Edgar Filing: GENERAL ELECTRIC CO

UNIT SALES

Gas Turbines

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

¨ 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

GENERAL ELECTRIC COMPANY

(Exact name of registrant as specified in its charter)



New York		14-0689340
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

41 Farnsworth Street, Boston, MA		02210
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (617) 443-3000 _______________________________________________ (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ¨
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

There were 8,657,946,000 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2017.

TABLE OF CONTENTS



	Page

Forward Looking Statements	3
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	4
Key Performance Indicators	8
Consolidated Results	10
Segment Operations	13
Corporate Items and Eliminations	32
Other Consolidated Information	35
Statement of Financial Position	37
Financial Resources and Liquidity	38
Critical Accounting Estimates	45
Other Items	46
Supplemental Information	49
Controls and Procedures	55
Other Financial Data	56
Legal Proceedings	57
Financial Statements and Notes	59
Exhibits	105
Form 10-Q Cross Reference Index	106
Signatures	107



FORWARD LOOKING STATEMENTS

FORWARD LOOKING STATEMENTS

This document contains "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” or "target."

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the completion of our announced plan to reduce the size of our financial services businesses, including expected cash and non-cash charges associated with this plan and earnings per share of GE Capital Global Holdings, LLC’s (GE Capital) retained businesses (Verticals); expected income and Industrial operating profit; earnings per share, including our 2018 target and the impact of the new revenue recognition accounting standard; revenues; organic growth; growth and productivity associated with our Digital and Additive businesses; margins; cost structure and plans to reduce costs; restructuring charges; transaction-related synergies and gains; cash flows, including the impact of working capital, contract assets and pension funding contributions; returns on capital and investment; capital expenditures; capital allocation, including dividends, share repurchases and acquisitions; or capital structure, including leverage.

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:


•	the strategy and portfolio review being undertaken by our new chief executive officer;


•	our ability to reduce costs as we execute our announced plan to reduce the size of our financial services businesses;


•	changes in law, economic and financial conditions, including interest and exchange rate volatility, commodity and equity prices and the value of financial assets;


•	the impact of conditions in the financial and credit markets on the availability and cost of GE Capital funding, and GE Capital’s exposure to counterparties;


•	pending and future mortgage loan repurchase claims, other litigation claims and the U.S. Department of Justice’s investigation under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and other investigations in connection with WMC, which may affect our estimates of liability, including possible loss estimates;


•	our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so;


•	our ability to convert Industrial earnings into cash and the amount and timing of our cash flows and earnings, which may be impacted by long-term services agreement dynamics, and other conditions, all of which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels;


•	GE Capital’s ability to pay dividends to GE at the planned level, which may be affected by GE Capital’s cash flows and earnings, claims and investigations relating to WMC, charges that may be required in connection with GE Capital’s run-off insurance operations, and other factors;


•	our ability to launch new products in a cost-effective manner;


•	our ability to increase margins through restructuring and other cost reduction measures;


•	our ability to convert pre-order commitments/wins into orders/bookings;


•	the price we realize on orders/bookings since commitments/wins are stated at list prices;


•	customer actions or developments such as early aircraft retirements or reduced energy demand, changes in economic conditions, including oil prices, and other factors that may affect the level of demand and financial performance of the major industries and customers we serve;


•	the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of Alstom investigative and legal proceedings;


•	our capital allocation plans, as such plans may change including with respect to the timing and size of share repurchases, acquisitions, joint ventures, dispositions and other strategic actions;


•	our success in completing, including obtaining regulatory approvals and satisfying other closing conditions for, announced transactions, such as our announced plans and transactions to reduce the size of our financial services businesses and to sell our Water and Industrial Solutions businesses;


•	our success in integrating acquired businesses and operating joint ventures, including Baker Hughes;


•	our ability to realize revenue and cost synergies from announced transactions, acquired businesses and joint ventures, including Alstom and Baker Hughes;


•	the impact of potential information technology or data security breaches; and


•	the other factors that are described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.

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.

2017 2Q FORM 10-Q 3



MD&A

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

PRESENTATION

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

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


•	General Electric or the Company – the parent company, General Electric Company.

•

GE – the adding together of all affiliates except GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates. As GE presents the continuing operations of GE Capital on a one-line basis, certain intercompany profits resulting from transactions between GE and GE Capital have been eliminated at the GE level. We present the results of GE in the center column of our consolidated statements of earnings, financial position and cash flows. An example of a GE metric is GE cash from operating activities (GE CFOA).


•	General Electric Capital Corporation or GECC – predecessor to GE Capital Global Holdings, LLC.


•	GE Capital Global Holdings, LLC or GECGH – successor of GECC.


•	GE Capital or Financial Services – refers to GECGH, or its predecessor GECC, and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates. We present the results of GE Capital in the right-side column of our consolidated statements of earnings, financial position and cash flows.


•	GE consolidated – the adding together of GE and GE Capital, giving effect to the elimination of transactions between the two. We present the results of GE consolidated in the left-side column of our consolidated statements of earnings, financial position and cash flows.


•	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 an Industrial metric is Industrial CFOA (Non-GAAP), which is GE CFOA excluding the effects of dividends from GE Capital.

•

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.


•	Total segment – the sum of our seven industrial segments and one financial services segment, without giving effect to the elimination of transactions between such segments. This provides investors with a view as to the results of all of our segments, without inter-segment eliminations and corporate items.

•

Verticals or GE Capital Verticals – the adding together of GE Capital businesses that we expect to retain, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Industrial Finance (which includes Healthcare Equipment Finance, Working Capital Solutions and Industrial Financing Solutions)—that relate to the Company’s core industrial domain and other operations, including our run-off insurance activities, and allocated corporate costs.

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.

Discussion of GE Capital’s total assets includes deferred income tax liabilities, which are presented within assets for purposes of our consolidated statement of financial position presentations for this filing.

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.

4 2017 2Q FORM 10-Q



MD&A

Discussions throughout this MD&A are based on continuing operations unless otherwise noted.

The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.

OTHER TERMS USED BY GE


•	Backlog – unfilled customer orders for products and product services (expected life of contract sales for product services).


•	Continuing earnings – unless otherwise indicated, we refer to the caption “earnings from continuing operations attributable to GE common shareowners” as continuing earnings or simply as earnings.


•	Continuing earnings per share (EPS) – unless otherwise indicated, when we refer to continuing earnings per share, it is the diluted per-share amount of “earnings from continuing operations attributable to GE common shareowners”.

•

Digital revenues – revenues related to internally developed software and associated hardware, including Predix^TM and software solutions that improve our customers’ asset performance. In 2016, we reassessed the span of our digital product offerings, which now excludes software-enabled product upgrades. These revenues are largely generated from our operating businesses and are included in their segment results. Revenues of "Non-GE Verticals" refer to GE Digital revenues from customers operating in industries where GE does not have a presence.


•	Equipment leased to others (ELTO) – rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.


•	GE Capital Exit Plan – our plan, announced on April 10, 2015, to reduce the size of our financial services businesses through the sale of most of the assets of GE Capital, and to focus on continued investment and growth in our industrial businesses.


•	Industrial margin – GE revenues and other income excluding GE Capital earnings (loss) from continuing operations (Industrial revenues) minus GE total costs and expenses less GE interest and other financial charges divided by Industrial revenues.


•	Industrial operating profit margin (Non-GAAP) – Industrial segment profit plus corporate items and eliminations (excluding gains, restructuring, and non-operating pension cost) divided by industrial segment revenues plus corporate items and eliminations (excluding gains and GE-GE Capital eliminations).


•	Industrial segment gross margin - industrial segment sales less industrial segment cost of sales divided by sales.


•	Net earnings – unless otherwise indicated, we refer to the caption “net earnings attributable to GE common shareowners” as net earnings.


•	Net earnings per share (EPS) – unless otherwise indicated, when we refer to net earnings per share, it is the diluted per-share amount of “net earnings attributable to GE common shareowners”.


•	Non-operating pension cost (Non-GAAP) – comprises the expected return on plan assets, interest cost on benefit obligations and net actuarial gain (loss) amortization for our principal pension plans.


•	Operating earnings (Non-GAAP) – GE earnings from continuing operations attributable to common shareowners excluding the impact of non-operating pension costs.


•	Operating earnings per share (Non-GAAP) – unless otherwise indicated, when we refer to operating earnings per share, it is the diluted per-share amount of “operating earnings”.


•	Operating pension cost (Non-GAAP) – comprises the service cost of benefits earned, prior service cost amortization and curtailment gain (loss) for our principal pension plans.


•	Organic revenues (Non-GAAP) – revenues excluding the effects of acquisitions, dispositions and translational foreign currency exchange.

•

Product services – for purposes of the financial statement display of sales and costs of sales in our Statement of Earnings, “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 “product services,” which is an important part of our operations. We refer to “product services” simply as “services” within the MD&A.


•	Product services agreements – contractual commitments, with multiple-year terms, to provide specified services for products in our Power, Renewable Energy, Oil & Gas, Aviation and Transportation installed base – for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer’s power plant.


•	Revenues – unless otherwise indicated, we refer to captions such as “revenues and other income” simply as revenues.


•	Segment profit – refers to the operating profit of the industrial segments and the net earnings of the Financial Services segment. See the Segment Operations section within the MD&A for a description of the basis for segment profits.

