SECTIONS
Business 2
Properties 17
Legal Proceedings 17
Submission of Matters to a Vote of Security Holders 18
Market for Stock 19
Selected Financial Data 20
Management's Discussion 20
Financial Statements 20
Disagreements 20
Directors and Executive Officers 21
Executive Compensation 22
Security Ownership 22
Certain Relationships 22
Exhibits, Financial Statement Schedules 22
Signatures 27
<PAGE>
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, 1998 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:
Name of each exchange on which
Title of each class registered
- ------------------- ------------------------------
Common stock, par value $0.16 per share New York Stock Exchange
Boston Stock Exchange
There were 3,275,235,004 shares of voting common stock with a par
value of $0.16 outstanding at February 28, 1999. These shares, which constitute
all of the outstanding common equity of the registrant, had an aggregate market
value on March 1, 1999, of $327.6 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 21, 1999, is incorporated by reference
in Part III to the extent described therein.
<PAGE>
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 48 of the 1998 Annual
Report to Share Owners of General Electric Company. The financial section of
such Annual Report to Share Owners (pages 25 through 68 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 1998 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.
GE is one of the largest and most diversified industrial
corporations in the world. GE has engaged in developing, manufacturing and
marketing a wide variety of products for the generation, transmission,
distribution, control and utilization of electricity since its incorporation in
1892. Over the years, GE has developed or acquired new technologies and services
that have broadened considerably the scope of its activities.
GE's products include major appliances; lighting products;
industrial automation products; medical diagnostic imaging equipment; motors;
electrical distribution and control equipment; locomotives; power generation and
delivery products; nuclear power support services and fuel assemblies;
commercial and military aircraft jet engines; and engineered materials, such as
plastics, silicones and superabrasive industrial diamonds.
GE's services include product services; electrical product supply
houses; electrical apparatus installation, engineering, repair and rebuilding
services; and computer-related information services. Through its affiliate, the
National Broadcasting Company, Inc., GE delivers network television services,
operates television stations, and provides cable, Internet and multimedia
programming and distribution services. Through another affiliate, General
Electric Capital Services, Inc., GE offers a broad array of financial and other
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, and
satellite communications.
In virtually all of its global business activities, the Company
encounters aggressive and able competition. 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
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3
banks, thrifts, investment banks, broker-dealers, credit unions, leasing
companies, consumer loan companies, independent finance companies, finance
companies associated with manufacturers, and insurance and reinsurance
companies.
GE has substantial export sales from the United States. In addition,
the Company has expanded significantly its non-U.S. activities through majority,
minority or other joint venture interests in 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 also have expanded considerably over the
past several years.
OPERATING SEGMENTS
The Company's operations are highly decentralized. The basic
organization of the Company's operations consists of 10 key businesses, which
contain management units of differing sizes. At year-end 1998, GE adopted
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which requires segment data
to be measured and analyzed on a basis that is consistent with how business
activities are reported internally to management. The most significant change
from previous 10-K Reports is that restructuring and other special charges are
not included in the measure of segment profit. Previously reported data have
been restated as required by SFAS No. 131.
Revenue and segment profit information about the Company's operating
segments in accordance with SFAS No. 131 is presented on page 36 of the 1998
Annual Report to Share Owners. Additional financial data and commentary on
recent financial results for operating segments are provided on pages 35-40 of
that Report and in note 28 (pages 64 and 65) to the consolidated financial
statements.
Operating businesses that are reported as segments under SFAS No.
131 include Aircraft Engines, Appliances, GECS, Power Systems, Plastics and NBC.
The remaining key businesses do not meet the definition of a reportable segment
and have been aggregated into two operating segments based on common
characteristics of their activities (Industrial Products and Systems, and
Technical Products and Services). The GE All Other segment consists primarily of
revenues derived from licensing use of GE technology to others. For the GECS
segment, revenues and net earnings are presented and analyzed on pages 37-40 by
the five major operating activities in which it conducts its business (consumer
services, equipment management, mid-market financing, specialized 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. A summary description of each of the
Company's operating segments follows.
AIRCRAFT ENGINES
Aircraft Engines (10.2%, 8.6% and 8.0% of consolidated revenues in
1998, 1997 and 1996, 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;
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4
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, 767, DC-10 and MD-11 series, as
well as Airbus Industrie's A300, A310 and A330 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. These aircraft engine derivatives are also reported as
part of the Power Systems segment. Maintenance, overhaul and component repair
services are provided for many models of engines, including engines manufactured
by competitors. The business further expanded its product services operations
through acquisitions in each of the last three years: the overhaul operations of
Varig Airlines in 1998, 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 $1.5 billion at year-end 1998, and had entered into
commitments totaling $1.5 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, 1998.
For current information about Aircraft Engines orders and backlog,
see page 35 of the 1998 Annual Report to Share Owners.
APPLIANCES
Appliances (5.6%, 6.4% and 7.1% of consolidated revenues in 1998,
1997 and 1996, 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, 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. In 1998, a European
appliance distribution affiliate was deconsolidated.
<PAGE>
5
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 1998, the business acquired an
indirect interest in four Latin American appliance companies, further expanding
its activities in Latin America.
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
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 continues to enable the
business to improve the quality of products, reduce waste and provide better
product services. In 1998, the business launched the TrueTemp (TM) gas range,
introduced Monogram bottom mount refrigerators and new Zoneline air
conditioners, upgraded its wall ovens and cooktops and added water heaters to
its growing line of water products. 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.
INDUSTRIAL PRODUCTS AND SYSTEMS
Industrial Products and Systems (11.2%, 12.1% and 13.1% of
consolidated revenues in 1998, 1997 and 1996, respectively) encompasses the
following businesses: Lighting, Transportation Systems, Industrial Systems, and
GE Supply. Products and services provided by each of the businesses in this
segment are sold primarily to industrial customers, including original equipment
manufacturers, industrial end users, utilities, electrical contractors, as well
as to distributors. These businesses compete against a variety of both U.S. and
non-U.S. manufacturers and service providers. Markets for industrial products
and services are diverse, global and highly price competitive. The aggregate
level of economic activity in markets for such products and services generally
lag overall economic slowdowns as well as subsequent recoveries. In the United
States, industrial markets are undergoing significant structural changes
reflecting, among other factors, increased international competition and
pressures to modernize productive capacity. A description of products and
services provided by each of the businesses in this segment follows.
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. Customers
for lighting products are diverse, ranging from household consumers to
commercial and industrial end users and original equipment manufacturers.
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
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6
current (AC) locomotive, which was first introduced at 4,400 horsepower. In
1998, the business began delivering a new 6,000 horsepower AC unit. Product
services include maintenance and repair of locomotives and communications and
logistics systems for locomotive, train and fleet control provided through
GE-Harris Railway Electronics, L.L.C., a joint venture with Harris Corporation.
Information about Transportation Systems orders and backlog is provided on page
35 of the 1998 Annual Report to Share Owners.
Industrial Systems includes electric motors and related products and
services for the appliance, commercial, industrial, heating, air conditioning,
automotive and utility markets; 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; electrical and electronic industrial automation products, including
drive systems, for metal and paper processing, mining, utilities and marine
applications. Product services include engineering, 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. 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), the business offers
a wide range of high-technology industrial automation systems and equipment,
including computer numerical controls and programmable logic controls. In 1998,
GE Fanuc acquired Total Control Products, Inc., strengthening its position in
the emerging market for open control systems.
GE Supply operates a U.S. network of electrical supply houses and,
through its affiliates, has operations in Mexico, Brazil, Argentina and Ireland.
GE Supply offers products of General Electric and other manufacturers to
electrical contractors and to industrial, commercial and utility customers.
NBC
NBC (5.2%, 5.7% and 6.6% of consolidated revenues in 1998, 1997 and
1996, respectively) is principally engaged in the broadcast of network
television services to affiliated television stations within the United States;
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 six cable/satellite networks around the
world, and investment and programming activities in multimedia, the Internet 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, 1998, NBC owned and operated
13 VHF and UHF television stations located in Birmingham, Ala.; Los Angeles,
Calif.; San Diego, Calif.; Hartford, Conn.; Miami, Fla.; Chicago, Ill.;
Columbus, Ohio; New York, NY; Raleigh-Durham, N.C.; Philadelphia, Pa.;
Providence, R.I.; Dallas, TX; 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, CNBC Europe, and
CNBC Asia, as well as equity investments in Arts and Entertainment, American
Movie Classics, Bravo, Prime Network and regional Sports Channels across the
United States. In 1998, NBC acquired a majority ownership position in KXAS, a
television station in Dallas, and an equity stake in Snap, an internet directory
and search services business. 1998 marked the end of a 33-year affiliation with
the National Football League. In 1997, the business entered into a strategic
alliance with Dow Jones that merged the European and Asian business news
services of Dow Jones with those of CNBC and uses Dow Jones editorial resources
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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. NBC also has secured United States television rights to the 2000,
2002, 2004, 2006 and 2008 Olympic Games. 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.
PLASTICS
Plastics (6.6%, 7.4% and 8.2% of consolidated revenues in 1998, 1997
and 1996, 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,
compact disks and optical-quality media, 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. During
1998, the business established two joint ventures with Bayer of Germany. The
first venture, Exatec, is developing polycarbonate automotive glazing technology
and manufacturing systems. The second venture, GE-Bayer Silicones Europe,
strengthens the position of the silicones business in the European region. Also
in 1998, the business neared completion on construction of a new polycarbonate
manufacturing facility in Spain that adds 130,000 metric tons of capacity.
During the year, the business announced plans to build a second plant on the
site that will increase capacity to 260,000 metric tons per year by the year
2002.
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 SYSTEMS
Power Systems (8.4%, 8.7% and 9.7% of consolidated revenues in 1998,
1997 and 1996, respectively) serves utility, industrial and governmental
customers worldwide with electricity generating products, services and energy
management systems. Gas turbines are used principally in power plants for
generation of electricity and for industrial cogeneration and mechanical drive
applications. In 1998, Power Systems acquired 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. Aircraft
engine derivatives, also reported in the Aircraft Engines segment, are used as
industrial power sources. 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 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
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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 is
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 37
of the 1998 Annual Report to Share Owners.
TECHNICAL PRODUCTS AND SERVICES
Technical Products and Services (5.3%, 5.4% and 5.9% of consolidated
revenues in 1998, 1997 and 1996, 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. Product services include remote diagnostic and
repair services for medical equipment manufactured by GE and by others, as well
as computerized data management and customer productivity services. 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 1998,
the business completed three strategic acquisitions: Marquette Medical Systems,
a global leader in diagnostic cardiology and patient monitoring devices,
Diasonics Vingmed Ultrasound, a leading maker of cardiac ultrasound systems, and
Elscint Ltd., which enhances Medical Systems' position in the nuclear imaging
and magnetic resonance imaging segments. In 1997, the business acquired Lockheed
Martin Medical Systems and a 20% stake in ALI, a leader in ultrasound image
archiving. See page 37 of the 1998 Annual Report to Share Owners for information
about orders and backlog of GE Medical Systems.
Business-to-business electronic commerce solutions are provided to
over 100,000 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.
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ALL OTHER GE
All Other GE (0.3%, 0.3% and 0.4% of consolidated revenues in 1998,
1997 and 1996, respectively) consists mostly of income from licensing the use of
GE technology and patents to others. As discussed in note 2 of the 1998 Annual
Report to Share Owners, effective on January 1, 1999 GE transferred certain
licenses and intellectual property pursuant to an agreement to sell the former
RCA Consumer Electronics business.
GECS
GECS (48.5%, 44.0% and 41.3% of consolidated revenues in 1998, 1997
and 1996, respectively) consists of 28 businesses that, for purposes of
analysis, are grouped into five operating activities: consumer services,
equipment management, mid-market financing, specialized financing and specialty
insurance. Very little of the financing provided by GECS businesses involves
products that are manufactured by GE.
