exchange, acquisitions and dispositions of businesses, businesses classified as held for sale, the timing of settlements to suppliers for property, plant and equipment, non-cash gains/losses and other balance sheet reclassifications.

All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 20 to the consolidated financial statements for further information regarding All other operating activities, All other investing activities and All other financing activities.

The following investing and financing activities affected recognized assets or liabilities but did not result in cash receipts or payments in the three months ended March 31, 2019: our retained ownership interest in and tax benefits receivable from Wabtec (See Note 2); additional non-cash deferred purchase price received by GE Capital related to sales of current receivables (See Note 4); and right-of-use assets obtained in operating leases (See Note 7).

GE CASH FLOWS
The most significant source of cash in GE CFOA is customer-related activities, the largest of which is collecting cash resulting from product or services sales. The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for a wide range of material, services and taxes.

See the Intercompany Transactions between GE and GE Capital section within this MD&A and Notes 4 and 21 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.

2019 – 2018 COMMENTARY-CONTINUING OPERATIONS:
GE cash used for operating activities was $0.9 billion in 2019 (including $0.2 billion used for Oil & Gas CFOA) compared with $1.1 billion in 2018 (including $0.3 billion generated from Oil & Gas CFOA). The decrease in cash used of $0.2 billion was primarily due to: a decrease in payments of equipment project cost accruals of $0.6 billion; the nonrecurrence of GE Pension Plan contributions of $0.3 billion in 2018; partially offset by an increase in cash used for working capital of $0.5 billion due to higher inventory build of $0.3 billion, mainly as a result of expected deliveries in the second half of 2019 (which is offset by a decrease in cash used for accounts payable of $0.3 billion), higher net liquidations of progress collections of $0.3 billion, mainly as a result of lower collections and an increase in cash used for current receivables of $0.2 billion; and an increase in cash used for contract & other deferred assets of $0.3 billion, primarily due to higher deferred inventory build. The effects of the BHGE Class B shareholder dividends of $0.1 billion in both 2019 and 2018 are eliminated from GE CFOA.

GE cash from investing activities was $2.0 billion in 2019 compared with cash used for investing activities of $1.4 billion in 2018. The $3.4 billion increase was primarily due to: proceeds from the sale of discontinued operations of $2.9 billion, related to our Transportation segment and proceeds from other business dispositions (net of cash transferred) of $0.6 billion, primarily from the sale of our ServiceMax business in 2019; the nonrecurrence of the purchase of an aviation technology joint venture of $0.6 billion in 2018; a decrease in net cash paid for settlements of derivative hedges of $0.2 billion; partially offset by an increase in cash used related to net settlements between our continuing operations (primarily our Corporate functions) and businesses in discontinued operations (primarily our Transportation segment) of $0.5 billion; and business acquisitions of $0.4 billion, related to the transfer of the HEF business from GE Capital to our Healthcare segment in 2019. Additions to property, plant and equipment and internal-use software were $0.9 billion in both 2019 and 2018 (including $0.3 billion and $0.2 billion at Oil & Gas in 2019 and 2018, respectively).

GE cash used for financing activities was $1.4 billion in 2019 compared with $3.3 billion in 2018. The $1.9 billion decrease in cash used was primarily due to: a decrease in common dividend payments to shareowners of $1.0 billion; lower net decrease in borrowings of $0.6 billion, mainly driven by net repayments of debt at BHGE of $0.7 billion in 2018, partially offset by the nonrecurrence of a long-term loan from GE Capital to GE of $0.3 billion in 2018; and a decrease in BHGE net stock repurchases and dividends to noncontrolling interests of $0.2 billion.

24 2019 1Q FORM 10-Q


MD&A
CAPITAL RESOURCES AND LIQUIDITY

GE CAPITAL CASH FLOWS
20192018 COMMENTARY-CONTINUING OPERATIONS:
GE Capital cash from operating activities was $0.1 billion in 2019 compared with $0.5 billion in 2018. The decrease of $0.5 billion was primarily due to: a general decrease in cash generated from earnings (loss) from continuing operations; partially offset by a net increase in cash collateral received from counterparties on derivative contracts of $0.8 billion.

GE Capital cash from investing activities was $3.8 billion in 2019 compared with $2.5 billion in 2018. The increase of $1.3 billion was primarily due to: an increase in cash related to our current receivables and supply chain finance programs with GE of $1.1 billion; an increase in net sales of property, plant & equipment of $0.6 billion; net proceeds from the transfer of the HEF business of $0.4 billion; the nonrecurrence of an intercompany loan from GE Capital to GE of $0.3 billion in 2018; partially offset by lower collections of financing receivables of $1.3 billion.

GE Capital cash used for financing activities was $3.5 billion in 2019 compared with $9.2 billion in 2018. The decrease of $5.7 billion was primarily due to lower net repayments of borrowings.

INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
Transactions between related companies are made on arm's length terms and are reported in the GE and GE Capital columns of our financial statements, which we believe provide useful supplemental information to our consolidated financial statements. See Note 21 to the consolidated financial statements for further information.

SALE OF RECEIVABLES
In order to manage short-term liquidity and credit exposure, GE sells current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. During any given period, GE receives cash from the sale of receivables to GE Capital and other third parties, and it therefore forgoes the future collections of cash on receivables sold, as GE Capital and the other third parties are entitled to receive the cash from the customer. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE Capital are made on arm’s length terms. These transactions can result in cash generation or cash use in our consolidated Statement of Cash Flows. The incremental amount of cash received from sales of receivables in excess of the cash GE would have otherwise collected had these receivables not been sold represents the cash generated or used in the period relating to this activity. The impact from current receivables sold to GE Capital, including current receivables subsequently sold to third parties, decreased GE’s CFOA by $0.7 billion and $2.3 billion in the three months ended March 31, 2019 and 2018, respectively.

