SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-35
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
NEW YORK 14-0689340
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
3135 EASTON TURNPIKE, FAIRFIELD, CT 06431-0001
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (203) 373-2211
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
There were 3,253,684,802 shares with a par value of $0.16 per share
outstanding at June 30, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED STATEMENT OF EARNINGS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(DOLLARS, EXCEPT PER-SHARE AMOUNTS, IN MILLIONS)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED JUNE 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------ -------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales of goods $ 11,022 $ 10,318 $ 9,129 $ 9,258 $ 1,893 $ 1,061
Sales of services 4,043 3,323 4,088 3,362 - -
Earnings of GECS - - 933 798 - -
GECS revenues from services 9,863 8,219 - - 9,908 8,256
Other income 142 137 153 136 - -
----------- ----------- ----------- ---------- ----------- -----------
Total revenues 25,070 21,997 14,303 13,554 11,801 9,317
----------- ----------- ----------- ---------- ----------- -----------
Cost of goods sold 7,919 7,488 6,191 6,559 1,728 930
Cost of services sold 2,765 2,136 2,810 2,175 - -
Interest and other financial charges 2,366 2,021 204 165 2,187 1,862
Insurance losses and policyholder and annuity benefits 2,400 2,012 - - 2,400 2,012
Provision for losses on financing receivables 409 337 - - 409 337
Other costs and expenses 5,616 4,720 1,822 1,733 3,825 3,017
Minority interest in net earnings of
consolidated affiliates 61 52 28 31 33 21
----------- ----------- ----------- ---------- ----------- -----------
Total costs and expenses 21,536 18,766 11,055 10,663 10,582 8,179
----------- ----------- ----------- ---------- ----------- -----------
Earnings before income taxes 3,534 3,231 3,248 2,891 1,219 1,138
Provision for income taxes (1,084) (1,069) (798) (729) (286) (340)
----------- ----------- ----------- ---------- ----------- -----------
Net earnings $ 2,450 $ 2,162 $ 2,450 $ 2,162 $ 933 $ 798
=========== =========== =========== ========== =========== ===========
Net earnings per share
Basic $ 0.75 $ 0.66
Diluted $ 0.74 $ 0.65
Dividends declared per share $ 0.30 $ 0.26
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
</TABLE>
<PAGE>
CONDENSED STATEMENT OF EARNINGS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(DOLLARS, EXCEPT PER-SHARE AMOUNTS, IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------ -------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales of goods $ 20,638 $ 18,938 $ 17,120 $ 16,963 $ 3,519 $ 1,977
Sales of services 7,402 6,108 7,505 6,179 - -
Earnings of GECS - - 1,814 1,552 - -
GECS revenues from services 19,347 16,812 - - 19,433 16,884
Other income 309 296 328 294 - -
----------- ----------- ----------- ---------- ----------- -----------
Total revenues 47,696 42,154 26,767 24,988 22,952 18,861
----------- ----------- ----------- ---------- ----------- -----------
Cost of goods sold 14,982 13,830 11,773 12,094 3,210 1,738
Cost of services sold 5,167 4,121 5,270 4,192 - -
Interest and other financial charges 4,578 3,952 411 323 4,212 3,645
Insurance losses and policyholder and annuity benefits 4,613 4,256 - - 4,613 4,256
Provision for losses on financing receivables 741 649 - - 741 649
Other costs and expenses 11,049 9,449 3,470 3,200 7,639 6,303
Minority interest in net earnings of consolidated
affiliates 117 107 51 56 66 51
----------- ----------- ----------- ---------- ----------- -----------
Total costs and expenses 41,247 36,364 20,975 19,865 20,481 16,642
----------- ----------- ----------- ---------- ----------- -----------
Earnings before income taxes 6,449 5,790 5,792 5,123 2,471 2,219
Provision for income taxes (2,108) (1,951) (1,451) (1,284) (657) (667)
----------- ----------- ----------- ---------- ----------- -----------
Net earnings $ 4,341 $ 3,839 $ 4,341 $ 3,839 $ 1,814 $ 1,552
=========== =========== =========== ========== =========== ===========
Net earnings per share