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 1998,
1997 and 1996, respectively, were 1.50, 1.48 and 1.53, 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.
A description of principal businesses included in each of GECS five
operating activities follows.
Consumer Services
GE Financial Assurance ("GEFA") provides consumers financial
security solutions by selling a wide variety of insurance, investment and
retirement products, primarily in the United States and Japan. These products
help consumers accumulate wealth, transfer wealth, and protect their lifestyles
and assets and are sold through a family of regulated insurance and annuity
companies. GEFA's principal product lines are annuities (deferred and immediate;
either fixed or variable), life insurance (universal, term, ordinary and group),
guaranteed investment contracts, mutual funds, long-term care insurance,
supplemental accident and health insurance, personal lines of automobile
insurance and credit insurance. The distribution of these products is
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accomplished through four distribution methods: intermediaries (brokerage
general agents, banks, securities brokerage firms, personal producing general
agents and specialized brokers), career or dedicated sales forces, marketing
through businesses and affinity groups and direct marketing. In 1998, GEFA
acquired the infrastructure and sales force of Toho Mutual Life, establishing a
major presence in the life insurance business in Japan.
GE Capital Auto Financial Services ("AFS") is a full service
provider of automobile financing for automobile dealers, manufacturers and their
customers in North America, and, to a lesser extent, Asia. In the United States,
AFS is one of the leading independent auto lessors for new and used lease
financing and, to a much lesser degree, sub-prime and prime retail financing to
customers. AFS also provides private-label financing for American Isuzu Motors,
Inc. and participates in a private-label purchase program with Volvo of North
America. In addition, AFS offers inventory financing programs and direct loans
to segments of the automotive industry, including dealers and finance companies.
AFS' Asian activities include affiliates in Taiwan, Hong Kong, Thailand and
Japan. AFS also maintains additional presence in Asia through equity investments
in Indonesia, Taiwan, Singapore, Malaysia, Korea, and India.
GE Capital Auto Financial Services Europe ("AFS Europe") is a
leading independent provider of automobile financing products to automobile
dealers and their customers in Europe. Products include hire purchase, finance
leases, loans and insurance premium financing. AFS Europe has a significant
presence in 13 countries throughout Western and Central Europe including the
United Kingdom, Ireland, Portugal, France, Spain, Italy, Sweden, Denmark,
Poland, Czech Republic, Hungary, Switzerland and Austria.
GE Card Services ("CS") provides sales financing services to North
American retailers in a broad range of consumer industries. Details of financing
plans differ, but include customized private-label credit card programs with
retailers and inventory financing programs with manufacturers, distributors and
retailers. CS provides financing directly to customers of retailers or purchases
the retailers' customer receivables. Most of the retailers sell a variety of
products of various manufacturers on a time sales basis. The terms for these
financing plans differ according to the size of contract and credit standing of
the customer. CS generally maintains a security interest in the merchandise
financed. Financing is provided to consumers under contractual arrangements,
both with and without recourse to retailers. The wide range of financial
services provided by CS includes application processing, sales authorization,
statement billings, customer services and collection services. CS provides
inventory financing for retailers primarily in the appliance and consumer
electronics industries. CS maintains a security interest in the inventory and
retailers are obliged to maintain insurance coverage for the merchandise
financed. CS also provides and services MasterCard and Visa credit card loan
products issued to retail customers throughout the United States. These loans
originate through loan portfolio acquisitions, direct mail campaigns,
private-label credit card loan conversions, telemarketing efforts and
point-of-sale applications. CS also issues and services the GE Capital Corporate
Card product, providing payment and information systems which help medium and
large-sized companies reduce travel costs, and the GE Capital Purchasing Card
product, which helps customers streamline their purchasing and accounts payable
processes. CS has a noncontrolling interest in Montgomery Ward Holding Corp.
(MWHC), a retail organization, and certain other service and financial services
organizations. As discussed on page 40 of the 1998 Annual Report to Share
Owners, MWHC filed a bankruptcy petition for reorganization in 1997 and has
announced plans to emerge from bankruptcy protection in 1999. CS also provides
financing to customers of MWHC and affiliates.
GE Capital Global Consumer Finance ("GCF") is a leading provider of
credit services to non-U.S. retailers and consumers. GCF provides private-label
credit cards and proprietary credit services to retailers in Europe, Asia, and,
to a lesser extent, South America as well as offering a variety of
direct-to-consumer credit programs such as consumer loans, bankcards and credit
insurance. GCF's wide range of proprietary financial services includes
private-label credit cards, credit promotion and accounting services, billing
<PAGE>
11
(in the retailer's name) and customer credit and collection services. During
1998, GCF expanded its global presence through acquisitions including Agrobanka
in the Czech Republic, Prokredit Ltd. in Switzerland, and Koei Credit and Lake
Finance in Japan. In addition, GCF launched a bankcard joint venture in India
and a retail financing joint venture in Brazil. GCF provides financing to
consumers through operations in the United Kingdom, Austria, France, Ireland,
Germany, The Netherlands, Italy, Spain, Portugal, Poland, Switzerland, Czech
Republic, Japan, Thailand, Hong Kong, China, Brazil and Australia and joint
ventures in Indonesia, India and Brazil.
GE Capital Mortgage Services, Inc. ("GECMSI"), a wholly-owned
affiliate of GE Capital Mortgage Corporation, is engaged primarily in the
business of originating, purchasing, selling and servicing residential mortgage
loans collateralized by one-to-four-family homes located throughout the United
States. GECMSI obtains servicing through the origination and purchase of
mortgage loans and servicing rights, and primarily packages the loans it
originates and purchases into mortgage-backed securities, which it sells to
investors. GECMSI also originates and services home equity loans.
Equipment Management
GE Capital Aviation Services ("GECAS") is a global commercial
aviation financial services business that offers a broad range of financial
products to airlines and aircraft operators, owners, lenders and investors.
Financial products include financing leases, operating leases, and
tax-advantaged and other incentive-based financing. GECAS also provides asset
management, marketing, and technical support services to aircraft owners,
lenders and investors. GECAS has firm orders and options for more than 250 new
Boeing and Airbus aircraft with deliveries scheduled through 2006. GECAS current
fleet comprises 850 owned and managed aircraft leased to more than 175 customers
in 58 countries. During 1998, GECAS acquired a commercial aviation training
business from Raytheon Company. The training facility, located at London's
Gatwick airport, operates a wide range of full-flight motion simulators to train
commercial pilots and serves more than 100 airlines.
GE Capital Fleet Services ("GECFS") is one of the leading corporate
fleet management companies with operations in North America, Europe, Australia,
New Zealand, Brazil and Japan with approximately 950,000 cars and trucks under
lease and service management. The primary product in North America is a Terminal
Rental Adjustment Clause (TRAC) lease through which the customer assumes the
residual risk - that is, risk that the book value will be greater than market
value at lease termination. In Europe, the primary product is a closed-end lease
in which GECFS assumes residual risk. In addition to the services directly
associated with the lease, GECFS offers value-added fleet management services
designed to reduce customers' total fleet management costs. These services
include, among others, maintenance management programs, accident services,
national account purchasing programs, fuel programs and title and licensing
services. GECFS customer base is diversified with respect to industry and
geography and includes many Fortune 500 companies. In 1998, GECFS expanded its
fleet management services with acquisitions of fleet logistics businesses in the
United Kingdom, The Netherlands, Brazil and New Zealand.
GE Capital Information Technology Solutions ("IT Solutions") is a
leading worldwide provider of a broad array of information technology products
and services, including full life cycle services that provide customers with
cost-effective control and management of their information systems. Products
offered include desktop personal computers, client server systems, UNIX systems,
local and wide area network hardware, and software. Services offered include
network design, network support, asset management, help desk, disaster recovery,
enterprise management and financial services. IT Solutions serves commercial,
educational and governmental customers in over 20 countries.
<PAGE>
12
Transport International Pool ("TIP") is one of the global leaders in
renting, leasing, selling and financing transportation equipment. TIP's fleet of
over 260,000 dry freight, refrigerated and double vans, flatbeds, intermodal
assets, and specialized trailers is available for rent, lease or purchase at
over 240 locations in the United States, Europe, Canada, and Mexico. TIP's
commercial vehicle fleet of over 25,000 units is available for rent, lease, or
purchase in the United Kingdom. TIP also finances new and used trailers and buys
trailer fleets. During 1998, TIP acquired the operating assets of Trailer
Leasing Co., Inc., a trailer rental and leasing company in the United States.
TIP also acquired a majority interest in Bay Cities Leasing LLC, a United States
entity predominately doing business as a lessor of intermodal equipment. TIP's
customer base comprises trucking companies, railroads, shipping lines,
manufacturers and retailers.
In May 1998, GE Capital and Sea Containers Ltd. formed GE SeaCo SRL
("GE SeaCo"), a joint venture which operates the combined marine container
fleets of Genstar Container Corporation ("Genstar") and Sea Containers. GE SeaCo
is one of the world's largest lessors of marine shipping containers with a
combined fleet of over 1,100,000 TEU ("twenty-foot equivalent units") of
dry-cargo, refrigerated and specialized containers for global cargo transport.
Lessees are primarily shipping lines, which lease on a long-term or master lease
basis. Concurrent with the formation of the joint venture, GE Capital Container
Finance Corporation ("GECCF") was created to service the existing finance lease
portfolio formerly run by Genstar, and to provide traditional finance leases and
structured finance products to the global marine container industry.
GE Capital is a limited partner in Penske Truck Leasing ("Penske"),
which operates the second largest full-service truck leasing business and one of
the largest commercial and consumer truck rental businesses in the United
States. Penske operates through a national network of full-service truck leasing
and rental facilities. At December 31, 1998, Penske had a fleet of about 78,000
tractors, trucks and trailers in its leasing and rental fleets and provided
contract maintenance programs or other support services for about 32,000
additional vehicles. Penske also provides dedicated logistics operations
support, which combines company-employed drivers with its full-service lease
vehicles to provide dedicated contract carriage services. In addition, Penske
offers supply chain services such as distribution consulting, warehouse
management and information systems support.
GE American Communications ("GE Americom") is a leading satellite
service supplier to a diverse array of customers, including the broadcast and
cable TV industries, broadcast radio, business information and integrated
communications services for government and commercial customers. GE Americom
operates 13 communications satellites and maintains a supporting network of
earth stations, central terminal offices, and telemetry, tracking and control
facilities.
GE Capital Railcar Services ("GERSCO") is one of the leading railcar
leasing companies in North America, with a fleet of 186,000 railcars in its
total portfolio. Serving Class 1 railroads, short-line railroads, and shippers
throughout North America, GERSCO offers one of the most diverse fleets in the
industry, and a variety of lease options. GERSCO also owns and operates a
network of railcar repair and maintenance facilities located throughout North
America. The repair facilities offer a variety of services, ranging from light
maintenance to heavy repair of damaged railcars. The company also provides
railcar management, administration and other services. In addition, GERSCO is a
pan-European provider of rail transport services, offering a broad range of
railcar equipment and rail-related services to railroads, shippers and other
transport providers.
<PAGE>
13
GE Capital Modular Space ("GECMS") provides commercial mobile and
modular structures for rental, lease and sale from over 100 facilities in the
United States, Europe, Canada and Mexico. The primary markets served include
construction, education, healthcare, financial, commercial, institutional and
government. GECMS products are available as custom mobile and modular buildings,
designed to customer specifications, or are available through the GECMS stock
fleet of approximately 120,000 mobile and modular units. During 1998, GECMS
continued its European growth through the acquisition of certain units of the
modular structure business of MVS GmbH. This acquisition doubled the size of the
European fleet to approximately 50,000 units.