As of March 31, 2019, including $0.5 billion of deferred purchase price on our receivables facility, GE Capital had approximately $4.1 billion recorded on its balance sheet related to current receivables purchased from GE. Of the current receivables purchased and retained by GE Capital, approximately 35% had been sold by GE to GE Capital with full or limited recourse (i.e., GE retains all or some risk of default). The evaluation of whether recourse transactions qualify for accounting derecognition is based, in part, upon the legal jurisdiction of the sale; as such, the majority of recourse transactions outside the U.S. qualify for sale treatment. The effect on GE CFOA of claims by GE Capital on receivables sold with full or limited recourse to GE has not been significant for the three months ended March 31, 2019 and 2018.

In certain circumstances, GE provided customers primarily within our Power, Renewable Energy and Aviation businesses with extended payment terms for the purchase of new equipment, purchases of significant upgrades and for fixed billings within our long-term service agreements. Similar to current receivables, GE sold these long-term receivables to GE Capital to manage short-term liquidity and fund growth. These transactions were made on arm's length terms and any fair value adjustments, primarily related to time value of money, were recognized within the respective GE Industrial business in the period these receivables were sold to GE Capital. GE Capital accretes financing income over the life of the receivables. Financing income is eliminated in our consolidated results. In addition, the long-term portion of any remaining outstanding receivables as of the end of the period are reflected in "All other assets" within our consolidated Statement of Financial Position. Related to GE long-term customer receivables outstanding, assets at GE Capital included $0.8 billion and $1.0 billion, net of deferred income of approximately $0.1 billion and $0.1 billion recorded in its balance sheet at March 31, 2019 and December 31, 2018, respectively. The effect of cash generated from the sale of these long-term receivables to GE Capital decreased GE's CFOA by $0.2 billion and an insignificant amount in the three months ended March 31, 2019 and 2018, respectively.

SUPPLY CHAIN FINANCE PROGRAMS
GE’s industrial businesses participate in a supply chain finance program with GE Capital where GE Capital may settle supplier invoices early in return for early pay discounts. In turn, GE settles invoices with GE Capital in accordance with the original supplier payment terms. The GE liability associated with the funded participation in the program is presented as accounts payable and amounted to $4.6 billion and $4.9 billion at March 31, 2019 and December 31, 2018, respectively. 
 
At March 31, 2019, $0.7 billion of the GE accounts payable balance is subject to supply chain finance programs with third parties. The terms of these arrangements do not alter our obligation to our suppliers and service providers which arise from our contractual supply agreements with them. 


2019 1Q FORM 10-Q 25


MD&A
CAPITAL RESOURCES AND LIQUIDITY

On February 28, 2019, we sold GE Capital’s supply chain finance program platform to MUFG Union Bank, N.A. and intend to start transitioning our existing program to a program with that party. The GE funded participation in the GE Capital program will continue to be settled following the original invoice payment terms with expectation that the majority of the transition will occur within the next two years. Future GE CFOA could be adversely affected should certain suppliers not transition to the new third-party program and we elect to take advantage of early pay discounts on trade payables offered by those suppliers. For the three months ended March 31, 2019, there was no effect on GE CFOA related to the MUFG transition.

AVIATION
During the three months ended March 31, 2019 and 2018, GE Capital acquired 13 aircraft (list price totaling $1.9 billion) and 8 aircraft (list price totaling $0.9 billion), respectively, from third parties that will be leased to others, which are powered by engines that were manufactured by GE Aviation and affiliates and made payments related to spare engines and engine parts to GE Aviation and affiliates of $0.1 billion and $0.2 billion, respectively. Additionally, GE Capital had $1.2 billion of net book value of engines, originally manufactured by GE Aviation and affiliates and subsequently leased back to GE Aviation and affiliates at both March 31, 2019 and December 31, 2018.

GE GUARANTEE OF GE CAPITAL THIRD-PARTY TRANSACTIONS
In certain instances, GE provides guarantees for GE Capital transactions with third parties primarily in connection with enabled orders. In order to meet its underwriting criteria, GE Capital may obtain a direct guarantee from GE related to the performance of the third party. GE guarantees can take many forms and may include, but not be limited to, direct performance or payment guarantees, return on investment guarantees, asset value guarantees and loss pool arrangements. As of March 31, 2019, GE had outstanding guarantees to GE Capital on $1.3 billion of funded exposure and $0.9 billion of unfunded commitments, which included guarantees issued by industrial businesses. The recorded contingent liability for these guarantees was $0.1 billion as of March 31, 2019 and is based on individual transaction level defaults, losses and/or returns.

GE GUARANTEE OF CERTAIN GE CAPITAL DEBT
GE provides implicit and explicit support to GE Capital through commitments, capital contributions and operating support. As previously discussed, debt assumed by GE from GE Capital in connection with the merger of GE Capital into GE was $35.4 billion, and GE guaranteed $37.1 billion of GE Capital debt at March 31, 2019. See Note 21 to the consolidated financial statements for further information.

CRITICAL ACCOUNTING ESTIMATES
We utilized significant estimates in the preparation of the first quarter financial statements.

