Good day, ladies and gentlemen and welcome to the General Electric Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Brandon and I'll be your conference facilitator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker Vice President of Investor Communications. Please go ahead sir.

Thanks, Brandon and good morning and welcome to GE's Fourth Quarter Earnings Webcast. I'm joined by our Chairman and CEO Larry Culp; and CFO, Jamie Miller. Before we start, I'd like to remind you that the press release, presentation and supplemental have been available since earlier today on our investor website at www.ge.com/investors. Please note that some of the statements we are making today are forward looking and are based on our best view of the world and our businesses as we see them today. As described in our SEC filings and on our website, those elements can change as the world changes. And now, I'll turn the call over to Larry

Thank you, Steve. Good morning, everyone. And thank you for joining us. Our comments are going to be a bit longer than usual this morning to help you understand where we are and where we're going. But rest assured, we'll leave as much time as we can for questions at the end. First, I'd like to start by welcoming Steve to the GE team. I've known him for over a decade. Steve's already had positive impact here at GE and I'm sure, he'll do the same for you, our investors going forward. I'm here today because I believe in GE. There is no company on earth with a scale of GE's global reach, brand, talent and long-term customer relationships. We have leading technology in key infrastructure markets with high barriers to entry and strong aftermarket streams. We're poised to capture recurring revenues on a global installed base of almost 70,000 engines more than 70 -- 7,000 gas turbines and aero-derivatives, more than 40,000 onshore wind turbines and more than 4 million Healthcare Systems. In short, GE matters. We've identified clear opportunities to improve our performance and we are working to address them at root cause. We have the right portfolio of strategy and I'm confident the company is capable of gaining profitable share and creating long-term value for our shareholders. So let me cover where we stand on providing an outlook. Then I'll address some of the company changes followed by updates on our results, the balance sheet, capital and power. Jamie will take you through more details on the quarter and then I'll wrap with some metrics and comments to help you frame the outlook for 2019 before Q&A. Let's start with the outlook because investors want to know how we expect to perform financially and you should expect…

Thanks. Larry. I'll start with the fourth quarter summary. Orders were $34.1 billion down 1% reported and up 4% organically with particular strength in equipment orders up 7% organically driven by aviation commercial engines and renewables. The services orders were up 1% organically. Revenues were up 5%, industrial segment revenues were up 2% reported and 8% organically driven by renewables Aviation Oil & Gas Healthcare and Transportation. Equipment revenues grew 10% and services were up 6% organically. Industrial profit margins were 7.5% in the quarter down 150 basis points year-over-year on a reported and organic basis driven by significant declines in Power and Renewables. For the year, margins were down 80 basis points organically. Industrial profit was down 16% in the quarter with Aviation, Healthcare and Baker Hughes GE all delivering strong profit growth offset mostly by Power. Specifically Aviation had another outstanding quarter and year expanding total year margins while shipping over 1,100 LEAP engines. Net earnings per share was $0.07, which includes losses from discontinued operations related to GE Capital. GAAP continuing EPS was $0.08 and adjusted EPS was $0.17. I'll walk the GAAP continuing EPS to adjusted EPS on the right side of the page. Starting from GAAP. Continuing EPS was $0.08 and we had $0.06 of gains principally from the sale of Distributed Power. As you will recall in the third quarter, we booked the $22 billion impairment charge related to Power goodwill based on our best estimate at that time. And during the fourth quarter, we finalized our analysis and booked an incremental $69 million charge for Power following the third quarter charge. We also recorded a goodwill impairment charge of $94 million in renewables at our Hydro business. Combined these charges were $0.02 impact. On restructuring and other items, we incurred $0.07 of charges…

