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General Electric Co – ‘10-K’ for 12/31/18

On:  Tuesday, 2/26/19, at 4:36pm ET   ·   For:  12/31/18   ·   Accession #:  40545-19-14   ·   File #:  1-00035

Previous ‘10-K’:  ‘10-K’ on 2/23/18 for 12/31/17   ·   Next & Latest:  ‘10-K’ on 2/24/20 for 12/31/19   ·   31 References:   

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  As Of               Filer                 Filing    For·On·As Docs:Size

 2/26/19  General Electric Co               10-K       12/31/18  227:39M

Annual Report   —   Form 10-K   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML   2.93M 
 2: EX-4.I      Instrument Defining the Rights of Security Holders  HTML     67K 
 3: EX-10.AA    Material Contract                                   HTML     80K 
 4: EX-10.BB    Material Contract                                   HTML    116K 
 5: EX-10.CC    Material Contract                                   HTML    113K 
 6: EX-10.G     Material Contract                                   HTML     79K 
 7: EX-10.L     Material Contract                                   HTML    141K 
 8: EX-10.R     Material Contract                                   HTML     83K 
 9: EX-10.Z     Material Contract                                   HTML    161K 
10: EX-21       Subsidiaries List                                   HTML    127K 
11: EX-23       Consent of Experts or Counsel                       HTML     68K 
12: EX-24       Power of Attorney                                   HTML     78K 
16: EX-95       Mine-Safety Disclosure                              HTML     71K 
17: EX-99.C     Miscellaneous Exhibit                               HTML     67K 
13: EX-31.A     Certification -- §302 - SOA'02                      HTML     70K 
14: EX-31.B     Certification -- §302 - SOA'02                      HTML     70K 
15: EX-32       Certification -- §906 - SOA'02                      HTML     66K 
24: R1          Document and Entity Information                     HTML     98K 
25: R2          Statement of Earnings (Loss)                        HTML    230K 
26: R3          Consolidated Statement of Comprehensive Income      HTML    114K 
                (Loss)                                                           
27: R4          Statement of Financial Position                     HTML    250K 
28: R5          Statement of Financial Position (Parenthetical)     HTML    122K 
29: R6          Statement of Cash Flows                             HTML    276K 
30: R7          Statement of Cash Flows (Parenthetical)             HTML     64K 
31: R8          Basis of Presentation and Summary of Significant    HTML    161K 
                Accounting Policies                                              
32: R9          Businesses Held for Sale and Discontinued           HTML    138K 
                Operations                                                       
33: R10         Investment Securities                               HTML    125K 
34: R11         Current Receivables                                 HTML    112K 
35: R12         Inventories                                         HTML     72K 
36: R13         Ge Capital Financing Receivables and Allowance for  HTML    120K 
                Losses on Financing Receivables                                  
37: R14         Property, Plant and Equipment                       HTML    123K 
38: R15         Acquisitions, Goodwill and Other Intangible Assets  HTML    234K 
39: R16         Revenues                                            HTML    236K 
40: R17         Contract & Other Deferred Assets and Progress       HTML    210K 
                Collections & Deferred Income                                    
41: R18         Borrowings                                          HTML    168K 
42: R19         Investment Contracts, Insurance Liabilities and     HTML    144K 
                Insurance Annuity Benefits                                       
43: R20         Postretirement Benefit Plans                        HTML    456K 
44: R21         Income Taxes                                        HTML    254K 
45: R22         Shareowners? Equity                                 HTML    200K 
46: R23         Other Stock-Related Information                     HTML    108K 
47: R24         Earnings Per Share Information                      HTML    129K 
48: R25         Other Income                                        HTML     84K 
49: R26         Fair Value Measurements                             HTML    212K 
50: R27         Financial Instruments                               HTML    252K 
51: R28         Variable Interest Entities                          HTML    148K 
52: R29         Commitments, Guarantees, Product Warranties and     HTML    119K 
                Other Loss Contingencies                                         
53: R30         Cash Flows Information                              HTML    164K 
54: R31         Intercompany Transactions                           HTML    114K 
55: R32         Operating Segments                                  HTML    252K 
56: R33         Cost Information                                    HTML    150K 
57: R34         Guarantor Financial Information                     HTML    480K 
58: R35         Quarterly Information (Unaudited)                   HTML    170K 
59: R36         Basis of Presentation and Summary of Significant    HTML    205K 
                Accounting Policies (Policies)                                   
60: R37         Businesses Held for Sale and Discontinued           HTML    139K 
                Operations (Tables)                                              
61: R38         Investment Securities (Tables)                      HTML    115K 
62: R39         Current Receivables (Tables)                        HTML    113K 
63: R40         Inventories (Tables)                                HTML     73K 
64: R41         Ge Capital Financing Receivables and Allowance for  HTML    158K 
                Losses on Financing Receivables (Tables)                         
65: R42         Property, Plant and Equipment (Tables)              HTML    123K 
66: R43         Acquisitions, Goodwill and Other Intangible Assets  HTML    226K 
                (Tables)                                                         
67: R44         Revenues (Tables)                                   HTML    230K 
68: R45         Contract & Other Deferred Assets and Progress       HTML    205K 
                Collections & Deferred Income (Tables)                           
69: R46         Borrowings (Tables)                                 HTML    168K 
70: R47         Investment Contracts, Insurance Liabilities and     HTML    123K 
                Insurance Annuity Benefits (Tables)                              
71: R48         Postretirement Benefit Plans (Tables)               HTML    452K 
72: R49         Income Taxes (Tables)                               HTML    266K 
73: R50         Shareowners? Equity (Tables)                        HTML    192K 
74: R51         Other Stock-Related Information (Tables)            HTML    116K 
75: R52         Earnings Per Share Information (Tables)             HTML    127K 
76: R53         Other Income (Tables)                               HTML     83K 
77: R54         Fair Value Measurements (Tables)                    HTML    217K 
78: R55         Financial Instruments (Tables)                      HTML    316K 
79: R56         Variable Interest Entities (Tables)                 HTML    142K 
80: R57         Commitments, Guarantees, Product Warranties and     HTML     87K 
                Other Loss Contingencies (Tables)                                
81: R58         Cash Flows Information (Tables)                     HTML    161K 
82: R59         Intercompany Transactions (Tables)                  HTML    107K 
83: R60         Operating Segments (Tables)                         HTML    254K 
84: R61         Cost Information (Tables)                           HTML    151K 
85: R62         Guarantor Financial Information (Tables)            HTML    472K 
86: R63         Quarterly Information (Unaudited) (Tables)          HTML    169K 
87: R64         BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT    HTML     64K 
                ACCOUNTING POLICIES - Financial Statement                        
                Presentation (Details)                                           
88: R65         BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT    HTML     68K 
                ACCOUNTING POLICIES - Revenues from Sale of                      
                Services (Details)                                               
89: R66         BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT    HTML    143K 
                ACCOUNTING POLICIES - Accounting Changes (Details)               
90: R67         BUSINESSES HELD FOR SALE AND DISCONTINUED           HTML     95K 
                OPERATIONS - Narrative (Details)                                 
91: R68         BUSINESSES HELD FOR SALE AND DISCONTINUED           HTML    120K 
                OPERATIONS - Financial Information for Assets and                
                Liabilities of Businesses Held for Sale (Details)                
92: R69         BUSINESSES HELD FOR SALE AND DISCONTINUED           HTML    160K 
                OPERATIONS - Financial Information for                           
                Discontinued Operations (Details)                                
93: R70         INVESTMENT SECURITIES - Schedule of Investment      HTML    117K 
                Securities (Details)                                             
94: R71         INVESTMENT SECURITIES - Narrative (Details)         HTML     89K 
95: R72         INVESTMENT SECURITIES - Contractual Maturities      HTML     89K 
                (Details)                                                        
96: R73         CURRENT RECEIVABLES - Schedule of Current           HTML    119K 
                Receivables (Details)                                            
97: R74         CURRENT RECEIVABLES - Sale of GE Current            HTML     76K 
                Receivables (Details)                                            
98: R75         CURRENT RECEIVABLES - Receivables Facilities        HTML     83K 
                (Details)                                                        
99: R76         CURRENT RECEIVABLES - Sold to Others (Details)      HTML     67K 
100: R77         Inventories (Details)                               HTML     73K  
101: R78         GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR  HTML     79K  
                LOSSES ON FINANCING RECEIVABLES - Financing                      
                Receivables, Net (Details)                                       
102: R79         GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR  HTML    111K  
                LOSSES ON FINANCING RECEIVABLES - Net Investment                 
                in Financing Leases (Details)                                    
103: R80         GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR  HTML     83K  
                LOSSES ON FINANCING RECEIVABLES - Contractual                    
                Maturities (Details)                                             
104: R81         GE CAPITAL FINANCING RECEIVABLES AND ALLOWANCE FOR  HTML     90K  
                LOSSES ON FINANCING RECEIVABLES - Narrative                      
                (Details)                                                        
105: R82         PROPERTY, PLANT AND EQUIPMENT - Schedule of         HTML    121K  
                Property, Plant and Equipment and Depreciable                    
                Lives (Details)                                                  
106: R83         PROPERTY, PLANT AND EQUIPMENT - Narrative           HTML     72K  
                (Details)                                                        
107: R84         PROPERTY, PLANT AND EQUIPMENT - Schedule of         HTML     78K  
                Noncancellable Future Rentals Due (Details)                      
108: R85         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     85K  
                - Acquisitions (Details)                                         
109: R86         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML    119K  
                - Baker Hughes (Details)                                         
110: R87         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     72K  
                - Purchase Price (Details)                                       
111: R88         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML    137K  
                - Identifiable Assets Acquired and Liabilities                   
                Assumed (Details)                                                
112: R89         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML    102K  
                - Fair Value of Intangible Assets and Useful Lives               
                in the Preliminary Purchase Price Allocation                     
                (Details)                                                        
113: R90         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML    107K  
                - Changes in Goodwill Balances (Details)                         
114: R91         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML    104K  
                - Goodwill, Narrative (Details)                                  
115: R92         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     70K  
                - Other Intangible Assets - Net (Details)                        
116: R93         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     87K  
                - Intangible Assets Subject to Amortization                      
                (Details)                                                        
117: R94         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     80K  
                - Other Intangible Assets, Narrative (Details)                   
118: R95         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     75K  
                - Estimated 5 Year Amortization (Details)                        
119: R96         ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS  HTML     79K  
                - Components of Finite-Lived Intangible Assets                   
                Acquired (Details)                                               
120: R97         REVENUES - Disaggregated Equipment and Services     HTML    105K  
                Revenues (Details)                                               
121: R98         REVENUES - Sub-Segment Revenues (Details)           HTML    165K  
122: R99         REVENUES - Remaining Performance Obligation         HTML     69K  
                (Details)                                                        
123: R100        REVENUES - Remaining Performance Obligation         HTML     85K  
                (Percentage and Period) (Details)                                
124: R101        CONTRACT & OTHER DEFERRED ASSETS AND PROGRESS       HTML    131K  
                COLLECTIONS & DEFERRED INCOME - Schedule of                      
                Contract Assets (Details)                                        
125: R102        CONTRACT & OTHER DEFERRED ASSETS AND PROGRESS       HTML     82K  
                COLLECTIONS & DEFERRED INCOME - Narrative                        
                (Details)                                                        
126: R103        CONTRACT & OTHER DEFERRED ASSETS AND PROGRESS       HTML    106K  
                COLLECTIONS & DEFERRED INCOME - Progress                         
                Collections and Deferred Income (Details)                        
127: R104        BORROWINGS - Schedule of Borrowings (Details)       HTML    179K  
128: R105        BORROWINGS - Narrative (Details)                    HTML     67K  
129: R106        BORROWINGS - Maturities of Borrowings (Details)     HTML     95K  
130: R107        INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND     HTML    102K  
                INSURANCE ANNUITY BENEFITS - Schedule of                         
                Investment Contracts, Insurance Liabilities and                  
                Insurance Annuity Benefits (Details)                             
131: R108        INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND     HTML    135K  
                INSURANCE ANNUITY BENEFITS - Narrative (Details)                 
132: R109        INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND     HTML     75K  
                INSURANCE ANNUITY BENEFITS - Reinsurance                         
                Recoverables, Net (Details)                                      
133: R110        POSTRETIREMENT BENEFIT PLANS - Pension Benefits     HTML     79K  
                (Details)                                                        
134: R111        POSTRETIREMENT BENEFIT PLANS - Cost of Pension      HTML     96K  
                Plans (Details)                                                  
135: R112        POSTRETIREMENT BENEFIT PLANS - Assumptions Used to  HTML     73K  
                Measure Pension Benefit Obligations (Details)                    
136: R113        POSTRETIREMENT BENEFIT PLANS - Assumptions Used to  HTML     73K  
                Measure Pension Cost (Details)                                   
137: R114        POSTRETIREMENT BENEFIT PLANS - Assumptions Used in  HTML     72K  
                Pension Calculations (Details)                                   
138: R115        POSTRETIREMENT BENEFIT PLANS - Funded Status,       HTML     77K  
                Pension Plans (Details)                                          
139: R116        POSTRETIREMENT BENEFIT PLANS - Projected Benefit    HTML     98K  
                Obligation (Pbo) (Details)                                       
140: R117        POSTRETIREMENT BENEFIT PLANS - Composition of Plan  HTML    108K  
                Assets, Pension Plans (Details)                                  
141: R118        POSTRETIREMENT BENEFIT PLANS - Composition of Plan  HTML     85K  
                Assets, Pension Plans (Narrative) (Details)                      
142: R119        POSTRETIREMENT BENEFIT PLANS - Fair Value of Plan   HTML     90K  
                Assets, Pension Plans (Details)                                  
143: R120        POSTRETIREMENT BENEFIT PLANS - Asset Allocation,    HTML     93K  
                Pension Plans (Details)                                          
144: R121        POSTRETIREMENT BENEFIT PLANS - Amounts Included in  HTML     76K  
                Shareowners' Equity, Pension Plans (Details)                     
145: R122        POSTRETIREMENT BENEFIT PLANS - Amounts Included in  HTML     79K  
                Shareowners' Equity, Pension Plans (Narrative)                   
                (Details)                                                        
146: R123        POSTRETIREMENT BENEFIT PLANS - Funding Policy,      HTML     81K  
                Pension Plans (Details)                                          
147: R124        POSTRETIREMENT BENEFIT PLANS - Estimated Future     HTML     81K  
                Benefit Payments, Pension Plans (Details)                        
148: R125        POSTRETIREMENT BENEFIT PLANS - Defined              HTML     65K  
                Contribution Plan (Details)                                      
149: R126        POSTRETIREMENT BENEFIT PLANS - Retiree Health and   HTML     71K  
                Life Benefits (Details)                                          
150: R127        POSTRETIREMENT BENEFIT PLANS - Assumptions Used to  HTML     75K  
                Measure Benefit Obligations (Details)                            
151: R128        POSTRETIREMENT BENEFIT PLANS - Assumptions Used to  HTML     72K  
                Measure Benefit Cost (Details)                                   
152: R129        POSTRETIREMENT BENEFIT PLANS - Funded Status,       HTML     74K  
                Benefit Plans (Details)                                          
153: R130        POSTRETIREMENT BENEFIT PLANS - Accumulated          HTML     89K  
                Postretirement Benefit Obligation (Details)                      
154: R131        POSTRETIREMENT BENEFIT PLANS - Composition of Plan  HTML     71K  
                Assets, Benefit Plans (Narrative) (Details)                      
155: R132        POSTRETIREMENT BENEFIT PLANS - Asset Allocation,    HTML     83K  
                Benefit Plans (Details)                                          
156: R133        POSTRETIREMENT BENEFIT PLANS - Amounts Included in  HTML     73K  
                Shareowners' Equity, Benefit Plans (Details)                     
157: R134        POSTRETIREMENT BENEFIT PLANS - Amounts Included in  HTML     75K  
                Shareowners' Equity, Benefit Plans (Narrative)                   
                (Details)                                                        
158: R135        POSTRETIREMENT BENEFIT PLANS - Funding Policy,      HTML     70K  
                Benefit Plans (Details)                                          
159: R136        POSTRETIREMENT BENEFIT PLANS - Estimated Future     HTML     78K  
                Benefit Payments, Benefit Plans (Details)                        
160: R137        POSTRETIREMENT BENEFIT PLANS - Cost of              HTML    110K  
                Postretirement Benefit Plans and Changes in Other                
                Comprehensive Income (Details)                                   
161: R138        INCOME TAXES - Narrative (Details)                  HTML     96K  
162: R139        Income Taxes - (Benefit) Provision for Income       HTML     80K  
                Taxes (Details)                                                  
163: R140        Income Taxes - Consolidated Earnings (Loss) from    HTML     72K  
                Continuing Operations Before Income Taxes                        
                (Details)                                                        
164: R141        INCOME TAXES - Consolidated (Benefit) Provision     HTML     83K  
                for Income Taxes (Details)                                       
165: R142        INCOME TAXES - Income Taxes Paid (Recovered)        HTML     70K  
                (Details)                                                        
166: R143        INCOME TAXES - Reconciliation of U.S. Federal       HTML    109K  
                Statutory Income Tax Rate to Actual Income Tax                   
                Rate (Details)                                                   
167: R144        INCOME TAXES - Unrecognized Tax Benefits (Details)  HTML     80K  
168: R145        INCOME TAXES - Unrecognized Tax Benefits            HTML     80K  
                Reconciliation (Details)                                         
169: R146        INCOME TAXES - Components of Net Deferred Income    HTML    147K  
                Tax Assets (Liability) (Details)                                 
170: R147        SHAREOWNERS? EQUITY - Schedule of Shareowners'      HTML    261K  
                Equity (Details)                                                 
171: R148        SHAREOWNERS? EQUITY - Shares of GE Preferred Stock  HTML    105K  
                (Details)                                                        
172: R149        SHAREOWNERS? EQUITY - Shares of GE Common Stock     HTML     82K  
                (Details)                                                        
173: R150        SHAREOWNERS? EQUITY - Schedule of Common Shares     HTML     71K  
                Issued and Outstanding (Details)                                 
174: R151        SHAREOWNERS? EQUITY - Noncontrolling Interests,     HTML     94K  
                Narrative (Details)                                              
175: R152        SHAREOWNERS? EQUITY - Changes to Noncontrolling     HTML     86K  
                Interests (Details)                                              
176: R153        SHAREOWNERS? EQUITY - Redeemable Noncontrolling     HTML     76K  
                Interests, Narrative (Details)                                   
177: R154        SHAREOWNERS? EQUITY - Changes to Redeemable         HTML     89K  
                Noncontrolling Interests (Details)                               
178: R155        SHAREOWNERS? EQUITY - Other (Details)               HTML     71K  
179: R156        OTHER STOCK-RELATED INFORMATION - Stock Options     HTML     91K  
                (Narrative) (Details)                                            
180: R157        OTHER STOCK-RELATED INFORMATION - Restricted Stock  HTML     68K  
                (Narrative) (Details)                                            
181: R158        OTHER STOCK-RELATED INFORMATION - Stock-Based       HTML    155K  
                Compensation Activity (Details)                                  
182: R159        OTHER STOCK-RELATED INFORMATION - Schedule of       HTML     82K  
                Compensation Expense, Cash Proceeds and Intrinsic                
                Value (Details)                                                  
183: R160        Earnings Per Share Information (Details)            HTML    156K  
184: R161        Other Income (Details)                              HTML    108K  
185: R162        FAIR VALUE MEASUREMENTS - Assets and Liabilities    HTML    115K  
                Measured at Fair Value on Recurring Basis                        
                (Details)                                                        
186: R163        FAIR VALUE MEASUREMENTS - Schedule of Level 3       HTML     94K  
                Instruments (Details)                                            
187: R164        FAIR VALUE MEASUREMENTS - Assets Measured at Fair   HTML     84K  
                Value on Nonrecurring Basis (Details)                            
188: R165        FAIR VALUE MEASUREMENTS - Schedule of Fair Value    HTML     74K  
                Adjustments (Details)                                            
189: R166        FAIR VALUE MEASUREMENTS - Level 3 Measurements -    HTML    100K  
                Significant Unobservable Inputs (Details)                        
190: R167        FAIR VALUE MEASUREMENTS - Narrative (Details)       HTML     77K  
191: R168        FINANCIAL INSTRUMENTS - Assets and Liabilities Not  HTML    104K  
                Carried at Fair Value (Details)                                  
192: R169        FINANCIAL INSTRUMENTS - Notional Amount of Loan     HTML     71K  
                Commitments (Details)                                            
193: R170        FINANCIAL INSTRUMENTS - Notional Amount of          HTML     64K  
                Derivatives (Details)                                            
194: R171        FINANCIAL INSTRUMENTS - Fair Value of Derivatives   HTML    161K  
                (Details)                                                        
195: R172        FINANCIAL INSTRUMENTS - Effects of Derivatives on   HTML    101K  
                Earnings (Details)                                               
196: R173        FINANCIAL INSTRUMENTS - Cash Flow Hedge Activity    HTML     79K  
                (Details)                                                        
197: R174        FINANCIAL INSTRUMENTS - Effects of Derivative on    HTML     70K  
                Earnings (Narrative) (Details)                                   
198: R175        FINANCIAL INSTRUMENTS - Counterparty Credit Risk    HTML     83K  
                (Details)                                                        
199: R176        VARIABLE INTEREST ENTITIES - Narrative (Details)    HTML     89K  
200: R177        VARIABLE INTEREST ENTITIES - Schedule of Assets     HTML    147K  
                and Liabilities of Consolidated VIEs (Details)                   
201: R178        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     92K  
                OTHER LOSS CONTINGENCIES - Commitments (Details)                 
202: R179        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     85K  
                OTHER LOSS CONTINGENCIES - Guarantees (Details)                  
203: R180        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     75K  
                OTHER LOSS CONTINGENCIES - Product Warranties Roll               
                Forward (Details)                                                
204: R181        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     97K  
                OTHER LOSS CONTINGENCIES - WMC Legal Matters                     
                (Details)                                                        
205: R182        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     72K  
                OTHER LOSS CONTINGENCIES - Reserve Roll Forward                  
                (Details)                                                        
206: R183        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     78K  
                OTHER LOSS CONTINGENCIES - Alstom Legacy Matters                 
                (Details)                                                        
207: R184        COMMITMENTS, GUARANTEES, PRODUCT WARRANTIES AND     HTML     65K  
                OTHER LOSS CONTINGENCIES - Environmental, Health                 
                and Safety Matters (Details)                                     
208: R185        CASH FLOWS INFORMATION - GE Cash Flows Information  HTML    121K  
                (Details)                                                        
209: R186        CASH FLOWS INFORMATION - GE Cash Flows Information  HTML     85K  
                (Footnotes) (Details)                                            
210: R187        CASH FLOWS INFORMATION - GE Capital Cash Flows      HTML    127K  
                Information (Details)                                            
211: R188        Intercompany Transactions (Details)                 HTML     97K  
212: R189        OPERATING SEGMENTS - Reconciliation of Revenues     HTML    114K  
                (Details)                                                        
213: R190        OPERATING SEGMENTS - Narrative (Details)            HTML     76K  
214: R191        OPERATING SEGMENTS - Reconciliation of Profit and   HTML    166K  
                Earnings (Details)                                               
215: R192        OPERATING SEGMENTS - Reconciliation of Assets,      HTML    119K  
                Property, Plant and Equipment Additions and                      
                Depreciation and Amortization (Details)                          
216: R193        OPERATING SEGMENTS - Reconciliation of Interest     HTML     73K  
                and Income Taxes (Details)                                       
217: R194        COST INFORMATION - Research and Development         HTML    115K  
                Expense (Details)                                                
218: R195        COST INFORMATION - Collaborative Arrangements       HTML     73K  
                (Details)                                                        
219: R196        COST INFORMATION - Rental Expense (Details)         HTML     74K  
220: R197        COST INFORMATION - Future Minimum Rental (Details)  HTML     94K  
221: R198        GUARANTOR FINANCIAL INFORMATION - Condensed         HTML    210K  
                Consolidating Statement of Earnings (Loss) and                   
                Comprehensive Income (Loss) (Details)                            
222: R199        GUARANTOR FINANCIAL INFORMATION - Condensed         HTML    144K  
                Consolidating Statement of Financial Position                    
                (Details)                                                        
223: R200        GUARANTOR FINANCIAL INFORMATION - Condensed         HTML    136K  
                Consolidating Statement of Cash Flows (Details)                  
224: R201        Quarterly Information (Unaudited) (Details)         HTML    165K  
226: XML         IDEA XML File -- Filing Summary                      XML    433K  
225: EXCEL       IDEA Workbook of Financial Reports                  XLSX    328K  
18: EX-101.INS  XBRL Instance -- ge-20181231                         XML  14.28M 
20: EX-101.CAL  XBRL Calculations -- ge-20181231_cal                 XML    734K 
21: EX-101.DEF  XBRL Definitions -- ge-20181231_def                  XML   3.24M 
22: EX-101.LAB  XBRL Labels -- ge-20181231_lab                       XML   5.04M 
23: EX-101.PRE  XBRL Presentations -- ge-20181231_pre                XML   3.79M 
19: EX-101.SCH  XBRL Schema -- ge-20181231                           XSD    547K 
227: ZIP         XBRL Zipped Folder -- 0000040545-19-000014-xbrl      Zip   1.00M  


‘10-K’   —   Annual Report
Document Table of Contents

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11st Page  –  Filing Submission
"100
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"120
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"133
"138
"141
"142
"Statement re Computation of Per Share Earnings
"143
"145
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"154
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"158
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United States Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2018
or
¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ___________to ___________
 
Commission file number 001-00035
geicon.jpg
General Electric Company 
(Exact name of registrant as specified in charter)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10‑K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨ 
Smaller reporting company ¨
Emerging growth company ¨ 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
The aggregate market value of the outstanding common equity of the registrant not held by affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was at least $116.2 billion. There were 8,705,080,100 shares of voting common stock with a par value of $0.06 outstanding at January 31, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners, to be held May 8, 2019, is incorporated by reference into Part III to the extent described therein.



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




FORWARD-LOOKING STATEMENTS
 
 

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

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about potential business or asset dispositions, including the planned sale of our BioPharma business within our Healthcare segment and plans to exit our equity ownership positions in Baker Hughes, a GE company (BHGE) and Wabtec, and the expected benefits to GE; our strategy and plans for the remaining portion of our Healthcare business, and the characteristics of that business in the future; capital allocation plans; GE’s and GE Capital’s capital structure, liquidity and access to funding; our de-leveraging plans, including leverage ratios and targets, the timing and nature of specific actions to reduce indebtedness, credit ratings and credit outlooks; divestiture proceeds expectations; future charges and capital contributions that may be required in connection with GE Capital’s run-off insurance operations or other GE Capital portfolio actions; revenues; organic growth; cash flows and cash conversion, including the impact of working capital, contract assets and pension funding contributions; earnings per share; future business growth and productivity gains; profit margins; the benefits of restructuring and other transformational internal actions; our businesses’ cost structures and plans to reduce costs; restructuring, goodwill impairment or other financial charges; tax rates; or returns on capital and investment.