Please refer to the Critical Accounting Estimates and Other Items sections within MD&A and Note 1 to the consolidated financial statements of our Annual Report on Form 10-K Report filed on February 26, 2019, for a discussion of our accounting policies and the critical accounting estimates we use such as: revenue recognition on long-term service agreements; assess the recoverability of assets such as and goodwill; determine the fair value of financial assets; determine our provision for income taxes and recoverability of deferred tax assets and determine the liability for future policy benefits.

OTHER ITEMS
NEW ACCOUNTING STANDARDS
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The ASU is effective for periods beginning after December 15, 2020, with an election to adopt early. We are evaluating the effect of the standard on our consolidated financial statements and anticipate that its adoption will significantly change the accounting for measurements of our long-duration insurance liabilities. The ASU requires cash flow assumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidence indicates previous assumptions need to be revised with any required changes recorded in earnings. Under the current accounting guidance, the discount rate is based on expected investment yields, while under the ASU the discount rate will be equivalent to the upper-medium grade (i.e., single A) fixed-income instrument yield reflecting the duration characteristics of the liability and is required to be updated in each reporting period with changes recorded in other comprehensive income. In measuring the insurance liabilities, contracts shall not be grouped together from different issue years. These changes result in the elimination of premium deficiency testing and shadow adjustments. While we continue to evaluate the effect of the standard on our ongoing financial reporting, we anticipate that the adoption of the ASU will materially affect our financial statements. As the ASU is only applicable to the measurements of our long-duration insurance liabilities under GAAP, it will not affect the accounting for our insurance reserves or the levels of capital and surplus under statutory accounting practices.


26 2019 1Q FORM 10-Q


MD&A
OTHER ITEMS
 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. The new standard will also apply to receivables arising from revenue transactions such as contract assets and accounts receivables, as well as reinsurance recoverables at GE Capital's run-off insurance operations and is effective for fiscal years beginning after December 15, 2019. We continue to evaluate the effect of the standard on our consolidated financial statements.

MINE SAFETY DISCLOSURES
Our barite mining operations, in support of our drilling fluids products and services business, are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report.

NON-GAAP FINANCIAL MEASURES

In various sections of this report we have made reference to the following non-GAAP financial measures:

GE Industrial segment organic revenues – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
Adjusted earnings (loss) continuing earnings excluding the impact of non-operating benefit costs, gains (losses) and impairments for disposed or held for sale businesses, restructuring and other, after-tax, excluding the effects of U.S. tax reform enactment adjustment.
Adjusted earnings (loss) per share (EPS) – when we refer to adjusted earnings per share, it is the diluted per-share amount of “adjusted earnings.”
Adjusted GE Industrial profit and profit margin (excluding certain items) – GE Industrial profit margin excluding interest and other financial charges, non-operating benefit costs, gains (losses), restructuring and other charges plus noncontrolling interests.
GE Industrial organic profit – profit excluding the effects of acquisitions, business dispositions and translational foreign currency exchange.
Adjusted Oil & Gas segment profit – Reported Oil & Gas segment profit less GE's share of restructuring & other charges.
GE effective tax rates, excluding GE Capital earnings GE provision for income taxes divided by GE pre-tax earnings from continuing operations, excluding GE Capital earnings (loss) from continuing operations.
GE Industrial Free Cash Flows (FCF) and Adjusted GE Industrial FCF – GE Industrial free cash flows is GE CFOA adjusted for gross GE additions to property, plant and equipment and internal-use software, which are included in cash flows from investing activities, and excluding GE Pension Plan funding, and taxes related to business sales. Adjusted GE Industrial free cash flows (Non-GAAP) is GE Industrial free cash flows adjusted for Oil & Gas CFOA, gross Oil & Gas additions to property, plant and equipment and internal-use software, and including the BHGE Class B shareholder dividend.
GE Industrial net debtGE Industrial net debt reflects the total of gross debt excluding BHGE, after-tax net pension and retiree benefit plan liabilities, adjustments for operating lease obligations excluding BHGE, and adjustments for 50% of preferred stock, less 75% of GE’s cash balance excluding BHGE.

The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.


2019 1Q FORM 10-Q 27


MD&A
NON-GAAP FINANCIAL MEASURES

GE INDUSTRIAL SEGMENT ORGANIC REVENUES (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

V%
 
 
 
 
GE Industrial segment revenues (GAAP)
$
25,517

$
26,067

(2
)%
Adjustments:
 
 
 
Less: acquisitions
21


 
Less: business dispositions (other than dispositions acquired for investment)
9

1,164

 
Less: currency exchange rate(a)
(685
)

 
GE Industrial segment organic revenues (Non-GAAP)
$
26,170

$
24,903

5
 %
(a) Translational foreign exchange
 
 
 
 
 
 
 
Organic revenues* measure revenues excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. We also believe that presenting organic revenues* separately for our industrial businesses provides management and investors with useful information about the trends of our industrial businesses and enables a more direct comparison to other non-financial businesses and companies. Management recognizes that the term "organic revenues" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.
ADJUSTED EARNINGS (LOSS) (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

V%

 
 
 
 
Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
$
954

$
261

F

Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
135

(215
)
 
GE Industrial earnings (loss) (Non-GAAP)
819

476

72
 %
Non-operating benefits costs (pre-tax) (GAAP)
(562
)
(681
)
 
Tax effect on non-operating benefit costs
118

143

 
Less: non-operating benefit costs (net of tax)
(444
)
(538
)
 
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)
365

(67
)
 
Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a)
35

24

 
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax)
400

(43
)
 
Restructuring & other (pre-tax)
(298
)
(529
)
 
Tax effect on restructuring & other(a)
57

134

 
Less: restructuring & other (net of tax)
(242
)
(395
)
 
Unrealized gains (losses)
13


 
Tax on unrealized gains (losses)
(3
)

 
Less: unrealized gains (losses)
10


 
Less: GE Industrial U.S. tax reform enactment adjustment
(101
)
(31
)
 
Adjusted GE Industrial earnings (loss) (Non-GAAP)
$
1,195

$
1,483

(19
)%
 
 
 
 
GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
135

(215
)
F

Less: GE Capital U.S. tax reform enactment adjustment
99

(45
)
 
Adjusted GE Capital earnings (loss) (Non-GAAP)
$
36

$
(170
)
F

 
 
 
 
Adjusted GE Industrial earnings (loss) (Non-GAAP)
$
1,195

$
1,483

(19
)%
Add: Adjusted GE Capital earnings (loss) (Non-GAAP)
36

(170
)
F

Adjusted earnings (loss) (Non-GAAP)
$
1,231

$
1,313

(6
)%
 
 
 
 
(a) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges.
Adjusted earnings (loss)* excludes non-operating benefit costs, gains (losses) and impairments for disposed or held for sale businesses, restructuring & other, unrealized gains (losses), after-tax, excluding the effects of U.S. tax reform enactment adjustment. The service cost of our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Gains and restructuring and other items are impacted by the timing and magnitude of gains associated with dispositions, and the timing and magnitude of costs associated with restructuring activities. We believe that the retained costs in Adjusted earnings (loss)* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We believe that presenting Adjusted Industrial earnings (loss)* separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company.
*Non-GAAP Financial Measure

28 2019 1Q FORM 10-Q


MD&A
NON-GAAP FINANCIAL MEASURES

ADJUSTED EARNINGS (LOSS) PER SHARE (EPS) (NON-GAAP)
Three months ended March 31
 
2019

2018

V%

 
 
 
 
Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP)
$
0.11

$
0.03

F

Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP)
0.02

(0.02
)
 
GE Industrial EPS (Non-GAAP)
$
0.09

$
0.05

80
 %
 
 
 
 
Non-operating benefits costs (pre-tax) (GAAP)
(0.06
)
(0.08
)
 
Tax effect on non-operating benefit costs
0.01

0.02

 
Less: non-operating benefit costs (net of tax)
(0.05
)
(0.06
)
 
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)
0.04

(0.01
)
 
Tax effect on gains (losses) and impairments for disposed or held for sale businesses(a)


 
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax)
0.04


 
Restructuring & other (pre-tax)
(0.03
)
(0.06
)
 
Tax effect on restructuring & other(a)
0.01

0.02

 
Less: restructuring & other (net of tax)
(0.03
)
(0.05
)
 
Unrealized gains (losses)


 
Tax on unrealized gains (losses)(a)


 
Less: unrealized gains (losses)


 
Less: GE Industrial U.S. tax reform enactment adjustment
(0.01
)

 
Adjusted GE Industrial EPS (Non-GAAP)
$
0.13

$
0.17

(24
)%
 
 
 
 
GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP)
0.02

(0.02
)
F

Less: GE Capital U.S. tax reform enactment adjustment
0.01

(0.01
)
 
Adjusted GE Capital EPS (Non-GAAP)
$

$
(0.02
)
F

 
 
 
 
Adjusted GE Industrial EPS (Non-GAAP)
$
0.13

$
0.17

(24
)%
Add: Adjusted GE Capital EPS (Non-GAAP)

(0.02
)
F

Adjusted EPS (Non-GAAP)(b)
$
0.14

$
0.15

(7
)%
 
 
 
 
(a) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges.
(b) Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total.
Adjusted EPS* excludes non-operating benefit costs, gains (losses) and impairments for disposed or held for sale businesses, restructuring & other, unrealized gains (losses), after-tax, excluding the effects of U.S. tax reform enactment adjustment. The service cost of our pension and other benefit plans are included in adjusted earnings*, which represents the ongoing cost of providing pension benefits to our employees. The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Gains and restructuring and other items are impacted by the timing and magnitude of gains associated with dispositions, and the timing and magnitude of costs associated with restructuring activities. We believe that the retained costs in Adjusted EPS* provides management and investors a useful measure to evaluate the performance of the total company, and increases period-to-period comparability. We also use Adjusted EPS* as a performance metric at the company level for our annual executive incentive plan for 2019. We believe that presenting Adjusted Industrial EPS* separately for our financial services businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company.




*Non-GAAP Financial Measure

2019 1Q FORM 10-Q 29


MD&A
NON-GAAP FINANCIAL MEASURES

ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

 
 
 
GE total revenues (GAAP)
$
25,409

$
26,022

 
 
 
Costs
 
 
GE total costs and expenses (GAAP)
$
25,065

$
25,615

Less: GE interest and other financial charges
588

639

Less: non-operating benefit costs
562

681

Less: restructuring & other
308

660

Add: noncontrolling interests
59

34

Adjusted GE Industrial costs (Non-GAAP)
$
23,667

$
23,669

 
 
 
Other Income
 
 
GE other income (GAAP)
$
884

$
192

Less: unrealized gains (losses)
13


Less: restructuring & other
9

(3
)
Less: gains (losses) and impairments for disposed or held for sale businesses
365