2017 2Q FORM 10-Q 5



MD&A

NON-GAAP FINANCIAL MEASURES

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. Specifically, we have referred, in various sections of this report, to:


•	Industrial segment organic revenues


•	Operating and non-operating pension cost


•	Adjusted corporate costs (operating)


•	Industrial operating earnings and GE Capital earnings (loss) from continuing operations and EPS


•	Industrial operating + Verticals earnings and EPS


•	Industrial operating profit and operating profit margin (excluding certain items)


•	Industrial cash flows from operating activities (Industrial CFOA) and Industrial CFOA excluding deal taxes and GE Pension Plan funding

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

6 2017 2Q FORM 10-Q



MD&A

OUR OPERATING SEGMENTS

We are a global digital industrial company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive, with products and services ranging from aircraft engines, locomotives, power generation and oil and gas production equipment to medical imaging, financing and industrial products. Operational and financial overviews for our operating segments are provided in the “Segment Operations” section within this MD&A.

OUR INDUSTRIAL OPERATING SEGMENTS



Power^(a)	Aviation	Energy Connections & Lighting^(a)
Renewable Energy	Healthcare
Oil & Gas	Transportation

OUR FINANCIAL SERVICES OPERATING SEGMENT



	Capital


(a)	Beginning in the third quarter of 2017, the Energy Connections business within the Energy Connections & Lighting segment is expected to be combined with the Power segment and presented as one reporting segment called Power.

CORPORATE INFORMATION

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

2017 2Q FORM 10-Q 7



MD&A	KEY PERFORMANCE INDICATORS

KEY PERFORMANCE INDICATORS

(Dollars in billions; per-share amounts in dollars)

REVENUES PERFORMANCE



	2Q 2017	YTD 2017
Industrial Segment	(2)%	(1)%
Industrial Segment Organic*	2%	4%
Capital	(12)%	(9)%

GE CFOA

■ ■ Industrial CFOA(a)* ■ ■ GE Capital Dividend

(a) 2016 included deal taxes of $(0.7) billion related to the sale of our Appliances business and in 2017 included deal taxes of $(0.1) billion related to the Baker Hughes transaction and GE Pension Plan funding of $(0.2) billion.

INDUSTRIAL ORDERS

INDUSTRIAL BACKLOG

■ ■ Services ■ ■ Equipment

INDUSTRIAL PROFIT & MARGINS

INDUSTRIAL OPERATING PROFIT & MARGINS

(NON-GAAP)^(a)

(a) Excluded gains on disposals, non-operating pension cost, restructuring and other charges and noncontrolling interests

*Non-GAAP Financial Measure

8 2017 2Q FORM 10-Q



MD&A	KEY PERFORMANCE INDICATORS

KEY PERFORMANCE INDICATORS

(Dollars in billions; per-share amounts in dollars and diluted; attributable to GE common shareowners)

NET EARNINGS

NET EARNINGS PER SHARE

OPERATING EARNINGS (NON-GAAP)

OPERATING EARNINGS PER SHARE (NON-GAAP)

INDUSTRIAL OPERATING + VERTICALS EARNINGS(NON-GAAP)

INDUSTRIAL OPERATING + VERTICALS EPS

(NON-GAAP)

2017 2Q FORM 10-Q 9



MD&A	CONSOLIDATED RESULTS

CONSOLIDATED RESULTS

2017 SIGNIFICANT DEVELOPMENTS

On June 12, 2017, we announced that Jeffrey R. Immelt will retire as Chief Executive Officer (CEO) on July 31, 2017 and that John L. Flannery has been appointed to succeed Mr. Immelt as CEO effective August 1, 2017. Mr. Flannery will also join the Board of Directors on that date. Mr. Immelt will remain Chairman of the Board for a transition period through December 31, 2017, at which point Mr. Flannery will succeed Mr. Immelt as Chairman, effective January 1, 2018.

During the second quarter of 2017, GE completed issuances of €8,000 million senior unsecured debt, composed of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037.

2017 SIGNIFICANT TRANSACTIONS

•

On January 10, 2017, we completed the acquisition of ServiceMax, a leader in cloud-based field service management (FSM) solutions, for $0.9 billion, net of cash acquired. This acquisition is expected to provide enhanced capabilities to advance our Industrial Internet vision, enabling customers to immediately gain more value from their assets and find greater efficiency in their field service processes.


•	On April 20, 2017, we completed the acquisition of LM Wind Power, one of the world’s largest wind turbine blade manufacturers for approximately $1.6 billion, net of cash acquired.

•

On July 3, 2017, we completed the transaction to create Baker Hughes, a GE company (BHGE). Under the terms of the deal, which we announced in October 2016, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds a 62.5% interest and former Baker Hughes shareholders hold a 37.5% interest. Baker Hughes shareholders also received a cash dividend funded by a $7.4 billion cash contribution from GE. The completion of the transaction followed the approval of Baker Hughes shareholders, regulatory approvals and other customary closing conditions.

•

In October 2016, we announced our plan to sell our Water & Process Technologies business. In March 2017, we announced an agreement to sell the business for approximately $3.4 billion to Suez Environnement S.A. (Suez), a French-based utility company operating primarily in the water treatment and waste management sectors. The deal is expected to close in the second half of 2017, subject to customary closing conditions and regulatory approval.


•	In the first quarter of 2017, we classified our Industrial Solutions business within our Energy Connections & Lighting segment as held for sale. We expect to complete the sale of the business by the end of the first quarter of 2018.

10 2017 2Q FORM 10-Q



MD&A	CONSOLIDATED RESULTS

CONSOLIDATED RESULTS

THREE AND SIX MONTHS ENDED JUNE 30

(Dollars in billions)



REVENUES		INDUSTRIAL AND FINANCIAL SERVICES REVENUES

COMMENTARY: 2017 - 2016

THREE MONTHS

Consolidated revenues decreased $3.9 billion, or 12%.

•

Industrial revenues decreased $3.6 billion, or 12%, due to a decrease at Corporate of $3.0 billion as the prior year included a pre-tax gain of $3.1 billion from the sale of our Appliances business to Haier in the second quarter of 2016. The additional decrease in industrial revenues was due to a decrease in industrial segment revenues of approximately $0.6 billion, or 2%, as the net effects of dispositions of $1.2 billion and the effects of a stronger U.S. dollar of $0.2 billion were partially offset by organic revenue* increases of $0.6 billion and the net effects of acquisitions of $0.2 billion. In the second quarter of 2016, the net effects of acquisitions increased industrial revenues $3.2 billion while the net effects of dispositions and a stronger U.S. dollar decreased industrial revenues $1.1 billion and $0.1 billion, respectively.


•	Financial Services revenues decreased $0.3 billion, or 12%, primarily due to higher impairments, organic revenue declines and lower gains.

SIX MONTHS

Consolidated revenues decreased $4.1 billion, or 7%.

•

Industrial revenues decreased $3.6 billion, or 6%, due to a decrease at Corporate of $3.2 billion as the prior year included a pre-tax gain of $3.1 billion from the sale of our Appliances business to Haier in the second quarter of 2016. The additional decrease in industrial revenues was due to a decrease in industrial segment revenues of approximately $0.4 billion, or 1%, as the net effects of dispositions of $2.8 billion and the effects of a stronger U.S. dollar of $0.3 billion were partially offset by organic revenue* increases of $2.3 billion and the net effects of acquisitions of $0.3 billion. In the first six months of 2016, the net effects of acquisitions increased industrial revenues $6.0 billion while the net effects of dispositions and a stronger U.S. dollar decreased industrial revenues $1.6 billion and $0.7 billion, respectively.


•	Financial Services revenues decreased $0.5 billion, or 9%, primarily due to organic revenue declines, lower gains and higher impairments.

*Non-GAAP Financial Measure

2017 2Q FORM 10-Q 11



MD&A	CONSOLIDATED RESULTS

THREE AND SIX MONTHS ENDED JUNE 30

(Dollars in billions; attributable to GE common shareowners)



CONTINUING EARNINGS		OPERATING EARNINGS*

COMMENTARY: 2017 - 2016

THREE MONTHS

Consolidated continuing earnings decreased $2.0 billion.

▪

Industrial earnings decreased $2.7 billion, or 54%, due to decreased Corporate gains of $3.1 billion as the prior year included a pre-tax gain of $3.1 billion from the sale of our Appliances business to Haier in the second quarter of 2016, partially offset by decreased restructuring and other costs of $0.6 billion. In addition, industrial segment profit decreased $0.2 billion, or 4%, due to the net effects of dispositions of $0.1 billion and organic operating decreases of $0.1 billion.


▪	Interest and other financial charges decreased $0.1 billion while the provision for income taxes increased $0.4 billion.


▪	The net effect of acquisitions on our consolidated operating earnings was an insignificant amount in the second quarter of 2017 and a decrease of $0.1 billion in the second quarter of 2016. The net effect of dispositions was a decrease of $2.4 billion in the second quarter of 2017 and a gain of $1.9 billion in the second quarter of 2016.


▪	Foreign exchange adversely affected industrial operating earnings by $0.1 billion as a result of both translational and transactional impacts related to remeasurement and mark-to-market charges on open hedges.


▪	Financial Services losses decreased $0.4 billion, or 71%, primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit Plan.

▪

Earnings per share amounts for the second quarter of 2017 were positively impacted by the reduction in number of outstanding common shares compared to the second quarter of 2016. The average number of shares outstanding used to calculate second quarter 2017 earnings per share was 5% lower than in the second quarter of 2016 as a result of previously disclosed actions, primarily ongoing share buyback activities over the last 12 months funded in large part by dividends from GE Capital.

SIX MONTHS

Consolidated continuing earnings decreased $1.4 billion.

▪

Industrial earnings decreased $2.9 billion, or 42%, due to decreased Corporate gains of $3.2 billion as the prior year included a pre-tax gain of $3.1 billion from the sale of our Appliances business to Haier in the second quarter of 2016, partially offset by decreased restructuring and other costs of $0.3 billion and an increase in industrial segment profit of $0.1 billion, or 2%, as organic operating increases of $0.4 billion were partially offset by the net effects of dispositions of $0.2 billion.