Mid-market Financing
GE Capital Commercial Equipment Financing ("CEF") offers a broad
line of financial products including leases and loans to middle-market
customers, including manufacturers, distributors, dealers and end-users, as well
as municipal financing. Products are either held for CEF's own account or
brokered to third parties. Generally, transactions range in size from $50
thousand to $50 million, with financing terms from 36 to 180 months. CEF also
maintains an asset management operation that both redeploys off-lease equipment
and monitors asset values. The portfolio includes loans and leases for vehicles,
manufacturing equipment, corporate aircraft, construction equipment, medical
diagnostic equipment, office equipment, telecommunications equipment and
electronics.
GE Capital Vendor Financial Services ("VFS") provides financing
services to over 90 equipment manufacturers and more than 3,500 dealers in North
America, Europe and Asia. Customers include major U.S. and foreign manufacturers
in a variety of industries including information technology, office equipment,
healthcare, telecommunications, energy and industrial equipment. VFS establishes
sales financing in two ways - by forming captive partnerships with manufacturers
that do not have them, and by outsourcing captives from manufacturers that do.
VFS offers industry-specific knowledge, leading edge technology, leasing and
equipment expertise, and global capabilities. In addition, VFS provides an
expanding array of related financial services to customers including trade
payables financing.
GE Capital European Equipment Finance ("EEF") is one of Europe's
leading diversified equipment leasing businesses, offering financial solutions
on a single-country or pan-European basis. Customers include manufacturers,
vendors and end-users in industries such as office imaging, materials handling,
corporate aircraft, information technology, broadcasting, machine tools,
telecommunications and transportation. Products and services include loans,
leases, off-balance sheet financing, master lease coordination and other
services, such as helping end-users increase purchasing power through financing
options and helping manufacturers and vendors offer leasing programs.
Specialized Financing
GE Capital Real Estate ("Real Estate") provides funds for the
acquisition, refinancing and renovation of a wide range of commercial and
residential properties located throughout the United States, and, to a lesser
extent, in Canada, Mexico, Europe, and the Far East. Real Estate also provides
asset management services to real estate investors and selected services to real
estate owners. Lending is a major portion of Real Estate's business in the form
of intermediate-term senior or subordinated fixed and floating-rate loans
secured by existing income-producing commercial properties such as office
buildings, rental apartments, shopping centers, industrial buildings, mobile
home parks, hotels and warehouses. Loans range in amount from single-property
mortgages typically not less than $5 million to multi-property portfolios of
several hundred million dollars. Approximately 90% of all loans are senior
mortgages. Real Estate purchases and provides restructuring financing for
portfolios of real estate, mortgage loans, limited partnerships, and tax-exempt
bonds. Real Estate's business also includes the origination and securitization
<PAGE>
14
of low leverage real estate loans, which are intended to be held less than one
year before outplacement. To a lesser degree, Real Estate provides equity
capital for real estate partnerships through the holding of limited partnership
interests and receives preferred returns; typically such investments range from
$2 million to $10 million. Real Estate also offers a variety of real estate
management services to outside investors, institutions, corporations, investment
banks, and others through its real estate services subsidiaries. Asset
management services include acquisitions and dispositions, strategic asset
management, asset restructuring, and debt and equity management. Real Estate
also provides investment products and advisory and asset management services to
pension fund clients through GE Capital Investment Advisors, its registered
investment advisor, as well as loan administration and servicing through GE
Capital Asset Management. In addition, Real Estate offers owners of multi-family
housing ways to reduce costs and enhance value in properties by offering buying
services (e.g., for appliances, roofing).
GE Capital Structured Finance Group ("SFG") provides specialized
financial products and services to clients in the commercial and industrial,
communications, energy, and transportation sectors, worldwide. SFG combines
industry and technical expertise with significant financial capabilities to
deliver a full range of sophisticated financial services and products. Services
include project finance (construction and term), corporate finance, acquisition
finance and arrangement and placement services. Products include a variety of
debt and equity instruments, as well as structured transactions, including
leasing and partnerships.
GE Capital Commercial Finance ("CF") is a leading provider of
revolving and term debt and equity to finance acquisitions, business expansion,
bank refinancings, recapitalizations and other special situations. Products also
include asset securitization facilities, capital expenditure lines and
bankruptcy-related facilities. Transactions typically range in size from under
$5 million to over $200 million. CF's clients are owners, managers and buyers of
both public and private companies, principally manufacturers, distributors,
retailers and diversified service providers in the healthcare, retail and
communications industries. Through its Merchant Banking Group, CF provides
senior debt, subordinated debt and bridge financing to buyout and private equity
firms, and co-invests equity with buying groups or invests directly on a select
basis.
GE Equity, formerly GE Capital Equity Capital Group, purchases
equity investments, primarily convertible preferred and common stock investments
including, in some cases, stock warrants convertible into equity ownership. GE
Equity's primary objective is long-term capital appreciation. Investments
include the retail, financial services, healthcare, food and beverage, cable and
broadcasting industries. The portfolio is geographically diversified with
investments located throughout the United States, as well as in Latin America,
Europe and Asia.
Specialty Insurance
GE Global Insurance, together with its affiliates, writes
substantially all lines of reinsurance and certain lines of property and
casualty insurance. GE Global Insurance has two principal subsidiaries,
Employers Reinsurance Corporation and Kemper Reinsurance Company. These
affiliates, together with their direct and indirect subsidiaries, reinsure
property and casualty risks written by more than 1,000 insurers around the
world. They also write certain specialty lines of insurance on a direct basis,
principally excess workers' compensation for self-insurers, medical malpractice
coverage for physicians and dentists, errors and omissions coverage for
insurance 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. The life reinsurance affiliates are engaged in the reinsurance of life
insurance products, including term, whole and universal life, annuities, group
long-term health products and the provision of financial reinsurance to life
insurers.
<PAGE>
15
FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty
Insurance Company ("Financial Guaranty"), is an insurer of municipal bonds,
including new issues, bonds traded in the secondary market and bonds held in
unit investment trusts and mutual funds. Financial Guaranty also guarantees
certain taxable structured debt. The guaranteed principal, after reinsurance,
amounted to approximately $131 billion at December 31, 1998. Approximately 86%
of the business written to date by Financial Guaranty is municipal bond
insurance. FGIC subsidiaries provide a variety of services to state and local
governments and agencies, liquidity facilities in variable-rate transactions,
municipal investment products and other services.
GE Capital Mortgage Insurance is engaged principally in providing
residential mortgage guaranty insurance. Operating in 25 field locations, GE
Capital Mortgage Insurance is licensed in 50 states, the District of Columbia
and the Virgin Islands. At December 31, 1998, GE Capital Mortgage Insurance was
the mortgage insurance carrier for over 1,480,000 residential homes, with total
insurance in force aggregating approximately $153 billion and total risk in
force aggregating approximately $42 billion. GE Capital Mortgage Insurance also
provides mortgage guaranty insurance in the United Kingdom, Canada, and
Australia.
GE Insurance Holdings (formerly Consolidated Financial Insurance) is
a leading specialty insurer with operations in 13 European countries, Australia
and the Philippines. GE Insurance Holdings is one of the leading payment
protection insurers in the United Kingdom and Europe. Payment protection
insurance is designed to protect customers' loan repayment obligations in the
event of unemployment, disability or death. The product is sold alongside most
forms of consumer credit through banks, building societies and finance houses.
GE Insurance Holdings also provides an extensive range of personal investment
products, including pension and purchased life annuities, home income plans and
investment bonds through a network of over 6,000 independent financial advisors
and a direct sales force, in the United Kingdom. In addition, GE Insurance
Holdings sells insurance administration services for extended product warranty
insurance and pet insurance, provides travel and personal accident insurance,
and offers the management of uninsured loss claims on behalf of victims of
traffic accidents.
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 66 of the 1998 Annual Report to Share Owners.
Additional financial data about GE's exports from the U.S. and total
international operations are on pages 40 and 41 of the 1998 Annual Report to
Share Owners.
ORDERS BACKLOG
See pages 35, 37 and 46 of the 1998 Annual Report to Share Owners
for information about GE's backlog of unfilled orders.
RESEARCH AND DEVELOPMENT
Total expenditures for research and development were $1,930 million
in 1998. Total expenditures had been $1,891 million in 1997 and $1,886 million
in 1996. Of these amounts, $1,537 million in 1998 was GE-funded ($1,480 million
in 1997 and $1,421 million in 1996); and $393 million in 1998 was funded by
customers ($411 million in 1997 and $465 million in 1996), principally the U.S.
government. Aircraft Engines accounts for the largest share of GE's research and
<PAGE>
16
development expenditures from both GE and customer funds. Medical Systems, Power
Systems, Transportation Systems and Plastics made other significant expenditures
of GE and customer research and development funds.
Approximately 8,000 person-years of scientist and engineering effort
were devoted to research and development activities in 1998, with about 87% of
the time involved primarily in GE-funded activities.
ENVIRONMENTAL MATTERS
See pages 46 and 60 of GE's 1998 Annual Report to Share Owners for a
discussion of environmental matters.
EMPLOYEE RELATIONS
At year-end 1998, General Electric Company and consolidated
affiliates employed 293,000 persons, of whom approximately 163,000 were in the
United States. For further information about employees, see page 47 of the 1998
Annual Report to Share Owners.
Approximately 35,000 GE manufacturing, engineering and service
employees in the United States are represented for collective bargaining
purposes by a total of approximately 165 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.
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 operating segment is
substantially dependent on any single patent or group of related patents.
<PAGE>
17
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
----------------- ----------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Total sales to U.S. Government Agencies 2% 2% 3% 4% 3% 4%
Aircraft Engines defense-related sales 1 2 2 3 3 3
ITEM 2. PROPERTIES
Manufacturing operations are carried out at approximately 125
manufacturing plants located in 30 states in the United States and Puerto Rico
and at some 155 manufacturing plants located in 30 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
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. Cash,
Gonzalez, Jung, Langone, 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
<PAGE>
18
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.
ENVIRONMENTAL
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 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 August 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 was
settled on November 6, 1998, for $36,270 plus a supplemental wastewater
treatment project.
For further information regarding environmental matters, see pages
46 and 60 of GE's 1998 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 financial position,
results of operations, liquidity or competitive position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
19
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
- --------------------------------------------------------------------------------
1998
Fourth quarter $103 15/16 $69 $.35
Third quarter 96 7/8 72 5/8 .30
Second quarter 92 80 11/16 .30
First quarter 87 5/8 70 1/4 .30
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 54 3/16 47 15/16 .26
- --------------------------------------------------------------------------------
As of December 31, 1998, there were about 543,000 share owner
accounts of record.
<PAGE>
20
ITEM 6. SELECTED FINANCIAL DATA
Reported as data for revenues; earnings from continuing operations;
earnings from continuing operations per share; loss from discontinued
operations; 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 47 of the 1998 Annual Report to Share
Owners.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reported on pages 33-35 and 37-46 (and graphs on pages 25, 33, 34,
37, 38, 39 and 40-46) of the Annual Report to Share Owners for the fiscal year
ended December 31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reported on pages 43-44 of the Annual Report to Share Owners for the
fiscal year ended December 31, 1998.
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.