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
our success in executing and completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced GE Industrial and GE Capital business or asset dispositions or other transactions, including the planned sale of our BioPharma business within our Healthcare segment and plans to exit our equity ownership positions in BHGE and Wabtec, the timing of closing for those transactions and the expected proceeds and benefits to GE;
our strategy and plans for the remaining portion of our Healthcare business, including the structure, form, timing and nature of potential actions with respect to that business in the future and the characteristics of the business going forward;
our capital allocation plans, as such plans may change including with respect to de-leveraging actions, the timing and amount of GE dividends, organic investments, and other priorities;
further downgrades of our current short- and long-term credit ratings or ratings outlooks, or changes in rating application or methodology, and the related impact on our liquidity, funding profile, costs and competitive position;
GE’s liquidity and the amount and timing of our GE Industrial cash flows and earnings, which may be impacted by customer, competitive, contractual and other dynamics and conditions;
GE Capital's capital and liquidity needs, including in connection with GE Capital’s run-off insurance operations, the amount and timing of required capital contributions, strategic actions that we may pursue, WMC-related claims, liabilities and payments, the impact of conditions in the financial and credit markets on GE Capital's ability to sell financial assets, GE Capital’s leverage and credit ratings, the availability and cost of GE Capital funding and GE Capital's exposure to counterparties;
customer actions or market developments such as secular and cyclical pressures in our Power business, pricing pressures in the renewable energy market, other shifts in the competitive landscape for our products and services, changes in economic conditions, including oil prices, early aircraft retirements and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;
operational execution by our businesses, including our ability to improve the operations and execution of our Power business, and the continued strength of our Aviation business;
changes in law, economic and financial conditions, including the effect of enactment of U.S. tax reform or other tax law changes, trade policy and tariffs, interest and exchange rate volatility, commodity and equity prices and the value of financial assets;
our decisions about investments in new products, services and platforms, and our ability to launch new products in a cost-effective manner;
our ability to increase margins through implementation of operational changes, restructuring and other cost reduction measures;
the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of WMC, Alstom, SEC and other investigative and legal proceedings;
our success in integrating acquired businesses and operating joint ventures, and our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures;
the impact of potential product failures and related reputational effects;
the impact of potential information technology, cybersecurity or data security breaches;
the other factors that are described in "Forward-Looking Statements" in BHGE’s most recent earnings release or SEC filings; and
the other factors that are described in the Risk Factors section of this Form 10-K report.
These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.

GE 2018 FORM 10-K 3


ABOUT GENERAL ELECTRIC
 

geicon.jpgABOUT GENERAL ELECTRIC
We are a leading global high-tech industrial company. With products and services ranging from aircraft engines, power generation and oil and gas production equipment to medical imaging, financing and industrial products, we serve customers in over 180 countries and employ approximately 283,000 people worldwide. Manufacturing operations are carried out at 162 manufacturing plants located in 34 states in the United States and Puerto Rico and at 297 manufacturing plants located in 41 other countries. Since our incorporation in 1892, we have developed or acquired new technologies and services that have considerably broadened and changed the scope of our activities.

OUR INDUSTRIAL OPERATING SEGMENTS
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Power
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Oil & Gas
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Lighting
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Renewable Energy
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Healthcare
 
 
geaviation.jpg
Aviation
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Transportation
 
 

OUR FINANCIAL SERVICES OPERATING SEGMENT
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Capital

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

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

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

product development cycles for many of our products are long and product quality and efficiency are critical to success,
research and development expenditures are important to our business,
many of our products are subject to a number of regulatory standards and
changing end markets, including shifts in energy sources and demand and the impact of technology changes. In particular, Power markets have been particularly challenging as significant overcapacity in the industry has resulted in decreased utilization of our power equipment, lower market penetration, increased price concessions, uncertain timing of deal closures due to financing and the complexities of working in emerging markets as well as increasing energy efficiency and renewable energy penetration. See the Power segment section within MD&A for further information.

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

Approximately 9,900 GE and GE affiliate manufacturing and service employees in the United States are represented for collective bargaining purposes by a union. A majority of such employees are represented by union locals that are affiliated with the IUE-CWA, The Industrial Division of the Communication Workers of America, AFL-CIO, CLC.

In June 2015, GE negotiated four-year collective bargaining agreements with most of its U.S. unions (including the IUE-CWA) and these agreements are scheduled to terminate in June 2019. GE will hold negotiations to enter into new agreements that month. While the outcome of the 2019 negotiations cannot be predicted, GE’s recent past negotiations have resulted in agreements that provide employees with good wages and benefits while addressing the competitive realities facing GE.

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


GE 2018 FORM 10-K 4



ABOUT GENERAL ELECTRIC
 

GE’s Internet address at www.ge.com, Investor Relations website at www.ge.com/investor-relations and our corporate blog at www.gereports.com, as well as GE’s Facebook page, Twitter accounts and other social media, including @GE_Reports, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted. Additional information on non-financial matters, including environmental and social matters and our integrity policies, is available at www.ge.com/sustainability. Website references in this report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this report.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
The consolidated financial statements of General Electric Company (the Company) combine the industrial manufacturing and services businesses of General Electric Company (GE) with the financial services businesses of GE Capital Global Holdings, LLC (GE Capital or Financial Services) and are prepared in conformity with U.S. generally accepted accounting principles (GAAP).

We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. Because of the diversity in our businesses, we present our financial statements in a three-column format, which allows investors to see our GE Industrial operations separately from our Financial Services operations. We believe that this provides useful information to investors. When used in this report, unless otherwise indicated by the context, we use the terms to mean the following:
General Electric or the Company – the parent company, General Electric Company.
GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated Statements of Earnings (loss), Financial Position and Cash Flows. An example of a GE metric is GE Industrial free cash flows (Non-GAAP).
General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.
GE Capital Global Holdings, LLC or GECGH – the adding together of all affiliates of GECGH, giving effect to the elimination of transactions among such affiliates.
GE Capital or Financial Services – refers to GECGH and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated Statements of Earnings (Loss), Financial Position and Cash Flows.
GE Industrial – GE excluding the continuing operations of GE Capital. We believe that this provides investors with a view as to the results of our industrial businesses and corporate items. An example of a GE Industrial metric is GE Industrial free cash flows (Non-GAAP).
Industrial segment – the sum of our seven industrial reporting segments, without giving effect to the elimination of transactions among such segments and between these segments and our financial services segment. This provides investors with a view as to the results of our industrial segments, without inter-segment eliminations and corporate items. An example of an industrial segment metric is industrial segment revenue growth.
Baker Hughes, a GE company or BHGE – following the combination of our Oil & Gas business with Baker Hughes Incorporated, our Oil & Gas segment comprises our ownership interest of approximately 50.4% in the new company formed in the transaction, Baker Hughes, a GE company (BHGE). We consolidate 100% of BHGE's revenues and cash flows, while our Oil & Gas segment profit and net income are derived net of minority interest of approximately 49.6% attributable to BHGE's Class A shareholders. References to "Baker Hughes" represent legacy Baker Hughes Incorporated operating activities which, in certain cases, have been excluded from our results for comparative purposes.
Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.


GE 2018 FORM 10-K 5



MD&A
 
 

ORGANIC
We integrate acquisitions as quickly as possible. Revenues and earnings from the date we complete the acquisition through the end of the fourth quarter following the acquisition are considered the acquisition effect of such businesses. However, in the case of BHGE, which was acquired on July 3, 2017, we consider the results to be organic as of the third quarter of 2018.

ROUNDING
Amounts reported in billions in graphs within this report are computed based on the amounts in millions. As a result, the sum of the components reported in billions may not equal the total amount reported in billions due to rounding. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Discussions throughout this MD&A are based on continuing operations unless otherwise noted. The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.

OTHER TERMS USED BY GE
FINANCIAL TERMS
Continuing earnings – we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings.
Continuing earnings per share (EPS) – when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners.”
GE Cash Flows from Operating Activities (GE CFOA) - unless otherwise indicated, GE CFOA is from continuing operations.
GE Industrial profit margin (GAAP) – GE total revenues plus other income minus GE total costs and expenses divided by GE total revenues.
Net earnings (loss) – we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.
Net earnings (loss) per share (EPS) – when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners.”
Non-GAAP Financial MeasuresIn the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial measures section within this MD&A for reconciliations.
Segment profit – refers to the profit of the industrial segments, which includes other income, and the net earnings of the financial services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.
OPERATIONAL TERMS
Digital revenues – revenues related to internally developed software (including PredixTM) and associated hardware, and software solutions that improve our customers’ asset performance. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.
Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.
Global Growth Organization (GGO) – The GGO provides leadership in global markets, particularly within emerging and developing markets. GGO provides regional commercial finance capabilities and customer financing solutions, in collaboration with certain of our GE Capital businesses, and works to build the GE brand and protect GE’s reputation.
GE Capital Exit Plan - our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.
Orders, backlog and remaining performance obligation (RPO) – orders are contractual commitments with customers to provide specified goods or services for an agreed upon price. Backlog is unfilled customer orders for products and product services (expected life of contract sales for product services). RPO, a defined term under GAAP, is backlog excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty, even if the likelihood of cancellation is remote based on historical experience. We plan to continue reporting backlog as we believe that it is a useful metric for investors, given its relevance to total orders.
Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy Aviation, Oil & Gas and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant. See Revenues from Services section within Note 1 to the consolidated financial statements for further information.
Services – for purposes of the financial statement display of sales and costs of sales in our consolidated Statement of Earnings (Loss), “goods” is required by SEC regulations to include all sales of tangible products, and "services" must include all other sales, including other services activities. In our MD&A section of this report, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of our operations.
Shared Services – sharing of business processes in order to standardize and consolidate services to provide value to the businesses in the form of simplified processes, reduced overall costs and increased service performance.

GE 2018 FORM 10-K 6



MD&A
KEY PERFORMANCE INDICATORS
 

KEY PERFORMANCE INDICATORS
REVENUES PERFORMANCE
2018 versus 2017

2017 versus 2016

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

2017

2016

Orders
 
 
 
Equipment
$
61.9

$
57.7

$
54.9

Services(a)
62.1

59.1

54.8

Total
$
124.0

$
116.8

$
109.7

 
 
 
 
Backlog
 
 
 
Equipment
$
88.8

$
85.1

$
83.9

Services(a)
302.2

286.6

264.0

Total
$
391.0

$
371.7

$
347.9

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

2017

2016

GE total costs and expenses (GAAP)
$
135.7

$
111.7

$
105.8

GE Industrial structural costs (Non-GAAP)
$
23.7

$
25.2

$
25.0

GE INDUSTRIAL PROFIT MARGIN
2018

2017

2016

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

2017

2016

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

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

Adjusted earnings (loss) (Non-GAAP)
5.7

8.7

9.4

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

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

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

1.00

1.03

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

2017

2016

GE CFOA (GAAP)
$
2.3

$
11.0

$
30.0

GE Industrial free cash flows (Non-GAAP)
4.8

4.3

7.1

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

5.6

7.1

FIVE-YEAR PERFORMANCE GRAPH
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The annual changes for the five-year period shown in the above graph are based on the assumption that $100 had been invested in General Electric common stock, the Standard & Poor’s 500 Stock Index (S&P 500) and the Dow Jones Industrial Average (DJIA) on December 31, 2013, and that all quarterly dividends were reinvested. The cumulative dollar returns shown on the graph represent the value that such investments would have had on December 31 for each year indicated.

GE 2018 FORM 10-K 7


MD&A
KEY PERFORMANCE INDICATORS
 

With respect to “Market Information,” in the United States, General Electric common stock is listed on the New York Stock Exchange under the ticker symbol "GE" (its principal market). General Electric common stock is also listed on the London Stock Exchange, Euronext Paris, the SIX Swiss Exchange and the Frankfurt Stock Exchange.

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

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

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

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

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

On July 26, 2018, we announced Jan R. Hauser, GE's Vice President, Controller and Chief Accounting Officer, had communicated her intention to retire from GE. Thomas S. Timko, formerly the Chief Accounting Officer of General Motors Company, was appointed as her successor, effective September 10, 2018.

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

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

On October 30, 2018 we announced plans to reduce our quarterly dividend from $0.12 cents to $0.01 cent per share beginning with the dividend declared in December 2018, which was paid on January 25, 2019. This change will allow us to retain approximately $4 billion of cash per year compared to the prior payout level.

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

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

GE 2018 FORM 10-K 8


 
MD&A
CONSOLIDATED RESULTS

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

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

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

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

As previously disclosed, the Power market as well as its operating environment continues to be challenging. Our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry resulting in decreased utilization of our power equipment, lower market penetration, increased price concessions on certain long-term contracts as well as the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges. Finally, market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. These conditions have resulted in downward revisions of our forecasts on current and future projected earnings and cash flows at these businesses. As a result, during the second half of the year, we recorded a non-cash pre-tax impairment loss of $22.0 billion related to goodwill in our Power Generation and Grid Solutions reporting units. Included in this amount is a non-cash impairment loss of $0.8 billion related to goodwill recorded at Corporate associated with our Digital acquisitions that was previously allocated to our Power Generation and Grid Solutions reporting units. The aforementioned charges were all recorded at Corporate and have significantly impacted operating results. See the Corporate Items and Eliminations section within this MD&A and Note 8 to the consolidated financial statements for further information.

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

GE CFOA was $2.3 billion and $11.0 billion for the years ended December 31, 2018 and 2017, respectively. The decline in GE CFOA is primarily due to GE Pension Plan contributions of $6.0 billion in 2018, compared to $1.7 billion in 2017 as well as a $4.0 billion decrease in common dividends from GE Capital. GE did not receive a common dividend distribution from GE Capital in 2018, and it does not expect to receive such dividend distributions from GE Capital for the foreseeable future. See the Capital Resources and Liquidity - Statement of Cash Flows section within this MD&A for further information.


*Non-GAAP Financial Measure

GE 2018 FORM 10-K 9

 
MD&A
CONSOLIDATED RESULTS

REVENUES (In billions)
2018

2017

2016

 
 
 
 
Consolidated revenues
$
121.6

$
118.2

$
119.5

 
 
 
 
Industrial segment revenues
$
115.7

$
113.2

$
112.3

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

$
111.3

$
110.6

 
 
 
 
Financial services revenues
$
9.6

$
9.1

$
10.9

REVENUES COMMENTARY: 2018 – 2017
Consolidated revenues increased $3.4 billion, or 3%, primarily driven by increased industrial segment revenues of $2.5 billion and increased Financial Services revenues of $0.5 billion. The overall foreign currency impact on consolidated revenues was an increase of $0.6 billion.
GE Industrial revenues increased $2.4 billion, or 2%.
Industrial segment revenues increased $2.5 billion, or 2%, as increases at Oil & Gas, Aviation, Healthcare and Renewable Energy were partially offset by decreases at Power, Lighting and Transportation. This increase was driven by the net effects of acquisitions of $5.5 billion, primarily attributable to Baker Hughes through the first half of 2018, and the effects of a weaker U.S. dollar of $0.6 billion, partially offset by the net effects of dispositions of $3.7 billion, primarily attributable to the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic revenues* increased $0.1 billion.
Financial Services revenues increased $0.5 billion, or 5%, primarily due to lower impairments and volume growth, partially offset by lower gains.
REVENUES COMMENTARY: 2017 – 2016
Consolidated revenues decreased $1.2 billion, or 1%, primarily driven by decreased Financial Services revenues of $1.8 billion, partially offset by increased industrial segment revenues of $0.8 billion. The overall foreign currency impact on consolidated revenues was an increase of $0.6 billion.
GE Industrial revenues increased $0.6 billion, or 1%.
Industrial segment revenues increased $0.8 billion, or 1%, as increases at Oil & Gas, Healthcare and Aviation were partially offset by decreases at Lighting, Power, Transportation and Renewable Energy. This increase was driven by the net effects of acquisitions of $6.0 billion, primarily attributable to the acquisition of Baker Hughes in the third quarter of 2017, and the effects of a weaker U.S. dollar of $0.6 billion, partially offset by the net effects of dispositions of $3.5 billion, primarily attributable to the absence of Appliances following its sale in the second quarter of 2016. Excluding the effects of acquisitions, dispositions and translational currency exchange, industrial segment organic revenues* decreased $2.3 billion.
Financial Services revenues decreased $1.8 billion, or 17%, primarily due to higher impairments and volume declines.


























*Non-GAAP Financial Measure

GE 2018 FORM 10-K 10


 
MD&A
CONSOLIDATED RESULTS

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

2017

2016

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

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

EARNINGS COMMENTARY: 2018 – 2017
Consolidated continuing earnings decreased $12.5 billion, due to increased goodwill impairment charges of $21.0 billion, increased non-operating benefit costs of $0.4 billion and decreased GE Industrial continuing earnings of $0.2 billion, partially offset by decreased Financial Services losses of $6.3 billion and decreased provision for GE Industrial income taxes of $2.7 billion.
GE Industrial continuing earnings decreased $0.2 billion, or 2%.
Corporate items and eliminations increased $1.3 billion primarily attributable to decreased adjusted Corporate operating costs* of $0.4 billion, increased net gains from disposed or held for sale businesses of $0.4 billion and decreased restructuring and other costs of $0.4 billion.
Industrial segment profit decreased $1.4 billion, or 12%, with decreases at Power, Renewable Energy and Transportation, partially offset by higher profit at Aviation, Oil & Gas, Healthcare and Lighting. This decrease in industrial segment profit was driven in part by the net effects of dispositions of $0.5 billion, primarily associated with the absence of Water following its sale in the third quarter of 2017 and Industrial Solutions following its sale in the second quarter of 2018, partially offset by the net effects of acquisitions of $0.3 billion, largely associated with Baker Hughes through the first half of the year, and lower restructuring and business development costs related to Baker Hughes of $0.1 billion. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $1.3 billion, primarily driven by negative variable cost productivity, lower volume and pricing pressure at Power.
Financial Services continuing losses decreased $6.3 billion, or 93%, primarily due to the nonrecurrence of the 2017 charges associated with the GE Capital insurance premium deficiency review and EFS strategic actions, partially offset by the nonrecurrence of 2017 tax benefits.
EARNINGS COMMENTARY: 2017 – 2016
Consolidated continuing earnings decreased $16.4 billion driven by decreased GE Industrial continuing earnings of $5.6 billion, increased Financial Services losses of $5.5 billion, increased provision for GE Industrial income taxes of $3.4 billion, increased goodwill impairment charges of $1.2 billion and increased interest and other financial charges of $0.7 billion.
GE Industrial continuing earnings decreased $5.6 billion, or 41%.
Corporate items and eliminations decreased $2.0 billion primarily attributable to decreased net gains from disposed or held for sale businesses of $2.6 billion, partially offset by decreased adjusted Corporate operating costs* of $0.4 billion and decreased restructuring and other costs of $0.2 billion.
Industrial segment profit decreased $3.6 billion, or 23%, with decreases at Power, Oil & Gas, Transportation, Renewable Energy and Lighting, partially offset by higher earnings at Healthcare and Aviation. This decrease in industrial segment profit was driven in part by restructuring and business development costs related to Baker Hughes of $0.7 billion and the net effects of dispositions of $0.3 billion, primarily associated with the absence of Appliances following its sale in the second quarter of 2016, partially offset by the net effects of acquisitions $0.3 billion, largely associated with the acquisition of Baker Hughes in the third quarter of 2017. Excluding the effects of acquisitions, dispositions and foreign currency translation, industrial segment organic profit* decreased $2.8 billion, primarily driven by negative variable cost productivity, pricing pressure and lower volume at Power.
Financial Services continuing losses increased $5.5 billion, primarily due to a $6.2 billion after-tax charge related to the completion of GE Capital's insurance premium deficiency review, as well as EFS strategic actions resulting in $1.8 billion of after-tax charges in addition to higher impairments, partially offset by lower headquarters and treasury operation expenses associated with the GE Capital Exit Plan, higher tax benefits including the effects of U.S. tax reform and lower preferred dividend expenses associated with the January 2016 preferred equity exchange.

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

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

*Non-GAAP Financial Measure

GE 2018 FORM 10-K 11

 
MD&A
CONSOLIDATED RESULTS

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

Revenues were $3.9 billion for the year ended December 31, 2018, a decrease of $0.1 billion or 2% compared to revenues of $4.0 billion for the year ended December 31, 2017. This decrease was principally driven by Power. Revenues were $4.0 billion for the year ended December 31, 2017, an increase of $0.4 billion or 12% compared to revenues of $3.6 billion for the year ended December 31, 2016. These increases were principally driven by Power and Non-GE Verticals.

Orders were $4.2 billion for the year ended December 31, 2018, a decrease of $1.0 billion or 19% compared to orders of $5.2 billion for the year ended December 31, 2017. This decrease was principally driven by Power and Oil & Gas. Orders were $5.2 billion for the year ended December 31, 2017, an increase of $1.1 billion or 27% compared to orders of $4.1 billion for the year ended December 31, 2016. These increases were principally driven by Oil & Gas, Non-GE Verticals, Power and Renewable Energy.

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

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

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

Segment profit excludes or includes interest and other financial charges, non-operating benefit costs, income taxes, and preferred stock dividends according to how a particular segment’s management is measured:
Interest and other financial charges, income taxes, non-operating benefit costs and GE goodwill impairments are excluded in determining segment profit for the industrial segments.
Interest and other financial charges, income taxes, non-operating benefit costs and GE Capital preferred stock dividends are included in determining segment profit (which we sometimes refer to as “net earnings”) for the Capital segment.

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

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

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

Services

Total

 
 
 
 
Backlog
$
88.8

$
302.2

$
391.0

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

$
201.3

$
253.2


GE 2018 FORM 10-K 12


 
MD&A
SEGMENT OPERATIONS
 

Adjustments to reported backlog of $(137.9) billion as of December 31, 2018 are largely driven by adjustments of $(122.0) billion in our Aviation segment: (1) backlog includes engine contracts for which we have received purchase orders that are cancelable. We have included these in backlog as our historical experience has shown no net cancellations, as any canceled engines are typically moved by the airframer to other program customers; (2) our services backlog includes contracts that are cancelable without substantive penalty, primarily time and materials contracts; (3) backlog includes engines contracted under long-term service agreements, even if the engines have not yet been put into service. These adjustments to reported backlog are expected to be satisfied beyond one year. See Note 9 to the consolidated financial statements for further information.

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

2017

2016

 
 
 
 
Revenues
 
 
 
Power
$
27,300

$
34,878

$
35,835

Renewable Energy
9,533

9,205

9,752

Aviation
30,566

27,013

26,240

Oil & Gas
22,859

17,180

12,938

Healthcare
19,784

19,017

18,212

Transportation
3,898

3,935

4,585

Lighting(a)
1,723

1,941

4,762

Total industrial segment revenues
115,664

113,168

112,324

Capital
9,551

9,070

10,905

Total segment revenues
125,215

122,239

123,229

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

$
118,243

$
119,469

 
 
 
 
Segment profit
 
 
 
Power
$
(808
)
$
1,947

$
4,187

Renewable Energy
287

583

631

Aviation
6,466

5,370

5,324

Oil & Gas(b)
429

158

1,302

Healthcare
3,698

3,488

3,210

Transportation
633

641

966

Lighting(a)
70

27

165

Total industrial segment profit
10,774

12,213

15,785

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

5,448

14,534

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

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

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

6

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

(a)
Lighting segment included Appliances through its disposition in the second quarter of 2016.
(b)
Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment. Oil & Gas segment profit excluding restructuring and other charges* was $1,045 million and $837 million for the years ended December 31, 2018 and 2017, respectively.






*Non-GAAP Financial Measure

GE 2018 FORM 10-K 13

  
MD&A
SEGMENT OPERATIONS | POWER

gepower20.jpg POWER
Products & Services
geform10k2016secfina_image53.jpg

Power serves power generation, industrial, government and other customers worldwide with products and services related to energy production and water reuse. Our products and technologies harness resources such as oil, gas, coal, diesel, nuclear and water to produce electric power and include gas and steam turbines, full balance of plant, upgrade and service solutions, as well as data-leveraging software. We employ approximately 59,700 people, serve customers in 150+ countries, and our headquarters is located in Schenectady, NY.
During the fourth quarter of 2018, we announced our intention to reorganize the businesses within our Power segment into GE Gas Power and Power Portfolio, and effectively eliminate the Power headquarters structure in order to reduce costs and improve operations. Upon completion, GE Gas Power will be a unified gas life cycle business combining our Gas Power Systems and Power Services businesses, while Power Portfolio will comprise our Steam Power Systems (including services currently reported in Power Services), Power Conversion and GE Hitachi Nuclear businesses. We anticipate the reorganization to be completed by the second half of 2019.
Gas Power Systems offers a wide spectrum of heavy-duty and aeroderivative gas turbines for utilities, independent power producers and numerous industrial applications, ranging from small, mobile power to utility scale power plants.
Steam Power Systems offers steam power technology for coal and nuclear applications including boilers, generators, steam turbines and Air Quality Control Systems (AQCS) to help efficiently produce power and provide performance over the life of a power plant.
Power Services delivers maintenance, service and upgrade solutions across total plant assets and over their operational lifecycle, leveraging the Industrial Internet to improve the performance of such solutions. Long-term service agreements for both Gas Power Systems and Steam Power Systems are collectively managed in Power Services.
Grid Solutions - offers products and services, such as high voltage equipment, power electronics, automation and protection equipment and software solutions, and serves industries such as generation, transmission, distribution, oil and gas, telecommunication, mining and water. We announced our intention to reorganize Grid Solutions into our Renewable Energy segment.
Power Conversion - applies the science and systems of power conversion to provide motors, generators, automation and control equipment and drives for energy intensive industries such as marine, oil and gas, renewable energy, mining, rail, metals, test systems and water.
Automation & Controls - serves as the Controls Center of Excellence for GE and partners with GE Digital, the Global Research Center, and GE businesses around the world to provide control solutions to help customers become more productive and efficient. We announced our intention to reorganize Automation & Controls into our Grid Solutions, Steam Power Systems and Gas Power Systems businesses.
GE Hitachi Nuclear offers advanced reactor technologies solutions, including reactors, fuels and support services for boiling water reactors, through joint ventures with Hitachi and Toshiba, for safety, reliability and performance for nuclear fleets.
Competition & Regulation
Worldwide competition for power generation products and services is intense. Demand for power generation is global and, as a result, is sensitive to the economic and political environments of each country in which we do business. Our products and services sold to end customers are often subject to a number of regulatory specification and performance standards under different federal, state, foreign and energy industry standards.
Significant Trends & Developments
In September 2017, we announced an agreement to sell our Industrial Solutions business for approximately $2.2 billion (net of cash transferred) to ASEA Brown Boveri (ABB), a Swiss-based engineering company. On June 29, 2018, we completed the sale and recognized a pre-tax gain of $0.3 billion in the second quarter of 2018. This gain was recorded within Corporate.
In June 2018, we announced an agreement to sell our Distributed Power business to Advent International, a global private equity investor, for approximately $2.8 billion (net of cash transferred). On November 6, 2018, we completed the sale and recognized a pre-tax gain of $0.7 billion. This gain was recorded within Corporate.
During the second half of 2018, we recognized non-cash pre-tax goodwill impairment charges of $22.0 billion related to our Power Generation and Grid Solutions reporting units. These charges were all recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
The Power market as well as its operating environment continues to be challenging, and our outlook for Power has continued to deteriorate driven by the significant overcapacity in the industry resulting in decreased utilization of our power equipment, lower market penetration, increased price concessions on certain long-term contracts as well as the uncertain timing of deal closures due to financing and the complexities of working in emerging markets. In addition, our near-term earnings outlook has been negatively impacted by project execution and our own underlying operational challenges.
Market factors such as increasing energy efficiency and renewable energy penetration continue to impact our view of long-term demand. We believe the overall market for annual heavy-duty gas orders will be between 25 and 30 gigawatts for 2019 and the foreseeable future.