Basic $ 1.33 $ 1.17
Diluted $ 1.31 $ 1.15
Dividends declared per share $ 0.60 $ 0.52
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
</TABLE>
<PAGE>
CONDENSED STATEMENT OF FINANCIAL POSITION
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED GE GECS
------------------------- ------------------------ -------------------------
6/30/98 12/31/97 6/30/98 12/31/97 6/30/98 12/31/97
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents $ 3,862 $ 5,861 $ 839 $ 1,157 $ 3,023 $ 4,904
Investment securities 74,094 70,621 236 265 73,858 70,356
Current receivables 8,400 8,924 8,503 9,054 - -
Inventories 5,564 5,895 4,800 5,109 764 786
GECS financing receivables - net 106,734 103,799 - - 106,734 103,799
Other GECS receivables 20,451 17,655 - - 21,244 18,332
Property, plant and equipment (including equipment
leased to others) - net 33,308 32,316 10,930 11,118 22,378 21,198
Investment in GECS - - 18,714 17,239 - -
Intangible assets 19,939 19,121 8,843 8,755 11,096 10,366
Other assets 46,530 39,820 16,891 14,729 30,107 25,667
----------- ----------- ----------- ---------- ----------- -----------
Total assets $ 318,882 $ 304,012 $ 69,756 $ 67,426 $ 269,204 $ 255,408
=========== =========== =========== ========== =========== ===========
Short-term borrowings $ 106,322 $ 98,075 $ 5,162 $ 3,629 $ 101,786 $ 95,274
Accounts payable 10,865 10,407 4,414 4,779 7,399 6,490
Other GE current liabilities 12,317 12,186 12,211 12,058 - -
Long-term borrowings 48,764 46,603 631 729 48,125 45,989
Insurance liabilities, reserves and annuity benefits 69,849 67,270 - - 69,849 67,270
All other liabilities 22,000 22,700 11,356 11,539 10,548 11,067
Deferred income taxes 9,220 8,651 (191) (315) 9,411 8,966
----------- ----------- ----------- ---------- ----------- -----------
Total liabilities 279,337 265,892 33,583 32,419 247,118 235,056
----------- ----------- ----------- ---------- ----------- -----------
Minority interest in equity of consolidated
affiliates 3,960 3,682 588 569 3,372 3,113
----------- ----------- ----------- ---------- ----------- -----------
Unrealized gains on investment securities 2,590 2,138 2,590 2,138 2,559 2,135
Foreign currency translation adjustments (1,010) (798) (1,010) (798) (222) (185)
----------- ----------- ----------- ---------- ----------- -----------
Accumulated non-owner changes in equity 1,580 1,340 1,580 1,340 2,337 1,950
Common stock (3,714,026,000 shares issued) 594 594 594 594 1 1
Other capital 5,222 4,434 5,222 4,434 2,490 2,337
Retained earnings 45,726 43,338 45,726 43,338 13,886 12,951
Less common stock held in treasury (17,537) (15,268) (17,537) (15,268) - -
----------- ----------- ----------- ---------- ----------- -----------
Total share owners' equity 35,585 34,438 35,585 34,438 18,714 17,239
----------- ----------- ----------- ---------- ----------- -----------
Total liabilities and equity $ 318,882 $ 304,012 $ 69,756 $ 67,426 $ 269,204 $ 255,408
=========== =========== =========== ========== =========== ===========
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and"GECS." June data are unaudited. Transactions between GE and
GECS have been eliminated from the "consolidated" columns.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------ -------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 4,341 $ 3,839 $ 4,341 $ 3,839 $ 1,814 $ 1,552
Adjustments to reconcile net earnings to cash
provided from (used for) operating activities
Depreciation and amortization 2,083 1,931 823 794 1,260 1,137
Earnings retained by GECS - - (935) (932) - -
Deferred income taxes 383 418 234 204 149 214
Decrease in GE current receivables 347 272 374 310 - -
Decrease (increase) in inventories 298 (813) 237 (813) 61 -
Increase (decrease) in accounts payable (424) 116 (190) 85 (148) (19)
Increase in insurance reserves 1,594 1,596 - - 1,594 1,596
Provision for losses on financing receivables 741 649 - - 741 649
All other operating activities (2,039) (552) (1,340) (2) (582) (373)
----------- ----------- ----------- ---------- ----------- -----------
Cash from operating activities 7,324 7,456 3,544 3,485 4,889 4,756
----------- ----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment (including