<PAGE>
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Executive Officers of the Registrant (As of March 25, 1999)
<TABLE>
<CAPTION>
Date assumed
Executive Officer
Name Position Age position
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John F. Welch, Jr. Chairman of the Board and Chief
Executive Officer 63 April 1981
Philip D. Ameen Vice President and Comptroller 50 April 1994
James R. Bunt Vice President and Treasurer 57 January 1993
David L. Calhoun Senior Vice President, GE Lighting 41 June 1995
William J. Conaty Senior Vice President, Human Resources 53 October 1993
David M. Cote Senior Vice President, GE Appliances 46 June 1996
Dennis D. Dammerman Vice Chairman of the Board and Executive
Officer 53 March 1984
Lewis S. Edelheit Senior Vice President, Research and
Development 56 November 1992
Benjamin W. Heineman, Jr. Senior Vice President, General Counsel
and Secretary 55 September 1987
Jeffrey R. Immelt Senior Vice President, GE Medical Systems 43 January 1997
Goran S. Malm Senior Vice President, GE Asia-Pacific 52 October 1997
W. James McNerney, Jr. Senior Vice President, GE Aircraft Engines 49 January 1992
Eugene F. Murphy Vice Chairman of the Board and Executive
Officer 63 October 1986
Robert L. Nardelli Senior Vice President, GE Power Systems 50 February 1992
Robert W. Nelson Vice President, Financial Planning
and Analysis 58 September 1991
John D. Opie Vice Chairman of the Board and Executive
Officer 61 August 1986
Gary M. Reiner Senior Vice President, Chief Information
Officer 44 January 1991
John G. Rice Vice President, GE Transportation 42 September 1997
Gary L. Rogers Senior Vice President, GE Plastics 54 December 1989
Keith S. Sherin Senior Vice President, Finance, and
Chief Financial Officer 40 December 1998
Lloyd G. Trotter Senior Vice President, GE Industrial Systems 53 November 1992
</TABLE>
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.
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 21, 1999.
<PAGE>
22
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 21, 1999.
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 21, 1999.
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 21, 1999.
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, 1998.
Annual 10-K
Report Report
Page(s) Page(s)
------- -------
Statement of earnings for the years
ended December 31, 1998, 1997 and 1996 26 F-2
Consolidated statement of changes in
share owners' equity for the years ended
December 31, 1998, 1997 and 1996 26 F-2
Statement of financial position at
December 31, 1998 and 1997 28 F-4
Statement of cash flows for the years
ended December 31, 1998, 1997 and 1996 30 F-6
Independent Auditors' Report 32 F-8
Other financial information:
Notes to consolidated financial statements 48-68 F-24 to F-44
Operating segment information 35-40 F-11 to F-16
64-65 F-40 to F-41
Geographic segment information 66 F-42
Operations by quarter (unaudited) 68 F-44
<PAGE>
23
(a)2. The schedules listed in Reg. 210.5-04 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.*
(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
<PAGE>
24
(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.)
(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) 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.)
(o) 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.)
(p) 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.)
(q) 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.)
(r) 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.)
<PAGE>
25
(s) General Electric 1997 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, 1997.)
(t) General Electric 1990 Long Term Incentive Plan as restated and
amended effective August 1, 1997. (Incorporated by reference
to Exhibit 10(u) to General Electric Annual Report on Form
10-K (Commission file number 1-35) for the fiscal year ended
December 31, 1997.)
(u) General Electric Deferred Compensation Plan for Directors, as
amended December 19, 1997. (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, 1997.)
(v) General Electric 1998 Executive Deferred Salary Plan.*
(w) General Electric Non-Employee Director Fee Plan (Formerly the
Deferred Compensation Plan for Directors).*
(11) Statement re Computation of Per Share Earnings.**
(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, 33-39596, 33-39596-01,
33-47085, 33-50639, 33-61029, 33-61029-01, 333-46551 and 333-59671),
on Form S-4 (Registration Nos. 333-01947 and 333-74417) and on Form
S-8 (Registration Nos. 2-84145, 33-35922, 333-01953, 333-23767,
333-42695 and 333-74415).*
(24) Power of Attorney.*
(27) Financial Data Schedule.*
(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.)
<PAGE>
26
(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 share 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 1998 Annual Report to Share Owners in accordance
with the provisions of FASB Statement of Financial Accounting
Standards (SFAS) No. 128, EARNINGS PER SHARE.
(b) Reports on Form 8-K during the quarter ended December 31, 1998.
No reports on Form 8-K were filed during the quarter ended December
31, 1998.
<PAGE>
27
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K for the fiscal year ended December 31, 1998, 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 25th day of March 1999.
General Electric Company
(Registrant)
By Keith S. Sherin
-----------------------------------
Senior Vice President, Finance, and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
28
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
------ ----- ----
Keith S. Sherin
- -------------------------------
Senior Vice President, Finance, Principal Financial Officer March 25, 1999
and Chief Financial Officer
Philip D. Ameen
- -------------------------------
Vice President and Comptroller Principal Accounting Officer March 25, 1999
John F. Welch, Jr.* Chairman of the Board of Directors
(Principal Executive Officer)
Dennis D. Dammerman* Director
Paolo Fresco* Director
Claudio X. Gonzalez* Director
Kenneth G. Langone* Director
Eugene F. Murphy* Director
Sam Nunn* Director
John D. Opie* Director
Roger S. Penske* 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 25, 1999
<PAGE>
F-1
ANNUAL REPORT PAGE 25
- ---------------------
FINANCIAL SECTION
CONTENTS
32 INDEPENDENT AUDITORS' REPORT
AUDITED FINANCIAL STATEMENTS
26 Earnings
26 Changes in Share Owners' Equity
28 Financial Position
30 Cash Flows
48 Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION
32 Financial Responsibility
33 Operations
33 Consolidated Operations
35 Segment Operations
40 International Operations
42 Financial Resources and Liquidity
46 Selected Financial Data
[CHART HERE]
CONSOLIDATED REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$60.109 $70.028 $79.179 $90.840 $100.469
- -----------------------------------------------------------------------------
[CHART HERE]
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
- -----------------------------------------------------------------------------
(IN DOLLARS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$1.71 $1.93 $2.16 $2.46 $2.80
- -----------------------------------------------------------------------------
[CHART HERE]
DIVIDENDS DECLARED PER SHARE
- -----------------------------------------------------------------------------
(IN DOLLARS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$0.745 $0.845 $0.95 $1.08 $1.25
- -----------------------------------------------------------------------------
<PAGE>
F-2
ANNUAL REPORT PAGE 26
- ---------------------
<TABLE>
STATEMENT OF EARNINGS
<CAPTION>
General Electric Company
and consolidated affiliates
----------------------------------
For the years ended December 31 (In millions;
per-share amounts in dollars) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales of goods $ 43,749 $ 40,675 $ 36,106
Sales of services 14,938 12,729 11,791
Other income (note 2) 649 2,300 638
Earnings of GECS -- -- --
GECS revenues from services (note 3) 41,133 35,136 30,644
----------------------------------
Total revenues 100,469 90,840 79,179
----------------------------------
COSTS AND EXPENSES (note 4)
Cost of goods sold 31,772 30,889 26,298
Cost of services sold 10,508 9,199 8,293
Interest and other financial charges 9,753 8,384 7,904
Insurance losses and policyholder and annuity benefits 9,608 8,278 6,678
Provision for losses on financing receivables (note 7) 1,609 1,421 1,033
Other costs and expenses 23,477 21,250 17,898
Minority interest in net earnings of consolidated affiliates 265 240 269
----------------------------------
Total costs and expenses 86,992 79,661 68,373
----------------------------------
EARNINGS BEFORE INCOME TAXES 13,477 11,179 10,806
Provision for income taxes (note 8) (4,181) (2,976) (3,526)
----------------------------------
NET EARNINGS $ 9,296 $ 8,203 $ 7,280
===================================================================================================
PER-SHARE AMOUNTS (note 9)
Diluted earnings per share $ 2.80 $ 2.46 $ 2.16
Basic earnings per share $ 2.84 $ 2.50 $ 2.20
- ---------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ 1.25 $ 1.08 $ 0.95
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
F-3
ANNUAL REPORT PAGE 27
- ---------------------
<TABLE>
STATEMENT OF EARNINGS (continued)
<CAPTION>
GE GECS
For the years ended December 31 (In millions; ------------------------------ -------------------------------
per-share amounts in dollars) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales of goods $ 36,376 $ 36,059 $ 34,196 $ 7,374 $ 4,622 $ 1,926
Sales of services 15,170 12,893 11,923 -- -- --
Other income (note 2) 684 2,307 629 -- -- --
Earnings of GECS 3,796 3,256 2,817 -- -- --
GECS revenues from services (note 3) -- -- -- 41,320 35,309 30,787
------------------------------- -------------------------------
Total revenues 56,026 54,515 49,565 48,694 39,931 32,713
------------------------------- -------------------------------
COSTS AND EXPENSES (note 4)
Cost of goods sold 24,996 26,747 24,594 6,777 4,147 1,720
Cost of services sold 10,740 9,363 8,425 -- -- --
Interest and other financial charges 883 797 595 8,966 7,649 7,326
Insurance losses and policyholder and annuity benefits -- -- -- 9,608 8,278 6,678
Provision for losses on financing receivables (note 7) -- -- -- 1,609 1,421 1,033
Other costs and expenses 7,177 7,476 6,274 16,426 13,893 11,741
Minority interest in net earnings of consolidated affiliates 117 119 102 148 121 167
------------------------------- -------------------------------
Total costs and expenses 43,913 44,502 39,990 43,534 35,509 28,665
------------------------------- -------------------------------
EARNINGS BEFORE INCOME TAXES 12,113 10,013 9,575 5,160 4,422 4,048
Provision for income taxes (note 8) (2,817) (1,810) (2,295) (1,364) (1,166) (1,231)
------------------------------- -------------------------------
NET EARNINGS $ 9,296 $ 8,203 $ 7,280 $ 3,796 $ 3,256 $ 2,817
====================================================================================================================================
<FN>
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.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY
<CAPTION>
-------------------------------
(In millions) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGES IN SHARE OWNERS' EQUITY
Balance at January 1 $ 34,438 $ 31,125 $ 29,609
-------------------------------
Dividends and other transactions with share owners (note 25) (5,178) (5,615) (5,318)
-------------------------------
Changes other than transactions with share owners
Increases attributable to net earnings 9,296 8,203 7,280
Unrealized gains (losses) on investment securities-- net (note 25) 264 1,467 (329)
Currency translation adjustments (note 25) 60 (742) (117)
-------------------------------
Total changes other than transactions with share owners 9,620 8,928 6,834
-------------------------------
Balance at December 31 $ 38,880 $ 34,438 $ 31,125
======================================================================================================
<FN>
The notes to consolidated financial statements on pages 48-68 are an integral
part of these statements.
</FN>
</TABLE>
<PAGE>
F-4
ANNUAL REPORT PAGE 28
- ---------------------
<TABLE>
STATEMENT OF FINANCIAL POSITION
<CAPTION>
General Electric Company
and consolidated affiliates
---------------------------
At December 31 (In millions) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 4,317 $ 5,861
Investment securities (note 10) 78,717 70,621
Current receivables (note 11) 8,224 8,924
Inventories (note 12) 6,049 5,895
Financing receivables (investments in time sales, loans and
financing leases) -- net (notes 7 and 13) 121,566 103,799
Other GECS receivables (note 14) 24,789 17,655
Property, plant and equipment (including equipment leased
to others) -- net (note 15) 35,730 32,316
Investment in GECS -- --
Intangible assets -- net (note 16) 23,635 19,121
All other assets (note 17) 52,908 39,820
---------------------------
TOTAL ASSETS $ 355,935 $ 304,012
===========================================================================================
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 115,378 $ 98,075
Accounts payable, principally trade accounts 12,502 10,407
Progress collections and price adjustments accrued 2,765 2,316
Dividends payable 1,146 979
All other GE current costs and expenses accrued (note 18) 9,788 8,891
Long-term borrowings (note 19) 59,663 46,603
Insurance liabilities, reserves and annuity benefits (note 20) 77,259 67,270
All other liabilities (note 21) 24,939 22,700
Deferred income taxes (note 22) 9,340 8,651
---------------------------
Total liabilities 312,780 265,892
---------------------------
Minority interest in equity of consolidated
affiliates (note 23) 4,275 3,682
---------------------------
Accumulated unrealized gains on investment securities-- net (a) 2,402 2,138
Accumulated currency translation adjustments (a) (738) (798)
Common stock (3,271,296,000 and 3,264,592,000 shares outstanding
at year-end 1998 and 1997, respectively) 594 594
Other capital 6,808 4,434
Retained earnings 48,553 43,338
Less common stock held in treasury (18,739) (15,268)
---------------------------
Total share owners' equity (notes 25 and 26) 38,880 34,438
---------------------------
TOTAL LIABILITIES AND EQUITY $ 355,935 $ 304,012
===========================================================================================
<FN>
The notes to consolidated financial statements on pages 48-68 are an integral
part of this statement.