GE 2018 FORM 10-K 14


  
MD&A
SEGMENT OPERATIONS | POWER

Advanced Gas Path (AGP) upgrades have also experienced decreased market demand as well as saturation in the North American market given previous penetration; however, we expect upgrade demand to continue in the Middle East, Africa and Southeast Asia markets.
During the third quarter of 2018, Gas Power Systems recorded a $0.2 billion pre-tax charge related to an oxidation issue within the HA and 9FB Stage 1 turbine blades, resulting in increased warranty and maintenance reserves. In addition, Power recognized pre-tax charges of approximately $0.4 billion associated with an increase in issues on our existing projects driven by execution as well as partner and customer challenges.
During the fourth quarter of 2018, we recorded pre-tax charges of $0.8 billion, of which $0.4 billion was related to various assumption updates for unfavorable pricing, lower utilization, and cost updates on our long-term service agreements and $0.4 billion related to execution issues resulting in liquidated damages and partner execution issues on our long-term equipment projects at Gas Power Systems.
In 2018, we reduced structural costs* by $0.9 billion, excluding the effects of acquisition and disposition activity, for the year, and we expect restructuring efforts to continue into 2019.
We have made significant changes and are heavily focused on improving our operational and project execution across every business in Power. We expect operations to stabilize in 2019, with improving execution, a refocused services strategy and strong execution on cost reduction.
Digital offerings have been developed to further complement our equipment and services business and drive value and better outcomes for our customers.
The business has continued to invest in new product development, such as our HA-Turbines, advanced upgrades, substation automation, connected controls, micro-grids, energy storage and digital solutions, to expand our equipment and services offerings. Subsequent to the large investment needed to develop our HA-Turbines, we expect overall research and development costs to decrease going forward to better align with the economic realities of the end demand markets.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
8.2

$
10.9

Non-U.S.
 
 
Europe
5.8

6.3

Asia
5.5

6.4

Americas
3.3

3.5

Middle East and Africa
4.6

7.8

Total Non-U.S.
$
19.1

$
24.0

Total Segment Revenues
$
27.3

$
34.9

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

2017

 
 
 
Gas Power Systems(b)
$
5.2

$
8.0

Steam Power Systems
1.9

2.2

Power Services
11.8

12.9

Other(c)
8.4

11.8

Total Segment Revenues
$
27.3

$
34.9

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

2017

 
 
 
Orders
 
 
Equipment
$
13.1

$
17.6

Services
14.4

18.0

Total
$
27.5

$
35.7

 
 
 
Backlog
 
 
Equipment
$
24.3

$
26.3

Services
67.6

71.8

Total
$
91.9

$
98.1



*Non-GAAP Financial Measure

GE 2018 FORM 10-K 15

  
MD&A
SEGMENT OPERATIONS | POWER

GAS TURBINES
2018

2017

V

Unit Orders
43

75

(32
)
Unit Sales
42

102

(60
)
SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
12.3

$
17.5

$
17.4

Services
15.0

17.4

18.5

Total(a)
$
27.3

$
34.9

$
35.8

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
(0.8
)
$
1.9

$
4.2

Segment profit margin
(3.0
)%
5.6
%
11.7
%
(a)
Power segment revenues represent 24% and 22% of total industrial segment revenues and total segment revenues, respectively, for the year ended December 31, 2018.
(b)
Power segment profit represents (7)% of total industrial segment profit for the year ended December 31, 2018.
2018 – 2017 COMMENTARY:
Segment revenues down $7.6 billion (22%);
Segment profit down $2.8 billion:
The Power market as well as its operating environment continues to be challenging driven by the significant overcapacity in the industry, decreased utilization of our power equipment, increased price concessions, uncertain timing of deal closures due to financing and the complexities of working in emerging markets, as well as increasing energy efficiency and renewable energy penetration.
During the third quarter of 2018, Gas Power Systems recorded a $0.2 billion pre-tax charge related to an oxidation issue within the HA and 9FB Stage 1 turbine blades, resulting in increased warranty and maintenance reserves. In addition, we recognized pre-tax charges of approximately $0.4 billion associated with an increase in issues on our existing projects driven by execution as well as partner and customer challenges. During the fourth quarter of 2018, we recorded pre-tax charges of $0.8 billion, of which $0.4 billion was related to various assumption updates for unfavorable pricing, lower utilization, and cost updates on our long-term service agreements and $0.4 billion related to execution issues resulting in liquidated damages and partner execution issues on our long-term equipment projects at Gas Power Systems.
Equipment revenues decreased primarily at Gas Power Systems by $2.7 billion due to lower unit sales, including 60 fewer gas turbines, 26 fewer Heat Recovery Steam Generators and 23 fewer aeroderivative units. Services revenues also decreased $1.1 billion at Power Services primarily due to 27 fewer AGP upgrades. In addition, revenues decreased due to the absence of Industrial Solutions which contributed $1.4 billion in the second half of 2017 that did not recur in 2018 following the sale in June 2018 as well as the absence of Water which contributed $1.5 billion in 2017 prior to the sale in September 2017. Revenues further decreased due to price pressure, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The decrease in profit was due to negative variable cost productivity driven by warranty and project cost updates as well as liquidated damages recognized by Gas Power Systems, lower volume including the absence of Industrial Solutions $0.1 billion and Water $0.1 billion, lower prices and negative mix in our long-term service contracts compared to the prior year. These decreases were partially offset by favorable business mix and cost reduction efforts, excluding the effects of acquisition and disposition activity and foreign exchange.
2017 – 2016 COMMENTARY:
Segment revenues down $1.0 billion (3%);
Segment profit down $2.2 billion (53%):
The power market continues to be challenged by the increasing penetration of renewable energy, fleet penetration for AGPs, lower capacity payments, utilization, and service outages which decreased 8% from the prior year. In addition, excess capacity in developed markets, continued pressure in oil and gas applications and macroeconomic and geopolitical environments have created uncertainty in the industry.
Services revenues decreased primarily at Power Services by $0.8 billion due to 65 fewer AGP upgrades. Equipment revenues increased primarily at Gas Power Systems by $0.4 billion due to higher balance of plant as well as 46 more Heat Recovery Steam Generator shipments, partially offset by two fewer gas turbine and 55 fewer aeroderivative units. Revenues further decreased due to the absence of Water which contributed $0.6 billion in the fourth quarter of 2016 that did not recur following the sale in September 2017 and price pressure, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The decrease in profit was partially driven by $0.9 billion of charges in the fourth quarter primarily related to slow moving and obsolete inventory in Power Services, Gas Power Systems, and Power Conversion, a litigation settlement and a bankruptcy of a distributor. Profit further declined due to negative variable cost productivity, unfavorable business mix due to higher revenues from lower margin balance of plant volume and fewer higher margin aeroderivative units, and price pressure. These decreases were partially offset by positive base cost productivity.

GE 2018 FORM 10-K 16


 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

gerenewable.jpg RENEWABLE ENERGY
Products & Services
geform10k2016secfina_image65.jpg
GE Renewable Energy makes renewable power sources affordable, accessible and reliable for the benefit of people everywhere. With one of the broadest technology portfolios in the industry, Renewable Energy creates value for customers with solutions from onshore and offshore wind, hydro and its wind turbine blade manufacturing business. With operations in over 80 countries around the world, Renewable Energy can deliver solutions to where its customers need them most. We employ approximately 22,900 people, serve customers in 80+ countries, and our headquarters is located in Paris, France.
Onshore Wind delivers technology and services for the onshore wind power industry by providing wind turbine platforms and hardware and software to optimize wind resources. Wind services help customers improve availability and value of their assets over the lifetime of the fleet. The Digital Wind Farm is a site level solution, creating a dynamic, connected and adaptable ecosystem that improves our customers’ fleet operations.
Offshore Wind offers its high-yield offshore wind turbine, Haliade X-12MW, the most powerful offshore wind turbine commercially available, driving down offshore wind’s levelized cost of energy with an industry leading capacity factor and digital capabilities to help customers succeed in an increasingly competitive environment
Hydro – provides a full range of solutions, products and services to serve the hydropower industry from initial design to final commissioning, from Low Head / Medium / High Head hydropower plants to pumped storage hydropower plants and small hydropower plants.
LM Wind Power - designs and manufactures blades for onshore and offshore wind turbines. LM became part of GE after a $1.7 billion acquisition in April 2017 and serves both GE and external customers worldwide, through advanced rotor solutions, improved blade efficiency, increased rotor swept-area, proven reliability and a global manufacturing footprint on or close to all major markets for wind.
Competition & Regulation
Renewable energy is now mainstream and able to compete subsidy-free with other sources of power generation. While many factors, including government incentives and specific market rules, affect how renewable energy can deliver outcomes for customers in a given region, renewable energy is increasingly able to compete with fossil fuels in terms of levelized cost of electricity. However, continued competitive pressure from other wind and hydro turbine manufacturers as well as from other energy sources, such as solar photovoltaic, reinforced by a general move to electricity auction mechanisms, increases price pressure and the need for innovation.

As a result, we are investing to keep renewable energy competitive by exploring new ways of further improving the efficiency and flexibility of our hydropower technology with digital solutions and by moving forward with wind turbine product improvements, including larger rotors, taller towers and higher nameplate ratings that continue to drive down the cost of wind energy. As industry models continue to evolve, our digital strategy and investments in technical innovation will position us to add value for customers looking for clean, renewable energy.
Significant Trends & Developments
During the fourth quarter of 2018, we recognized non-cash pre-tax goodwill impairment charges of $0.1 billion related to our Hydro reporting unit. This charge was recorded within Corporate. See Note 8 to the consolidated financial statements for further information.
Renewable energy is in a rapid transition period and is on track to become a fully commercialized, unsubsidized source of energy, successfully competing in the marketplace against conventional energy sources. Wind energy is now the second-largest contributor to renewable capacity growth, while hydropower is projected to remain the largest renewable electricity source through 2023.
Influential businesses like Apple, Google, Microsoft and Amazon are increasingly committing to renewable energy, typically contracting for output from various renewable sources directly using Power Purchase Agreements (PPAs). GE’s EFS business has enabled several deals of this nature that use wind turbines from GE Renewable Energy’s Onshore Wind unit.
Consequently, the renewable energy market is highly competitive, particularly in onshore wind, resulting in significant pricing pressure. Pricing for our Onshore Wind business was down in 2018 due to the impact of auctions in many international markets and the competitive environment across all renewable sources.
We believe that North America will continue to be a solid market in the near term with two main dynamics at play. First, we expect a ramp-up in 2019-2020 leading up to the expiration of the PTC at 100% value in 2020. PTC credits will be phased out after 2020 which we anticipate may have an adverse impact on the U.S. market. Second, we expect additional opportunities to “repower” existing wind turbines. Repowering allows customers to increase the annual energy output of their installed base, provides more competitively priced energy and extends the life of their assets. The repower market remains robust, and we expect continued strong demand through 2019 and beyond. To date, we have commissioned over 1,000 repowered turbines, and we are seeing excellent operating performance of those turbines throughout our broad customer base.

GE 2018 FORM 10-K 17

 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

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

2017

 
 
 
U.S.
$
4.3

$
4.8

Non-U.S.
 
 
Europe
1.9

1.6

Asia
1.6

0.8

Americas
1.5

1.5

Middle East and Africa
0.2

0.5

Total Non-U.S.
$
5.2

$
4.4

Total Segment Revenues
$
9.5

$
9.2

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Onshore Wind
$
8.3

$
8.1

Offshore Wind
0.4

0.3

Hydro
0.8

0.9

Total Segment Revenues
$
9.5

$
9.2


ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
7.9

$
8.2

Services
3.0

2.2

Total
$
10.9

$
10.4

 
 
 
Backlog
 
 
Equipment
$
8.5

$
7.9

Services
8.7

6.9

Total
$
17.3

$
14.8


WIND TURBINES
2018

2017

V

Unit Orders
3,198

3,017

181

Unit Sales
2,491

2,604

(113
)



GE 2018 FORM 10-K 18


 
MD&A
SEGMENT OPERATIONS | RENEWABLE ENERGY

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
7.0

$
7.0

$
8.9

Services
2.5

2.2

0.9

Total(a)
$
9.5

$
9.2

$
9.8

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.3

$
0.6

$
0.6

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

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

The renewable energy market remains competitive, particularly in onshore wind. The onshore wind market continues to experience megawatt growth as customer preference has shifted from 1.X-2.X models to larger, more efficient units. However, overcapacity in the industry, the move to auctions in international markets and U.S. tax reform contributed to continued pricing pressure during 2018. In addition, uncertainty at the end of 2017 related to the impact of U.S. tax reform caused a temporary delay in project work, resulting in lower volume during the first half of the year. From the third quarter of 2018 onward, we expect project build and shipments to increase in anticipation of the expiration of Production Tax Credits (PTCs) in the U.S. at 100% value in 2020.
Services volume increased due to larger installed base resulting in increased contractual revenues as well as 50 more repower units at Onshore Wind than in the prior year. Equipment volume remained flat with 113 fewer wind turbine shipments on a unit basis, offset by 9% more megawatts shipped, than in the prior year. Revenues also increased due to the acquisition of LM Wind in April 2017, which contributed $0.1 billion of inorganic revenue growth in the first half of 2018, partially offset by pricing pressure and the effects of a stronger U.S. dollar versus certain currencies.
The decrease in profit was due to pricing pressure, unfavorable business mix as well as liquidated damages related to partner execution and project delays, and higher losses in Hydro and Offshore as we began fully consolidating these entities in the fourth quarter, partially offset by materials deflation and positive base cost productivity.
2017 – 2016 COMMENTARY:

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

The renewable energy market remains competitive, particularly in onshore wind. The onshore wind market continues to see megawatt growth as customer preference has shifted from 1.X models to larger, more efficient units. However, there is significant competitive pricing pressure driven by onshore turbines.
Equipment volume decreased due to 785 fewer wind turbine shipments on a unit basis, including the nonrecurrence of certain orders in Europe and ASEAN, or 17% fewer megawatts shipped than in the prior year. Services volume increased due to 975 more repower units at Onshore Wind. Revenues also increased due to the acquisition of LM Wind in April 2017 which contributed $0.3 billion of inorganic revenue growth in 2017 and the effects of a weaker U.S. dollar versus certain currencies, partially offset by pricing pressure.
The decrease in profit was due to negative base cost productivity and price pressure, partially offset by positive variable cost productivity, material deflation and increased other income including a reduction in foreign exchange transactional losses.



GE 2018 FORM 10-K 19


MD&A
SEGMENT OPERATIONS | AVIATION

geaviation.jpg AVIATION
Products & Services
geform10k2016secfina_image90.jpg
Aviation designs and produces commercial and military aircraft engines, integrated digital components, electric power and mechanical aircraft systems. We also provide aftermarket services to support our products. We employ approximately 48,000 people, serve customers in 120+ countries, and our headquarters is located in Cincinnati, OH.
Commercial Enginesmanufactures jet engines and turboprops for commercial airframes. Our commercial engines power aircraft in all categories; regional, narrowbody and widebody. We also manufacture engines and components for business and general aviation segments, and we produce and market engines through CFM International, a company jointly owned by GE and Safran Aircraft Engines, a subsidiary of the Safran Group of France, and Engine Alliance, LLC, a company jointly owned by GE and the Pratt & Whitney division of United Technologies Corporation. New engines are also being designed and marketed in a joint venture with Honda Aero, Inc., a division of Honda Motor Co., Ltd.
Commercial Services provides maintenance, component repair and overhaul services (MRO), including sales of replacement parts.
Militarymanufactures jet engines for military airframes. Our military engines power a wide variety of military aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft, as well as marine applications. We provide maintenance, component repair and overhaul services, including sales of replacement parts.
Systemsprovides components, systems and services for commercial and military segments. This includes avionics systems, aviation electric power systems, flight efficiency and intelligent operation services, aircraft structures and Avio Aero.
Additive provides a wide variety of products and services including additive machines from Concept Laser and Arcam EBM, additive materials (including metal powders from AP&C), and additive engineering services through our consultancy brand AddWorksTM. In November 2017, GE Additive also acquired software simulation company GeonX.
Competition & Regulation
The global businesses for aircraft jet engines, maintenance component repair and overhaul services (including parts sales) are highly competitive. Both U.S. and non-U.S. markets are important to the growth and success of the business. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures are important in this business, as are focused intellectual property strategies and protection of key aircraft engine design, manufacture, repair and product upgrade technologies. Aircraft engine orders and systems tend to follow civil air travel and demand and military procurement cycles.

Our product, services and activities are subject to a number of regulators such as by the U.S. Federal Aviation Administration (FAA), European Aviation Safety Agency (EASA) and other regulatory bodies.
Significant Trends & Developments
On January 2, 2018, GE purchased additional shares of Arcam, AB to bring GE’s total ownership to 96%. On January 11, 2018, Arcam applied to the Nasdaq Stockholm exchange to commence delisting of the remaining shares. The last day of trading was January 26, 2018, and GE announced the delisting on January 30, 2018.
In September 2018, we announced an agreement to sell our Middle River Aircraft Systems business within our Aviation segment to Singapore Technologies Engineering, a global technology, defense and engineering group, for $0.6 billion. The deal is expected to close early 2019, subject to customary closing conditions and regulatory approvals.
Global passenger air travel continued to grow during the year. In 2018, revenue passenger kilometers (RPKs) growth outpaced the ten-year average, increasing 6.6%* with strong growth both domestically and internationally. In addition, passenger load factors globally remained above 80%*.
In 2018, air freight volume continued to grow, and freight ton kilometers (FTKs) grew 3.9%*.
The installed base continues to grow with new product launches. In 2018, we shipped the first Passport engines, powering the Bombardier Global 7000 business jet. We are also continuing development on the Advanced Turbo Prop program and the GE9X engine, incorporating the latest technologies for application in the widebody aircraft space.
During 2018, we delivered 1,118 LEAP engines, meeting our ramp commitments for the year with cost reductions in line with production cost curve expectations. LEAP reliability and performance specification remain on track. While we are behind on production as a result of delays in materials, we are actively working with our customers and airframers to mitigate impacts to their aircraft build schedule, and we continue to see improvement in our supplier yields and our overall output on a week to week basis. We plan to produce more than 2,000 engines by 2020.

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

GE 2018 FORM 10-K 20



MD&A
SEGMENT OPERATIONS | AVIATION

Military shipments grew to 674 engines from 617 engines in 2017. 2018 was a critical year for the contract decision on the next generation combat engine, and the United States Air Force selected Boeing as the contractor to produce 351 new advanced T-X trainer aircraft powered by our F404 engine.
Our digital initiatives, including analytics on flight operations, technical operations, and advanced manufacturing, are enabling our customers, internal operations and suppliers to reduce costs, cycle time and improve quality.
GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
12.5

$
10.8

Non-U.S.
 
 
Europe
7.0

6.3

Asia
5.8

5.2

Americas
1.5

1.1

Middle East and Africa
3.8

3.6

Total Non-U.S.
$
18.0

$
16.3

Total Segment Revenues
$
30.6

$
27.0

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Commercial Engines & Services
$
22.7

$
19.7

Military
4.1

4.0

Systems & Other
3.7

3.3

Total Segment Revenues
$
30.6

$
27.0


ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
15.3

$
10.6

Services
20.2

18.5

Total
$
35.5

$
29.1

 
 
 
Backlog
 
 
Equipment
$
37.8

$
34.1

Services
185.7

166.1

Total
$
223.5

$
200.2


UNIT ORDERS
2018

2017

V

Commercial Engines
4,772

2,565

2,207

LEAP Engines(a)
3,637

1,418

2,219

Military Engines
751

522

229

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

2017

V

Commercial Engines
2,825

2,630

195

LEAP Engines(a)
1,118

459

659

Military Engines
674

617

57

Spares Rate(b)
$
27.5

$
23.5

$
4.0

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


GE 2018 FORM 10-K 21


MD&A
SEGMENT OPERATIONS | AVIATION

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
11.5

$
10.2

$
11.4

Services
19.1

16.8

14.9

Total(a)
$
30.6

$
27.0

$
26.2

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
6.5

$
5.4

$
5.3

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

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

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

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

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











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


GE 2018 FORM 10-K 22



MD&A
SEGMENT OPERATIONS | OIL & GAS

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

Oilfield Services provides equipment and services ranging from well evaluation to decommissioning. Products and services include diamond and tri-cone drill bits, drilling services (including directional drilling technology, measurement while drilling and logging while drilling), downhole completion tools and systems, wellbore intervention tools and services, wireline services, drilling and completions fluids, oilfield and industrial chemicals, pressure pumping and artificial lift technologies (including electrical submersible pumps).
Oilfield Equipment provides a broad portfolio of products and services required to facilitate the safe and reliable flow of hydrocarbons from the subsea wellhead to the surface. Products and services include pressure control equipment and services, subsea production systems and services, drilling equipment and flexible pipeline systems. Oilfield Equipment operation designs and manufactures onshore and offshore drilling and production systems and equipment for floating production platforms and provides a full range of services related to onshore and offshore drilling activities.
Turbomachinery & Process Solutions provides equipment and related services for mechanical-drive, compression and power-generation applications across the oil and gas industry as well as products and services to serve the downstream segments of the industry including refining, petrochemical, distributed gas, flow and process control and other industrial applications. The Turbomachinery & Process Solutions portfolio includes drivers (aero-derivative gas turbines, heavy-duty gas turbines and synchronous and induction electric motors), compressors (centrifugal and axial, direct drive high speed, integrated, subsea compressors, turbo expanders and reciprocating), turn-key solutions (industrial modules and waste heat recovery), pumps, valves and compressed natural gas (CNG) and small-scale liquefied natural gas (LNG) solutions used primarily for shale oil and gas field development.
Digital Solutions provides equipment and services for a wide range of industries, including oil & gas, power generation, aerospace, metals and transportation. The offerings include sensor-based measurement, non-destructive testing and inspection, turbine, generator and plant controls and condition monitoring, as well as pipeline integrity solutions.
Competition & Regulation
Demand for oil and gas equipment and services is global and, as a result, is sensitive to the economic and political environment of each country in which we do business. We are subject to the regulatory bodies of the countries in which we operate. Our products are subject to regulation by U.S. and non-U.S. energy policies.
Significant Trends & Developments
In June 2018, we announced our plan to pursue an orderly separation from BHGE over time. The business has not met the accounting criteria for held for sale classification. That classification will depend on the nature and timing of the transaction.
Pursuant this announcement, BHGE completed an underwritten public offering in which we sold 101.2 million shares of BHGE Class A common stock. BHGE also repurchased 65.0 million BHGE LLC units from us. The total consideration received by us from these transactions was $3.7 billion. The transaction closed in November 2018 and, as a result, our economic interest in BHGE reduced from 62.5% to 50.4% and we recognized a pre-tax loss in equity of $2.2 billion. See Note 15 to the consolidated financial statements for further information.
On November 13, 2018, we entered into a Master Agreement and a series of related ancillary agreements and binding term sheets with BHGE (collectively, the “Master Agreement Framework”) designed to further solidify the commercial and technological collaborations between BHGE and GE. In particular, the Master Agreement Framework contemplates long-term agreements between us and BHGE on technology, fulfillment and other key areas.
Market weakness in recent years including lower oil prices has led to reductions in customers’ forecasted capital expenditures and lower convertible orders, creating industry challenges, the effects of which are uncertain. In addition, decreased U.S. rig count and lower drilling activity versus prior peaks in the early 2000s has reduced the need for new wells, rigs, and replacement equipment.
We are also impacted by volatility in foreign currency exchange rates mainly due to a high concentration of non-U.S. dollar denominated business as well as long-term contracts denominated in multiple currencies.
2018 demonstrated the volatility of the oil and gas market. Through the first three quarters of 2018, we experienced stability in the North American and international markets. However, in the fourth quarter of 2018, commodity prices dropped nearly 40%, resulting in increased customer uncertainty. From an offshore standpoint, through most of 2018, we saw multiple large offshore projects reach positive final investment decision, and expect customers to continue to evaluate final investment decisions timing, in light of increased commodity price volatility.

GE 2018 FORM 10-K 23


MD&A
SEGMENT OPERATIONS | OIL & GAS

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

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
6.6

$
4.4

Non-U.S.
 
 
Europe
4.0

3.0

Asia
3.2

2.5

Americas
3.3

2.5

Middle East and Africa
5.8

4.8

Total Non-U.S.
$
16.3

$
12.8

Total Segment Revenues
$
22.9

$
17.2

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Turbomachinery & Process Solutions (TPS)
$
6.0

$
6.3

Oilfield Services (OFS)(a)
11.6

5.9

Oilfield Equipment (OFE)(b)
2.6

2.7

Digital Solutions
2.6

2.3

Total Segment Revenues
$
22.9

$
17.2

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



ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
9.9

$
6.9

Services
13.9

10.3

Total
$
23.9

$
17.1

 
 
 
Backlog
 
 
Equipment
$
5.7

$
5.5

Services
15.8

16.4

Total
$
21.5

$
21.9



GE 2018 FORM 10-K 24



MD&A
SEGMENT OPERATIONS | OIL & GAS

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
9.3

$
7.2

$
6.1

Services
13.6

10.0

6.9

Total(a)
$
22.9

$
17.2

$
12.9

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.4

$
0.2

$
1.3

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

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

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

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

The oil and gas market remained challenging in 2017. Despite some improvements in activity, there were no significant increases in customer capital commitments, and oil prices remained volatile for the majority of the year. While oil prices stabilized towards the end of 2017 and North American rig count increased, major equipment project awards continued to be pushed out in the Oilfield Equipment and TPS businesses.
The Baker Hughes acquisition in July 2017 contributed $5.2 billion of inorganic revenue growth in 2017. Legacy equipment revenues decreased due to lower volume primarily at OFE of $0.8 billion as a result of the market conditions and lower opening backlog. Revenues further decreased due to lower oil prices, partially offset by the effects of a weaker U.S. dollar versus certain currencies.
The decrease in profit was primarily driven by negative variable cost productivity, restructuring and other charges, lower prices and lower organic volume, partially offset by increased volume from Baker Hughes, deflation and increased other income including a reduction in foreign exchange transactional losses.

