-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzIv1rw8TnmMzLnhLCOJ6UtaKSNt3h8N+98kXEwJNIFN6gQECV2QFs6lDNBqnImI dHXWBiwAIq9H8TOfA0+m0A== 0000040545-98-000013.txt : 19980330 0000040545-98-000013.hdr.sgml : 19980330 ACCESSION NUMBER: 0000040545-98-000013 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CO CENTRAL INDEX KEY: 0000040545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 140689340 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00035 FILM NUMBER: 98576251 BUSINESS ADDRESS: STREET 1: 3135 EASTON TURNPIKE STREET 2: C/O BANK OF NEW YORK CITY: FAIRFIELD STATE: CT ZIP: 06431 BUSINESS PHONE: 2033732816 MAIL ADDRESS: STREET 1: 3135 EASTON TURNPIKE CITY: FAIRFIELD STATE: CT ZIP: 06431 10-K405 1 SECTIONS Business 2 Properties 12 Legal Proceedings 12 Submission of Matters to a Vote of Security Holders 15 Market for Stock 15 Selected Financial Data 15 Management's Discussion 15 Market Risk 16 Financial Statements 16 Disagreements 16 Directors and Executive Officers 17 Executive Compensation 18 Security Ownership 18 Certain Relationships 18 Exhibits, Financial Statement Schedules 19 Signatures 24 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended DECEMBER 31, 1997 Commission file number 1-35 ------------------------------------------- --------------------------- or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______to ______ GENERAL ELECTRIC COMPANY (Exact name of registrant as specified in charter) NEW YORK 14-0689340 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3135 EASTON TURNPIKE, FAIRFIELD, CT 06431-0001 203/373-2211 - ----------------------------------- ---------- ------------ (Address of principal executive offices) (Zip Code) (Telephone No.) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common stock, New York Stock Exchange par value $0.16 per share Boston Stock Exchange There were 3,260,410,586 shares of voting common stock with a par value of $0.16 outstanding at March 1, 1998. These shares, which constitute all of the outstanding common equity of the registrant, had an aggregate market value on March 2, 1998, of $251.6 billion. Affiliates of the Company beneficially own, in the aggregate, less than one-tenth of one percent of such shares. 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 X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X DOCUMENTS INCORPORATED BY REFERENCE The definitive proxy statement relating to the registrant's Annual Meeting of Share Owners, to be held April 22, 1998, is incorporated by reference in Part III to the extent described therein. 2 PART I ITEM 1. BUSINESS GENERAL Unless otherwise indicated by the context, the terms "GE," "GECS" and "GE Capital Services" are used on the basis of consolidation described in note 1 to the consolidated financial statements on page 47 of the 1997 Annual Report to Share Owners of General Electric Company. The financial section of such Annual Report to Share Owners (pages 25 through 66 of that document) is set forth in Part IV Item 14(a)(1) of this 10-K Report and is an integral part hereof. References in Parts I and II of this 10-K Report are to the page numbers of the 1997 Annual Report to Share Owners included in Part IV of this 10-K Report. Also, unless otherwise indicated by the context, "General Electric" means the parent company, General Electric Company. General Electric's address is 1 River Road, Schenectady, NY 12345-6999; the Company also maintains executive offices at 3135 Easton Turnpike, Fairfield, CT 06431-0001. The "Company" (General Electric Company and consolidated affiliates) is one of the largest and most diversified industrial corporations in the world. From the time of General Electric's incorporation in 1892, the Company has engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Over the years, development and application of related and new technologies have broadened considerably the scope of activities of the Company and its affiliates. The Company's products include, but are not limited to, lamps and other lighting products; major appliances for the home; industrial automation products and components; motors; electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear reactors, nuclear power support services and fuel assemblies; commercial and military aircraft jet engines; materials, including plastics, silicones and superabrasive industrial diamonds; and a wide variety of high-technology products, including products used in medical diagnostic applications. The Company also offers a wide variety of services, including product services; electrical product supply houses; electrical apparatus installation, engineering, repair and rebuilding services; and computer-related information services. The National Broadcasting Company, Inc. (NBC), a wholly-owned affiliate, is engaged principally in furnishing network television services, in operating television stations, and in providing cable programming and distribution services in the United States, Europe and Asia. Through another wholly-owned affiliate, General Electric Capital Services, Inc. (GECS), and its two principal subsidiaries, the Company offers a broad array of financial services including consumer financing, commercial and industrial financing, real estate financing, asset management and leasing, mortgage services, consumer savings and insurance services, specialty insurance and reinsurance. Other services offered by GECS include satellite communications furnished by its affiliate, GE Americom, Inc. The Company also licenses patents and provides technical services related to products it has developed, but such activities are not material. Aggressive and able competition is encountered worldwide in virtually all of the Company's business activities. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development commitments, and by capital-intensive needs to meet customer requirements. With respect to manufacturing operations, management believes that, in general, GE has a leadership position (i.e., number one or number two) in most major markets served. The NBC Television Network is one of four major U.S. commercial broadcast television networks. It also competes with two relatively new commercial broadcast networks, syndicated broadcast television programming and cable and satellite television programming activities. The businesses in which GE Capital Services engages are subject to competition from various types of financial institutions, including commercial banks, thrifts, investment banks, broker-dealers, credit unions, leasing companies, consumer loan companies, independent finance companies, finance 3 companies associated with manufacturers, and insurance and reinsurance companies. GE has substantial export sales from the United States. In addition, the Company has majority, minority or other joint venture interests in a number of non-U.S. companies engaged primarily in manufacturing and distributing products and providing nonfinancial services similar to those sold within the United States. GECS financial services operations outside the United States have expanded considerably over the past several years. INDUSTRY SEGMENTS The Company's operations are highly decentralized. The basic organization of the Company's operations consists of 12 key businesses, which contain management units of differing sizes. For industry segment reporting purposes, the businesses are aggregated by the principal industries in which the Company participates. This aggregation is on a worldwide basis, which means that the operations of multi-industry non-U.S. affiliates are classified by appropriate industry segment. Financial information on consolidated industry segments is presented on page 35 of the 1997 Annual Report to Share Owners in two parts: one for GE that includes GECS in the All Other segment on a one-line basis in accordance with the equity method of accounting, and one for GECS as a separate entity. For GE, five of the 12 key businesses (Aircraft Engines, Appliances, Power Systems, Plastics and NBC) represent individual segments (namely, Aircraft Engines, Appliances, Power Generation, Materials and Broadcasting, respectively). Except for "All Other," the remaining businesses are aggregated by the two industry segments in which they participate (Industrial Products and Systems, and Technical Products and Services). The All Other segment consists primarily of GECS earnings, discussed above, and revenues derived from licensing use of GE technology to others. For GECS, revenues and operating profit are presented separately by the two industry segments in which it conducts its business (Financing and Specialty Insurance). There is appropriate elimination of the net earnings of GECS and the immaterial effect of transactions between GE and GECS segments to arrive at total consolidated data. Additional financial data and commentary on recent operating results for industry segments are reported on pages 34-38 of the 1997 Annual Report to Share Owners. Further details can be found in note 28 (pages 62 and 63 of that Report) to the consolidated financial statements. These data and comments are for General Electric Company's operations, except as otherwise indicated, and should be referred to in conjunction with the summary description of each of the industry segments which follows. AIRCRAFT ENGINES Aircraft Engines (8.6%, 8.0% and 8.7% of consolidated revenues in 1997, 1996 and 1995, respectively) produces, sells and services jet engines, turboprop and turboshaft engines, and related replacement parts for use in military and commercial aircraft. GE's military engines are used in a wide variety of aircraft that includes fighters, bombers, tankers, helicopters and surveillance aircraft. The CFM56, produced by CFMI, a company jointly owned by GE and Snecma of France, and GE's CF6 engines power aircraft in all categories of large commercial aircraft: short/medium, intermediate and long-range. Applications for the CFM56 engine include: Boeing's 737-300/-400/-500 series, the next generation 737-600X/-700/-800/-900 series, and the 737 business jet; Airbus Industrie's A319, A320, A321 and A340 series; and military aircraft such as the KC-135R, E/KE-3 and E-6. The CF6 family of engines powers intermediate and long-range aircraft such as Boeing's 747 and 767 series, Airbus Industrie's A300, A310 and A330 series, and McDonnell Douglas' DC-10 and MD-11 series. The GE90 engine is used to power Boeing's 777 series twin-engine aircraft. The business also produces jet engines for executive aircraft and regional commuter aircraft, and aircraft engine derivatives used for marine propulsion, mechanical drives and industrial power generation sources. Maintenance, overhaul and 4 component repair services are provided for many models of engines, including engines manufactured by competitors. The business further expanded its product services operations through the acquisition of Greenwich Air Services/UNC in 1997 and Celma, an engine overhaul operation in Brazil, in 1996. The worldwide competition in aircraft jet engines is intense. Both U.S. and export markets are important. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures, both customer-financed and internally funded, are also important in this segment. Potential sales for any engine are limited by, among other things, its technological lifetime, which may vary considerably depending upon the rate of advance in the state of the art, by the small number of potential customers and by the limited number of applicable airframe applications. Sales of product services (replacement parts and services) are an important part of the business. Aircraft engine orders tend to follow military and airline procurement cycles, although cycles for military and commercial engine procurement are different. Procurements of military jet engines are affected by changes in global political and economic factors. In line with industry practice, sales of commercial jet aircraft engines often involve long-term financing commitments to customers. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guarantees (principally guarantees) amounting to $1.6 billion at year-end 1997, and had entered into commitments totaling $1.8 billion to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1997. For current information about Aircraft Engines orders and backlog, see page 34 of the 1997 Annual Report to Share Owners. APPLIANCES Appliances (7.4%, 8.1% and 8.5% of consolidated revenues in 1997, 1996 and 1995, respectively) manufactures and/or markets a single class of product - major appliances - that includes refrigerators, electric and gas ranges, microwave ovens, freezers, dishwashers, clothes washers and dryers, water-softening and filtering products, and room air conditioning equipment. These are sold under GE, Hotpoint, RCA, Monogram, Profile and Profile Performance brands as well as under private brands for retailers and others. GE microwave ovens, room air conditioners, water softening and filtering products, and freezers are sourced from suppliers while investment in Company-owned U.S. facilities is focused on refrigerators, dishwashers, ranges (primarily electric, but some gas) and home laundry equipment. A large portion of appliance sales is for replacement of installed units. Such sales are through a variety of retail outlets. The other principal channel consists of residential building contractors who install appliances in new dwellings. GE has an extensive U.S. product services network that provides repair services, expanded service plans, warranty administration and risk management services. Appliances continues to increase its operating presence in the global business arena and participates in numerous manufacturing and distribution joint ventures around the world. In 1996, Appliances acquired a 73% interest in DAKO S.A., Brazil's leading gas range manufacturer. Demand for appliances is influenced by economic trends such as increases or decreases in consumer disposable income, availability of credit and housing construction. Competition is very active in all products and comes from a number of principal manufacturers and suppliers. An important factor is cost; considerable competitive emphasis is placed on minimizing manufacturing and distribution costs and on reducing cycle time from order to product delivery. Other significant factors include brand recognition, quality, features offered, innovation, customer responsiveness and appliance service capability. A number 5 of processes, such as Quick Response, New Product Introduction and Quick Market Intelligence, have been implemented to improve GE's competitiveness in these areas. For example, the Six Sigma quality initiative will enable the business to improve the quality of products, reduce waste and provide better product services. In 1997, the business added GE SmartWater(TM) filtration and water softening systems to its product line, launched a new line of dishwashers, introduced the Profile Performance brand in the high-end market segment, and completed a joint venture with National Tech Team to further broaden its product services offerings. BROADCASTING Broadcasting (5.7%, 6.6% and 5.6% of consolidated revenues in 1997, 1996 and 1995, respectively) consists primarily of the National Broadcasting Company (NBC). NBC's principal businesses are the furnishing within the United States of network television services to affiliated television stations, the production of live and recorded television programs, the operation, under licenses from the Federal Communications Commission (FCC), of television broadcasting stations, the operation of four cable/satellite networks around the world, and investment and programming activities in multimedia and cable television. The NBC Television Network is one of four major U.S. commercial broadcast television networks and serves more than 200 affiliated stations within the United States. At December 31, 1997, NBC owned and operated 12 VHF and UHF television stations located in Birmingham, Ala.; Chicago, Ill.; Columbus, Ohio; Hartford, Conn.; Los Angeles, Calif.; Miami, Fla.; New York, N.Y.; Philadelphia, Pa.; Providence, R.I.; Raleigh-Durham, N.C.; San Diego, Calif.; and Washington, D.C. Broadcasting operations, including the NBC Television Network and owned stations, are subject to FCC regulation. NBC's operations include investment and programming activities in cable television, principally through its ownership of CNBC, NBC Super Channel, and CNBC Asia, as well as equity investments in Arts and Entertainment, Court TV, American Movie Classics, Bravo, Prime Network and regional Sports Channels across the United States. In 1997, the business entered into a strategic alliance with Dow Jones that will merge the European and Asian business news services of Dow Jones with those of CNBC and use Dow Jones editorial resources in the United States. The business also entered into long-term arrangements with the National Basketball Association (NBA) and the United States Golf Association (USGA) that give NBC exclusive national over-the-air broadcast rights to NBA games through the 2002 season and to the USGA's major golf championships through the year 2003. 1998 marked the end of a 33 year affiliation with the National Football League. In 1996, NBC and Microsoft Corporation entered into a joint venture that provides information to users through two separate but related sources: MSNBC Cable, a 24-hour news and information cable channel; and MSNBC Interactive, a comprehensive interactive on-line news and information service. NBC contributed the assets of America's Talking and NBC Desktop to the joint ventures. In 1995, NBC launched CNBC Asia, the first 24-hour business news channel to be broadcast live from three continents, and secured United States television rights to the 2000, 2002, 2004, 2006 and 2008 Olympics. INDUSTRIAL PRODUCTS AND SYSTEMS Industrial Products and Systems (12.1%, 13.1% and 14.6% of consolidated revenues in 1997, 1996 and 1995, respectively) encompasses the following businesses: Lighting, Electrical Distribution and Control, Transportation Systems, Industrial Control Systems, and GE Supply. No "similar" class of products or services within the segment approached 10% of any year's consolidated revenues during the three years ended December 31, 1997. Customers for many of these products and services include electrical distributors, original equipment manufacturers and industrial end users. Lighting includes a wide variety of lamps - incandescent, fluorescent, high intensity discharge, halogen and specialty - as well as outdoor lighting fixtures, wiring devices and quartz products. Markets and customers are global. In 1997, the business acquired certain assets of Flame Electrical Ltd., a lighting products distributor in South Africa, and entered into an agreement with MagneTek, Inc. that provides GE exclusive sales responsibility for electronic ballasts in North America. In 1996, the business acquired the remaining interest in GE Apar Lighting Private Ltd. in India, increased its ownership interest in GE Jiabao Lighting Co., Inc., a joint venture in China, and acquired PT Sinar Baru Electric in Indonesia. Previously in 1995, the Lighting business had acquired from its partner the remaining interest in 6 P.T. GE Angkasa Lighting. Customers for lighting products are extremely diverse, ranging from household consumers to commercial and industrial end users and original equipment manufacturers. Electrical Distribution and Control includes power delivery and control products such as circuit breakers, transformers, electricity meters, relays, capacitors and arresters sold for installation in commercial, industrial and residential facilities. In 1995, to bolster European sales and global competitiveness, Electrical Distribution and Control (ED&C) acquired the low voltage business of AEG, a European manufacturer. Also in 1995, GE acquired the remaining interest in the GE Power Controls joint venture in Europe and Multilin, a leading manufacturer of electronics in Canada. Transportation Systems includes locomotives, transit propulsion and control equipment, motorized wheels for off-highway vehicles such as those used in mining operations, motors for drilling devices and parts and product services for the foregoing. Locomotives are sold worldwide, principally to railroads, while customers for other products include state and urban transit authorities and industrial users. An increasingly important product line is the alternating current (AC) locomotive, which was first introduced in 1994. More than 1,400 of the 4,400 horsepower AC units are now in service on three railroads. A new 6,000 horsepower AC unit has been developed and will enter full-scale production in 1998. In 1995, the business formed a joint venture with Harris Corporation, GE-Harris Railway Electronics, L.L.C., that expanded its service offerings to include communications and logistics systems for locomotive, train and fleet control. Further information about Transportation Systems orders and backlog is provided on page 34 of the 1997 Annual Report to Share Owners. Industrial Control Systems includes electric motors and related products, and engineering services for the appliance, commercial, industrial, heating, air conditioning, automotive and utility markets. Electrical and electronic industrial automation products, including drive systems, are customized controls and drives for metal and paper processing, mining, utilities and marine applications. Engineering services include management and technical expertise for power plants and other large projects; maintenance, inspection, repair and rebuilding of electrical apparatus produced by GE and others; and on-site engineering and upgrading of already installed products sold by GE and others. Other product services include the integration of software with hardware (principally motors, drives and programmable controls) into customized systems solutions for customers in the semiconductor, water treatment, pulp and paper, and petroleum industries. In 1997, the business expanded its presence in this emerging market segment through several small acquisitions. Motor products are used within GE and also are sold externally. In 1995, GE formed a joint venture with Fuji Electric of Japan to jointly pursue global sales of standard drives. Industrial automation products cover a broad range of electrical and electronic products with emphasis on manufacturing and advanced engineering automation applications. Through a 50-50 joint venture (GE Fanuc Automation Corporation) which has two operating subsidiaries (one in North America and the other in Europe), GE offers a wide range of high-technology industrial automation systems and equipment, including computer numerical controls and programmable logic controls. GE Supply operates a U.S. network of electrical supply houses and through its affiliate, GE Supply Mexico, operates three supply houses in Mexico. GE Supply offers products of General Electric and other manufacturers to electrical contractors and to industrial, commercial and utility customers. Markets for industrial products generally lag overall economic slowdowns as well as subsequent recoveries. U.S. industrial markets are undergoing significant structural changes reflecting, among other factors, international competition and pressures to modernize productive capacity. Additional information about certain of GE's industrial businesses follows. Competition for lighting products comes from a number of global firms as well as from smaller regional competitors and is based principally on brand awareness, price, distribution and product innovation. 7 The nature of lighting products and market diversity make the lighting business somewhat less sensitive to economic cycles than other businesses in this segment. Electrical Distribution and Control sells to distributors, electrical contractors, utilities, large industrial users and original equipment manufacturers. Demand is affected principally by levels of (and cycles in) residential and non-residential construction as well as domestic industrial plant and equipment expenditures. Competitors include other large manufacturers, with international competition increasing. In Transportation Systems, demand is historically cyclical. There is strong worldwide competition from major firms engaged in the sale of transportation equipment. Industrial Control Systems sells principally to manufacturers of original equipment, distributors and industrial users. Competition includes other motor and component producers, integrated manufacturers and customers' own in-house capability. Demand for these products is price competitive, putting emphasis on economies of scale and manufacturing technology. Other market factors include energy-driven technological changes and the cyclical nature of consumer demand. Competition in industrial automation is intense and comes from a number of U.S. and international sources. MATERIALS Materials (7.4%, 8.2% and 9.5% of consolidated revenues in 1997, 1996 and 1995, respectively) includes high-performance plastics used by compounders, molders and major original equipment manufacturers for use in a variety of applications, including fabrication of automotive parts, computer enclosures, major appliance parts and construction materials. Products also include ABS resins, silicones, superabrasive industrial diamonds and laminates. Market opportunities for many of these products are created by substituting resins for other materials, which provides customers with productivity through improved material performance at lower cost. These materials are sold to a diverse worldwide customer base, mainly manufacturers. The business has a significant operating presence around the world and participates in numerous manufacturing and distribution joint ventures. In 1996, the business completed the first stage of its new polycarbonate manufacturing facility in Spain. The plant, which is scheduled to be completed in early 1999, will add capacity of 130,000 tons per year. The materials business environment is characterized by technological innovation and heavy capital investment. Being competitive requires emphasis on efficient manufacturing process implementation and significant resources devoted to market and application development. Competitors include large, technology-driven suppliers of the same, as well as other functionally equivalent, materials. The business is cyclical and is subject to variations in price and in the availability of raw materials, such as cumene, benzene and methanol. Adequate capacity to satisfy growing demand and anticipation of new product or material performance requirements are key factors affecting competition. POWER GENERATION Power Generation (8.3%, 9.2% and 9.3% of consolidated revenues in 1997, 1996 and 1995, respectively) serves utility, industrial and governmental customers worldwide with electricity generating products, services and energy management systems. Worldwide competition continues to be intense. Gas turbines are used principally in power plants for generation of electricity and for industrial cogeneration and mechanical drive applications. In 1997, the business announced the acquisition of the gas turbine division of Stewart and Stevenson Services, Inc., which further expands its product and product services offerings to the industrial power generation market. Centrifugal compressors are sold for application in gas reinjection, pipeline services and such process applications as refineries and ammonia plants. Steam turbine-generators are sold to the electric utility industry and to private industrial customers for cogeneration applications. Nuclear reactors, fuel and support services for both new and installed boiling water reactors are also a part of this segment. There have 8 been no nuclear power plant orders in the United States since the mid-1970s. However, the business is currently participating in the construction of nuclear power plants in Japan and Taiwan. The business continues to invest in advanced technology development and to focus its resources on refueling and servicing its installed boiling-water reactors. Worldwide competition for power generation products and services continues to be intense. Demand for most power generation products and services is worldwide and as a result is sensitive to the economic and political environment of each country in which the business participates. In the United States, demand for power generation equipment is sensitive to the financial condition of the electric utility industry as well as the electric power conservation efforts by power users. Internationally, the influence of petroleum and related prices has a large impact on demand. For information about orders and backlog, see page 36 of the 1997 Annual Report to Share Owners. TECHNICAL PRODUCTS AND SERVICES Technical Products and Services (5.4%, 5.9% and 6.3% of consolidated revenues in 1997, 1996 and 1995, respectively) consists of technology operations providing products, systems and services to a variety of customers. Principal businesses included in this segment are Medical Systems and Information Services. Medical Systems include magnetic resonance (MR) scanners, computed tomography (CT) scanners, x-ray, nuclear imaging, ultrasound, and other diagnostic and therapy equipment, and product services sold to hospitals and medical facilities worldwide. GE Medical Systems has a significant operating presence in Europe and Asia, including the operations of its affiliates, GE Medical Systems S.A. (France), GE Yokogawa Medical Systems (Japan) and WIPRO GE Medical Systems (India). Acquisitions and joint ventures continue to expand GE Medical Systems global activities. In 1997, the business acquired Lockheed Martin Medical Systems and a 20% stake in ALI, a leader in ultrasound image archiving. In 1995, the business expanded its service offerings by entering into an agreement with Columbia/HCA, the largest multi-hospital system in the United States, to manage all of its diagnostic imaging equipment service. In 1996, the range of services provided under the agreement was expanded to include biomedical equipment service. Business-to-business electronic commerce solutions are provided to over 40,000 trading partners around the world by GE Information Services (GEIS). Its global networked-based solutions include Electronic Data Interchange and messaging services, internet, intranet and systems integration services, and a line of applications that help customers to lower their costs, reduce cycle times, and improve quality in purchasing, logistics, and supplier and distribution channel management. Serving a range of customers with special needs (which are rapidly changing in areas such as medical and information systems), businesses in this segment compete against a variety of both U.S. and non-U.S. manufacturers or services operations. Technological competence and innovation, excellence in design, high product performance, quality of services and competitive pricing are among the key factors affecting competition for these products and services. Throughout the world, demands on health care providers to control costs have become much more important. Medical Systems is responding with cost-effective technologies that improve operating efficiency and clinical productivity. See page 36 of the 1997 Annual Report to Share Owners for information about orders and backlog of GE Medical Systems. ALL OTHER GE All Other GE consists mostly of earnings of and investment in GECS, a wholly-owned consolidated affiliate, which is accounted for on a one-line basis in accordance with the equity method of accounting. Other ongoing 9 operations (0.3% of consolidated revenues in 1997, and 0.4% of consolidated revenues in 1996 and 1995) mainly involve licensing the use of GE technology and patents to others. A separate discussion of segments within GECS appears below. GECS SEGMENTS GECS consists of the ownership of two principal affiliates that, together with their affiliates and other investments, constitute General Electric Company's principal financial services activities. GECS owns all of the common stock of General Electric Capital Corporation (GE Capital or GECC) and GE Global Insurance Holding Corporation (GE Global Insurance or GIH), the principal affiliate of which is Employers Reinsurance Corporation (ERC). GE Capital is an equity investor in Montgomery Ward Holding Corp. (MWHC), a retail organization, and certain other service and financial services organizations. As discussed on page 38 of the 1997 Annual Report to Share Owners, MWHC filed a bankruptcy petition for reorganization in 1997. For industry segment purposes, Financing (34.3%, 31.0% and 27.8% of consolidated revenues in 1997, 1996 and 1995, respectively) includes the financing and consumer savings and insurance operations of GE Capital; Specialty Insurance (9.7%, 10.3% and 10.1% of consolidated revenues in 1997, 1996 and 1995, respectively) consists of the activities of GIH as well as the activities of other insurance entities discussed on page 63 of the 1997 Annual Report to Share Owners; and All Other represents GECS corporate activities not identifiable with specific industry segments. Additional information follows. Financing activities of GE Capital are summarized below. Very little of the financing provided by GE Capital involves products that are manufactured by GE. O CONSUMER SERVICES -- private-label and bank credit card loans, personal loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing, and consumer savings and insurance services. Insurance services, previously included within the Specialty Insurance segment, has been combined with the consumer savings and insurance operations in this segment. Prior-year information has been reclassified to reflect this change. O SPECIALIZED FINANCING -- loans and financing leases for major capital assets, including industrial facilities and equipment, and energy-related facilities; commercial and residential real estate loans and investments; and loans to and investments in management buyouts, including those with high leverage, and corporate recapitalizations. O EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. o MID-MARKET FINANCING -- loans and financing and operating leases for middle-market customers, including manufacturers, distributors and end users, for a variety of equipment that includes data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications and telecommunications activities. GE Capital continues to experience broad growth from both internal sources and through acquisitions. Following is a discussion of certain larger financing acquisitions over the past three years. In 1997, the Consumer Services operation acquired Woodchester, an automobile and equipment lessor based in Ireland; Colonial Penn, a direct marketer of personal lines of automobile insurance; and Bank Aufina, a Swiss bank that provides consumer lending products and auto financing leases. In 1996, GE Capital's Equipment Management operations 10 acquired Ameridata Technologies Inc., an international provider of distributed computer products and services as well as business and technology consulting services; and CompuNet Computer AG, a provider of distributed computing and communications technologies based in Germany. Also in 1996, GE Capital's Consumer Services operations acquired the Life Insurance Company of Virginia, First Colony Corporation and Union Fidelity Life Insurance Company, further expanding and enhancing its offerings of life and health insurance and annuity products. In 1995, Consumer Services operations acquired SOVAC SA and Credit de l'Est (France), the Australian Retail Financial Network (Australia), the Pallas Group (United Kingdom), and the purchase of the remaining interest in United Merchants Finance Ltd. (Hong Kong). GE Capital's activities are subject to a variety of federal and state regulations including, at the federal level, the Consumer Credit Protection Act, the Equal Credit Opportunity Act and certain regulations issued by the Federal Trade Commission. A majority of states have ceilings on rates chargeable to customers in retail time sales transactions, installment loans and revolving credit financing. Common carrier services of GE Americom are subject to regulation by the Federal Communications Commission. Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. GECS' international operations are also subject to regulation in their respective jurisdictions. To date, compliance with such regulations has not had a material adverse effect on GE Capital's financial position or results of operations. On March 28, 1991, GE entered into an agreement to make payments to GE Capital, constituting additions to pre-tax income, to the extent necessary to cause the ratio of earnings to fixed charges of GE Capital and consolidated affiliates (determined on a consolidated basis) to be not less than 1.10 for the period, as a single aggregation, of each GE Capital fiscal year commencing with fiscal year 1991. The agreement can only be terminated by written notice and termination is not effective until the third anniversary of the date of such notice. GE Capital's ratios of earnings to fixed charges for the years 1997, 1996 and 1995, respectively, were 1.48, 1.53 and 1.51, substantially above the level at which payments would be required. Under a separate agreement, GE has committed to make a capital contribution to GE Capital in the event certain GE Capital preferred stock is redeemed and such redemption were to cause the GE Capital debt-to-equity ratio, excluding from equity all net unrealized gains and losses on investment securities, to exceed 8 to 1. Specialty Insurance includes both GIH which, together with its affiliates, writes substantially all lines of reinsurance, as well as other insurance activities of GE Capital. ERC, GIH's principal affiliate, together with its subsidiaries, reinsures property and casualty risks written by more than 1,000 insurers around the world, and also writes certain specialty lines of insurance on a direct basis, principally excess workers' compensation for self-insurers, errors and omissions coverage for insurance and real estate agents and brokers, excess indemnity for self-insurers of medical benefits, and libel and allied torts. Other property and casualty affiliates write excess and surplus lines insurance, and provide reinsurance brokerage services. GIH also is engaged in the reinsurance of life insurance and investment products, including term, whole and universal life, annuities, group long-term health products and the provision of financial reinsurance to life insurers. In 1995, GIH, through its ERC affiliate, acquired a majority of two German reinsurance businesses, Frankona Reinsurance Group and Aachen Reinsurance Group, both located in Germany. These businesses together with other ERC affiliates located in Denmark and the United Kingdom write property and casualty and life reinsurance, principally in Europe and elsewhere throughout the world. GIH and certain affiliates are licensed in all states of the United States, the District of Columbia, certain provinces of Canada and in other jurisdictions - such business is written on both a direct basis and through brokers. The other insurance activities of GECS consist of GE Capital affiliates that provide various forms of insurance. Financial Guaranty Insurance Company (FGIC) provides financial guaranty insurance, principally on municipal bonds and structured finance issues. In 1997, FGIC acquired Coregis Group Inc., a property and casualty insurer. GE Capital's mortgage insurance operations are engaged in providing 11 primary and, on a limited basis, pooled private mortgage insurance. Other affiliates provide payment protection insurance for international borrowers. Businesses in the Specialty Insurance segment are generally subject to regulation by various insurance regulatory agencies. GEOGRAPHIC SEGMENTS, EXPORTS FROM THE U.S. AND TOTAL INTERNATIONAL OPERATIONS Financial data for geographic segments (based on the location of the Company operation supplying goods or services and including exports from the U.S. to unaffiliated customers) are reported in note 29 to consolidated financial statements on page 64 of the 1997 Annual Report to Share Owners. Additional financial data about GE's exports from the U.S. and total international operations are on page 39 of the 1997 Annual Report to Share Owners. ORDERS BACKLOG See pages 34, 36 and 44 of the 1997 Annual Report to Share Owners for information about GE's backlog of unfilled orders. RESEARCH AND DEVELOPMENT Total expenditures for research and development were $1,891 million in 1997. Total expenditures had been $1,886 million in 1996 and $1,892 million in 1995. Of these amounts, $1,480 million in 1997 was GE-funded ($1,421 million in 1996 and $1,299 million in 1995); and $411 million in 1997 was funded by customers ($465 million in 1996 and $593 million in 1995), principally the U.S. government. Aircraft Engines accounts for the largest share of GE's research and development expenditures from both Company and customer funds. Other significant expenditures of Company and customer research and development funds were made by Medical Systems, Power Systems, and Plastics. Approximately 8,000 person-years of scientist and engineering effort were devoted to research and development activities in 1997, with about 84% of the time involved primarily in GE-funded activities. ENVIRONMENTAL MATTERS See pages 44 and 58 of GE's 1997 Annual Report to Share Owners for a discussion of environmental matters. EMPLOYEE RELATIONS At year-end 1997, General Electric Company and consolidated affiliates employed 276,000 persons, of whom approximately 165,000 were in the United States. For further information about employees, see page 45 of the 1997 Annual Report to Share Owners. Approximately 40,000 GE manufacturing, engineering and service employees in the United States are represented for collective bargaining purposes by a total of approximately 170 different local collective bargaining groups. A majority of such employees are represented by union locals that are affiliated with, and bargain in conjunction with, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (IUE-AFL-CIO). During 1997, General Electric Company negotiated three-year contracts with unions representing a substantial majority of those United States employees who are represented by unions. Most of these contracts will terminate in June 2000. NBC is party to approximately 100 labor agreements covering about 2,000 staff employees (and a large number of freelance employees) in the United States. These agreements are with various labor unions, expire at various dates and are generally for a term ranging from three to five years. 12 EXECUTIVE OFFICERS See Part III, Item 10 of this 10-K Report for information about Executive Officers of the Registrant. OTHER Because of the diversity of the Company's products and services, as well as the wide geographic dispersion of its production facilities, the Company uses numerous sources for the wide variety of raw materials needed for its operations. The Company has not been adversely affected by inability to obtain raw materials. The Company owns, or holds licenses to use, numerous patents. New patents are continuously being obtained through the Company's research and development activities as existing patents expire. Patented inventions are used both within the Company and licensed to others, but no industry segment is substantially dependent on any single patent or group of related patents. Agencies of the U.S. Government constitute GE's largest single customer. An analysis of sales of goods and services as a percentage of revenues follows:
% OF CONSOLIDATED REVENUES % OF GE REVENUES -------------------------- ---------------- 1997 1996 1995 1997 1996 1995 ---- ---- ---- ---- ---- ---- Total sales to U.S. Government Agencies 2% 3% 3% 3% 4% 4% Aircraft Engines defense-related sales 2 2 2 3 3 3
ITEM 2. PROPERTIES Manufacturing operations are carried out at approximately 130 manufacturing plants located in 30 states in the United States and Puerto Rico and at some 139 manufacturing plants located in 25 other countries. ITEM 3. LEGAL PROCEEDINGS GENERAL As previously reported, on March 12, 1993, a complaint was filed in United States District Court for the District of Connecticut by ten employees of the Company's former Aerospace business, purportedly on behalf of all GE Aerospace employees whose GE employment status is or was affected by the then planned transfer of GE Aerospace to a new company controlled by the stockholders of Martin Marietta Corporation. The complaint sought to clarify and enforce the plaintiffs' claimed rights to pension benefits in accordance with, and rights to assets then held in, the GE Pension Plan (the "Plan"). The complaint names the Company, the trustees of the GE Pension Trust ("Trust"), and Martin Marietta Corporation and one of its former plan administrators as defendants. The complaint alleged primarily that the Company's planned transfer of certain assets of the Trust to a Martin Marietta pension trust, in connection with the transfer of the Aerospace business, violated the rights of the plaintiffs under the Plan and applicable provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The complaint sought equitable and declaratory relief, including an injunction against transfer of the Plan assets except under circumstances and protections, if any, approved by the court, an order that the Company disgorge all profits allegedly received by it as a result of any such transfer and the making of restitution to the Trust for alleged investment losses resulting from the Company's treatment of Plan assets in connection with the transaction or alternatively the transfer of additional assets from the Trust to a new Martin Marietta pension trust, and an order requiring Martin Marietta to continue to offer transferred employees all accrued pension-related benefits for which they were eligible under the Plan as of the 13 closing date of the transfer of the GE Aerospace business to Martin Marietta. On March 23, 1993, the Company and Martin Marietta Corporation filed motions to dismiss the complaint on the basis that the complaint does not state any claim upon which relief can be granted as a matter of law. On April 2, 1993, the transfer of the Aerospace business occurred, and on June 7, 1993, the court issued an order denying plaintiffs' request for injunctive relief. On September 26, 1996, the District Court granted defendants' motion to dismiss those claims which were based on allegations that the transfer of plan assets was unlawful, and ordered discovery on the remaining claims. As previously reported, the directors (other than Messrs. Calloway, Cash, Gonzalez, Murphy, Nunn, Opie, Penske and Warner) and certain officers are defendants in a civil suit purportedly brought on behalf of the Company as a shareholder derivative action by Leslie McNeil, Harold Sachs, Arun Shingala and Paul and Harriet Luts (the McNeil action) in New York State Supreme Court on November 19, 1991. The suit alleges the Company was negligent and engaged in fraud in connection with the design and construction of containment systems for nuclear power plants and contends that, as a result, GE has incurred significant financial liabilities and is potentially exposed to additional liabilities from claims brought by the Company's customers. The suit alleges breach of fiduciary duty by the defendants and seeks unspecified compensatory damages and other relief. On March 31, 1992, the defendants filed motions to dismiss the suit. On September 28, 1992, the court denied the motions as premature but ruled that they may be renewed after the completion of limited discovery. Defendants moved for reconsideration of that order, and on April 3, 1993, the court granted defendants' motion for reconsideration and directed that discovery be stayed pending the filing of an amended complaint. Plaintiffs filed an amended complaint on March 18, 1994, alleging breach of fiduciary duty, waste and indemnification claims. The defendants' time for responding to the amended complaint has been extended until 30 days following the completion of discovery. The defendants believe the plaintiffs' claims are without merit. As previously reported, following the Company's announcement on April 17, 1994, of a $210 million charge to net earnings based upon its discovery of false trading profits at its indirect subsidiary, Kidder, Peabody & Co., Incorporated ("Kidder"), the United States Securities and Exchange Commission ("SEC"), the United States Attorney for the Southern District of New York, and the New York Stock Exchange initiated investigations relating to the false trading profits. On January 9, 1996, the SEC initiated administrative enforcement proceedings against the former head of Kidder's government securities trading desk, Joseph Jett, alleging that he engaged in securities fraud and other violations and against two of his former supervisors for failure to supervise. Also, two civil suits purportedly brought on behalf of the Company as shareholder derivative actions were filed in New York State Supreme Court in New York County. Both suits claimed that the Company's directors breached their fiduciary duties to the Company by failing to adequately supervise and control the Kidder employee responsible for the irregular trading. One suit, claiming damages of over $350 million, was filed on May 10, 1994, by the Teachers' Retirement System of Louisiana against the Company, its directors (other than Messrs. Cash, Dammerman, Murphy, Nunn, Opie and Penske), Kidder, its parent, Kidder, Peabody Group Inc., and certain of Kidder's former officers and directors. The other suit was filed on June 3, 1994, by William Schrank and others against the Company's directors claiming unspecified damages and other relief. Both suits were consolidated in an amended complaint filed on March 6, 1995. On May 19, 1995, the Company and the director defendants moved to dismiss the amended consolidated complaint for failure to make a pre-litigation demand, among other reasons. On April 16, 1996, the court dismissed the amended consolidated complaint for failure to make a pre-litigation demand. On November 18, 1997, a four-judge panel of the New York Supreme Court, Appellate Division, First Department, unanimously affirmed the dismissal of the suits, and, on January 27, 1998, denied plaintiff's motion for leave to appeal to the New York Court of Appeals. In addition, various shareholders of the Company have filed two purported class action suits claiming that the Company and Kidder, and certain of Kidder's former officers and employees, allegedly violated federal securities laws by issuing statements concerning the Company's financial condition that included the false trading profits at Kidder, and seeking compensatory damages for shareholders who purchased the Company's stock beginning as early as January 1993. The defendants filed motions to dismiss these purported class action suits. On October 4, 1995, the court dismissed the complaint against the Company, but denied the motion to dismiss the complaint 14 against Kidder. On November 3, 1995, the plaintiffs in the case against the Company appealed the trial court's dismissal of their complaint to the Second Circuit Court of Appeals, which affirmed the lower court decision. The directors, other than Messrs. Cash, Murphy and Nunn, were defendants in a civil suit purportedly brought on behalf of the Company as a share owner derivative and class action (the Cohen action) in New York State Supreme Court, New York County, on September 18, 1996. The suit was based upon the Company's solicitation, in the 1996 proxy statement, of share owner approval of the 1996 Non-Employee Director Stock Option Plan. Under the Plan, which the share owners approved, 6,000 stock options will be granted annually to each of the Company's non-employee directors through 2003. Each annual grant entitles the director, for a period of 10 years from the date of the grant, to purchase 6,000 shares of GE stock from the Company at the market price of GE stock on the date of grant. The suit claimed that the options would have an estimated value to the directors on the annual date of grant which should have been disclosed. The suit also claimed that the directors breached their fiduciary duties because the 1996 proxy statement did not state that the options would have such an alleged, estimated value to the directors when granted. The suit sought compensatory damages and invalidation of the Plan and all options granted under the Plan. The Company believes that the options have no value to the directors on the date of grant, that the options will have no value to the directors unless the GE stock price increases above the grant price, and that the 1996 proxy statement contained full and adequate disclosure because, among other things, any reasonable share owner would understand that the value of the options to the non-employee directors would only occur when and if the stock price rises above the grant price. On May 14, 1997, the court granted the Company's motion to dismiss the suit for failure to state a cause of action, and on January 27, 1998, a four-judge panel of the New York Supreme Court, Appellate Division, First Department, unanimously affirmed the dismissal of the suit. On February 27, 1998, plaintiff filed a motion with that court for reargument and for leave to appeal to the New York Court of Appeals. ENVIRONMENTAL As previously reported, in February 1997, the New York State Department of Environmental Conservation provided a draft complaint to the Company seeking $254,000 in penalties and alleging violations of the state's hazardous waste, clean water and spill acts at the Company's Waterford, New York facility. In January 1998, the matter was settled for $234,000. As previously reported, in April 1997, the United States Environmental Protection Agency informed the Company that it was considering issuing a complaint against the Company seeking $241,000 in penalties and alleging violations of the Emergency Planning and Community Right-to-Know Act for failure to report chemical use and releases from the Company's Waterford, New York facility. The Complaint was issued in April 1997 seeking $226,000 in penalties. The matter has been tentatively settled for a $92,000 penalty and $113,000 worth of donations to local emergency response organizations. As previously reported, in August of 1996 the Florida Department of Environmental Protection informed Greenwich Air Services that it was seeking penalties of $278,555 for violations of the state's hazardous waste law at its Miami facility (the facility was subsequently acquired as a portion of GE's purchase of Greenwich which was consummated in September 1997). The matter has been tentatively settled for $36,270 plus a supplemental wastewater treatment project. For further information regarding environmental matters, see pages 44 and 58 of GE's 1997 Annual Report to Share Owners. It is the view of management that none of the above described proceedings will have a material effect on the Company's consolidated earnings, liquidity or competitive position. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS With respect to "Stock Exchange Information", in the United States, GE common stock is listed on the New York Stock Exchange (its principal market) and on the Boston Stock Exchange. GE common stock also is listed on The Stock Exchange, London. Trading, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and dividend information follows: - --------------------------------------------------------------------------- Common stock market price --------------------------------- Dividends (In dollars) High Low declared - --------------------------------------------------------------------------- 1997 Fourth quarter $76 9/16 $59 $.30 Third quarter 74 5/8 61 5/16 .26 Second quarter 68 1/4 48 9/16 .26 First quarter (a) 54 3/16 47 15/16 .26 1996 Fourth quarter (a) $53 1/16 $45 1/4 $.26 Third quarter (a) 46 38 15/16 .23 Second quarter (a) 44 1/16 37 1/16 .23 First quarter (a) 40 1/4 34 3/4 .23 - --------------------------------------------------------------------------- (a) Per share amounts have been adjusted to reflect the 2-for-1 stock split effective on April 28, 1997. As of December 31, 1997, there were about 527,000 share owner accounts of record. ITEM 6. SELECTED FINANCIAL DATA Reported as data for revenues; earnings from continuing operations; earnings from continuing operations per share; earnings (loss) from discontinued operations; effect of accounting change; net earnings; net earnings per share (basic and diluted); dividends declared; dividends declared per share; long-term borrowings; and total assets of continuing operations appearing on page 45 of the 1997 Annual Report to Share Owners. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reported on pages 32-34 and 36-44 (and graphs on pages 25, 32, 33, 36, 37, 39, 40, 41, 42 and 44) of the Annual Report to Share Owners for the fiscal year ended December 31, 1997. 16 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reported on page 42 of the Annual Report to Share Owners for the fiscal year ended December 31, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index under item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Executive Officers of the Registrant (As of March 27, 1998)
Date assumed Executive Officer Name Position Age position - -------------------------------------------------------------------------------------------------------------- John F. Welch, Jr. Chairman of the Board and Chief Executive Officer 62 April 1981 Philip D. Ameen Vice President and Comptroller 50 April 1994 James R. Bunt Vice President and Treasurer 56 January 1993 David L. Calhoun Senior Vice President, GE Lighting 40 June 1995 William J. Conaty Senior Vice President, Human Resources 52 October 1993 David M. Cote Senior Vice President, GE Appliances 45 June 1996 Dennis D. Dammerman Senior Vice President, Finance, and Chief Financial Officer 52 March 1984 Lewis S. Edelheit Senior Vice President, Research and Development 55 November 1992 Paolo Fresco Vice Chairman of the Board and Executive Officer 64 October 1987 Benjamin W. Heineman, Jr. Senior Vice President, General Counsel and Secretary 54 September 1987 Jeffrey R. Immelt Senior Vice President, GE Medical Systems 42 January 1997 William J. Lansing Vice President, Business Development 39 October 1996 Goran S. Malm Senior Vice President, GE Asia-Pacific 51 October 1997 W. James McNerney, Jr. Senior Vice President, GE Aircraft Engines 48 January 1992 Eugene F. Murphy Vice Chairman of the Board and Executive Officer 62 October 1986 Robert L. Nardelli Senior Vice President, GE Power Systems 49 February 1992 Robert W. Nelson Vice President, Financial Planning and Analysis 57 September 1991 John D. Opie Vice Chairman of the Board and Executive Officer 60 August 1986 Gary M. Reiner Senior Vice President, Chief Information Officer 43 January 1991 John G. Rice Vice President, GE Transportation 41 September 1997 Gary L. Rogers Senior Vice President, GE Plastics 53 December 1989 James W. Rogers Senior Vice President, GE Industrial Control Systems 47 May 1991 Lloyd G. Trotter Vice President, GE Electrical Distribution and Control 52 November 1992
All Executive Officers are elected by the Board of Directors for an initial term which continues until the first Board meeting following the next annual statutory meeting of share owners and thereafter are elected for one-year terms or until their successors have been elected. All Executive Officers have been executives of GE for the last five years except William J. Lansing. Mr. Lansing joined GE from Prodigy, Inc., where he was Chief Operating Officer. Prior to joining Prodigy in January of 1996, he 18 had been with McKinsey & Company for nine years, most recently as a partner in the Stamford, Conn., office where his experience encompassed a variety of industries with a particular concentration in communications and technology. He also has practiced securities law at Davis Polk & Wardwell. The remaining information called for by this item is incorporated by reference to "Election of Directors" in the definitive proxy statement relating to the registrant's Annual Meeting of Share Owners to be held April 22, 1998. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to "Board of Directors and Committees," "Summary Compensation Table," "Stock Options and Stock Appreciation Rights" and "Retirement Benefits" in the definitive proxy statement relating to the registrant's Annual Meeting of Share Owners to be held April 22, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to "Information relating to Directors, Nominees and Executive Officers" in the registrant's definitive proxy statement relating to its Annual Meeting of Share Owners to be held April 22, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to "Certain Transactions" in the registrant's definitive proxy statement relating to its Annual Meeting of Share Owners to be held April 22, 1998. 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial statements applicable to General Electric Company and consolidated affiliates are contained on the page(s) indicated in the GE Annual Report to Share Owners for the fiscal year ended December 31, 1997. Annual 10-K Report Report PAGE(S) PAGE(S) Statement of earnings for the years ended December 31, 1997, 1996 and 1995 26 F-2 Statement of financial position at December 31, 1997 and 1996 28 F-4 Statement of cash flows for the years ended December 31, 1997, 1996 and 1995 30 F-6 Independent Auditors' Report 46 F-22 Other financial information: Notes to consolidated financial statements 47-66 F-23 to F-42 Industry segment information 34-36 F-10 to F-12 62-63 F-38 to F-39 Geographic segment information 64 F-40 Operations by quarter (unaudited) 66 F-42 (a)2. Financial Statement Schedule for General Electric Company and consolidated affiliates. SCHEDULE PAGE II Valuation and Qualifying Accounts F-43 The schedules listed in Reg. 210.5-04, except those listed above, have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (a)3. Exhibit Index (3) Restated Certificate of Incorporation, as amended, and By-laws, as amended, of General Electric Company. (Incorporated by reference to Exhibit of the same number to General Electric Form 8-K (Commission file number 1-35) filed with the Commission April 28, 1997.) (4) Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and consolidated subsidiaries.* 20 (10) All of the following exhibits consist of Executive Compensation Plans or Arrangements: (a) General Electric Incentive Compensation Plan, as amended effective July 1, 1991. (Incorporated by reference to Exhibit of the same number to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1991.) (b) General Electric Supplementary Pension Plan, as amended effective July 1, 1991. (Incorporated by reference to Exhibit 10(e) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1991.) (c) Amendment to General Electric Supplementary Pension Plan dated May 22, 1992. (Incorporated by reference to Exhibit 10(d) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992.) (d) Amendment to General Electric Supplementary Pension Plan, dated September 10, 1993. (Incorporated by reference to Exhibit 10(e) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (e) Amendment to General Electric Supplementary Pension Plan, dated July 1, 1994. (Incorporated by reference to Exhibit 10(f) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1994.) (f) General Electric Insurance Plan for Directors. (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1980.) (g) General Electric Financial Planning Program, as amended through September 1993. (Incorporated by reference to Exhibit 10(h) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (h) General Electric Supplemental Life Insurance Program, as amended February 8, 1991. (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (i) General Electric Directors' Retirement and Optional Life Insurance Plan. (Incorporated by reference to Exhibit 10(l) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1986.) (j) General Electric 1987 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(k) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1987.) 21 (k) General Electric 1991 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(n) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (l) General Electric 1994 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(o) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (m) General Electric Directors' Charitable Gift Plan, as amended through May 1993. (Incorporated by reference to Exhibit 10(p) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (n) Restated Employment Agreement, dated January 2, 1992, and Restated U.K. Employment Agreement, dated January 3, 1992, in each case between the registrant and P. Fresco, an Executive Officer and Director of the registrant. (Incorporated by reference to Exhibit 10(o) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992.) (o) General Electric Leadership Life Insurance Program, effective January 1, 1994. (Incorporated by reference to Exhibit 10(r) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (p) General Electric 1996 Stock Option Plan for Non-Employee Directors. (Incorporated by reference to Exhibit A to the General Electric Proxy Statement for its Annual Meeting of Share Owners held on April 24, 1996.) (q) General Electric 1995 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(t) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1995.) (r) General Electric 1996 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1996.) (s) Employment and Post-Retirement Consulting Agreement Between General Electric Company and John F. Welch, Jr. (Incorporated by reference to Exhibit 10(w) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1996.) (t) General Electric 1997 Executive Deferred Salary Plan.* (u) General Electric 1990 Long Term Incentive Plan as restated and amended effective August 1, 1997.* (v) General Electric Deferred Compensation Plan for Directors, as amended December 19, 1997.* (11) Statement re Computation of Per Share Earnings.** 22 (12) Computation of Ratio of Earnings to Fixed Charges.* (21) Subsidiaries of Registrant.* (23) Consent of independent auditors incorporated by reference in each Prospectus constituting part of the Registration Statements on Form S-3 (Registration Nos. 33-29024, 33-3908, 33-44593, 33-39596, 33-39596-01, 33-47085, 33-50639, 33-61029, 33-61029-01), on Form S-4 (Registration No. 333-01947) and on Form S-8 (Registration Nos. 2-84145, 33-35922, 33-49053, 333-01953, 333-23767 and 333-42695).* (24) Power of Attorney.* (27)(a) Financial Data Schedule, 12/31/97.* (27)(b) Restated Financial Data Schedule, 9/30/97.* (27)(c) Restated Financial Data Schedule, 6/30/97.* (27)(d) Restated Financial Data Schedule, 3/31/97.* (27)(e) Restated Financial Data Schedule, 12/31/96.* (27)(f) Restated Financial Data Schedule, 9/30/96.* (27)(g) Restated Financial Data Schedule, 6/30/96.* (27)(h) Restated Financial Data Schedule, 3/31/96.* (27)(i) Restated Financial Data Schedule, 12/31/95.* (99)(a) Income Maintenance Agreement, dated March 28, 1991, between the registrant and General Electric Capital Corporation. (Incorporated by reference to Exhibit 28(a) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (99)(b) Undertaking for Inclusion in Registration Statements on Form S-8 of General Electric Company. (Incorporated by reference to Exhibit 99(b) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992.) (99)(c) Letter, dated June 29, 1995, from Dennis D. Dammerman of General Electric Company to Gary C. Wendt of General Electric Capital Corporation pursuant to which General Electric Company agrees to provide additional equity to General Electric Capital Corporation in conjunction with certain redemptions by General Electric Capital Corporation of shares of its Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit 99(g) to General Electric Capital Corporation's Registration Statement on Form S-3, File No. 33-61257.) * Filed electronically herewith. ** Information required to be presented in Exhibit 11 is now provided in note 9 to the 1997 Annual Report to Share Owners in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. 23 (b) Reports on Form 8-K during the quarter ended December 31, 1997. Report on Form 8-K (Items 5 and 7) filed on November 6, 1997, regarding announcement of a definitive agreement under which Lockheed Martin Corporation exchanged the stock of a newly formed subsidiary containing operating businesses, an equity interest and cash to the extent necessary to equalize the value of the exchange for all of the Lockheed Martin Series A preferred stock held by GE and its subsidiaries. 24 SIGNATURES Pursuant to the requirements of Section 13 of the Securities and Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K for the fiscal year ended December 31, 1997, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized in the Town of Fairfield and State of Connecticut on the 27th day of March 1998. General Electric Company (Registrant) By Dennis D. Dammerman Senior Vice President, Finance, and Chief Financial Officer (Principal Financial Officer) 25 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNER TITLE DATE Dennis D. Dammerman Senior Vice President, Finance, and Principal Financial Chief Financial Officer Officer March 27, 1998 Philip D. Ameen Vice President and Comptroller Principal Accounting March 27, 1998 Officer John F. Welch, Jr.* Chairman of the Board of Directors (Principal Executive Officer) James I. Cash, Jr.* Director Silas S. Cathcart* Director Dennis D. Dammerman* Director Paolo Fresco* Director Claudio X. Gonzalez* Director Gertrude G. Michelson* Director Eugene F. Murphy* Director Sam Nunn* Director John D. Opie* Director Roger S. Penske* Director Barbara Scott Preiskel* Director Frank H.T. Rhodes* Director Andrew C. Sigler* Director Douglas A. Warner III* Director A majority of the Board of Directors *By Benjamin W. Heineman, Jr. Attorney-in-fact March 27, 1998 F-1 ANNUAL REPORT PAGE 25 FINANCIAL SECTION CONTENTS 46 INDEPENDENT AUDITORS' REPORT AUDITED FINANCIAL STATEMENTS 26 Earnings 28 Financial Position 30 Cash Flows 47 Notes to Consolidated Financial Statements MANAGEMENT'S DISCUSSION 32 Operations 32 Consolidated Operations 33 GE Operations 34 Industry Segments 36 GECS Operations 39 International Operations 40 Financial Resources and Liquidity 44 Selected Financial Data 46 Financial Responsibility [CHART HERE] CONSOLIDATED REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - ----------------------------------------------------------------------------- $55.701 $60.109 $70.028 $79.179 $90.840 - ----------------------------------------------------------------------------- [CHART HERE] EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE - ----------------------------------------------------------------------------- (IN DOLLARS) 1993 1994 1995 1996 1997 - ----------------------------------------------------------------------------- BASIC $1.220 $1.730 $1.950 $2.200 $2.500 DILUTED 1.210 1.710 1.930 2.160 2.460 - ----------------------------------------------------------------------------- [CHART HERE] DIVIDENDS PER SHARE - ----------------------------------------------------------------------------- (IN DOLLARS) 1993 1994 1995 1996 1997 - ----------------------------------------------------------------------------- $0.6525 $0.745 $0.845 $0.950 $1.080 - ----------------------------------------------------------------------------- F-2 ANNUAL REPORT PAGE 26 STATEMENT OF EARNINGS
General Electric Company and consolidated affiliates --------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 - --------------------------------------------------------------------------------------------------- REVENUES Sales of goods $ 40,675 $ 36,106 $ 33,624 Sales of services 12,729 11,791 9,733 Other income (note 2) 2,300 638 752 Earnings of GECS -- -- -- GECS revenues from services (note 3) 35,136 30,644 25,919 --------------------------------- Total revenues 90,840 79,179 70,028 --------------------------------- COSTS AND EXPENSES (note 4) Cost of goods sold 30,889 26,298 24,703 Cost of services sold 9,199 8,293 6,682 Interest and other financial charges 8,384 7,904 7,286 Insurance losses and policyholder and annuity benefits 8,278 6,678 5,285 Provision for losses on financing receivables (note 7) 1,421 1,033 1,117 Other costs and expenses 21,250 17,898 15,014 Minority interest in net earnings of consolidated affiliates 240 269 204 --------------------------------- Total costs and expenses 79,661 68,373 60,291 --------------------------------- EARNINGS BEFORE INCOME TAXES 11,179 10,806 9,737 Provision for income taxes (note 8) (2,976) (3,526) (3,164) --------------------------------- NET EARNINGS $ 8,203 $ 7,280 $ 6,573 =================================================================================================== PER-SHARE AMOUNTS (in dollars) Basic earnings per share (note 9) $ 2.50 $ 2.20 $ 1.95 Diluted earnings per share (note 9) $ 2.46 $ 2.16 $ 1.93 =================================================================================================== DIVIDENDS DECLARED PER SHARE (in dollars) $ 1.08 $ 0.95 $ 0.845 =================================================================================================== The notes to consolidated financial statements on pages 47-66 are an integral part of this statement. Per-share amounts have been adjusted for the 2-for-1 stock split effective on April 28, 1997.