(67
)
Adjusted GE other income (Non-GAAP)
$
496

$
262

 
 
 
GE Industrial profit (GAAP)
$
1,228

$
599

GE Industrial profit margin (GAAP)
4.8
%
2.3
%
 
 
 
Adjusted GE Industrial profit (Non-GAAP)
$
2,239

$
2,615

Adjusted GE Industrial profit margin (Non-GAAP)
8.8
%
10.0
%
 
 
 
We have presented our Adjusted GE Industrial profit* and profit margin* excluding interest and other financial charges, non-operating benefit costs, restructuring & other, non-controlling interests, unrealized gains (loss) and impairments for disposed or held for sale businesses. We believe that GE Industrial profit and profit margins adjusted for these items are meaningful measures because they increase the comparability of period-to-period results.
GE INDUSTRIAL ORGANIC PROFIT (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

V%
 
 
 
 
Adjusted GE Industrial profit (Non-GAAP)
$
2,239

$
2,615

(14)
 %
Adjustments:
 
 
 
Less: acquisitions


 
Less: business dispositions (other than dispositions acquired for investment)
(45
)
86

 
Less: currency exchange rate(a)
52


 
Adjusted GE Industrial organic profit (Non-GAAP)
$
2,232

$
2,529

(12)
 %
(a) Translational foreign exchange
 
 
 
 
 
 
 
Adjusted GE Industrial organic profit* measures profit excluding the effects of acquisitions, business dispositions and currency exchange rates. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and currency exchange, which activities are subject to volatility and can obscure underlying trends. Management recognizes that the term "organic profit" may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of our Industrial businesses and may therefore be a useful tool in assessing period-to-period performance trends.
ADJUSTED OIL & GAS SEGMENT PROFIT (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

V%
 
 
 
 
Reported Oil & Gas segment profit (GAAP)
$
163

$
(144
)
F

Less: restructuring & other (GE share)
(59
)
(324
)
 
Adjusted Oil & Gas segment profit (Non-GAAP)
$
222

$
181

23
%
 
 
 
 
Adjusted GE Oil & Gas segment profit* measures Oil & Gas reported segment profit excluding the effects of restructuring and other charges. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations of our Oil & Gas segment.
*Non-GAAP Financial Measure

30 2019 1Q FORM 10-Q


MD&A
NON-GAAP FINANCIAL MEASURES

GE EFFECTIVE TAX RATES, EXCLUDING GE CAPITAL EARNINGS (NON-GAAP)
Three months ended March 31
(In millions)
2019

2018

 
 
 
GE earnings (loss) from continuing operations before income taxes (GAAP)
$
1,363

$
383

Less: GE Capital earnings (loss) from continuing operations
135

(215
)
GE Industrial earnings (loss) from continuing operations before income taxes (Non-GAAP)
1,228

599

 
 
 
GE provision (benefit) for income taxes (GAAP)
$
350

$
89

GE effective tax rate, excluding GE Capital earnings (Non-GAAP)
29
%
15
%
 
 
 
We believe that the GE effective tax rate is best analyzed in relation to GE earnings before income taxes excluding the GE Capital net earnings* from continuing operations, as GE tax expense does not include taxes on GE Capital earnings. Management believes that in addition to the Consolidated and GE Capital tax rates shown in Note 14 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2018, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses.

GE INDUSTRIAL FREE CASH FLOWS (FCF) AND ADJUSTED GE INDUSTRIAL FCF (NON-GAAP)
Three months ended March 31
(Dollars in millions)
2019

2018

GE CFOA (GAAP)
$
(884
)
$
(1,117
)
Add: gross additions to property, plant and equipment
(837
)
(854
)
Add: gross additions to internal-use software
(74
)
(89
)
Less: GE Pension Plan funding

(287
)
Less: taxes related to business sales
(8
)

GE Industrial Free Cash Flows (Non-GAAP)
$
(1,786
)
$
(1,774
)
 
 
 
Less: Oil & Gas CFOA
(184
)
291

Less: Oil & Gas gross additions to property, plant and equipment
(286
)
(173
)
Less: Oil & Gas gross additions to internal-use software
(8
)
(9
)
Add: BHGE Class B shareholder dividend
94

127

Adjusted GE Industrial Free Cash Flows (Non-GAAP)
$
(1,216
)
$
(1,756
)
 
 
 
In 2018, GE transitioned from reporting an Adjusted GE Industrial CFOA metric to measuring itself on a GE Industrial Free Cash Flows basis*. This metric includes GE CFOA plus investments in property, plant and equipment and additions to internal-use software; this metric excludes any dividends received from GE Capital and any cash received from dispositions of property, plant and equipment.
 
 
 
We believe that investors may also find it useful to compare GE’s Industrial free cash flows* performance without the effects of cash used for taxes related to business sales and contributions to the GE Pension Plan. We believe that this measure will better allow management and investors to evaluate the capacity of our industrial operations to generate free cash flows. In addition, we report Adjusted GE Industrial Free Cash Flows* in order to provide a more fair representation of the cash that we are entitled to utilize in a given period. We also use Adjusted GE Industrial Free Cash Flows* as a performance metric at the company-wide level for our annual executive incentive plan.
 
 
 
Management recognizes that the term free cash flows may be interpreted differently by other companies and under different circumstances. Although this may have an effect on comparability of absolute percentage growth from company to company, we believe that these measures are useful in assessing trends of the respective businesses or companies and may therefore be a useful tool in assessing period-to-period performance trends.