Jamie, thank you. So hopefully, by now you have a better sense of what I'm seeing at GE after nearly four months, our strengths, our challenges and our strategy for moving forward. I'd like to give you all the information and views on 2019 that we have today with more to come soon. We expect industrial organic revenue growth to be up low to mid-single digits on the back of a significant ramp in renewables and continued strength in Aviation and Healthcare. Power will be down in a flat to slightly down market in 2019. We also expect our industrial operating margins to expand. On free cash flow, we expect to face operating headwinds such as the PTC progress cycle reversing in renewables and we will spend more cash on restructuring at both Corporate and Power. In addition, we have a number of nonrecurring investments and commitments that create a drag on our free cash flow in 2019 but which will meaningfully lessen in 2020 and '21. These include transitioning to GE Capital supply chain financing program to MUFG and reducing factoring with GE Capital, Alstom pension contributions and legal settlements and the costs related to the preparation for our Healthcare business for our public separation. We anticipate cash flow to grow substantially in 2020 and 2021 as we make significant headway in addressing legacy and structural issues while simultaneously realizing the benefits from restructuring and stronger daily management of our businesses particularly in Power. In aviation, we see 75% to 80% of the 2019 commercial engine revenues secured in the backlog, with a largely recurring service revenue stream of approximately $15 billion. We are maintaining margin levels consistent with pre-LEAP periods despite mix changes with a healthy new order book. With these in mind, we see high single-digit revenue…

[Operator Instructions] And from Wolfe Research, we have Nigel Coe.

Thanks. Good morning.

Good morning, Nigel.

Morning. Lots of questions. I mean, I'm sure a lot of my questions will be picked up by other analysts, but I just want to start on. It sounds like your plans on Healthcare now are pretty defined, Larry. It looks like you're looking to monetize 50% putting an $18 billion of pension debts, via an IPO-type process. Is that now defined or are there still some moving pieces on that process?

Well, I think we've talked about that separation as the plan of record and that continues to be the case today. The team is very well along Nigel with respect to the preparation for a flotation. We don't have a time frame per se to share with you today but we are spending a significant amount of money in '19 as we did last year in preparation. We're obviously proud of what Karyn and the team are doing here. Very strong top line earnings and cash performance and we think this is a business that is going to be a strong resilient performer through cycles. So that is the plan.

Okay. And then my follow-on would be, you gave a lot of detail on what you've been doing for the last few months and lots of opportunities for improvement. One thing, you didn't really touch on was pricing and pricing excellence and your one precedent of GE in the past has been may be trading price for market share. So I'm just curious, what your thoughts are in terms of improving the pricing realization going forward?

Nigel, forgive us, if we didn't get into that in detail. We didn't want to overstay our welcome with respect to our prepared remarks. But when you hear us refer to profitable market share that is both an external and internal recognition. And it can't be share for share sake. And particularly in Power, I think we are acutely aware that we have opportunities both on new equipment and on the service book to basically value sell what we're doing more frequently. I got the word last night for example within Power of a project that is looking very good where we're frankly -- we are not the low bid, right? I think that just speaks to the way we're able to communicate the value of our technology. We know in these businesses from Healthcare to renewables price is a reality. We want to be smarter around pricing, at the same time, frankly when you hear us talk about labor and material productivity, we really want to push that hard and do that in line with market realities, so that we can maintain margins in light of some of those pressures.

And Nigel, just to add a little bit more color there on the numbers. Orders pricing in total for the year was relatively flat. It was actually up just slightly and it was up more than that in the second half. And as Larry mentioned, we are seeing in the numbers the pressure moderating at Power and at renewables. Power really with respect to the enhanced discipline on new projects and bids as Larry talked about. In renewables, we're seeing that pressure moderate as we move throughout the year as well primarily as we're moving through that PTC cycle. The supply chains are more stretched and that price dynamic becomes a little bit more unbalanced. Aviation and Healthcare are running as you would expect, which is strongly as Larry mentioned.

And from JPMorgan, we have Steve Tusa. Please go ahead.

Hey, good morning. So you mentioned on the free cash flow dynamics, you mentioned the PTC headwind, a bit more restructuring cash, some other I guess nonrecurring investments. Can you maybe give us some color on that? In addition, just provide some color on how much of a, I think Jamie said before about $1 billion of headwind or so from divestitures. So maybe just help us with a bit of a rough bridge from the $4.5 you did in 2018? Because obviously that sounds like it's going to be down.