GE 2018 FORM 10-K 25


MD&A
SEGMENT OPERATIONS | HEALTHCARE

gehealthcare10k.jpg HEALTHCARE
Products & Services
healthcareproductservicesa01.jpg
Healthcare provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging, digital solutions, patient monitoring and diagnostics, drug discovery, biopharmaceutical manufacturing technologies and performance improvement solutions that are the building blocks of precision health. Products and services are sold worldwide primarily to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market. We employ approximately 53,800 people, serve customers in 140+ countries, and our headquarters is located in Chicago, IL.
Healthcare Systems develops, manufactures, markets and services a broad suite of products and solutions used in the diagnosis, treatment and monitoring of patients that is encompassed in imaging, ultrasound, life care solutions and enterprise software and solutions. Imaging includes magnetic resonance, computed tomography, molecular imaging, x-ray systems and complementary software and services, for use in general diagnostics, Women’s Health and image-guided therapies. Ultrasound includes high-frequency soundwave systems, and complementary software and services, for use in diagnostics tailored to a wide range of clinical settings. Life Care Solutions (“LCS”) includes clinical monitoring and acute care systems, and complementary software and services, for use in intensive care, anesthesia delivery, diagnostic cardiology and perinatal care. Enterprise Software & Solutions (“ESS”) includes enterprise digital, consulting and healthcare technology management offerings designed to improve efficiency in healthcare delivery and expand global access to advanced health care.
Life Sciences delivers products, services and manufacturing solutions for drug discovery, the biopharmaceutical industry, and cellular and gene therapy technologies, so that scientists and specialists can discover new ways to predict, diagnose and treat disease. It also researches, manufactures and markets innovative imaging agents used during medical scanning procedures to highlight organs, tissue and functions inside the human body, to aid physicians in the early detection, diagnosis and management of disease through advanced in-vivo diagnostics.
Competition & Regulation
Healthcare competes with a variety of U.S. and non-U.S. manufacturers and services providers. Customers require products and services that allow them to provide better access to healthcare, improve the affordability of care and improve the quality of patient outcomes. Technology and solution innovation to provide products that meet these customer requirements and competitive pricing are among the key factors affecting competition for these products and services. New technologies and solutions could make our products and services obsolete unless we continue to develop new and improved offerings.

Our products are subject to regulation by numerous government agencies, including the U.S. Food and Drug Administration (U.S. FDA), as well as various laws and regulations that apply to claims submitted under Medicare, Medicaid or other government funded healthcare programs.
Significant Trends & Developments
In April 2018, we announced an agreement to sell our Enterprise Financial Management, Ambulatory Care Management and Workforce Management assets, comprising our Healthcare segment’s Value-Based Care Division, to Veritas Capital, a private equity investment firm, for approximately $1.0 billion (net of cash transferred). This transaction closed on July 10, 2018 and resulted in the recognition of a pre-tax gain of approximately $0.7 billion in the third quarter of 2018. This gain was recorded within Corporate.
In June 2018, we announced a plan to separate GE Healthcare into a standalone company. On February 25, 2019, we announced an agreement to sell our BioPharma business within our Healthcare segment to Danaher Corporation for total consideration of approximately $21.4 billion, subject to certain adjustments. The transaction is expected to close in the fourth quarter of 2019, subject to regulatory approvals and customary closing conditions. We intend to retain the remaining portion of our Healthcare business which provides us full flexibility for growth and optionality with respect to the business.
In 2018, we sold our remaining shares in Neogenomics and received proceeds of approximately $200 million.
The Healthcare Systems global market continues to expand at low single digit rates, driven by strength in emerging markets, as these economies continue to expand their population’s access to healthcare, and slower growth in developed markets. The Life Sciences market continues to be strong with the Bioprocess market growing at a high single digit rate, driven by growth in biologic drugs, and the imaging agents market growing at low single digit rates.
We continue to lead in technology innovation with greater focus on productivity-based technology, services and IT/cloud-based solutions as healthcare providers seek greater productivity and better outcomes.
In 2018, we launched a variety of new products including our ultra-premium radiology ultrasound system, LOGIQ E10, and our AIR technology coil suite. We also enhanced our MR portfolio with SIGNA™ Premier and upgraded our portfolio of premium high power mobile Surgery C-arms featuring CMOS detectors.
Emerging markets are expected to grow over the long-term with short-term volatility, driven by the long-term trend of expanding access to healthcare in these markets.

GE 2018 FORM 10-K 26



MD&A
SEGMENT OPERATIONS | HEALTHCARE

As expected, the China market was a source of growth in 2018 with strong fundamentals in the public market and an expanding private market. While we expect this growth to continue in 2019, new U.S. tariffs on certain types of medical equipment and components that we import from China have resulted in increased costs. We are taking actions to mitigate this cost impact including moving our sourcing and manufacturing for these parts outside of China.
In the U.S., the underlying market remains stable, with a trend toward customers looking for more complete solutions that offer greater capacity and productivity. However, the market continues to face uncertainties driven by the increasing cost of providing healthcare that has led to a trend of increasing hospital and provider consolidation.
Underlying demand for biopharmaceuticals is expected to continue to expand with new product introductions complemented by growing access to these treatments in emerging markets. These trends continue to support the underlying growth of our Life Sciences franchise which has significant exposure to these end markets.

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
8.6

$
8.4

Non-U.S.
 
 
Europe
4.1

3.9

Asia
5.2

4.9

Americas
1.0

1.0

Middle East and Africa
0.9

0.9

Total Non-U.S.
$
11.2

$
10.6

Total Segment Revenues
$
19.8

$
19.0

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Healthcare Systems(a)
$
14.9

$
14.5

Life Sciences
4.9

4.6

Total Segment Revenues
$
19.8

$
19.0

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

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
12.6

$
12.2

Services
8.3

8.2

Total
$
20.9

$
20.4

 
 
 
Backlog
 
 
Equipment
$
6.3

$
6.4

Services
11.2

11.7

Total
$
17.4

$
18.1


GE 2018 FORM 10-K 27


MD&A
SEGMENT OPERATIONS | HEALTHCARE

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
11.4

$
10.8

$
10.2

Services
8.4

8.2

8.0

Total(a)
$
19.8

$
19.0

$
18.2

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
3.7

$
3.5

$
3.2

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

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

The Healthcare Systems global market continues to expand at low single digit rates, driven by strength in emerging markets, as these economies continue to expand their population’s access to healthcare, and slower growth in developed markets. The Life Sciences market continues to be strong, with the Bioprocess market growing at a high single digit rate, driven by growth in biologic drugs, and the contrast agents market growing at low single digit rates.
Services and equipment revenues increased due to higher volume in Healthcare Systems of $0.4 billion attributable to global growth in Imaging and Ultrasound in both developed regions such as the U.S. and Europe as well as developing regions such as China and emerging markets. Volume also increased in Life Sciences by $0.3 billion, driven by Bioprocess and Pharmaceutical Diagnostics. In addition, revenues increased due to the effects of a weaker U.S. dollar versus certain currencies, partially offset by price pressure at Healthcare Systems and the absence of the Value-Based Care Division following the sale in July 2018.
The increase in profit was primarily driven by volume growth and cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. These increases were partially offset by price pressure at Healthcare Systems, inflation, investments in programs including digital product innovations and Healthcare Systems new product introductions, the nonrecurrence of a small gain on the disposition of a non-strategic operation in Life Sciences and the absence of the Value-Based Care Division following the sale in July 2018.
2017 – 2016 COMMENTARY:
Segment revenues up $0.8 billion (4%);
Segment profit up $0.3 billion (9%):

The Healthcare Systems global market continued to expand, predominately in emerging markets, including China, driven by Ultrasound as well as Imaging across most modalities. In addition, Healthcare Systems launched 26 new products in 2017, and Life Sciences continued to expand its business through product launches, organic investments and acquisitions.
Services and equipment revenues increased due to higher volume in Healthcare Systems of $0.5 billion attributable to growth in Imaging and Ultrasound supported by new product launches and growth in developing regions such as China and emerging markets. Volume also increased in Life Sciences by $0.3 billion, driven by Bioprocess and Pharmaceutical Diagnostics. This growth was partially offset by price pressure at Healthcare Systems.
The increase in profit was primarily driven by strong volume growth and cost productivity due to cost reduction actions including increasing digital automation, sourcing and logistic initiatives, design engineering and prior year restructuring actions. In addition, profit further increased due to the recognition of small gains on the disposition of nonstrategic operations. These increases were partially offset by price pressure at Healthcare Systems and investments in programs including digital product innovations and new product offerings.



GE 2018 FORM 10-K 28


 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

getransportation10k.jpg TRANSPORTATION
Products & Services
chicagcircle.jpg
Transportation is a global technology leader and supplier to the railroad, mining, marine, stationary power and drilling industries. Products and services offered by Transportation are detailed below. We employ approximately 9,400 people, serve customers in approximately 60 countries, and our headquarters is located in Chicago, IL.
Locomotives provides freight and passenger locomotives as well as rail services to help solve rail challenges. We manufacture high-horsepower, diesel-electric locomotives including the Evolution SeriesTM, which meets or exceeds the U.S. Environmental Protection Agency’s (EPA) Tier 4 requirements for freight and passenger applications.
Services develops partnerships that support advisory services, parts, integrated software solutions and data analytics. Our comprehensive offerings include tailored service programs, high-quality parts for GE and other locomotive platforms, overhaul, repair and upgrade services and wreck repair. Our portfolio provides the people, partnerships and leading software to optimize operations and asset utilization.
Digital Solutions offers a suite of software-enabled solutions to help our customers lower operational costs, increase productivity and improve service quality and reliability.
Mining provides mining equipment and services. The portfolio includes drive systems for off-highway vehicles, mining equipment, mining power and productivity.
Marine, Stationary & Drilling offers marine diesel engines and stationary power diesel engines and motors for land and offshore drilling rigs.
Competition & Regulation
The competitive environment for locomotives and mining equipment and services consists of large global competitors. A number of smaller competitors compete in a limited-size product range and geographic regions. North America will remain a focus of the industry due to the EPA Tier 4 emissions standard that went into effect in 2015.
Significant Trends & Developments
On May 21, 2018, we announced an agreement to spin- or split-off and merge our Transportation segment with Wabtec Corporation, a U.S. rail equipment manufacturer. The agreement was subsequently amended on January 25, 2019. On February 25, 2019, we completed the spin-off and subsequent merger. In the transaction, participating GE shareholders received shares of Wabtec common stock representing an approximately 24.3% ownership interest in Wabtec common stock. GE received approximately $2.9 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent an approximately 24.9% ownership interest in Wabtec. In addition, GE is entitled to additional cash consideration up to $0.5 billion for tax benefits that Wabtec realizes from the transaction.
North American rail carloads increased 3.4% in 2018, driven primarily by an increase in intermodal(a) traffic.
Despite improving carload volume, parked locomotives began to increase in the second half of 2018. This increase of 4.7% from the prior year is attributable to some fleet overcapacity and constrained spending by the railroads limiting fleet expansion.
Global locomotive deliveries were down from 433 units in 2017 to 272 units in 2018 driven primarily by the optimization of existing fleets in North America.
In addition, price increases associated with additional U.S. tariffs imposed on China could negatively affect demand and reduce rail volumes, particularly those linked to farm exports, auto exports, and intermodal flows.









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


GE 2018 FORM 10-K 29

 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

GEOGRAPHIC REVENUES (Dollars in billions)
2018

2017

 
 
 
U.S.
$
2.2

$
2.2

Non-U.S.
 
 
Europe
0.3

0.2

Asia
0.4

0.3

Americas
0.7

0.6

Middle East and Africa
0.2

0.7

Total Non-U.S.
$
1.7

$
1.7

Total Segment Revenues
$
3.9

$
3.9

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Locomotives
$
0.9

$
1.3

Services
2.1

1.9

Mining
0.6

0.4

Other(a)
0.4

0.4

Total Segment Revenues
$
3.9

$
3.9

(a)    Includes Marine, Stationary, Drilling and Digital

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
2.8

$
2.1

Services
2.9

2.8

Total
$
5.7

$
4.9

 
 
 
Backlog
 
 
Equipment
$
6.0

$
4.8

Services
12.9

13.3

Total
$
18.9

$
18.1


LOCOMOTIVES
2018

2017

V

Unit Orders
1,072

438

634

Unit Sales
272

433

(161
)

GE 2018 FORM 10-K 30


 
MD&A
SEGMENT OPERATIONS | TRANSPORTATION

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
1.4

$
1.7

$
2.3

Services
2.5

2.2

2.3

Total(a)
$
3.9

$
3.9

$
4.6

 
 
 
 
SEGMENT PROFIT AND PROFIT MARGIN (Dollars in billions)
2018

2017

2016

 
 
 
 
Segment profit(b)
$
0.6

$
0.6

$
1.0

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

2018 – 2017 COMMENTARY:

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

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

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

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














GE 2018 FORM 10-K 31

 
MD&A
SEGMENT OPERATIONS | LIGHTING

gelighting10k.jpg LIGHTING
Products & Services
energyproductsservicesa01.jpg

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

2017

 
 
 
U.S.
$
1.4

$
1.5

Non-U.S.
 
 
Europe
0.1

0.2

Asia


Americas
0.2

0.2

Middle East and Africa

0.1

Total Non-U.S.
$
0.3

$
0.5

Total Segment Revenues
$
1.7

$
1.9

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

SUB-SEGMENT REVENUES (In billions)
2018

2017

 
 
 
Current
$
1.0

$
1.0

GE Lighting

0.7

0.9

Total Segment Revenues
$
1.7

$
1.9

ORDERS AND BACKLOG (In billions)
2018

2017

 
 
 
Orders
 
 
Equipment
$
0.9

$
1.1

Services

0.1

Total
$
1.0

$
1.2

 
 
 
Backlog
 
 
Equipment
$
0.2

$
0.2

Services


Total
$
0.2

$
0.2


GE 2018 FORM 10-K 32


 
MD&A
SEGMENT OPERATIONS | LIGHTING

SEGMENT REVENUES (In billions)
2018

2017

2016

 
 
 
 
Revenues
 
 
 
Equipment
$
1.6

$
1.9

$
4.6

Services
0.1

0.1

0.2

Total(a)(b)
$
1.7

$
1.9

$
4.8

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

2017

2016

 
 
 
 
Segment profit(c)
$
0.1

$

$
0.2

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

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

The traditional lighting market continued to decline in 2018 with corresponding growth in LED lighting as the market shifts away from traditional lighting products in favor of more energy efficient, cost-saving options.
Revenues decreased due to the disposition of our GE Lighting business in Europe, the Middle East, Africa and Turkey and our Global Automotive Lighting business in the second quarter of 2018. Excluding the impact of these dispositions, equipment revenues increased due to higher LED volume and Digital sales, partially offset by lower traditional lighting and solar sales and lower LED prices.
The increase in profit was driven by savings from restructuring and decreased investment and controllable spending, partially offset by regional exits and lower prices.
2017 – 2016 COMMENTARY:

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

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

GE 2018 FORM 10-K 33

 
MD&A
SEGMENT OPERATIONS | CAPITAL

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

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

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



GE 2018 FORM 10-K 34


 
MD&A
SEGMENT OPERATIONS | CAPITAL

SUB-SEGMENT ASSETS (In billions)
2018

2017

GECAS
$
41.7

$
40.0

EFS
3.0

9.9

Industrial Finance and WCS(a)
15.8

25.8

Insurance
40.3

39.9

Other continuing operations
18.6

35.3

Total segment assets
$
119.3

$
150.8

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

2017

U.S.
$
5.3

$
4.4

Non-U.S.
 
 
Europe
1.4

1.5

Asia
1.4

1.4

Americas
0.6

0.8

Middle East and Africa
0.9

1.0

Total Non-U.S.
4.3

4.7

Total
$
9.6

$
9.1

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

2017

2016

GECAS
$
4.9

$
5.1

$
5.4

EFS
0.1

(0.5
)
0.7

Industrial Finance and WCS
1.5

1.5

1.2

Insurance
2.9

2.9

2.9

Other continuing operations
0.1


0.7

Total segment revenues
$
9.6

$
9.1

$
10.9

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

2017

2016

GECAS
$
1.2

$
2.1

$
1.4

EFS
0.1

(1.5
)
0.4

Industrial Finance and WCS
0.3

0.5

0.4

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

GE 2018 FORM 10-K 35

 
MD&A
CORPORATE ITEMS AND ELIMINATIONS

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

2017

2016

Revenues
 
 
 
 
Eliminations and other
$
(3,600
)
$
(3,995
)
$
(3,760
)
Total Corporate Items and Eliminations
$
(3,600
)
$
(3,995
)
$
(3,760
)
 
 
 
 
 
Operating profit (cost)
 
 
 
 
Gains (losses) on disposals(a)
$
1,350

$
926

$
3,480

 
Restructuring and other charges(b)
(2,958
)
(3,351
)
(3,544
)
 
Goodwill impairments
(22,136
)
(1,165
)

 
Eliminations and other
(1,187
)
(1,636
)
(2,000
)
Total Corporate Items and Eliminations
$
(24,931
)
$
(5,225
)
$
(2,064
)
(a)
Includes gains (losses) on disposed or held for sale businesses. The total amount realized in the second half of 2018 amounted to $161 million related to the sale of our Pivotal software equity investment. Any fair value adjustments recorded through the date of sale were considered unrealized.
(b)
Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.

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) (In millions)
2018

2017

2016

 
 
 
 
 
Total Corporate Items and Eliminations (GAAP)
$
(24,931
)
$
(5,225
)
$
(2,064
)
Less: restructuring and other charges
(2,958
)
(3,351
)
(3,544
)
Less: gains (losses) on disposals
1,350

926

3,480

Less: goodwill impairments
(22,136
)
(1,165
)

Adjusted total corporate costs (operating) (Non-GAAP)
$
(1,187
)
$
(1,636
)
$
(2,000
)

20182017 COMMENTARY
Revenues increased $0.4 billion, primarily a result of:
Decrease in inter-segment eliminations
Operating costs increased by $19.7 billion, primarily as a result of:
$21.0 billion of higher goodwill impairment charges due to $22.0 billion of goodwill impairments in our Power business and a $0.1 billion goodwill impairment in our Renewable business in 2018 compared to a $1.2 billion charge for the impairment of Power Conversion goodwill in 2017.
$0.4 billion of lower restructuring and other charges primarily driven by $0.7 billion of lower restructuring costs across all GE industrial segments during 2018 and $0.2 billion of lower charges in 2018 for the impairment of a power plant asset. These decreases were partly offset by $0.6 billion of impairments within our Power business in 2018.
$0.4 billion of higher net gains from disposed or held for sale businesses, which is primarily related to the $0.7 billion gain from the sale of our Distributed Power business to Advent International in 2018, $0.7 billion gain from the sale of our Value Based Care business to Veritas Capital in 2018, $0.3 billion gain from the sale of our Industrial Solutions business to ABB in 2018, $0.2 billion gain from the sale of our Pivotal Software investment in 2018 and $0.4 billion of lower held for sale losses in 2018 primarily related to our Lighting and Aviation segments. These increases were partly offset by a $1.9 billion gain from the sale of our Water business to Suez in 2017.
$0.4 billion of lower Corporate costs from restructuring and cost reduction actions.


*Non-GAAP Financial Measure

GE 2018 FORM 10-K 36


 
MD&A
CORPORATE ITEMS AND ELIMINATIONS

20172016 COMMENTARY
Revenues decreased $0.2 billion, primarily a result of:
Increase in inter-segment eliminations.
Operating costs increased $3.2 billion, primarily as a result of:
$2.6 billion of lower net gains from disposed or held for sale businesses, which is primarily related to the $3.1 billion gain from the sale of our Appliances business to Haier in 2016, $0.4 billion gain from the sale of GE Asset Management to State Street Corporation in 2016 and $1.0 billion of held for sale losses in 2017 related to our Lighting and Aviation businesses. These decreases were partially offset by a $1.9 billion gain from the sale of our Water business to Suez in 2017.
$1.2 billion of higher goodwill charges related to the impairment of Power Conversion goodwill in 2017.
$0.2 billion of lower restructuring and other charges primarily driven by a decrease of $0.5 billion of Oil & Gas related charges recorded at Corporate, partially offset by a charge of $0.3 billion for the impairment of a power plant asset.
$0.4 billion of lower Corporate costs from restructuring and cost reduction actions in 2017.

RESTRUCTURING
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 other asset write-downs. We continue to closely monitor the economic environment and may undertake further restructuring actions to more closely align our cost structure with earnings and cost reduction goals.
RESTRUCTURING & OTHER CHARGES (In billions)
2018

2017

2016

 
 
 
 
Workforce reductions
$
0.9

$
1.2

$
1.3

Plant closures & associated costs and other asset write-downs
1.8

1.9

1.3

Acquisition/disposition net charges
0.8

0.8

0.6

Other
0.1

0.2

0.3

Total(a)
$
3.6

$
4.1

$
3.5

(a)
Subsequent to the Baker Hughes transaction, restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.

For 2018, restructuring and other charges were $3.6 billion of which approximately $1.4 billion was reported in cost of products/services and $2.1 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Power, Corporate and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $2.0 billion for the twelve months ended December 31, 2018. Of the total $3.6 billion restructuring and other charges, $0.7 billion was recorded in the Oil & Gas segment, which amounted to $0.5 billion net of noncontrolling interest.

For 2017, restructuring and other charges were $4.1 billion of which approximately $2.4 billion was reported in cost of products/services and $1.6 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate, Power and Oil & Gas. Cash expenditures for restructuring and other charges were approximately $2.0 billion for the twelve months ended December 31, 2017. Of the total $4.1 billion restructuring and other charges, $0.8 billion was recorded in the Oil & Gas segment, which amounted to $0.7 billion net of noncontrolling interest.

For 2016, restructuring & other charges were $3.5 billion of which approximately $2.3 billion was reported in cost of products/services and $1.1 billion was reported in other costs and expenses (SG&A). These activities were primarily at Power, Oil & Gas and Healthcare. Cash expenditures for restructuring were approximately $1.7 billion in 2016.


GE 2018 FORM 10-K 37

 
MD&A
CORPORATE ITEMS AND ELIMINATIONS

COSTS AND GAINS NOT INCLUDED IN SEGMENT RESULTS
As discussed in the Segment Operations section within this MD&A, certain amounts are not included in industrial operating segment results because they are excluded from measurement of their operating performance for internal and external purposes. The amount of costs and gains (losses) not included in segment results follows.
COSTS AND GAINS NOT INCLUDED IN
Costs
 
Gains (Losses)
 
SEGMENT RESULTS (In billions)
2018

 
2017

 
2016

 
2018

 
2017

 
2016

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Power
$
23.5

(a)
$
2.0

(a)
$
1.5

(a)
$
1.0

 
$
1.9

(b)
$

 
Renewable Energy
0.2

(c)
0.3

 
0.3

 

 

 

 
Aviation

 
0.1

 
0.1

 
(0.1
)
(d)
(0.3
)
(d)
(0.1
)
 
Oil & Gas(e)

 
0.2

 
0.8

 

 

 

 
Healthcare
0.2

 
0.3

 
0.5

 
0.8

 

 

 
Transportation
0.1

 
0.2

 
0.2

 

 

 

 
Lighting(f)
0.1

 
0.2

 
0.3

 
(0.5
)
(d)
(0.7
)
(d)
3.1

(g)
Total
$
24.1

 
$
3.3

 
$
3.7

 
$
1.2

 
$
0.9

 
$
3.0

 
(a)
Included a charge of $22.0 billion for the impairment of Power goodwill in 2018, $1.2 billion for the impairment of Power Conversion goodwill in 2017 and $0.9 billion of Alstom-related restructuring and other charges in 2016.
(b)
Related to the sale of our Water business in the third quarter of 2017.
(c)
Included a charge of $0.1 billion for the impairment of our Hydro business within Renewable Energy in 2018.
(d)
Related to held for sale charges in our Lighting and Aviation businesses in 2017 and 2018.
(e)
Subsequent to the Baker Hughes transaction restructuring and other charges are included in the determination of segment profit for our Oil & Gas segment.
(f)
The Lighting segment included the Appliances business through its disposition in the second quarter of 2016.
(g)
Related to the sale of our Appliances business in the second quarter of 2016.

OTHER CONSOLIDATED INFORMATION
INTEREST AND OTHER FINANCIAL CHARGES
Consolidated interest and other financial charges amounted to $5.1 billion, $4.9 billion and $5.0 billion in 2018, 2017 and 2016, respectively. See the Capital Resources and Liquidity section within this MD&A for a discussion of liquidity, borrowings and interest rate risk management.

GE interest and other financial charges (excluding interest on assumed debt) amounted to $2.7 billion, $2.8 billion and $2.0 billion in 2018, 2017 and 2016, respectively. 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. The decrease in 2018 compared to 2017 was primarily due to lower financing costs on sales of receivables, lower average rates on senior notes due to the $4.0 billion maturity in December 2017 of higher interest rate notes, and lower average short-term borrowings balances, partially offset by higher interest on borrowings issued by BHGE, interest on a higher balance of intercompany loans from GE Capital, and higher interest rates on short-term borrowings. See Notes 4 and 11 to the consolidated financial statements for more information regarding sales of GE receivables and interest rates on GE borrowings, respectively.

GE Capital interest and other financial charges (including interest on debt assumed by GE), was $3.0 billion, $3.1 billion and $3.8 billion in 2018, 2017 and 2016, respectively. The decrease in 2018 compared to 2017 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. GE Capital average borrowings were $78.7 billion, $103.8 billion and $145.0 billion in 2018, 2017 and 2016, respectively. The GE Capital average composite effective interest rate (including interest allocated to discontinued operations) was 3.9% in 2018, 3.1% in 2017 and 3.0% in 2016.

POSTRETIREMENT BENEFIT PLANS
BENEFIT PLANS COST (In billions)
2018

2017

2016

 
 
 
 
Principal pension plans
$
4.3

$
3.7

$
3.6

Other pension plans
(0.1
)
0.3

0.4

Principal retiree benefit plans
(0.1
)

0.1

Total
$
4.1

$
4.0

$
4.1


GE 2018 FORM 10-K 38


 
MD&A
OTHER CONSOLIDATED INFORMATION

PRINCIPAL PENSION PLANS(a)
2018

2017

2016

 
 
 
 
Discount rates
3.64
%
4.11
%
4.38
%
Expected rate of return
6.75
%
7.50
%
7.50
%
(a)    Our principal pension plans are the GE Pension Plan and the GE Supplementary Pension Plan.

20182017 COMMENTARY
Postretirement benefit plan cost increased $0.1 billion as lower service cost resulting from fewer active plan participants was offset by effects of lower discount rates and higher loss amortization related to our principal pension plans.

2017 2016 COMMENTARY
Postretirement benefit plans cost decreased $0.1 billion as lower service cost resulting from fewer active principal pension plan participants and earnings from pension plan assets, and the effects of lower discount rates were essentially offset by higher loss amortization related to our principal pension plans.

Looking forward, our key assumptions affecting 2019 postretirement benefits cost are as follows:
Discount rate at 4.34% for our principal pension plans, reflecting current long-term interest rates.
Assumed long-term return on our principal pension plan assets of 6.75%, unchanged from 2018.
We expect 2019 postretirement benefit plans cost to be about $3.2 billion which is a decrease of about $0.9 billion from 2018.

The table below presents the funded status of our benefit plans. The funded status represents the fair value of plan assets less benefit obligations.
FUNDED STATUS (In billions)
2018

2017

 
 
 
GE Pension Plan
$
(12.4
)
$
(17.9
)
GE Supplementary Pension Plan
(6.1
)
(6.7
)
Other pension plans
(3.9
)
(4.1
)
Principal retiree benefit plans
(4.8
)
(5.5
)
Total
$
(27.2
)
$
(34.2
)
Our principal pension plans are the GE Pension Plan and the GE Supplementary Pension Plan.

20182017 COMMENTARY
The GE Pension Plan deficit decreased in 2018 primarily due to higher discount rates and employer contributions, partially offset by investment performance and the growth in pension liabilities.
The decrease in the deficit of our other pension plans was primarily attributable to higher discount rates and employer contributions, partially offset by investment performance.
The decrease in the principal retiree benefit plans deficit was primarily attributable to employer contributions, higher discount rates and favorable cost trends, partially offset by the growth in retiree benefit liabilities.