F-3 ANNUAL REPORT PAGE 27 STATEMENT OF EARNINGS (Continued)
GE GECS ------------------------------ ------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- REVENUES Sales of goods $ 36,059 $ 34,196 $ 33,177 $ 4,622 $ 1,926 $ 467 Sales of services 12,893 11,923 9,836 -- -- -- Other income (note 2) 2,307 629 753 -- -- -- Earnings of GECS 3,256 2,817 2,415 -- -- -- GECS revenues from services (note 3) -- -- -- 35,309 30,787 26,025 ------------------------------ ------------------------------- Total revenues 54,515 49,565 46,181 39,931 32,713 26,492 ------------------------------ ------------------------------- COSTS AND EXPENSES (note 4) -- Cost of goods sold 26,747 24,594 24,308 4,147 1,720 415 Cost of services sold 9,363 8,425 6,785 -- -- -- Interest and other financial charges 797 595 649 7,649 7,326 6,661 Insurance losses and policyholder and annuity benefits -- -- -- 8,278 6,678 5,285 Provision for losses on financing receivables (note 7) -- -- -- 1,421 1,033 1,117 Other costs and expenses 7,476 6,274 5,743 13,893 11,741 9,354 Minority interest in net earnings of consolidated affiliates 119 102 64 121 167 140 ------------------------------ ------------------------------- Total costs and expenses 44,502 39,990 37,549 35,509 28,665 22,972 ------------------------------ ------------------------------- EARNINGS BEFORE INCOME TAXES -- 10,013 9,575 8,632 4,422 4,048 3,520 Provision for income taxes (note 8) (1,810) (2,295) (2,059) (1,166) (1,231) (1,105) ------------------------------ ------------------------------- NET EARNINGS $ 8,203 $ 7,280 $ 6,573 $ 3,256 $ 2,817 $ 2,415 ================================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 26. 1997 restructuring and other special charges are included in the following GE captions: "Cost of goods sold" -- $1,364 million; "Cost of services sold" -- $250 million; and "Other costs and expenses" -- $708 million.
F-4 ANNUAL REPORT PAGE 28 STATEMENT OF FINANCIAL POSITION
General Electric Company and consolidated affiliates ---------------------------- At December 31 (In millions) 1997 1996 - --------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 5,861 $ 4,191 Investment securities (note 10) 70,621 59,889 Current receivables (note 11) 8,924 8,704 Inventories (note 12) 5,895 4,849 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 7 and 13) 103,799 99,714 Other GECS receivables (note 14) 17,655 15,418 Property, plant and equipment (including equipment leased to others) -- net (note 15) 32,316 28,795 Investment in GECS -- -- Intangible assets (note 16) 19,121 16,007 All other assets (note 17) 39,820 34,835 ----------------------- TOTAL ASSETS $ 304,012 $ 272,402 ============================================================================================= LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 98,075 $ 80,200 Accounts payable, principally trade accounts 10,407 10,205 Progress collections and price adjustments accrued 2,316 2,161 Dividends payable 979 855 All other GE current costs and expenses accrued (note 18) 8,891 7,086 Long-term borrowings (note 19) 46,603 49,246 Insurance liabilities, reserves and annuity benefits (note 20) 67,270 61,327 All other liabilities (note 21) 22,700 18,917 Deferred income taxes (note 22) 8,651 8,273 ----------------------- Total liabilities 265,892 238,270 ----------------------- Minority interest in equity of consolidated affiliates (note 23) 3,682 3,007 ----------------------- Common stock (3,714,026,000 shares issued) 594 594 Unrealized gains on investment securities -- net 2,138 671 Other capital 3,636 2,498 Retained earnings 43,338 38,670 Less common stock held in treasury (15,268) (11,308) ----------------------- Total share owners' equity (notes 25 and 26) 34,438 31,125 ----------------------- TOTAL LIABILITIES AND EQUITY $ 304,012 $ 272,402 ============================================================================================= The notes to consolidated financial statements on pages 47-66 are an integral part of this statement. Share data have been adjusted for the 2-for-1 stock split effective on April 28, 1997.
F-5 ANNUAL REPORT PAGE 29 STATEMENT OF FINANCIAL POSITION (Continued)
GE GECS ---------------------- ---------------------- At December 31 (In millions) 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 1,157 $ 957 $ 4,904 $ 3,234 Investment securities (note 10) 265 17 70,356 59,872 Current receivables (note 11) 9,054 8,826 -- -- Inventories (note 12) 5,109 4,473 786 376 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 7 and 13) -- -- 103,799 99,714 Other GECS receivables (note 14) -- -- 18,332 15,962 Property, plant and equipment (including equipment leased to others) -- net (note 15) 11,118 10,832 21,198 17,963 Investment in GECS 17,239 14,276 -- -- Intangible assets (note 16) 8,755 7,367 10,366 8,640 All other assets (note 17) 14,729 13,177 25,667 21,658 ---------------------- ---------------------- TOTAL ASSETS $ 67,426 $ 59,925 $255,408 $227,419 ---------------------- ---------------------- LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 3,629 $ 2,339 $ 95,274 $ 77,945 Accounts payable, principally trade accounts 4,779 4,195 6,490 6,787 Progress collections and price adjustments accrued 2,316 2,161 -- -- Dividends payable 979 855 -- -- All other GE current costs and expenses accrued (note 18) 8,763 6,870 -- -- Long-term borrowings (note 19) 729 1,710 45,989 47,676 Insurance liabilities, reserves and annuity benefits (note 20) -- -- 67,270 61,327 All other liabilities (note 21) 11,539 9,660 11,067 9,138 Deferred income taxes (note 22) (315) 533 8,966 7,740 ---------------------- ---------------------- Total liabilities 32,419 28,323 235,056 210,613 ---------------------- ---------------------- Minority interest in equity of consolidated affiliates (note 23) 569 477 3,113 2,530 ---------------------- ---------------------- Common stock (3,714,026,000 shares issued) 594 594 1 1 Unrealized gains on investment securities -- net 2,138 671 2,135 668 Other capital 3,636 2,498 2,152 2,253 Retained earnings 43,338 38,670 12,951 11,354 Less common stock held in treasury (15,268) (11,308) -- -- ---------------------- ---------------------- Total share owners' equity (notes 25 and 26) 34,438 31,125 17,239 14,276 ---------------------- ---------------------- TOTAL LIABILITIES AND EQUITY $ 67,426 $ 59,925 $255,408 $227,419 =========================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 28.
F-6 ANNUAL REPORT PAGE 30 STATEMENT OF CASH FLOWS
General Electric Company and consolidated affiliates ----------------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 8,203 $ 7,280 $ 6,573 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization 4,082 3,785 3,594 Earnings retained by GECS -- -- -- Deferred income taxes 284 1,145 1,047 Decrease (increase) in GE current receivables 250 118 (632) Decrease (increase) in inventories (386) (134) 40 Increase (decrease) in accounts payable 200 641 244 Increase in insurance liabilities, reserves and annuity benefits 1,669 1,491 2,490 Provision for losses on financing receivables 1,421 1,033 1,117 All other operating activities (1,483) 2,492 473 ------------------------------------------ CASH FROM OPERATING ACTIVITIES 14,240 17,851 14,946 ------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (8,388) (7,760) (6,447) Dispositions of property, plant and equipment 2,251 1,363 1,542 Net increase in GECS financing receivables (1,898) (2,278) (11,309) Payments for principal businesses purchased (5,245) (5,516) (5,641) All other investing activities (4,995) (6,021) (3,362) ------------------------------------------ CASH USED FOR INVESTING ACTIVITIES (18,275) (20,212) (25,217) ------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) 13,684 11,827 (3,487) Newly issued debt (maturities longer than 90 days) 21,249 23,153 37,604 Repayments and other reductions (maturities longer than 90 days) (23,787) (25,906) (18,580) Net purchase of GE shares for treasury (2,815) (2,323) (2,523) Dividends paid to share owners (3,411) (3,050) (2,770) All other financing activities 785 28 259 ------------------------------------------ CASH FROM (USED FOR) FINANCING ACTIVITIES 5,705 3,729 10,503 ------------------------------------------ INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 1,670 1,368 232 Cash and equivalents at beginning of year 4,191 2,823 2,591 ------------------------------------------ Cash and equivalents at end of year $ 5,861 $ 4,191 $ 2,823 ==================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (8,264) $ (7,874) $ (6,645) Cash recovered (paid) during the year for income taxes (1,937) (1,392) (1,483) ==================================================================================================================================== The notes to consolidated financial statements on pages 47-66 are an integral part of this statement.
F-7 ANNUAL REPORT PAGE 31 STATEMENT OF CASH FLOWS (Continued)
GE GECS -------------------------------- --------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 8,203 $ 7,280 $ 6,573 $ 3,256 $ 2,817 $ 2,415 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization 1,622 1,635 1,581 2,460 2,150 2,013 Earnings retained by GECS (1,597) (1,836) (1,324) -- -- -- Deferred income taxes (514) 68 369 798 1,077 678 Decrease (increase) in GE current receivables 215 152 (739) -- -- -- Decrease (increase) in inventories (145) (76) 55 (244) (58) (15) Increase (decrease) in accounts payable 237 197 462 (64) 318 418 Increase in insurance liabilities, reserves -- -- -- 1,669 1,491 2,490 and annuity benefits Provision for losses on financing receivables -- -- -- 1,421 1,033 1,117 All other operating activities 1,296 1,647 (912) (3,071) 939 961 -------------------------------- --------------------------------- CASH FROM OPERATING ACTIVITIES 9,317 9,067 6,065 6,225 9,767 10,077 -------------------------------- --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (2,191) (2,389) (1,831) (6,197) (5,371) (4,616) Dispositions of property, plant and equipment 39 30 38 2,212 1,333 1,504 Net increase in GECS financing receivables -- -- -- (1,898) (2,278) (11,309) Payments for principal businesses purchased (1,425) (1,122) (238) (3,820) (4,394) (5,403) All other investing activities 483 (106) 408 (5,646) (6,090) (3,913) -------------------------------- --------------------------------- CASH USED FOR INVESTING ACTIVITIES (3,094) (3,587) (1,623) (15,349) (16,800) (23,737) -------------------------------- --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) 809 974 1,061 13,594 11,026 (4,510) Newly issued debt (maturities longer than 90 days) 424 252 826 20,825 22,901 36,778 Repayments and other reductions (maturities longer than 90 days) (1,030) (1,250) (1,535) (22,757) (24,656) (17,045) Net purchase of GE shares for treasury (2,815) (2,323) (2,523) -- -- -- Dividends paid to share owners (3,411) (3,050) (2,770) (1,653) (981) (1,091) All other financing activities -- -- -- 785 28 259 -------------------------------- --------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES (6,023) (5,397) (4,941) 10,794 8,318 14,391 -------------------------------- --------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 200 83 (499) 1,670 1,285 731 Cash and equivalents at beginning of year 957 874 1,373 3,234 1,949 1,218 -------------------------------- --------------------------------- Cash and equivalents at end of year $ 1,157 $ 957 $ 874 $ 4,904 $ 3,234 $ 1,949 ================================================================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (467) $ (411) $ (468) $ (7,797) $ (7,463) $ (6,177) Cash recovered (paid) during the year for income taxes (1,596) (1,286) (1,651) (341) (106) 168 ================================================================================================================================ In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 30.
F-8 ANNUAL REPORT PAGE 32 MANAGEMENT'S DISCUSSION OF OPERATIONS OVERVIEW General Electric Company's consolidated financial statements represent the combination of the Company's manufacturing and nonfinancial services businesses ("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See note 1 to the consolidated financial statements, which explains how the various financial data are presented. Management's Discussion of Operations is presented in four parts: Consolidated Operations; GE Operations, including Industry Segments; GECS Operations; and International Operations. CONSOLIDATED OPERATIONS GE achieved record revenues, earnings and cash generation in 1997. This year's performance again demonstrated the ability of GE's diverse mix of leading global businesses to deliver top-line growth and increased margins. Revenues, including acquisitions, rose to a record $90.8 billion in 1997, up 15% from 1996. This increase was primarily attributable to increased global activities, particularly at GECS, stronger aircraft engine shipments, and higher sales of spare parts and services by GE's equipment businesses. Revenues increased at ten of GE's twelve businesses, led by double-digit growth at GE Capital Services, Aircraft Engines and Transportation Systems. Revenues in 1996 were $79.2 billion, a 13% increase attributable primarily to increased international activities. In 1996, nine of GE's twelve businesses increased revenues, with GE Capital Services, NBC and Power Systems reporting double-digit increases. Basic earnings per share increased to $2.50 during 1997, up 14% from the prior year's $2.20. On a diluted basis, earnings per share also increased 14%, to $2.46 from $2.16. Earnings increased 13% to a record $8.203 billion. In 1996, basic earnings per share increased 13% from $1.95 per share in 1995 (12% from $1.93 on a diluted basis). For 1996, earnings of $7.280 billion were up 11% from $6.573 billion in 1995. Growth rates in earnings per share exceeded growth rates in earnings as a result of the ongoing repurchase of shares under the five-year, $17 billion share repurchase plan initiated in December 1994. In 1997, GE realized an after-tax gain of $1,538 million from exchanging preferred stock in Lockheed Martin Corporation (Lockheed Martin) for the stock of a newly formed subsidiary as described in note 2. Also in 1997, GE recorded restructuring and other special charges amounting to $2,322 million, which are included in costs and expenses in the following captions: "Cost of goods sold" -- $1,364 million; "Cost of services sold" -- $250 million; and "Other costs and expenses" -- $708 million. These charges are discussed below and, as relevant, in Industry Segments beginning on page 34. Aggregate restructuring charges of $1,243 million cover certain costs of plans that will enhance GE's global competitiveness through rationalization of certain production, service and administration activities of its worldwide industrial businesses; among these charges is $577 million of special early retirement pension, health and life benefit costs, including a fourth-quarter, one-time voluntary early retirement program that was provided to the U.S. work force in the 1997 labor contracts. Also included in restructuring charges are other severance costs as well as certain costs of exiting affected properties, including site demolitions, asset write-offs and expected losses on subleases. Future cash outlays, including capital expenditures, amounting to approximately $555 million will be incurred in order to execute these restructuring programs. Other special charges amounting to $1,079 million were also recorded in 1997, principally associated with strategic decisions to enhance the long-term competitiveness of certain industrial businesses and fourth-quarter developments arising from past activities at several current and former manufacturing sites not associated with any current business segments. The largest such special charge related to contracts on existing orders for an aircraft engine program and is discussed on page 34. NEW ACCOUNTING STANDARDS issued in 1997 are described below. Neither of these standards will have any effect on the financial position or results of operations of GE or GECS. The Financial Accounting Standards Board issued two Statements of Financial Accounting Standards (SFAS) that will affect presentation in GE's 1998 Annual Report to Share Owners. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, will require display of certain information about adjustments to equity -- most notably, adjustments arising from market value changes in marketable securities. SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, will require additional information about industry segments. ================================================================================ [CHART HERE] GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1992 - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- GE 12.27% 28.08% 41.91% 57.44% 77.66% S&P 500 1.62 6.46 11.39 20.36 25.12 ================================================================================ F-9 ANNUAL REPORT PAGE 33 DIVIDENDS DECLARED IN 1997 AMOUNTED TO $3.535 BILLION. Per-share dividends of $1.08 were up 14% from 1996, following a 12% increase from the preceding year. GE has rewarded its share owners with 22 consecutive years of dividend growth. The chart on the previous page illustrates that GE's dividend growth for the past five years has significantly outpaced dividend growth of companies in the Standard & Poor's 500 stock index. RETURN ON AVERAGE SHARE OWNERS' EQUITY reached 25.0% in 1997, up from 24.0% and 23.5% in 1996 and 1995, respectively. GE OPERATIONS GE total revenues were $54.5 billion in 1997, compared with $49.6 billion in 1996 and $46.2 billion in 1995. o GE sales of goods and services were $49.0 billion in 1997, an increase of 6% from 1996, which in turn was 7% higher than in 1995. The improvement in 1997 was led by Aircraft Engines, Transportation Systems and Power Systems. Volume was about 9% higher in 1997, reflecting growth in most businesses during the year. While overall selling prices were down slightly in 1997, the effects of selling prices on sales in various businesses differed markedly. Revenues were also negatively affected by exchange rates for sales denominated in other than U.S. dollars. Volume in 1996 was about 9% higher than in 1995, with selling price and currency effects both slightly negative. For purposes of the required financial statement display of GE sales and costs of sales on pages 26 and 27, "goods" refers to tangible products, and "services" refers to all other sales, including broadcasting and information services activities. An increasingly important element of GE sales relates to product services, including both spare parts (goods) as well as repair services. Such product services sales amounted to $9.7 billion in 1997 and were up 16% from 1996, which was 11% higher than 1995. o GE other income, earned from a wide variety of sources, was $2.3 billion in 1997, $0.6 billion in 1996 and $0.8 billion in 1995. The increase in other income in 1997 was primarily attributable to the Lockheed Martin transaction described in note 2, which also provides details of GE other income. o Earnings of GECS were up 16% in 1997, following a 17% increase the year before. See page 36 for an analysis of these earnings. PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and services sold, and selling, general and administrative expenses. OPERATING MARGIN is sales of goods and services less the costs of goods and services sold, and selling, general and administrative expenses. GE reported ================================================================================ [CHART HERE] GE OPERATING MARGIN AS A PERCENTAGE OF SALES - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- AS REPORTED 9.9% 13.6% 14.4% 14.8% 11.0% RESTRUCTURING AND OTHER SPECIAL CHARGES 2.6 - - - 4.7 ================================================================================ operating margin as 11.0% of sales in 1997, after the effects of restructuring and other special charges. GE ongoing operating margin (before such charges) reached a record 15.7% of sales, up from 14.8% in 1996 and 14.4% in 1995. The improvement in operating margin in 1997 -- with ten businesses, led by Power Systems, Aircraft Engines, Medical Systems and NBC, reporting higher operating margins -- showed the increasing benefits from GE's product services and Six Sigma quality initiatives. TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar basis) has paralleled recent significant improvement in GE's ongoing operating margin and accelerated over the period. Productivity in 1997 was 4.2%, reflecting sharp improvements associated with variable costs, largely attributable to the Six Sigma quality program, as well as base costs, associated largely with higher volume. Four businesses -- Power Systems, NBC, Plastics and Information Services -- achieved productivity in excess of 5%. Total productivity was 2.9% in 1996, principally on the positive effects of higher volume. In 1996, three businesses -- Power Systems, NBC and Aircraft Engines -- reported productivity in excess of 5%. The total contribution of productivity in the last two years offset not only the negative effects of cost inflation, but also the effects of selling price decreases. GE INTEREST AND OTHER FINANCIAL CHARGES in 1997 amounted to $797 million, compared with $595 million in 1996 and $649 million in 1995, as interest rates trended lower over the period. Lower rates in 1997 were more than offset by higher levels of average borrowings and other interest-bearing obligations. INCOME TAXES on a consolidated basis were 26.6% of pretax earnings in 1997, compared with 32.6% in 1996 and 32.5% in 1995. The 1997 decrease in effective tax rate was primarily attributable to the realized gain on the tax-free F-10 ANNUAL REPORT PAGE 34 exchange of Lockheed Martin preferred stock. That gain accounted for 4.8% of the difference between the expected and actual tax rates shown in note 8. A more detailed analysis of the differences between the U.S. federal statutory rate and the consolidated rate, as well as other information about income tax provisions, is also provided in note 8. GE INDUSTRY SEGMENT REVENUES AND OPERATING PROFIT for the past five years are shown in the table on page 35. For additional information, including a description of the products and services included in each segment, see note 28. AIRCRAFT ENGINES achieved a 24% increase in revenues in 1997, following a 3% increase in 1996, on higher volume in commercial engines and product services. Operating profit decreased 14% in 1997, primarily as a result of $342 million of charges. The largest charge followed Boeing Co.'s fourth-quarter announcement that development of longer-range derivatives of the 777 jetliner would be slowed. It was concluded at that time that development of a higher-thrust derivative of the GE90 engine was not justified, resulting in charges of $275 million to reflect higher estimated manufacturing costs to fill firm customer orders. An additional charge of $67 million was recorded for restructuring, covering costs associated with closing certain redundant manufacturing and warehousing facilities. Excluding these charges, operating profit increased 14%, reflecting the effects of volume increases in commercial engines and product services and improved product services pricing, the combination of which more than offset cost increases. Operating profit increased by 4% in 1996 as a result of improvements in the product services business and productivity, offset somewhat by reduced selling prices and cost inflation. In 1997, $1.5 billion of revenues were from sales to the U.S. government, down $0.3 billion from 1996, which was $0.1 billion higher than in 1995. Aircraft Engines received orders of $8.9 billion in 1997, up $1.8 billion from 1996. The backlog at year-end 1997 was $9.8 billion ($9.0 billion at the end of 1996). Of the total, $7.5 billion related to products, about 50% of which was scheduled for delivery in 1998, and the remainder related to 1998 product services. APPLIANCES revenues were 6% higher than a year ago, reflecting primarily acquisition-related volume. Operating profit decreased 39%, primarily as a result of restructuring and other special charges of $330 million, principally for severance costs related to work force reductions and facility closing costs. Excluding such charges, operating profit increased 5%, reflecting productivity and improved volume, partially offset by lower selling prices. Revenues in 1996 were 7% higher than in 1995, reflecting industry growth and U.S. market share gains across core product lines. Operating profit increased 8% in 1996, primarily as a result of productivity and higher volume, partially offset by lower selling prices. BROADCASTING revenues decreased 2% in 1997 as a strong advertising marketplace was more than offset by the absence of a current-year counterpart to NBC's broadcast of the 1996 Summer Olympic Games. Operating profit increased 5% in 1997, despite restructuring charges of $161 million associated with certain broadcast properties, primarily international properties, and including asset write-offs, expected losses on subleases from excess capacity, and severance costs. Excluding the effects of such charges, operating profit increased 22%, reflecting improved prime-time pricing, strong growth in both owned-and-operated stations and cable programming services, and increased international distribution of programming, the combination of which more than offset the absence of a current-year counterpart to the Olympics broadcast and higher license fees for certain prime-time programs that were renewed. Revenues increased 34% in 1996, reflecting a strong advertising market, excellent ratings, strong growth in the owned-and-operated stations and the Olympics broadcast. Operating profit increased 29% in 1996 as the combination of excellent ratings, sharply higher results in owned-and-operated stations and profitable Olympics coverage more than offset higher license fees for certain prime-time programs that were renewed. INDUSTRIAL PRODUCTS AND SYSTEMS revenues rose 5% in 1997, with improved volume more than offsetting weaker pricing across all businesses in the segment. Operating profit declined 8%, reflecting $352 million of charges, essentially all of which were related to restructuring -- mostly for severance costs related to work force reductions and for facility closing costs. Excluding these charges, operating profit increased 14% in 1997, the result of Six Sigma-based productivity and volume improvements across the segment, which more than offset the effects of lower selling prices. Revenues increased 2% in 1996, reflecting volume increases in Lighting, Electrical Distribution and Control, and Industrial Control Systems. Operating profit increased 6% as productivity improvements across the segment more than offset the effects of cost inflation and lower selling prices for certain products. Transportation Systems received orders of $2.4 billion in 1997, an increase of 20% from 1996. The backlog at year-end 1997 was $2.0 billion, an increase of $0.5 billion from 1996. Of the total, $1.8 billion related to products, about 82% of which was scheduled for shipment in 1998, and the remainder related to 1998 product services. F-11 ANNUAL REPORT PAGE 35 SUMMARY OF INDUSTRY SEGMENTS
General Electric Company and consolidated affiliates -------------------------------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- REVENUES GE Aircraft Engines $ 7,799 $ 6,302 $ 6,098 $ 5,714 $ 6,580 Appliances 6,745 6,375 5,933 5,965 5,555 Broadcasting 5,153 5,232 3,919 3,361 3,102 Industrial Products and Systems 10,954 10,412 10,194 9,406 8,575 Materials 6,695 6,509 6,647 5,681 5,042 Power Generation 7,495 7,257 6,545 5,933 5,530 Technical Products and Services 4,917 4,692 4,424 4,285 4,174 All Other 3,564 3,108 2,707 2,348 1,803 Corporate items and eliminations 1,193 (322) (286) (195) (242) --------------------------------------------------------- Total GE 54,515 49,565 46,181 42,498 40,119 --------------------------------------------------------- GECS Financing 31,165 24,554 19,446 15,064 12,454 Specialty Insurance 8,844 8,155 7,042 4,794 4,807 All Other (78) 4 4 17 15 --------------------------------------------------------- Total GECS 39,931 32,713 26,492 19,875 17,276 --------------------------------------------------------- Eliminations (3,606) (3,099) (2,645) (2,264) (1,694) --------------------------------------------------------- CONSOLIDATED REVENUES $ 90,840 $ 79,179 $ 70,028 $ 60,109 $ 55,701 ============================================================================================================= OPERATING PROFIT GE Aircraft Engines $ 1,051 $ 1,225 $ 1,176 $ 935 $ 798 Appliances 458 750 697 683 372 Broadcasting 1,002 953 738 500 264 Industrial Products and Systems 1,490 1,617 1,519 1,328 901 Materials 1,476 1,466 1,465 967 834 Power Generation 758 1,068 769 1,238 1,024 Technical Products and Services 828 849 801 787 706 All Other 3,558 3,088 2,683 2,309 1,725 --------------------------------------------------------- Total GE 10,621 11,016 9,848 8,747 6,624 --------------------------------------------------------- GECS Financing 3,736 3,460 3,062 2,671 1,733 Specialty Insurance 1,293 1,238 1,002 580 764 All Other (607) (650) (544) (302) (288) --------------------------------------------------------- Total GECS 4,422 4,048 3,520 2,949 2,209 -------------------------------------------------------- Eliminations (3,209) (2,795) (2,396) (2,072) (1,554) --------------------------------------------------------- CONSOLIDATED OPERATING PROFIT 11,834 12,269 10,972 9,624 7,279 GE interest and other financial charges-- net of eliminations (782) (600) (644) (417) (529) GE items not traceable to segments 127 (863) (591) (546) (614) --------------------------------------------------------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND ACCOUNTING CHANGE $ 11,179 $ 10,806 $ 9,737 $ 8,661 $ 6,136 ============================================================================================================= Operating profit for 1997 and 1993 included significant restructuring and other special charges. The 1997 effects for individual segments are discussed on pages 34 and 36. The notes to consolidated financial statements on pages 47-66 are an integral part of this statement. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Operating profit of GE segments excludes "Interest and other financial charges"; operating profit of GECS includes "Interest and other financial charges," which is one of the largest elements of GECS' operating costs. The 1993 accounting change represents adoption of Statement of Financial Accounting Standards (SFAS) No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