Yes. So why don't I talk through the components of 2018 first in terms of really walking you through the rounding out our fourth quarter performance and we can address some of those questions. So for 2018, if you really walk the changes, we obviously had earnings. We also had working capital, which for the year was basically zero impact of free cash flow. Fourth quarter was $2.3 billion positive. As we expected with large volumes coming through this quarter. Contract assets was basically flat.

Hey, sorry. I can see the slide. I just wanted to know like $4.5 billion. Is that -- there's a lot of headwinds that Larry had talked about. I'm just curious as to maybe you can give us some color on the size of some of those headwinds? And obviously, it sounds like it will be down. Will you as an organization generate cash including GE Capital next year? I guess that's the simple way to ask the question.

Yeah, Steve. And I think the simple answer the question is, what we're trying to communicate today is that we are going to see pressures both operational and nonrecurring. We are going to be back shortly when we can take you through a detailed walk in that regard. I think from an operating perspective, is worth acknowledging a lot of good performance in the number of businesses. Clearly renewables was stronger from a cash perspective in '18 and is likely to be in '19 given the PTC dynamic. And we are going to go deep here on additional restructuring where we see opportunities to put that money to work and generate real returns. We also have some of these nonrecurring events or issues. Some of them are policy decisions like the move on the supply chain financing program. I think we've got better line of sight today on some of these legacy issues that come out of Alstom that we're on the hook or those are real cash commitments in '19 that abate thereafter and we do have the cost relative in Healthcare IPO. So again, I think the headline is, we finished strongly. We know we got some operating and non-operating pressures and think we work through that in '19 with an eye toward a stronger cash flow performance in '20 and '21 with more details to come soon.

Great. And what do you expect GE cash to earn in 2019 and how much from an ongoing cash generation perspective, how much will they be generating?

Steve, as I said in both my prepared remarks and a moment ago when we have everything locked down to get into those specifics then we'll do that soon. We'll be back to you.

From Vertical Research we have Jeffrey Sprague

Thank you. Good morning, everyone.

Morning, Jeff.

Yeah. Two from me. Just thinking about the Healthcare exit in particular. Kind of, for lack of a better term, losing that cash flow near term seems like it would create some stress on the organization. Can you give us a sense of, what you foresee as kind of the timing of the exit? And then Larry, particularly interested also on, how you view exiting the remaining 50% stake. Do you see the potential for some kind of, equity-friendly exit with that piece the split-off for example, which you might shrink the share count of the remaining company?

Well Steve, I'd like to think that everything that we do is shareholder-friendly, right? I mean, we take a strong view here and you know, from seeing me in other roles that we want to create long-term shareholder value with the cumulative effect of everything that we do. I think with respect to Healthcare what we can confirm today is that we're on the path toward an IPO here in 2019. Timing is still TBD. So we don't have a date. Like me on my senior prom. I just don't have a date for you today but I think in time, we'll have more clarity. With respect to Baker Hughes, I mean we talked about that as part of that $50 billion pool of options to go to. I think that the high probability there is for us is to sell our shares. We certainly are approached by various folks, who have an interest in a stake in that company. And again, we don't have a timetable per se to share with you today but we want to reiterate our view to dispose of that stake in an orderly manner, which again we think is conducive to value creation for our shareholders.

Thanks. And just as a follow-up. I didn't have a prom date and I've been called worse than Steve but as unrelated follow-up, if we think about what you're going through in insurance right now, the comment about the statutory review. Is that to indicate Larry or Jamie that even if there is some adverse outcome as it relates to that statutory review, it would not affect your near-term funding needs and instead those would be tacked onto the tail, so to speak of what you're planning from reserve build?

Well, Jeff what I was referring to there was that, it's really the statutory calculation not the GAAP that drives the statutory funding needs. We are right in the middle of that process. We continue to expect to contribute about $2 billion to the insurance entities in 2019. We'll conclude that process over the next three to four weeks. But at this point that is what we expect.

Sorry about that Jeff.

Thanks.

From Barclays, we have Julian Mitchell.