*Non-GAAP Financial Measure

2019 1Q FORM 10-Q 31


MD&A
NON-GAAP FINANCIAL MEASURES

GE INDUSTRIAL NET DEBT (NON-GAAP) (In millions)
March 31, 2019

December 31, 2018

Total GE short- and long-term borrowings (GAAP)
$
67,163

$
68,543

Less: GE Capital short- and long-term debt assumed by GE
35,433

36,262

Less: BHGE total borrowings
6,315

6,303

Add: intercompany loans from GE Capital
13,749

13,749

Total adjusted GE borrowings
39,164

39,727

Total pension and retiree benefit plan liabilities (pre-tax)(a)
27,159

27,159

Less: taxes at 21%
5,703

5,703

Total pension and retiree benefit plan liabilities (net of tax)
21,456

21,456

GE operating lease liabilities(b)
4,467

5,550

Less: BHGE operating lease liabilities
869

1,682

Total operating lease liabilities excluding BHGE
3,598

3,868

GE preferred stock
5,613

5,573

Less: 50% of GE preferred stock
2,806

2,787

50% of preferred stock
2,806

2,787

Deduction for total GE cash, cash equivalents and restricted cash
(20,069
)
(20,355
)
Less: BHGE cash, cash equivalents and restricted cash
(3,073
)
(3,723
)
Deduction for total GE cash, cash equivalents and restricted cash, excluding BHGE
(16,996
)
(16,632
)
Less: 25% of GE cash, cash equivalents and restricted cash, excluding BHGE
(4,249
)
(4,158
)
Deduction for 75% of GE cash, cash equivalents and restricted cash, excluding BHGE
(12,747
)
(12,474
)
Total GE Industrial net debt (Non-GAAP)
$
54,276

$
55,363

 
 
 
(a) Represents the total underfunded status of Principal pension plans ($18,491 million), Other pension plans ($3,877 million), and Retiree health and life benefit plans ($4,791 million) at December 31, 2018. The funded status of our benefit plans is updated annually in the fourth quarter.
(b) Operating lease liabilities at December 31, 2018 were derived using the former rating agency methodology of multiplying annual rental expense by 3. With the January 1, 2019 adoption of ASU No. 2016-02, Leases, operating lease liabilities are now presented on the Statement of Financial Position.
 
In this document we use GE Industrial net debt*, which is calculated based on rating agency methodologies. There is significant uncertainty around the timing and events that could give rise to items included in the determination of this metric, including the timing of pension funding, proceeds from dispositions, and the impact of interest rates on our pension assets and liabilities. We are including the calculation of GE industrial net debt* to provide investors more clarity regarding how the credit rating agencies measure GE Industrial leverage.






















*Non-GAAP FInancial Measure

32 2019 1Q FORM 10-Q


OTHER
 
 

CONTROLS AND PROCEDURES
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2019, and (ii) no change in internal control over financial reporting occurred during the quarter ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

OTHER FINANCIAL DATA
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Period
Total number
of shares
purchased
Average
price paid
per share
Total number
of shares
purchased
as part of
our share
repurchase
program(a)
Approximate
dollar value
of shares that
may yet be
purchased
under our
share
repurchase
program(a)
(Shares in thousands)
 
 
 
 
 
 
 
 
 
2019
 
 
 
 
January
837

$
8.78

837

 
February
215

10.38

215

 
March



 
Total
1,052

$
9.11

1,052

$

(a)
Shares were repurchased through the GE Stock Direct program, our retail stock plan, up through February 8, 2019. No repurchases by GE were conducted under the program subsequent to that date, and no further repurchases by GE have been authorized.


2019 1Q FORM 10-Q 33


RISK FACTORS
 
 

RISK FACTORS
The risk factor set forth below updates the corresponding risk factor in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition to the risk factor below, you should carefully consider the risk factors discussed in our most recent Form 10-K report, which could materially affect our business, financial position and results of operations.
Product safety - Our products and services are highly sophisticated and specialized, and a major product failure or similar event affecting our products or our customers’ products could adversely affect our business, reputation, financial position and results of operations.
We produce highly sophisticated products and provide specialized services for both our and third-party products that incorporate or use complex or leading-edge technology, including both hardware and software. Many of our products and services involve complex industrial machinery or infrastructure projects, such as commercial jet engines, gas turbines, offshore oil and gas drilling or nuclear power generation, and accordingly the impact of a catastrophic product failure or similar event could be significant. In particular, actual or perceived design or production issues related to new product introductions or relatively new product lines can result in significant reputational harm to our businesses, in addition to direct warranty, maintenance and other costs that may arise, and a more significant product issue resulting in widespread outages, a fleet grounding or similar systemic consequences could have a material adverse effect on our business, financial position and results of operations. We may also incur increased costs, delayed payments or lost equipment or services revenue in connection with a significant issue with a third party’s product with which our products are integrated. For example, a fleet grounding of aircraft for reasons unrelated to our products could have an adverse effect on our business. While we have built operational processes to ensure that our product design, manufacture, performance and servicing meet rigorous quality standards, there can be no assurance that we or our customers or other third parties will not experience operational process or product failures and other problems, including through manufacturing or design defects, process or other failures of contractors or third-party suppliers, cyber-attacks or other intentional acts, that could result in potential product, safety, regulatory or environmental risks.














34 2019 1Q FORM 10-Q


LEGAL PROCEEDINGS
 
 

LEGAL PROCEEDINGS
The following information supplements and amends our discussion set forth under “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We also incorporate the information reported under "Legal Proceedings" in Baker Hughes, a GE company's most recent Form 10-K report and updates in its Form 10-Q reports.