F-12 ANNUAL REPORT PAGE 36 MATERIALS revenues grew 3% in 1997, reflecting an increase in volume that was largely offset by lower selling prices and adverse currency exchange rates. Operating profit increased by 1%, including restructuring charges amounting to $63 million for severance costs related to work force reductions and outsourcing. Excluding such charges, operating profit increased 5%, as Six Sigma-based productivity and higher volume more than offset lower selling prices. Materials revenues decreased 2% in 1996 and operating profit was about the same as the previous year, primarily as a result of lower selling prices. The adverse effects of lower selling prices on operating profit were offset in part by reductions in material costs, volume improvements and productivity. POWER GENERATION revenues were 3% higher than in 1996, reflecting higher volume in gas turbines and in product services. Operating profit decreased 29% in 1997, reflecting aggregate charges of $437 million, including $261 million that was principally a combination of gas turbine warranty costs and costs arising from renegotiation and resolution of certain disputes. Additionally, $176 million was recognized for restructuring, covering costs of exiting certain facilities, including severance benefits, site demolitions and associated write-offs. Absent such charges, operating profit increased by 12%, the result of strong Six Sigma-based productivity and higher volume, which more than offset lower selling prices. Revenues increased 11% in 1996, reflecting primarily strong growth at Nuovo Pignone and higher product services volume. Operating profit increased 39% in 1996 as productivity more than offset cost inflation and lower selling prices. Power Generation orders were $6.6 billion for 1997, compared with $8.0 billion in 1996. The backlog of unfilled orders at year-end 1997 was $9.8 billion ($10.9 billion at the end of 1996). Of the total, $8.9 billion related to products, about 41% of which was scheduled for delivery in 1998, and the remainder related to 1998 product services. TECHNICAL PRODUCTS AND SERVICES revenues rose 5% in 1997, following a 6% increase in 1996. Medical Systems reported higher revenues in both years, reflecting higher equipment volume and continued growth in product services, partially offset by lower selling prices. Information Services revenues were up slightly in 1997 and were essentially flat in 1996, as declines in selling prices offset increased volume in electronic commerce. Operating profit for the segment decreased 2% in 1997, reflecting aggregate charges of $157 million principally for severance costs related to work force reductions and facility closing costs. Excluding such costs, segment operating profit increased 16% as productivity and higher volume more than offset the effects of lower selling ================================================================================ [CHART HERE] GECS REVENUES - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- $17.276 $19.875 $26.492 $32.713 $39.931 ================================================================================ prices. Operating profit for the segment increased 6% in 1996 as productivity, growth in services at Medical Systems and volume improvements more than offset selling price decreases. Orders received by Medical Systems in 1997 were $4.3 billion, up $0.4 billion from 1996. The backlog of unfilled orders at year-end 1997 was $2.4 billion, about the same as at the end of 1996. Of the total, $1.3 billion related to products, about 91% of which was scheduled for delivery in 1998, and the remainder related to 1998 product services. ALL OTHER consists primarily of GECS earnings, which are discussed in the next section. Also included are revenues derived from licensing the use of GE technology to others. GECS OPERATIONS GECS conducts its operations in two segments -- Financing and Specialty Insurance. The Financing segment includes the financing and consumer savings and insurance operations of General Electric Capital Corporation (GE Capital). The consumer savings and insurance operations, conducted primarily by GE Financial Assurance Holdings, Inc., provide consumers financial security solutions through a wide variety of insurance, investment and retirement products, primarily in the United States. The Specialty Insurance segment includes operations of GE Global Insurance Holding Corporation (GE Global Insurance), the principal subsidiary of which is Employers Reinsurance Corporation, and the other insurance businesses described on page 63. o GECS total revenues from operations were $39.9 billion in 1997, up 22% from 1996, which was up 23% from 1995. The 1997 increase reflected primarily the contribution of businesses acquired in 1997 and 1996. o GECS earnings were $3.3 billion in 1997, up 16% from 1996, which was up 17% from 1995. The improved operating results for 1997 and 1996 were attributable to continued asset growth, with business and portfolio F-13 ANNUAL REPORT PAGE 37 acquisitions throughout the period and higher origination volume in 1997. Earnings in 1997 were affected by higher losses associated with the investment in Montgomery Ward Holding Corp., discussed on page 38, as well as by increased automobile residual losses. These matters were more than offset by asset gains, the largest of which was $284 million (net of tax) from a transaction that included the reduction of the GECS investment in the common stock of Paine Webber Group Inc. Increased investment income was the result of ongoing growth in the investment portfolios and a higher level of gains on investment securities. o GECS cost of goods sold was associated with the computer equipment distribution businesses. This cost amounted to $4.1 billion in 1997, compared with $1.7 billion in 1996 and $0.4 billion in 1995, the result of acquisition-related growth in 1997 and 1996. o GECS interest on borrowings in 1997 was $7.6 billion, 4% higher than in 1996, which was 10% higher than in 1995. The increases in 1997 and 1996 were caused by higher average borrowings used to finance asset growth, partially offset by the effects of lower average interest rates. The composite interest rate on GECS borrowings was 6.07% in 1997, compared with 6.24% in 1996 and 6.76% in 1995. See page 42 for an analysis of interest rate sensitivities. o GECS insurance losses and policyholder and annuity benefits increased to $8.3 billion during 1997, compared with $6.7 billion in 1996 and $5.3 billion in 1995, primarily because of business acquisitions and growth in originations throughout the period. o GECS other costs and expenses increased to $13.9 billion in 1997 from $11.7 billion in 1996 and $9.4 billion in 1995 on increased costs associated with acquired businesses and portfolios as well as higher investment levels. GECS INDUSTRY SEGMENT revenues and operating profit for the past five years are shown in the table on page 35. Revenues from services are detailed in note 3. FINANCING SEGMENT revenues from operations increased 27% to $31.2 billion in 1997, following a 26% increase in 1996. Significant portions of the revenue increase arose from the computer equipment distribution businesses acquired during 1997 and 1996 and from the consumer savings and insurance businesses acquired during 1996 and 1995. Asset growth contributed to increased revenues in both years, but was partially offset by lower yields. Financing segment revenues were negatively affected by higher losses associated with the investment in Montgomery Ward Holding Corp. That effect was more than offset by gains on asset transactions, including securitizations. ================================================================================ [CHART HERE] GECS EARNINGS FROM CONTINUING OPERATIONS - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- $1.567 $2.085 $2.415 $2.817 $3.256 ================================================================================ Operating profit was $3.7 billion in 1997, 8% higher than in 1996. As previously noted, 1997 operating profit included higher losses associated with the investment in Montgomery Ward Holding Corp. as well as increased automobile residual losses. These items were more than offset by acquisition and core growth as well as gains on asset transactions, including securitizations. Operating profit increased 13% in 1996, primarily because of asset growth. Financing spreads (the excess of yields over interest rates on borrowings) were essentially flat in 1997 and 1996 as the reduction in yields was offset by decreases in borrowing rates. Cost of goods sold associated with the computer equipment distribution businesses increased significantly in both years, primarily because of acquisitions. The provision for losses on financing receivables increased in 1997 on higher average receivable balances as well as increased delinquencies, consistent with industry experience, in the consumer portfolio. Higher portfolio growth from originations resulted in higher provisions in 1995 than in 1996. Insurance losses and policyholder and annuity benefits associated with the consumer savings and insurance operations increased during 1997 and 1996 as a result of acquisitions. Other costs and expenses increased in both years, the result of costs associated with acquired businesses and portfolios and higher levels of investment. Financing receivables are the Financing segment's largest asset and its primary source of revenues. The portfolio of financing receivables, before allowance for losses, increased to $106.6 billion at the end of 1997 from $102.4 billion at the end of 1996, principally reflecting acquisition growth and origination volume that were partially offset by securitizations of receivables. The related allowance for losses at the end of 1997 amounted to $2.8 billion (2.63% of receivables -- the same as 1996 and 1995) and, in management's judgment, is appropriate given the risk profile of the portfolio. F-14 ANNUAL REPORT PAGE 38 A discussion of the quality of certain elements of the Financing segment portfolio follows. "Nonearning" receivables are those that are 90 days or more delinquent (or for which collection has otherwise become doubtful) and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield. The following discussion of the nonearning and reduced-earning receivable balances and write-off amounts excludes amounts related to Montgomery Ward Holding Corp. and affiliates, which are separately discussed below. Consumer financing receivables at year-end 1997 and 1996 are shown in the following table: ---------------------------- (In millions) 1997 1996 - -------------------------------------------------------------------------------- Credit card and personal loans $25,773 $27,127 Auto loans 8,973 5,915 Auto financing leases 13,346 13,113 ----------------------- Total consumer financing receivables $48,092 $46,155 ======================= Nonearning $ 1,049 $ 926 -- As percentage of total 2.2% 2.0% Receivable write-offs for the year $ 1,298 $ 870 ================================================================================ The decrease in credit card and personal loan portfolios primarily resulted from securitization of receivables, partially offset by portfolio acquisitions and origination volume. Both the auto loan and financing lease portfolios increased as a result of acquisition growth; however, the increase in auto financing leases was partially offset by a shift in U.S. lease volume from financing leases to operating leases. Nonearning receivables did not change significantly during 1997. A substantial amount of the nonearning consumer receivables were U.S. private-label credit card loans that were subject to various loss-sharing agreements that provide full or partial recourse to the originating retailer. Increased write-offs of consumer receivables were primarily attributable to the impact of higher delinquencies and personal bankruptcies on the credit card loan portfolios in the United States, consistent with overall industry experience, as well as higher average receivable balances worldwide. Other financing receivables, totaling $58.5 billion at December 31, 1997, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $2.3 billion during 1997, primarily because of increased origination volume, partially offset by sales of receivables. Related nonearning and reduced-earning receivables were $353 million at year-end 1997, compared with $471 million at year-end 1996. As discussed in note 13, Montgomery Ward Holding Corp. (MWHC) filed a bankruptcy petition for reorganization in 1997. GECS' share of the losses of MWHC and affiliates in 1997 was $380 million (after tax). The GECS investment in MWHC and affiliates at December 31, 1997, was $795 million ($617 million classified as financing receivables). Income recognition had been suspended on these pre-bankruptcy investments. Subsequent to the petition, GECS committed to provide MWHC up to $1.0 billion in debtor-in-possession financing, subject to certain conditions, in order to fund working capital requirements and general corporate expenses. A majority of this facility has been syndicated; total borrowings under this facility at December 31, 1997, were insignificant. GECS loans and leases to commercial airlines amounted to $9.0 billion at the end of 1997, up from $8.2 billion at the end of 1996. GECS commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 17. SPECIALTY INSURANCE SEGMENT revenues from operations were $8.8 billion in 1997, an increase of 8% from 1996, which increased 16% over 1995. The increase in 1997 resulted from increased premium and investment income associated with origination volume, acquisitions and continued growth in the investment portfolios, as well as a higher level of gains on investment securities. GE Global Insurance net premiums earned on U.S. business increased in 1997 -- the result of strong growth in the life reinsurance business -- while net premiums earned on European business declined, reflecting the effects of currency translation and market conditions. The increase in 1996 resulted primarily from inclusion of a full year's results for the European property and casualty reinsurance businesses acquired in 1995. GE Global Insurance net premiums earned on U.S. business declined in 1996 on lower industry-wide pricing and the exit of certain unprofitable reinsurance contracts. Revenues from the other insurance businesses of GECS increased during 1997 and 1996 as a result of both origination volume and acquisitions. Specialty Insurance operating profit increased 4% to $1.3 billion in 1997 from $1.2 billion in 1996. The increase in 1997 primarily reflected higher investment income, the result of continued growth in investment portfolios and higher gains on investment securities, as well as improved earnings in the mortgage insurance business, the result of improved market conditions. Higher insurance losses, reserves and other costs and expenses partially offset these increases. Operating profit increased 24% in 1996 as the year included a full year's results of the European reinsurance acquisitions: higher premium and investment income, partially offset by increases in insurance losses and other costs and expenses. F-15 ANNUAL REPORT PAGE 39 INTERNATIONAL OPERATIONS Estimated results of international operations include all exports from the United States, plus the results of GE and GECS operations located outside the United States. Certain GECS operations that cannot meaningfully be associated with specific geographic areas were classified as "other international" for this purpose. International revenues in 1997 were $38.5 billion (42% of consolidated revenues), compared with $33.3 billion in 1996 and $28.2 billion in 1995. In 1997, about 48% of GE's revenues were international, which was about 2% higher than in 1996 and 1995. The chart below left depicts the growth in international revenues in relation to total revenues over the past five years. International operating profit was $4.8 billion (41% of consolidated operating profit) in 1997, compared with $4.0 billion in 1996 and $3.2 billion in 1995. GE international revenues were $24.8 billion in 1997, an increase of 14% from 1996, reflecting sales growth in operations based outside the United States and in U.S. exports. European revenues were 10% higher in 1997, reflecting increases in both local operations and in exports to the region, with particularly strong growth at Aircraft Engines. Pacific Basin revenues increased by 2% in 1997, reflecting primarily increased revenues from local operations, led by Plastics and Lighting. Revenues from the Americas increased 37%, primarily as a result of strong growth in local operations, particularly at Appliances and Aircraft Engines, and increased exports. GECS international revenues were $13.7 billion in 1997, an increase of 18% from $11.6 billion in 1996, while international assets grew 21% from $65.3 billion at December 31, 1996, to $79.2 billion at the end of 1997. This revenue and asset growth occurred primarily in Europe and, to a lesser extent, in Canada and the Pacific Basin. These increases were attributable to continued expansion of GECS as a global provider of a wide range of services. Financial results reported in U.S. dollars are affected by currency exchange. A number of techniques are used to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. International activity is diverse, as shown in the international revenues chart at the bottom right of this page. Principal currencies include major European currencies as well as the Japanese yen and the Canadian dollar. GE's total exports from the United States follow. - -------------------------------------------------------------------------------- GE'S TOTAL EXPORTS FROM THE UNITED STATES ---------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Pacific Basin $ 3,176 $ 3,180 $ 3,397 Europe 2,423 2,060 1,701 Americas 1,553 1,257 1,023 Other 1,641 1,025 964 ---------------------------------- Exports to external customers 8,793 7,522 7,085 Exports to affiliates 2,471 2,292 2,123 ---------------------------------- Total exports $11,264 $ 9,814 $ 9,208 ================================================================================ GE made a positive 1997 contribution of approximately $6.3 billion to the U.S. balance of trade. Total exports in 1997 were $11.3 billion, direct imports from external suppliers were $3.0 billion and imports from GE affiliates were $2.0 billion. ================================================================================ [CHART HERE] CONSOLIDATED REVENUES - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- UNITED STATES $36.447 $39.149 $41.780 45.886 $52.313 INTERNATIONAL 19.254 20.960 28.248 33.293 38.527 ================================================================================ [CHART HERE] CONSOLIDATED INTERNATIONAL REVENUES - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- EUROPE $9.037 $8.994 $13.993 $18.024 $20.589 PACIFIC BASIN 4.474 5.922 7.122 7.523 7.918 AMERICAS 3.073 3.437 4.105 4.700 6.185 OTHER 2.670 2.607 3.028 3.046 3.835 ================================================================================ F-16 ANNUAL REPORT PAGE 40 MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY OVERVIEW This discussion of financial resources and liquidity focuses on the Statement of Financial Position (page 28) and the Statement of Cash Flows (page 30). Throughout the discussion, it is important to understand the differences between the businesses of GE and GECS. Although manufacturing and services activities involve a variety of GE businesses, their underlying characteristics are development, preparation for market and delivery of tangible goods and services. Risks and rewards are directly related to the ability to manage and finance those activities. The principal businesses of GECS provide financing, asset management, consumer savings and insurance, and other insurance and services to third parties. The underlying characteristics of most of these businesses involve the management of financial risk. Risks and rewards stem from the abilities of its businesses to continue to design and provide a wide range of services in a competitive marketplace and to receive adequate compensation for such services. GECS is not a "captive finance company" or a vehicle for "off-balance-sheet financing" for GE; a small portion of GECS business is directly related to other GE operations. Despite the different business profiles of GE and GECS, the global commercial airline industry is one significant example of an important source of business for both. GE assumes financing positions primarily in support of engine sales, whereas GECS is a significant source of lease and loan financing for the industry (see details in note 17). Management believes that these financing positions are reasonably protected by collateral values and by its ability to control assets, either by ownership or security interests. The fundamental differences between GE and GECS are reflected in the measurements commonly used by investors, rating agencies and financial analysts. These differences will become clearer in the discussion that follows with respect to the more significant items in the financial statements. YEAR 2000 compliance programs and information systems modifications have been initiated in an attempt to ensure that these systems and key processes will remain functional. This objective is expected to be achieved either by modifying present systems using existing internal and external programming resources or by installing new systems, including enterprise systems, and by monitoring supplier and other third-party interfaces. While there can be no assurance that all such modifications will be successful, management does not expect that either costs of modifications or consequences of any unsuccessful modifications should have a material adverse effect on the financial position, results of operations or liquidity of GE or GECS. ================================================================================ [CHART HERE] GE ANNUAL INTERNAL WORKING CAPITAL TURNOVER - -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- 5.070 5.750 5.560 6.300 7.420 ================================================================================ STATEMENT OF FINANCIAL POSITION INVESTMENT SECURITIES for each of the past two years comprised mainly investment-grade debt securities held by the specialty insurance and annuity and investment businesses of GECS in support of obligations to policyholders and annuitants. GE investment securities were $265 million at year-end 1997, up $248 million over 1996. The increase in 1997 primarily reflected an equity security acquired as part of the Lockheed Martin transaction discussed previously. The increase of $10.5 billion at GECS during 1997 was principally related to acquisitions and increases in fair value as well as investment of premiums received. A breakdown of the investment securities portfolio is provided in note 10. GE CURRENT RECEIVABLES were $9.1 billion at the end of 1997, an increase of $0.2 billion from year-end 1996, and included $6.1 billion due from customers at the end of 1997, which was $0.5 billion lower than the amount due at the end of 1996. As a measure of asset management, customer receivables turnover was 7.7 in 1997, compared with 6.8 in 1996. Other current receivables are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. GE INVENTORIEs were $5.1 billion at December 31, 1997, up $0.6 billion from the end of 1996. Inventory turnover improved to 7.8 in 1997, compared with 7.6 in 1996, reflecting continuing improvements in inventory management. Last-in, first-out (LIFO) revaluations decreased $119 million in 1997, compared with decreases of $128 million in 1996 and $87 million in 1995. Included in these changes were decreases of $59 million, $58 million and $88 million in 1997, 1996 and 1995, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in 1997 and 1996, and no cost change in 1995. F-17 ANNUAL REPORT PAGE 41 Customer receivables and inventories (at FIFO) are two key components of GE's internal working capital measurement. Internal working capital turnover increased as shown in the chart on the facing page: from 5.6 turns in 1995 to 6.3 and 7.4 turns in 1996 and 1997, respectively. Internal working capital also includes trade accounts payable and progress collections. GECS INVENTORIES were $786 million and $376 million at December 31, 1997 and 1996, respectively. The increase in 1997 primarily reflected acquisitions in the computer equipment distribution businesses. GECS FINANCING RECEIVABLES were $103.8 billion at year-end 1997, net of allowance for doubtful accounts, up $4.1 billion over 1996. These receivables are discussed on pages 37 and 38 and in notes 7 and 13. GECS OTHER RECEIVABLES were $18.3 billion and $16.0 billion at December 31, 1997 and 1996, respectively. Of the 1997 increase, $1.2 billion was attributable to acquisitions and the remainder resulted from core growth. PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $32.3 billion at December 31, 1997, up $3.5 billion from 1996. GE property, plant and equipment consists of investments for its own productive use, whereas the largest element for GECS is in equipment provided to third parties on operating leases. Details by category of investment can be found in note 15. GE total expenditures for new plant and equipment during 1997 totaled $2.2 billion, down $0.2 billion from 1996. Total expenditures for the past five years were $9.7 billion, of which 38% was investment for growth through new capacity and product development; 33% was investment in productivity through new equipment and process improvements; and 29% was investment for such other purposes as improvement of research and development facilities and safety and environmental protection. GECS additions to equipment leased to others, including business acquisitions, were $6.8 billion during 1997 ($5.3 billion during 1996), principally reflecting a shift in auto lease volume from financing leases to operating leases and increased acquisitions of new aircraft. INTANGIBLE ASSETS were $19.1 billion at year-end 1997, up from $16.0 billion at year-end 1996. GE intangibles increased to $8.8 billion from $7.4 billion at the end of 1996, principally as a result of goodwill related to the purchase of Greenwich Air Services/UNC and a number of smaller acquisitions. The $1.7 billion increase in GECS intangibles also related primarily to goodwill from acquisitions. ALL OTHER ASSETS totaled $39.8 billion at year-end 1997, an increase of $5.0 billion from the end of 1996. GE other assets increased $1.6 billion, principally reflecting consideration received in exchange for GE's investment in Lockheed Martin preferred stock and an increase in the prepaid pension asset. In connection with the exchange transaction, a portion of such consideration was subsequently loaned to Lockheed Martin. The increase in GECS other assets of $4.0 billion related principally to increases in assets acquired for resale, primarily residential mortgages, and increased "separate accounts," which are investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $67.3 billion, $5.9 billion higher than in 1996. The increase was primarily attributable to acquisitions in 1997 and the increase in separate accounts. For additional information on these liabilities, see note 20. CONSOLIDATED BORROWINGS aggregated $144.7 billion at December 31, 1997, compared with $129.4 billion at the end of 1996. The major debt-rating agencies evaluate the financial condition of GE and of GE Capital (the major public borrowing entity of GECS) differently because of their distinct business characteristics. Using criteria appropriate to each and considering their combined strength, those major rating agencies continue to give the highest ratings to debt of both GE and GE Capital. GE has committed to contribute capital to GE Capital in the event of either a decrease below a specified level in the ratio of GE Capital's earnings to fixed charges, or a failure to maintain a specified debt-to-equity ratio in the event certain GE Capital preferred stock is redeemed. GE also has guaranteed subordinated debt of GECS with a face amount of $1.0 billion at December 31, 1997 and 1996. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guarantees is remote. ================================================================================ [CHART HERE] GE CASH FLOWS FROM OPERATING ACTIVITIES - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- $5.201 $6.071 $6.065 $9.067 $9.317 ================================================================================ F-18 ANNUAL REPORT PAGE 42 GE total borrowings were $4.4 billion at year-end 1997 ($3.6 billion short-term, $0.8 billion long-term), an increase of about $0.3 billion from year-end 1996. GE total debt at the end of 1997 equaled 11.1% of total capital, down from 11.4% at the end of 1996. GECS total borrowings were $141.3 billion at December 31, 1997, of which $95.3 billion is due in 1998 and $46.0 billion is due in subsequent years. Comparable amounts at the end of 1996 were $125.6 billion total, $77.9 billion due within one year and $47.7 billion due thereafter. A large portion of GECS borrowings ($71.2 billion and $54.2 billion at the end of 1997 and 1996, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. Most of this commercial paper was issued by GE Capital. The average remaining terms and interest rates of GE Capital commercial paper were 44 days and 5.83% at the end of 1997, compared with 42 days and 5.58% at the end of 1996. GE Capital leverage (ratio of debt to equity, excluding from equity net unrealized gains on investment securities) was 7.94 to 1 at the end of 1997 and 7.92 to 1 at the end of 1996. By comparison, including in equity net unrealized gains on investment securities, the GE Capital ratio of debt to equity was 7.45 to 1 at the end of 1997 and 7.84 to 1 at the end of 1996. INTEREST RATE AND CURRENCY RISK MANAGEMENT In normal operations, both GE and GECS must deal with effects of changes in interest rates and currency exchange rates. The following discussion presents an overview of how such changes are managed, a view of their potential effects, and, finally, what considerations arise from recent developments in Asia. GE and GECS use various financial instruments, particularly interest rate and currency swaps, but also futures, options and currency forwards, to manage their respective interest rate and currency risks. GE and GECS are exclusively end users of these instruments, which are commonly referred to as derivatives; neither GE nor GECS engages in trading, market-making or other speculative activities in the derivatives markets. Established practices require that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. More detailed information about these financial instruments, as well as the strategies and policies for their use, is provided in notes 1, 19 and 30. The Securities and Exchange Commission requires that registrants include information about potential effects of changes in interest rates and currency exchange in their financial statements. Although the rules offer alternatives ================================================================================ [CHART HERE] GE CUMULATIVE CASH FLOWS - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES $5.201 $11.272 $17.337 $26.404 $35.721 DIVIDENDS PAID 2.153 4.615 7.385 10.435 13.846 SHARES REPURCHASED 0.707 1.780 4.882 8.148 11.640 ================================================================================ for presenting this information, none of the alternatives is without limitations. The following discussion is based on so-called "shock tests," which model effects of interest rate and currency shifts on the reporting company. Shock tests, while probably the most meaningful analysis permitted, are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by their inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. While the following results of shock tests for interest rates and currencies may have some limited use as benchmarks, they should not be viewed as forecasts. o One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings resulting from a hypothetical increase in interest rates of 100 basis points across all maturities (sometimes referred to as a "parallel shift in the yield curve"). Under this model, it is estimated that, all else constant, such an increase, including repricing effects in the securities portfolio, would reduce the 1998 net earnings of GECS based on year-end 1997 positions by approximately $112 million; the pro forma effect for GE was insignificant. o One means of assessing exposure to changes in currency exchange rates is to model effects on reported earnings using a sensitivity analysis. Year-end 1997 consolidated currency exposures, including financial instruments designated and effective as hedges, were analyzed to identify GE and GECS assets and liabilities denominated in other than their relevant functional currency. Net unhedged exposures in each currency were then remeasured assuming a 10% decrease (substantially greater decreases for hyperinflationary currencies) in currency exchange rates compared with the U.S. dollar. Under this model, it is estimated that, all else constant, such a decrease would reduce the 1998 net earnings of GE based on year-end 1997 positions by approximately $10 million; the pro forma effect for GECS was insignificant. F-19 ANNUAL REPORT PAGE 43 Recent economic developments in parts of Asia have altered somewhat the risks and opportunities of the GE and GECS activities in affected economies. These activities encompass primarily manufacturing for local and export markets, import and sale of products produced outside the area, leasing of aircraft, sourcing for GE plants domiciled in other global regions and providing certain financial services within those Asian economies. As such, exposure exists to, among other things, increased receivables delinquencies and potential bad debts, delays in sales and orders principally related to power and aircraft-related equipment, and a slowdown in financial services activities. Conversely, costs of sourced goods may decline and new sourcing opportunities may arise, sales of products such as plastics to now more-competitive Asian manufacturers of products destined for export should remain strong and liberalization of financial regulations opens new opportunities to penetrate Asian financial services markets. Taken as a whole, while this situation bears close monitoring and increased management attention, the current situation is not expected to have a material adverse effect on the financial position, results of operations or liquidity of GE or GECS in 1998. STATEMENT OF CASH FLOWS Because cash management activities of GE and GECS are separate and distinct, it is more useful to review their cash flows separately. GE GE cash and equivalents aggregated $1.2 billion at the end of 1997, an increase of $0.2 billion from 1996. During 1997, GE generated a record $9.3 billion in cash from operating activities, an increase of $0.2 billion over 1996, principally as a result of improvements in earnings, working capital and higher dividends from GECS. The 1997 cash generation provided most of the resources needed to repurchase $3.5 billion of GE common stock under the share repurchase program, to pay $3.4 billion in dividends to share owners, to invest $2.2 billion in new plant and equipment and to make $1.4 billion in acquisitions. Operating activities are the principal source of GE's cash flows. Over the past three years, operating activities have provided more than $24 billion of cash. The principal application of this cash was distributions of more than $19 billion to share owners, both through payment of dividends ($9.2 billion) and through the share repurchase program ($9.9 billion) described below. Other applications included investment in new plant and equipment ($6.4 billion) and acquisitions ($2.8 billion). In December 1997, the GE Board of Directors increased the authorization to repurchase common stock to $17 billion and authorized the program to continue through 1999. Funds used for the share repurchase are expected to be generated largely from free cash flow. Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, management believes that GE is in a sound position to complete the share repurchase program, to grow dividends in line with earnings, and to continue making selective investments for long-term growth. Expenditures for new plant and equipment are expected to be about $2.0 billion in 1998, principally for productivity and growth. The expected level of expenditures was moderated by the Six Sigma quality program's success in freeing capacity. GECS One of the primary sources of cash for GECS is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, GECS borrowings with maturities of 90 days or less have increased by $20.1 billion. New borrowings of $80.5 billion having maturities longer than 90 days were added during those years, while $64.5 billion of such longer-term borrowings were retired. GECS also generated $26.1 billion from continuing operating activities. The principal use of cash by GECS has been investing in assets to grow its businesses. Of the $55.9 billion that GECS invested over the past three years, $15.5 billion was used for additions to financing receivables; $16.2 billion was used to invest in new equipment, principally for lease to others; and $13.6 billion was used for acquisitions of new businesses. With the financial flexibility that comes with excellent credit ratings, management believes that GECS should be well positioned to meet the global needs of its customers for capital and to continue providing GE share owners with good returns. F-20 ANNUAL REPORT PAGE 44 MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA summarizes on the opposite page some data frequently requested about General Electric Company. The data are divided into three sections: upper portion -- consolidated data; middle portion -- GE data that reflect various conventional measurements for industrial enterprises; and lower portion -- GECS data that reflect key information pertinent to financial services businesses. GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,891 million in 1997, about the same as in 1996 and 1995. In 1997, expenditures from GE's own funds were $1,480 million, an increase of 4% over 1996, reflecting continuing research and development work related to new product, service and process technologies. Product technology efforts in 1997 included continuing development work on the next generation of gas turbines, further advances in state-of-the-art diagnostic imaging technologies, and development of more fuel-efficient, cost-effective aircraft engine designs. New services technologies include advances in diagnostic applications, including remote diagnostic capabilities related to repair and maintenance of medical equipment, aircraft engines, power generation equipment and locomotives. New process technologies -- vital to Six Sigma quality programs -- provided improved product quality and performance and increased capacity for manufacturing engineered materials. Expenditures from funds provided by customers (mainly the U.S. government) were $411 million in 1997, down $54 million from 1996, primarily reflecting transition of the F414 program at Aircraft Engines from development to production. GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1997 was $26.4 billion, compared with $26.2 billion at the end of 1996. Of the total, $22.0 billion related to products, about 55% of which was scheduled for delivery in 1998. Services orders are included in backlog for only the succeeding 12 months; such backlog at the end of 1997 was $4.4 billion. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to cancellation penalties. See Industry Segments beginning on page 34 for further discussion on unfilled orders of relatively long-cycle manufacturing businesses. REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. In 1997, GE expended about $80 million for capital projects related to the environment. The comparable amount in 1996 was $87 million. These amounts exclude expenditures for remediation actions, which are principally expensed and are discussed below. Capital expenditures for environmental purposes have included pollution control devices -- such as wastewater treatment plants, groundwater monitoring devices, air strippers or separators, and incinerators -- at new and existing facilities constructed or upgraded in the normal course of business. Consistent with policies stressing environmental responsibility, average annual capital expenditures other than for remediation projects are presently expected to be about $85 million over the next two years. This level is in line with existing levels for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions. GE also is involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $84 million in 1997, compared with $76 million in 1996. It is presently expected that remediation actions will require average annual expenditures in the range of $80 million to $140 million over the next two years. ================================================================================ [CHART HERE] YEAR-END MARKET CAPITALIZATION - -------------------------------------------------------------------------------- (IN BILLIONS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- $89.527 $87.004 $119.989 $162.604 $239.539 ================================================================================ [CHART HERE] GE SHARE PRICE ACTIVITY - -------------------------------------------------------------------------------- (IN DOLLARS) 1993 1994 1995 1996 1997 - -------------------------------------------------------------------------------- HIGH $26.7500 $27.4375 $36.5625 $53.0625 76.5625 LOW 20.1875 22.5000 24.9375 34.7500 47.9375 CLOSE 26.2500 25.5000 36.0000 49.4375 73.3750 ================================================================================ F-21 ANNUAL REPORT PAGE 45 SELECTED FINANCIAL DATA
(Dollar amounts in millions; --------------------------------------------------------------------------- per-share amounts in dollars) 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $ 90,840 $ 79,179 $ 70,028 $ 60,109 $ 55,701 Earnings from continuing operations 8,203 7,280 6,573 5,915 4,184 Earnings (loss) from discontinued operations -- -- -- (1,189) 993 Effect of accounting change -- -- -- -- (862) Net earnings 8,203 7,280 6,573 4,726 4,315 Dividends declared 3,535 3,138 2,838 2,546 2,229 Earned on average share owners' equity 25.0% 24.0% 23.5% 18.1% 17.5% Per share Earnings from continuing operations -- basic $ 2.50 $ 2.20 $ 1.95 $ 1.73 $ 1.22 Earnings (loss) from discontinued operations -- -- -- (0.35) 0.29 Effect of accounting change -- -- -- -- (0.25) Net earnings -- basic 2.50 2.20 1.95 1.38 1.26 Net earnings -- diluted 2.46 2.16 1.93 1.37 1.25 Dividends declared 1.08 0.95 0.845 0.745 0.6525 Stock price range 76 9/16- 53 1/16- 36 9/16- 27 7/16- 26 3/4- 47 15/16 34 3/4 24 15/16 22 1/2 20 3/16 Total assets of continuing operations 304,012 272,402 228,035 185,871 166,413 Long-term borrowings 46,603 49,246 51,027 36,979 28,194 Shares outstanding-- average (in thousands) 3,274,692 3,307,394 3,367,624 3,417,476 3,415,958 Share owner accounts-- average 509,000 486,000 460,000 458,000 464,000 Employees at year end United States 165,000 155,000 150,000 156,000 157,000 Other countries 111,000 84,000 72,000 60,000 59,000 Discontinued operations (primarily U.S.) -- -- -- 5,000 6,000 --------------------------------------------------------------------------- Total employees 276,000 239,000 222,000 221,000 222,000 ================================================================================================================================== GE DATA Short-term borrowings $ 3,629 $ 2,339 $ 1,666 $ 906 $ 2,391 Long-term borrowings 729 1,710 2,277 2,699 2,413 Minority interest 569 477 434 382 355 Share owners' equity 34,438 31,125 29,609 26,387 25,824 --------------------------------------------------------------------------- Total capital invested $ 39,365 $ 35,651 $ 33,986 $ 30,374 $ 30,983 =========================================================================== Return on average total capital invested 23.6% 22.2% 21.3% 15.9% 15.2% Borrowings as a percentage of total capital invested 11.1% 11.4% 11.6% 11.9% 15.5% Working capital $ (4,881) $ (2,147) $ 204 $ 544 $ (419) Additions to property, plant and equipment 2,191 2,389 1,831 1,743 1,588 ================================================================================================================================== GECS DATA Revenues $ 39,931 $ 32,713 $ 26,492 $ 19,875 $ 17,276 Earnings from continuing operations 3,256 2,817 2,415 2,085 1,567 Earnings (loss) from discontinued operations -- -- -- (1,189) 240 Net earnings 3,256 2,817 2,415 896 1,807 Share owner's equity 17,239 14,276 12,774 9,380 10,809 Minority interest 3,113 2,530 2,522 1,465 1,301 Borrowings from others 141,263 125,621 111,598 91,399 81,052 Ratio of debt to equity at GE Capital 7.94:1 7.92:1 7.89:1 7.94:1 7.96:1 Total assets of GE Capital $ 228,777 $ 200,816 $ 160,825 $ 130,904 $ 117,939 Reserve coverage on financing receivables 2.63% 2.63% 2.63% 2.63% 2.63% Insurance premiums written $ 9,396 $ 8,185 $ 6,158 $ 3,962 $ 3,956 ================================================================================================================================== Equity excludes net unrealized gains/losses on investment securities. Discontinued operations reflect the results of Kidder, Peabody, the discontinued GECS securities broker-dealer, in 1994 and 1993, and the results of discontinued GE Aerospace businesses in 1993. The 1993 accounting change represents the adoption of SFAS No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the consolidated information. Share data and per-share amounts have been adjusted to reflect the 2-for-1 stock split effective on April 28, 1997.
F-22 ANNUAL REPORT PAGE 46 MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. Management believes that a sound, dynamic system of internal financial controls that balances benefits and costs provides a vital ingredient for the Company's Six Sigma quality program as well as the best safeguard for Company assets. Professional financial managers are responsible for implementing and overseeing the financial control system, reporting on management's stewardship of the assets entrusted to it by share owners and maintaining accurate records. GE is dedicated to the highest standards of integrity, ethics and social responsibility. This dedication is reflected in written policy statements covering, among other subjects, environmental protection, potentially conflicting outside interests of employees, compliance with antitrust laws, proper business practices, and adherence to the highest standards of conduct and practices in transactions with the U.S. government. Management continually emphasizes to all employees that even the appearance of impropriety can erode public confidence in the Company. Ongoing education and communication programs and review activities, such as those conducted by the Company's Policy Compliance Review Board, are designed to create a strong compliance culture -- one that encourages employees to raise their policy questions and concerns and that prohibits retribution for doing so. KPMG Peat Marwick LLP provide an objective, independent review of management's discharge of its obligations relating to the fairness of reporting operating results and financial condition. Their report for 1997 appears below. The Audit Committee of the Board (consisting solely of Directors from outside GE) maintains an ongoing appraisal -- on behalf of share owners -- of the activities and independence of the Company's independent auditors, the activities of its internal audit staff, financial reporting process, internal financial controls and compliance with key Company policies. John F. Welch, Jr. Dennis D. Dammerman Chairman of the Board and Senior Vice President, Finance, and Chief Executive Officer Chief Financial Officer February 13, 1998 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO SHARE OWNERS AND BOARD OF DIRECTORS OF GENERAL ELECTRIC COMPANY We have audited the financial statements of General Electric Company and consolidated affiliates as listed in Item 14 (a)1 on page 19. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14 (a)2 on page 19. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Stamford, Connecticut February 13, 1998 F-23 ANNUAL REPORT PAGE 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The consolidated financial statements represent the adding together of all affiliates -- companies that General Electric directly or indirectly controls. Results of associated companies -- generally companies that are 20% to 50% owned and over which GE, directly or indirectly, has significant influence -- are included in the financial statements on a "one-line" basis. FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are presented in the following categories. o GE. This represents the adding together of all affiliates other than General Electric Capital Services, Inc. (GECS), whose operations are presented on a one-line basis. o GECS. This affiliate owns all of the common stock of General Electric Capital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GE Global Insurance). GE Capital, GE Global Insurance and their respective affiliates are consolidated in the GECS columns and constitute its business. o Consolidated. These data represent the adding together of GE and GECS. The effects of transactions among related companies within and between each of the above-mentioned groups are eliminated. Transactions between GE and GECS are not material. Certain prior-year amounts have been reclassified to conform to the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the customer or when services are performed in accordance with contracts. GECS REVENUES FROM SERVICES (EARNED INCOME). Income on all loans is recognized on the interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Interest income on impaired loans is recognized either as cash is collected or on a cost-recovery basis as conditions warrant. Financing lease income is recorded on the interest method so as to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Premium income from insurance activities is discussed under GECS insurance accounting policies on page 48. DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and equipment is depreciated using an accelerated method based primarily on a sum-of-the-years digits formula. The cost of GECS equipment leased to others on operating leases is amortized, principally on a straight-line basis, to estimated net salvage value over the lease term or over the estimated economic life of the equipment. Depreciation of property and equipment used by GECS is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. GECS maintains an allowance for losses on financing receivables at an amount that it believes is sufficient to provide adequate protection against future losses in the portfolio. When collateral is repossessed in satisfaction of a loan, the receivable is written down against the allowance for losses to estimated fair value less costs to sell, transferred to other assets and subsequently carried at the lower of cost or estimated fair value less costs to sell. This accounting method has been employed principally for specialized financing transactions. CASH AND EQUIVALENTS. Marketable securities with original maturities of three months or less are included in cash equivalents unless designated as available for sale and classified as investment securities. INVESTMENT SECURITIES. Investments in debt and marketable equity securities are reported at fair value. Substantially all investment securities are designated as available for sale, with unrealized gains and losses included in equity, net of applicable taxes and other adjustments. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and losses are accounted for on the specific identification method. F-24 ANNUAL REPORT PAGE 48 INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for virtually all of GE's U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is primarily determined on a first-in, first-out (FIFO) basis. GECS inventories consist primarily of finished products held for sale. Cost is primarily determined on a FIFO basis. INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets are amortized on appropriate bases over their estimated lives. No amortization period exceeds 40 years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values, depending on the nature of the asset. INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE nor GECS engages in derivatives trading, market-making or other speculative activities. GE and GECS use swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, GECS uses swaps to stabilize cash flows from mortgage-related assets. Interest rate and currency swaps that modify borrowings or designated assets, including swaps associated with forecasted commercial paper renewals, are accounted for on an accrual basis. Both GE and GECS require all other swaps, as well as futures, options and currency forwards, to be designated and accounted for as hedges of specific assets, liabilities or committed transactions; resulting payments and receipts are recognized contemporaneously with effects of hedged transactions. A payment or receipt arising from early termination of an effective hedge is accounted for as an adjustment to the basis of the hedged transaction. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately. GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance businesses follow. PREMIUM INCOME. Insurance premiums are reported as earned income as follows: o For short-duration insurance contracts (including property and casualty, accident and health, and financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of the related agreements. For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. o For traditional long-duration insurance contracts (including term and whole life contracts and annuities payable for the life of the annuitant), premiums are reported as earned income when due. o For investment contracts and universal life contracts, premiums received are reported as liabilities, not as revenues. Universal life contracts are long-duration insurance contracts with terms that are not fixed and guaranteed; for these contracts, revenues are recognized for assessments against the policyholder's account, mostly for mortality, contract initiation, administration and surrender. Investment contracts are contracts that have neither significant mortality nor significant morbidity risk, including annuities payable for a determined period; for these contracts, revenues are recognized on the associated investments and amounts credited to policyholder accounts are charged to expense. DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized over the respective policy terms. o For short-duration insurance contracts, these costs are amortized pro rata over the contract periods in which the related premiums are earned. o For traditional long-duration insurance contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or, in the case of limited-payment contracts, estimated benefit payments. o For investment contracts and universal life contracts, these costs are amortized on the basis of anticipated gross profits. Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in making recoverability evaluations. PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of anticipated net cash flows to be realized from insurance, annuity and investment contracts in force at the date of acquisition of life insurance enterprises is recorded as the present value of future profits (PVFP). PVFP is amortized over the respective policy terms in a manner similar to deferred policy acquisition costs; unamortized balances are adjusted to reflect experience and impairment, if any. F-25 ANNUAL REPORT PAGE 49 2 GE OTHER INCOME ------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Royalty and technical agreements $ 405 $ 391 $ 453 Associated companies 50 50 111 Marketable securities and bank deposits 78 72 70 Customer financing 26 29 26 Other investments Dividends 62 79 62 Interest 1 18 18 Other items 1,685 (10) 13 ------------------------------- $2,307 $ 629 $ 753 ================================================================================ Included in the "Other items" caption is a gain of $1,538 million related to a tax-free exchange between GE and Lockheed Martin Corporation (Lockheed Martin) in the fourth quarter of 1997. In exchange for its investment in Lockheed Martin Series A preferred stock, GE acquired a Lockheed Martin subsidiary containing two businesses, an equity interest and cash to the extent necessary to equalize the value of the exchange, a portion of which was subsequently loaned to Lockheed Martin. 3 GECS REVENUES FROM SERVICES --------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Time sales, loan and other income $12,211 $11,310 $ 9,995 Operating lease rentals 4,819 4,341 4,080 Financing leases 3,499 3,485 3,176 Investment income 5,512 3,506 2,542 Premium and commission income of insurance affiliates 9,268 8,145 6,232 --------------------------------- $35,309 $30,787 $26,025 ================================================================================ 4 SUPPLEMENTAL COST DETAILS Total expenditures for research and development were $1,891 million, $1,886 million and $1,892 million in 1997, 1996 and 1995, respectively. The Company-funded portion aggregated $1,480 million in 1997, $1,421 million in 1996 and $1,299 million in 1995. Rental expense under operating leases is shown below. ---------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- GE $536 $512 $523 GECS 734 547 524 - -------------------------------------------------------------------------------- At December 31, 1997, minimum rental commitments under noncancelable operating leases aggregated $2,368 million and $5,097 million for GE and GECS, respectively. Amounts payable over the next five years are shown below. ------------------------------------------------ (In millions) 1998 1999 2000 2001 2002 - -------------------------------------------------------------------------------- GE $433 $360 $260 $213 $166 GECS 652 574 512 487 452 - -------------------------------------------------------------------------------- GE's selling, general and administrative expense totaled $7,476 million in 1997, $6,274 million in 1996 and $5,743 million in 1995. Insignificant amounts of interest were capitalized by GE and GECS in 1997, 1996 and 1995. 5 PENSION BENEFITS GE and its affiliates sponsor a number of pension plans. Principal pension plans are discussed below; other pension plans are not significant individually or in the aggregate. PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan. The GE Pension Plan covers substantially all GE employees in the United States as well as approximately two-thirds of such GECS employees. Generally, benefits are based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Benefit provisions are subject to collective bargaining. At the end of 1997, the GE Pension Plan covered approximately 466,000 participants, including 132,000 employees, 148,000 former employees with vested rights to future benefits, and 186,000 retirees and beneficiaries receiving benefits. The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees. Details of income for principal pension plans follow. - -------------------------------------------------------------------------------- PENSION PLAN INCOME -------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Actual return on plan assets $ 6,587 $ 4,916 $ 5,439 Unrecognized portion of return (3,866) (2,329) (3,087) Service cost for benefits earned (a) (596) (550) (469) Interest cost on benefit obligation (1,686) (1,593) (1,580) Amortization 304 265 394 Special early retirement cost (412) -- -- -------------------------------- Total pension plan income $ 331 $ 709 $ 697 ================================================================================ (a) Net of employee contributions. - -------------------------------------------------------------------------------- Actual return on trust assets in 1997 was 19.8%, compared with the 9.5% assumed return on such assets. The effect of this higher return will be recognized in future years. F-26 ANNUAL REPORT PAGE 50 FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as GE may determine to be appropriate. GE has not made contributions since 1987 because the fully funded status of the GE Pension Plan precludes current tax deduction and because any Company contribution would require payment of annual excise taxes. - -------------------------------------------------------------------------------- FUNDED STATUS OF PENSION PLANS ----------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Market-related value of assets $32,638 $29,402 Projected benefit obligation 25,874 23,251 - -------------------------------------------------------------------------------- The market-related value of pension assets recognizes market appreciation or depreciation in the portfolio over five years, a method that reduces the short-term impact of market fluctuations. Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented about 6% and 5% of trust assets at year-end 1997 and 1996, respectively. An analysis of amounts shown in the Statement of Financial Position is presented below. - -------------------------------------------------------------------------------- PREPAID PENSION ASSET ------------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Current value of trust assets $ 38,742 $ 33,686 Add (deduct) unamortized balances SFAS No. 87 transition gain (462) (615) Experience gains (7,538) (5,357) Plan amendments 1,003 1,012 Projected benefit obligation (25,874) (23,251) Pension liability 703 637 ------------------------- PREPAID PENSION ASSET $ 6,574 $ 6,112 ================================================================================ The accumulated benefit obligation was $24,675 million and $22,176 million at year-end 1997 and 1996, respectively; the vested benefit obligation was approximately equal to the accumulated benefit obligation at the end of both years. ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit obligations for principal pension plans follow. - -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS --------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Discount rate 7.0% 7.5% Compensation increases 4.5 4.5 Return on assets for the year 9.5 9.5 - -------------------------------------------------------------------------------- Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over employees' average future service period. 6 RETIREE HEALTH AND LIFE BENEFITS GE and its affiliates sponsor a number of retiree health and life insurance benefit plans. Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Retirees share in the cost of their health care benefits. Benefit provisions are subject to collective bargaining. At the end of 1997, these plans covered approximately 250,000 retirees and dependents. Details of cost for principal retiree benefit plans follow. - -------------------------------------------------------------------------------- COST OF RETIREE BENEFIT PLANS ------------------------------ (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- RETIREE HEALTH PLANS Service cost for benefits earned $ 90 $ 77 $ 73 Interest cost on benefit obligation 183 166 189 Amortization 13 -- (12) Special early retirement cost 152 -- -- ------------------------------ Retiree health plan cost 438 243 250 ------------------------------ RETIREE LIFE PLANS Service cost for benefits earned 17 16 13 Interest cost on benefit obligation 116 106 108 Actual return on plan assets (343) (225) (329) Unrecognized portion of return 206 93 206 Amortization 8 12 1 Special early retirement cost 13 -- -- ------------------------------ Retiree life plan cost (income) 17 2 (1) ------------------------------ TOTAL COST $ 455 $ 245 $ 249 ================================================================================ FUNDING POLICY for retiree health benefits is generally to pay covered expenses as they are incurred. GE funds retiree life insurance benefits at its discretion and within limits imposed by tax laws. - -------------------------------------------------------------------------------- FUNDED STATUS OF RETIREE BENEFIT PLANS --------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Market-related value of assets $1,621 $1,487 Accumulated postretirement benefit obligation 4,775 3,954 - -------------------------------------------------------------------------------- The market-related value of assets of retiree life plans recognizes market appreciation or depreciation in the portfolio over five years, a method that reduces the short-term impact of market fluctuations. Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented about 4% and 3% of trust assets at year-end 1997 and 1996, respectively. F-27 ANNUAL REPORT PAGE 51 An analysis of amounts shown in the Statement of Financial Position is presented below. - -------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans -------------------- --------------------- December 31 (In millions) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees and dependents $ 2,445 $ 1,889 $ 1,417 $ 1,305 Employees eligible to retire 104 86 45 45 Other employees 549 440 215 189 -------------------- --------------------- 3,098 2,415 1,677 1,539 Add (deduct) unamortized balances Experience (losses) gains (423) (195) 127 (41) Plan amendments (171) 157 55 109 Current value of trust assets -- -- (1,917) (1,682) -------------------- --------------------- RETIREE BENEFIT LIABILITY (PREPAID ASSET) $ 2,504 $ 2,377 $ (58) $ (75) ================================================================================ ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit obligations for principal retiree benefit plans are shown below. - -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS --------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Discount rate 7.0% 7.5% Compensation increases 4.5 4.5 Health care cost trend (a) 7.8 8.0 Return on assets for the year 9.5 9.5 - -------------------------------------------------------------------------------- (a) Gradually declining to 5.0% after 2002. - -------------------------------------------------------------------------------- Increasing the health care cost trend rates by one percentage point would not have had a material effect on the December 31, 1997, accumulated postretirement benefit obligation or the annual cost of retiree health plans. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over employees' average future service period. 7 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES The allowance for losses on small-balance receivables is determined principally on the basis of actual experience during the preceding three years. Further allowances are provided to reflect management's judgment of additional loss potential. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's judgment of net loss potential, including specific allowances for known troubled accounts. The table below shows the activity in the allowance for losses on financing receivables during each of the past three years. ---------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Balance at January 1 $ 2,693 $ 2,519 $ 2,062 Provisions charged to operations 1,421 1,033 1,117 Net transfers primarily related to companies acquired or sold 127 139 217 Amounts written off-- net (1,439) (998) (877) ---------------------------------- Balance at December 31 $ 2,802 $ 2,693 $ 2,519 ================================================================================ All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. 8 PROVISION FOR INCOME TAXES ---------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- GE Estimated amounts payable $ 2,332 $ 2,235 $ 1,696 Deferred tax expense (benefit) from temporary differences (522) 60 363 ---------------------------------- 1,810 2,295 2,059 ---------------------------------- GECS Estimated amounts payable 368 164 434 Deferred tax expense from temporary differences 798 1,067 671 ---------------------------------- 1,166 1,231 1,105 ---------------------------------- CONSOLIDATED Estimated amounts payable 2,700 2,399 2,130 Deferred tax expense from temporary differences 276 1,127 1,034 ---------------------------------- $ 2,976 $ 3,526 $ 3,164 ================================================================================ GE includes GECS in filing a consolidated U.S. federal income tax return. The GECS provision for estimated taxes payable includes its effect on the consolidated return. F-28 ANNUAL REPORT PAGE 52 Estimated consolidated amounts payable includes amounts applicable to non-U.S. jurisdictions of $1,298 million, $1,204 million and $721 million in 1997, 1996 and 1995, respectively. Deferred income tax balances reflect the impact of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. See note 22 for details. Except for certain earnings that GE intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. Consolidated U.S. income before taxes was $8.2 billion in 1997, $8.0 billion in 1996 and $7.6 billion in 1995. The corresponding amounts for non-U.S.-based operations were $3.0 billion in 1997, $2.8 billion in 1996 and $2.1 billion in 1995.