▪	Interest and other financial charges decreased $0.2 billion while the provision for income taxes increased $0.4 billion.


▪	The net effect of acquisitions on our consolidated operating earnings was a decrease of $0.1 billion in 2017 and $0.2 billion in 2016. The net effect of dispositions on consolidated net earnings was a decrease of $2.6 billion in 2017 and a gain of $1.9 billion in 2016.


▪	Foreign exchange adversely affected industrial operating earnings by $0.2 billion as a result of both translational and transactional impacts related to remeasurement and mark-to-market charges on open hedges.


▪	Financial Services losses decreased $1.3 billion, or 85% primarily due to lower treasury and headquarters operation expenses, lower preferred dividend expenses associated with the January 2016 preferred equity exchange, and lower restructuring expenses associated with the GE Capital Exit Plan.

▪

Earnings per share amounts for 2017 were positively impacted by the reduction in number of outstanding common shares compared to 2016. The average number of shares outstanding used to calculate 2017 earnings per share was 5% lower than in 2016 as a result of previously disclosed actions, primarily ongoing share buyback activities over the last 12 months funded in large part by dividends from GE Capital.

*Non-GAAP Financial Measure

12 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS

SEGMENT OPERATIONS



SUMMARY OF OPERATING SEGMENTS

	Three months ended June 30								Six months ended June 30
(In millions)	2017			2016			V%		2017			2016			V%

Revenues
Power	$	6,969		$	6,639		5	%	$	13,058		$	11,843		10	%
Renewable Energy	2,457			2,094			17	%	4,501			3,763			20	%
Oil & Gas	3,108			3,219			(3)	%	6,110			6,533			(6	)%
Aviation	6,532			6,511			—	%	13,336			12,774			4	%
Healthcare	4,700			4,525			4	%	8,990			8,708			3	%
Transportation	1,071			1,240			(14)	%	2,110			2,222			(5	)%
Energy Connections & Lighting(a)	3,210			4,401			(27)	%	5,957			8,657			(31	)%
Total industrial segment revenues	28,047			28,630			(2)	%	54,063			54,499			(1	)%
Capital	2,446			2,771			(12)	%	5,127			5,656			(9	)%
Total segment revenues	30,493			31,401			(3)	%	59,190			60,155			(2	)%
Corporate items and eliminations	(935		)	2,093					(1,972		)	1,184
Consolidated revenues	$	29,558		$	33,494		(12)	%	$	57,219		$	61,339		(7	)%

Segment profit (loss)
Power	$	1,031		$	1,140		(10)	%	$	1,827		$	1,714		7	%
Renewable Energy	160			128			25	%	267			211			27	%
Oil & Gas	155			320			(52)	%	361			628			(43	)%
Aviation	1,492			1,348			11	%	3,176			2,872			11	%
Healthcare	826			782			6	%	1,469			1,413			4	%
Transportation	203			273			(26)	%	359			437			(18	)%
Energy Connections & Lighting(a)	80			131			(39)	%	109			162			(33	)%
Total industrial segment profit	3,947			4,122			(4)	%	7,568			7,437			2	%
Capital	(172		)	(600		)	71	%	(219		)	(1,492		)	85	%
Total segment profit (loss)	3,775			3,523			7	%	7,349			5,944			24	%
Corporate items and eliminations	(1,583		)	974					(3,592		)	(597		)
GE interest and other financial charges	(637		)	(567		)			(1,200		)	(1,007		)
GE provision for income taxes	(218		)	(629		)			(361		)	(793		)
Earnings (loss) from continuing operations attributable to GE common shareowners	1,338			3,300			(59)	%	2,196			3,548			(38	)%
Earnings (loss) from discontinued operations, net of taxes	(146		)	(541		)	73	%	(385		)	(849		)	55	%
Less net earnings attributable to
noncontrolling interests, discontinued operations	7			3					7			3
Earnings (loss) from discontinued operations,
net of tax and noncontrolling interest	(152		)	(544		)	72	%	(392		)	(852		)	54	%
Consolidated net earnings (loss) attributable to the GE common shareowners	$	1,185		$	2,756		(57)	%	$	1,804		$	2,695		(33	)%


(a)	Beginning in the third quarter of 2017, the Energy Connections business within the Energy Connections & Lighting segment is expected to be combined with the Power segment and presented as one reporting segment called Power.

2017 2Q FORM 10-Q 13



MD&A	SEGMENT OPERATIONS

REVENUES AND PROFIT

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

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

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

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


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


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

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

With respect to the segment revenue and profit walks, the overall effect of foreign exchange is included within multiple captions as follows:


•	The translational foreign exchange impact is included within Foreign Exchange.


•	The transactional impact of foreign exchange hedging is included in operating cost within Productivity and in other income within Other.

SIGNIFICANT SEGMENT DEVELOPMENTS

SALE OF APPLIANCES

On January 15, 2016, we announced the signing of an agreement to sell our Appliances business to Haier. On June 6, 2016, we completed the sale for proceeds of $5.6 billion (including $0.8 billion from the sale of receivables originated in our Appliances business and sold from GE Capital to Haier) and recognized an after-tax gain of $1.8 billion in 2016. For the three and six months ended June 30, 2016, Appliances contributed revenues of $1.1 billion and $2.6 billion and an operating profit of $0.1 billion and $0.3 billion, respectively.

14 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS

SEGMENT RESULTS – THREE AND SIX MONTHS ENDED JUNE 30

(Dollars in billions)

INDUSTRIAL SEGMENT EQUIPMENT

& SERVICES REVENUES

INDUSTRIAL SEGMENT PROFIT



■ ■ Services ■ ■ Equipment

2017 – 2016 COMMENTARY: THREE MONTHS ENDED JUNE 30


•	Industrial segment revenues decreased $0.6 billion, or 2%, driven by decreases at Energy Connections & Lighting primarily due to the sale of the Appliances business in the second quarter of 2016, Transportation, and Oil & Gas primarily due to market conditions, and an unfavorable foreign exchange impact, partially offset by increases at Renewable Energy, Power and Healthcare.


•	Industrial segment profit decreased $0.2 billion, or 4%, driven primarily by lower earnings at Oil & Gas, Power, and Transportation, as well as the effects of the sale of Appliances in the second quarter of 2016, partially offset by higher earnings at Aviation.


•	Industrial segment margin decreased 30 bps to 14.1% in 2017 from 14.4% in 2016 driven by the effects of price and business mix, partially offset by positive cost productivity. The decrease in industrial segment margin reflects decreases at Oil & Gas, Transportation, Power and the sale of Appliances in the second quarter of 2016, offset by increases at Aviation, Renewable Energy and Healthcare.

2017 – 2016 COMMENTARY: SIX MONTHS ENDED JUNE 30


•	Industrial segment revenues decreased $0.4 billion, or 1%, driven by decreases at Energy Connections & Lighting primarily due to the sale of the Appliances business in the second quarter of 2016, Oil & Gas primarily due to market conditions, and Transportation, and an unfavorable foreign exchange impact, partially offset by increases at Power, Renewable Energy, Aviation and Healthcare.


•	Industrial segment profit increased $0.1 billion, or 2%, driven primarily by higher earnings at Aviation and Power, partially offset by lower earnings at Oil & Gas as well as an unfavorable foreign exchange impact and the effects of the sale of Appliances in the second quarter of 2016.


•	Industrial segment margin increased 40 bps to 14.0% in 2017 from 13.6% in 2016 driven by positive cost productivity, partially offset by negative business mix. The increase in industrial segment margin reflects increases at Aviation, Renewable Energy and Healthcare, offset by decreases at Oil & Gas, Transportation, Power and the sale of Appliances in the second quarter of 2016.

2017 2Q FORM 10-Q 15



MD&A	SEGMENT OPERATIONS \| POWER

POWER

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

(a) Includes Distributed Power

(b) Includes Water & Process Technologies and GE Hitachi Nuclear

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment

16 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| POWER

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	6.6		$	1.1
Volume	0.4			0.1
Price	(0.1		)	(0.1		)
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			—
Mix	N/A			(0.1		)
Productivity	N/A			—
Other	—			—
June 30, 2017	$	7.0		$	1.0

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	11.8		$	1.7
Volume	1.3			0.2
Price	(0.1		)	(0.1		)
Foreign Exchange	(0.1		)	—
(Inflation)/Deflation	N/A			—
Mix	N/A			(0.3		)
Productivity	N/A			0.2
Other	0.1			0.1
June 30, 2017	$	13.1		$	1.8

COMMENTARY: 2017 - 2016

Segment revenues up $0.3 billion (5%);

Segment profit down $(0.1) billion (10%):


•	The increase in revenues was driven by higher equipment volume, primarily at Gas Power Systems as a result of extended scope including higher balance of plant as well as six more Heat Recovery Steam Generator shipments than in the prior year, partially offset by five fewer gas turbine shipments and lower prices.


•	The decrease in profit was due to lower prices, an unfavorable business mix due to higher equipment volume versus services volume and negative variable cost productivity, partially offset by positive base cost productivity and higher overall volume.

Segment revenues up $1.2 billion (10%);

Segment profit up $0.1 billion (7%):

•

The increase in revenues was driven by higher equipment volume, primarily at Gas Power Systems as a result of extended scope including higher balance of plant as well as two more gas turbine shipments and 29 more Heat Recovery Steam Generator shipments than in the prior year. Revenue also increased due to increased other income including a reduction in foreign exchange transactional losses, partially offset by lower prices and the effects of a stronger U.S. dollar versus the euro.


•	The increase in profit was due to positive base cost productivity on higher volume as well as increased other income including a reduction in foreign exchange transactional losses, partially offset by an unfavorable business mix due to higher equipment volume versus services volume, negative variable cost productivity and lower prices.