(a) The sum of accumulated unrealized gains on investment securities and
accumulated currency translation adjustments constitutes "Accumulated
nonowner changes other than earnings," as shown in note 25, and was $1,664
million and $1,340 million at year-end 1998 and 1997, respectively.
</FN>
</TABLE>
<PAGE>
F-5
ANNUAL REPORT PAGE 29
- ---------------------
<TABLE>
STATEMENT OF FINANCIAL POSITION (continued)
<CAPTION>
GE GECS
------------------------ ----------------------
At December 31 (In millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,175 $ 1,157 $ 3,342 $ 4,904
Investment securities (note 10) 259 265 78,458 70,356
Current receivables (note 11) 8,483 9,054 -- --
Inventories (note 12) 5,305 5,109 744 786
Financing receivables (investments in time sales, loans and
financing leases) -- net (notes 7 and 13) -- -- 121,566 103,799
Other GECS receivables (note 14) -- -- 25,973 18,332
Property, plant and equipment (including equipment leased
to others) -- net (note 15) 11,694 11,118 24,036 21,198
Investment in GECS 19,727 17,239 -- --
Intangible assets -- net (note 16) 9,996 8,755 13,639 10,366
All other assets (note 17) 18,031 14,729 35,539 25,667
------------------------ ----------------------
TOTAL ASSETS $ 74,670 $ 67,426 $ 303,297 $ 255,408
====================================================================================================================================
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 3,466 $ 3,629 $ 113,162 $ 95,274
Accounts payable, principally trade accounts 4,845 4,779 8,815 6,490
Progress collections and price adjustments accrued 2,765 2,316 -- --
Dividends payable 1,146 979 -- --
All other GE current costs and expenses accrued (note 18) 9,708 8,763 -- --
Long-term borrowings (note 19) 681 729 59,038 45,989
Insurance liabilities, reserves and annuity benefits (note 20) -- -- 77,259 67,270
All other liabilities (note 21) 12,613 11,539 12,247 11,067
Deferred income taxes (note 22) (250) (315) 9,590 8,966
------------------------ ----------------------
Total liabilities 34,974 32,419 280,111 235,056
------------------------ ----------------------
Minority interest in equity of consolidated affiliates (note 23) 816 569 3,459 3,113
------------------------ ----------------------
Accumulated unrealized gains on investment securities -- net (a) 2,402 2,138 2,376 2,135
Accumulated currency translation adjustments (a) (738) (798) (215) (185)
Common stock (3,271,296,000 and 3,264,592,000 shares outstanding
at year-end 1998 and 1997, respectively) 594 594 1 1
Other capital 6,808 4,434 2,490 2,337
Retained earnings 48,553 43,338 15,075 12,951
Less common stock held in treasury (18,739) (15,268) -- --
------------------------ ----------------------
Total share owners' equity (notes 25 and 26) 38,880 34,438 19,727 17,239
------------------------ ----------------------
TOTAL LIABILITIES AND EQUITY $ 74,670 $ 67,426 $ 303,297 $ 255,408
====================================================================================================================================
<FN>
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.
</FN>
</TABLE>
<PAGE>
F-6
ANNUAL REPORT PAGE 30
- ---------------------
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
General Electric Company
and consolidated affiliates
---------------------------------
For the years ended December 31 (In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 9,296 $ 8,203 $ 7,280
Adjustments to reconcile net earnings to cash provided
from operating activities
Depreciation and amortization of property, plant and equipment 4,377 4,082 3,785
Amortization of goodwill and other intangibles 1,483 1,187 983
Earnings retained by GECS -- -- --
Deferred income taxes 1,143 284 1,145
Decrease in GE current receivables 649 250 118
Decrease (increase) in inventories 150 (386) (134)
Increase (decrease) in accounts payable 1,576 200 641
Increase in insurance liabilities, reserves and annuity benefits 3,670 1,669 1,491
Provision for losses on financing receivables 1,609 1,421 1,033
All other operating activities (4,593) (2,670) 1,509
---------------------------------
CASH FROM OPERATING ACTIVITIES 19,360 14,240 17,851
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,982) (8,388) (7,760)
Dispositions of property, plant and equipment 4,043 2,251 1,363
Net increase in GECS financing receivables (6,301) (1,898) (2,278)
Payments for principal businesses purchased (18,610) (5,245) (5,516)
All other investing activities (10,283) (4,995) (6,021)
---------------------------------
CASH USED FOR INVESTING ACTIVITIES (40,133) (18,275) (20,212)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in borrowings (maturities of 90 days or less) 16,881 13,684 11,827
Newly issued debt (maturities longer than 90 days) 42,008 21,249 23,153
Repayments and other reductions (maturities longer than 90 days) (32,814) (23,787) (25,906)
Net purchase of GE shares for treasury (2,819) (2,815) (2,323)
Dividends paid to share owners (3,913) (3,411) (3,050)
All other financing activities (114) 785 28
---------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES 19,229 5,705 3,729
---------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR (1,544) 1,670 1,368
Cash and equivalents at beginning of year 5,861 4,191 2,823
---------------------------------
Cash and equivalents at end of year $ 4,317 $ 5,861 $ 4,191
=========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ (9,297) $ (8,264) $ (7,874)
Cash paid during the year for income taxes (2,098) (1,937) (1,392)
=========================================================================================================
<FN>
The notes to consolidated financial statements on pages 48-68 are an integral
part of this statement.
</FN>
</TABLE>
<PAGE>
F-7
ANNUAL REPORT PAGE 31
- ---------------------
<TABLE>
STATEMENT OF CASH FLOWS (continued)
<CAPTION>
GE GECS
----------------------------- -------------------------------
For the years ended December 31 (In millions) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 9,296 $ 8,203 $ 7,280 $ 3,796 $ 3,256 $ 2,817
Adjustments to reconcile net earnings to cash provided
from operating activities
Depreciation and amortization of property, plant and equipment 1,761 1,622 1,635 2,616 2,460 2,150
Amortization of goodwill and other intangibles 531 407 328 952 780 655
Earnings retained by GECS (2,124) (1,597) (1,836) -- -- --
Deferred income taxes 594 (514) 68 549 798 1,077
Decrease in GE current receivables 520 215 152 -- -- --
Decrease (increase) in inventories 69 (145) (76) 81 (244) (58)
Increase (decrease) in accounts payable 199 237 197 1,673 (64) 318
Increase in insurance liabilities, reserves and annuity benefits -- -- -- 3,670 1,669 1,491
Provision for losses on financing receivables -- -- -- 1,609 1,421 1,033
All other operating activities (814) 889 1,319 (3,991) (3,851) 284
----------------------------- -------------------------------
CASH FROM OPERATING ACTIVITIES 10,032 9,317 9,067 10,955 6,225 9,767
----------------------------- -------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,047) (2,191) (2,389) (6,935) (6,197) (5,371)
Dispositions of property, plant and equipment 6 39 30 4,037 2,212 1,333
Net increase in GECS financing receivables -- -- -- (6,301) (1,898) (2,278)
Payments for principal businesses purchased (1,455) (1,425) (1,122) (17,155) (3,820) (4,394)
All other investing activities 477 483 (106) (11,078) (5,646) (6,090)
----------------------------- -------------------------------
CASH USED FOR INVESTING ACTIVITIES (3,019) (3,094) (3,587) (37,432) (15,349) (16,800)
----------------------------- -------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in borrowings (maturities of 90 days or less) 1,015 809 974 16,288 13,594 11,026
Newly issued debt (maturities longer than 90 days) 509 424 252 41,440 20,825 22,901
Repayments and other reductions (maturities longer than 90 days) (1,787) (1,030) (1,250) (31,027) (22,757) (24,656)
Net purchase of GE shares for treasury (2,819) (2,815) (2,323) -- -- --
Dividends paid to share owners (3,913) (3,411) (3,050) (1,672) (1,653) (981)
All other financing activities -- -- -- (114) 785 28
----------------------------- -------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES (6,995) (6,023) (5,397) 24,915 10,794 8,318
----------------------------- -------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 18 200 83 (1,562) 1,670 1,285
Cash and equivalents at beginning of year 1,157 957 874 4,904 3,234 1,949
----------------------------- -------------------------------
Cash and equivalents at end of year $ 1,175 $ 1,157 $ 957 $ 3,342 $ 4,904 $ 3,234
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ (620) $ (467) $ (411) $ (8,677) $ (7,797) $ (7,463)
Cash paid during the year for income taxes (1,151) (1,596) (1,286) (947) (341) (106)
====================================================================================================================================
<FN>
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.
</FN>
</TABLE>
<PAGE>
F-8
ANNUAL REPORT PAGE 32
- ---------------------
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 LLP provides an objective, independent review of management's discharge
of its obligations relating to the fairness of reporting of operating results
and financial condition. Their report for 1998 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. Keith S. Sherin
Chairman of the Board and Senior Vice President, Finance, and
Chief Executive Officer Chief Financial Officer
February 12, 1999
- --------------------------------------------------------------------------------
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 22. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Stamford, Connecticut
February 12, 1999
<PAGE>
F-9
ANNUAL REPORT PAGE 33
- ---------------------
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 three parts:
Consolidated Operations, Segment Operations and International Operations.
CONSOLIDATED OPERATIONS
GE achieved record revenues, earnings and cash generation in 1998. This year's
performance again demonstrated the benefits of GE's continuing emphasis on
growth in services, Six Sigma quality and globalization.
Revenues, including acquisitions, rose to a record $100.5 billion in 1998, up
11% from 1997. This increase was primarily attributable to continued growth from
global activities and product services. Revenues were $90.8 billion in 1997, a
15% increase from 1996 attributable primarily to increased global activities and
higher sales of product services.
Earnings increased to a record $9.296 billion, a 13% increase from $8.203
billion reported in 1997. Earnings per share increased to $2.80 during 1998, up
14% from the prior year's $2.46. Except as otherwise noted, earnings per share
are presented on a diluted basis. Earnings in 1997 rose 13% from $7.280 billion
reported in 1996. In 1997, earnings per share increased 14% from $2.16 per share
in 1996. Growth rates in earnings per share exceeded growth rates in earnings as
a result of the ongoing repurchase of shares under the six-year, $17 billion
share repurchase plan initiated in December 1994.
A consolidated statement of changes in share owners' equity is provided on
page 26, summarizing information about movements in equity from transactions
with share owners and other sources. Additional information about such changes
is provided in note 25.
NEW ACCOUNTING STANDARDS issued in 1998 are described below.
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, 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 equity pending
recognition in earnings. GE will adopt the Statement on January 1, 2000. The
impact of adoption will be determined by several factors, including the specific
hedging instruments in place and their relationships to hedged items, as well as
market conditions. Management has not estimated the effects of adoption as it
believes that such determination will not be meaningful until closer to the
adoption date.
Statement of Position (SOP) 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES, provides guidance on accounting for start-up costs and organization
costs, which must be expensed as incurred. The SOP, which is consistent with
GE's previous accounting policy, is effective for financial statements beginning
January 1, 1999.
DIVIDENDS DECLARED IN 1998 AMOUNTED TO $4.081 BILLION. Per-share dividends of
$1.25 were up 16% from 1997, following a 14% increase from the preceding year.
GE has rewarded its share owners with 23 consecutive years of dividend growth.
The chart below 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 25.7% in 1998, up from 25.0% and
24.0% in 1997 and 1996, respectively.