- ------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS STATUTORY TAX RATE TO ACTUAL RATE ------------------------ ------------------------ ------------------------- 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% ------------------------ ------------------------- ------------------------- Increase (reduction) in rate resulting from: Inclusion of after-tax earnings of GECS in before-tax earnings of GE -- -- -- (11.4) (10.3) (9.8) -- -- -- Lockheed Martin exchange (note 2) (4.8) -- -- (5.4) -- -- -- -- -- Amortization of goodwill 1.1 1.1 1.1 0.8 0.8 0.8 1.1 1.2 1.1 Tax-exempt income (1.9) (2.0) (2.1) -- -- -- (4.9) (5.4) (5.8) Foreign Sales Corporation tax benefits (1.0) (0.7) (0.9) (0.9) (0.6) (1.1) (0.5) (0.3) -- Dividends received, not fully taxable (0.5) (0.6) (0.5) (0.2) (0.2) (0.2) (0.9) (1.1) (0.8) All other -- net (1.3) (0.2) (0.1) 0.2 (0.7) (0.8) (3.4) 1.0 1.9 ------------------------ ------------------------- ------------------------- (8.4) (2.4) (2.5) (16.9) (11.0) (11.1) (8.6) (4.6) (3.6) ------------------------ ------------------------- ------------------------- Actual income tax rate 26.6% 32.6% 32.5% 18.1% 24.0% 23.9% 26.4% 30.4% 31.4% ===============================================================================================================================
9 EARNINGS PER SHARE INFORMATION
- ------------------------------------------------------------------------------------------------------- 1997 1996 1995 (Dollar amounts and shares in millions; --------------- ---------------- ---------------- per-share amounts in dollars) Basic Diluted Basic Diluted Basic Diluted - ------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Net earnings available to common share owners $8,203 $8,203 $7,280 $7,280 $6,573 $6,573 Dividend equivalents -- net of tax -- 10 -- 9 -- 9 --------------- ---------------- ---------------- Net earnings available for per-share calculation $8,203 $8,213 $7,280 $7,289 $6,573 $6,582 --------------- ---------------- ---------------- AVERAGE EQUIVALENT SHARES Shares of GE common stock outstanding 3,275 3,275 3,307 3,307 3,368 3,368 Employee compensation-related shares, including stock options -- 70 -- 64 -- 46 --------------- ---------------- ---------------- Total average equivalent shares 3,275 3,345 3,307 3,371 3,368 3,414 --------------- ---------------- ---------------- Net earnings per share $ 2.50 $ 2.46 $ 2.20 $ 2.16 $ 1.95 $ 1.93 ======================================================================================================= Share data and per-share amounts have been adjusted for the 2-for-1 stock split effective on April 28, 1997. - -------------------------------------------------------------------------------------------------------
10 INVESTMENT SECURITIES GE held equity securities with an estimated fair value of $265 million (amortized cost of $257 million) and $17 million (amortized cost of $17 million) at December 31, 1997 and 1996, respectively. Gross unrealized gains and losses at December 31, 1997 were $13 million and $5 million, respectively. There were no unrealized gains or losses at December 31, 1996. An analysis of GECS investment securities follows on the next page. F-29 ANNUAL REPORT PAGE 53 - -------------------------------------------------------------------------------- GECS INVESTMENT SECURITIES Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - -------------------------------------------------------------------------------- DECEMBER 31, 1997 Debt securities U.S. corporate $ 24,580 $ 1,028 $ (53) $ 25,555 State and municipal 10,780 636 (2) 11,414 Mortgage-backed 12,074 341 (30) 12,385 Corporate -- non-U.S 7,683 310 (12) 7,981 Government -- non-U.S 3,714 150 (3) 3,861 U.S. government and federal agency 2,413 103 (4) 2,512 Equity securities 5,414 1,336 (102) 6,648 ------------------------------------------------ $ 66,658 $ 3,904 $ (206) $ 70,356 ================================================================================ DECEMBER 31, 1996 Debt securities U.S. corporate $ 22,080 $ 308 $ (641) $ 21,747 State and municipal 10,232 399 (34) 10,597 Mortgage-backed 11,072 297 (108) 11,261 Corporate -- non-U.S 5,587 142 (13) 5,716 Government -- non-U.S 3,347 99 (2) 3,444 U.S. government and federal agency 2,340 34 (7) 2,367 Equity securities 4,117 677 (54) 4,740 ------------------------------------------------ $ 58,775 $ 1,956 $ (859) $ 59,872 ================================================================================ The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. At December 31, 1997, contractual maturities of debt securities, other than mortgage-backed securities, were as follows: - -------------------------------------------------------------------------------- GECS CONTRACTUAL MATURITIES OF DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED SECURITIES) ----------------------------- Amortized Estimated (In millions) cost fair value - -------------------------------------------------------------------------------- Due in 1998 $ 2,570 $ 2,583 1999-2002 13,329 13,653 2003-2007 12,881 13,406 2008 and later 20,390 21,681 - -------------------------------------------------------------------------------- It is expected that actual maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations, sometimes without call or prepayment penalties. Proceeds from sales of investment securities in 1997 were $14,728 million ($11,868 million in 1996 and $11,017 million in 1995). Gross realized gains were $1,018 million in 1997 ($638 million in 1996 and $503 million in 1995). Gross realized losses were $173 million in 1997 ($190 million in 1996 and $157 million in 1995). 11 GE CURRENT RECEIVABLES ------------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Aircraft Engines $ 2,118 $ 1,389 Appliances 479 713 Broadcasting 362 698 Industrial Products and Systems 1,638 1,574 Materials 1,037 1,068 Power Generation 2,206 2,463 Technical Products and Services 787 698 All Other 131 86 Corporate 534 377 ------------------------- 9,292 9,066 Less allowance for losses (238) (240) ------------------------- $ 9,054 $ 8,826 ================================================================================ Receivables balances at December 31, 1997 and 1996, before allowance for losses, included $6,125 million and $6,629 million, respectively, from sales of goods and services to customers, and $285 million and $290 million, respectively, from transactions with associated companies. Current receivables of $303 million at year-end 1997 and $326 million at year-end 1996 arose from sales, principally of aircraft engine goods and services, on open account to various agencies of the U.S. government, which is GE's largest single customer. About 4% of GE's sales of goods and services were to the U.S. government in 1997 (about 5% in 1996 and 1995). 12 INVENTORIES ------------------------ December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- GE Raw materials and work in process $ 3,070 $ 3,028 Finished goods 2,895 2,404 Unbilled shipments 242 258 ------------------------ 6,207 5,690 Less revaluation to LIFO (1,098) (1,217) ------------------------ 5,109 4,473 ------------------------ GECS Finished goods 786 376 ------------------------ $ 5,895 $ 4,849 ================================================================================ LIFO revaluations decreased $119 million in 1997, compared with decreases of $128 million in 1996 and $87 million in 1995. Included in these changes were decreases of $59 million, $58 million and $88 million in 1997, 1996 and 1995, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in 1997 and 1996, and no cost change in 1995. As of December 31, 1997, GE is obligated to acquire certain raw materials at market prices through the year 2003 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant. F-30 ANNUAL REPORT PAGE 54 13 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING LEASES) --------------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $ 42,270 $ 40,479 Specialized financing 13,974 14,832 Mid-market financing 11,401 9,978 Equipment management 469 448 Specialty insurance 202 339 --------------------------- 68,316 66,076 Deferred income (3,484) (3,244) --------------------------- Time sales and loans-- net 64,832 62,832 --------------------------- INVESTMENT IN FINANCING LEASES Direct financing leases 38,616 36,576 Leveraged leases 3,153 2,999 --------------------------- Investment in financing leases 41,769 39,575 --------------------------- 106,601 102,407 Less allowance for losses (2,802) (2,693) --------------------------- $ 103,799 $ 99,714 ================================================================================ Time sales and loans represents transactions in a variety of forms, including time sales, revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes time sales and loans carried at the principal amount on which finance charges are billed periodically, and time sales and loans carried at gross book value, which includes finance charges. At year-end 1997 and 1996, specialized financing and consumer services loans included $10,503 million and $12,075 million, respectively, for commercial real estate loans. Note 17 contains information on airline loans and leases. At December 31, 1997, contractual maturities for time sales and loans were $28,983 million in 1998; $12,792 million in 1999; $7,967 million in 2000; $5,156 million in 2001; $3,985 million in 2002; and $9,433 million thereafter -- aggregating $68,316 million. Experience has shown that a substantial portion of receivables will be paid prior to contractual maturity. Accordingly, the maturities of time sales and loans are not to be regarded as forecasts of future cash collections. Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment and medical equipment, as well as other manufacturing, power generation, mining and commercial equipment and facilities. As the sole owner of assets under direct financing leases and as the equity participant in leveraged leases, GECS is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. GECS generally is entitled to any residual value of leased assets. Investment in direct financing and leveraged leases represents unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. GECS' share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. At December 31, 1997, contractual maturities for net rentals receivable under financing leases were $12,820 million in 1998; $10,616 million in 1999; $8,395 million in 2000; $3,871 million in 2001; $2,371 million in 2002; and $8,373 million thereafter -- aggregating $46,446 million. As with time sales and loans, experience has shown that a portion of these receivables will be paid prior to contractual maturity, and these amounts should not be regarded as forecasts of future cash flows.
- ------------------------------------------------------------------------------------------------------------------------------------ NET INVESTMENT IN FINANCING LEASES Total financing leases Direct financing leases Leveraged leases ---------------------- ----------------------- ---------------- December 31 (In millions) 1997 1996 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Total minimum lease payments receivable $ 58,543 $ 54,009 $ 42,901 $ 40,555 $ 15,642 $ 13,454 Less principal and interest on third-party nonrecourse debt (12,097) (10,213) -- -- (12,097) (10,213) -------------------- -------------------- -------------------- Net rentals receivable 46,446 43,796 42,901 40,555 3,545 3,241 Estimated unguaranteed residual value of leased assets 5,591 6,248 4,244 4,906 1,347 1,342 Less deferred income (10,268) (10,469) (8,529) (8,885) (1,739) (1,584) -------------------- -------------------- -------------------- INVESTMENT IN FINANCING LEASES (as shown above) 41,769 39,575 38,616 36,576 3,153 2,999 Less amounts to arrive at net investment Allowance for losses (656) (720) (575) (641) (81) (79) Deferred taxes arising from financing leases (7,909) (7,488) (4,671) (4,077) (3,238) (3,411) -------------------- -------------------- -------------------- NET INVESTMENT IN FINANCING LEASES $ 33,204 $ 31,367 $ 33,370 $ 31,858 $ (166) $ (491) ====================================================================================================================================
F-31 ANNUAL REPORT PAGE 55 GECS has a noncontrolling investment in the common stock of Montgomery Ward Holding Corp. (MWHC), which together with its wholly owned subsidiary, Montgomery Ward & Co., Incorporated (MWC), is engaged in retail merchandising and direct response marketing, the latter conducted primarily through Signature Financial/Marketing Inc. (Signature), which markets consumer club and insurance products. On July 7, 1997, MWHC, MWC and certain of their affiliates (excluding Signature) filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, inventory financing loans to MWHC and affiliates became "impaired" loans (as defined below) because, due to the automatic stay in bankruptcy, GECS is not receiving current interest payment on its loans and, in management's judgment, it is therefore probable that GECS will be unable to collect all amounts due according to original contractual terms of the loan agreements. The total amount of such loans was $617 million at December 31, 1997. The nonearning and reduced-earning receivable balances and the impaired loan balances discussed below exclude amounts related to MWHC and affiliates. Nonearning consumer receivables were $1,049 million and $926 million at December 31, 1997 and 1996, respectively, a substantial amount of which were U.S. private-label credit card loans subject to various loss-sharing agreements that provide full or partial recourse to the originating retailer. Nonearning and reduced-earning receivables other than consumer receivables were $353 million and $471 million at year-end 1997 and 1996, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans and therefore applies principally to GECS commercial loans. Under these principles, GECS has two types of "impaired" loans as of December 31, 1997 and 1996: loans requiring allowances for losses ($339 million and $583 million, respectively); and loans expected to be fully recoverable because the carrying amount has been reduced previously through charge-offs or deferral of income recognition ($167 million and $187 million, respectively) -- allowances for losses on these loans were $170 million and $222 million, respectively. Average investment in these loans during 1997 and 1996 was $647 million and $842 million, respectively, before allowance for losses; interest income earned, principally on the cash basis, while they were considered impaired was $32 million and $30 million in 1997 and 1996, respectively. 14 OTHER GECS RECEIVABLES This account includes reinsurance recoverables of $5,027 million and $4,403 million and insurance-related receivables of $4,932 million and $4,833 million at year-end 1997 and 1996, respectively. Premium receivables, funds on deposit with reinsurers and policy loans are included in insurance-related receivables. Also in "Other GECS receivables" are trade receivables, accrued investment income, operating lease receivables and a variety of sundry items. 15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS) ---------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 459 $ 476 Buildings, structures and related equipment 6,375 6,315 Machinery and equipment 18,376 17,824 Leasehold costs and manufacturing plant under construction 1,621 1,308 Other 24 27 ---------------------- 26,855 25,950 ---------------------- GECS Buildings and equipment 3,987 3,075 Equipment leased to others Vehicles 9,144 6,789 Aircraft 7,686 6,647 Marine shipping containers 2,774 3,053 Railroad rolling stock 2,367 2,093 Other 2,844 3,177 ---------------------- 28,802 24,834 ---------------------- $55,657 $50,784 ====================== ACCUMULATED DEPRECIATION AND AMORTIZATION GE $15,737 $15,118 GECS Buildings and equipment 1,478 1,246 Equipment leased to others 6,126 5,625 ---------------------- $23,341 $21,989 ================================================================================ Amortization of GECS equipment leased to others was $2,102 million, $1,848 million and $1,702 million in 1997, 1996 and 1995, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1997 totaled $10,438 million and are due as follows: $3,247 million in 1998; $2,243 million in 1999; $1,473 million in 2000; $935 million in 2001; $628 million in 2002; and $1,912 million thereafter. F-32 ANNUAL REPORT PAGE 56 16 INTANGIBLE ASSETS --------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- GE Goodwill $ 8,046 $ 6,676 Other intangibles 709 691 --------------------- 8,755 7,367 --------------------- GECS Goodwill 8,090 5,847 Present value of future profits (PVFP) 1,824 2,438 Other intangibles 452 355 --------------------- 10,366 8,640 --------------------- $19,121 $16,007 ================================================================================ GE intangible assets are shown net of accumulated amortization of $2,976 million in 1997 and $2,637 million in 1996. GECS intangible assets are net of accumulated amortization of $2,615 million in 1997 and $1,988 million in 1996. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 13% to 8% of the year-end 1997 unamortized balance for each of the next five years. 17 ALL OTHER ASSETS ------------------------ December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- GE Investments Associated companies (a) $ 1,288 $ 1,526 Other 1,139 1,591 ------------------------ 2,427 3,117 Prepaid pension asset 6,574 6,112 Notes receivable 1,412 26 Other 4,316 3,922 ------------------------ 14,729 13,177 ------------------------ GECS Investments Assets acquired for resale 4,403 2,993 Associated companies (a) 4,695 4,916 Real estate ventures 2,326 2,469 Other 2,452 2,095 ------------------------ 13,876 12,473 Separate accounts 4,926 3,516 Servicing assets 1,713 1,663 Deferred insurance acquisition costs 2,521 1,720 Other 2,631 2,286 ------------------------ 25,667 21,658 ------------------------ ELIMINATIONS (576) -- ------------------------ $ 39,820 $ 34,835 ================================================================================ (a) Includes advances. - -------------------------------------------------------------------------------- In line with industry practice, sales of commercial jet aircraft engines often involve long-term customer financing commitments. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guarantees (principally guarantees) amounting to $1,590 million at year-end 1997 and $1,514 million at year-end 1996; and it had entered into commitments totaling $1,794 million and $1,554 million at year-end 1997 and 1996, respectively, to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1997. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 1997 and 1996, the balance of such GECS loans, leases and equipment leased to others was $8,980 million and $8,240 million, respectively. In addition, at December 31, 1997, GECS had issued financial guarantees and funding commitments of $123 million ($221 million at year-end 1996) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $6.2 billion ($6.5 billion at year-end 1996). At year-end 1997, the National Broadcasting Company had $9,388 million of commitments to acquire broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic games, and commitments under long-term television station affiliation agreements that require payments through the year 2008. In connection with numerous projects, primarily power generation bids and contracts, GE had issued various bid and performance bonds and guarantees totaling $2,895 million at year-end 1997 and $3,250 million at year-end 1996. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 20. 18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED At year-end 1997 and 1996, this account included taxes accrued of $2,866 million and $2,487 million, respectively, and compensation and benefit accruals of $1,321 million and $1,315 million, respectively. Also included are amounts for product warranties, estimated costs on shipments billed to customers and a variety of sundry items. F-33 ANNUAL REPORT PAGE 57 19 BORROWINGS - -------------------------------------------------------------------------------- SHORT-TERM BORROWINGS ---------------------------------------------------- 1997 1996 ----------------------- ------------------------- Average Average December 31 (In millions) Amount rate Amount rate - -------------------------------------------------------------------------------- GE Commercial paper (U.S) $ 1,835 5.88% $ 914 5.41% Payable to banks 348 8.38 204 8.58 Current portion of long-term debt 1,099 5.85(a) 551 6.39(a) Other 347 670 ----------------------------------------------------- 3,629 2,339 ----------------------------------------------------- GECS Commercial paper U.S 67,355 5.93 50,435 5.68 Non-U.S 3,879 4.18 3,737 4.30 Current portion of long-term debt 15,101 6.30(a) 16,471 6.17(a) Other 8,939 7,302 ----------------------------------------------------- 95,274 77,945 ----------------------------------------------------- ELIMINATIONS (828) (84) ----------------------------------------------------- $98,075 $80,200 ================================================================================ - -------------------------------------------------------------------------------- LONG-TERM BORROWINGS ------------------------------------------------ Average December 31 (In millions) rate (a) Maturities 1997 1996 - -------------------------------------------------------------------------------- GE Industrial development/ pollution control bonds 3.82% 1999-2021 $ 270 $ 244 Payable to banks 7.60 1999-2005 195 312 Senior notes -- 500 Other (b) 264 654 -------------------- 729 1,710 -------------------- GECS Senior notes 6.59 1999-2055 44,993 46,680 Subordinated notes (c) 7.88 2006-2035 996 996 -------------------- 45,989 47,676 -------------------- Eliminations (115) (140) -------------------- $ 46,603 $ 49,246 ================================================================================ (a) Includes the effects of associated interest rate and currency swaps. (b) Includes a variety of obligations having various interest rates and maturities, including certain borrowings by parent operating components and affiliates. (c) Guaranteed by GE. - -------------------------------------------------------------------------------- Borrowings of GE and GECS are addressed below from two perspectives -- liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 30. LIQUIDITY requirements of GE and GECS are principally met through the credit markets. Maturities of long-term borrowings during the next five years follow. --------------------------------------------------- (In millions) 1998 1999 2000 2001 2002 - -------------------------------------------------------------------------------- GE $ 1,099 $ 97 $ 69 $ 57 $ 38 GECS 15,101 9,801 6,927 5,763 4,816 - -------------------------------------------------------------------------------- Confirmed credit lines of $3.9 billion had been extended to GE by 22 banks at year-end 1997. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 1997, GECS and its affiliates held committed lines of credit aggregating $20.9 billion, including $11.8 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $1.4 billion of GE Capital credit lines is available for use by GE. During 1997, neither GE nor GECS borrowed under any of these credit lines. Both GE and GECS compensate certain banks for credit facilities in the form of fees, which were insignificant in each of the past three years. INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps and currency forwards, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows GECS borrowing positions considering the effects of swaps. - -------------------------------------------------------------------------------- EFFECTIVE BORROWINGS (INCLUDING SWAPS) --------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Short-term $56,961 $46,450 ===================== Long-term (including current portion) Fixed rate (a) $59,329 $56,190 Floating rate 24,973 22,981 --------------------- Total long-term $84,302 $79,171 ================================================================================ (a) Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest. - -------------------------------------------------------------------------------- At December 31, 1997, interest rate swap maturities ranged from 1998 to 2029, and average interest rates for "synthetic" fixed-rate borrowings were 6.32% (6.45% at year-end 1996). F-34 ANNUAL REPORT PAGE 58 20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS ---------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Investment contracts and universal life benefits $28,266 $26,140 Life insurance benefits and other (a) 14,356 13,854 Unpaid claims and claims adjustment expenses 14,654 13,184 Unearned premiums 5,068 4,633 Separate accounts (see note 17) 4,926 3,516 ---------------------- $67,270 $61,327 ================================================================================ (a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1997 and 1996. - -------------------------------------------------------------------------------- The liability for unpaid claims and claims adjustment expenses, principally property and casualty reserves, consists of both case and incurred-but-not- reported reserves. Where experience is not sufficient to determine reserves, industry averages are used. Estimated amounts of salvage and subrogation recoverable on paid and unpaid losses are deducted from outstanding losses. A summary of activity for this liability follows. ------------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- Balance at January 1-- gross $ 13,184 $ 12,662 $ 7,032 Less reinsurance recoverables (1,822) (1,853) (1,084) ------------------------------------- Balance at January 1-- net 11,362 10,809 5,948 Claims and expenses incurred Current year 4,494 4,087 3,268 Prior years 146 104 492 Claims and expenses paid Current year (1,780) (1,357) (706) Prior years (2,816) (2,373) (1,908) Claim reserves related to acquired companies 1,360 309 3,696 Other (358) (217) 19 ------------------------------------- Balance at December 31-- net 12,408 11,362 10,809 Add reinsurance recoverables 2,246 1,822 1,853 ------------------------------------- Balance at December 31-- gross $ 14,654 $ 13,184 $ 12,662 ================================================================================ Prior-year claims and expenses incurred in the above table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates are summarized below. -------------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- Guarantees, principally on municipal bonds and structured finance issues $ 144,647 $ 140,575 Mortgage insurance risk in force 46,245 36,279 Credit life insurance risk in force 26,593 25,961 Less reinsurance (33,528) (32,413) -------------------------- $ 183,957 $ 170,402 ================================================================================ Insurance risk is ceded on both a pro rata and an excess basis. When GECS cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. The effects of reinsurance on premiums written and premiums and commissions earned were as follows: ------------------------------------ (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- PREMIUMS WRITTEN Direct $ 5,206 $ 3,926 $ 2,984 Assumed 5,501 5,455 3,978 Ceded (1,311) (1,196) (804) ------------------------------------ $ 9,396 $ 8,185 $ 6,158 ==================================== PREMIUMS AND COMMISSIONS EARNED Direct $ 5,138 $ 3,850 $ 2,604 Assumed 5,386 5,353 4,414 Ceded (1,256) (1,058) (786) ------------------------------------ $ 9,268 $ 8,145 $ 6,232 ================================================================================ Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $903 million, $937 million and $459 million for the years ended December 31, 1997, 1996 and 1995, respectively. 21 GE ALL OTHER LIABILITIES This account includes noncurrent compensation and benefit accruals at year-end 1997 and 1996 of $5,484 million and $5,177 million, respectively. Also included are amounts for deferred incentive compensation, deferred income, product warranties and a variety of sundry items. GE is involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on management's best estimate of undiscounted future costs, excluding possible insurance recoveries. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of such range. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop a meaningful estimate of the reasonably possible aggregate environmental remediation exposure. However, even in the unlikely event that remediation costs amounted to the high end of the range of costs for each site, the resulting additional liability would not be material to GE's financial position, results of operations or liquidity. F-35 ANNUAL REPORT PAGE 59 22 DEFERRED INCOME TAXES Aggregate deferred tax amounts are summarized below. ------------------------ December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- ASSETS GE $ 4,891 $ 4,097 GECS 4,320 3,310 ------------------------ 9,211 7,407 ------------------------ LIABILITIES GE 4,576 4,630 GECS 13,286 11,050 ------------------------ 17,862 15,680 ------------------------ NET DEFERRED TAX LIABILITY $ 8,651 $ 8,273 ================================================================================ Principal components of the net deferred tax balances for GE and GECS are as follows: ------------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- GE Provisions for expenses $(3,367) $(2,740) Retiree insurance plans (856) (806) Prepaid pension asset 2,301 2,139 Depreciation 955 836 Other -- net 652 1,104 ------------------------- (315) 533 ------------------------- GECS Financing leases 7,909 7,488 Operating leases 2,156 1,833 Net unrealized gains on securities 1,264 404 Allowance for losses (1,372) (1,184) Insurance reserves (1,000) (787) AMT credit carryforwards (354) (561) Other -- net 363 547 ------------------------- 8,966 7,740 ------------------------- NET DEFERRED TAX LIABILITY $ 8,651 $ 8,273 ================================================================================ The GE provisions for expenses category represents the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, interest on tax deficiencies, product warranties and other provisions for sundry losses and expenses that are not currently deductible. 23 GECS MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES Minority interest in equity of consolidated GECS affiliates includes preferred stock issued by GE Capital and by an affiliate of GE Capital. The preferred stock pays cumulative dividends at variable rates. The liquidation preference of the preferred shares is summarized below. ----------------------- December 31 (In millions) 1997 1996 - -------------------------------------------------------------------------------- GE Capital $2,230 $1,800 GE Capital affiliate 660 485 - -------------------------------------------------------------------------------- Dividend rates on the preferred stock ranged from 3.8% to 5.2% during 1997 and 1996, and from 4.2% to 5.2% during 1995. 24 RESTRICTED NET ASSETS OF GECS AFFILIATES Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1997, net assets of regulated GECS affiliates amounted to $22.9 billion, of which $19.4 billion was restricted. At December 31, 1997 and 1996, the aggregate statutory capital and surplus of the insurance businesses totaled $12.4 billion and $10.2 billion, respectively. In preparing statutory statements, no significant permitted accounting practices are used that differ from prescribed accounting practices. 25 SHARE OWNERS' EQUITY -------------------------------------- (In millions) 1997 1996 1995 - -------------------------------------------------------------------------------- COMMON STOCK ISSUED $ 594 $ 594 $ 594 ====================================== UNREALIZED GAINS ON INVESTMENT SECURITIES-- NET $ 2,138 $ 671 $ 1,000 ====================================== OTHER CAPITAL Balance at January 1 $ 2,498 $ 1,663 $ 1,122 Currency translation adjustments (742) (117) 127 Gains on treasury stock dispositions 1,880 952 414 -------------------------------------- Balance at December 31 $ 3,636 $ 2,498 $ 1,663 ====================================== RETAINED EARNINGS Balance at January 1 $ 38,670 $ 34,528 $ 30,793 Net earnings 8,203 7,280 6,573 Dividends declared (3,535) (3,138) (2,838) -------------------------------------- Balance at December 31 $ 43,338 $ 38,670 $ 34,528 ====================================== COMMON STOCK HELD IN TREASURY Balance at January 1 $ 11,308 $ 8,176 $ 5,312 Purchases 6,392 4,842 4,016 Dispositions (2,432) (1,710) (1,152) -------------------------------------- Balance at December 31 $ 15,268 $ 11,308 $ 8,176 ================================================================================ In December 1997, GE's Board of Directors increased the authorization to repurchase Company common stock to $17 billion and authorized the program to continue through 1999. Funds used for the share repurchase will be generated largely from free cash flow. Through year-end 1997, a total of 244 million shares having an aggregate cost of $9.9 billion had been repurchased under this program and placed into treasury. In April 1997, share owners authorized (a) an increase in the number of authorized shares of common stock from 2,200,000,000 shares each with a par value of $0.32 to 4,400,000,000 shares each with a par value of $0.16 and (b) the split of each unissued and issued common share, including shares held in treasury, into two shares of common stock each with a par value of $0.16. All share data and per-share amounts have been adjusted to reflect this change. F-36 ANNUAL REPORT PAGE 60 Common shares issued and outstanding are summarized in the following table. - -------------------------------------------------------------------------------- SHARES OF GE COMMON STOCK ------------------------------------------- December 31 (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Issued 3,714,026 3,714,026 3,714,026 In treasury (449,434) (424,942) (381,002) ------------------------------------------- Outstanding 3,264,592 3,289,084 3,333,024 ================================================================================ GE has 50 million authorized shares of preferred stock ($1.00 par value), but no such shares have been issued. The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in other capital. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the period. Cumulative currency translation adjustments represented reductions of other capital of $798 million and $56 million in 1997 and 1996, respectively, and an addition to other capital of $61 million in 1995. 26 OTHER STOCK-RELATED INFORMATION - -------------------------------------------------------------------------------- STOCK OPTION ACTIVITY Average per share Shares -------------------- subject Exercise Market (Shares in thousands) to option price price - -------------------------------------------------------------------------------- Balance at December 31, 1994 138,996 $19.91 $25.50 Options granted 24,179 27.94 27.94 Replacement options 1,506 20.91 20.91 Options exercised (15,568) 15.72 29.61 Options terminated (4,239) 23.67 -- ----------------------------------- Balance at December 31, 1995 144,874 21.60 36.00 Options granted 19,034 42.39 42.39 Replacement options 8,622 26.34 26.34 Options exercised (18,278) 17.70 43.25 Options terminated (4,707) 26.18 -- ----------------------------------- Balance at December 31, 1996 149,545 24.86 49.44 Options granted (a) 13,795 68.07 68.07 Replacement options 30 24.16 24.16 Options exercised (21,746) 18.47 61.22 Options terminated (2,721) 31.10 -- ----------------------------------- Balance at December 31, 1997 138,903 30.03 73.38 ================================================================================ (a) Without adjusting for the effect of the 2-for-1 stock split in April 1997, the number of options granted during 1997 would have been 13,476. - -------------------------------------------------------------------------------- Stock option plans, stock appreciation rights (SARs), restricted stock and restricted stock units are described in GE's current Proxy Statement. With certain restrictions, requirements for stock option shares can be met from either unissued or treasury shares. The replacement options replaced canceled SARs and have identical terms thereto. At year-end 1997, there were 3.2 million SARs outstanding at an average exercise price of $21.02. There were 9.6 million restricted stock shares and restricted stock units outstanding at year-end 1997. There were 92.8 million and 62.1 million additional shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 1997 and 1996, respectively. Under the 1990 Long-Term Incentive Plan, 0.95% of the Company's issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for granting awards in such year. Any unused portion, in addition to shares allocated to awards that are canceled or forfeited, is available for later years. Outstanding options and SARs expire on various dates through December 19, 2007. Restricted stock grants vest on various dates up to normal retirement of grantees. The following table summarizes information about stock options outstanding at December 31, 1997. - -------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable -------------------------------- ----------------- Average Average Exercise Average exercise exercise price range Shares life (a) price Shares price - -------------------------------------------------------------------------------- $10 13/16 - 21 9/16 34,059 3.6 $17.45 34,059 $17.45 $21 5/8 - 31 15/16 72,754 6.4 25.61 37,441 24.31 $36 3/16 - 51 1/2 18,867 8.5 42.59 205 47.20 $51 3/4 - 73 13,223 9.8 68.80 -- -- ---------------------------------------------------- Total 138,903 6.3 30.03 71,705 21.11 ================================================================================ (a) Average contractual life remaining in years. At year-end 1996, options with an average exercise price of $19.58 were exercisable on 81 million shares; at year-end 1995, options with an average exercise price of $17.61 were exercisable on 74 million shares. - -------------------------------------------------------------------------------- Stock options expire 10 years from the date they are granted; options vest over service periods that range from one to five years. Disclosures required by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows: ---------------------------------- December 31 1997 1996 1995 - -------------------------------------------------------------------------------- Weighted average fair value per option (a) $17.81 $ 9.34 $ 5.98 Valuation assumptions Expected option term (years) 6.3 6.2 5.5 Expected volatility 20.0% 20.1% 20.0% Expected dividend yield 1.5% 2.3% 3.1% Risk-free interest rate 6.1% 6.6% 7.0% PRO FORMA EFFECTS (b)(c) Net earnings $8,129 $7,235 $6,557 Earnings per share-- basic 2.48 2.19 1.95 -- diluted 2.43 2.15 1.92 - -------------------------------------------------------------------------------- (a) Estimated using Black-Scholes option pricing model. (b) Valuations only of grants made after January 1, 1995; thus, the pro forma effect increased over the periods presented. (c) Net earnings in millions; per-share amounts in dollars. - -------------------------------------------------------------------------------- F-37 ANNUAL REPORT PAGE 61 27 SUPPLEMENTAL CASH FLOWS INFORMATION Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid in acquisitions. "All other operating activities" in the Statement of Cash Flows consists principally of adjustments to current and noncurrent accruals and deferrals of costs and expenses, increases and decreases in progress collections, adjustments for gains and losses on assets, increases and decreases in assets held for sale, and adjustments to assets such as amortization of goodwill and intangibles. The Statement of Cash Flows excludes certain noncash transactions that, except for the exchange transaction described in note 2, had no significant effects on the investing or financing activities of GE or GECS. Certain supplemental information related to GE and GECS cash flows is shown below.