2017 2Q FORM 10-Q 17



MD&A	SEGMENT OPERATIONS \| RENEWABLE ENERGY

RENEWABLE ENERGY

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment



UNIT SALES
	2Q 2016	2Q 2017	V	YTD 2016	YTD 2017	V
Wind Turbines	856	757	(99)	1,524	1,324	(200)

18 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| RENEWABLE ENERGY

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	2.1		$	0.1
Volume	0.3			—
Price	—			—
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			—
Other	0.1			—
June 30, 2017	$	2.5		$	0.2

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	3.8		$	0.2
Volume	0.6			—
Price	(0.1		)	(0.1		)
Foreign Exchange	0.1			—
(Inflation)/Deflation	N/A			0.1
Mix	N/A			—
Productivity	N/A			(0.2		)
Other	0.2			0.2
June 30, 2017	$	4.5		$	0.3

COMMENTARY: 2017 - 2016

Segment revenues up $0.4 billion (17%);

Segment profit up 25%:


•	The increase in revenues was primarily driven by higher volume due to higher equipment sales at Hydro and increased repowering projects at Onshore Wind. In addition, while there were 99 fewer wind turbine shipments than in the prior year, megawatts shipped increased by 8%. Revenue also increased due to increased other income including a reduction in foreign exchange transactional losses.


•	The increase in profit was due to material deflation and increased other income including a reduction in foreign exchange transactional losses. These increases were partially offset by negative cost productivity.

Segment revenues up $0.7 billion (20%);

Segment profit up $0.1 billion (27%):

•

The increase in revenues was primarily driven by higher volume due to higher equipment sales at Hydro and increased repowering projects at Onshore Wind. In addition, while there were 200 fewer wind turbine shipments than in the prior year, megawatts shipped increased by 4%. Revenue also increased due to the effects of a weaker U.S. dollar versus the Brazilian real and increased other income including a reduction in foreign exchange transactional losses, partially offset by lower prices.


•	The increase in profit was due to material deflation and increased other income including a reduction in foreign exchange transactional losses. These increases were partially offset by negative cost productivity and lower prices.

2017 2Q FORM 10-Q 19



MD&A	SEGMENT OPERATIONS \| OIL & GAS

OIL & GAS

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment

20 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| OIL & GAS

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	3.2		$	0.3
Volume	(0.1		)	—
Price	(0.1		)	(0.1		)
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			0.1
Mix	N/A			—
Productivity	N/A			(0.2		)
Other	0.1			0.1
June 30, 2017	$	3.1		$	0.2

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	6.5		$	0.6
Volume	(0.3		)	—
Price	(0.2		)	(0.2		)
Foreign Exchange	(0.1		)	—
(Inflation)/Deflation	N/A			0.1
Mix	N/A			—
Productivity	N/A			(0.2		)
Other	0.1			0.1
June 30, 2017	$	6.1		$	0.4

COMMENTARY: 2017 - 2016

Segment revenues down $0.1 billion (3%);

Segment profit down $0.2 billion (52%):


•	The decrease in revenues was primarily driven by negative market conditions which resulted in lower prices as well as lower equipment volume primarily in Subsea & Drilling.


•	The decrease in operating profit was primarily market driven resulting in lower prices. Despite the effects of restructuring actions, profit decreased due to negative variable cost productivity. These decreases were partially offset by material deflation and increased other income including a reduction in foreign exchange transactional losses.

Segment revenues down $0.4 billion (6%);

Segment profit down $0.3 billion (43%):

•

The decrease in revenues was primarily driven by negative market conditions that resulted in lower equipment volume in Subsea & Drilling and Turbomachinery & Process Solutions. Revenues also decreased due to lower prices and the effects of a stronger U.S. dollar versus the euro and the pound sterling, partially offset by increased other income including a reduction in foreign exchange transactional losses.

•

The decrease in operating profit was primarily market driven resulting in lower prices. Despite the effects of restructuring actions and an increase in earnings in our long-term service contracts, profit decreased due to negative variable cost productivity. These decreases were partially offset by material deflation and increased other income including a reduction in foreign exchange transactional losses.

2017 2Q FORM 10-Q 21



MD&A	SEGMENT OPERATIONS \| AVIATION

AVIATION

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment



UNIT SALES
	2Q 2016		2Q 2017		V			YTD 2016		YTD 2017		V
Commercial Engines	724		651		(73		)	1,401		1282		(119		)
LEAP Engines(a)	11		93		82			11		174		163
Military Engines	151		137		(14		)	302		257		(45		)
Spares Rate(b)	$	19.0	$	21.6	$	2.6		$	18.1	$	21.6	$	3.5
(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

22 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| AVIATION

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues		Profit
June 30, 2016	$	6.5	$	1.3
Volume	—		—
Price	—		—
Foreign Exchange	—		—
(Inflation)/Deflation	N/A		—
Mix	N/A		—
Productivity	N/A		0.2
Other	—		—
June 30, 2017	$	6.5	$	1.5

SIX MONTHS
	Revenues		Profit
June 30, 2016	$	12.8	$	2.9
Volume	0.5		0.1
Price	0.1		0.1
Foreign Exchange	—		—
(Inflation)/Deflation	N/A		—
Mix	N/A		(0.1		)
Productivity	N/A		0.3
Other	—		—
June 30, 2017	$	13.3	$	3.2

COMMENTARY: 2017 - 2016

Segment revenues flat;

Segment profit up $0.1 billion (11%):

•

Revenues remained flat as an increase in services volume including an increase in the commercial spares shipment rate, was offset by a decrease in equipment volume. Equipment volume decreased primarily due to 73 fewer Commercial engine shipments and 14 fewer Military engine shipments, partially offset by higher valued commercial shipments including 82 more LEAP engine shipments than in the prior year.


•	The increase in profit was mainly driven by positive cost productivity which more than offset negative LEAP margin impact.

Segment revenues up $0.6 billion (4%);

Segment profit up $0.3 billion (11%):

•

The increase in revenues was primarily due to higher services volume including an increase in the commercial spares shipment rate as well as military spare parts shipments, and higher prices. Equipment revenue decreased primarily due to 119 fewer Commercial engine shipments and 45 fewer Military engine shipments, partially offset by higher valued commercial shipments including 163 more LEAP engine shipments than in the prior year.


•	The increase in profit was mainly driven by positive cost productivity, higher services volume and higher prices for Commercial Engines & Services, partially offset by unfavorable business mix due to negative LEAP margin impact.

2017 2Q FORM 10-Q 23



MD&A	SEGMENT OPERATIONS \| HEALTHCARE

HEALTHCARE

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment

24 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| HEALTHCARE

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	4.5		$	0.8
Volume	0.3			0.1
Price	(0.1		)	(0.1		)
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			0.1
Other	—			—
June 30, 2017	$	4.7		$	0.8

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	8.7		$	1.4
Volume	0.5			0.1
Price	(0.1		)	(0.1		)
Foreign Exchange	(0.1		)	—
(Inflation)/Deflation	N/A			(0.1		)
Mix	N/A			—
Productivity	N/A			0.3
Other	—			—
June 30, 2017	$	9.0		$	1.5

COMMENTARY: 2017 - 2016

Segment revenues up $0.2 billion (4%);

Segment profit up 6%:


•	The increase in revenues was due to higher services and equipment volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems.


•	The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actions, as well as higher volume, partially offset by lower prices at Healthcare Systems.

Segment revenues up $0.3 billion (3%);

Segment profit up $0.1 billion (4%):


•	The increase in revenues was due to higher services and equipment volume driven by Healthcare Systems and Life Sciences, partially offset by lower prices at Healthcare Systems and the effects of a stronger U.S. dollar versus the euro and the Chinese renminbi.


•	The increase in profit was mainly due to positive cost productivity driven by cost savings resulting from previous restructuring actions, as well as higher volume, partially offset by lower prices at Healthcare Systems and inflation.

2017 2Q FORM 10-Q 25



MD&A	SEGMENT OPERATIONS \| TRANSPORTATION

TRANSPORTATION

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

(a) Includes Marine, Stationary, Drilling and Digital

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment



UNIT SALES
	2Q 2016	2Q 2017	V	YTD 2016	YTD 2017	V
Locomotives	222	120	(102)	378	277	(101)

26 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| TRANSPORTATION

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	1.2		$	0.3
Volume	(0.2		)	—
Price	—			—
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			—
Other	—			—
June 30, 2017	$	1.1		$	0.2

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	2.2		$	0.4
Volume	(0.1		)	—
Price	—			—
Foreign Exchange	—			—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			(0.1		)
Other	—			—
June 30, 2017	$	2.1		$	0.4

COMMENTARY: 2017 - 2016

Segment revenues down $0.2 billion (14%);

Segment profit down $0.1 billion (26%):


•	The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments.


•	The decrease in profit was driven by lower volume and negative cost productivity.

Segment revenues down $0.1 billion (5%);

Segment profit down $0.1 billion (18%):


•	The decrease in revenues was due to lower locomotive equipment volume as a result of decreased North America shipments, partially offset by increased international shipments.


•	The decrease in profit was driven by negative cost productivity and lower volume, partially offset by a favorable business mix.