Morning. Maybe as the first question on Power. I understand, you're reticent to give too much forward-looking color but perhaps give us a sense of, if you look at the reported 2018 numbers EBIT loss of $800 million free cash of minus $2.7 billion. How would you look at the or characterize to us the underlying figures for both of those two items, if you strip out charges and projects execution overruns and so on? And maybe also on that point, if you could give any color as to the separation of gas and non-gas within Power? What sort of financial conditions that separation has uncovered in each of the two pieces?

Sure, sure. Let me do that and again this is very much a work in progress with a new team establishing new operating rhythms. But I would say that if we start on the service side of things, right? We've got a $62 billion backlog. We did take the charge in the fourth quarter $400 million on about a $3.7 billion contract asset book and we think that's appropriate just given what we see in the marketplace. I think we're encouraged though relative to the execution around pricing here. We have changed the way the folks in the field are compensated. Transitioning them, if you will from volume to margin. But again, there's a good bit of productivity post Alstom that we still need to get from the combined organizations here and that work is incomplete. But that's part of that operating loss that you see here at year's end. We are clearly dealing with lower demand in equipment, encouraged by some of the share points in the US market here in the back half. But again, we want to make sure we focused on profitable share. There we took $350 million of charges around the project book and we know that we have a lot of execution here to improve just in the way these projects are brought online. I think when you look at the vintages, we're encouraged by the progress that we see post the '16 underwriting class in terms of our margins on those projects. But that's very much a work in progress. I think with respect to the change in the structure of Power, again part of it is a cost reduction. We shared some of that in the prepared remarks but we also are getting better visibility on the underlying businesses P&L-by-P&L. So we talk about gas, we're combining services and equipment then we have the rest of our Power portfolio. As Jamie mentioned, we now take on all the cost for grid now that we own all of it that doesn't help us at all. But now we've got better line of sight on the discreet P&L's grid, Steam, Power Conversion and Nuclear all four of those businesses have meaningful profit improvement potential and we're going to manage them from the bottoms up accordingly. So clearly, we're at a break even from our P&L perspective absence some other charges, a lot of work to do here and as we have better visibility and more conviction around those improvements, we'll be back and we'll be back here soon with respect to how that plays out in '19 and '20.

The other color I would just add there on negative free cash flow is as volume comes down in the factories and as our projects continue to work their way through, you see volume leveling but we've been in a declining frame here. So what's really flowing through on cash in addition to some of the other items Larry mentioned is a burn down of our progress billings and a burn down of our project payables. Situations where we receive projects in advance of constructing new equipment or where we received progress on projects and now we're in the phase of the project, where the payables and the costs are starting to come through. So that's also pressuring the Power of free cash flow. And as that levels that also starts to level.

Thanks. And then my second question may be about a business, where there's better medium term visibility Aviation. You talked about the LEAP operating margin headwind last year. How do you see that moving in 2019 relative to that 160 bps? And then looking out beyond just this year anything on the horizon in terms of let's say 777X transition or NMA that you think could cause a major risk to the aviation free cash flow in margin profile?

With respect to Aviation's merger and mix you saw strong fourth quarter and when we look at the remixing that's happening between CFM and LEAP significant increase in LEAP shipments in the quarter up 88% over the prior year. Year-over-year 2.4x up and you're seeing CFM come down meaningfully over those same periods. Next year, CFM will come down again about I'd say more than 50% of CFM deliveries will be reduced next year but the LEAP also ramps from the 1,118 we had this year up to 1,800-plus. So that remixing continues to occur. We mentioned on the call that it was a drag in 2018 of 160 basis points. We do expect continued some small drag next year but again Aviation's doing a really nice job offsetting that with services growth. They're shifting in military and the company-funded R&D.

We're clearly in conversations with our major airframe customers about new platforms. I think at this point, it would be premature to suggest that we're going to have a cash flow headwind a material cash flow headwind around any of those programs here in '19.

From Melius Research, we have Scott Davis. Please go ahead.

Hey. Good morning, guys.

Good morning, Scott.