equipment leased to others) - additions (4,731) (3,807) (780) (878) (3,951) (2,929)
Net decrease (increase) in GECS financing receivables (3,742) 489 - - (3,742) 489
Payments for principal businesses purchased (1,982) (684) (989) (103) (993) (581)
All other investing activities (2,812) (2,393) 150 134 (3,067) (2,659)
----------- ----------- ----------- ---------- ----------- -----------
Cash used for investing activities (13,267) (6,395) (1,619) (847) (11,753) (5,680)
----------- ----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days or less) 7,773 7,468 2,154 1,232 5,294 6,203
Newly issued debt (maturities more than 90 days) 18,070 9,378 282 243 17,788 9,135
Repayments and other reductions (maturities
more than 90 days) (17,993) (14,914) (994) (779) (16,999) (14,135)
Net purchase of GE shares for treasury (1,728) (1,786) (1,728) (1,786) - -
Dividends paid to share owners (1,957) (1,710) (1,957) (1,710) (879) (620)
All other financing activities (221) 118 - - (221) 118
----------- ----------- ----------- ---------- ----------- -----------
Cash from (used for) financing activities 3,944 (1,446) (2,243) (2,800) 4,983 701
----------- ----------- ----------- ---------- ----------- -----------
Decrease in cash and equivalents (1,999) (385) (318) (162) (1,881) (223)
Cash and equivalents at beginning of year 5,861 4,191 1,157 957 4,904 3,234
----------- ----------- ----------- ---------- ----------- -----------
Cash and equivalents at June 30 $ 3,862 $ 3,806 $ 839 $ 795 $ 3,023 $ 3,011
=========== =========== =========== ========== =========== ===========
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed quarterly financial statements represent
the consolidation of General Electric Company and all companies which it
directly or indirectly controls, either through majority ownership or otherwise.
Reference is made to note 1 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
That note discusses consolidation and financial statement presentation. As used
in this Report and in the Report on Form 10-K, "GE" represents the adding
together of all affiliated companies except General Electric Capital Services,
Inc. ("GECS"), which is presented on a one-line basis; GECS consists of General
Electric Capital Services, Inc. and all of its affiliates; and "consolidated"
represents the adding together of GE and GECS with the effects of transactions
between the two eliminated.
2. The condensed consolidated quarterly financial statements are
unaudited. These statements include all adjustments (consisting of normal
recurring accruals) considered necessary by management to present a fair
statement of the results of operations, financial position and cash flows. The
results reported in these condensed consolidated financial statements should not
be regarded as necessarily indicative of results that may be expected for the
entire year.
3. Statement of Financial Accounting Standards (SFAS) No. 130,
REPORTING COMPREHENSIVE INCOME, was adopted as of January 1, 1998. This
Statement requires reporting of changes in share owners' equity that do not
result directly from transactions with share owners. An analysis of these
changes follows:
THREE MONTHS ENDED
------------------
(DOLLARS IN MILLIONS) 6/30/98 6/30/97
------- -------
Net earnings $ 2,450 $ 2,162
Unrealized gains on investment securities - net 130 847
Foreign currency translation adjustments - net (59) 16
------- -------
Total $ 2,521 $ 3,025
======= =======
SIX MONTHS ENDED
------------------
6/30/98 6/30/97
------- -------
Net earnings $ 4,341 $ 3,839
Unrealized gains on investment securities - net 452 359
Foreign currency translation adjustments - net (212) (388)
------- -------
Total $ 4,581 $ 3,810
======= =======
4. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (the "Statement"). The Statement requires
that, upon adoption, all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged items; effects of certain changes in fair value are recorded in
Other Comprehensive Income pending recognition in earnings. GE will not adopt
the Statement until required to do so on January 1, 2000.