2017 2Q FORM 10-Q 27



MD&A	SEGMENT OPERATIONS \| ENERGY CONNECTIONS & LIGHTING

ENERGY CONNECTIONS & LIGHTING

OPERATIONAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

EQUIPMENT/SERVICES REVENUES

(a) Includes Current, powered by GE

■ ■ Services ■ ■ Equipment

ORDERS

BACKLOG

■ ■ Services ■ ■ Equipment

28 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| ENERGY CONNECTIONS & LIGHTING

FINANCIAL OVERVIEW

(Dollars in billions)



SEGMENT REVENUES	SEGMENT PROFIT	SEGMENT PROFIT MARGIN

■ ■ Services ■ ■ Equipment



SEGMENT REVENUES & PROFIT WALK:
THREE MONTHS
	Revenues			Profit
June 30, 2016	$	4.4		$	0.1
Volume	(1.1		)	(0.1		)
Price	—			—
Foreign Exchange	(0.1		)	—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			0.1
Other	—			—
June 30, 2017	$	3.2		$	0.1

SIX MONTHS
	Revenues			Profit
June 30, 2016	$	8.7		$	0.2
Volume	(2.6		)	(0.2		)
Price	(0.1		)	(0.1		)
Foreign Exchange	(0.1		)	—
(Inflation)/Deflation	N/A			—
Mix	N/A			—
Productivity	N/A			0.2
Other	—			—
June 30, 2017	$	6.0		$	0.1

COMMENTARY: 2017 - 2016

Segment revenues down $1.2 billion (27%);

Segment profit down $0.1 billion (39%):

•

The decrease in revenues was mainly due to the Appliances disposition in June 2016 as well as lower GE Lighting revenues driven by declines in traditional lighting product. Energy Connections revenues remained flat as increased volume at Grid Solutions was offset by a decrease at Power Conversion. Revenues also decreased due to the effects of a stronger U.S. dollar versus the pound sterling and the euro.


•	The decrease in profit was due to lower volume driven by the Appliances disposition in June 2016, partially offset by increases across Energy Connections, Current, and GE Lighting due to positive cost productivity including the effects of classifying Industrial Solutions as a business held for sale in the first quarter of 2017.

Segment revenues down $2.7 billion (31%);

Segment profit down $0.1 billion (33%):

•

The decrease in revenues was mainly due to the Appliances disposition in June 2016 as well as lower GE Lighting revenues driven by declines in traditional lighting product. Energy Connections remained flat as increased volume at Grid Solutions was offset by a decrease at Power Conversion. Revenues also decreased due to lower prices and the effects of a stronger U.S. dollar versus the pound sterling and the euro.


•	The decrease in profit was due to lower volume driven by the Appliances disposition in June 2016, as well as lower prices, partially offset by increases across Energy Connections, Current, and GE Lighting due to positive cost productivity including the effects of classifying Industrial Solutions as a business held for sale in the first quarter of 2017.

2017 2Q FORM 10-Q 29



MD&A	SEGMENT OPERATIONS \| CAPITAL

CAPITAL

OPERATIONAL AND FINANCIAL OVERVIEW

(Dollars in billions)

2017 YTD SUB-SEGMENT REVENUES

SEGMENT REVENUES

SEGMENT PROFIT (LOSS)^(a)

■ ■ Verticals ■ ■ Other Continuing

■ ■ Verticals ■ ■ Other Continuing

(a) Includes interest and other financial charges and income taxes

SIGNIFICANT TRENDS & DEVELOPMENTS


•	As of March 30, 2017, GE Capital’s non-US activities are no longer subject to consolidated supervision by the U.K.’s Prudential Regulation Authority (PRA). This completes GE Capital’s global exit from consolidated supervision, having had its designation as a Systemically Important Financial Institution (SIFI) removed in June 2016.


•	GE Capital paid common dividends of $2.0 billion and $4.0 billion to GE in the three months and six months ended June 30, 2017, respectively.

•

We test future policy benefit reserves associated with our run-off insurance activities for premium deficiencies annually. We have recently experienced elevated claim experience for a portion of our long-term care insurance products, which may result in a deficiency in reserves plus future premiums compared to future benefit payments. Should such a deficiency exist, we would record a charge to earnings in the second half of 2017 upon completion of this review. See Note 11 of the consolidated financial statements for further information.

30 2017 2Q FORM 10-Q



MD&A	SEGMENT OPERATIONS \| CAPITAL



COMMENTARY: 2017 - 2016

THREE MONTHS

Capital revenues decreased $0.3 billion, or 12%, primarily due to higher impairments, organic revenue declines, and lower gains.

Capital losses decreased $0.4 billion, or 71%, primarily due to lower treasury and headquarters operation expenses associated with the GE Capital Exit plan.


•	Within Capital, Verticals net earnings increased $0.1 billion, or 20%, due to core increases ($0.1 billion), partially offset by lower gains.


•	Other Capital losses decreased $0.3 billion, or 32%, primarily associated with the GE Capital Exit Plan as follows:


•	Lower headquarters operation expenses of $0.2 billion


•	Lower treasury operation expenses of $0.1 billion reflecting lower excess interest expense, including costs associated with the May 2016 debt tender and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.

SIX MONTHS

Capital revenues decreased $0.5 billion, or 9%, primarily due to organic revenue declines, lower gains and higher impairments.

Capital losses decreased $1.3 billion, or 85%, primarily due to lower treasury and headquarters operation expenses, lower preferred dividend expenses, and lower restructuring expenses associated with the GE Capital Exit Plan.


•	Within Capital, Verticals net earnings increased $0.1 billion, or 14%, due to core increases ($0.2 billion) and lower impairments ($0.1 billion), partially offset by lower gains ($0.1 billion).


•	Other Capital losses decreased $1.1 billion, or 47%, primarily associated with the GE Capital Exit Plan as follows:


•	Lower treasury operation expenses of $0.5 billion reflecting lower excess interest expense, including costs associated with the February and May 2016 debt tenders and derivative activities that reduce or eliminate interest rate, currency or market risk between financial assets and liabilities.


•	Lower headquarters operation expenses of $0.4 billion.


•	Lower preferred dividend expenses of $0.2 billion associated with the January 2016 preferred equity exchange.

2017 2Q FORM 10-Q 31



MD&A	CORPORATE ITEMS AND ELIMINATIONS



CORPORATE ITEMS AND ELIMINATIONS


REVENUES AND OPERATING PROFIT (COST)

		Three months ended June 30						Six months ended June 30
(In millions)		2017			2016			2017			2016

Revenues
	Gains (losses) on disposals	$	—		$	3,129		$	2		$	3,188
	Eliminations and other	(935		)	(1,036		)	(1,973		)	(2,004		)
Total Corporate Items and Eliminations		$	(935	)	$	2,093		$	(1,972	)	$	1,184

Operating profit (cost)
	Gains (losses) on disposals	$	—		$	3,129		$	2		$	3,188
	Restructuring and other charges	(709		)	(1,188		)	(1,728		)	(1,874		)
	Principal retirement plans(a)	(551		)	(479		)	(1,085		)	(947		)
	Eliminations and other	(323		)	(487		)	(780		)	(964		)
Total Corporate Items and Eliminations		$	(1,583	)	$	974		$	(3,592	)	$	(597	)

CORPORATE COSTS

		Three months ended June 30						Six months ended June 30
(In millions)		2017			2016			2017			2016

Total Corporate Items and Eliminations		$	(1,583	)	$	974		$	(3,592	)	$	(597	)
Less: non-operating pension cost		(560		)	(511		)	(1,138		)	(1,023		)
Total Corporate costs (operating)*		$	(1,023	)	$	1,485		$	(2,454	)	$	426
Less: restructuring and other charges		(709		)	(1,188		)	(1,728		)	(1,874		)
Less: gains (losses) on disposals		$	—		3,129			2			3,188
Adjusted total corporate costs (operating)*		$	(314	)	$	(456	)	$	(728	)	$	(887	)


(a)	Included non-operating pension cost* of $0.6 billion and $0.5 billion in the three months ended June 30, 2017 and 2016, respectively, and $1.1 billion and $1.0 billion in the six months ended June 30, 2017 and 2016, respectively, which includes expected return on plan assets, interest costs and non-cash amortization of actuarial gains and losses.

2017 - 2016 COMMENTARY: THREE MONTHS ENDED JUNE 30

Revenues and other income decreased $3.0 billion, primarily as a result of:


•	$3.1 billion of lower gains due to the nonrecurrence of the sale of our Appliances business to Haier in the second quarter of 2016.

Operating costs increased $2.6 billion, primarily as a result of:


•	$3.1 billion of lower gains due to the nonrecurrence of the sale of our Appliances business to Haier in the second quarter of 2016, and


•	$0.1 billion of higher costs associated with our principal retirement plans, including the effects of lower discount rates.

These increases to operating costs were partially offset by the following:


•	$0.5 billion of lower restructuring and other charges, and


•	$0.1 billion of lower corporate structural costs.

*Non-GAAP Financial Measure

32 2017 2Q FORM 10-Q



MD&A	CORPORATE ITEMS AND ELIMINATIONS

2017 - 2016 COMMENTARY: SIX MONTHS ENDED JUNE 30

Revenues and other income decreased $3.2 billion, primarily as a result of:


•	$3.2 billion of lower gains due to the nonrecurrence of a $3.1 billion gain from the sale of our Appliances business to Haier in the second quarter of 2016 and a $0.1 billion gain from the sale of two floors in 30 Rockefeller Plaza, New York City in the first quarter of 2016.

Operating costs increased $3.0 billion, primarily as a result of:


•	$3.2 billion of lower gains due to the nonrecurrence of a $3.1 billion gain from the sale of our Appliances business to Haier in the second quarter of 2016 and a $0.1 billion gain from the sale of two floors in 30 Rockefeller Plaza, New York City in the first quarter of 2016, and


•	$0.1 billion of higher costs associated with our principal retirement plans, including the effects of lower discount rates.

These increases to operating costs were partially offset by the following:


•	$0.2 billion of lower corporate structural costs, and


•	$0.1 billion of lower restructuring and other charges.