[CHART HERE]
GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1993
- -----------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
GE 14.09% 26.41% 40.24% 58.25% 83.53%
S&P 500 4.77 9.62 18.44 23.21 28.78
- -----------------------------------------------------------------------------
<PAGE>
F-10
ANNUAL REPORT PAGE 34
- ---------------------
Except as otherwise noted, the analysis in the remainder of this section
presents GE results with GECS on an equity basis.
GE TOTAL REVENUES were $56.0 billion in 1998, compared with $54.5 billion in
1997 and $49.6 billion in 1996.
o GE sales of goods and services were $51.5 billion in 1998, an increase of 5%
from 1997, which in turn was 6% higher than in 1996. Volume was about 8%
higher in 1998, including acquisitions, reflecting growth in most businesses
during the year. While overall selling prices were down slightly in 1998,
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 1997 was about 9% higher
than in 1996, 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. Sales of product services were $12.6 billion in 1998, including
acquisitions, a strong double-digit increase over 1997. Nearly all
businesses reported increases in product services revenues, led by
double-digit increases at Aircraft Engines, Transportation Systems and Power
Systems. Operating margin from product services was approximately $2.8
billion, up from $2.5 billion in 1997. This improvement was primarily
attributable to strong growth at Aircraft Engines and Power Systems.
o GE other income, earned from a wide variety of sources, was $0.7 billion in
1998, $2.3 billion in 1997 and $0.6 billion in 1996. The decrease in other
income in 1998 was primarily attributable to the lack of a current-year
counterpart to the $1,538 million after-tax gain realized in 1997 from
exchanging preferred stock in Lockheed Martin Corporation (Lockheed Martin)
for the stock of a newly formed subsidiary as described in note 2.
o Earnings of GECS were up 17% in 1998, following a 16% increase the year
before. See page 37 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.
The Six Sigma quality initiative is an important factor affecting GE's cost
structure. The benefits of Six Sigma quality are reflected in both variable and
base cost productivity (discussed on page 35) as well as in lower direct
material costs.
[CHART HERE]
GE OPERATING MARGIN AS A PERCENTAGE OF SALES
- -----------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
AS REPORTED 13.6% 14.4% 14.8% 11.0% 16.7%
RESTRUCTURING AND
OTHER SPECIAL
CHARGES - - - 4.7 -
---------------------------------------------------
OPERATING MARGIN
BEFORE RESTRUCTURING
AND OTHER SPECIAL
CHARGES 13.6% 14.4% 14.8% 15.7% 16.7%
- -----------------------------------------------------------------------------
Comparisons between 1998 and 1997 costs and expenses are affected by
restructuring and other special charges amounting to $2,322 million recorded in
the fourth quarter of 1997. Aggregate restructuring charges of $1,243 million
covered 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 were $577
million of special early retirement pension, health and life benefit costs,
including a 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 were other severance costs as well as certain costs of exiting affected
properties, including site demolitions, asset write-offs and expected losses on
subleases.
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. Such special charges included
$275 million to reflect higher estimated manufacturing costs to fill firm
customer orders for an aircraft engine program and $261 million that related
principally to gas turbine warranty costs and costs arising from renegotiation
and resolution of certain disputes in the Power Systems business.
As discussed on page 35, restructuring and other special charges are not
allocated to segments for purposes of measuring segment profit.
OPERATING MARGIN is sales of goods and services less the costs of goods and
services sold, and selling, general and administrative expenses. GE operating
margin reached a record 16.7% of sales in 1998, compared with 15.7% achieved in
1997 before the effects of restructuring and other special charges, and 14.8% in
1996. Including restructuring and other special charges, GE reported operating
margin of 11.0% of sales in 1997. The improvement in ongoing operating margin in
<PAGE>
F-11
ANNUAL REPORT PAGE 35
- ---------------------
1998 was broad-based, with improvements in a majority of GE's businesses
reflecting 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 the significant improvement in GE's ongoing operating
margin. Total cost productivity in 1998 was 4.4%, reflecting benefits from the
Six Sigma quality initiative as well as higher volume. Three businesses --
Medical Systems, Power Systems and NBC -- achieved productivity in excess of 5%.
Total cost productivity was 4.2% in 1997, reflecting Six Sigma benefits and the
positive effects of higher volume. In 1997, three businesses -- Power Systems,
NBC and Plastics -- reported productivity in excess of 5%. The total
contribution of productivity in the last two years offset not only the negative
effects of total cost inflation, but also the effects of selling price
decreases.
GE INTEREST AND OTHER FINANCIAL CHARGES in 1998 amounted to $883 million,
compared with $797 million in 1997 and $595 million in 1996. Lower interest
rates in 1998 and 1997 were more than offset by higher average levels of
borrowings and other financing activities.
INCOME TAXES on a consolidated basis were 31.0% of pretax earnings in 1998,
compared with 26.6% in 1997 and 32.6% in 1996. The most significant factor
explaining 1997's lower effective tax rate was the 4.8% decrease attributable to
the realized gain on the tax-free exchange of Lockheed Martin Corporation
preferred stock. 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 provided in note 8.
RETURN ON AVERAGE TOTAL CAPITAL INVESTED was 23.9% at year-end 1998, compared
with 23.6% in 1997 and 22.2% in 1996.
SEGMENT OPERATIONS
REVENUES AND SEGMENT PROFIT FOR OPERATING SEGMENTS are shown on page 36. At
year-end 1998, GE adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which requires segment data to be measured
and analyzed on a basis that is consistent with how business activities are
reported internally to management. The most significant change from previous
Annual Reports is that restructuring and other special charges are not included
in the measure of segment profit. Previously reported data have been restated as
required by SFAS No. 131. For additional information, including a description of
the products and services included in each segment, see note 28.
AIRCRAFT ENGINES achieved a 32% increase in revenues in 1998, following a 24%
increase in 1997, on higher volume in commercial engines and product services,
including acquisitions, in both years. Operating profit increased 30% in 1998,
and 13% in 1997, largely as a result of strong growth in product services as
well as good volume growth in commercial engines.
In 1998, $1.6 billion of Aircraft Engines revenues were from sales to the
U.S. government, an increase of $0.1 billion from 1997, which was $0.3 billion
lower than in 1996.
Aircraft Engines received orders of $10.8 billion in 1998, up $1.9 billion
from 1997. The backlog at year-end 1998 was $9.7 billion ($9.5 billion at the
end of 1997). Of the total, $7.5 billion related to products, about 52% of which
was scheduled for delivery in 1999, and the remainder related to 1999 product
services.
APPLIANCES revenues were 3% lower than a year ago, reflecting primarily selling
price decreases and, to a lesser extent, lower volume. Operating profit was 2%
lower as the decreases in selling prices and volume more than offset
productivity from Six Sigma. Revenues in 1997 were 4% higher than in 1996,
reflecting primarily acquisition-related volume. Operating profit increased 3%
in 1997, primarily as a result of productivity and higher volume, partially
offset by lower selling prices.
INDUSTRIAL PRODUCTS AND SYSTEMS revenues increased 2% in 1998, primarily as a
result of volume increases at Transportation Systems and Industrial Systems that
were partially offset by lower selling prices across most businesses in the
segment. Operating profit increased 5%, reflecting productivity from Six Sigma
and the improvement in volume, which more than offset the effects of selling
price decreases. Revenues rose 6% in 1997 as improved volume more than offset
weaker pricing across all businesses in the segment. Operating profit increased
13% 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.
Transportation Systems received orders of $2.4 billion in 1998, about the
same as in 1997. The backlog at year-end 1998 was $2.3 billion ($2.0 billion at
the end of 1997). Of the total, $2.1 billion related to products, about 83% of
which was scheduled for shipment in 1999, and the remainder related to 1999
product services.
NBC revenues increased 2% in 1998, reflecting higher revenues in NBC's
owned-and-operated stations, including revenues from station acquisitions and
growth in cable operations, the combination of which more than offset lower
network revenues. Operating profit was 11% higher than a year ago as improved
results in international, cable operations and owned-and-operated stations, as
well as cost reductions across NBC, more than offset higher license fees for
certain prime-time programs that were renewed. Revenues decreased 2% in 1997 as
a strong advertising marketplace was more than offset by the absence of a 1997
counterpart to NBC's broadcast of the 1996 Summer Olympic Games. Operating
profit increased 19% in 1997, reflecting improved prime-time pricing, strong
<PAGE>
F-12
ANNUAL REPORT PAGE 36
- ---------------------
<TABLE>
SUMMARY OF OPERATING SEGMENTS
<CAPTION>
General Electric Company and consolidated affiliates
------------------------------------------------------------------
For the years ended December 31 (In millions) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
GE
Aircraft Engines $ 10,294 $ 7,799 $ 6,302 $ 6,098 $ 5,830
Appliances 5,619 5,801 5,586 5,137 5,204
Industrial Products and Systems 11,222 10,984 10,401 10,209 9,375
NBC 5,269 5,153 5,232 3,919 3,361
Plastics 6,633 6,695 6,509 6,647 5,681
Power Systems 8,466 7,915 7,643 6,962 6,357
Technical Products and Services 5,323 4,861 4,700 4,430 4,285
All Other 264 308 291 292 253
Eliminations (1,367) (1,176) (1,032) (1,082) (1,068)
------------------------------------------------------------------
Total GE segment revenues 51,723 48,340 45,632 42,612 39,278
Corporate items <F1> 507 2,919 1,116 1,154 1,135
GECS net earnings from continuing operations 3,796 3,256 2,817 2,415 2,085
------------------------------------------------------------------
Total GE revenues 56,026 54,515 49,565 46,181 42,498
GECS segment revenues 48,694 39,931 32,713 26,492 19,875
Eliminations <F2> (4,251) (3,606) (3,099) (2,645) (2,264)
------------------------------------------------------------------
CONSOLIDATED REVENUES $ 100,469 $ 90,840 $ 79,179 $ 70,028 $ 60,109
====================================================================================================================================
SEGMENT PROFIT
GE
Aircraft Engines $ 1,769 $ 1,366 $ 1,214 $ 1,135 $ 987
Appliances 755 771 748 682 704
Industrial Products and Systems 1,880 1,789 1,587 1,488 1,305
NBC 1,349 1,216 1,020 797 540
Plastics 1,584 1,500 1,443 1,435 981
Power Systems 1,306 1,203 1,124 782 1,354
Technical Products and Services 1,109 988 855 810 806
All Other 271 310 282 285 245
------------------------------------------------------------------
Total GE operating profit 10,023 9,143 8,273 7,414 6,922
GECS net earnings from continuing operations 3,796 3,256 2,817 2,415 2,085
------------------------------------------------------------------
Total segment profit 13,819 12,399 11,090 9,829 9,007
Corporate items and eliminations <F3> (823) (1,589) (920) (548) (800)
GE interest and other financial charges (883) (797) (595) (649) (410)
GE provision for income taxes (2,817) (1,810) (2,295) (2,059) (1,882)
------------------------------------------------------------------
CONSOLIDATED NET EARNINGS FROM
CONTINUING OPERATIONS $ 9,296 $ 8,203 $ 7,280 $ 6,573 $ 5,915
====================================================================================================================================
<FN>
The notes to consolidated financial statements on pages 48-68 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.
<F1> Includes revenues of $944 million, $789 million, $796 million and $761
million in 1997, 1996, 1995 and 1994, respectively, from an appliance
distribution affiliate that was deconsolidated in 1998. Also includes
$1,538 million in 1997 from an exchange of preferred stock in Lockheed
Martin Corporation for the stock of a newly formed subsidiary.
<F2> Principally the elimination of GECS net earnings.