WMC. At March 31, 2019, there was one active lawsuit in which our discontinued U.S. mortgage business, WMC, is a party. The lawsuit is pending in the United States District Court for the District of Connecticut. TMI Trust Company (TMI), as successor to Law Debenture Trust Company of New York, is asserting claims on approximately $800 million of mortgage loans, and alleges losses on these loans in excess of $425 million. Trial in this case commenced in January 2018. The parties concluded their presentation of evidence and delivered closing arguments in June 2018. Based on a joint application by the parties and subsequent renewals, the District Court has stayed the proceedings in light of ongoing settlement negotiations. In April 2019, the securitization trustee notified the bondholders in SABR 2006-WM2, the securitization trust at issue in the lawsuit, of a proposed settlement of the lawsuit and requested that bondholders express any view on whether the trustee should accept or reject the proposed settlement. The amount of the claim at issue in the TMI case reflects the purchase price or unpaid principal balances of the mortgage loans at issue at the time of purchase and does not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. All of the mortgage loans involved in this lawsuit are included in WMC’s reported claims at March 31, 2019. See Note 19 to the consolidated financial statements for further information.

In December 2015, we learned that, as part of continuing industry-wide investigation of subprime mortgages, the Civil Division of the U.S. Department of Justice (DOJ) had initiated an investigation of potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) by WMC and its affiliates arising out of the origination, purchase or sale of residential mortgage loans between January 1, 2005 and December 31, 2007. In January 2019, we announced an agreement in principle with the United States to settle this matter, and in April 2019, the parties entered into a definitive settlement agreement. Under the agreement, which concludes this investigation, GE, without admitting liability or wrongdoing, paid the United States a civil penalty of $1.5 billion on behalf of itself and WMC, consistent with the reserve recorded for this matter.
In April 2019, WMC commenced a case under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. WMC intends to file a Chapter 11 plan seeking an efficient and orderly resolution of all claims, demands, rights, and/or liabilities to be asserted by or against WMC as the debtor.
Alstom legacy matters. In connection with our acquisition of Alstom’s Thermal, Renewables and Grid businesses in November 2015, we are subject to legacy legal proceedings and legal compliance risks that relate to claimed anti-competitive conduct or improper payments by Alstom in the pre-acquisition period. See Note 19 to the consolidated financial statements for further information.

EC merger notification objections. In July 2017, the European Commission (EC) issued a statement of objections with its preliminary conclusion that GE provided incorrect or misleading information about its research and development activities regarding high-power offshore wind turbines during the EC’s review of GE’s planned acquisition of LM Wind. We filed a reply in April 2018 setting forth our position on the EC's statement of objections, and on April 8, 2019, the EC provided notification that it would impose a fine of approximately $59 million in connection with the matter.

Shareholder lawsuits. Since November 2017, several putative shareholder class actions under the federal securities laws have been filed against GE and certain affiliated individuals and consolidated into a single action currently pending in the U.S. District Court for the Southern District of New York (the Hachem case). In October 2018, the lead plaintiff filed a fourth amended consolidated class action complaint naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to insurance reserves and accounting for long-term service agreements and seeks damages on behalf of shareowners who acquired GE stock between February 27, 2013 and January 23, 2018. GE has filed a motion to dismiss, and briefing on that motion concluded in October 2018.

Since February 2018, multiple shareholder derivative lawsuits have also been filed against current and former GE executive officers and members of GE’s Board of Directors and GE (as nominal defendant). Four of these lawsuits are currently pending: the Gammel case, the Trueblood case and the Cuker case, which were filed in New York state court, and the Bennett case, which was filed in Massachusetts state court. The lawsuits allege violations of securities laws, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement. The specific matters underlying the allegations vary among the pending lawsuits, but they primarily relate to substantially the same facts as those underlying the securities class action described above, as well as the oversight of past GE practices regarding the use of its corporate aircraft, the goodwill charge related to GE’s Power business announced in October 2018 and alleged corruption in China. The Bennett complaint also includes a claim for professional negligence and accounting malpractice against GE’s auditor, KPMG. The plaintiffs seek unspecified damages and improvements in GE’s corporate governance and internal procedures. In June 2018, January 2019 and February 2019, respectively, GE filed motions to dismiss the Gammel, Trueblood and Cuker cases. The Bennett case has been stayed pending resolution of the motion to dismiss in the Gammel case.


2019 1Q FORM 10-Q 35


LEGAL PROCEEDINGS
 
 

In June 2018, a lawsuit (the Bezio case) was filed in New York state court derivatively on behalf of participants in GE’s 401(k) plan (the GE Retirement Savings Plan (RSP)), and alternatively as a class action on behalf of shareowners who acquired GE stock between February 26, 2013 and January 24, 2018, alleging violations of Section 11 of the Securities Act of 1933 based on alleged misstatements and omissions related to insurance reserves and performance of GE’s business segments in a GE RSP registration statement and documents incorporated therein by reference. In November 2018, the plaintiffs filed an amended derivative complaint naming as defendants GE, former GE executive officers and Fidelity Management Trust Company, as trustee for the GE RSP. In January 2019, GE filed a motion to dismiss.