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, 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
	Three months ended June 30				Six months ended June 30
(In billions)	2017		2016		2017		2016

Workforce reductions	$	0.2	$	0.4	$	0.7	$	0.6
Plant closures & associated costs and other asset write-downs	0.3		0.6		0.5		0.7
Acquisition/disposition net charges	0.2		0.1		0.4		0.4
Other	—		0.1		0.1		0.2
Total	$	0.7	$	1.2	$	1.7	$	1.9

2017 - 2016 COMMENTARY: THREE MONTHS ENDED JUNE 30

For the three months ended June 30, 2017, restructuring and other charges were $0.7 billion of which approximately $0.4 billion was reported in cost of products/services and $0.3 billion was reported in selling, general and administrative expenses (SG&A). These activities were primarily at Corporate, Oil & Gas and Renewable Energy. Cash expenditures for restructuring and other charges were approximately $0.4 billion for three months ended June 30, 2017.

For the three months ended June 30, 2016, restructuring and other charges were $1.2 billion of which approximately $0.8 billion was reported in cost of products/services and $0.4 billion was reported in SG&A. These activities were primarily at Oil & Gas, Power and Healthcare. Cash expenditures for restructuring and other charges were approximately $0.3 billion for the three months ended June 30, 2016.

2017 - 2016 COMMENTARY: SIX MONTHS ENDED JUNE 30

For the six months ended June 30, 2017, restructuring and other charges were $1.7 billion of which approximately $1.1 billion was reported in cost of products/services and $0.6 billion was reported in SG&A. These activities were primarily at Power, Corporate and Energy Connections & Lighting. Cash expenditures for restructuring and other charges were approximately $1.0 billion for six months ended June 30, 2017.

For the six months ended June 30, 2016, restructuring and other charges were $1.9 billion of which approximately $1.2 billion was reported in cost of products/services and $0.6 billion was reported in SG&A. These activities were primarily at Oil & Gas, Power and Healthcare. Cash expenditures for restructuring and other charges were approximately $0.7 billion for the six months ended June 30, 2016.

2017 2Q FORM 10-Q 33



MD&A	CORPORATE ITEMS AND ELIMINATIONS

COSTS NOT INCLUDED IN SEGMENT RESULTS

As discussed in the Segment Operations section within the MD&A, certain amounts are not included in industrial segment results because they are excluded from measurement of their operating performance for internal and external purposes. The amount of costs not included in segment results follows.



COSTS
	Three months ended June 30				Six months ended June 30
(In billions)	2017		2016		2017		2016

Power	$	0.1	$	0.3	$	0.5	$	0.5
Renewable Energy	0.1		0.1		0.2		0.2
Oil & Gas	0.1		0.4		0.2		0.5
Aviation	—		—		—		0.1
Healthcare	0.1		0.1		0.1		0.3
Transportation	—		0.1		0.1		0.2
Energy Connections & Lighting	0.1		0.1		0.3		0.2
Total	$	0.6	$	1.2	$	1.4	$	1.9

34 2017 2Q FORM 10-Q



MD&A	OTHER CONSOLIDATED INFORMATION

OTHER CONSOLIDATED INFORMATION

INCOME TAXES

GE pays the income taxes it owes in every country it does business. Many factors impact our income tax expense and cash tax payments. The most significant factor is that we conduct business in approximately 180 countries and more than half of our revenue is earned outside the U.S., often in countries with lower tax rates than in the U.S. We reinvest most of our foreign earnings overseas to be able to fund our active non-U.S. business operations. Our tax liability is also affected by U.S. and foreign tax incentives designed to encourage certain investments, such as research and development, and by acquisitions, dispositions and tax law changes. Finally, our tax returns are routinely audited, and settlements of issues raised in these audits sometimes affect our tax rates.

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

See Other Consolidated Information - Income Taxes section and Critical Accounting Estimates - Income Taxes section within MD&A in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information on income taxes.

CONSOLIDATED – THREE AND SIX MONTHS ENDED JUNE 30

(Dollars in billions)

PROVISION (BENEFIT) FOR INCOME TAXES

2017 – 2016 COMMENTARY: THREE MONTHS ENDED JUNE 30


•	The consolidated income tax rate was 1% and 12% for the quarters ended June 30, 2017 and 2016, respectively.


•	The second quarter 2017 consolidated tax rate reflects a 104% tax rate on $0.2 billion of pre-tax loss at GE Capital and a 13% tax rate on $1.7 billion of pre-tax income at GE.


•	The second quarter 2016 consolidated tax rate reflects a 27% tax rate on $0.6 billion of pre-tax loss at GE Capital and a 14% tax rate on $4.4 billion of pre-tax income at GE.


•	The consolidated tax provision includes $0.2 billion and $0.6 billion for GE (excluding GE Capital) for the second quarters of 2017 and 2016, respectively.

•

Consolidated income tax expense was insignificant in the second quarter of 2017 and $0.5 billion for the second quarter of 2016. The decrease in tax expense is primarily due to the decrease in pre-tax income taxed at above the average tax rate primarily from the non-repeat of the Appliances disposition and a larger benefit from global activities, partially offset by a smaller adjustment in the second quarter of 2017 compared to the second quarter of 2016 to bring the tax rate in-line with the lower projected full-year rate and the non-repeat of deductible stock loss.

2017 2Q FORM 10-Q 35



MD&A	OTHER CONSOLIDATED INFORMATION

2017 – 2016 COMMENTARY: SIX MONTHS ENDED JUNE 30


•	The consolidated tax rate was 1% in the first six months of 2017 compared to 7% in the first six months of 2016.


•	The first six months of 2017 consolidated tax rate reflects a 99% tax rate on $0.3 billion of pre-tax loss at GE Capital and a 14% tax rate on $2.7 billion of pre-tax income at GE.


•	The first six months of 2016 consolidated tax rate reflects a 32% tax rate on $1.6 billion of pre-tax loss at GE Capital and a 14% tax rate on $5.6 billion of pre-tax income at GE.


•	The consolidated tax provision includes $0.4 billion and $0.8 billion for GE (excluding GE Capital) for the first six months of 2017 and 2016, respectively.

•

Consolidated income tax expense was insignificant for the first six months of 2017 compared to $0.3 billion for the first six months of 2016. The decrease in tax expense is primarily due to the decrease in pre-tax income taxed at above the average tax rate primarily from the non-repeat of the Appliances disposition and a larger benefit from global activities. This decrease was partially offset by the adjustment to increase the 2017 year-to-date rate to be in-line with the higher projected full-year rate compared to the decrease in the 2016 year-to-date rate to be in-line with the lower projected full-year rate and the non-repeat of deductible stock loss.

The effective tax rate in future periods is expected to increase as a result of changes in our income profile due to changes in GE Capital earnings as we continue to execute on the GE Capital Exit Plan. We expect the GE effective tax rate excluding GE Capital earnings to be approximately 10% for the full year of 2017.

See Note 13 to the consolidated financial statements for additional information related to income taxes.

BENEFITS FROM GLOBAL OPERATIONS

Our consolidated income tax provision is reduced because of the benefits of lower-taxed global operations. There is a benefit from global operations as non-U.S. income is subject to local country tax rates that are significantly below the 35% U.S. statutory rate. These non-U.S. earnings have been indefinitely reinvested outside the U.S. and are not subject to current U.S. income tax. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations. The rate of tax on our indefinitely reinvested non-U.S. earnings is below the 35% 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.

A substantial portion of the benefit 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 U.S. statutory rate.

We expect our ability to benefit from non-U.S. income taxed at less than the U.S. rate to continue, subject to changes in U.S. or foreign law. In addition, since this benefit depends on management’s intention to indefinitely reinvest amounts outside the U.S., our tax provision will increase to the extent we no longer indefinitely reinvest foreign earnings.

DISCONTINUED OPERATIONS

Discontinued operations primarily relate to our financial services businesses as a result of the GE Capital Exit Plan and includes our U.S. mortgage business (WMC). All of these operations were previously reported in the Capital segment.

See Notes 2 and 18 to the consolidated financial statements for additional information related to discontinued operations.

36 2017 2Q FORM 10-Q



MD&A	STATEMENT OF FINANCIAL POSITION

STATEMENT OF FINANCIAL POSITION

Because GE and GE Capital share certain significant elements of their Statements of Financial Position, the following discussion addresses significant captions in the consolidated statement. Within the following discussions, however, we distinguish between GE and GE Capital activities in order to permit meaningful analysis of each individual consolidating statement.

MAJOR CHANGES IN OUR FINANCIAL POSITION FOR THE SIX MONTHS ENDED
JUNE 30, 2017

•

Cash and equivalents decreased $4.1 billion. GE Cash and equivalents increased $3.7 billion due to the issuance of long-term debt, primarily to fund acquisitions, of $8.6 billion, long-term intercompany loans from GE Capital of $4.1 billion and common dividends from GE Capital of $4.0 billion. The increase was partially offset by payments of dividends to shareowners of $4.2 billion, treasury stock net purchases of $2.7 billion (cash basis), business acquisitions of $2.6 billion, net PP&E additions of $1.4 billion, the settlement of the remaining portion of a 2016 short-term loan from GE Capital of $1.3 billion and cash used for industrial operating activities of $0.4 billion. GE Capital Cash and equivalents decreased $7.8 billion primarily driven by $13.0 billion net repayments of debt, $4.2 billion in payments of dividends to shareowners, long-term intercompany loans to GE of $4.1 billion, partially offset by $5.0 billion in maturities of liquidity investments, $2.8 billion in net collections of financing receivables, $2.2 billion related to cash collections from discontinued operations, $1.8 billion of proceeds from borrowings assumed by the buyer in a business disposition and $1.3 billion settlement of the remaining portion of a 2016 short-term loan to GE. See the Statement of Cash Flows section for additional information.