The Employee Retirement Income Security Act (ERISA) determines minimum pension funding requirements in the U.S. We made $6.0 billion and $1.7 billion in contributions to the GE Pension Plan in 2018 and 2017, respectively. On an ERISA basis, our preliminary estimate is that the GE Pension Plan was approximately 91% funded at January 1, 2019. The ERISA funded status is higher than the GAAP funded status (80% funded) primarily because the ERISA prescribed interest rate is calculated using an average interest rate. As a result, the ERISA interest rate is higher than the year-end GAAP discount rate. The higher ERISA interest rate lowers pension liabilities for ERISA funding purposes. Our 2018 contributions satisfy our minimum ERISA funding requirement of $1.5 billion and the remaining $4.5 billion was a voluntary contribution to the plan. We currently expect this voluntary contribution will be sufficient to satisfy our minimum ERISA funding requirement for 2019 and 2020.

We expect to contribute approximately $0.8 billion to our other pension plans in 2019, as compared to $0.5 billion in 2018 and $0.9 billion in 2017.

We also expect to contribute approximately $0.4 billion to our principal retiree benefit plans in 2019 similar to our actual contributions of $0.4 billion in both 2018 and 2017.

The funded status of our postretirement benefit plans and future effects on operating results depend on economic conditions, interest rates and investment performance. See the Critical Accounting Estimates section within this MD&A and Note 13 to the consolidated financial statements for further information about our benefit plans and the effects of this activity on our financial statements.


GE 2018 FORM 10-K 39

 
MD&A
OTHER CONSOLIDATED INFORMATION

INCOME TAXES
GE pays the income taxes it owes in every country in which it does business. 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 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. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.
CONSOLIDATED (Dollars in billions)
2018

2017

2016

 
 
 
 
Effective tax rate (ETR)
(2.9
)%
23.4
%
(16.1
)%
Provision (benefit) for income taxes
$
0.6

$
(2.6
)
$
(1.1
)
Cash income taxes paid(a)
1.9

2.4

7.5

(a)
Includes taxes paid related to discontinued operations.

20182017 COMMENTARY
The consolidated income tax rate for 2018 was (2.9)%.The negative effective tax rate for 2018 reflects a tax expense on a consolidated pre-tax loss.
The 2018 effective tax rate included an insignificant charge associated with the adjustment of the provisional estimate of the impact of the 2017 enactment of U.S. tax reform. As discussed in Note 14 to the consolidated financial statements, the 2017 impact of U.S. tax reform on the revaluation of deferred taxes and the transition tax on historic earnings was recorded on a provisional basis as the legislation provides for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax. Additional guidance may be issued after 2018 and any resulting effect will be recorded in the quarter of issuance.
The increase in the consolidated provision for income taxes was primarily attributable to the decrease in pre-tax loss (excluding non-deductible goodwill impairments) with a tax benefit above the average tax rate and the decrease in benefit from global operations including an increase in valuation allowances on the non-U.S. deferred tax assets of the Power business and the decision to execute internal restructuring for separation actions related to the Healthcare business.
Partially offsetting this increase was the decrease in the consolidated provision for income taxes attributable to the insignificant 2018 charge to adjust the impact of enactment of tax reform compared to the $4.5 billion charge in 2017 for the estimated impact of enactment.

20172016 COMMENTARY
The consolidated income tax rate for 2017 was 23.4%. This effective tax rate reflects a tax benefit on a consolidated pre-tax loss.
The effective tax rate included a provisional charge of $4.5 billion associated with the enactment of U.S. tax reform.
The consolidated tax rate excluding the effect of U.S. tax reform was 63.9%. This effective tax rate was also a tax benefit on a consolidated pre-tax loss. The tax benefit excluding the impact of tax reform was larger than 35% because of the benefit from lower-taxed international income compared to losses taxed at higher than the average rate and the benefit of the lower-taxed disposition of the Water business.
The decrease in the consolidated provision for income taxes was primarily attributable to the increase in the pre-tax loss with a tax benefit above the average tax rate including the one-time charge to revalue insurance reserves partially offset by the tax charge associated with the enactment of U.S. tax reform.

Absent the effects of U.S. tax reform, our consolidated income tax provision is generally reduced because of the benefits of lower-taxed global operations. The benefit from non-U.S. rates below the U.S. statutory rate was significant prior to the decrease in the U.S. statutory rate to 21% beginning in 2018. While reduced, there is still generally a benefit as certain non-U.S. income is subject to local country tax rates that are below the new U.S. statutory tax rate.

The rate of tax on our profitable non-U.S. earnings is below the U.S. statutory tax rate because we have significant business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate and because GE funds certain non-U.S. operations through foreign companies that are subject to low foreign taxes. Most of these earnings have been reinvested in active non-U.S. business operations and as of December 31, 2018, we have not decided to repatriate these earnings to the U.S. Given U.S. tax reform, substantially all of our prior unrepatriated earnings were subject to U.S. tax and accordingly we expect to have the ability to repatriate available non-U.S. cash from these earnings without additional U.S. federal tax cost and any foreign withholding taxes on a repatriation to the U.S. would potentially be partially offset by a U.S. foreign tax credit.


GE 2018 FORM 10-K 40


 
MD&A
OTHER CONSOLIDATED INFORMATION

A substantial portion of the benefit for lower-taxed non-U.S. earnings related to business operations subject to tax in countries where the tax on that income is lower than the U.S. statutory rate is derived from our GECAS aircraft leasing operations located in Ireland where the earnings are taxed at 12.5%, from our Power operations located in Switzerland and Hungary where the earnings are taxed at between 9% and 18.6%, and our Healthcare operations in Europe where tax deductions are allowed for certain intangible assets and earnings are taxed below the historic U.S. statutory rate.

The rate of tax on non-U.S. operations is increased, however, because we also incur losses in foreign jurisdictions where it is not likely that the losses can be utilized and no tax benefit is provided for those losses and valuation allowances against loss carryforwards are provided when it is no longer likely that the losses can be utilized. In addition, as part of U.S. tax reform, the U.S. has enacted a tax on “base eroding” payments from the U.S. We are continuing to evaluate the impact of this provision on our operations and are undertaking restructuring actions to mitigate the impact from this provision. The U.S. has also enacted a minimum tax on foreign earnings (“global intangible low tax income”). Because we have tangible assets outside the U.S. and pay a rate of foreign tax above the minimum tax rate, we generally do not expect a significant increase in tax liability from this new U.S. minimum tax. Overall, these newly enacted provisions increase the rate of tax on our non-U.S. operations.
BENEFITS FROM LOWER-TAXED GLOBAL OPERATIONS (In billions)
2018

2017

2016

 
 
 
 
Benefit/(detriment) of lower foreign tax rate on non-U.S. earnings
$
(0.6
)
$
0.7

$
0.8

Benefit of audit resolutions
0.2


0.2

Other
(0.9
)
2.8

1.1

Total benefit/(detriment)
$
(1.3
)
$
3.5

$
2.1


The amounts reported above exclude the impact of U.S. tax reform which is reported as a separate line in the reconciliation of the U.S. federal statutory income tax rate to the actual tax rate in Note 14 to the consolidated financial statements.

20182017 COMMENTARY
The decrease in benefit from lower-taxed global operations reflects the lower U.S. statutory tax rate and losses without tax benefit. The decrease in other benefits reflects increases in valuation allowances on non-U.S. deferred tax assets and for 2018 newly enacted taxes on non-U.S. earnings and the nonrecurrence of 2017 benefits associated with repatriation of foreign earnings.

20172016 COMMENTARY
Included in "other" was an increase in the benefit from 2016 to 2017 from planning at GE Capital to reduce the tax cost of repatriations of foreign cash and to repatriate high-taxed foreign earnings at GE, partially offset by a decrease in the benefit from repatriation of GE non-U.S. earnings due to the nonrecurrence of the benefit of integrating our existing services business with Alstom’s services business.

See Note 14 to the consolidated financial statements for information on the tax charges associated with the enactment of U.S. tax reform. The cash impact of the transition tax on historic foreign earnings was largely offset by accelerated use of deductions and tax credits and was substantially incurred with the filing of the 2017 tax return with no amount subject to the deferred payment provision provided under law.

The tax effect from non-U.S. income taxed at a local country rate rather than the U.S. statutory tax rate is reported in the caption “Tax on global activities including exports” in the effective tax rate reconciliation in Note 14 to the consolidated financial statements.

A more detailed analysis of differences between the U.S. federal statutory rate and the consolidated effective rate, as well as other information about our income tax provisions, is provided in the Critical Accounting Estimates section within this MD&A and Note 14 to the consolidated financial statements. The nature of business activities and associated income taxes differ for GE and for GE Capital; therefore, a separate analysis of each is presented in the paragraphs that follow.

We believe that the GE effective tax rate and provision for income taxes are 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. See the Non-GAAP Financial Measures section within this MD&A, for further information on this calculation.
GE EFFECTIVE TAX RATE (EXCLUDING GE CAPITAL EARNINGS) (Dollars in billions)
2018

2017

2016

 
 
 
 
GE ETR, excluding GE Capital earnings*
(4.8
)%
248.9
%
3.3
%
GE provision for income taxes
$
1.0

$
3.7

$
0.3





*Non-GAAP Financial Measure

GE 2018 FORM 10-K 41

 
MD&A
OTHER CONSOLIDATED INFORMATION

20182017 COMMENTARY
The GE provision for income taxes decreased in 2018 because of the nonrecurrence of the $4.9 billion charge for the provisional charge associated with the enactment of U.S. tax reform.
Excluding the charge associated with U.S. tax reform, the GE tax provision increased by $2.3 billion. The increase was primarily due to the decrease in benefit from global operations including an increase in valuation allowances on the non-U.S. deferred tax assets of the Power business and the decision to execute internal restructuring for separation actions related to the Healthcare business.

20172016 COMMENTARY
The GE provision for income taxes increased in 2017 because of the $4.9 billion charge for the provisional estimate of the transition tax on historic foreign earnings ($2.9 billion) and effect of revaluing our deferred taxes ($2.0 billion).
Excluding the charge associated with U.S. tax reform, the GE tax provision decreased by $1.5 billion. The decrease was due primarily to a decrease in pre-tax income, excluding non-deductible held-for-sale and impairment losses, which is taxed at above the average tax rate.
GE CAPITAL EFFECTIVE TAX RATE (Dollars in billions)
2018

2017

2016

 
 
 
 
GE Capital ETR
99.7
%
49.9
%
70.3
%
GE Capital provision (benefit) for income taxes
$
(0.4
)
$
(6.3
)
$
(1.4
)
20182017 COMMENTARY
The decrease in the tax benefit at GE Capital from a benefit of $6.3 billion in 2017 to a benefit of $0.4 billion in 2018 is primarily due to the decrease in the pre-tax loss with a tax benefit above the average tax rate including the nonrecurrence in the one-time charge to revalue insurance reserves.

20172016 COMMENTARY
The increase in the tax benefit at GE Capital from a benefit of $1.4 billion in 2016 to a benefit of $6.3 billion is primarily due to the increase in the pre-tax loss with a tax benefit above the average tax rate including the one-time charge to revalue insurance reserves.
The GE Capital tax provision included a benefit of $0.4 billion for the provisional estimate of the transition tax on historic foreign earnings ($1.8 billion benefit) partially offset by the effect of revaluing our deferred taxes ($1.4 billion charge).

DISCONTINUED OPERATIONS
Discontinued operations primarily relate to our financial services businesses as a result of the GE Capital Exit Plan and were previously reported in the Capital Segment. These discontinued operations primarily comprise residual assets and liabilities related to our exited U.S. mortgage business (WMC), our mortgage portfolio in Poland, indemnification liabilities associated with the sale of our GE Capital businesses, and other litigation and tax matters.

During the first quarter of 2018, we recorded a reserve of $1.5 billion in discontinued operations in connection with the DOJ ongoing investigation regarding potential violations of FIRREA by WMC and GE Capital. On January 31, 2019, GE announced that it had reached an agreement in principle with the DOJ to settle this investigation, under which GE will pay the United States a civil penalty of $1.5 billion, consistent with the $1.5 billion reserve recorded for this matter in the first quarter 2018. See Legal Proceedings and Note 22 to the consolidated financial statements for further information.

The mortgage portfolio in Poland comprises floating rate residential mortgages, of which approximately 84% are denominated in Swiss Francs and the remainder in local currency. At December 31, 2018, the portfolio had a carrying value of $2.7 billion with a 1.4% 90-day delinquency rate and an average loan to value ratio of 71%. The portfolio is recorded at fair value less cost to sell and includes a $0.3 billion impairment, which considered our best estimate of the effect of potential legislative relief to borrowers.

At December 31, 2018, we have provided specific indemnities to buyers of GE Capital’s assets that, in the aggregate, represent a maximum potential claim of $1.9 billion. The majority of these indemnifications relate to the sale of businesses and assets under the GE Capital Exit Plan. We have recorded related liabilities of $0.3 billion, which incorporates our evaluation of risk and the likelihood of making payments under the indemnities. The recognized liabilities represent the estimated fair value of the indemnities when issued as adjusted for any subsequent probable and estimable losses. Approximately 15% of these exposures are expected to be resolved within the next five years, while substantially all indemnifications are expected to be resolved within the next ten years. During the fourth quarter of 2018, we received a favorable court ruling related to an indemnity we provided in connection with the sale of a GE Capital business, which, if not subject to further extrajudicial action, would reduce the amount of the maximum potential claim by $0.7 billion.

Also, in connection with the 2015 public offering and sale of Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC's businesses other than historical liabilities of the businesses that are part of Synchrony Financial's ongoing operations.

GE 2018 FORM 10-K 42


 
MD&A
OTHER CONSOLIDATED INFORMATION

Included within discontinued operations at December 31, 2018 are an estimated $1.9 billion of exposure related to tax audits and tax litigation matters for which we have recorded a reserve of $0.5 billion. Additionally, ongoing lawsuits and other litigation matters represent exposures of $1.3 billion for which we have recorded reserves of $0.1 billion.

See Notes 2 and 22 to the consolidated financial statements for further information related to discontinued operations.

GEOGRAPHIC INFORMATION
Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provision of financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new opportunities that include, among other things, expansion of industrial activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs.

Financial results of our non-U.S. activities reported in U.S. dollars are affected by currency exchange. 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. Such principal currencies are the euro, the pound sterling, the Brazilian real and the Chinese renminbi.

REVENUES
Revenues are classified according to the region to which products and services are sold. For purposes of this analysis, the U.S. is presented separately from the remainder of the Americas.
GEOGRAPHIC REVENUES
 
 
 
V%
(Dollars in billions)
2018

2017

2016

2018-2017
 
2017-2016
 
 
 
 
 
 
 
U.S.
$
46.8

$
44.3

$
49.3

6
%
 
-10
 %
Non-U.S.
 
 
 
 
 
 
Europe
23.9

23.2

21.3

 
 
 
Asia
22.9

20.8

20.4

 
 
 
Americas
11.8

11.0

10.7

 
 
 
Middle East and Africa
16.3

18.9

17.7

 
 
 
Total Non-U.S.
74.9

74.0

70.1

1
%
 
5
 %
Total
$
121.6

$
118.2

$
119.5

3
%
 
(1
)%
 
 
 
 
 
 
 
Non-U.S. Revenues as a % of Consolidated Revenues
62
%
63
%
59
%
 
 
 

NON-U.S. REVENUES AND EARNINGS
The increase in non-U.S. revenues in 2018 was primarily due to increases of 10% in Asia and 12% in Latin America, offset by a decrease of 14% in the Middle East and Africa.

The increase in non-U.S. revenues in 2017 was primarily due increases of 9% in Europe (primarily due to Baker Hughes) and 7% in the Middle East and Africa.
The effects of currency fluctuations on reported results were as follows:
Increased revenues by $0.6 billion in 2018, primarily driven by the euro ($0.9 billion), the pound sterling ($0.1 billion) and the Chinese renminbi ($0.1 billion), partially offset by decreases in revenue driven by the Brazilian real ($0.4 billion) and the Indian rupee ($0.1 billion).
Increased revenues by $0.6 billion in 2017, primarily driven by the euro ($0.4 billion), the Brazilian real ($0.3 billion) and the Indian rupee ($0.1 billion), partially offset by decreases in revenue driven by the pound sterling ($0.2 billion).

The effects of foreign currency fluctuations decreased earnings by $0.1 billion and an insignificant amount in 2018 and 2017, respectively.

GE 2018 FORM 10-K 43

 
MD&A
OTHER CONSOLIDATED INFORMATION

ASSETS
We classify certain assets that cannot meaningfully be associated with specific geographic areas as “Other Global” for this purpose.
TOTAL ASSETS (CONTINUING OPERATIONS) December 31 (In billions)
2018

2017

 
 
 
U.S.
$
159.8

$
181.6

Non-U.S.
 
 
Europe
82.4

117.8

Asia
22.9

23.6

Americas
18.0

21.3

Other Global
21.4

18.9

Total Non-U.S.
$
144.7

$
181.7

Total
$
304.5

$
363.3


The decrease in total assets includes $22.1 billion of impairment related to goodwill in our Power Generation, Grid Solutions and Hydro reporting units and the effects of various portfolio dispositions. See the Consolidated Results section within this MD&A for further information.

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 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 the proceeds from the February 2019 closing of the merger of our Transportation business with Wabtec, 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 $55.2 billion at December 31, 2018.

For GE Capital, in addition to $15.0 billion of liquidity at December 31, 2018, over the next two years we expect to generate additional sources of cash from asset sales, including approximately $10 billion in 2019 from the completion of its $25 billion asset reduction plan, as well as cash from repayments of most of the $13.7 billion of intercompany loans from GE. In addition, in 2019, GE Capital expects to receive approximately $4 billion of capital contributions from GE.

LIQUIDITY
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.

GE's primary sources of liquidity consist of cash and cash equivalents, free cash flows from our operating businesses, 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. See the Statement of Cash Flows section within this MD&A for further information regarding GE cash flow results.

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. Following the fourth quarter 2018 downgrades in our short-term credit ratings, GE has transitioned from a tier-1 to a tier-2 commercial paper issuer, which has substantially reduced our borrowing capacity in the commercial paper markets. To accommodate GE’s short-term liquidity needs, in the fourth quarter of 2018 we increased utilization of our revolving credit facilities. See the Liquidity Sources and Credit Ratings sections for further information.

In 2018, GE generated approximately $5.9 billion of cash proceeds (net of taxes) related to business dispositions, primarily Industrial Solutions, Healthcare’s Value-Based Care division, and Distributed Power. In addition, we realized total proceeds of approximately $4.4 billion from BHGE in 2018, comprised of a $2.3 billion public share offering in the fourth quarter as well as $2.1 billion of other buybacks during the year.
*Non-GAAP Financial Measure

GE 2018 FORM 10-K 44


 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

In 2018, GE Capital loaned GE a total of $6.5 billion (utilizing a portion of GE Capital's excess unsecured term debt) to fund its $6 billion contribution to the GE Pension Plan and to refinance $0.5 billion of other intercompany loans. These loans are priced at market terms and bear the right of offset against amounts owed by GE Capital to GE under the assumed debt agreement, effectively resulting in the transfer of that portion of assumed debt obligation from GE Capital to GE. The $6.5 billion of intercompany loans executed in 2018 have a weighted average interest rate and term of 3.6% and approximately six years, respectively. At December 31, 2018, the total balance of all such intercompany loans with right of offset was $13.7 billion, with a collective weighted average interest rate and term of 3.5% and approximately 10 years, respectively. These loans can be prepaid by GE at any time, in whole or in part, without premium or penalty. See the Borrowings section for additional information on assumed debt and right-of-offset loans.

In the fourth quarter of 2018, GE completed the funding of $3.1 billion for Alstom redemption rights related to certain consolidated joint ventures. See Note 15 to the consolidated financial statements for further information.

In the fourth quarter of 2018, we announced plans to reduce our quarterly dividend from $0.12 cents to $0.01 cent per share beginning with the dividend declared in December 2018, which was paid in January 2019. This reduction will allow us to retain approximately $4 billion of cash per year compared to the prior payout level.

In 2019, GE will pay the United States a $1.5 billion civil penalty to settle the DOJ investigation of potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 by WMC. See Legal Proceedings and Note 22 to the consolidated financial statements for further information.

GE Capital’s primary sources of liquidity consist of cash and cash equivalents, cash generated from dispositions 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 GE repayments of intercompany loans and capital contributions. 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 unallocated 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 $3.5 billion and $1.9 billion in the first quarter of 2018 and 2019, respectively. GE Capital or GE expects to provide further capital contributions of approximately $9 billion through 2024. These contributions are subject to ongoing monitoring by 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. See Other Items - Insurance section within this MD&A and Note 12 to the consolidated financial statements for further information.

In conjunction with the GE Capital Exit Plan, in 2016 GE Capital exchanged its preferred stock into GE preferred stock with the amount and terms mirroring the GE preferred stock held by external investors ($5,573 million carrying value at December 31, 2018). On July 1, 2018, GE Capital and GE exchanged the existing Series D preferred stock issued to GE for new GE Capital Series D preferred stock that is mandatorily convertible into GE Capital common stock on January 21, 2021. After this conversion, GE Capital will no longer pay preferred dividends to GE. The terms of the existing GE Series D preferred stock remain unchanged. See Note 15 to the consolidated financial statements for further information.

LIQUIDITY SOURCES
GE cash, cash equivalents and restricted cash totaled $20.5 billion at December 31, 2018, including $3.7 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 $15.0 billion, of which $14.5 billion was classified within continuing operations and $0.5 billion was classified within discontinued operations.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH (In billions)

 
 

 
 
 
 
 
GE(a)
$
20.5

 
U.S.
$
18.0

GE Capital(b)
14.5

 
Non-U.S.
17.0

(a)
At December 31, 2018, $4.1 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)
Excluded $0.5 billion classified within discontinued operations. Included $0.7 billion held in insurance and banking entities which are subject to regulatory restrictions.


GE 2018 FORM 10-K 45

 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

Excluding cash held in countries with currency controls and cash at BHGE, total GE cash, cash equivalents and restricted cash was $13.9 billion at December 31, 2018.

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 December 31, 2018.
GE COMMITTED AND AVAILABLE CREDIT FACILITIES (In billions)
 
 
Unused back-up revolving credit facility(a)
$
20.0

Revolving credit facilities (exceeding one year)(b)
23.9

Bilateral revolving credit facilities (364-day)(c)
3.6

Total committed credit facilities
$
47.5

Less offset provisions(d)
(6.7
)
Total net available credit facilities
$
40.8

(a)
Consisted of a $20 billion syndicated credit facility extended by 36 banks, expiring in 2021.
(b)
Included a $19.8 billion syndicated credit facility extended by six banks, expiring in 2020.
(c)
Consisted of credit facilities extended by seven banks, with expiration dates ranging from February 2019 to May 2019.
(d)
Commitments under certain credit facilities in (a) and (b) may be reduced by up to $6.7 billion due to offset provisions for any bank that holds a commitment to lend under both syndicated credit facilities.

In 2019 and 2020, the amount committed and available under the $19.8 billion syndicated credit facility expiring in 2020 will periodically be reduced by the greater of specified contractual commitment reductions or a mandatory prepayment amount, 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. Contractual commitment reductions are $5.0 billion in the first quarter of 2019, $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. 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 certain of these credit lines 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 fourth quarter of 2018 and 2017.
(In billions)
Commercial Paper(a)
Revolving Credit Facilities(b)
Total(a)(c)
 
 
 
 
2018
 
 
 
Average borrowings during the fourth quarter
$
7.9

$
2.5

$
10.4

Maximum borrowings outstanding during the fourth quarter
$
10.7

$
5.1

$
14.8

Ending balance at December 31
$
3.0

$

$
3.0

 
 
 
 
2017
 
 
 
Average borrowings during the fourth quarter
$
17.3

$
0.1

$
17.4

Maximum borrowings outstanding during the fourth quarter
$
19.7

$
0.3

$
19.7

Ending balance at December 31
$
3.0

$

$
3.0

(a)
Excluded GE Capital commercial paper, which in the fourth quarter of 2018 had average, maximum and ending balances of $0.6 billion, $3.0 billion, and an insignificant amount, respectively. GE Capital does not expect to issue any new commercial paper in the foreseeable future.
(b)
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.
(c)
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.


GE 2018 FORM 10-K 46


 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

BORROWINGS
Consolidated total borrowings were $110.0 billion and $134.6 billion at December 31, 2018 and 2017, respectively. The reduction from 2017 to 2018 was driven primarily by net repayments at GE Capital of $21.1 billion, net repayments of borrowings at BHGE of $0.8 billion, and the effects of currency exchange of $1.8 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. On the GE Statement of Financial Position, assumed debt is presented within borrowings with an offsetting receivable from GE Capital, and on the GE Capital Statement of Financial Position, assumed debt is reflected as an intercompany payable to GE within borrowings. 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.

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.
December 31, 2018 (in billions)
GE

GE Capital

Consolidated(a)

 
 
 
 
Total short- and long-term borrowings
$
68.6

$
43.0

$
110.0

 
 
 
 
Debt assumed by GE from GE Capital
(36.3
)
36.3


Intercompany loans with right of offset
13.7

(13.7
)

Total intercompany payable (receivable) between GE and GE Capital
(22.5
)
22.5


 
 
 
 
Total borrowings adjusted for assumed debt and intercompany loans
$
46.1

$
65.5

$
110.0

(a)
Included $1.6 billion elimination of other GE borrowings from GE Capital, primarily related to timing of cash cutoff associated with the GE receivables monetization program. This amount was $2.3 billion in 2017.

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 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
December 31 (Dollars in billions)
2018

2017

 
December 31 (Dollars in billions)
2018

2017

Commercial paper
$
3.0

$
3.0

 
Commercial paper
$

$
5.0

GE Senior notes
20.5

21.0

 
Senior and subordinated notes
39.1

46.4

Intercompany loans from GE Capital(a)
13.7

7.3

 
Senior and subordinated notes assumed by GE
36.3

47.1

Other GE borrowings
2.5

3.2

 
Intercompany loans to GE(a)
(13.7
)
(7.3
)
Total GE adjusted borrowings excluding BHGE
$
39.7

$
34.5

 
Other GE Capital borrowings(b)
3.9

3.9

Total BHGE borrowings
6.3

7.2

 
 
 
 
Total GE adjusted borrowings
$
46.1

$
41.7

 
Total GE Capital adjusted borrowings
$
65.5

$
95.2

(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.
(b)
Included $1.9 billion and $2.0 billion at December 31, 2018 and 2017, respectively, of non-recourse borrowings of consolidated securitization entities.

In addition to long-term borrowings, GE Capital securitizes financial assets as an alternative source of funding. During 2018, we completed $1.3 billion of non-recourse issuances and $1.4 billion of non-recourse borrowings matured. At December 31, 2018, consolidated non-recourse securitization borrowings were $1.9 billion.

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 and significant acquisitions. 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.


GE 2018 FORM 10-K 47

 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

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.

On November 2, 2018, Fitch lowered the credit ratings of GE and GE Capital short- and long-term debt from F1 to F2 and from A to BBB+, respectively, with a Stable outlook.

On October 31, 2018, Moody’s lowered the credit ratings of GE and GE Capital short- and long-term debt from P-1 to P-2 and from A2 to Baa1, respectively.