5. GE's inventories consisted of the following:
AT
------------------------
(DOLLARS IN MILLIONS) 6/30/98 12/31/97
------- --------
GE
Raw materials and work in process $ 2,988 $ 3,070
Finished goods 2,690 2,895
Unbilled shipments 197 242
Revaluation to LIFO (1,075) (1,098)
------- -------
4,800 5,109
------- -------
GECS
Finished goods 764 786
------- -------
Total $ 5,564 $ 5,895
======= =======
6. Property, plant and equipment (including equipment leased to others)
consisted of the following:
AT
---------------------
(DOLLARS IN MILLIONS) 6/30/98 12/31/97
------- --------
ORIGINAL COST
- - GE $27,101 $26,855
- - GECS 30,360 28,802
------- -------
Total 57,461 55,657
------- -------
ACCUMULATED DEPRECIATION AND AMORTIZATION
- - GE 16,171 15,737
- - GECS 7,982 7,604
------- -------
Total 24,153 23,341
------- -------
PROPERTY, PLANT AND EQUIPMENT -- NET
- - GE 10,930 11,118
- - GECS 22,378 21,198
------- -------
Total $33,308 $32,316
======= =======
7. GE's authorized common stock consisted of 4,400,000,000 shares
having a par value of $0.16 each. Information related to the calculation of
earnings per share follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
(DOLLAR AMOUNTS AND SHARES IN MILLIONS; 6/30/98 6/30/97
---------------- ---------------
PER-SHARE AMOUNTS IN DOLLARS) BASIC DILUTED BASIC DILUTED
------- ------- ----- -------
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $2,450 $2,450 $2,162 $2,162
Dividend equivalents-- net of tax -- 6 -- 2
------ ------ ------ ------
Net earnings available for per-share calculation $2,450 $2,456 $2,162 $2,164
------ ------ ------ ------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock 3,270 3,270 3,274 3,274
Employee compensation-related shares,
including stock options -- 59 -- 69
------ ------ ------ ------
Total average equivalent shares 3,270 3,329 3,274 3,343
------ ------ ------ ------
Net earnings per share $ 0.75 $ 0.74 $ 0.66 $ 0.65
====== ====== ====== ======
<CAPTION>
SIX MONTHS ENDED
----------------------------------
6/30/98 6/30/97
---------------- ---------------
BASIC DILUTED BASIC DILUTED
------- ------- ----- -------
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $4,341 $4,341 $3,839 $3,839
Dividend equivalents-- net of tax -- 9 -- 5
------ ------ ------ ------
Net earnings available for per-share calculation $4,341 $4,350 $3,839 $3,844
------ ------ ------ ------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock 3,268 3,268 3,279 3,279
Employee compensation-related shares,
including stock options -- 64 -- 69
------ ------ ------ ------
Total average equivalent shares 3,268 3,332 3,279 3,348
------ ------ ------ ------
Net earnings per share $ 1.33 $ 1.31 $ 1.17 $ 1.15
====== ====== ====== ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
A. RESULTS OF OPERATIONS -- SECOND QUARTER OF 1998 COMPARED WITH SECOND
QUARTER OF 1997
General Electric Company's earnings for the second quarter of 1998 were
$2.450 billion, the highest for any quarter in the Company's history, an
increase of 13% over the same period in 1997. Earnings per share increased 14%
to $0.74, up from last year's $0.65. Earnings per share grew faster than
earnings, reflecting the impact of shares repurchased under a five-year, $17
billion share repurchase program initiated in December 1994.
Revenues, including acquisitions, rose to a record $25.1 billion, 14%
higher than last year, reflecting growth from globalization and product services
initiatives.
GE's second-quarter operating margin was 18.1% of sales, up from last
year's 17.1%, and was a record for any quarter in the Company's history. The
second-quarter margin growth reflects the increasing benefits from GE's focus on
product services and Six Sigma quality initiatives.
Eight of GE's twelve businesses reported higher operating profit for
the second-quarter, with six -- led by GE Capital Services, Aircraft Engines and
NBC -- achieving double-digit increases.
GE Capital Services' earnings for the second quarter were $933 million,
17% more than last year's $798 million, reflecting the globalization and
diversity of GE Capital's 28 businesses. Twenty-two of twenty-eight businesses
grew earnings at double-digit rates, led by Specialized Financing and Specialty
Insurance activities.
Cash generated from GE's operating activities during the first half was
a strong $3.5 billion. As part of the five-year, $17 billion share repurchase
program, GE purchased $923 million of its stock during the second quarter to
reach $11.7 billion - 266 million shares - purchased since December 1994.
SEGMENT ANALYSIS:
The comments that follow compare revenues and operating profit by
industry segment for the second quarters of 1998 and 1997.
o AIRCRAFT ENGINES revenues and operating profit increased sharply
over last year's second quarter. The revenue and operating profit increases both
resulted from strong growth in product services, including the contribution from
the acquisition of Greenwich Air Services/UNC, as well as good volume growth in
commercial engines.
o APPLIANCES reported much lower revenues in the second quarter
compared with a year ago, largely as a result of the first-quarter 1998
deconsolidation of a European distribution affiliate. Operating profit was
slightly lower as lower selling prices more than offset beneficial effects of
productivity and lower material costs.