--------------------------------------- For the years ended December 31 (In millions) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ GE NET PURCHASE OF GE SHARES FOR TREASURY Open market purchases under share repurchase program $ (3,492) $ (3,266) $ (3,101) Other purchases (2,900) (1,576) (915) Dispositions (mainly to employee and dividend reinvestment plans) 3,577 2,519 1,493 --------------------------------------- $ (2,815) $ (2,323) $ (2,523) ======================================= GECS FINANCING RECEIVABLES Increase in loans to customers $(55,689) $(49,890) $(46,154) Principal collections from customers -- loans 50,679 49,923 44,840 Investment in equipment for financing leases (16,420) (14,427) (17,182) Principal collections from customers -- financing leases 13,796 11,158 8,821 Net change in credit card receivables (4,186) (3,068) (3,773) Sales of financing receivables 9,922 4,026 2,139 --------------------------------------- $ (1,898) $ (2,278) $(11,309) ======================================= ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $(19,274) $(15,925) $(14,452) Dispositions and maturities of securities by insurance and annuity businesses 17,280 14,018 12,460 Proceeds from principal business dispositions 241 -- 575 Other (3,893) (4,183) (2,496) --------------------------------------- $ (5,646) $ (6,090) $ (3,913) ======================================= NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ 3,502 $ 5,061 $ 2,545 Long-term (longer than one year) 15,566 17,245 32,507 Long-term subordinated -- -- 298 Proceeds -- nonrecourse, leveraged lease debt 1,757 595 1,428 --------------------------------------- $ 20,825 $ 22,901 $ 36,778 ======================================= REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $(21,320) $(23,355) $(16,075) Long-term (longer than one year) (1,150) (1,025) (678) Principal payments - nonrecourse, leveraged lease debt (287) (276) (292) --------------------------------------- $(22,757) $(24,656) $(17,045) ======================================= ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment and annuity contracts $ 4,717 $ 2,561 $ 1,754 Preferred stock issued by GECS affiliates 605 155 1,045 Redemption of investment and annuity contracts (4,537) (2,688) (2,540) --------------------------------------- $ 785 $ 28 $ 259 ====================================================================================================================================
F-38 ANNUAL REPORT PAGE 62 28 INDUSTRY SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------ REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues ---------------------------- -------------------------- ---------------------------- (In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ GE Aircraft Engines $ 7,799 $ 6,302 $ 6,098 $ 101 $ 86 $ 115 $ 7,698 $ 6,216 $ 5,983 Appliances 6,745 6,375 5,933 12 5 4 6,733 6,370 5,929 Broadcasting 5,153 5,232 3,919 -- -- -- 5,153 5,232 3,919 Industrial Products and Systems 10,954 10,412 10,194 490 455 436 10,464 9,957 9,758 Materials 6,695 6,509 6,647 24 22 19 6,671 6,487 6,628 Power Generation 7,495 7,257 6,545 81 65 57 7,414 7,192 6,488 Technical Products and Services 4,917 4,692 4,424 18 23 19 4,899 4,669 4,405 All Other 3,564 3,108 2,707 -- -- -- 3,564 3,108 2,707 Corporate items and eliminations 1,193 (322) (286) (726) (656) (650) 1,919 334 364 ---------------------------- -------------------------- ---------------------------- Total GE 54,515 49,565 46,181 -- -- -- 54,515 49,565 46,181 ---------------------------- -------------------------- ---------------------------- GECS Financing 31,165 24,554 19,446 -- -- -- 31,165 24,554 19,446 Specialty Insurance 8,844 8,155 7,042 -- -- -- 8,844 8,155 7,042 All Other (78) 4 4 -- -- -- (78) 4 4 ---------------------------- -------------------------- ---------------------------- Total GECS 39,931 32,713 26,492 -- -- -- 39,931 32,713 26,492 ---------------------------- -------------------------- ---------------------------- Eliminations (3,606) (3,099) (2,645) -- -- -- (3,606) (3,099) (2,645) ---------------------------- -------------------------- ---------------------------- CONSOLIDATED REVENUES $90,840 $ 79,179 $ 70,028 $ -- $ -- $ -- $90,840 $79,179 $70,028 ==================================================================================================================================== GE revenues include income from sales of goods and services to customers and other income. Sales from one Company component to another generally are priced at equivalent commercial selling prices. "All Other" GE revenues consists primarily of GECS earnings. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ ASSETS PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS) At December 31 For the years ended December 31 Additions Depreciation and amortization ---------------------------- -------------------------- ----------------------------- (In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ GE Aircraft Engines $ 8,895 $ 5,423 $ 4,890 $ 729 $ 551 $ 266 $ 255 $ 260 $ 273 Appliances 2,533 2,569 2,304 83 168 143 112 104 93 Broadcasting 4,877 4,899 3,915 116 176 97 96 86 64 Industrial Products and Systems 6,658 6,580 6,117 487 450 446 368 340 308 Materials 8,890 9,130 9,095 618 748 521 427 475 478 Power Generation 5,605 5,741 5,679 176 185 155 161 165 166 Technical Products and Services 2,438 2,246 2,200 189 154 110 115 113 109 All Other 17,496 14,556 13,113 -- -- 1 2 2 1 Corporate items and eliminations 10,034 8,781 8,403 168 114 113 86 90 89 ---------------------------- -------------------------- --------------------------- Total GE 67,426 59,925 55,716 2,566 2,546 1,852 1,622 1,635 1,581 ---------------------------- -------------------------- --------------------------- GECS Financing 211,139 188,472 151,952 7,188 5,663 5,143 2,411 2,111 1,963 Specialty Insurance 44,048 38,575 33,714 65 35 133 35 29 23 All Other 221 372 63 67 64 36 14 10 27 ---------------------------- -------------------------- --------------------------- Total GECS 255,408 227,419 185,729 7,320 5,762 5,312 2,460 2,150 2,013 ---------------------------- -------------------------- --------------------------- Eliminations (18,822) (14,942) (13,410) -- -- -- -- -- -- ---------------------------- -------------------------- --------------------------- CONSOLIDATED TOTALS $304,012 $272,402 $228,035 $9,886 $8,308 $7,164 $ 4,082 $ 3,785 $ 3,594 ==================================================================================================================================== "All Other" GE assets consists primarily of investment in GECS. Additions to property, plant and equipment include amounts relating to principal businesses purchased. - ------------------------------------------------------------------------------------------------------------------------------------
F-39 ANNUAL REPORT PAGE 63 Details of operating profit by industry segment can be found on page 35 of this report. A description of industry segments for General Electric Company and consolidated affiliates follows. AIRCRAFT ENGINES. Jet engines and replacement parts and repair and maintenance services for all categories of commercial aircraft (short/medium, intermediate and long-range); for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; and for executive and commuter aircraft. Sold worldwide to airframe manufacturers, airlines and government agencies. Also, aircraft engine derivatives used as marine propulsion and industrial power sources. APPLIANCES. Major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers and dryers, microwave ovens and room air conditioning equipment. Sold in North America and in global markets under various GE and private-label brands. Distributed to retail outlets, mainly for the replacement market, and to building contractors and distributors for new installations. BROADCASTING. Primarily NBC. Principal businesses are the furnishing of U.S. network television services to more than 200 affiliated stations, production of television programs, operation of 12 VHF and UHF television broadcasting stations, operation of four cable/satellite networks around the world, and investment and programming activities in multimedia and cable television. INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of lamps, lighting fixtures, wiring devices and quartz products); electrical distribution and control equipment (including power delivery and control products such as transformers, meters, relays, capacitors and arresters); transportation systems products (including diesel-electric locomotives, transit propulsion equipment and motorized wheels for off-highway vehicles); electric motors and related products; a broad range of electrical and electronic industrial automation products (including drive systems); installation, engineering and repair services, which includes management and technical expertise for large projects such as process control systems; and GE Supply, a network of electrical supply houses. Markets are extremely diverse. Products are sold to commercial and industrial end users, including utilities, to original equipment manufacturers, to electrical distributors, to retail outlets, to railways and to transit authorities. Increasingly, products are developed for and sold in global markets. MATERIALS. High-performance engineered plastics used in applications such as automobiles and housings for computers and other business equipment; ABS resins; silicones; superabrasive industrial diamonds; and laminates. Sold worldwide to a diverse customer base consisting mainly of manufacturers. POWER GENERATION. Power plant products and services, including design, installation, operation and maintenance services. Markets and competition are global. Gas turbines are sold principally as part of packaged power plants for electric utilities and for industrial cogeneration and mechanical drive applications. Steam turbine-generators are sold to electric utilities, to the U.S. Navy and, for cogeneration, to industrial and other power customers. Power Generation also includes nuclear reactors and fuel and support services for GE's new and installed boiling water reactors. TECHNICAL PRODUCTS AND SERVICES. Medical systems such as magnetic resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging, ultrasound, other diagnostic equipment and related services sold worldwide to hospitals and medical facilities. Also includes a full range of computer-based information and data interchange services for internal use and external commercial and industrial customers. GECS FINANCING. Operations of GE Capital, as follows: CONSUMER SERVICES -- private-label and bank credit card loans, personal loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing, and consumer savings and insurance services. Insurance services, previously included within the Specialty Insurance segment, has been combined with the consumer savings and insurance operations in this segment. Prior-year information has been reclassified to reflect this change. SPECIALIZED FINANCING -- loans and financing leases for major capital assets, including industrial facilities and equipment, and energy-related facilities; commercial and residential real estate loans and investments; and loans to and investments in management buyouts, including those with high leverage, and corporate recapitalizations. EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. MID-MARKET FINANCING -- loans and financing and operating leases for middle-market customers, including manufacturers, distributors and end users, for a variety of equipment that includes data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications and telecommunications activities. Very few of the products financed by GE Capital are manufactured by GE. GECS SPECIALTY INSURANCE. U.S. and international multiple-line property and casualty reinsurance; certain directly written specialty insurance and life reinsurance; financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. F-40 ANNUAL REPORT PAGE 64 29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED) Revenues and operating profit shown below are classified according to their country of origin (including exports from such areas). Revenues and operating profit classified under the caption "United States" include royalty and licensing income from non-U.S. sources. U.S. exports to international customers by major areas of the world are shown on page 39.
- ---------------------------------------------------------------------------------------------------------------------------- REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues ---------------------------- ------------------------------- ----------------------------- (In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- United States $66,330 $58,110 $52,935 $ 2,471 $ 2,292 $ 2,123 $63,859 $55,818 $50,812 Europe 18,166 15,964 12,293 787 714 656 17,379 15,250 11,637 Pacific Basin 4,742 4,343 3,725 880 796 457 3,862 3,547 3,268 Other 6,420 5,140 4,750 680 576 439 5,740 4,564 4,311 Intercompany eliminations (4,818) (4,378) (3,675) (4,818) (4,378) (3,675) -- -- -- ---------------------------- ------------------------------- ----------------------------- Total $90,840 $79,179 $70,028 $ -- $ -- $ -- $90,840 $79,179 $70,028 ============================================================================================================================ - ------------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT ASSETS NON-U.S. NET ASSETS For the years ended December 31 At December 31 At December 31 ---------------------------- -------------------------------- ------------------------------ (In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- United States $ 8,825 $ 9,693 $ 9,002 $206,655 $189,593 $158,884 $ $ $ Europe 2,024 1,724 1,043 66,740 55,196 44,107 31,076 23,021 20,059 Pacific Basin 302 269 375 8,881 8,125 6,442 6,237 5,082 3,740 Other 706 576 543 21,926 19,655 18,776 12,233 11,439 11,472 Intercompany eliminations (23) 7 9 (190) (167) (174) (72) (62) (51) ---------------------------- -------------------------------- ------------------------------ Total $11,834 $12,269 $10,972 $304,012 $272,402 $228,035 $49,474 $39,480 $35,220 =============================================================================================================================== Principally the Americas other than the United States, but also includes operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels). Net of 1997 restructuring and other special charges. Not applicable. - -------------------------------------------------------------------------------------------------------------------------------
30 ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which GE and GECS are parties. Apart from borrowings by GE and GECS and certain marketable securities, relatively few of these instruments are actively traded. Thus, fair values must often be determined by using one or more models that indicate value based on estimates of quantifiable characteristics as of a particular date. Because this undertaking is, by its nature, difficult and highly judgmental, for a limited number of instruments, alternative valuation techniques may have produced disclosed values different from those that could have been realized at December 31, 1997 or 1996. Moreover, the disclosed values are representative of fair values only as of the dates indicated. Assets and liabilities that, as a matter of accounting policy, are reflected in the accompanying financial statements at fair value are not included in the following disclosures; such items include cash and equivalents, investment securities and separate accounts. Values are estimated as follows: BORROWINGS. Based on quoted market prices or market comparables. Fair values of interest rate and currency swaps on borrowings are based on quoted market prices and include the effects of counterparty creditworthiness. TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers. INVESTMENT CONTRACT BENEFITS. Based on expected future cash flows, discounted at currently offered discount rates for immediate annuity contracts or cash surrender values for single premium deferred annuities. FINANCIAL GUARANTEES AND CREDIT LIFE. Based on future cash flows, considering expected renewal premiums, claims, refunds and servicing costs, discounted at a market rate. ALL OTHER INSTRUMENTS. Based on comparable transactions, market comparables, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations to counterparties. F-41 ANNUAL REPORT PAGE 65
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL INSTRUMENTS 1997 1996 ---------------------------------------- ---------------------------------------- Assets (liabilities) Assets (liabilities) ----------------------------- ----------------------------- Carrying Estimated fair value Carrying Estimated fair value Notional amount -------------------- Notional amount -------------------- December 31 (In millions) amount (net) High Low amount (net) High Low - ------------------------------------------------------------------------------------------------------------------------------------ GE Investment related Investments and notes receivable $ $ 1,909 $ 1,915 $ 1,908 $ $ 1,675 $ 3,127 $ 3,127 Cancelable interest rate swap 1,421 25 19 19 -- -- -- -- Borrowings and related instruments Borrowings (4,358) (4,377) (4,377) (4,049) (4,058) (4,058) Interest rate swaps 531 -- (12) (12) 536 -- (11) (11) Currency swaps -- -- -- -- 180 -- 25 25 Recourse obligations for receivables sold 427 (23) (23) (23) 424 -- -- -- Financial guarantees 2,141 -- -- -- 1,805 -- -- -- Other firm commitments Currency forwards and options 6,656 82 270 270 5,476 70 150 150 Financing commitments 1,794 -- -- -- 1,554 -- -- -- GECS Assets Time sales and loans 62,712 63,105 61,171 60,859 61,632 60,544 Integrated interest rate swaps 12,323 19 (125) (125) 4,376 -- 91 91 Purchased options 1,617 31 31 31 1,938 11 12 12 Mortgage-related positions Mortgage purchase commitments 2,082 -- 11 11 1,193 -- 2 2 Mortgage sale commitments 2,540 -- (9) (9) 1,417 -- 3 3 Mortgages held for sale 2,378 2,379 2,379 1,112 1,165 1,165 Options, including "floors" 30,347 51 141 141 27,422 78 81 81 Interest rate swaps and futures 3,681 -- 23 23 1,731 -- (29) (29) Other cash financial instruments 2,242 2,592 2,349 2,240 2,735 2,487 Liabilities Borrowings and related instruments Borrowings (141,263) (141,828) (141,828) (125,621) (125,648) (125,648) Interest rate swaps 42,531 -- (250) (250) 34,491 -- (575) (575) Currency swaps 23,382 -- (1,249) (1,249) 24,588 -- 368 368 Currency forwards 15,550 -- 371 371 6,165 -- 72 72 Purchased options 375 33 8 8 1,882 10 1 1 Investment contract benefits (23,045) (22,885) (22,885) (20,210) (19,953) (19,953) Insurance-- financial guarantees and credit life 183,957 (2,897) (2,992) (3,127) 170,402 (3,801) (3,614) (4,025) Credit and liquidity support -- securitizations 13,634 (46) (46) (46) 6,842 (73) (9) (9) Performance guarantees -- principally letters of credit 2,699 (34) -- (67) 3,470 (55) (132) (133) Other 3,147 (1,134) (1,282) (1,303) 2,901 (1,560) (1,175) (1,176) Other firm commitments Currency forwards 1,744 -- 11 11 1,823 -- 3 2 Currency swaps 1,073 192 192 192 1,134 -- (38) (38) Ordinary course of business lending commitments 7,891 -- (62) (62) 4,950 -- (27) (27) Unused revolving credit lines Commercial 4,850 -- -- -- 3,375 -- -- -- Consumer-- principally credit cards 134,123 -- -- -- 116,878 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Not applicable. Includes effects of interest rate and currency swaps, which also are listed separately. See note 19. - ------------------------------------------------------------------------------------------------------------------------------------
Additional information about certain financial instruments in the table above follows. CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions and by GECS to optimize borrowing costs as discussed in note 19. These financial instruments generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. Currency exposures that result from net investments in affiliates are managed principally by funding assets denominated F-42 ANNUAL REPORT PAGE 66 in local currency with debt denominated in those same currencies. In certain circumstances, net investment exposures are managed using currency forwards and currency swaps. OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps," "floors" or "collars") on interest rate movement are used primarily to hedge prepayment risk in certain GECS business activities, such as the mortgage servicing and annuities businesses. SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize borrowing costs for a particular funding strategy (see note 19). A cancelable interest rate swap was used by GE to hedge an investment position. Interest rate and currency swaps, along with purchased options and futures, are used by GECS to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, GECS also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans and are not therefore subject to the same credit criteria that would apply to a stand-alone position. COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable to make payments according to the terms of the agreements -- is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counterparties. At December 31, 1997 and 1996, this gross market risk amounted to $2.0 billion and $0.9 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $2.9 billion and $0.7 billion at December 31, 1997 and 1996, respectively. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. o Once a counterparty exceeds credit exposure limits (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force. - -------------------------------------------------------------------------------- COUNTERPARTY CREDIT CRITERIA ------------------------------------ Credit rating ------------------------------------ Moody's Standard & Poor's - -------------------------------------------------------------------------------- Term of transaction Between one and five years Aa3 AA- Greater than five years Aaa AAA Credit exposure limits Up to $50 million Aa3 AA- Up to $75 million Aaa AAA - -------------------------------------------------------------------------------- o All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. 31 QUARTERLY INFORMATION (UNAUDITED)
First quarter Second quarter Third quarter Fourth quarter (Dollar amounts in millions; ----------------- ----------------- ----------------- ------------------ per-share amounts in dollars) 1997 1996 1997 1996 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Net earnings $ 1,677 $ 1,517 $ 2,162 $ 1,908 $ 2,014 $ 1,788 $ 2,350 $ 2,067 Earnings per share -- basic 0.51 0.46 0.66 0.58 0.62 0.54 0.72 0.63 -- diluted 0.50 0.45 0.65 0.57 0.60 0.53 0.70 0.62 SELECTED DATA GE Sales of goods and services 10,522 9,742 12,620 11,520 11,698 11,478 14,112 13,379 Gross profit from sales 2,970 2,781 3,886 3,475 3,368 3,060 2,618 3,784 GECS Total revenues 9,544 7,245 9,317 7,457 10,182 8,449 10,888 9,562 Operating profit 1,081 973 1,138 951 1,229 1,179 974 945 - ---------------------------------------------------------------------------------------------------------------
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold. For GECS, operating profit is "Earnings before income taxes." Fourth-quarter gross profit from sales in 1997 was reduced by restructuring and other special charges. Such charges, including amounts shown in "Other costs and expenses," were $2,322 million before tax. Also in the fourth quarter of 1997, GE completed an exchange transaction with Lockheed Martin as described in note 2. Earnings-per-share amounts for each quarter are required to be computed independently and, as a result, their sum does not equal the total year earnings-per-share amounts for 1997 and 1996. Per-share amounts have been adjusted for the 2-for-1 stock split effective on April 28, 1997. F-43 GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (Amounts in millions) GE ALLOWANCE FOR LOSSES DEDUCTED FROM ASSETS ---------------------------------- ACCOUNTS AND NOTES RECEIVABLE INVESTMENTS -------------------- ----------- Balance, January 1, 1995 $ 243 $ 64 Provisions charged to operations 57 27 Write-offs (39) (3) ------ ----- Balance, December 31, 1995 $ 261 (a) $ 88 Provisions charged to Operations 99 3 Write-offs (92) (16) ------ ----- Balance, December 31, 1996 $ 268 (a) $ 75 Provisions charged to Operations 68 3 Write-offs (59) (17) ------ ----- Balance, December 31, 1997 $ 277 (a) $ 61 ====== ===== - ------------------------------------- (a) The year-end balance is segregated on the Statement of Financial Position as follows: 1997 1996 1995 ---- ---- ---- Current receivables $ 238 $ 240 $ 231 All other assets (long-term receivables, customer financing, etc.) 39 28 30 ------ ----- ----- $ 277 $ 268 $ 261 ====== ===== ===== Reference is made to note 7 to Consolidated Financial Statements appearing in the 1997 Annual Report to Share Owners, which contains information with respect to GECS allowance for losses on financing receivables for 1997, 1996 and 1995. EX-4 2 EXHIBIT 4 March 27, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 SUBJECT: GENERAL ELECTRIC COMPANY ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 - FILE NO. 1-35 Dear Sirs: Neither General Electric Company (the "Company") nor any of its consolidated subsidiaries has outstanding any instrument with respect to its long-term debt under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K (17 CFR Sec. 229.601), the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument which defines the rights of holders of such long-term debt. Very truly yours, GENERAL ELECTRIC COMPANY By: JAMES R. BUNT Vice President and Treasurer EX-10.T 3 EXHIBIT 10(t) GENERAL ELECTRIC COMPANY 1997 EXECUTIVE DEFERRED SALARY PLAN I. ELIGIBILITY Each employee of General Electric Company or a participating affiliate ("Company") who, as of December 31, 1996, is in an Executive Band or higher position, or, in the discretion of affiliate management, an equivalent position in such affiliate, and who is subject to U.S. tax laws, shall be eligible to participate in this Plan. II. DEFERRAL OF SALARY 1. Each employee eligible to participate in this Plan ("Participant") shall be given an opportunity to irrevocably elect (subject to any conditions set out in the election form) prior to any deferral hereunder: (a) the portion of the Participant's annual base salary rate as of November 1, 1996 to be deferred. The minimum portion deferred shall be 10% and the maximum shall be 50%, provided, however, that with respect to any individual designated by the Chairman of the Board of Directors of General Electric Company (the "Chairman") as an employee who is expected to be a "covered employee" for 1997 within the meaning of Section 162(m) of the Internal Revenue Code, the maximum portion deferred shall be 100%, and (b) the form of payout alternative as set forth in Section V. 2. Commencing with base salary for January 1997, the Participant's total base salary elected to be deferred under this Plan will be deferred in ratable installments through the month of December 1997, and will be credited to the Participant's deferred salary cash account ("Deferred Account") as of the end of the month of deferral ("Deferral Date"). III. SPECIAL ONE-TIME MATCHING CREDIT As of December 31, 1997, a special one-time credit shall be made to the Deferred Account of each Participant who is actively employed by the Company on such date. The amount of such credit shall equal 3.5% of the total base salary deferred under this Plan by the Participant (excluding interest). Such credit shall not be provided for any Participant who has terminated employment with the Company for any reason prior to December 31, 1997, or is not actively employed on such date. IV. MANNER OF ACCOUNTING 1. Each Deferred Account shall be unfunded, unsecured and nonassignable, and shall not be a trust for the benefit of any Participant. 2. Except as may be otherwise provided in Section V or VIII, the Participant's Deferred Account will be credited with (a) the amount of base salary deferred on each Deferral Date as set forth in Section II, (b) the special one-time matching credit as set forth in Section III, and (c) interest at the annual rate of 12% compounded annually on each December 31. V. PAYMENT OF DEFERRED ACCOUNT 1. Payment of a Participant's Deferred Account will be made only after termination of employment of the Participant. 2. If no manner of payment election is made, the Deferred Account will be paid in 10 annual installments commencing on March 1 (or as soon thereafter as practical) following the year of termination of employment. 3. At the time of election to defer base salary, a Participant may irrevocably elect: (a) the number of annual payout installments (minimum of 10, maximum of 20) of the Deferred Account commencing on March 1 (or as soon thereafter as practical) following the year of termination of employment, unless (b) a lump sum payment of the Deferred Account is elected in which case the lump sum payment will be made on March 1 (or as soon thereafter as practical) following the year of termination of employment. 4. Participants who terminate their employment on or after December 31, 1997 because of retirement, death, disability, layoff, plant closing or transfer to a successor employer which is not controlled by the Company, or Participants who terminate their employment on or after December 31, 2001 for any reason, will receive payouts based on Deferred Account accumulations at the 12% interest rate. Payments will be made pursuant to Section V.2 or V.3 above beginning on March 1 (or as soon thereafter as practical) following the year of termination of employment. 5. Unless waived by the Chairman, if the Participant terminates employment prior to December 31, 1997 for any reason, or prior to December 31, 2001 for any reason other than retirement, death, disability, layoff, plant closing or transfer to a successor employer which is not controlled by the Company, the Participant's Deferred Account will be paid in a lump sum as soon as practical following the date of termination, along with simple interest credited at an annual rate of 3% rather than the rate specified in Section IV. VI. DEATH BENEFITS In the event of a Participant's death prior to receiving any or all payments to which the Participant is entitled, the remaining Deferred Account shall be paid at the time and in the manner provided in Section V to the beneficiary or beneficiaries designated by the Participant on a beneficiary designation form properly filed by the Participant with the Company in accordance with established administrative procedures. If no such designated beneficiary survives the Participant, such remaining benefits shall be paid as set forth above to the Participant's estate. VII. ADMINISTRATION AND INTERPRETATION This Plan shall be administered by a "Committee" consisting of not less than two persons appointed from time to time by the Chairman. The Committee shall have full power and authority on behalf of the Company to administer and interpret the Plan in its sole discretion. All Committee decisions with respect to the administration and interpretation of the Plan shall be final and binding upon all persons. VIII. AMENDMENT OF THE PLAN This Plan may be amended, suspended or terminated at any time by the Management Development and Compensation Committee of the Board of Directors ("MDCC"). In addition, the MDCC may alter or amend the payout schedule of any or all of the accrued benefits of a Participant at any time. IX. EFFECTIVE DATE The effective date of this Plan shall be January 1, 1997. 