•	Investment securities decreased $4.3 billion, primarily due to maturities of liquidity portfolio investments at GE Capital. See Note 3 to the consolidated financial statements for additional information.


•	Contract assets increased $3.8 billion, primarily due to adjustments driven by lower forecasted cost to complete the contracts and timing of billings relative to revenue recognition on our long-term equipment and service contracts.


•	Assets of businesses held for sale increased $2.4 billion, primarily due to the classification of our Industrial Solutions business, within our Energy Connections & Lighting segment, as held for sale in the first quarter of 2017. See Note 2 to the consolidated financial statements for additional information.


•	Assets of discontinued operations decreased $7.0 billion, primarily due to the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.


•	Borrowings decreased $1.8 billion, primarily due to net repayment of debt at GE Capital of $13.0 billion, partially offset by the issuance of long-term debt at GE of $8.6 billion, primarily to fund acquisitions, and the effects of currency exchange of $2.5 billion. See Note 10 to the consolidated financial statements for additional information.


•	Liabilities of discontinued operations decreased $3.2 billion, primarily driven by the disposition of businesses at GE Capital. See Note 2 to the consolidated financial statements for additional information.


•	Common stock held in treasury increased $2.6 billion, primarily due to treasury stock purchases of $3.6 billion (book basis), partially offset by treasury stock issuances of $1.0 billion.

2017 2Q FORM 10-Q 37



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

FINANCIAL RESOURCES AND LIQUIDITY

LIQUIDITY AND BORROWINGS

We maintain a strong focus on liquidity. At both GE and GE Capital we manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations throughout business cycles.

Our liquidity and borrowing plans for GE and GE Capital are established within the context of our annual financial and strategic planning processes. At GE, our liquidity and funding plans take into account the liquidity necessary to fund our operating commitments, which include primarily purchase obligations for inventory and equipment, payroll and general expenses (including pension funding). We also take into account our capital allocation and growth objectives, including paying dividends, repurchasing shares, investing in research and development and acquiring industrial businesses. At GE, we rely primarily on cash generated through our operating activities, any dividend payments from GE Capital, and also have historically maintained a commercial paper program, with a balance of $2 billion at June 30, 2017, that we regularly use to fund operations in the U.S., principally within the quarters. In addition, as part of our liquidity management process, GE and GE Capital may periodically enter into short-term intercompany loans which are repaid within the same quarter.

As part of GE’s previously formulated and communicated plan to incur new long-term debt primarily to fund acquisitions, during the second quarter of 2017, GE completed issuances of €8,000 million senior unsecured debt, composed of €1,750 million of 0.375% Notes due 2022, €2,000 million of 0.875% Notes due 2025, €2,250 million of 1.50% Notes due 2029 and €2,000 million of 2.125% Notes due 2037. During the first quarter of 2017, GE and GE Capital entered into a series of intercompany loans totaling $4.1 billion, which utilized a portion of GE Capital's excess unsecured term debt. Such intercompany loans collectively have a weighted average interest rate and term of 3.6% and approximately 15 years, respectively. The remaining $1.3 billion short-term intercompany loan balance at December 31, 2016 was paid by GE in January 2017.

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 2019. GE Capital's global commercial paper balance totaled $5.0 billion at June 30, 2017. GE Capital mainly relies on excess cash positions, cash generated through dispositions, and the cash flow from our Verticals to fund our debt maturities, including the current portion of long-term debt ($17.8 billion at June 30, 2017), and our operating and interest costs. GE Capital's liquidity position is targeted to meet its obligations under both normal and stressed conditions. We expect to maintain an elevated liquidity position as we generate cash from asset sales, returning to more normalized levels in 2019. During this period we expect to continue to have excess interest costs as asset sales have outpaced our debt maturities. While we maintain elevated 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 excess interest costs.

We maintain a detailed liquidity policy for GE Capital that defines GE Capital's liquidity risk tolerance under stress based on its liquidity sources, and a comprehensive framework for managing liquidity risk including metrics to identify and monitor liquidity risk and procedures to escalate and address potential issues.

In 2015, senior unsecured notes and commercial paper were assumed by GE upon its merger with GE Capital resulting in an intercompany receivable and payable between GE and GE Capital. On the GE balance sheet, assumed debt is presented within borrowings with an offsetting receivable from GE Capital and on the GE Capital balance sheet, this is reflected as an intercompany payable to GE within borrowings. The intercompany receivable and payable are further reduced by certain intercompany loans from GE Capital to GE, which bear the right of offset against amounts owed under the assumed debt agreement (see Note 10 for additional information). The following table illustrates total GE and GE Capital external debt and debt assumed by GE as of June 30, 2017.



June 30, 2017 (in billions)	GE			GE Capital			Consolidated(a)

External debt	$	81.9		$	54.7		$	134.4

Debt assumed by GE from GE Capital	(52.3		)	52.3			—
Intercompany loans	4.1			(4.1		)	—
Total intercompany payable (receivable) between GE and GE Capital	(48.2		)	48.2			—

Debt adjusted for assumed debt and intercompany loans	$	33.7		$	102.9		$	134.4


(a)	Includes $2.2 billion elimination of other intercompany borrowings between GE and GE Capital.

38 2017 2Q FORM 10-Q



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

LIQUIDITY SOURCES

In addition to GE cash of $14.2 billion at June 30, 2017, GE Capital maintained liquidity sources of $36.9 billion that consisted of cash and equivalents of $29.8 billion, high-quality investments of $6.5 billion and cash and equivalents of $0.5 billion classified as discontinued operations. Additionally, at June 30, 2017, GE has $20.0 billion of committed unused credit lines extended by 36 banks in a syndicated credit facility agreement, as well as $5.2 billion of committed operating lines extended by nine banks. GE Capital has the right to compel GE to borrow under these credit lines and transfer the proceeds as loans to GE Capital.



CASH AND EQUIVALENTS
(In billions)	June 30, 2017			June 30, 2017

GE(a)	$	14.2	U.S.	$	9.8
GE Capital(b)	29.8		Non-U.S.(c)	34.3


(a)	At June 30, 2017, $4.4 billion of GE cash and equivalents 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.


(b)	At June 30, 2017, GE Capital cash and equivalents of about $0.4 billion were primarily in insurance entities and were subject to regulatory restrictions.

(c)

Of this amount at June 30, 2017, $4.8 billion is held outside of the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries; it is also available to fund our needs in the U.S. on a short-term basis through short-term loans, without being subject to U.S. tax. Under the Internal Revenue Code, these loans are permitted to be outstanding for 30 days or less and the total of all such loans is required to be outstanding for less than 60 days during the year. If we were to repatriate this cash, we would be subject to additional U.S. income taxes and foreign withholding taxes.



COMMERCIAL PAPER
(In billions)	GE		GE Capital

Average commercial paper borrowings during the second quarter of 2017	$	16.0	$	5.0
Maximum commercial paper borrowings outstanding during the second quarter of 2017	19.6		5.1

GE Capital commercial paper maturities have historically been funded principally through new commercial paper issuances and at GE are substantially repaid before quarter-end using indefinitely reinvested overseas cash, which as discussed above, is available for use in the U.S. on a short-term basis without being subject to U.S. tax.

We securitize financial assets as an alternative source of funding. At June 30, 2017, consolidated non-recourse securitization borrowings were $0.7 billion.

FOREIGN CURRENCY

As a result of our global operations, we generate and incur a significant portion of our revenues and expenses in currencies other than the U.S. dollar. Such principal currencies are euro, the pound sterling, the Brazilian real and the Chinese renminbi. The results of operating entities reported in currencies other than U.S. dollar are translated to the U.S. dollar at the applicable exchange rate for inclusion in the financial statements. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. The foreign currency effect arising from operating activities outside of the U.S., including the remeasurement of derivatives, can result in significant transactional foreign currency fluctuations at points in time, but will generally be offset as the underlying hedged item is recognized in earnings. The effects of foreign currency fluctuations, decreased net earnings by $0.1 billion for the six months ended June 30, 2017.

See Notes 16 and 21 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.

2017 2Q FORM 10-Q 39



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

STATEMENT OF CASH FLOWS - SIX MONTHS ENDED JUNE 30, 2017 VERSUS 2016

CONSOLIDATED CASH FLOWS

We evaluate our cash flow performance by reviewing our industrial (non-GE Capital) businesses and GE Capital businesses separately. Cash from operating activities (CFOA) is the principal source of cash generation for our industrial businesses.

GE CASH FLOWS – SIX MONTHS ENDED JUNE 30

(in billions)



OPERATING CASH FLOWS		INVESTING CASH FLOWS		FINANCING CASH FLOWS

2016	2017	2016	2017	2016	2017

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.

All other operating activities reflect cash sources and uses as well as non-cash adjustments to net income including those related to taxes, interest, pension, contract assets and gains (losses) on principal business dispositions. See Note 21 to the consolidated financial statements for further information.

See the Intercompany Transactions between GE and GE Capital section within the MD&A and Notes 4 and 19 to the consolidated financial statements for further information regarding certain transactions affecting our consolidated Statement of Cash Flows.

40 2017 2Q FORM 10-Q



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

2017 – 2016 COMMENTARY

GE cash from operating activities decreased $7.2 billion primarily due to the following:


•	GE Capital paid common dividends to GE totaling $4.0 billion in 2017 compared to $11.0 billion in 2016.


•	Cash used for industrial operating activities amounted to $0.4 billion and $0.2 billion in 2017 and 2016, respectively, primarily due to the following:


•	Net income plus depreciation and deferred income taxes of $3.4 billion in 2017 compared to $6.6 billion in 2016, which included an after-tax gain of $1.8 billion from the sale of Appliances.