<F3> Includes 1997 restructuring and other special charges of $2,322 million. Of
the total, restructuring and other special charges that relate to
activities of GE operating segments were as follows: Aircraft Engines --
$342 million, Appliances -- $330 million, Industrial Products and Systems
-- $352 million, NBC -- $161 million, Plastics -- $63 million, Power
Systems -- $437 million and Technical Products and Services -- $157
million. Also included in 1997 is $1,538 million associated with the
Lockheed Martin Corporation transaction described in <F1> above.
</FN>
</TABLE>
<PAGE>
F-13
ANNUAL REPORT PAGE 37
- ---------------------
growth in both owned-and-operated stations and cable operations, and increased
international distribution of programming, the combination of which more than
offset the absence of a 1997 counterpart to the Olympics broadcast and higher
license fees for certain prime-time programs that were renewed.
PLASTICS revenues decreased 1% in 1998 as lower selling prices and adverse
currency exchange rates offset slightly higher volume. Operating profit in 1998
improved by 6% as lower material costs and productivity from Six Sigma more than
offset lower selling prices. 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 4% as Six Sigma-based productivity
and higher volume more than offset lower selling prices.
POWER SYSTEMS revenues increased 7% in 1998, reflecting primarily higher volume
in product services, including acquisitions, which was partially offset by lower
selling prices. Operating profit increased 9% in 1998 as growth in product
services and productivity more than offset the effects of lower selling prices.
Revenues in 1997 were 4% higher than in 1996, primarily as a result of higher
volume in gas turbines and product services. Operating profit increased by 7%,
the result of strong productivity and higher volume, which more than offset
lower selling prices.
Power Systems orders were $10.5 billion for 1998, an increase of more than
50% over 1997, reflecting strong U.S. market growth. The backlog of unfilled
orders at year-end 1998 was $12.4 billion ($10.5 billion at the end of 1997). Of
the total, $11.3 billion related to products, about 45% of which was scheduled
for delivery in 1999, and the remainder related to 1999 product services.
TECHNICAL PRODUCTS AND SERVICES revenues rose 10% in 1998, following a 3%
increase in 1997. The improvement in revenues in both years was primarily
attributable to growth at Medical Systems, the result of higher equipment volume
and continued growth in product services, partially offset by lower selling
prices across the segment. Operating profit increased 12% in 1998 as
productivity from Six Sigma and volume increases, particularly at Medical
Systems, more than offset lower selling prices. Operating profit increased 16%
in 1997 as productivity and higher volume more than offset the effects of lower
selling prices.
Orders received by Medical Systems in 1998 were $4.8 billion, up $0.5 billion
from 1997. The backlog of unfilled orders at year-end 1998 was $2.6 billion
($2.4 billion at the end of 1997). Of the total, $1.5 billion related to
products, about 80% of which was scheduled for delivery in 1999, and the
remainder related to 1999 product services.
[CHART HERE]
OPERATING PROFIT OF GE SEGMENTS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$6.922 $7.414 $8.273 $9.143 $10.023
- -----------------------------------------------------------------------------
ALL OTHER GE revenues and operating profit consist primarily of residual royalty
payments and other fees earned from licensing the use of GE technology to
others. Effective January 1, 1999, GE transferred certain licenses and
intellectual property pursuant to an agreement to sell the former RCA Consumer
Electronics business. Details of licensing income derived from these assets is
provided in note 2.
GECS consists of 28 businesses that, for purposes of the analysis that follows,
are grouped into five operating activities: consumer services, equipment
management, mid-market financing, specialized financing and specialty insurance.
GECS net earnings were $3.796 billion in 1998, up 17% from $3.256 billion in
1997, which increased 16% from 1996. Each operating activity achieved a
double-digit earnings increase in 1998. The improvement in earnings in both 1998
and 1997 was largely attributable to the effects of continued asset growth,
principally from acquisitions of businesses and portfolios and higher
origination volume.
o GECS total revenues increased 22% to $48.7 billion in 1998, following a 22%
increase to $39.9 billion in 1997. The increases in both years reflected
the contributions of businesses acquired as well as growth in core volume.
o GECS cost of goods sold is associated with activities of its computer
equipment distribution businesses. This cost amounted to $6.8 billion in
1998, compared with $4.1 billion in 1997 and $1.7 billion in 1996,
principally the result of acquisition-related growth.
o GECS interest on borrowings in 1998 was $9.0 billion, 17% higher than in
1997, which was 4% higher than in 1996. The increases in 1998 and 1997 were
caused by higher average borrowings used to finance asset growth, partially
offset by the effects of lower average interest rates. The composite
<PAGE>
F-14
ANNUAL REPORT PAGE 38
- ---------------------
interest rate was 5.92% in 1998, compared with 6.07% in 1997 and 6.24% in
1996. See page 43 for a discussion of interest rate risk management.
o GECS insurance losses and policyholder and annuity benefits increased to
$9.6 billion in 1998, compared with $8.3 billion in 1997 and $6.7 billion
in 1996, reflecting effects of business acquisitions and growth in premium
volume throughout the period.
o GECS provision for losses on financing receivables increased to $1.6
billion in 1998, compared with $1.4 billion in 1997 and $1.0 billion in
1996. These provisions principally related to private-label credit cards,
bank credit cards, auto loans and auto leases in the consumer services
operations, all of which are discussed on page 39 under financing
receivables. The increases principally reflected higher average receivable
balances and the effects of delinquency rates -- higher during 1997 and
lower during 1998 -- consistent with industry experience.
o GECS other costs and expenses were $16.4 billion in 1998, an increase from
$13.9 billion in 1997 and $11.7 billion in 1996. The increase in both 1998
and 1997 primarily reflected costs associated with acquired businesses and
portfolios, higher investment levels and increases in insurance commissions
and other costs that vary directly with increased revenues. Financing
spreads (the excess of yields over interest rates on borrowings) were
essentially flat in 1998, 1997 and 1996, reflecting slightly lower yields
offset by decreases in borrowing rates.
Revenues and net earnings from operating activities within the GECS segment
for the past three years are summarized and discussed below.
----------------------------------------
(In millions) 1998 1997 1996
----------------------------------------
REVENUES
Consumer services $ 15,948 $ 13,550 $ 11,109
Equipment management 14,869 11,326 7,725
Mid-market financing 3,751 3,009 2,781
Specialized financing 3,368 2,828 2,944
Specialty insurance 10,594 8,836 8,185
All other 164 382 (31)
----------------------------------------
Total revenues $ 48,694 $ 39,931 $ 32,713
----------------------------------------
NET EARNINGS
Consumer services $ 797 $ 544 $ 791
Equipment management 806 708 603
Mid-market financing 478 391 362
Specialized financing 745 593 563
Specialty insurance 1,166 973 852
All other (196) 47 (354)
----------------------------------------
Total net earnings $ 3,796 $ 3,256 $ 2,817
================================================================================
[CHART HERE]
GECS REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$19.875 $26.492 $32.713 $39.931 $48.694
- -----------------------------------------------------------------------------
CONSUMER SERVICES revenues increased 18% in 1998 and 22% in 1997. This
growth -- largely acquisition related -- was led by higher premium and
investment income at GE Financial Assurance, the consumer savings and insurance
business of GECS. Asset growth in several of the other consumer services
businesses also contributed to the increase in 1998. Net earnings increased 47%
in 1998, following a 31% decrease in 1997. Comparisons of revenues and net
earnings throughout the period were affected by the operating results of
Montgomery Ward Holding Corp., which are discussed on page 40. Net earnings in
1998 also reflected acquisition and core volume growth, led by the Global
Consumer Finance and GE Financial Assurance businesses. Overall gains on asset
sales, including securitizations, were higher in 1997 than in 1998; gains in
1998 included the sale of certain bankcard assets. Net earnings in 1997 were
affected by increased automobile residual losses, partially offset by
acquisition and core growth, principally at GE Financial Assurance. A higher
provision for losses on financing receivables also affected earnings in both
years, as discussed previously.
EQUIPMENT MANAGEMENT revenues grew 31% in 1998, following a 47% increase in
1997, primarily as a result of acquisitions by IT Solutions and, to a lesser
extent, asset growth. Net earnings increased 14% in 1998, following a 17%
increase in 1997. Increases in both years reflected higher volumes in most
businesses resulting from origination growth and acquisitions of businesses and
portfolios, with those effects in 1998 partially offset by lower earnings at IT
Solutions and Modular Space, primarily the result of lower pricing from
competitive market conditions and higher operating expenses.
<PAGE>
F-15
ANNUAL REPORT PAGE 39
- ---------------------
MID-MARKET FINANCING revenues increased 25% in 1998, compared with an 8%
increase in 1997. Net earnings for these businesses grew 22% and 8% in 1998 and
1997, respectively. Asset growth resulting from higher volumes and acquisitions
of businesses and portfolios was the most significant contributing factor in
both years. Revenues and net earnings were also favorably affected in 1998 by
the disposition of certain assets.
SPECIALIZED FINANCING revenues rose 19% and net earnings increased 26% in
1998. The increase in revenues reflected asset growth and a higher level of
asset gains, while the increase in net earnings included those factors as well
as the effects of certain tax-advantaged transactions and higher levels of tax
credits. Revenues decreased 4% in 1997, primarily as a result of lower
investment levels. Net earnings increased 5% in 1997, reflecting asset gains and
lower levels of asset write-offs.
SPECIALTY INSURANCE revenues and net earnings both increased 20% in 1998,
following 8% revenue growth and 14% net earnings growth in 1997. The increases
in both years 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 realized gains on investment
securities. Net earnings in both years were also favorably affected by improved
conditions in the Mortgage Insurance business, the result of improvements in
loss experience.
Within GE Global Insurance, the principal subsidiary of which is Employers
Reinsurance Corporation, net premiums earned increased in 1998, primarily as a
result of core and acquisition growth in both the property and casualty and life
businesses. GE Global Insurance property and casualty underwriting results
improved in 1998, reflecting a general reduction in incurred losses caused by a
decline in both the frequency and overall severity of claims, partially offset
by the effects of hurricane and other weather-related catastrophe losses. 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. Property and casualty underwriting results at
GE Global Insurance decreased in 1997, reflecting increased underwriting and
operating expenses and adverse European market conditions, offset by growth in
the life reinsurance business.
ALL OTHER GECS revenues and net earnings in 1997 included 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.
[CHART HERE]
GECS NET EARNINGS FROM CONTINUING OPERATIONS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$2.085 $2.415 $2.817 $3.256 $3.796
- -----------------------------------------------------------------------------
FINANCING RECEIVABLES are the largest GECS asset and one of its primary
sources of revenues. The portfolio of financing receivables, before allowance
for losses, increased to $124.9 billion at the end of 1998 from $106.6 billion
at the end of 1997, principally reflecting acquisition growth and origination
volume that were partially offset by securitizations and other sales of
receivables. The related allowance for losses at the end of 1998 amounted to
$3.3 billion ($2.8 billion at the end of 1997) and, in management's judgment, is
appropriate given the risk profile of the portfolio.
A discussion of the quality of certain elements of the financing receivable
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 on page 40.
Consumer financing receivables at year-end 1998 and 1997 are shown in the
following table.
-----------------------
(In millions) 1998 1997
- --------------------------------------------------------------------------------
Credit card and personal loans $28,064 $25,773
Auto loans 9,496 8,973
Auto financing leases 14,063 13,346
-----------------------
Total consumer financing receivables $51,623 $48,092
-----------------------
Nonearning $ 1,250 $ 1,049
-- As percentage of total 2.4% 2.2%
Receivable write-offs for the year $ 1,357 $ 1,298
================================================================================
The increase in credit card and personal loan portfolios primarily resulted
from acquisition growth and origination volume, partially offset by
securitizations and other sales of receivables. Both the auto loan and financing
<PAGE>
F-16
ANNUAL REPORT PAGE 40
- ---------------------
lease portfolios increased primarily as a result of acquisition growth; however,
the increase in auto financing leases was partially offset by decreases in U.S.
lease volume. A substantial amount of the nonearning consumer receivables were
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 average receivable balances.