1997 EXECUTIVE DEFERRED SALARY PLAN As provided pursuant to the terms of the above-mentioned Plan, Messrs. Norman C. LaFlamme and Jerry Wald are hereby appointed to serve on the administrative committee for said Plan. ------------------------------------- Approved: J. F. Welch Date: ------------------------------- EX-10.U 4 EXHIBIT 10(u) GE 1990 LONG-TERM INCENTIVE PLAN, AS AMENDED AND RESTATED AS OF AUGUST 1, 1997 SECTION 1. PURPOSE The purposes of this GE 1990 Long-Term Incentive Plan (the "Plan") are to encourage selected salaried employees of General Electric Company (together with any successor thereto, the "Company") and its Affiliates (as defined below) to acquire a proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company's future success and prosperity, thus enhancing the value of the Company for the benefit of its share owners, and to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom, in large measure, the sustained progress, growth and profitability of the Company depend. SECTION 2. DEFINITIONS As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, or Other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (e) "Committee" shall mean a committee of the Board of Directors of the Company, acting in accordance with the provisions of Section 3, designated by the Board to administer the Plan and composed of not less than three directors, each of whom is not an employee of the Company or an Affiliate. (f) "Dividend Equivalent" shall mean any right granted under Section 6(e) of the Plan. (g) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (h) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto. (i) "1983 Plan" shall mean the Company's 1983 Stock Option-Performance Unit Plan. (j) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (l) "Other Stock-Based Award" shall mean any right granted under Section 6(f) of the Plan. (m) "Participant" shall mean a Salaried Employee designated to be granted an Award under the Plan. (n) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. (o) "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or government or political subdivision thereof. (p) "Released Securities" shall mean securities that were Restricted Securities with respect to which all applicable restrictions have expired, lapsed, or been waived. (q) "Restricted Securities" shall mean Awards of Restricted Stock or other Awards under which issued and outstanding Shares are held subject to certain restrictions. (r) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (s) "Restricted Stock Unit" shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares. (t) "Salaried Employee" shall mean any salaried employee of the Company or of any Affiliate. (u) "Shares" shall mean the common shares of the Company, $0.16 par value, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(b) of the Plan. (v) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. SECTION 3. ADMINISTRATION Except as otherwise provided herein, the Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights, or other matters are to be calculated in connection with) Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards, or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any share owner, and any employee of the Company or of any Affiliate. Actions of the Committee may be taken either (i) by a subcommittee, designated by the Committee, composed of three or more members, or (ii) by the Committee but with one or more members abstaining or recusing himself or herself from acting on the matter, so long as two or more members remain to act on the matter. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such members, shall be the action of the Committee for purposes of the Plan. SECTION 4. SHARES AVAILABLE FOR AWARDS (a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b): (i) CALCULATION OF NUMBER OF SHARES AVAILABLE. The number of Shares available for granting Awards under the Plan in each calendar year or, in the case of the years 1990 and 2007, part thereof shall be ninety-five one-hundredths of one percent (0.95%) of the issued Shares (including, without limitation, treasury Shares) as of the first day of such year; provided, however, that the number of Shares available for granting Awards in any calendar year shall be increased in any such year by the number of Shares available under the Plan in previous years but not covered by Awards granted under the Plan in such years. Further, if, after the effective date of the Plan, any Shares covered by an Award granted under the Plan or by an award granted under the 1983 Plan, or to which such an Award or award relates, are forfeited, or if an Award or award otherwise terminates without the delivery of Shares or of other consideration, then the Shares covered by such Award or award, or to which such Award or award relates, or the number of Shares otherwise counted against the aggregate number of Shares available under the Plan with respect to such Award or award, to the extent of any such forfeiture or termination, shall again be, or shall become, available for granting Awards under the Plan. Notwithstanding the foregoing but subject to adjustment as provided in Section 4(b), no more than one hundred million (100,000,000) Shares shall be cumulatively available for delivery pursuant to the exercise of Incentive Stock Options. (ii) ACCOUNTING FOR AWARDS. For purposes of this Section 4, (A) if an Award (other than a Dividend Equivalent) is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan; and (B) Dividend Equivalents and Awards not denominated in Shares shall be counted against the aggregate number of Shares available for granting Awards under the Plan in such amount and at such time as the Committee shall determine under procedures adopted by the committee consistent with the purposes of the Plan; PROVIDED, HOWEVER, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards or awards granted under the 1983 Plan may be counted or not counted under procedures adopted by the Committee in order to avoid double counting. Any Shares that are delivered by the Company, and any Awards that are granted by, or become obligations of, the Company through the assumption by the Company or an Affiliate of, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the Shares available for granting Awards under the Plan. (iii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. (b) ADJUSTMENTS. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, (iii) the number and type of Shares (or other securities or property) specified as the annual per-participant limitation under Section 6(g)(vi), and (iv) the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto; and PROVIDED FURTHER, HOWEVER, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. SECTION 5. ELIGIBILITY Any Salaried Employee, including any officer or employee-director of the Company or of any Affiliate, who is not a member of the Committee shall be eligible to be designated a Participant. SECTION 6. AWARDS (a) OPTIONS. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine: (i) EXERCISE PRICE. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than the Fair Market Value of a Share on the date of grant of such Option (or, if the Committee so determines, in the case of any Option retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award). (ii) OPTION TERM. The term of each Option shall be fixed by the Committee. (iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, and the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other Awards, or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (iv) INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. (b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the grant price of the right as specified by the Committee, which shall not be less than the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right (or, if the Committee so determines, in the case of any Stock Appreciation Right retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award). Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, methods of settlement, and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. (i) ISSUANCE. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants. (ii) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. (iii) REGISTRATION. Any Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock. (iv) FORFEITURE. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units still, in either case, subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such Restricted Stock shall become Released Securities. (d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant Performance Awards to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Awards Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. (e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan and any applicable Award Agreement, such Awards may have such terms and conditions as the Committee shall determine. (f) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants must comply with applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is granted (or, if the Committee so determines, in the case of any such purchase right retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award). (g) GENERAL. (i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments. (iv) LIMITS ON TRANSFER OF AWARDS. No Award (other than Released Securities), and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution (or, in the case of an Award of Restricted Securities, to the Company); provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant. Each Award, and each right under any Award, shall be exercisable, during the Participant's lifetime, only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. No Award (other than Released Securities), and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. Notwithstanding any contrary provisions in this paragraph or elsewhere in the Plan, the Committee may permit a Participant to transfer Awards, subject to such conditions as the Committee may establish (v) TERM OF AWARDS. The term of each Award shall be for such period as may be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the term of any Incentive Stock Option exceed a period of ten years from the date of its grant. (vi) PER-PERSON LIMITATION ON OPTIONS AND SARs. The number of Shares with respect to which Options and SARs may be granted under the Plan to an individual Participant in any three-year period from April 23, 1997 through the end of the term of the Plan shall not exceed 3,000,000 Shares, subject to adjustment as provided in Section 4(b). (vii) AGGREGATE LIMITATION ON CERTAIN AWARDS. The number of Shares with respect to which Restricted Stock, Restricted Stock Units, Performance Awards and Other Stock-Based Awards may be granted under the Plan to all Participants in any three-year period from April 23, 1997 through the end of the term of the Plan shall not in the aggregate exceed 20% of the total number of Shares available for granting Awards during such three-year period. (viii) SHARE CERTIFICATES. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. SECTION 7. AMENDMENT AND TERMINATION Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may amend, alter, suspend, discontinue, or terminate the Plan, including, without limitation, any amendment, alteration, suspension, discontinuation, or termination that would impair the rights of any Participant, or any other holder or beneficiary of any Award theretofore granted, without the consent of any share owner, Participant, other holder or beneficiary of an Award, or other Person; PROVIDED, HOWEVER, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the share owners of the Company no such amendment, alteration, suspension, discontinuation, or termination shall be made that would: (i) increase the total number of Shares available for Awards under the Plan, except as provided in Section 4 hereof; or (ii) permit Options, Stock Appreciation Rights, or other Stock-Based Awards encompassing rights to purchase Shares to be granted with per Share grant, purchase, or exercise prices of less than the Fair Market Value of a Share on the date of grant thereof, except to the extent permitted under Sections 6(a), 6(b), or 6(f) hereof. (b) AMENDMENTS TO AWARDS. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue, or terminate, any Awards theretofore granted, prospectively or retroactively, without the consent of any relevant Participant or holder or beneficiary of an Award. (c) ADJUSTMENTS OF AWARDS UPON CERTAIN ACQUISITIONS. In the event the Company or any Affiliate shall assume outstanding employee awards or the right or obligation to make future such awards in connection with the acquisition of another business or another corporation or business entity, the Committee may make such adjustments, not inconsistent with the terms of the Plan, in the terms of Awards as it shall deem appropriate in order to achieve reasonable comparability or other equitable relationship between the assumed awards and the Awards granted under the Plan as so adjusted. (d) ADJUSTMENTS OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4 (b) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan. (e) CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. SECTION 8. GENERAL PROVISIONS (a) NO RIGHTS TO AWARDS. No Salaried Employee, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Salaried Employees, Participants, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient. (b) DELEGATION. The Committee may delegate to one or more officers or managers of the Company or any Affiliate, or a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify, waive rights with respect to, alter, discontinue, suspend, or terminate Awards held by, Salaried Employees who are not officers or directors of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. (c) WITHHOLDING. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards, or other property) of withholding taxes due in respect of an Award, its exercise, or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes. (d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (e) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (f) GOVERNING LAW. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of New York and applicable Federal law. (g) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award, and the remainder of the Plan and any such Award shall remain in full force and effect. (h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (j) HEADINGS. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 9. EFFECTIVE DATE OF THE PLAN The Plan shall be effective as of the date of its approval by the share owners of the Company. SECTION 10. TERM OF THE PLAN No Award shall be granted under the Plan after May 1, 2007. However, unless otherwise expressly provided in the plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date. EX-10.V 5 EXHIBIT 10(v) DEFERRED COMPENSATION PLAN FOR DIRECTORS (As Amended through December 19, 1997) A. INTRODUCTION The Plan will permit Directors, on an individual election basis, to defer all or part of the compensation received as a Director of the General Electric Company until such time as service on the Board terminates. B. PURPOSE To provide Corporate Directors with maximum opportunity and flexibility in the planning of their personal financial resources. C. MANNER OF DEFERRAL OF COMPENSATION o At, or prior to, the time of election to the Board, and prior to the right to receive any Board compensation for the elected term, a Director may elect to defer all or a specified portion of the annual retainer and the meeting fees to be paid for attendance at Board and assigned Committee meetings. o An election to defer will be irrevocable for the Director's elected term to the Board of Directors. o The compensation deferred will be credited to the Director's deferred compensation account as of the date it would otherwise have been payable (the "Deferral Date"). o Deferral of compensation shall have no effect on any compensation- related benefits received by a Director. D. MANNER OF INVESTMENT For each term of election to the Board of Directors for which a Director elects to defer compensation, the Director must also irrevocably elect the manner in which such deferred compensation shall be accounted for, as described below, and all compensation deferred pursuant to such election shall be accounted for in such manner until fully paid out. 2 1. AS UNITS BASED ON GE STOCK VALUE The Director's account will be credited with the hypothetical number of stock units ("Units"), calculated to the nearest thousandths of a Unit, determined by dividing the amount of compensation deferred on the Deferral Date by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of the New York Stock Exchange listed shares for the 20 trading days immediately preceding and including such date. The Director's account will also be credited with the number of Units determined by multiplying the number of Units in the Director's account by any cash dividends declared by the Company on its common stock and dividing the product by the closing market price of the Company's common stock as reported on the Consolidated Tape of the New York Stock Exchange listed shares on the related dividend record date, and also by multiplying the number of Units in the Director's account by any stock dividends declared by the Company on its common stock. 2. AS CASH UNITS WITH INTEREST The Director's account (a) will be credited with the amount of compensation deferred on the Deferral Date, and (b) will be credited quarterly on the Company Dividend Record Date with interest equivalents based upon the consecutive prior calendar quarter's average quarterly yield for U.S. Treasury notes and bonds with maturities of from ten to thirty years, as published by an official agency to be determined by the Senior Vice President-Finance and utilized on a consistent year-to-year basis. E. RECAPITALIZATION If, as a result of a recapitalization of the Company (including stock splits), the Company's outstanding shares of common stock shall be changed into a greater or smaller number of shares, the number of Units credited to a Director's account shall be appropriately adjusted on the same basis. F. PAYMENT OF DEFERRED COMPENSATION Payment of a Director's deferred compensation account may only be made after the Director's service on the Board has terminated and, except as described below, will be made in ten (10) annual installments in cash, beginning on the 15th of July (or as soon thereafter as practical) following termination of Board service. 3 1. TERMINATION OF SERVICE FOR REASONS OTHER THAN RETIREMENT OR DISABILITY. Notwithstanding any prior elections, if a Director's service on the Board terminates for reasons other than retirement or disability, or terminates as a result of the Director's death before the Director has attained the age and Board service needed to qualify for retirement, the Director's total deferred compensation account will be paid in a lump sum six months after the date of termination. 2. TERMINATION OF SERVICE FOR RETIREMENT OR DISABILITY. a. DIRECTOR PAYOUT ELECTIONS. (i). INITIAL ELECTIONS. At the time of each election to defer Board compensation, a Director may elect to have: (a) the deferred compensation account covered by the election paid in less than ten (10) annual installments; and (b) the initial installment be paid on the 15th of July (or as soon thereafter as practical) which either immediately follows the Director's termination of Board service, or which immediately follows the Director's 73rd birthday. (ii). SURVIVOR PAYOUT ELECTIONS. In the event of a Director's death prior to receiving all entitled deferred payments, the value of the Director's account on the date of the Director's death shall be determined and paid to the beneficiary(s) designated by the Director (or, failing such designation, to the Director's estate) in accordance with the installment schedule previously selected by the Director, unless the Director has elected to have the remaining payments made in a single lump sum, in which case a lump sum payment will be made to the designated beneficiaries or the Director's estate as soon as practicable after the Director's death. (iii). REVISED ELECTIONS. At any time before the end of the calendar year prior to termination of Board service, a Director may revise and supersede any or all of his or her previous elections with respect to any or all of the payout alternatives set forth in this subsection a. b. DETERMINATION OF AMOUNT OF INSTALLMENT PAYMENTS. (i). The amount of the first installment payment shall be a fraction of the Cash and/or Units in the Director's account on the date of the initial installment payment, the numerator of which is one and the denominator of which is the total number of installments elected. Each subsequent installment shall be calculated in the same manner as of each subsequent first of July 4 except that the denominator shall be reduced by the number of installments which have been previously paid. (ii). Deferred compensation accounted for as Units based on stock value will be paid, as described above, based on the product of the number of Units in the Director's account on the payment date by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of New York Stock Exchange listed shares for the 20 trading days immediately preceding such date. G. ASSIGNABILITY No right to receive payment of deferred compensation shall be transferable or assignable by a participant except by will or laws of descent and distribution. H. AMENDMENT OF THE PLAN o This Plan may be amended, suspended or terminated at any time by the Board of Directors of the General Electric Company, o However, no amendment, suspension or termination of the Plan may, without the consent of a participant, alter or impair any of the rights previously granted under the plan. I. EFFECTIVE DATE o The effective date for implementation of this Plan shall be the first of the month following its approval by the Board of Directors. J. DEFINITIONS o For purposes of the Plan, unless the context otherwise indicates, the following definitions shall be applicable: "Elected term" -- the period of time from election to the Board to the next Statutory Meeting of the Shareowners. "Retirement from the Board of Directors" -- a Director who terminates Board service at age 65 or older with at least five years of Board service. EX-12 6 EXHIBIT 12 GENERAL ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS) Year ended December 31 --------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- GE EXCEPT GECS Earnings $ 5,511 $ 7,828 $ 8,696 $ 9,677 $ 10,132 Less: Equity in undistributed earnings of General Electric Capital Services, Inc. (957) (1,181) (1,324) (1,836) (1,597) Plus: Interest and other financial charges included in expense 525 410 649 595 797 One-third of rental expense 212 171 174 171 179 -------- -------- -------- -------- -------- Adjusted "earnings" $ 5,291 $ 7,228 $ 8,195 $ 8,607 $ 9,511 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 525 $ 410 $ 649 $ 595 $ 797 Interest capitalized 21 21 13 19 31 One-third of rental expense 212 171 174 171 179 -------- -------- -------- -------- -------- Total fixed charges $ 758 $ 602 $ 836 $ 785 $ 1,007 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 6.98 12.01 9.80 10.96 9.44 ======== ======== ======== ======== ======== GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Earnings $ 6,287 $ 8,831 $ 9,941 $ 11,075 $ 11,419 Plus: Interest and other financial charges included in expense 4,096 4,994 7,336 7,939 8,445 One-third of rental expense 349 327 349 353 423 -------- -------- -------- -------- -------- Adjusted "earnings" $ 10,732 $ 14,152 $ 17,626 $ 19,367 $ 20,287 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 4,096 $ 4,994 $ 7,336 $ 7,939 $ 8,445 Interest capitalized 26 30 34 60 83 One-third of rental expense 349 327 349 353 423 -------- -------- -------- -------- -------- Total fixed charges $ 4,471 $ 5,351 $ 7,719 $ 8,352 $ 8,951 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 2.40 2.64 2.28 2.32 2.27 ======== ======== ======== ======== ======== Earnings before income taxes and minority interest. For 1993, earnings are before cumulative effect of a change in accounting principle. Earnings after income taxes, net of dividends. Considered to be representative of interest factor in rental expense.
EX-21 7 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT General Electric's principal affiliates as of December 31, 1997, are listed below. All other affiliates, if considered in the aggregate as a single affiliate, would not constitute a significant affiliate. AFFILIATES OF REGISTRANT INCLUDED IN REGISTRANT'S FINANCIAL STATEMENTS.
PERCENTAGE OF VOTING SECURITIES STATE OR DIRECTLY OR INDIRECTLY COUNTRY OF OWNED BY INCORPORATION OR REGISTRANT ORGANIZATION --------------------- ---------------- Caribe General Electric Products, Inc. 100 Delaware GE Aircraft Engines Maintenance Services, Ltd. Wales 100 United Kingdom GE Appliances Parts LLC 100 Delaware GE Engine Services Distribution, LLC 100 Delaware GE Fanuc Automation North America Inc. 55 Delaware GE Information Services, Inc. 100 Delaware GE Lighting Tungsram RT 100 Hungary GE Plastics Pacific Pte. Ltd. 100 Singapore GE Power Systems Licensing Inc. 100 Delaware GE Quartz Inc. 100 Delaware GE Superabrasives Ireland 100 Bermuda GE Yokogawa Medical Systems, Ltd. 75 Japan General Electric Canadian Holdings Limited 100 Canada General Electric Capital Services, Inc. 100 Delaware General Electric Capital Corporation 100 New York GE Global Insurance Holding Corporation 100 Missouri General Electric International, Inc. 100 Delaware General Electric Plastics B.V. 100 Netherlands National Broadcasting Company, Inc. 100 Delaware Nuovo Pignone SpA 81 Italy RCA Thomson Licensing Corporation 96 Delaware Notes With respect to certain companies, shares in names of nominees and qualifying shares in names of directors are included in above percentages.
EX-23 8 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors General Electric Company We consent to the incorporation by reference in the registration statements Nos. 33-29024, 33-3908, 33-44593, 33-39596, 33-39596-01, 33-47085, 33-50639, 33-61029 and 33-61029-01 on Form S-3; No. 333-01947 on Form S-4; and Nos. 2-84145, 33-35922, 33-49053, 333-01953, 333-23767 and 333-42695 on Form S-8 of General Electric Company of our report dated February 13, 1998, relating to the consolidated financial position of General Electric Company and consolidated affiliates as of December 31, 1997 and 1996, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended December 31, 1997, and the related schedule, which report appears in the December 31, 1997, annual report on Form 10-K of General Electric Company. KPMG Peat Marwick LLP Stamford, Connecticut March 27, 1998 EX-24 9 1 of 2 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of General Electric Company, a New York corporation (the "Company"), hereby constitutes and appoints John F. Welch, Jr., Benjamin W. Heineman, Jr., Dennis D. Dammerman, and Philip D. Ameen and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign one or more Annual Reports for the Company's fiscal year ended December 31, 1997, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 13th day of March, 1998. John F. Welch, Jr. Dennis D. Dammerman Chairman of the Board Senior Vice President - (Principal Executive Finance (Principal Officer and Director) Financial Officer and Director) Philip D. Ameen Comptroller (Principal Accounting Officer) 2 of 2 James I. Cash, Jr. Sam Nunn Director Director Silas S. Cathcart John D. Opie Director Director Paolo Fresco Roger S. Penske Director Director Claudio X. Gonzalez Barbara S. Preiskel Director Director Gertrude G. Michelson Frank H. T. Rhodes Director Director Eugene F. Murphy Andrew C. Sigler Director Director Douglas A. Warner III Director A MAJORITY OF THE BOARD OF DIRECTORS EX-27.A 10
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended December 31, 1997, and is qualified in its entirety by reference to such financial statements. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 12-MOS DEC-31-1997 DEC-31-1997 5,861 70,621 6,125 238 5,895 0 55,657 23,341 304,012 0 46,603 0 0 594 33,844 304,012 40,675 53,404 30,889 40,088 21,250 79 8,384 11,179 2,976 8,203 0 0 0 8,203 2.50 2.46 Not applicable to consolidated GE. Sales of goods ($40,675) and services($12,729). Cost of goods ($30,889) and services ($9,199) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.B 11
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended September 30, 1997, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 9-MOS DEC-31-1997 SEP-30-1997 4,289 66,705 0 0 5,412 0 54,107 23,038 285,354 0 47,501 0 0 594 33,102 285,354 25,654 34,734 18,189 24,510 0 0 6,072 8,654 2,801 5,853 0 0 0 5,853 1.79 1.75 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($25,654) and services ($9,080). GE cost of goods ($18,189) and services ($6,321) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.C 12
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended June 30, 1997, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 3,806 64,146 0 0 5,376 0 52,268 22,396 278,897 0 46,792 0 0 594 31,028 278,897 16,961 23,069 12,092 16,213 0 0 3,952 5,790 1,951 3,839 0 0 0 3,839 1.17 1.15 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($16,961) and services ($6,108). GE cost of goods ($12,092) and services ($4,121) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.D 13
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended March 31, 1997, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 3,621 59,782 0 0 5,226 0 51,260 21,982 270,068 0 46,364 0 0 594 29,870 270,068 7,704 10,489 5,534 7,519 0 0 1,931 2,559 882 1,677 0 0 0 1,677 0.51 0.50 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($7,704) and services ($2,785). GE cost of goods ($5,534) and services ($1,985) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.E 14
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended December 31, 1996, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 12-MOS DEC-31-1996 DEC-31-1996 4,191 59,889 6,629 240 4,473 0 50,784 21,989 272,402 0 49,246 0 0 594 30,531 272,402 34,180 45,971 24,578 32,871 19,618 65 7,904 10,806 3,526 7,280 0 0 0 7,280 2.20 2.16 Not applicable to consolidated GE. GE sales of goods ($34,180) and services ($11,791). GE cost of goods ($24,578) and services ($8,293) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.F 15
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended September 30, 1996, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 9-MOS DEC-31-1996 SEP-30-1996 4,672 48,278 0 0 5,061 0 50,069 21,857 249,182 0 48,799 0 0 594 29,405 249,182 24,299 32,640 17,432 23,324 0 0 5,720 7,851 2,638 5,213 0 0 0 5,213 1.57 1.55 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($24,299) and services ($8,341). GE cost of goods ($17,432) and services ($5,892) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.G 16
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended June 30, 1996, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 3,271 46,687 0 0 5,051 0 48,195 21,167 242,081 0 49,775 0 0 594 28,702 242,081 15,792 21,194 11,244 14,937 0 0 3,795 5,153 1,728 3,425 0 0 0 3,425 1.03 1.01 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($15,792) and services ($5,402). GE cost of goods ($11,244) and services ($3,693) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.H 17
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended March 31, 1996, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 3-MOS DEC-31-1996 MAR-31-1996 3,170 40,753 0 0 4,894 0 47,063 20,815 230,213 0 52,306 0 0 594 28,677 230,213 7,241 9,714 5,210 6,933 0 0 1,875 2,318 801 1,517 0 0 0 1,517 0.46 0.45 Not disclosed in interim periods. Not applicable to consolidated GE. GE sales of goods ($7,241) and services ($2,473). GE cost of goods ($5,210) and services ($1,723) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
EX-27.I 18
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended December 31, 1995, and is qualified in its entirety by reference to such financial statements. Earnings per share information has been restated to conform with the requirements of SFAS No. 128, Earnings Per Share. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 YEAR DEC-31-1995 DEC-31-1995 2,823 41,067 6,582 231 4,395 0 45,946 20,267 228,035 0 51,027 0 0 594 29,015 228,035 33,157 42,890 24,288 30,970 15,429 57 7,286 9,737 3,164 6,573 0 0 0 6,573 1.95 1.93 Not applicable to consolidated GE. GE sales of goods ($33,157) and services ($9,733). GE costs of goods ($24,288) and services ($6,682) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
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