On October 2, 2018, S&P lowered the credit ratings of GE and GE Capital short- and long-term debt from A-1 to A-2 and from A to BBB+, respectively, with a Stable outlook.

As previously mentioned, these downgrades resulted in GE transitioning from a tier-1 to tier-2 commercial paper issuer in the fourth quarter of 2018, substantially reducing our borrowing capacity in the commercial paper markets. This transition did not have a material impact to our access to liquidity or to our interest costs, and these downgrades did not have any other material impact to our 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.

The following sections provide additional details regarding the significant credit rating conditions for the Company 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, we would no longer have access to the tier-2 commercial paper market, and therefore our borrowing capacity in the commercial paper market would likely be further reduced. This may result in increased utilization of our revolving credit facilities to fund our intra-quarter operations.

DERIVATIVE CONDITIONS
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the net exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.

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 $0.7 billion at December 31, 2018. This excludes exposure related to embedded derivatives, which do not have these provisions.


GE 2018 FORM 10-K 48


 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

In addition, certain of our derivatives, primarily interest rate swaps, are subject to additional 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 December 31, 2018, the amount of additional margin that we could be required to post in cash if we fell below these ratings levels was approximately $0.4 billion.

See Note 20 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 a maximum reduction of approximately $1 billion to GE intra-quarter liquidity during the fourth quarter of 2018.

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 fourth quarter of 2018, the estimated maximum reduction to our ending liquidity had our credit ratings fallen below these levels was approximately $2 billion.

FOREIGN EXCHANGE AND INTEREST RATE RISKS
Exchange rate and interest rate risks are managed with a variety of techniques, including selective use of derivatives. We use derivatives to mitigate or eliminate certain financial and market risks because we conduct business in diverse markets around the world and local funding is not always efficient. In addition, we use derivatives to adjust the debt we are issuing to match the fixed or floating nature of the assets we are originating. We apply strict policies to manage each of these risks, including prohibitions on speculative activities. Following is an analysis of the potential effects of changes in interest rates and currency exchange rates using so-called “shock” tests that seek to model the effects of shifts in rates. Such tests are inherently limited based on the assumptions used (described further below) and should not be viewed as a forecast; actual effects would depend on many variables, including market factors and the composition of the Company’s assets and liabilities at that time.
It is our policy to minimize exposure to interest rate changes and their impact to interest and other financial charges. We fund our financial investments using debt or a combination of debt and hedging instruments so that the interest rates of our borrowings match the expected interest rate profile on our assets. To test the effectiveness of our hedging actions, we assumed that, on January 1, 2019, interest rates decreased by 100 basis points across the yield curve (a “parallel shift” in that curve) and further assumed that the decrease remained in place for the next 12 months. Based on the year-end 2018 portfolio and holding all other assumptions constant, we estimated that our consolidated net earnings for the next 12 months, starting in January 1, 2019, would decline by less than $0.1 billion as a result of this parallel shift in the yield curve. Additionally, refer to the Critical Accounting Estimates section within this MD&A for further interest rate sensitivities related to pension and insurance reserve assumptions.
It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the protection of hedge strategies. We analyzed year-end 2018 consolidated currency exposures, including derivatives designated and effective as hedges, to identify assets and liabilities denominated in other than their relevant functional currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in exchange rates between those currencies and the U.S. dollar, holding all other assumptions constant. This analysis indicated that our 2018 consolidated net earnings would decline by less than $0.1 billion as a result of such a shift in exchange rates. This analysis excludes any translation impact from changes in exchange rates on our financial results and any offsetting effect from the forecasted future transactions that are economically hedged.

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 year ended December 31, 2018 by less than $0.3 billion.

See Note 20 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.


GE 2018 FORM 10-K 49

 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

STATEMENT OF CASH FLOWS – OVERVIEW FROM 2016 THROUGH 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.

All other operating activities reflect cash sources and uses as well as non-cash adjustments to net earnings (loss). See Note 23 to the consolidated financial statements for further information regarding All other operating activities, All other investing activities and All other financing activities for both GE and GE Capital.

GE CASH FLOWS
With respect to GE CFOA, we believe that it is useful to supplement our GE Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.

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 and services. Dividends from GE Capital represent the distribution of a portion of GE Capital retained earnings, and are distinct from cash from continuing operations within the GE Capital businesses.

In the following discussion, Net earnings for cash flows represents the adding together of Net earnings (loss), (Earnings) loss from discontinued operations and (Earnings) loss from continuing operations retained by GE Capital, excluding GE Capital common dividends paid to GE, if any.

See the Intercompany Transactions between GE and GE Capital section within this MD&A and Notes 4 and 24 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.

20182017 COMMENTARY:
GE cash from operating activities was $2.3 billion in 2018 compared with $11.0 billion in 2017. The decrease of $8.8 billion was primarily due to the following:
No common dividends were paid by GE Capital to GE in 2018 compared with $4.0 billion in 2017.
Cash generated from GE CFOA (excluding common dividends received from GE Capital in 2017) amounted to $2.3 billion in 2018 (including $1.8 billion from Oil & Gas CFOA) and $7.0 billion in 2017 (including $0.5 billion used for Oil & Gas CFOA), primarily due to the following:
Net earnings for cash flows plus depreciation and amortization of property, plant and equipment, amortization of intangible assets, goodwill impairments, gains on sales of business interests and provisions for income taxes of $7.1 billion in 2018 compared with $6.7 billion in 2017. Net earnings for cash flows included pre-tax restructuring and other charges of $2.9 billion in 2018 compared with $3.9 billion in 2017.
Principal pension plan contributions of $6.3 billion (including $6.0 billion related to the GE Pension Plan) in 2018 compared with $2.0 billion (including $1.7 billion related to the GE Pension Plan) in 2017.
Lower taxes paid of $1.8 billion in 2018 compared with $2.7 billion in 2017.
Lower growth in contract and other deferred assets of $0.1 billion in 2018 compared with $1.9 billion in 2017, primarily due to the timing of revenue recognized relative to the timing of billings and collections on our long-term equipment agreements, primarily in our Power and Oil & Gas segments, partially offset by our Aviation and Healthcare segments and lower cash used for deferred inventory, primarily in our Power segment.
Cash generated from working capital of an insignificant amount in 2018 compared with $2.8 billion in 2017. This was primarily due: to an increase in cash used for inventories of $2.1 billion, mainly in our Oil & Gas, Aviation, Transportation and Healthcare segments, partially offset by our Power segment; an increase in cash used from progress collections of $2.1 billion, mainly in our Power and Aviation segments, partially offset by our Renewable Energy segment; and an increase in cash used for current receivables of $1.5 billion across all segments excluding Oil & Gas. These increases in cash used for working capital were partially offset by an increase in cash generated from accounts payable of $3.0 billion, mainly in our Aviation, Oil & Gas and Renewable Energy segments.
The effects of the BHGE Class B shareholder dividends of $0.5 billion and $0.3 billion received in 2018 and 2017, respectively, are eliminated from GE CFOA.


GE 2018 FORM 10-K 50


 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

GE cash from investing activities was $2.3 billion in 2018 compared with cash used for investing activities of $8.3 billion in 2017. The $10.6 billion increase in cash generated was primarily due to the following:
Business acquisitions of $0.1 billion in 2018, compared with $6.1 billion in 2017, mainly driven by the Baker Hughes transaction for $3.4 billion ($7.5 billion cash consideration, less $4.1 billion of cash assumed), LM Wind Power for $1.7 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired).
Proceeds from business dispositions (net of cash transferred) of $6.5 billion in 2018, primarily from the sale of our Distributed Power business for $2.8 billion, our Industrial Solutions business for $2.2 billion and our Value-Based Care business for $1.0 billion, compared with $3.1 billion in 2017, mainly driven by the sale of our Water business for $2.9 billion.
Lower additions to property, plant and equipment and internal-use software of $3.6 billion in 2018 (including $1.0 billion at Oil & Gas), compared with $4.7 billion in 2017 (including $0.5 billion at Oil & Gas).

GE cash used for financing activities was $2.3 billion in 2018 compared with cash from financing activities of $4.6 billion in 2017. The $6.9 billion increase in cash used was primarily due to the following:
A net increase in borrowings of $3.6 billion in 2018, mainly driven by intercompany loans from GE Capital to GE of $6.5 billion (including $6.0 billion to fund contributions to the GE Pension Plan), partially offset by net repayments of debt of $2.9 billion (including $0.8 billion at BHGE), compared with a net increase in borrowings of $16.0 billion in 2017, mainly driven by the issuance of long-term debt of $12.5 billion (including $4.0 billion at BHGE), primarily to fund acquisitions, and long-term loans from GE Capital to GE of $7.3 billion, partially offset by maturity of long-term debt of $4.0 billion and the settlement of the remaining portion of a 2016 short-term loan from GE Capital to GE of $1.3 billion.
The acquisition of Alstom's interest in grid technology, renewable energy, and global nuclear and French steam power joint ventures for $3.1 billion in 2018.
BHGE net stock repurchases and dividends to noncontrolling interests of $0.7 billion in 2018, compared with $0.3 billion in 2017.
These increases in cash used were partially offset by the following decreases:
Common dividends paid to shareowners of $4.2 billion in 2018, compared with $8.4 billion in 2017.
An insignificant amount of net repurchases of GE treasury shares in 2018, compared with net repurchases of $2.6 billion in 2017.
Proceeds from BHGE's public share offering of $2.3 billion in 2018.

20172016 COMMENTARY:
GE cash from operating activities was $11.0 billion in 2017 compared with $30.0 billion in 2016. The decrease of $18.9 billion was primarily due to the following:
GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared with $20.1 billion in 2016.
Cash generated from GE CFOA (excluding common dividends received from GE Capital) amounted to $7.0 billion in 2017 (including $0.5 billion used for Oil & Gas CFOA) and $9.9 billion in 2016, primarily due to the following:
Net earnings for cash flows plus depreciation and amortization of property, plant and equipment, amortization of intangible assets, goodwill impairments, gains on sales of business interests and provisions for income taxes of $6.7 billion in 2017 compared with $9.9 billion in 2016. Net earnings for cash flows included pre-tax restructuring and other charges of $3.9 billion in 2017 compared with $3.4 billion in 2016.
Principal pension plan contributions of $2.0 billion (including $1.7 billion related to the GE Pension Plan) in 2017 compared with $0.6 billion (including $0.3 billion related to the GE Pension Plan) in 2016.
Lower growth in contract and other deferred assets of $1.9 billion in 2017 compared with $2.6 billion in 2016, primarily due to the timing of revenue recognized relative to the timing of billings and collections on our long-term service agreements, mainly in our Aviation segment.
Cash generated from working capital of $2.8 billion in 2017 compared with $3.7 billion in 2016. This was primarily due to: an increase in cash used for accounts payable of $2.2 billion, mainly in our Power, Aviation and Renewable Energy segments; a decrease in cash generated from current receivables of $0.6 billion, mainly in our Oil & Gas segment (primarily due to the cessation of sales of current receivables to GE Capital in the fourth quarter of 2017), partially offset by our Renewable Energy segment; and a decrease in progress collections of an insignificant amount, driven by our Power segment, offset by the benefit from the timing of progress collections received in the fourth quarter of 2017 of approximately $0.7 billion (primarily in our Aviation segment). These decreases in working capital were partially offset by an increase in cash generated from inventories of $2.0 billion, mainly in our Power, Aviation, Healthcare and Oil & Gas segments and in our Appliances business, due to inventory build in the first half of 2016 which did not reoccur in 2017 as a result of the sale of the business in the second quarter of 2016.
The effect of BHGE Class B shareholder dividends of $0.3 billion received in 2017 is eliminated from GE CFOA.


GE 2018 FORM 10-K 51

 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

GE cash used for investing activities was $8.3 billion in 2017 compared with $1.7 billion in 2016. The increase of $6.6 billion was primarily due to the following:
Business acquisition activities of $6.1 billion in 2017, primarily driven by the Baker Hughes transaction for $3.4 billion ($7.5 billion cash consideration, less $4.1 billion of cash assumed), LM Wind Power for $1.7 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired), compared with business acquisitions of $2.3 billion in 2016, which included two European 3-D printing companies in our Aviation segment for $1.1 billion (net of cash acquired).
Business disposition proceeds of $3.1 billion in 2017, primarily driven by the sale of our Water business for $2.9 billion (net of cash transferred) in 2017, compared with proceeds of $5.4 billion in 2016, primarily driven by the sale of our Appliances business for $4.8 billion and the sale of GEAM for $0.4 billion.
Net cash paid for settlements of derivative hedges of $1.1 billion in 2017.

GE cash from financing activities was $4.6 billion in 2018 compared with cash used for financing activities of $27.4 billion in 2016. The $31.9 billion increase in cash generated was primarily due to the following:
Net repurchases of GE treasury shares of $2.6 billion and $21.4 billion in 2017 and 2016, respectively.
A net increase in borrowings of $16.0 billion in 2017, mainly driven by the issuance of long-term debt of $12.5 billion, (including $4.0 billion at BHGE) and long-term loans from GE Capital to GE of $7.3 billion, partially offset by maturity of long-term debt of $4.0 billion and the settlement of the remaining portion of a 2016 short-term loan from GE Capital to GE of $1.3 billion, compared with a net increase in borrowings of $2.8 billion in 2016, including a short-term loan from GE Capital to GE of $1.3 billion.

GE CAPITAL CASH FLOWS
20182017 COMMENTARY:
GE Capital cash from operating activities was $1.6 billion in 2018 compared with $2.4 billion in 2017. The decrease of $0.8 billion was primarily due to the following:
Net increase in cash collateral and settlements paid to counterparties on derivative contracts of $1.5 billion partially offset by a general increase in cash generated from earnings (loss) from continuing operations.

GE Capital cash from investing activities was $11.8 billion in 2018 compared with $8.2 billion in 2017. The increase of $3.5 billion was primarily due to the following:
Higher collections of financing receivables of $7.1 billion.
Proceeds from the sales of EFS' debt origination business and EFS equity investments of $6.1 billion in 2018.
These increases in cash were partially offset by the following decreases:
A decrease in net investment securities of $4.6 billion: $2.5 billion in 2018 compared with $7.1 billion in 2017.
An increase in net additions to property, plant and equipment of $1.6 billion.
Net proceeds from sales of discontinued operations of an insignificant amount in 2018 compared with $1.5 billion in 2017.
An increase in net intercompany loans from GE Capital to GE of $6.5 billion in 2018 compared with $5.9 billion in 2017.
A general reduction in funding related to discontinued operations.

GE Capital cash used for financing activities was $23.9 billion in 2018 compared with $23.6 billion in 2017. The increase of $0.3 billion was primarily due to the following:
Higher net repayments of borrowings of $21.1 billion in 2018 compared with $19.0 billion in 2017.
A net increase in derivative cash settlements paid of $2.0 billion.
These increases in cash used were partially offset by the following decrease:
GE Capital paid no common dividends to GE in 2018 compared with $4.0 billion in 2017.

20172016 COMMENTARY:
GE Capital cash from operating activities was $2.4 billion in 2017 compared with cash used for operating activities of $0.2 billion in 2016. The $2.6 billion increase in cash generated was primarily due to the following:
Lower cash paid for income taxes and interest of $2.3 billion.
Net increase in cash collateral and settlements received from counterparties on derivative contracts of $1.2 billion and a general decrease in cash generated from earnings (loss) from continuing operations.


GE 2018 FORM 10-K 52


 
MD&A
CAPITAL RESOURCES AND LIQUIDITY

GE Capital cash from investing activities was $8.2 billion in 2017 compared with $59.8 billion in 2016. The decrease of $51.5 billion was primarily due to the following:
Net proceeds from the sales of our discontinued operations of $1.5 billion in 2017 compared to $59.9 billion in 2016.
Maturities of $10.4 billion related to interest bearing time deposits in 2016.
Long-term loans from GE Capital to GE of $7.3 billion, partially offset by the settlement of the remaining portion of 2016 short-term loan from GE Capital to GE of $1.3 billion in 2017, compared to the issuance of a short-term loan from GE Capital to GE of $1.3 billion in 2016.
Net cash paid for derivative settlements of an insignificant amount in 2017 compared to net cash received from derivative settlements of $0.4 billion in 2016.
These decreases were partially offset by the following increases:
Net investment securities of $18.4 billion related to net maturities of $7.1 billion in 2017 compared to net purchases of investment securities of $11.2 billion in 2016.
Higher collections of financing receivables of $4.2 billion in 2017.
A general reduction in funding related to discontinued operations.

GE Capital cash used for financing activities was $23.6 billion in 2017 compared with $81.7 billion in 2016. The decrease of $58.0 billion was primarily due to the following:
Lower net repayments of borrowings of $19.0 billion in 2017 compared to $58.8 billion in 2016.
GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared to $20.1 billion in 2016.

INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL
GE Capital, the financial arm of GE, provides financial and intellectual capital to GE’s industrial businesses and its customers. GE Capital enables GE orders by either providing direct financing for a GE transaction or by bringing market participants together that result in industrial sales. On January 16, 2018, we announced plans to take actions to make GE Capital smaller and more focused, including a substantial reduction in the size of GE Capital's EFS and IF businesses over the next 24 months. We will retain origination capabilities to support our industrial businesses, however, we will transition to more funding by the capital markets, including export credit agencies and financial institutions. The transactions where GE and GE Capital are directly involved 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 the consolidated column of our Statement of Cash Flows. These transactions include, but are not limited to, the following:
GE Capital dividends to GE,
GE Capital working capital services to GE, including trade receivables and supply chain finance programs,
GE Capital enabled GE industrial orders, including related GE guarantees to GE Capital,
GE Capital financing of GE long-term receivables, and
Aircraft engines, power equipment, renewable energy equipment and healthcare equipment manufactured by GE that are installed on GE Capital investments, including leased equipment.
In addition to the above transactions that primarily enable growth for the GE businesses, there are routine related party transactions, which include, but are not limited to, the following:
Expenses related to parent-subsidiary pension plans,
Buildings and equipment leased between GE and GE Capital, including sale-leaseback transactions,
Information technology (IT) and other services sold to GE Capital by GE,
Settlements of tax liabilities, and
Various investments, loans and allocations of GE corporate overhead costs.

CASH FLOWS
DIVIDENDS
GE did not receive a common dividend distribution from GE Capital in 2018 and it does not expect to for the foreseeable future. GE Capital paid $4.0 billion and $20.1 billion of common dividends to GE in 2017 and 2016, respectively.


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MD&A
CAPITAL RESOURCES AND LIQUIDITY

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 $3.6 billion and $2.0 billion in 2018 and 2017, respectively and increased GE's CFOA by $2.1 billion in 2016.

As of December 31, 2018, including the deferred purchase price on our receivables facility, GE Capital had approximately $4.9 billion recorded on its balance sheet related to current receivables purchased from GE. Of the current receivables purchased and retained by GE Capital, approximately 31% 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 years ended December 31, 2018, 2017 and 2016.

In December 2016, GE Capital entered into a receivables facility with members of a bank group, designed to provide extra liquidity to
GE. The receivables facility allows us to sell eligible current receivables on a non-recourse basis for cash and a deferred purchase
price to members of the bank group. The purchase commitment of the bank group reduced from $3.8 billion in 2017 to $3.6 billion in 2018. See Note 4 to the consolidated financial statements for further information.

On December 21, 2018, GE Capital entered into a new revolving current receivables facility with a third-party securitization entity. This facility, whose maximum size is $1.5 billion, will expire in one year unless extended. In contrast to the aforementioned receivables facility, the Company has no remaining risk in respect of current receivables purchased by the third-party entity. Borrowings of $0.6 billion were repaid concurrently with the first sale to the third-party securitization. See Note 4 to the consolidated financial statements for further information.

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 $1.0 billion, $2.1 billion and $1.9 billion, net of deferred income of approximately $0.1 billion, $0.3 billion and $0.3 billion recorded in its balance sheet at December 31, 2018, 2017 and 2016, respectively. The effect of cash generated from the sale of these long-term receivables to GE Capital decreased GE's CFOA by $0.9 billion in 2018, and increased GE's CFOA by $0.3 billion and $1.6 billion in 2017 and 2016, 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 $5.4 billion and $5.2 billion at December 31, 2018 and 2017, respectively. 
 
At December 31, 2018, $0.4 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. Our payment obligation to suppliers and service providers continues to exist until we settle our obligation on the contractual payment dates and terms specified in the underlying supply contracts.

On January 16, 2019 we announced the sale of GE Capital’s supply chain finance program platform to MUFG Union Bank, N.A. and our intent 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 over 18 to 24 months. 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.


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CAPITAL RESOURCES AND LIQUIDITY

ENABLED ORDERS
Enabled orders represent the act of introducing, elevating and influencing customers and prospects that result in industrial sales, potentially coupled with captive financing or incremental products or services. During the years ended December 31, 2018 and 2017, GE Capital enabled $10.1 billion and $14.4 billion of GE industrial orders, respectively. In 2018 orders are primarily with our Renewable Energy ($3.8 billion), Power ($2.4 billion) and Healthcare ($2.1 billion) businesses. Most of the financing for these enabled orders is through third-parties including export credit agencies and financial institutions.

AVIATION
During the years ended December 31, 2018 and 2017, GE Capital acquired 64 aircraft (list price totaling $7.8 billion) and 50 aircraft (list price totaling $6.6 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 $0.4 billion and $0.1 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 December 31, 2018 and 2017.

PENSIONS
GE Capital is a member of certain GE Pension Plans. As a result of the GE Capital Exit Plan, GE Capital will have additional funding obligations for these pension plans. These obligations are recognized as an expense in GE Capital’s other continuing operations when they become probable and estimable. The additional funding obligations recognized by GE Capital were zero, $0.2 billion and $0.6 billion for the years ended December 31, 2018, 2017 and 2016, respectively.

On a consolidated basis, the additional required pension funding and any related assumption fees do not affect current period earnings. Any additional required pension funding will be reflected as a reduction of the pension liability when paid.

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 December 31, 2018, GE had outstanding guarantees to GE Capital on $1.4 billion of funded exposure and $0.9 billion of unfunded commitments. The recorded contingent liability for these guarantees was $0.1 billion as of December 31, 2018 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, GE debt assumed from GE Capital in connection with the merger of GE Capital into GE was $36.3 billion and GE guaranteed $37.7 billion of GE Capital debt at December 31, 2018. See Note 11 to the consolidated financial statements for further information.


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CONTRACTUAL OBLIGATIONS
As defined by reporting regulations, our contractual obligations for estimated future payments as of December 31, 2018, follow.
 
Payments due by period
 
 
 
 
 
2024 and

(In billions)
Total

2019

2020-2021

2022-2023

thereafter

 
 
 
 
 
 
Borrowings (Note 11)
$
110.0

$
13.1

$
27.2

$
17.1

$
52.6

Interest on borrowings
31.8

3.3

4.9

3.9

19.7

Purchase obligations(a)(b)
62.3

26.7

19.5

12.5

3.6

Insurance liabilities (Note 12)(c)
35.4

2.6

4.1

4.2

24.5

Operating lease obligations (Note 26)
5.6

1.1

1.7

1.2

1.6

Other liabilities(d)
67.0

7.9

8.6

9.6

40.9

Contractual obligations of discontinued operations(e)
2.9

2.2

0.4

0.1

0.2

(a)
Included all take-or-pay arrangements, capital expenditures, contractual commitments to purchase equipment that will be leased to others, software acquisition/license commitments, contractual minimum programming commitments and any contractually required cash payments for acquisitions.
(b)
Excluded funding commitments entered into in the ordinary course of business. See Notes 20 and 22 to the consolidated financial statements for further information on these commitments and other guarantees.
(c)
Included all contracts associated with our run-off insurance operations and represents the present value of future policy benefit and claim reserves.
(d)
Included an estimate of future expected funding requirements related to our postretirement benefit plans and included liabilities for unrecognized tax benefits. Because their future cash outflows are uncertain, the following non-current liabilities are excluded from the table above: derivatives, deferred income and other sundry items. See Notes 13, 14 and 20 to the consolidated financial statements for further information on certain of these items.
(e)
Included payments for other liabilities.

CRITICAL ACCOUNTING ESTIMATES
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. Many of these estimates include determining fair value. All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of investment securities, goodwill, intangibles and long-lived assets, revisions to estimated profitability on long-term service agreements, incremental losses on financing receivables, increases in reserves for contingencies and insurance, establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also see Note 1 to the consolidated financial statements, which discusses our most significant accounting policies.

REVENUE RECOGNITION ON LONG-TERM SERVICES AGREEMENTS
We have long-term service agreements with our customers predominately within our Power, Aviation, Transportation and Oil & Gas segments. These agreements require us to maintain the customers’ assets over the contract term. Contract terms are generally 5 to 25 years. However, contract modifications that extend or revise contracts are not uncommon.    

We recognize revenue as we perform under the arrangements based upon costs incurred at the estimated margin rate of the contract. Revenue recognition on long-term services agreements requires estimates of both customer payments expected to be received over the contract term as well as the costs to perform required maintenance services.

Customers generally pay us based on the utilization of the asset (per hour of usage for example) or upon the occurrence of a major event within the contract such as an overhaul. As a result, a significant estimate in determining expected revenues of a contract is estimating how customers will utilize their assets over the term of the agreement. The estimate of utilization will impact both the amount of customer payments we expect to receive and our estimate of costs to complete the agreement as asset utilization will influence the timing and extent of overhauls and other service events over the life of the contract. We generally use a combination of both historical utilization trends as well as forward-looking information such as market conditions and potential asset retirements in developing our revenue estimates.

To develop our cost estimates, we consider the timing and extent of future maintenance and overhaul events, including the amount and cost of labor, spare parts and other resources required to perform the services. In developing our cost estimates, we utilize a combination of our historical cost experience and expected cost improvements. Cost improvements are only included in future cost estimates after savings have been observed in actual results or proven effective through an extensive regulatory or engineering approval process.

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We routinely review estimates under long-term services agreements and regularly revise them to adjust for changes in outlook. These revisions are based on objectively verifiable information that is available at the time of the review. Contract modifications that change the rights and obligations, as well as the nature timing and extent of future cash flows, are effectively accounted for as a new contract.

The difference between the timing of our revenue recognition and cash received from our customers results in either a contract asset (revenue in excess of billings) or a contract liability (billing in excess of revenue). As of December 31, 2018, and 2017, we are in a net contract asset position of $6.8 billion and $6.9 billion, including contracts in liability position totaling $5.2 billion and $5.5 billion, respectively.

We regularly assess expected billings adjustments and customer credit risk inherent in the carrying amounts of receivables and contract assets and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods. Revisions may affect a long-term services agreement’s total estimated profitability resulting in an adjustment of earnings; such adjustments decreased earnings by $(0.2) billion in 2018 and increased earnings by $0.5 billion and $0.7 billion in 2017 and 2016, respectively.

On December 31, 2018, our net long-term service agreements balance of $6.8 billion represents approximately 3.8% of our total estimated life of contract billings of $180.3 billion. Our contracts (on average) are approximately 20.1% complete based on costs incurred to date and our estimate of future costs. Revisions to our estimates of future billings or costs that increase or decrease total estimated contract profitability by one percentage point would increase or decrease the long-term service agreements balance by $0.4 billion. Cash billings collected on these contracts were $11.9 billion and $11.6 billion during the years ended December 31, 2018 and 2017, respectively.