In July 2018, a putative class action (the Mahar case) was filed in New York state court naming as defendants GE, former GE executive officers, a former member of GE’s Board of Directors and KPMG. It alleged violations of Sections 11, 12 and 15 of the Securities Act of 1933 based on alleged misstatements related to insurance reserves and performance of GE’s business segments in GE Stock Direct Plan registration statements and documents incorporated therein by reference and seeks damages on behalf of shareowners who acquired GE stock between July 20, 2015 and July 19, 2018 through the GE Stock Direct Plan. In February 2019, this case was dismissed. In March 2019, plaintiffs filed an amended derivative complaint naming the same defendants. In April 2019, GE filed a motion to dismiss the amended complaint.
  
In October 2018, a putative class action (the Houston case) was filed in New York state court naming as defendants GE, certain GE subsidiaries and current and former GE executive officers and employees. It alleges violations of Sections 11, 12 and 15 of the Securities Act of 1933 and seeks damages on behalf of purchasers of senior notes issued in 2016 and rescission of transactions involving those notes. We are in the process of negotiating an agreement to stay this case pending resolution of the motion to dismiss the Hachem case.

In December 2018, a putative class action (the Varga case) was filed in the U.S. District Court for the Northern District of New York naming GE and a former GE executive officer as defendants in connection with the oversight of the GE RSP. It alleges that the defendants breached fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) by failing to advise GE RSP participants that GE Capital insurance subsidiaries were allegedly under-reserved and continued to retain a GE stock fund as an investment option in the GE RSP. The plaintiffs seek unspecified damages on behalf of a class of GE RSP participants and beneficiaries from January 1, 2010 through January 19, 2018 or later. In April 2019, GE filed a motion to dismiss.

In February 2019, a putative class action (the Birnbaum case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and our current CEO. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged misstatements in connection with GE’s October 2018 announcement that the reporting of its third quarter financial results would be delayed for five days and seeks damages on behalf of shareowners who acquired GE stock between October 12 and October 29, 2018.

In February 2019, a putative class action (the Sheet Metal Workers Local 17 Trust Funds case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged misstatements regarding GE’s H-Class turbines and the disclosure in October 2018 about the goodwill impairment charge related to GE’s Power business. The lawsuit seeks damages on behalf of shareowners who acquired GE stock between December 27, 2017 and October 29, 2018. 

In February 2019, a securities action (the Touchstone case) was filed in the U.S. District Court for the Southern District of New York naming as defendants GE and current and former GE executive officers. It alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1707.43 of the Ohio Securities Act and common law fraud based on alleged misstatements regarding insurance reserves, GE Power’s revenue recognition practices related to Long Term Service Agreements, GE’s acquisition of Alstom, and the goodwill recognized in connection with that transaction. The lawsuit seeks damages on behalf of six institutional investors who purchased GE common stock between August 1, 2014 and October 30, 2018 and recission of those purchases.
These cases are at an early stage; we believe we have defenses to the claims and are responding accordingly.




36 2019 1Q FORM 10-Q

 
FINANCIAL STATEMENTS
 
 

FINANCIAL STATEMENTS AND NOTES

 
1
 
2
 
3
 
4
Current Receivables
 
5
 
6
 
7
Property, Plant and Equipment and Operating Lease Right-of-use Assets and Liabilities
 
8
Goodwill and Other Intangible Assets
 
9
Revenues
 
10
Contract & Other Deferred Assets and Progress Collections & Deferred Income
 
11
 
12
Insurance Liabilities and Annuity Benefits
 
13
 
14
 
15
 
16
 
17
 
18
 
19
Commitments, Guarantees, Product Warranties and Other Loss Contingencies
 
20
Cash Flows Information
 
21
 
22
 

2019 1Q FORM 10-Q 37

 
FINANCIAL STATEMENTS
 
 

STATEMENT OF EARNINGS (LOSS)
Three months ended March 31
(UNAUDITED)
General Electric Company
and consolidated affiliates
(In millions; per-share amounts in dollars)
2019

2018

 
 
 
Revenues
 
 
Sales of goods
$
16,198

$
16,742

Sales of services
9,144

9,260

GE Capital revenues from services
1,944

1,786

   Total revenues (Note 9)
27,286

27,788

 
 
 
Costs and expenses
 
 
Cost of goods sold
13,551

13,756

Cost of services sold
6,802

7,155

Selling, general and administrative expenses
4,146

4,088

Interest and other financial charges
1,133

1,282

Insurance losses and annuity benefits
611

630

Non-operating benefit costs
566

685

Other costs and expenses
81

121

   Total costs and expenses
26,889

27,716

 
 
 
Other income
878

204

GE Capital earnings (loss) from continuing operations


 
 
 
Earnings (loss) from continuing operations before income taxes
1,275

277

Benefit (provision) for income taxes
(222
)
50

Earnings (loss) from continuing operations
1,053

328

Earnings (loss) from discontinued operations, net of taxes (Note 2)
2,592

(1,441
)
Net earnings (loss)
3,645

(1,113
)
Less net earnings (loss) attributable to noncontrolling interests
57

34

Net earnings (loss) attributable to the Company
3,588

(1,147
)
Preferred stock dividends
(40
)
(37
)
Net earnings (loss) attributable to GE common shareowners
$
3,549

$
(1,184
)
 
 
 
Amounts attributable to GE common shareowners
 
 
Earnings (loss) from continuing operations
$
1,053

$
328

Less net earnings (loss) attributable to noncontrolling interests,
 
 
   continuing operations
59

30

Earnings (loss) from continuing operations attributable to the Company
994

297

Preferred stock dividends
(40
)
(37
)
Earnings (loss) from continuing operations attributable
 
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