o BROADCASTING operating profit was considerably higher on a good
increase in revenues over last year's second quarter. The revenue increase was
primarily attributable to improved pricing and growth in owned-and-operated
stations, including acquisitions. The improvement in operating profit was
attributable to improved pricing at both network and owned-and-operated
stations, as well as double-digit growth in NBC's cable programming services,
the combination of which more than offset higher license fees for certain
prime-time programs that were renewed.
o GE CAPITAL SERVICES net earnings for the second quarter were $933
million, 17% more than last year's $798 million, reflecting the globalization
and diversity of its 28 businesses. Twenty-two of twenty-eight businesses grew
earnings at double-digit rates, led by Specialized Financing and Specialty
Insurance activities. Overall, the increase in net earnings for the lending,
leasing, and equipment management businesses of GECS was primarily attributable
to a higher average level of invested assets as well as the effects of a lower
effective tax rate. The growth in earnings from specialty insurance activities
primarily reflected growth in origination volume and higher investment income,
the result of continued growth in the investment portfolios and higher gains on
investment securities, as well as improved earnings in the mortgage insurance
business, the result of strengthened market conditions.
o INDUSTRIAL PRODUCTS AND SYSTEMS reported revenues and operating
profit that were about the same as last year's second quarter. The operating
profit performance reflected productivity, lower material costs and higher
volume, which were largely offset by lower selling prices.
o MATERIALS second quarter operating profit was slightly higher on
revenues that were about the same as a year ago. The operating profit increase
primarily resulted from lower material costs and productivity which
more than offset the effects of lower selling prices.
o POWER GENERATION revenues increased slightly compared with the second
quarter of 1997, primarily as a result of higher volume and growth in product
services, which were partially offset by lower selling prices. Operating profit
was also slightly higher, reflecting productivity and growth in product
services, which more than offset the effects of lower selling prices.
o TECHNICAL PRODUCTS & SERVICES revenues were somewhat higher than in
the second quarter of 1997, reflecting higher volume across the segment which
more than offset lower selling prices. Operating profit was substantially
higher, primarily as a result of productivity across the segment and the absence
of a current year counterpart to a 1997 provision for patent litigation at
Medical Systems.
o ALL OTHER operating profit decreased considerably on revenues that
were substantially lower than the second quarter of 1997, as a result of lower
levels of licensing income.
B. RESULTS OF OPERATIONS -- FIRST HALF OF 1998 COMPARED WITH FIRST HALF OF 1997
Earnings for the six months ended June 30, 1998, were $4.341 billion,
up 13% from $3.839 billion in 1997's first half. Earnings per share increased
14% to $1.31 from $1.15. Earnings per share grew faster than earnings,
reflecting the impact of shares repurchased under a five-year, $17 billion share
repurchase program initiated in December 1994.
Consolidated revenues for the first six months of 1998 aggregated $47.7
billion, up 13% from the comparable $42.2 billion in 1997's first half. GE's
sales of goods and services were 6% higher, with improvements led by Aircraft
Engines, NBC and Transportation.
Eight of GE's twelve businesses reported higher operating profit for
the first half, with six -- led by GE Capital Services, Aircraft Engines and
Medical Systems -- achieving double-digit increases.
Operating margin in the first half of 1998 was 16.7% of sales, compared
with last year's 15.8%. The improvement in operating margin was led by Aircraft
Engines, NBC and Plastics.
SEGMENT ANALYSIS:
The following comments compare revenues and operating profit by
industry segment for the first half of 1998 with the same period of 1997.
o AIRCRAFT ENGINES revenues and operating profit increased sharply
over last year's first half. The revenue and operating profit increases both
resulted from strong growth in product services, including the contribution from
the acquisition of Greenwich Air Services/UNC, as well as good volume growth in
commercial engines.
o APPLIANCES had much lower revenues in the first half, largely as a
result of the first-quarter 1998 deconsolidation of a European distribution
affiliate. Operating profit was about even with the first half of 1997 as lower
selling prices offset productivity.
o BROADCASTING reported a good increase in revenues over last year's
first half, reflecting primarily pricing and NBC's broadcast of the January 1998
Superbowl. Operating profit was well ahead of last year's first half, reflecting
stronger prime-time pricing and growth in NBC's cable programming services,
which more than offset higher license fees for certain prime-time programs that
were renewed.