•	Cash used for working capital of $0.6 billion and $1.9 billion in 2017 and 2016, respectively. The decrease was primarily due to reduction in inventory build, partially offset by an increase in cash used for accounts payable.


•	An increase in contract assets of $3.2 billion and $2.4 billion in 2017 and 2016, respectively, primarily due to adjustments driven by lower forecasted cost to complete the contracts and timing of billings relative to revenue recognition on our long-term equipment and service contracts.


•	See Note 21 to the consolidated financial statements for further information regarding cash sources and uses as well as non-cash adjustments to net income reported as All other operating activities.

GE cash used for investing activities increased $6.9 billion primarily due to the following:


•	Business acquisition activities of $2.6 billion, primarily driven by the acquisition of LM Wind Power for $1.6 billion (net of cash acquired) and ServiceMax for $0.9 billion (net of cash acquired) in 2017.


•	The sale of our Appliances business for proceeds of $4.8 billion in 2016.


•	This is partially offset by the funding of a joint venture at our Aviation business of $0.3 billion in 2016.

GE cash from financing activities increased $17.8 billion primarily due to the following:


•	Net repurchases of GE treasury shares of $2.7 billion and $14.3 billion in 2017 and 2016, respectively.

•

A net increase in borrowings of $11.7 billion in 2017, mainly driven by the issuance of long-term debt of $8.6 billion, primarily to fund acquisitions, and long-term loans from GE Capital to GE of $4.1 billion, partially offset by the settlement of the remaining portion of a 2016 short-term loan from GE Capital to GE of $1.3 billion, compared to a net increase in borrowings of $5.5 billion in 2016, primarily driven by a short-term loan from GE Capital to GE of $5.0 billion.

GE CAPITAL CASH FLOWS – SIX MONTHS ENDED JUNE 30

(Dollars in billions)



OPERATING CASH FLOWS		INVESTING CASH FLOWS		FINANCING CASH FLOWS

2016	2017	2016	2017	2016	2017

2017 2Q FORM 10-Q 41



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

2017 – 2016 COMMENTARY-CONTINUING OPERATIONS:

GE Capital cash from operating activities-continuing operations increased $1.5 billion primarily due to the following:


•	Lower income tax payments of $1.1 billion and a general increase in cash generated from earnings of continuing operations.


•	These increases were partially offset by a net decrease in cash collateral received from counterparties on derivative contracts of $0.5 billion.

GE Capital cash from investing activities-continuing operations decreased $29.5 billion primarily due to the following:


•	Net proceeds from the sales of our discontinued operations of $0.8 billion in 2017 compared to $42.9 billion in 2016.


•	Investments and maturities of $6.8 billion related to interest bearing deposits reflecting maturities of $10.4 billion and investments of $3.6 billion in 2016.


•	Net cash received from derivative settlements of $0.1 billion in 2017 compared to $1.0 billion in 2016.


•	These decreases were partially offset by the following increases:


•	Investment securities of $10.7 billion related to investments of $5.7 billion in 2016 and maturities of $5.0 billion in 2017.


▪	Long-term loans from GE Capital to GE of $4.1 billion, partially offset by the settlement of the remaining portion of a 2016 short-term loan from GE Capital to GE of $1.3 billion in 2017 compared to a short-term loan from GE Capital to GE of $5.0 billion in 2016.


•	Higher net collections of financing receivables of $1.6 billion in 2017.


•	A general reduction in funding related to discontinued operations.

GE Capital cash used for financing activities-continuing operations decreased $37.9 billion primarily due to the following:


•	Lower net repayments of borrowings of $13.0 billion compared to $44.5 billion in 2016.


•	GE Capital paid common dividends to GE totaling $4.0 billion compared to $11.0 billion in 2016.

GE CAPITAL DISCONTINUED OPERATIONS CASH FLOWS – SIX MONTHS ENDED JUNE 30

(Dollars in billions)



OPERATING CASH FLOWS		INVESTING CASH FLOWS		FINANCING CASH FLOWS

2016	2017	2016	2017	2016	2017

2017 – 2016 COMMENTARY-DISCONTINUED OPERATIONS:

GE Capital cash used for operating activities-discontinued operations decreased $4.0 billion primarily due to the following:


•	Lower cash paid for income taxes in 2017.

GE Capital cash used for investing activities-discontinued operations decreased $8.7 billion primarily due to the following:


•	The sale of bank deposits of $16.5 billion resulting in net cash paid in conjunction with the sale of GE Capital Bank's U.S. online deposit platform during 2016.


•	Reduction in funding from continuing operations (primarily our treasury operations).


•	Sale of bank deposits for $0.5 billion resulting in net cash paid related to our Consumer platform during 2017.

42 2017 2Q FORM 10-Q



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

GE Capital cash from financing activities-discontinued operations increased $2.6 billion primarily due to the following:


•	Debt issued of $1.8 billion by a discontinued business sold during the first quarter of 2017.


•	Lower repayment of borrowings and bank deposit activity of $0.7 billion.

INTERCOMPANY TRANSACTIONS BETWEEN GE AND GE CAPITAL

We are repositioning GE to be the world’s best infrastructure and technology company, with a smaller financial services division. Our focus is on driving infrastructure leadership, investing in innovation and achieving a culture of simplification to better serve our customers around the world. Over the last decade, we have made significant strides in transforming our portfolio and focusing on our industrial leadership. We have grown our infrastructure platforms with major portfolio moves, investing in adjacencies and pursuing opportunities that are closely related to our core.

In parallel, we have made a concentrated effort to reduce the size of our GE Capital business and align its growth with Industrial earnings. As a result, GE Capital Verticals are now focused on investing financial, human and intellectual capital to promote growth for our industrial businesses and their customers. GE Capital accomplishes this in part through related party transactions with GE that are made on an arms-length basis and are reported in the respective GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements. These transactions include, but are not limited to, the following:


•	GE Capital dividends to GE,


•	GE Capital working capital solutions to optimize GE cash management,


•	GE Capital enabled GE industrial orders, 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

GE Capital paid $4.0 billion and $11.0 billion of common dividends to GE in the six months ended June 30, 2017 and 2016, respectively.

In order to manage credit exposure, GE sells current receivables to GE Capital and other third parties in part to fund the growth of our industrial businesses. These transactions can result in cash generation or cash use. During any given period, GE receives cash from the sale of receivables to GE Capital and other third parties. GE also leverages GE Capital for its expertise in receivables collection services and sales of receivables to GE Capital are made on an arm’s length basis. The incremental amount of cash received from sales of receivables represents the cash generated or used in the period relating to this activity. The effect of cash generated in GE CFOA from current receivables sold to GE Capital, including current receivables subsequently sold to third parties, decreased GE’s CFOA by $2.5 billion and $2.0 billion in the six months ended June 30, 2017 and 2016, respectively.

As of June 30, 2017, GE Capital had approximately $10.6 billion recorded on its balance sheet related to current receivables purchased from GE. Of these amounts, approximately half had been sold by GE to GE Capital with recourse (i.e., the GE business retains the 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. Claims by GE Capital on receivables sold with recourse to GE have not been significant for the six months ended June 30, 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 remains at $3.0 billion at June 30, 2017. See Note 4 to the consolidated financial statements for further information.

2017 2Q FORM 10-Q 43



MD&A	FINANCIAL RESOURCES AND LIQUIDITY

ENABLED ORDERS

Enabled orders represent the act of introducing, elevating and influencing customers and prospects that result in an industrial sale, potentially coupled with programmatic captive financing or driving incremental products or services across the GE Store. During the six months ended June 30, 2017 and 2016, GE Capital enabled $6.1 billion and $4.0 billion of GE industrial orders, respectively. 2017 orders are primarily with our Power ($2.7 billion), Renewable Energy ($1.9 billion), Healthcare ($0.6 billion) and Oil & Gas ($0.5 billion) and businesses.

AVIATION

During the six months ended June 30, 2017 and 2016, GE Capital acquired 22 aircraft (list price totaling $3.1 billion) and 19 aircraft (list price totaling $2.2 billion), respectively, from third parties that will be leased to others, which are powered by engines that were manufactured by GE Aviation and affiliates. Additionally, GE Capital had $1.5 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 June 30, 2017 and December 31, 2016.

POWER, RENEWABLE ENERGY AND AVIATION

GE leverages GE Capital for its expertise in structuring long-term financing arrangements with certain Power, Renewable Energy and Aviation customers for the purchase of equipment, upgrades and long-term service contracts. These arrangements are made on an arm’s length basis and fair value adjustments are recognized within the results of our Power, Renewable Energy and Aviation segments. Any associated deferred income recorded by GE Capital is eliminated in our consolidated results. In relation to these arrangements, GE Capital had approximately $2.1 billion and $1.9 billion of long-term financing receivables outstanding, net of deferred income of approximately $0.3 billion and $0.3 billion reported on its balance sheet at June 30, 2017 and December 31, 2016, respectively. The effect of cash generated in GE CFOA from long-term financing arrangements with GE Capital increased GE's CFOA by $0.3 billion and $0.5 billion in the six months ended June 30, 2017 and 2016, respectively.

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 do not relate to the Verticals and 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 $0.1 billion and $0.3 billion for the three and six months ended June 30, 2017, respectively, and $0.1 billion and $0.3 billion for the three and six months ended June 30, 2016, respectively.

Certain of this additional funding is recorded as a contra pension expense for GE because GE’s related future pension obligations will be paid by GE Capital. For certain other pension plan funding obligations triggered by the GE Capital Exit Plan, GE agreed to assume the funding obligation that would have been triggered by GE Capital at the date of exit from the plan in exchange for an assumption fee that GE recorded as Other income. There was no cash transferred to GE for the assumption of these GE Capital funding obligations for the three and six months ended June 30, 2017