And Larry I don't buy that you're going to have a prom date. That's nonsense. Even I had a prom date. I was bald at birth. All kidding aside, the one number you gave that was new, which was kind of eye-popping to me, it was just $1.6 billion Power headquarter number. Can you put some context around that? It seems just like such a insane number. But I don't know really what you're including in that I guess as far as talking about headquarter?

Well, there's -- it's a large number and again, I think we've got line of sight here in the near terms Scott to bring that down by about 300. And effectively, as you know, we've done a lot horizontally both at corporate and at the segment levels over time for the businesses. So it's not as if it's unhelpful or wasteful but there clearly is an adjustment we can take here as we move those activities into the businesses and I think over time as the businesses have true ownership for them that they are in their operating budgets as opposed to an allocation from corporate. They're likely to find opportunities for further savings. But we don't do it primarily for the cost reduction. I think we really do it to help drive visibility and accountability P&L-by-P&L. I think I've shared with some folks that early on in my tenure we would talk about Power as if it was one business. It's obviously a number of businesses. Some better than others, different issues here and there. I think we've got better visibility on those issues. It's not perfect today but as we get that visibility I think better position to take meaningful action to drive better results across that portfolio.

That make sense. And then the other thing is just not totally clear is, if the New World is 25 gigawatts to 30 gigawatts, which arguably a lot of people can say the New World is 25 or even a little lower but how do you get your capacity down anywhere close to that? I mean you've got big factories, lots of capital equipment, lot of pressure from governments and unions and everybody else. Is it realistic to be able to get that down in the next two years? it's something that's closer to 30?

Well, I think it is realistic, right? There are going to be a number of competing priorities and pressures but we took $1 billion of cost out last year. I think we are putting the -- we're putting up the parameters of a program to build on what we did last year. So Scott, we have to do this. We absolutely have to do this. I think we know, it's a multiyear effort but the challenge here around margins is not simply one of capacity. Right back to the earlier question around pricing. Productivity both in new equipment and in the field on services. It's a whole host of things that I think give us the optimism that we can drive better margin and cash performance in this business. But we have to prove that to you.

And from Citi, we have Andrew Kaplowitz. Please go ahead.

Hey. Good morning, guys. Larry, one of the biggest issues I think that investors have had when GE is the concern that legacy liabilities will continue to surprise the company. The FIRREA agreement with the DOJ seems like a positive development in that regard, so does is the relatively small LTC adjustment. But at this point, do you feel reasonably confident that you've identified all the skeletons in the closet in a level of negative surprises are really going to start dropping moving forward?

I don't think I would ever say, even on my last day here that we have found all the skeletons, right? I don't tend to take absolute positions. But that said I think you're spot on. The news today around WMC is good both with respect to a resolution and the fact that we came in right where we were reserved. So we can begin to move that episode behind us. I think we're encouraged by the results that Jamie walked you through relative to the LRT. But again, the cash requirements really come from the stat and not the GAAP test and that will still has a few more weeks to run. But in the absence of no new news again with a lot of fresh eyes and it's not my fresh eyes we've got a new GC, we've got a new controller new to GE in their first years. I think that is a positive sign that we aren't adding to the list. We're going to be as open and transparent as we possibly can, when we find things. And we're going to help you understand what we're doing to address them but I'm encouraged by what I see and what has not arisen here in nearly four months time.

And Larry, you're pretty clear about having no plans to sell GECAS. It sounds quite definitive but obviously there's a lot of noise out there. So maybe I could step back and ask you how you weigh the urgency to get GE Capital debt down versus keeping the strong earnings stream in tact from GECAS that you have in the business?

Well, I think that we're -- we're frankly keen not to comment on every rumor on every innuendo that's out there. GECAS is one business that we get inbounds on with some frequency. But frankly. We get inbounds on everything but my desk. I think it speaks to the quality of the assets. Again, I think we can delever and bring that net debt down from $55 billion to something closer to $25 billion. We've got a number of options. We are mindful of the trades when we move assets out and the impact on our earnings and cash capability. But again, you elevate to the strategic level, I think we are clear. We need to delever and we're going to work the plan that we've outlined here today and that's really is I think as simple and as straightforward as it gets.