o GE CAPITAL SERVICES net earnings increased by 17% to $1,814 million,
led by double digit increases in Specialized Financing, Specialty Insurance and
Mid-Market Financing activities. Overall, the increase in net earnings for the
lending, leasing, and equipment management businesses of GECS was primarily
attributable to a higher average level of invested assets as well as the effects
of a lower effective tax rate. The growth in earnings from specialty insurance
activities primarily reflected growth in origination volume and higher
investment income, the result of continued growth in the investment portfolios
and higher gains on investment securities, as well as improved earnings in the
mortgage insurance business, the result of strengthened market conditions.
o INDUSTRIAL PRODUCTS AND SYSTEMS reported somewhat higher operating
profit on revenues that were slightly higher than last year's first half. The
increase in revenues reflected higher volume across all businesses in the
segment, particularly at Transportation Systems, partially offset by generally
lower prices. The improvement in operating profit was attributable to
productivity which more than offset the effects of lower selling prices.
o MATERIALS operating profit was somewhat higher on revenues that were
about the same as the first six months of 1997. The improvement in operating
profit reflected productivity, lower material costs and higher volume which more
than offset the effects of lower selling prices.
o POWER GENERATION reported slightly higher operating profit on
revenues that were about the same as last year's first half. The increase in
operating profit was primarily attributable to strong productivity which was
partially offset by the effects of lower selling prices.
o TECHNICAL PRODUCTS & SERVICES revenues were slightly higher than in
the first half of 1997, reflecting volume growth in both Medical Systems and
Information Services, partially offset by the effects of lower selling prices.
Operating profit was sharply higher, primarily as a result of strong
productivity across the segment and the absence of a current year counterpart to
a 1997 provision for patent litigation at Medical Systems.
o ALL OTHER operating profit decreased considerably on much lower
revenues than the first half of 1997, as a result of lower levels of licensing
income.
C. FINANCIAL CONDITION
With respect to the Condensed Statement of Financial Position,
consolidated assets of $318.9 billion at June 30, 1998, were $14.9 billion
higher than at December 31, 1997.
GE assets were $69.8 billion at June 30, 1998, an increase of $2.3
billion from December 31, 1997. The increase was primarily attributable to
greater investment in GECS ($1.5 billion), and increases in all other assets
($2.2 billion), reflecting primarily acquisitions which were not yet
consolidated, and an increase in the prepaid pension asset. These increases were
partially offset by reductions in current receivables ($0.6 billion) and
inventories ($0.3 billion), reflecting improved asset utilization.
GECS assets increased by $13.8 billion from the end of 1997. Other
assets increased $4.4 billion, principally as a result of increases in advances
to and investments in non-consolidated affiliates, growth in investor-directed
fund accounts ("separate accounts"), and real estate acquired. GECS investment
securities increased by $3.5 billion, reflecting the addition of securities held
by insurance companies acquired and new investments by various GECS businesses,
as well as increases in fair value of investment securities during the period.
GE Capital financing receivables at June 30, 1998, which aggregated $106.7
billion, net of the allowance for doubtful accounts, were $2.9 billion higher
than at year-end 1997, principally as a result of acquisition-related growth.
Management believes that GE Capital's allowance for doubtful accounts of $2.9
billion (2.63% of the receivables balance at June 30, 1998 -- the same as
year-end 1997) are appropriate given the strength and diversity of the portfolio
and current economic circumstances. Other receivables increased $2.9 billion,
reflecting principally the effect of acquisitions as well core growth in
insurance-related receivables. Property, plant and equipment, principally
equipment leased to others, increased by $1.2 billion primarily as a result of
acquisition-related volume and new aircraft volume.
Consolidated liabilities of $279.3 billion at June 30, 1998, were $13.4
billion higher than the year-end 1997 balance of $265.9 billion. GE liabilities
were up $1.2 billion; GECS liabilities increased $12.1 billion.
GE total borrowings were $5.8 billion ($5.2 billion short-term and $0.6
billion long-term) at June 30, 1998, an increase of $1.4 billion from December
31, 1997. GE's ratio of debt to total capital at the end of June 1998 was 13.8%
compared with 11.1% at the end of last year and 13.0% at June 30, 1997.
GECS liabilities increased to $247.1 billion, compared with $235.1
billion at the end of 1997. The increase was principally attributable higher
borrowings ($8.6 billion) and an increase of $2.6 billion in insurance
liabilities, reserves and annuity benefits, reflecting primarily additions to
reserves related to core growth and increases in separate accounts. Short-term
borrowings increased by $6.5 billion to $101.8 billion and long-term borrowings
increased by $2.1 billion to $48.1 billion.