See Notes 1 and 10 to the consolidated financial statements for further information.

FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value every reporting period include investments in debt and equity securities and derivatives. Other assets and liabilities are subject to fair value measurements only in certain circumstances, including purchase accounting applied to assets and liabilities acquired in a business combination, impaired loans that have been reduced based on the fair value of the underlying collateral, equity securities without readily determinable fair value and equity method investments and long-lived assets that are written down to fair value when they are impaired. Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and integrate the acquisition as soon as practicable. The size, scope and complexity of an acquisition will affect the time it takes to obtain the necessary information to record the acquired assets and liabilities at fair value. It may take up to one year to finalize the initial fair value estimates used in the preliminary purchase accounting. Accordingly, it is reasonably likely that our initial estimates will be subsequently revised, which could affect carrying amounts of goodwill, intangibles and potentially other assets and liabilities in our financial statements. Assets that are written down to fair value, less cost to sell when impaired are not subsequently adjusted to fair value unless further impairment occurs.

A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to our asset being valued.

See Notes 1, 3, 8, 19 and 20 to the consolidated financial statements for further information on fair value measurements and related matters.

ASSET IMPAIRMENT
Asset impairment assessment involves various estimates and assumptions that may leverage the fair value measurements described above and include:

INVESTMENTS
We regularly review investment securities for impairment using both quantitative and qualitative criteria. For debt securities, if we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows. Our other-than-temporary impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research capabilities of our internal and third-party asset managers.

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CRITICAL ACCOUNTING ESTIMATES

See Notes 1 and 3 to the consolidated financial statements for further information about the determination of fair value for investment securities and actual and potential impairment losses.

LONG-LIVED ASSETS
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans. To determine fair value, we use quoted market prices when available, our internal cash flow estimates discounted at an appropriate discount rate and independent appraisals, as appropriate.

Our operating lease portfolio of commercial aircraft is a significant concentration of assets in Capital, and is particularly subject to market fluctuations. Therefore, we test recoverability of each aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when aircraft are re-leased, current lease terms have changed or a specific lessee’s credit standing changes. We consider market conditions, such as global demand for commercial aircraft. Estimates of future rentals and residual values are based on historical experience and information received routinely from independent appraisers. Estimated cash flows from future leases are reduced for expected downtime between leases and for estimated costs required to prepare aircraft to be redeployed. Fair value used to measure impairment is based on management's best estimates which are benchmarked against third-party appraiser current market values for aircraft of similar type and age. See Notes 7 and 22 to the consolidated financial statements for further information on impairment losses and our exposure to the commercial aviation industry.

GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS
We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our annual reporting unit valuations ranged from 9.5% to 23.0%.
 
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows.

See Notes 1 and 8 to the consolidated financial statements for further information.

BUSINESSES AND ASSETS HELD FOR SALE
Businesses and assets held for sale represent components that meet the accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment must be classified as assets held for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new cost basis at the date of transfer.


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CRITICAL ACCOUNTING ESTIMATES

The determination of fair value for businesses and assets held for sale involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions, negotiations with third-party purchasers, etc. Such factors bear directly on the range of potential fair values and the selection of the best estimates. Key assumptions are developed based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction.

We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.

PENSION ASSUMPTIONS
Pension assumptions are significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions – discount rate and expected return on assets – are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

Projected benefit obligations are measured as the present value of expected payments. We discount those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and generally increase subsequent-year pension expense; higher discount rates decrease present values and generally reduce subsequent-year pension expense.

Our discount rates for principal pension plans at December 31, 2018, 2017 and 2016 were 4.34%, 3.64% and 4.11%, respectively, reflecting market interest rates.

To determine the expected long-term rate of return on pension plan assets, we consider our asset allocation, as well as historical and expected returns on various categories of plan assets. In developing future long-term return expectations for our principal benefit plans’ assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given our asset allocation. Assets in our principal pension plans declined 5.4% in 2018, and had annualized returns of 4.1%, 6.9% and 7.5% in the 5-, 10- and 25-year periods ended December 31, 2018, respectively. Based on our analysis of future expectations of asset performance, past return results, and our asset allocation, we have assumed a 6.75% long-term expected return on those assets for cost recognition in 2019 and 2018 as compared to 7.50% in 2017 and 2016.

Changes in key assumptions for our principal pension plans would have the following effects.
Discount rate – A 25 basis point increase in discount rate would decrease pension cost in the following year by $0.2 billion and would decrease the pension benefit obligation at year-end by about $2.0 billion.
Expected return on assets – A 50 basis point decrease in the expected return on assets would increase pension cost in the following year by $0.3 billion.  

See Other Consolidated Information – Postretirement Benefit Plans section within this MD&A and Note 13 to the consolidated financial statements for further information on our pension plans.

INCOME TAXES
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rate on our global operations. In addition to local country tax laws and regulations, this rate can depend on the extent earnings are indefinitely reinvested outside the U.S. Historically U.S. taxes were due upon repatriation of foreign earnings. Due to the enactment of U.S. tax reform, most repatriations of foreign earnings will be free of U.S. federal income tax but may incur withholding or state taxes. Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. Most of these earnings have been reinvested in active non-U.S. business operations. At December 31, 2018, we have not changed our indefinite reinvestment decision as a result of tax reform but will reassess this on an ongoing basis.


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CRITICAL ACCOUNTING ESTIMATES

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and our short- and long-range business forecasts to provide insight. Further, our global and diversified business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. Amounts recorded for deferred tax assets related to non-U.S. net operating losses, net of valuation allowances, were $3.1 billion and $3.7 billion at December 31, 2018 and 2017, including $0.3 billion and $0.3 billion at December 31, 2018 and 2017, respectively, of deferred tax assets, net of valuation allowances, associated with losses reported in discontinued operations, primarily related to our Real Estate and Consumer businesses and our loss on the sale of GE Money Japan. Such year-end 2018 amounts are expected to be fully recoverable within the applicable statutory expiration periods. To the extent we consider it more likely than not that a deferred tax asset will not be recovered, a valuation allowance is established.

The 2017 impact of U.S. tax reform was recorded on a provisional basis as the legislation provides for additional guidance to be issued by the U.S. Department of the Treasury on several provisions including the computation of the transition tax on historic foreign earnings. This amount was adjusted in 2018 based on guidance issued during the year. Additional guidance may be issued after 2018 and any resulting effect will be recorded in the quarter of issuance.

Additionally, as part of U.S. tax reform, the U.S. has enacted a tax on “base eroding” payments from the U.S. We are continuing to evaluate the impact of this new provision on our operations and are taking restructuring actions to mitigate the impact from this provision. The U.S. has also enacted a minimum tax on foreign earnings (“global intangible low tax income”). Because we have tangible assets outside the U.S. and pay a rate of foreign tax above the minimum tax rate, we are not expecting a significant increase in tax liability from this new U.S. minimum tax. We have not made an accrual for the deferred tax effects of this tax.

See Other Consolidated Information – Income Taxes section within this MD&A and Note 14 to the consolidated financial statements for further information on income taxes.

DERIVATIVES AND HEDGING
We use derivatives to manage a variety of risks, including risks related to interest rates, foreign exchange and commodity prices. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The rules and interpretations related to derivatives accounting are complex. Failure to apply this complex guidance correctly will result in all changes in the fair value of the derivative being reported in earnings, without regard to the offsetting changes in the fair value of the hedged item.

In evaluating whether a particular relationship qualifies for hedge accounting, we test effectiveness at inception and each reporting period thereafter by determining whether changes in the fair value of the derivative offset, within a specified range, changes in the fair value of the hedged item. If fair value changes fail this test, we discontinue applying hedge accounting to that relationship prospectively. Fair values of both the derivative instrument and the hedged item are calculated using internal valuation models incorporating market-based assumptions, subject to third-party confirmation, as applicable.

See Notes 1, 19 and 20 to the consolidated financial statements for further information about our use of derivatives.

INSURANCE AND INVESTMENT CONTRACTS
Refer to the Other Items - Insurance section within this MD&A for further discussion of the accounting estimates and assumptions in our insurance reserves and their sensitivity to change. Also see Notes 1 and 12 to the consolidated financial statements for further information.

OTHER LOSS CONTINGENCIES
Other loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to environmental obligations, litigation, regulatory investigations and proceedings, product quality and losses resulting from other events and developments.

When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss.


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CRITICAL ACCOUNTING ESTIMATES

Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, and when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.

See Note 22 to the consolidated financial statements for further information.

OTHER ITEMS
INSURANCE
The run-off insurance operations of North American Life and Health (NALH) primarily include Employers Reassurance Corporation (ERAC) and Union Fidelity Life Insurance Company (UFLIC). ERAC was formerly part of Employers Reinsurance Corporation (ERC) until the sale of ERC to Swiss Re in 2006. UFLIC was formerly part of Genworth Financial Inc. (Genworth) but was retained by GE after Genworth’s initial public offering in 2004.

ERAC primarily assumes long-term care insurance and life insurance from numerous cedents under various types of reinsurance treaties and stopped accepting new policies after 2008. UFLIC primarily assumes long-term care insurance, structured settlement annuities with and without life contingencies and variable annuities from Genworth and has been closed to new business since 2004. The vast majority of NALH’s reinsurance exposures are long-duration arrangements that still involve substantial levels of premium collections and benefit payments even though ERAC and UFLIC have not entered into new reinsurance treaties in about a decade.

Our run-off insurance liabilities primarily relate to individual long-term care insurance, structured settlement annuities and life insurance products. Long-term care insurance provides defined benefit levels of protection against the cost of long-term care services provided in the insured’s home or in assisted living or nursing home facilities. Structured settlement annuities typically provide fixed monthly or annual annuity payments for a set period of time or, in the case of a life-contingent structured settlement, for the life of the annuitant and may include a guaranteed minimum number of payments. Traditional life insurance triggers a payment in the event of death of a covered life.

In addition to NALH, Electric Insurance Company (EIC) is a property and casualty insurance company primarily providing insurance to GE and its employees with net claim reserves of $0.3 billion at December 31, 2018.

Insurance liabilities and annuity benefits amounted to $35.6 billion and $38.1 billion and as further described below, are primarily supported by investment securities of $32.9 billion and $32.4 billion and commercial mortgage loans of $1.7 billion and $1.5 billion at December 31, 2018 and 2017, respectively. Additionally, we expect to purchase approximately $11 billion of new assets through 2024 in conjunction with expected capital contributions from GE Capital to our insurance subsidiaries, of which approximately $1.9 billion was received in the first quarter of 2019. The insurance liabilities and annuity benefits primarily comprise a liability for future policy benefits for those insurance contract claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported. Presented in the table below are the reserve balances by insurance product.
December 31, 2018 (In millions)
Long-term care insurance contracts
Structured settlement annuities & life insurance contracts
Other
Other adjustments
Total
 
 
 
 
 
 
Future policy benefit reserves
$
16.0

$
9.5

$
0.2

$
2.2

$
27.9

Claim reserves(a)
3.9

0.2

1.2


5.3

Investment contracts(b)

1.2

1.1


2.4

Unearned premiums and other

0.2

0.1


0.3

 
20.0

11.2

2.6

2.2

36.0

Eliminations


(0.4
)

(0.4
)
Total
$
20.0

$
11.2

$
2.2

$
2.2

$
35.6

Percent of total
56
%
31
%
6
%
6
%
100
%

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OTHER ITEMS
 

December 31, 2017 (In millions)
Long-term care insurance contracts
Structured settlement annuities & life insurance contracts
Other
Other adjustments
Total
 
 
 
 
 
 
Future policy benefit reserves
$
16.5

$
9.3

$
0.2

$
4.6

$
30.6

Claim reserves(a)
3.6

0.3

1.2


5.1

Investment contracts(b)

1.3

1.2


2.6

Unearned premiums and other

0.2

0.1


0.4

 
20.2

11.1

2.8

4.6

38.6

Eliminations


(0.5
)

(0.5
)
Total
$
20.2

$
11.1

$
2.3

$
4.6

$
38.1

Percent of total
53
%
29
%
6
%
12
%
100
%
(a)
Other contracts included claim reserves of $0.3 billion and $0.4 billion related to short-duration contracts at EIC, net of eliminations, at December 31, 2018 and December 31, 2017, respectively.
(b)
Investment contracts are contracts without significant mortality or morbidity risks.

We regularly monitor emerging experience in our run-off insurance operations and industry developments to identify trends that may help us refine our reserve assumptions and evaluate opportunities to reduce our insurance risk profile and improve the results of our run-off insurance operations. These opportunities may include the pursuit of future premium rate increases and benefit reductions on long-term care insurance contracts with our ceding companies; recapture and reinsurance transactions to reduce risk where economically justified; investment strategies to improve asset and liability matching and enhance investment portfolio yields; managing our expense levels; and improving our financial and actuarial analytical capabilities.

KEY PORTFOLIO CHARACTERISTICS
Long-term care insurance contracts
The long-term care insurance contracts we reinsure provide coverage at varying levels of benefits to policyholders and may include attributes that could result in claimants being on claim for longer periods or at higher daily claim costs, or alternatively limiting the premium paying period. For example, policyholders with a lifetime benefit period receive coverage up to the specified daily maximum as long as the policyholder is claim eligible and receives care for covered services; inflation protection options increase the daily maximums to protect the policyholder from the rising cost of care with some options providing automatic annual increases of 3% to 5% or policyholder elected inflation-indexed increases for increased premium; joint life policies provide coverage for two lives which permit either life under a single contract to receive benefits at the same time or separately; and premium payment options may limit the period over which the policyholder pays premiums while still receiving coverage after premium payments cease, which may limit the impact of our future premium rate increases.

The ERAC long-term care insurance portfolio comprises about two-thirds of our total long-term care insurance reserves and is assumed from approximately 30 ceding companies through various types of reinsurance and retrocession contracts having complex terms and conditions. Compared to the overall long-term care insurance block, it has a lower average attained age with a larger number of policies (and covered lives, as over one-third of the policies are joint life policies), with lifetime benefit periods and/or with inflation protection options which may result in a higher potential for future claims.

The UFLIC long-term care insurance block comprises the remainder of our total long-term care insurance reserves and is more mature with policies that are more uniform, as it is assumed from a single ceding company, Genworth, and has fewer policies with lifetime benefit periods, no joint life policies and slightly more policies with inflation protection options.

Long-term care insurance policies allow the issuing insurance entity to increase premiums, or alternatively allow the policyholder the option to decrease benefits, with approval by state regulators, should actual experience emerge significantly worse than what was projected when such policies were initially underwritten. As a reinsurer, we are unable to directly or unilaterally pursue long-term care insurance premium rate increases. However, we engage actively with our ceding company clients in pursuing allowed long-term care insurance premium rate increases. The amount of times that rate increases have occurred varies by ceding company.

As further described within the Premium Deficiency Testing section below, we reconstructed our future claim cost projections in 2017 utilizing trends observed in our emerging experience for older claimant ages and later duration policies. Also described within that section are key assumption changes in 2018.

Presented in the table below are GAAP and statutory reserve balances and key attributes of our long-term care insurance portfolio.

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OTHER ITEMS
 

December 31, 2018 (Dollars in billions, except where noted)
ERAC
UFLIC
Total
Gross GAAP future policy benefit reserves and claim reserves
$
14.1

$
5.9

$
19.9

Gross statutory future policy benefit reserves and claim reserves(a)
23.2

7.2

30.4

Number of policies in force
202,000

72,000

274,000

Number of covered lives in force
270,000

72,000

342,000

Average policyholder attained age
75

82

77

Gross GAAP future policy benefit reserve per policy (in actual dollars)
$
60,000

$
56,000

$
59,000

Gross GAAP future policy benefit reserve per covered life (in actual dollars)
45,000

56,000

47,000

Gross statutory future policy benefit reserve per policy (in actual dollars)(a)
105,000

72,000

96,000

Gross statutory future policy benefit reserve per covered life (in actual dollars)(a)
79,000

72,000

77,000

Percentage of policies with:
 
 
 
Lifetime benefit period
70
%
35
%
60
%
Inflation protection option
81
%
91
%
84
%
Joint lives
34
%
%
25
%
Percentage of policies that are premium paying
74
%
83
%
76
%
Policies on claim
10,000

9,200

19,200

(a)
Statutory balances reflect recognition of the estimated remaining statutory increase in reserves of approximately $9 billion through 2023 under the permitted accounting practice discussed further below and in Note 12 to our consolidated financial statements.

Structured settlement annuities and life insurance contracts
We reinsure approximately 33,000 structured settlement annuities with an average attained age of 50. These structured settlement annuities were primarily underwritten on impaired lives (i.e., shorter-than-average life expectancies) at origination and have projected payments extending decades into the future. Our primary risks associated with these contracts include mortality (i.e., life expectancy or longevity), mortality improvement (i.e., assumed rate that mortality is expected to reduce over time), which may extend the duration of payments on life contingent contracts beyond our estimates, and reinvestment risk (i.e., a low interest rate environment may reduce our ability to achieve our targeted investment margins). Unlike long-term care insurance, structured settlement annuities offer no ability to require additional premiums or reduce benefits.

Our life reinsurance business typically covers the mortality risk associated with various types of life insurance policies that we reinsure from approximately 150 ceding company relationships where we pay a benefit based on the death of a covered life. Across our U.S. and Canadian life insurance blocks, we reinsure approximately $115 billion of net amount at risk (i.e., difference between the death benefit and any accrued cash value) from approximately 2.7 million policies with an average attained age of 57. In 2018, our incurred claims were approximately $0.7 billion with an average individual claim of approximately $55,000. The largest product types covered are 20-year level term policies which represent approximately 45% of the net amount at risk and are anticipated to lapse (i.e., the length of time a policy will remain in force) over the next 3 to 5 years as the policies reach the end of their 20-year level premium period.

Investment portfolio and other adjustments
Our insurance liabilities and annuity benefits are primarily supported by investment securities of $32.9 billion and $32.4 billion and commercial mortgage loans of $1.7 billion and $1.5 billion at December 31, 2018 and 2017, respectively. Our investment securities are classified as available-for-sale and comprise mainly investment-grade debt securities. The portfolio includes $2.2 billion of net unrealized gains that are recorded within Other comprehensive income, net of applicable taxes and other adjustments.

In calculating our future policy benefit reserves, we are required to consider the impact of net unrealized gains and losses on our available-for-sale investment securities supporting our insurance contracts as if those unrealized amounts were realized. To the extent that the realization of gains would result in a premium deficiency, a shadow adjustment is recorded to increase future policy benefit reserves with an after-tax offset to Other comprehensive income. At December 31, 2018, the entire $2.2 billion balance of net unrealized gains on our investment securities required a related increase to future policy benefit reserves. This adjustment decreased from $4.6 billion in 2017 to $2.2 billion in 2018 primarily from lower unrealized gains within the investment security portfolio supporting our insurance contracts in response to increased market yields. See Note 3 to our consolidated financial statements for further information about our investment securities.

We manage the investments in our run-off insurance operations under strict investment guidelines, including limitations on asset class concentration, single issuer exposures, asset-liability duration variances, and other factors to meet credit quality, yield, liquidity and diversification requirements associated with servicing our insurance liabilities under reasonable circumstances. Investing in these assets exposes us to both credit risk (i.e., debtor’s ability to make timely payments of principal and interest) and interest rate risk (i.e., market price, cash flow variability, and reinvestment risk due to changes in market interest rates). We regularly review investment securities for impairment using both quantitative and qualitative criteria.


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Additionally, our run-off insurance operations have approximately $0.7 billion of assets held by states or other regulatory bodies in statutorily required deposit accounts, and approximately $26.3 billion of assets held in trust accounts associated with reinsurance contracts in place between either ERAC or UFLIC as the reinsuring entity and a number of ceding insurers. Assets in these reinsurance trusts are held by an independent trustee for the benefit of the ceding insurer, and are subject to various investment guidelines as set forth in the respective reinsurance contacts.

We have studied and analyzed various options, along with several external investment advisors, to improve our investment yield subject to maintaining our ability to satisfy insurance liabilities when due, as well as considering our risk-based capital requirements, regulatory constraints, and tolerance for surplus volatility. With the expected capital contributions of $11 billion from GE Capital through 2024, of which approximately $1.9 billion was received in the first quarter of 2019, we intend to add new asset classes to further diversify our portfolio, including private equity, senior secured loans and infrastructure debt, among others. We also hired a new Chief Investment Officer in 2018 to oversee our entire investment process and will be adding further investment managers.

CRITICAL ACCOUNTING ESTIMATES
Our insurance reserves include the following key accounting estimates and assumptions described below.

Future policy benefit reserves
Future policy benefit reserves represent the present value of future policy benefits less the present value of future gross premiums based on actuarial assumptions including, but not limited to, morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates); morbidity improvement (i.e., assumed rate of improvement in morbidity in the future); mortality (i.e., life expectancy or longevity); mortality improvement (i.e., assumed rate that mortality is expected to reduce over time); policyholder persistency or lapses (i.e., the length of time a policy will remain in force); anticipated premium increases or benefit reductions associated with future in-force rate actions, including actions that are: (a) approved and not implemented, (b) filed but not yet approved and (c) estimated on future filings through 2028, on long-term care insurance policies; and interest rates. Assumptions are locked-in throughout the remaining life of a contract unless a premium deficiency develops.

Claim reserves
Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the present value of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claim, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss estimates with the support of qualified actuaries, and any changes are recorded in earnings in the period in which they are determined.

Reinsurance recoverables
We cede insurance risk to third-party reinsurers for a portion of our insurance contracts, primarily on long-term care insurance policies. As we are not relieved from our primary obligation to policyholders or cedents, we record receivables that are estimated in a manner consistent with the future policy benefit reserves and claim reserves. Reserves ceded to reinsurers, net of allowance, were $2.3 billion and $2.5 billion at December 31, 2018 and 2017, respectively, and are included in the caption “Other GE Capital receivables” on our consolidated Statement of Financial Position.

PREMIUM DEFICIENCY TESTING
We annually perform premium deficiency testing in the aggregate across our run-off insurance portfolio. The premium deficiency testing assesses the adequacy of future policy benefit reserves, net of capitalized acquisition costs, using current assumptions without provision for adverse deviation. A comprehensive review of premium deficiency assumptions is a complex process and depends on a number of factors, many of which are interdependent and require evaluation individually and in the aggregate across all insurance products. The vast majority of our run-off insurance operations consists of reinsurance from multiple ceding insurance entities with underlying treaties having complex terms and conditions. Premium deficiency testing relies on claim and policy information provided by these ceding entities and considers the underlying treaties. In order to utilize that information for purposes of completing experience studies covering all key assumptions, we perform detailed procedures to conform and validate the data received from the ceding entities. Our long-term care insurance business includes coverage where credible claim experience for higher attained ages is still emerging and to the extent that future experience deviates from current expectations, new projections of claim costs extending over the expected life of the policies may be required. Significant uncertainties exist in making current projections for these long-term care insurance contracts that include consideration of a wide range of possible outcomes.


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The primary assumptions used in the premium deficiency tests include:
Morbidity. Morbidity assumptions used in estimating future policy benefit reserves are based on estimates of expected incidences of disability and claim costs, and include consideration of expected future morbidity and mortality improvement. For long-term care exposures, estimating expected future costs includes assessments of incidence (probability of having a claim), utilization (amount of available benefits expected to be incurred) and continuance (how long the claim will last). Prior to 2017, premium deficiency assumptions considered the risk of anti-selection by including issue age adjustments to morbidity based on an actuarial assumption that long-term care policies issued to younger individuals would exhibit lower expected incidences and claim costs than those issued to older policyholders. Recent claim experience and the development of reconstructed claim cost curves indicated minimal issue age differences impacting claim cost projections, and accordingly, beginning in 2017, issue age adjustments were no longer assumed in developing morbidity assumptions. Higher morbidity increases, while higher morbidity improvement decreases, the present value of expected future benefit payments.

Mortality. Mortality assumptions used in estimating future policy benefit reserves are based on published mortality tables as adjusted for the results of our experience studies and estimates of expected future mortality improvement. For life insurance products, higher mortality increases the present value of expected future benefit payments, while for annuity and long-term care insurance contracts, higher mortality decreases the present value of expected future benefit payments.

Discount rate. Interest rate assumptions used in estimating the present value of future policy benefit reserves are based on expected investment yields, net of related investment expenses and expected defaults. In estimating future yields, we consider the actual yields on our current investment securities held by our run-off insurance operations and the future rates at which we expect to reinvest any proceeds from investment security maturities and the projected future capital contributions into our run-off insurance operations. Higher future yields result in a higher discount rate and a lower present value of future policy benefit reserves.

Future long-term care premium rate increases. As a reinsurer, we rely upon the primary insurers that underwrite the underlying policies to file proposed rate increases to the relevant state insurance regulator as we have no ability to institute premium rate increases on the policyholders themselves. We consider recent experience of rate increase filings made by our ceding companies along with state insurance regulatory processes in establishing our current expectations. Higher future premium rate increases lower the present value of future policy benefit reserves.

During 2017, in response to elevated claim experience for a portion of our long-term care insurance contracts that was most pronounced for policyholders with higher attained ages, we initiated a comprehensive review of premium deficiency assumptions across all insurance products, which included reconstructing our future claim cost projections for long-term care contracts utilizing trends observed in our emerging experience for older claimant ages and later duration policies. Certain of our long-term care policyholders only recently started to reach the prime claim paying period and our new claim cost assumptions considered the emerging credibility of this claim data. In addition to the adverse impact from the revised future claim cost projections over a long-term horizon, our premium deficiency assumptions considered mortality, length of time a policy will remain in force and both near-term and longer-term investment return expectations. Future investment yields estimated in 2017 were lower than in previous premium deficiency tests, primarily due to the effect of near-term yields on approximately $14.5 billion of future expected capital contributions, as discussed below. The capital contributions will be invested at the current market yields which had the impact of lowering the average long-term investment yield used to calculate the discount rate and, as such, further adversely impacted the estimated premium deficiency. Our discount rate assumption for purposes of performing the 2017 premium deficiency assessments resulted in a weighted-average rate of approximately 5.67% compared to approximately 6.17% in 2016.

The 2017 test indicated a premium deficiency requiring the unlocking of reserves and resetting of actuarial assumptions to current assumptions. This resulted in a $9.5 billion pre-tax charge to earnings in 2017, which included a $0.4 billion impairment of deferred acquisition costs, a $0.2 billion impairment of present value of future profits, and an $8.9 billion increase in future policy benefit reserves. During 2018, we integrated these new assumptions into our systems and processes embedded in our framework of internal controls over financial reporting.

In connection with our premium deficiency test in 2017, additions to reinsurance recoverables of $2.4 billion were largely offset by an allowance for losses of $2.2 billion based upon our assessment of collectability that would otherwise have reduced the earnings impact of the premium deficiency. The vast majority of our remaining net reinsurance recoverables are secured by assets held in a trust for which we are the beneficiary.