From Bank of America Merrill Lynch, we have Andrew Obin. Please go ahead.

Hi, good morning. Just a question. You mentioned that you took $400 million of contract asset writedown in Power. And my understanding is that sort of culturally is a big deal. Shall we see more of these writedowns? How far along are we in the process of evaluating the book there?

We asked our new controller, when he started to take a clean look at everything across the company. And they -- as they went through their normal standards CSA reviewed this quarter did pay particular attention to higher risk contracts, just to make sure that we were thinking about them cleanly and the right way. What we talked about on the call, which was really comprised of three different buckets were the results of that review. So as we mentioned before, we had adjustments for utilization, some on pricing pressure and then just our standard cost updates. On the utilization side, when you look at the CSA book, utilization has been relatively flat and it's demonstrating actually a fairly healthy profile. And I think it just continues to support the base that gas continues to be an important source of energy generation. Now some geographies are impacted more by some of the renewables adoptions. And as you look at our book, our concentration of geographies isn't largely in those areas but we did see some true-ups that we took in places like California and Turkey just to make sure we were reflecting our best view on that. On the pricing pressure, we are seeing that in some contracts. These are high margin long term contracts. And when we do go through renegotiation process on some of these, we are often able to offset that pricing with scope expansion and cost productivity. Having said that we wanted to make sure we had a realistic view of how we saw the portfolio, when we went through these reviews. We always do standard cost updating in our portfolio, that's just like you do in manufacturing. Those standard cost roll through this quarter as well. And part of that also reflected a small impact from the stage one blade issue but that's something that we had expected would happen, there as well.

Got you. And just on GE Capital. How much incremental capital? You said $4 billion in '19 but how much incremental, do you need to put in 2020 to achieve your leverage targets? Thank you.

Yeah. So Andrew at this point, we're talking about 2019, which is the $4 billion. And as we said as we get beyond 2019, we obviously understand. We will continue to put capital or expect to continue to put capital into the insurance subsidiaries. That will be funded through a combination of GE Capital earnings asset sales liquidity and GE parents support but at this point, we're not prepared to talk more fully about that.

From Deutsche Bank, we have Nicole DeBlase. Please go ahead.

So, good morning. So I just want to start on Power kind of a two part question. You reduced headcount by 15%, you reduced footprint by 30%. I know that pricing is an important part of the equation of getting back to profitability here but I guess maybe what inning are you in with respect to what you need to do to get to the right level of capacity utilization? And then same topic different question. What exactly are you doing to improve Power execution since that keeps coming up as a driver of weaker profitability and when might we stop talking about that piece of the margin headwinds?

Well, Nicole I would say, we are in the very early innings relative to the turnaround at Power. I don't know, how else to frame it. Again, a new team, a new structure, new operating rhythms. When we talk about execution, we talk about daily management. What I'm really referring to is making sure that every day the folks in the field, the folks in the factories, the folks in the labs understand what the key operating metrics are that they are responsible for that feed into better margins both at the growth in the operating level in this business. So that takes time because it's not just a reporting exercise, right? It's a management exercise and making sure they not understand not only how they're being measured but how to go about actually getting better price, how to go about actually driving better material productivity. Execution in the field as well. Not only around cost but frankly more importantly around quality making sure we get into outages quickly and we solve issues for customers the first time and when we're not going back. Those are the source of things. And it is a big organization. It's a global organization. This is going to take a little while. But I'm optimistic that we'll see it in our operating metrics over time and that will in turn translate into better performance. We'll clearly get some lift sooner from the absence of the adjustments that we made at the end of the year but what I'm really focused on and what I think investors are to be focused on, are those underlying operating improvements.

Okay, got it. That's helpful. Thanks, Larry. And just a really quick one to tie up. Good progress on corporate expense reduction this quarter. Would you say that the corporate expense that we saw in 4Q is indicative of the run rate for 2019? Or are there items there that we need to consider?

I'd say it's roughly indicative. I think it'll be down slightly from that. It was a little bit higher in the quarter due to some onetime expenses we had but it's close. Little bit down from that in 2019.