With respect to cash flows, consolidated cash and equivalents were $3.9
billion at June 30, 1998, a decrease of $2.0 billion during the first half. Cash
and equivalents were $3.8 billion at June 30, 1997, a decrease of $0.4 billion
during last year's first half.
GE's cash and equivalents decreased $0.3 billion during the first half
of 1998 to $0.8 billion at June 30, 1998. Cash provided from operating
activities was $3.5 billion during the first six months of 1998, about the same
as in the first half of 1997. Cash used for investing activities ($1.6 billion)
principally represented acquisitions and investments in new plant and equipment
for a diverse number of projects to lower costs and improve efficiencies. Cash
used for financing activities ($2.2 billion) included $1.7 billion for
repurchases of the Company's common stock under the share repurchase program and
$2.0 billion for dividends paid to share owners, a 15% increase in the per-share
dividend rate compared with the first half of last year. The effects of
dividends and share repurchases on cash used for financing activities were
partially offset by cash provided from higher net borrowings ($1.4 billion).
GE's cash and equivalents were $0.8 billion at June 30, 1997, compared
with $1.0 billion at December 31, 1996. During the first six months of 1997,
cash provided from operating activities was $3.5 billion, equaling the previous
year's record level. The first half performance reflected continued improvements
in earnings, partially offset by lower cash flows from working capital, which
were more than attributable to the absence of current year counterparts to
certain 1996 receipts, primarily substantial progress collections related to
power generation contracts and collection of a large sundry receivable. Cash
used for investing activities ($0.8 billion) represented principally investments
in new plant and equipment for a wide variety of projects to reduce costs and
improve efficiencies. Cash used for financing activities ($2.8 billion) included
$1.7 billion for repurchases of the Company's common stock under the share
repurchase program and $1.7 billion for dividends paid to share owners, a 13%
increase in the per-share dividend rate compared with the first half of 1996.
The effects of dividends and share repurchases on cash used for financing
activities were partially offset by cash provided from higher net borrowings
($0.7 billion).
GECS cash and equivalents decreased $1.9 billion during the first half
of 1998. Cash was used primarily to fund additions to property, plant and
equipment ($4.0 billion), principally equipment that is provided to third
parties on operating leases; to fund additions to financing receivables ($3.7
billion); to purchase investment securities ($2.7 billion); and to fund
acquisitions of businesses ($1.0 billion). Cash provided from operating
activities totaled $4.9 billion. Cash provided from financing activities
resulted primarily from increased net borrowings ($6.1 billion) during the first
six months of 1998.
GECS cash and equivalents decreased $0.2 billion during the first half
of 1997. Cash was used primarily to fund additions to property, plant and
equipment ($2.9 billion), principally equipment that is provided to third
parties on operating leases, and for acquisitions of businesses ($0.6 billion).
Cash provided from operating activities totaled $4.8 billion. Cash provided from
financing activities resulted primarily from increased net borrowings ($1.2
billion) during the first six months of 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
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
April 16, 1998, the same four-judge panel denied plaintiff's motion for
reargument of, or leave to appeal from, its January 27, 1998 order, and on May
7, 1998, plaintiff filed a motion with the New York Court of Appeals for leave
to appeal the January 27, 1998 order, which motion was denied on June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of Share Owners of General Electric
Company was held on April 22, 1998.
(b) All director nominees were elected.
(c) Certain matters voted upon at the meeting and the votes cast
with respect to such matters are as follows:
PROPOSALS AND VOTE TABULATIONS
<TABLE>
<CAPTION>
VOTES CAST
------------------------------ BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
MANAGEMENT PROPOSALS
Approval of the appointment of independent
auditors for 1998 2,688,217,681 10,358,829 10,974,146 0
SHARE OWNER PROPOSALS
(1) Relating to term limits for
outside directors 124,142,431 2,123,531,713 48,456,507 413,420,005
(2) Relating GE's nuclear energy business 90,795,748 2,031,173,705 174,161,199 413,420,004
(3) Relating to an environmental report 172,958,411 2,045,226,626 77,945,616 413,420,003
(4) Relating to an environmental education
report 167,671,461 2,025,819,651 102,639,540 413,420,004
(5) Relating to military contracts standards 86,084,626 2,075,541,687 134,504,341 413,420,002
(6) Relating to outside director
retirement benefits 642,397,168 1,602,236,094 51,497,390 413,420,004
(7) Relating to CEO compensation 133,738,818 2,107,932,884 54,458,950 413,420,004
(8) Relating to political contributions 119,086,760 2,051,806,241 125,237,651 413,420,004
</TABLE>
ELECTION OF DIRECTORS
DIRECTOR VOTES RECEIVED VOTES WITHHELD
- -------- -------------- --------------
D. Wayne Calloway* 2,622,275,225 87,275,432
James I. Cash, Jr. 2,636,982,872 72,567,785
Silas S. Cathcart 2,631,384,016 78,166,641
Dennis D. Dammerman 2,633,883,584 75,667,073
Paolo Fresco 2,633,249,687 76,300,970
Claudio X. Gonzalez 2,634,991,450 74,559,207
Gertrude G. Michelson 2,632,608,068 76,942,589
Eugene F. Murphy 2,634,515,633 75,035,024
Sam Nunn 2,613,187,556 96,363,101
John D. Opie 2,633,627,428 75,923,229
Roger S. Penske 2,633,321,780 76,228,877
Frank H. T. Rhodes 2,635,555,043 73,995,614
Andrew C. Sigler 2,636,935,448 72,615,209
Douglas A. Warner III 2,618,071,799 91,478,858
John F. Welch, Jr. 2,635,601,490 73,949,167
*Mr. Calloway died on July 8, 1998.