During the fourth quarter of 2018, we completed our annual premium deficiency test. This review included updated experience studies based on up to four quarters of additional data since the 2017 test and considered updated external input based on industry trends and adjustments to assumptions as a result. As we experienced a premium deficiency in 2017, our 2018 premium deficiency test started with a zero margin and accordingly, any adverse developments would result in a future charge to earnings. Based on this analysis, using our most recent future policy benefit reserve assumptions, we identified a premium deficiency which resulted in a $0.1 billion pre-tax charge to earnings in 2018. The increase to future policy benefit reserves was primarily attributable to the following key assumption changes:

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Increased discount rate assumptions in 2018 compared to our original estimate. Our revised reinvestment plan incorporates the remaining projected capital contribution of approximately $11 billion through 2024, of which approximately $1.9 billion was received in the first quarter of 2019, and introduction of strategic initiatives for the investment into new higher-yielding asset classes while maintaining an overall A-rated fixed income portfolio. These initiatives are the result of an extensive review in 2018 of our investment management opportunities including the engagement of external investment advisors. Our discount rate assumption for purposes of performing the premium deficiency assessments resulted in a weighted-average rate of approximately 6.04%, compared to approximately 5.67% in 2017. The increased discount rate favorably impacted our reserve margin by $1.9 billion;
Lower long-term care insurance morbidity improvement assumptions indicating less long-term improvement (1.25% per year) over shorter durations (between 12 and 20 years based on the average attained age of the underlying books of business) which adversely impacted our reserve margin by $1.2 billion;
Higher interest rates leading to higher inflation which increased projected utilization on long-term care insurance policies which adversely impacted our reserve margin by $0.3 billion;
Lower policy terminations on long-term care insurance policies and revisions to assumptions of future mortality primarily for older attained ages, based on experience analysis of internal and industry data, on life insurance products which adversely impacted our reserve margin by $0.2 billion and $0.3 billion, respectively; and
Higher levels of projected long-term care premium rate increases due to larger rate filings by some ceding companies than previously planned which favorably impacted our reserve margin by $0.2 billion. Our 2018 premium deficiency test includes approximately $1.7 billion of anticipated premium increases or benefit reductions associated with future in-force rate actions, including actions that are: (a) approved and not implemented, (b) filed but not yet approved and (c) estimated on future filings through 2028.

GAAP RESERVE SENSITIVITIES
The results of our premium deficiency testing are sensitive to the assumptions described above. Certain future adverse changes in our assumptions could result in the unlocking of reserves, resetting of actuarial assumptions to current assumptions, an increase to future policy benefit reserves and a charge to earnings. Considering the results of the 2018 premium deficiency test which reset our margin to zero, any future adverse changes in our assumptions could result in an increase to future policy benefit reserves. For example, adverse changes in key assumptions to our future policy benefits reserves, holding all other assumptions constant, would have the following effects as presented in the table below. Any favorable changes to these assumptions could result in additional margin in our premium deficiency test and higher income over the remaining duration of the portfolio, including higher investment income. The assumptions within our future policy benefit reserves are subject to significant uncertainties, including those inherent in the complex nature of our reinsurance treaties. Many of our assumptions are interdependent and require evaluation individually and in the aggregate across all insurance products. Small changes in the amounts used in the sensitivities or the use of different factors could result in materially different outcomes from those reflected below. 
 
2017 assumption
2018 assumption
Hypothetical change in 2018 assumption
Estimated increase to future policy benefit reserves
(In billions, pre-tax)
Long-term care insurance morbidity improvement(a)
1.6% per year over 16 to 20 years
1.25% per year over 12 to 20 years
25 basis point reduction
No morbidity improvement
$0.7
$3.7
Long-term care insurance morbidity
Based on company experience
Based on company experience
5% increase in dollar amount of paid claims
$1.0
Long-term care insurance mortality improvement
0.5% per year for 10 years with annual improvement graded to 0% over next 10 years
0.5% per year for 10 years with annual improvement graded to 0% over next 10 years
1.0% per year for 10 years with annual improvement graded to 0% over next 10 years
$0.4
Total terminations:
 
 
Reduce total terminations by 10%
$1.0
Long-term care insurance mortality
Based on company experience
Based on company experience
 
 
Long-term care insurance lapse rate
Varies by block, attained age and benefit period; average 0.7 - 1.0%
Varies by block, attained age and benefit period; average 0.5 - 1.15%
 
 
Long-term care insurance benefit exhaustion
Based on company experience
Based on company experience
 
 
Long-term care insurance future premium rate increases
Varies by block based on filing experience
Varies by block based on filing experience
25% adverse change in premium rate increase success rate
$0.4
Discount rate
Approximately 5.67%
Approximately 6.04%
25 basis point reduction
$1.0
Structured settlement annuity mortality
Based on company experience
Based on company experience
5% decrease in mortality
$0.1
Life insurance mortality
Based on company experience
Based on company experience
5% increase in mortality
$0.3
(a)
In both 2017 and 2018, these morbidity improvement assumptions are applied to the future claim cost curves that were reconstructed in 2017 and do not include any issue-age adjustments.

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STATUTORY CONSIDERATIONS
Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices. Statutory accounting practices, not GAAP, determine the required statutory capital levels of our insurance legal entities and, therefore, may affect the amount or timing of capital contributions from GE Capital to the insurance legal entities.

Statutory accounting practices are set forth by the National Association of Insurance Commissioners (NAIC) as well as state laws, regulation and general administrative rules and differ in certain respects from GAAP. Under statutory accounting practices, base formulaic reserve assumptions typically do not change unless approved by our primary regulator, KID. In addition to base reserves, statutory accounting practices require additional actuarial reserves (AAR) be established based on results of asset adequacy testing reflecting moderately adverse conditions (i.e., assumptions include a provision for adverse deviation (PAD) rather than current assumptions without a PAD as required for premium deficiency testing under GAAP). As a result, our statutory asset adequacy testing assumptions reflect less long-term care insurance morbidity improvement and for shorter durations, restrictions on future long-term care insurance premium rate increases, no life insurance mortality improvement and a lower discount rate. As a result, several of the sensitivities described in the table above would be less impactful on our statutory reserves.

The adverse impact on our statutory AAR arising from our revised assumptions in 2017, including the collectability of reinsurance recoverables, is expected to require GE Capital to contribute approximately $14.5 billion additional capital, to its run-off insurance operations in 2018-2024. For statutory accounting purposes, KID approved our request for a permitted accounting practice to recognize the 2017 AAR increase over a seven-year period. GE Capital provided capital contributions to its insurance subsidiaries of approximately $3.5 billion and $1.9 billion in the first quarter of 2018 and 2019, respectively. GE Capital expects to provide further capital contributions of approximately $9 billion through 2024, subject to ongoing monitoring by KID. GE is a party to capital maintenance agreements with ERAC and UFLIC whereby GE will maintain their minimum statutory capital levels at 300% of their year-end Authorized Control Level risk-based capital requirements as defined from time to time by the NAIC.

If our future policy benefit reserves established under GAAP are realized over the estimated remaining life of our run-off insurance obligations, we would expect the $14.5 billion of capital contributed to the run-off insurance operations over the 2018 to 2024 period to be considered statutory capital surplus at the end of the period with no additional charge to GAAP earnings. However, should the more conservative statutory assumptions be realized, we would be required to record the difference between GAAP assumptions and statutory assumptions as a charge to GAAP earnings in the future periods.

See Other Items - New Accounting Standards within this MD&A and Notes 1 and 12 to the consolidated financial statements for further information.

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 accumulated 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.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU is effective for periods beginning after December 15, 2018, with an election to adopt early. The ASU requires certain changes to the presentation of hedge accounting in the financial statements and some new or modified disclosures. The ASU also simplifies the application of hedge accounting and expands the strategies that qualify for hedge accounting. The ASU will not have a material effect to our financial statements.


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In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU is effective for periods beginning after December 15, 2019, with an election to adopt early. The ASU requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value. It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. As the ASU is to be applied prospectively, it will not impact our previously reported financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We plan to elect the new transition method approved by the FASB on July 30, 2018, which allows companies to apply the provisions of the new leasing standard as of January 1, 2019, without adjusting the comparative periods presented by recognizing a cumulative-effect adjustment to the opening balance of retained earnings. As we finalize our system solutions and adoption processes, we estimate the adoption of the ASU will result in the recognition of a right-of-use asset and related lease liability in the range of approximately $4 billion to $5 billion with an estimated immaterial effect to our retained earnings. Cash received by GE Capital on financing leases is classified as Cash from investing activities for the three year period ended December 31, 2018. After adoption, such cash receipts will be classified as Cash from operating activities.

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 annual report.

IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
The Company is making the following disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934. Under Section 13(r) of the Securities Exchange Act of 1934, enacted in 2012, GE is required to disclose in its periodic reports if it or any of its affiliates knowingly engaged in business activities relating to Iran, even if those activities are conducted in accordance with authorizations subsequently issued by the U.S. Government. Reportable activities include investments that significantly enhance Iran’s ability to develop petroleum resources valued at $20 million or more in the aggregate during a twelve-month period. Reporting is also required for transactions related to Iran’s domestic production of refined petroleum products or Iran’s ability to import refined petroleum products valued at $5 million or more in the aggregate during a twelve-month period.
 
In January 2016, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License H authorizing U.S.-owned or controlled foreign entities to engage in transactions with Iran if these entities meet the requirements of the general license. On May 8, 2018, President Trump announced that the United States will cease participation in the Joint Comprehensive Plan of Action (JCPOA) and begin re-imposing the U.S. nuclear-related sanctions. On June 27, 2018, OFAC revoked General License H and added Section 560.537 to the Iranian Transactions and Sanctions Regulations (ITSR), which authorized all transactions and activities that are ordinarily incident and necessary to the winding down of activities previously approved under General License H through November 4, 2018. Prior to May 8, 2018, certain non-U.S. affiliates of GE conducted limited activities as described below in accordance with General License H. As of November 5, 2018, non-U.S. affiliates of GE have concluded all activity previously conducted under General License H in Iran. These activities were conducted in accordance with all applicable laws and regulations.


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During the year ending December 31, 2018, but prior to the expiration of the wind down period for General License H, non-U.S. affiliates of GE conducted the following reportable activities:
A non-U.S. affiliate of GE’s Oil & Gas business received 5 purchase orders and attributed €31.4 million ($36.0 million) in gross revenues and €8.6 million ($9.9 million) in net profits related to the sale of valves and parts for industrial machinery and equipment used in gas plants, petrochemical plants and gas production projects in Iran.
A second non-U.S. affiliate of GE’s Oil & Gas business received 12 purchase orders and attributed €0.1 million ($0.1 million) in gross revenues and less than €0.1 million ($0.1 million) in net profits to the sale of valves and other spare parts for use in the petrochemical industry in Iran.
A third non-U.S. affiliate of GE’s Oil & Gas business attributed €0.3 million ($0.3 million) in gross revenues and €0.1 million ($0.1 million) in net profits to transactions involving the sale of films used in the inspection of pipelines in Iran.
A non-U.S. affiliate of GE’s Power business received one purchase order and attributed €0.1 million ($0.1 million) in gross revenues and €0.1 million ($0.1 million) in net profits related to the sale of compressor parts to a petrochemical company in Iran.
A second non-U.S. affiliate of GE’s Power business attributed €0.4 million ($0.5 million) in gross revenues and €0.2 million ($0.2 million) in net profits to a services contract with an Iranian petrochemical plant.
A third non-U.S. affiliate of GE's Power business received three purchase orders and attributed €0.6 million ($0.6 million) in gross revenues and €0.2 million ($0.2 million) in net profits for the sale of protection relays to oil refineries in Iran.
A fourth non-U.S. affiliate of GE’s Power business received two purchase orders for the sale of spare parts to petrochemical companies in Iran but attributed no gross revenues to this activity. The non-U.S. affiliate recognized less than €0.1 million ($0.1 million) in losses due to costs incurred.
 
These non-U.S. affiliates do not intend to continue the activities described above. The Company has ended all of these activities in full compliance with U.S. sanctions and at this time does not intend to seek specific U.S. Government authorization to collect revenues associated with previously reported projects.
 
For additional information on business activities related to Iran, please refer to the Other Items section within MD&A in our quarterly report on Form 10-Q for the quarter ended September 30, 2018.

ENVIRONMENTAL MATTERS
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. We are involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws, including the Housatonic River matter discussed in Legal Proceedings. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $0.1 billion, $0.2 billion, and $0.2 billion for the years ended December 31, 2018, 2017, and 2016, respectively. We presently expect that such remediation actions will require average annual expenditures of about $0.2 billion in 2019 and 2020, respectively.

OTHER
We own, or hold licenses to use, numerous patents. New patents are continuously being obtained through our research and development activities as existing patents expire. Patented inventions are used both within the Company and are licensed to others.

GE is a trademark and service mark of General Electric Company.

Because of the diversity of our products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the wide variety of raw materials needed for our operations. We have not been adversely affected by our inability to obtain raw materials.

Sales of goods and services to agencies of the U.S. Government as a percentage of GE revenues follow.
 
2018

2017

2016

 
 
 
 
Total sales to U.S. Government agencies
4
%
4
%
3
%
Aviation segment defense-related sales
3
%
3
%
3
%


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FINANCIAL MEASURES THAT SUPPLEMENT U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES MEASURES (NON-GAAP FINANCIAL MEASURES)
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. Specifically, we have referred, in various sections of this report, to:

GE Industrial segment organic revenues – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.
GE Industrial structural costsIndustrial structural costs include segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions, foreign exchange, plus total Corporate operating profit excluding restructuring and other charges and gains. The Baker Hughes acquisition is represented on a pro-forma basis, which means we calculated our structural costs by including legacy Baker Hughes results for the first six months of 2017.
Power structural costs - Power structural costs include segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions and foreign 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, goodwill impairments and GE Capital EFS impairments and insurance charge in 2017 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 and goodwill impairment 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 dividends from GE Capital, 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.

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NON-GAAP FINANCIAL MEASURES
 

GE INDUSTRIAL SEGMENT ORGANIC REVENUES (NON-GAAP) (In millions)
2018

2017

V%

 
 
 
 
GE Industrial segment revenues (GAAP)
$
115,664

$
113,168

2
 %
Adjustments:
 
 
 
Less: acquisitions
5,589

92

 
Less: business dispositions (other than dispositions acquired for investment)
138

3,857

 
Less: currency exchange rate(a)
597


 
GE Industrial segment organic revenues (Non-GAAP)
$
109,340

$
109,220

 %
 
 
 
 
 
2017

2016

V%

 
 
 
 
GE Industrial segment revenues (GAAP)
$
113,168

$
112,324

1
 %
Adjustments:
 
 
 
Less: acquisitions
6,061

37

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

3,478

 
Less: currency exchange rate(a)
557


 
GE Industrial segment organic revenues (Non-GAAP)
$
106,540

$
108,808

(2
)%
 
 
 
 
(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.
When comparing revenue growth between periods excluding the effects of acquisitions, business dispositions and currency exchange rates, those effects are different when comparing results for different periods. Revenues from acquisitions are considered inorganic from the date we complete an acquisition through the end of the fourth quarter following the acquisition and are therefore reflected as an adjustment to reported revenue to derive organic revenue for the period following the acquisition. In subsequent periods, the revenues from the acquisition become organic as these revenues are included for all periods presented.
Additionally, when comparing the calculation of Industrial segment organic revenues* with 2018 in the first table, there is no adjustment to the 2017 GAAP revenues for currency exchange rates while in the calculation of 2017 organic revenues* compared to 2016 in the second table there is an adjustment to 2017 reported revenues of $557 million for currency exchange rates. This is the case because in the comparison of 2017 to 2016 we are adjusting the 2017 reported revenues to exclude the effect of currency exchange rates to provide a more direct comparison to the 2016 results. That is, we are adjusting 2017 reported revenues to eliminate the effects of changes in foreign currency had on 2017 revenues. Additionally, when comparing 2017 to 2016, we adjust the 2017 revenue amount for the effects of currency exchange to enable a more direct comparison to 2016.




























*Non-GAAP Financial Measure

GE 2018 FORM 10-K 71

 
MD&A
NON-GAAP FINANCIAL MEASURES
 

GE INDUSTRIAL STRUCTURAL COSTS (NON-GAAP) (In millions)
2018

2017

2016

 
 
 
 
GE total costs and expenses (GAAP)
$
135,656

$
111,710

$
105,774

Less: GE interest and other financial charges (GAAP)
2,708

2,753

2,026

Less: goodwill impairments (GAAP)
22,136

1,165


Less: non-operating benefit costs (GAAP)
2,764

2,385

2,349

GE Industrial costs excluding interest and other financial charges, goodwill impairments and non-operating benefit costs (Non-GAAP)
108,048

105,407

101,399

Less: Segment variable costs
81,661

77,986

73,647

Less: Segment restructuring & other
834

792


Less: Segment acquisitions/dispositions structural costs and impact from foreign exchange
518

(102
)
548

Less: Corporate restructuring & other charges
2,958

3,350

3,544

Add: Corporate revenue (ex. GE-GE Capital eliminations), other income and noncontrolling interests
280

852

(2,155
)
Less: Corporate (gains) losses(a)
(1,350
)
(926
)
(3,480
)
Less: Corporate unrealized (gains) losses




GE Industrial structural costs (Non-GAAP)
$
23,707

$
25,159

$
24,984

 
 
 
 
(a) Includes (gains) losses on disposed or held for sale businesses.
 
 
 
 
 
 
 
Industrial structural costs* include segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions, foreign exchange, plus total Corporate operating profit excluding restructuring and other charges and gains. The Baker Hughes acquisition is represented on a pro-forma basis, which means we calculated our structural costs by including legacy Baker Hughes results for the first six months of 2017.
Segment variable costs are those costs within our industrial segments that vary with volume. The most significant variable costs would be material and direct labor costs incurred to produce our products and deliver our services that are recorded in the captions "Cost of goods" and "Cost of services sold" in our consolidated Statement of Earnings (Loss).
We believe that Industrial structural costs* is a meaningful measure as it is broader than selling, general and administrative costs and represents the total costs in the Industrial segments and Corporate that generally do not vary with volume and excludes the effect of segment acquisitions, dispositions, and foreign exchange movements.

POWER STRUCTURAL COSTS (NON-GAAP) (In millions)
2018

2017

V$

 
 
 
 
Power total costs and expenses (GAAP)
$
28,494

$
33,912

$
(5,418
)
Less: Power interest and other financial charges
267

653

(386
)
Less: non-operating benefit costs
(75
)
(10
)
(65
)
Power costs excluding interest and other financial charges and non-operating benefit costs (Non-GAAP)
28,302

33,269

(4,967
)
Less: Segment variable costs
21,245

24,805

(3,560
)
Less: Segment restructuring & other
116


116

Less: Segment acquisitions/dispositions structural costs and impact from foreign exchange
178

791

(613
)
Power structural costs (Non-GAAP)
$
6,763

$
7,673

$
(910
)
 
 
 
 
Power structural costs* include segment structural costs excluding the impact of restructuring and other charges, business acquisitions and dispositions and foreign exchange.
Segment variable costs are those costs within our industrial segments that vary with volume. The most significant variable costs would be material and direct labor costs incurred to produce our products and deliver our services that are recorded in the captions "Cost of goods" and "Cost of services sold" in our consolidated Statement of Earnings (Loss).















*Non-GAAP Financial Measure

GE 2018 FORM 10-K 72


 
MD&A
NON-GAAP FINANCIAL MEASURES
 

ADJUSTED EARNINGS (LOSS) (NON-GAAP) (In millions)
2018

2017

2016

 
 
 
 
Consolidated earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
$
(21,076
)
$
(8,605
)
$
7,797

Less: GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
(489
)
(6,765
)
(1,251
)
GE Industrial earnings (loss) (Non-GAAP)
(20,587
)
(1,841
)
9,048

 
 
 
 
Non-operating benefits costs (pre-tax) (GAAP)
(2,764
)
(2,385
)
(2,349
)
Tax effect on non-operating benefit costs(a)
581

835

822

Less: non-operating benefit costs (net of tax)
(2,184
)
(1,550
)
(1,527
)
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)
1,350

926

3,480

Tax effect on gains (losses) and impairments for disposed or held for sale businesses(b)
(375
)
(62
)
(1,106
)
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax)
974

864

2,374

Restructuring & other (pre-tax)
(3,440
)
(4,030
)
(3,544
)
Tax effect on restructuring & other(b)
492

1,252

1,061

Less: restructuring & other (net of tax)
(2,948
)
(2,778
)
(2,483
)
Goodwill impairments (pre-tax)
(22,136
)
(1,165
)

Tax effect on goodwill impairments(b)
(235
)
9


Less: goodwill impairments (net of tax)
(22,371
)
(1,156
)

Less: GE Industrial U.S. tax reform enactment adjustment
(38
)
(4,905
)

Adjusted GE Industrial earnings (loss) (Non-GAAP)
$
5,980

$
7,685

$
10,684

 
 
 
 
GE Capital earnings (loss) from continuing operations attributable to GE common shareowners (GAAP)
(489
)
(6,765
)
(1,251
)
EFS impairments and insurance charge (pre-tax)

(11,444
)

Tax effect on EFS impairments and insurance charge(b)

3,501


Less: EFS impairments and insurance charge (net of tax)

(7,943
)

Less: GE Capital U.S. tax reform enactment adjustment
(173
)
206


Adjusted GE Capital earnings (loss) (Non-GAAP)
$
(316
)
$
972

$
(1,251
)
 
 
 
 
Adjusted GE Industrial earnings (loss) (Non-GAAP)
$
5,980

$
7,685

$
10,684

Add: Adjusted GE Capital earnings (loss) (Non-GAAP)
(316
)
972

(1,251
)
Adjusted earnings (loss) (Non-GAAP)
$
5,664

$
8,657

$
9,433

 
 
 
 
(a) The tax effect was calculated using a 21% and 35% U.S. federal statutory tax rate in 2018 and 2017, respectively, based on its applicability to such cost.
(b) 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 and other, goodwill impairments and GE Capital EFS impairments and insurance charge in 2017, 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. Prior to the third quarter of 2018, goodwill impairment was included as a component of restructuring and other charges; beginning in the third quarter of 2018, on a comparable basis, we reported it separately in our consolidated Statement of Earnings (Loss) because of the significance of the charge that quarter, and Adjusted earnings (loss)* continues to exclude amounts related to goodwill impairment separate from the ongoing operations of our businesses. 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 from 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

GE 2018 FORM 10-K 73

 
MD&A
NON-GAAP FINANCIAL MEASURES
 

ADJUSTED EARNINGS (LOSS) PER SHARE (NON-GAAP)
2018

2017

2016

 
 
 
 
Consolidated EPS from continuing operations attributable to GE common shareowners (GAAP)
$
(2.43
)
$
(0.99
)
$
0.85

Less: GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP)
(0.06
)
(0.78
)
(0.14
)
GE Industrial EPS (Non-GAAP)
(2.37
)
(0.21
)
0.99

 
 
 
 
Non-operating benefits costs (pre-tax) (GAAP)
(0.32
)
(0.27
)
(0.26
)
Tax effect on non-operating benefit costs(a)
0.07

0.10

0.09

Less: non-operating benefit costs (net of tax)
(0.25
)
(0.18
)
(0.17
)
Gains (losses) and impairments for disposed or held for sale businesses (pre-tax)
0.16

0.11

0.38

Tax effect on gains (losses) and impairments for disposed or held for sale businesses(b)
(0.04
)
(0.01
)
(0.12
)
Less: gains (losses) and impairments for disposed or held for sale businesses (net of tax)
0.11

0.10

0.26

Restructuring & other (pre-tax)
(0.40
)
(0.46
)
(0.39
)
Tax effect on restructuring & other(b)
0.06

0.14

0.12

Less: restructuring & other (net of tax)
(0.34
)
(0.32
)
(0.27
)
Goodwill impairments (pre-tax)
(2.55
)
(0.13
)

Tax effect on goodwill impairments(b)
(0.03
)


Less: goodwill impairments (net of tax)
(2.57
)
(0.13
)

Less: GE Industrial U.S. tax reform enactment adjustment

(0.56
)

Adjusted GE Industrial EPS (Non-GAAP)
$
0.69

$
0.88

$
1.17

 
 
 
 
GE Capital EPS from continuing operations attributable to GE common shareowners (GAAP)
(0.06
)
(0.78
)
(0.14
)
EFS impairments and insurance charge (pre-tax)

(1.32
)

Tax effect on EFS impairments and insurance charge(b)

0.40


Less: EFS impairments and insurance charge (net of tax)

(0.91
)

Less: GE Capital U.S. tax reform enactment adjustment
(0.02
)
0.02


Adjusted GE Capital EPS (Non-GAAP)
$
(0.04
)
$
0.11

$
(0.14
)
 
 
 
 
Adjusted GE Industrial EPS (Non-GAAP)
$
0.69

$
0.88

$
1.17

Add: Adjusted GE Capital EPS (Non-GAAP)
(0.04
)
0.11

(0.14
)
Adjusted EPS (Non-GAAP)(c)
$
0.65

$
1.00

$
1.03

 
 
 
 
(a) The tax effect was calculated using a 21% and 35% U.S. federal statutory tax rate in 2018 and 2017, respectively, based on its applicability to such cost.
(b) The tax effect presented includes both the rate for the relevant item as well as other direct and incremental tax charges.
(c) 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 and other, goodwill impairments and GE Capital EFS impairments and insurance charge in 2017, 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. Prior to the third quarter of 2018, goodwill impairment was included as a component of restructuring and other charges; beginning in the third quarter of 2018, on a comparable basis, we reported it separately in our consolidated Statement of Earnings (loss) because of the significance of the charge that quarter, and Adjusted EPS* continues to exclude amounts related to goodwill impairment separate from the ongoing operations of our businesses. 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 2018. We believe that presenting Adjusted EPS* separately from 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

GE 2018 FORM 10-K 74


 
MD&A
NON-GAAP FINANCIAL MEASURES
 

ADJUSTED GE INDUSTRIAL PROFIT AND PROFIT MARGIN (EXCLUDING CERTAIN ITEMS) (NON-GAAP) (Dollars in millions)
2018

2017

2016

 
 
 
 
GE total revenues (GAAP)
$
113,642

$
111,255

$
110,615

 
 
 
 
Costs
 
 
 
GE total costs and expenses (GAAP)
135,656

111,710

105,774

Less: GE interest and other financial charges
2,708

2,753

2,026

Less: non-operating benefit costs
2,764

2,385

2,349

Less: restructuring & other
3,487

3,923

3,544

Less: goodwill impairments
22,136

1,165


Add: noncontrolling interests
(129
)
(368
)
(278
)
Adjusted GE Industrial costs (Non-GAAP)
104,432

101,116

97,577

 
 
 
 
Other Income
 
 
 
GE other income (GAAP)
2,255

1,937

4,227

Less: restructuring & other
(87
)
(107
)

Less: gains (losses) and impairments for disposed or held for sale businesses
1,350

926

3,480

Adjusted GE other income (Non-GAAP)
992

1,118

748

 
 
 
 
GE Industrial profit (GAAP)
$
(19,759
)
$
1,482

$
9,068

GE Industrial profit margin (GAAP)
(17.4
)%
1.3
%
8.2
%
 
 
 
 
Adjusted GE Industrial profit (Non-GAAP)
$
10,203

$
11,257

$
13,786

Adjusted GE Industrial profit margin (Non-GAAP)
9.0
 %
10.1
%
12.5
%
 
 
 
 
We have presented our Adjusted GE Industrial profit* and profit margin* excluding interest and other financial charges, non-operating benefit costs, restructuring & other, goodwill impairments, non-controlling interests and gains (losses) 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) (In millions)
2018

2017