From RBC Capital Markets, we have Deane Dray. Please go ahead.

Thank you. Good morning, everyone.

Hey, Dean. Good morning.

I'd also like to add our welcome to Steve Winoker and wish him all the best.

Thanks, Dean.

Looks like I have to burn one of my questions, what's more of a housekeeping question Larry is in the third quarter earnings you talked about plans for an Analyst meeting in early 2019. Looks like, there's still a lot of more specifics that have to get filled in in terms of guidance and especially on the cash flow side. Maybe you're not ready yet to host that meeting. But just where does that stand and what would the timing be?

Well, Dean again, I think we're sharing today what we can in terms of not only the fourth quarter but the actions that are under way and how we see 2019 shaping up. We know we're not answering every question that folks might have on their minds today. But we're not going to answer any question without a grounding and a level of conviction that we expect of ourselves and I think folks like yourselves and investors expect of us as well but we are indicating that we'll be back soon with more particularly as we work through some of the issues, we've talked about not only in our prepared remarks but also here in Q&A with respect to Power.

Okay. And Larry, I appreciate how you started off the call with all the changes in terms of the management approach and the accountability and voice of the customer. I mean that's --that was all good color to hear upfront. And then my second question is on the insurance side. We've got good news, what I see is good news on the loss recognition certainly not a new surprise. How does that change? In the third quarter, there was lots of calls for how to ring fence the long term insurance risk and where that might be. Where does that stand today in terms of priorities?

Well, Dean, again I want to make sure everybody understands that the LRT results here are a positive data point. I think that the stat test is going to be more important and I think we don't expect any major surprises but we'll have those results to share with you in a few weeks. This is a long term liability right? And we have our commitments with respect to the permitted practice. We're in a position to fulfill those. We certainly get inbounds here as well from folks, who'd like to take this book off of our hands. But not necessarily in a structure and at a value that would make sense for the GE shareholder. So I suspect that as we enhance our disclosures, they'll be better understanding of what this is. Certainly I suspect there will still be some debate. But I'm optimistic that the transparency will lead to better understanding and we can talk about this in a fact-based way. People can understand what that means. Is it with us forever? Or is there a way to ring fence it is to use your word again, I'm not going to rule anything out. But I think right now, what we're trying to do is to make sure that everyone understands, what it is and what our obligations are around the insurance book. So hopefully, some helpful disclosures in that regard today with more to come in the K once we're on the other side of the stat test.

And from Gordon Haskett, we have John Inch. Please go ahead.

Good morning, everybody. Good morning, Larry.

Hey, John. Good morning.

Hi, Steve.

Good morning, John.

Good morning, Steve. Just on the capital guide. I may have missed this Jamie and Larry but what is capital guide for 2019? What are you expecting? And what kind of, are we expecting from say gains from the $10 billion of asset sales? So it's almost like, what's the guide ex the $10 billion on earnings? And also Jamie, what was Healthcare's free cash flow in 2018?

Well, with respect to GE Capital's 2019 as Larry mentioned, we're not offering 2019 guidance today. So that's something that we will be sharing with you in the near term but not today. And with respect to Healthcare's free cash flow, I think it's well understood that that is a strong cash flow business. It's a flow business unlike some of our long cycle and I think there's been a lot of valuation maps that's been out there. So while we're not disclosing Healthcare's free cash flow, I think you can probably come to a pretty reasonable conclusion there about what that is.

Okay. I think we were targeting break even in capital this year and we ended up losing money. I'm just wondering, what is -- what actually changed in the mix from Jamie, when you originally thought would be break even to the loss? And also in your cash walk on the fourth quarter cash walk, the Baker Hughes free cash flow is a positive $800 million. It looks like Baker actually generated positive free cash flow in the fourth quarter. So why would that be a positive? Why isn't that a negative drawing it out, it's just a technical question, I guess.

Well, first on GE Capital. We had the LRT results in the fourth quarter so that was $65 million. We actually had tax benefits of less than we expected as well. That impacted us by about $240 million. And then we had some other marks in the portfolio in the second half. So that was really the large difference between what we had expected and where we ended up. And then with respect to Baker Hughes. We are backing out free cash flow. So that might be a labeling issue on the slide there. It's less Baker Hughes free cash flow. If you back it out and you have the dividend.