ITEM 2. CHANGES IN SECURITIES
On June 2, 1998, GE issued to former shareholders of The Terra
Financial Companies, Ltd. ("Terra"), or their agent, 66,361 shares of GE common
stock held in GE's treasury. The issuance was in connection with the acquisition
of Terra, a private corporation. The transaction was a private transaction
exempt from registration under the Securities Act of 1933 (the "Act") pursuant
to Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings*
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27. Financial Data Schedule
* Data required by Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE, is provided in note 7
to the condensed consolidated financial statements in this
report.
b. Reports on Form 8-K during the quarter ended June 30, 1998.
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
General Electric Company
(Registrant)
July 31, 1998 Philip D. Ameen
- ------------- --------------------------------------------------------
Date Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer
EXHIBIT 12
GENERAL ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS) SIX MONTHS ENDED
JUNE 30, 1998
----------------
GE EXCEPT GECS
Earnings (a) $ 5,843
Less: Equity in undistributed earnings of General Electric
Capital Services, Inc. (b) (935)
Plus: Interest and other financial
charges included in expense 411
One-third of rental expense (c) 89
-------
Adjusted "earnings" $ 5,408
=======
Fixed Charges:
Interest and other financial charges $ 411
Interest capitalized 18
One-third of rental expense (c) 89
-------
Total fixed charges $ 518
=======
Ratio of earnings to fixed charges 10.44
=======
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Earnings (a) $ 6,566
Plus: Interest and other financial charges
included in expense 4,607
One-third of rental expense (c) 223
-------
Adjusted "earnings" $ 11,396
========
Fixed Charges:
Interest and other financial charges $ 4,607
Interest capitalized 58
One-third of rental expense (c) 223
-------
Total fixed charges $ 4,888
=======
Ratio of earnings to fixed charges 2.33
=======
(a) Earnings before income taxes and minority interest.
(b) Earnings after income taxes, net of dividends.
(c) Considered to be representative of interest factor in rental expense.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the period ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000040545
<NAME> GENERAL ELECTRIC COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,862
<SECURITIES> 74,094
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 5,564
<CURRENT-ASSETS> 0<F2>
<PP&E> 57,461
<DEPRECIATION> 24,153
<TOTAL-ASSETS> 318,882
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 48,764
0
0
<COMMON> 594
<OTHER-SE> 34,991
<TOTAL-LIABILITY-AND-EQUITY> 318,882
<SALES> 20,638
<TOTAL-REVENUES> 28,040<F3>
<CGS> 14,982
<TOTAL-COSTS> 20,149<F4>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 4,578
<INCOME-PRETAX> 6,449
<INCOME-TAX> 2,108
<INCOME-CONTINUING> 4,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,341
<EPS-PRIMARY> 1.33<F5>
<EPS-DILUTED> 1.31<F6>
<FN>
<F1>Not disclosed in interim periods.
<F2>Not applicable to consolidated GE.
<F3>Sales of goods ($20,638) and services ($7,402).
<F4>Cost of goods ($14,982) and services ($5,167) sold.
<F5>Represents basic earnings per share in accordance with
SFAS No. 128, Earnings Per Share.
<F6>Represents diluted earnings per share in accordance with
SFAS No. 128, Earnings Per Share.
</FN>
</TABLE>