And from Goldman Sachs, we have Joe Ritchie. Please go ahead.

Thanks. Good morning.

Hey, Joe. Good morning.

Good morning, Joe.

Good morning, guys. And so just I know, you're a little reluctant to answer much on the 2019 guide. But I could just may be ask on just Power free cash flow, the $2.7 billion burn this year. Do you expect '19 to be better than 2018 from a Power free cash flow perspective?

I think we're at a place, where we're sharing with you today everything that we know, everything we can commit to. And again, we'll be back with more detail particularly with respect to Power and cash soon. But we're just, we're not in a position where we're able to do that. But clearly, again, hopefully the color around the $2.7 billion that we burned last year is helpful. With respect to framing the magnitude of the task and the challenge, when we understand and are serious about addressing.

Getting the disclosure on the $2.7 billion definitely helpful and will hopefully get some more color on the path in the near term. But I guess, if I can maybe focus then on just the onetime issues that occurred in the second half of 2018. Specifically, around the blade issue. Is it fair to say that those issues are at least behind you? And how should we think about what the call it roughly, it sounds like it was like roughly $700 million or so in quantifiable charges there. What does that relate to? Does that relate to all orders that you received so far in each turbine. Just any color on that would be helpful?

Yes. Well the -- when we talk about the cost for the blade issue, it's really a function of going out and effectively replacing these blades sooner than we were anticipating, right? Because the useful life is effectively shorter than we had anticipated unfortunately. But we think we understand that. That work is under way with respect to the installed base. And again, I think it's regrettable. I think our customers when you talk to them understand, what's happened how we're going about remediating the issue in the field and I'd like to think that that is not something, we're going to continue to site with respect to the margin pressure in the business here in '19.

Yeah. And just walking back from third quarter and maybe updating today. So third quarter, we had $240 million of warranty and other accruals related to the stage one blade. We also mentioned that that we expected to experience a similar amount of that over time as the worked outperformed in our services book. So part of what I mentioned earlier on those charges includes that stage one blade issue started to come through the services updates.

But there are host of elements of that

Absolutely.

That update not just the very.

Yeah. It's a very small issue in the quarter. But it's just part of that that bleed off as we do the work.

Thanks, Joe. And our final question from Cowen and Company, we have Gautam Khanna. Please go ahead.

Yes. Thank you. Good morning, guys.

Good morning.

Two questions. First, I was wondering, if you have any changes being contemplated to the incentive comp triggers for senior management as we approach the whole proxy time frame? Any changes to the PSU triggers that you're thinking about now?

Nothing that we can reference this morning.

Okay. And I was wondering, if you could talk about when you expect pricing to bottom and the transactional Power aftermarket? Or if it has already in your opinion? And how will that pricing now compares to maybe where it was a year ago?

I think that's a question that depends on geography and it depends on the scope and the kinds of work, we're really looking to do with our customers. Over the last year, as we've talked about before as Scott has come in. He has really refocused our transactional group, to focus more on in some cases less scope but higher margin work as we do it. You know, it's a competitive market but even having said that that as we have our orders come in, we're seeing order CM or margin rate up in some cases 10, 12, 15 points on our order book and it's been consistently increasing throughout the year. Now as Larry mentioned earlier on the call, we're not yet seeing all of that drop through primarily because of field execution issues and operational issues. But these are things that we believe are fixable. And over time as we really seek to increase our share in that book, it really capture the kind of work that we want to capture the higher margin work, the operational execution piece of that we think should flow through. But with the respect to the margin pressure generally, I should say pricing pressure, these are very competitive markets that have a lot of capacity. So I think that dynamic will continue as we go through the next couple of years and until the market levels out and until we see the capacity leveling out as well.

I know, we ran out of time before we could get to everyone in the queue. So you can reach me and my team through the day. But I want to thank everybody for joining us. The replay of today's call will be available this afternoon on our Investor website. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.