Other financing receivables, totaling $73.3 billion at December 31, 1998,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $14.8 billion during 1998, reflecting the
combination of acquisition growth and increased origination volume, partially
offset by sales of receivables. Related nonearning and reduced-earning
receivables were $354 million at year-end 1998, compared with $353 million at
year-end 1997.
As discussed in note 13, Montgomery Ward Holding Corp. (MWHC) filed a
bankruptcy petition for reorganization in 1997. The GECS after-tax share of the
losses of MWHC and affiliates was $49 million in 1998 and $380 million in 1997.
The GECS investment in MWHC and affiliates at year-end was $622 million in 1998
and $795 million in 1997 (of which $578 million and $617 million, respectively,
were classified as financing receivables). GECS also provides revolving credit
card financing directly to customers of MWHC and affiliates; such receivables
totaled $3.4 billion at December 31, 1998, including $1.6 billion that had been
sold with recourse. The obligations of customers with respect to these
receivables are not affected by the bankruptcy filing. On February 1, 1999, MWHC
announced that it plans to emerge from bankruptcy protection in mid-1999 as a
result of an agreement reached with the creditors' committee.
GECS loans and leases to commercial airlines amounted to $10.2 billion at the
end of 1998, up from $9.0 billion at the end of 1997. GECS commercial aircraft
positions also included financial guarantees, funding commitments and aircraft
orders as discussed in note 17.
INTERNATIONAL OPERATIONS
Estimated results of international activities include the results of GE and GECS
operations located outside the United States, plus all U.S. exports. Certain
GECS operations that cannot meaningfully be associated with specific geographic
areas are classified as "other international" for this purpose.
[CHART HERE]
CONSOLIDATED INTERNATIONAL REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
INTERNATIONAL
OPERATIONS $14.205 $20.768 $25.447 $29.328 $33.756
EXPORTS AND LICENSING
INCOME 6.755 7.480 7.846 9.199 9.001
- -----------------------------------------------------------------------------
International revenues in 1998 were $42.8 billion (43% of consolidated
revenues), compared with $38.5 billion in 1997 and $33.3 billion in 1996. The
chart above depicts the growth in international revenues over the past five
years.
- --------------------------------------------------------------------------------
CONSOLIDATED INTERNATIONAL REVENUES
-------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Europe (a) $21,665 $18,166 $15,964
Pacific Basin 5,166 4,742 4,343
Americas 5,030 4,632 3,443
Other 1,895 1,788 1,697
-------------------------------
33,756 29,328 25,447
RCA residual licensing income 250 287 265
Exports from the U.S. to
external customers 8,751 8,912 7,581
-------------------------------
$42,757 $38,527 $33,293
================================================================================
(a) Includes $944 million and $789 million in 1997 and 1996, respectively, from
an appliance distribution affiliate that was deconsolidated in 1998.
- --------------------------------------------------------------------------------
GE international revenues were $24.6 billion in 1998, an increase of $0.7
billion from the comparable figure in 1997, which was $2.9 billion higher than
in 1996. Over the three-year period, international revenues were slightly less
than half of total revenues. The increase in revenues during 1998 reflected
sales growth in operations based outside the United States, partially offset by
lower U.S. exports. European revenues were 11% higher in 1998, reflecting
increases in both local operations and in exports to the region, with
particularly strong growth at Aircraft Engines. As expected, Pacific Basin
revenues were 6% lower in 1998, reflecting primarily a decrease in exports to
the region. Further information about the activities of GE and GECS in Asia is
provided on page 41. International revenues from the Americas (North and South
America, except for the United States) increased 8%, primarily as a result of
strong growth in exports, particularly at Transportation Systems and Power
Systems, and slightly higher revenues from local operations.
<PAGE>
F-17
ANNUAL REPORT PAGE 41
- ---------------------
[CHART HERE]
CONSOLIDATED INTERNATTIONAL REVENUES BY REGION
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
EUROPE $9.043 $14.062 $18.030 $20.634 $24.353
PACIFIC BASIN 5.976 7.183 7.573 7.981 8.058
AMERICAS 3.441 4.110 4.706 6.196 6.907
OTHER 2.500 2.893 2.984 3.716 3.439
- -----------------------------------------------------------------------------
GECS international revenues were $18.2 billion in 1998, an increase of 33%
from $13.7 billion in 1997. International assets grew 36%, from $79.2 billion at
year-end 1997 to $107.8 billion at the end of 1998. Revenues in Europe increased
38% in 1998, reflecting a mix of acquisition and core growth across all GECS
operating activities. At the same time, revenues in the Pacific Basin grew 51%,
principally in Japan, and principally as a result of consumer financing
acquisitions by Global Consumer Finance and the acquisition of Toho Mutual
Life's infrastructure and sales force by GE Financial Assurance. International
revenues from the Americas increased 21% in 1998, largely as a result of
acquisitions and core growth in Canada and Latin America. Overall, these
increases reflect the continued expansion of GECS as a global provider of a wide
range of services.
Consolidated international operating profit was $5.4 billion in 1998,
compared with $5.1 billion in 1997 and $3.8 billion in 1996. International
activities accounted for 36% of consolidated operating profit, about the same as
in 1997 on a comparable basis. Additional information is provided in note 29.
Total assets of international operations were $128.8 billion in 1998 (36% of
consolidated assets), an increase of 32% over 1997, reflecting double-digit
growth in both GE and GECS activities outside the United States. The increase
reflected sharp growth in Asia, where current economic conditions continue to
provide a favorable environment for strategic investments. GE and GECS also had
strong asset growth in operations based in Europe and the Americas.
The activities of GE and GECS span all global regions and primarily
encompass manufacturing for local and export markets, import and sale of
products produced in other regions, leasing of aircraft, sourcing for GE plants
domiciled in other global regions and provision of financial services within
these regional economies. As such, when certain countries such as Russia or
regions such as the Pacific Basin and Latin America experience currency and/or
economic stress, GE may have increased exposure to certain risks but also may
have new profit opportunities. Increased risks include, among other things,
higher receivables delinquencies and bad debts, delays or cancellation of sales
and orders principally related to power and aircraft-related equipment, higher
local currency financing costs and a slowdown in established financial services
activities. New profit opportunities include, among other things, lower costs of
goods sourced from countries with weakened currencies, more opportunities for
lower cost outsourcing, expansion of industrial and financial services
activities through purchases of companies or assets at reduced prices and lower
U.S. debt financing costs. Thus, while GE's global activities warrant close
monitoring and significant management attention, regional economic disruptions
had only a modest adverse effect on the overall financial position, results of
operations and liquidity of GE and GECS in 1998, and there is little change in
the outlook for 1999.
As discussed previously, GE's international activities are diverse. Financial
results of those activities 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. Principal currencies are the
major European currencies, including the euro, as well as the Japanese yen and
the Canadian dollar.
[CHART HERE]
TOTAL ASSETS OF INTERNATTIONAL OPERATIONS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
EUROPE $21.5869 $44.1072 $55.1956 $66.7401 $84.5179
PACIFIC BASIN 4.4908 6.4424 8.1245 8.8814 18.4266
AMERICAS 5.6118 6.5591 7.2265 8.6168 11.2481
OTHER 11.6541 12.2167 12.4287 13.3090 14.6307
- -----------------------------------------------------------------------------
<PAGE>
F-18
ANNUAL REPORT PAGE 42
- ---------------------
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
OVERVIEW
This discussion of financial resources and liquidity addresses the Statement of
Financial Position (page 28) and the Statement of Cash Flows (page 30).
GECS is not a "captive finance company" or a vehicle for "off-balance-sheet
financing" for GE. Only a small portion of GECS business is directly related to
other GE operations. 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.
STATEMENT OF FINANCIAL POSITION
Because GE and GECS share certain significant elements of their Statements of
Financial Position -- property, plant and equipment, and borrowings, for example
- -- the following discussion addresses significant captions in the "consolidated"
statement. Within the following discussions, however, distinction is drawn
between GE and GECS activities in order to permit analysis of each individual
statement.
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 $259 million at year-end 1998, about
the same as at the end of 1997. The increase of $8.1 billion at GECS during 1998
was principally related to acquisitions and investment of premiums received. A
breakdown of the investment securities portfolio is provided in note 10.
CURRENT RECEIVABLES for GE were $8.5 billion at the end of 1998, a decrease of
$0.6 billion from year-end 1997, and included $5.4 billion due from customers at
the end of 1998, which was $0.7 billion lower than the amount due at the end of
1997. As a measure of asset management, turnover of customer receivables from
sales of goods and services was 8.8 in 1998, compared with 7.7 in 1997. 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.
INVENTORIES for GE were $5.3 billion at December 31, 1998, up $0.2 billion from
the end of 1997. GE inventory turnover improved to 8.3 in 1998, compared with
7.8 in 1997, reflecting continuing improvements in inventory management.
Last-in, first-out (LIFO) revaluations decreased $87 million in 1998, compared
with decreases of $119 million in 1997 and $128 million in 1996. Included in
these changes were decreases of $29 million, $59 million and $58 million in
1998, 1997 and 1996, respectively, that resulted from lower LIFO inventory
levels. There were net cost decreases in each of the last three years.
[CHART HERE]
GE INVENTORY TURNOVER
- -----------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
6.86 6.90 7.57 7.75 8.25
- -----------------------------------------------------------------------------
Inventories (at FIFO) and customer receivables from sales of goods or
services are two key components of GE's working capital turnover measurement.
Working capital turnover increased from 6.3 turns in 1996 to 7.4 and 9.2 turns
in 1997 and 1998, respectively. Working capital also includes trade accounts
payable and progress collections.
GECS inventories were $744 million and $786 million at December 31, 1998 and
1997, respectively. The decrease in 1998 primarily reflected improved inventory
management in the computer equipment distribution businesses.
FINANCING RECEIVABLES of GECS were $121.6 billion at year-end 1998, net of
allowance for doubtful accounts, up $17.8 billion over 1997. These receivables
are discussed on pages 39 and 40 and in notes 7 and 13.
OTHER RECEIVABLES of GECS were $26.0 billion and $18.3 billion at December 31,
1998 and 1997, respectively. Of the 1998 increase, $3.6 billion was attributable
to acquisitions and the remainder resulted from core growth.
PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $35.7
billion at December 31, 1998, up $3.4 billion from 1997. 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 1998 totaled $2.0
billion, down $0.2 billion from 1997. Total expenditures for the past five years
were $10.2 billion, of which 38% was investment for growth through new capacity
and product development; 32% was investment in productivity through new
<PAGE>
F-19
ANNUAL REPORT PAGE 43
- ---------------------
equipment and process improvements; and 30% 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 $7.2 billion during 1998 ($6.8 billion during 1997),
primarily reflecting acquisitions of vehicles and aircraft.
INTANGIBLE ASSETS were $23.6 billion at year-end 1998, up from $19.1 billion at
year-end 1997. GE intangibles increased to $10.0 billion from $8.8 billion at
the end of 1997, principally as a result of goodwill from a number of
acquisitions, the largest of which was the equipment services division of
Stewart & Stevenson. The $3.3 billion increase in GECS intangibles also related
primarily to goodwill from acquisitions, the largest of which were the consumer
finance business of Lake Corporation (Lake) in Japan and Metlife Capital in the
United States.
ALL OTHER ASSETS totaled $52.9 billion at year-end 1998, an increase of $13.1
billion from the end of 1997. GE other assets increased $3.3 billion,
principally reflecting an increase in the prepaid pension asset and investments
in certain newly acquired affiliates that were not yet consolidated. The
increase in GECS other assets of $9.9 billion related principally to additional
investments in associated companies, increases in assets acquired for resale,
primarily residential mortgages, and increases in "separate accounts," which are
investments controlled by policyholders and are associated with identical
amounts reported as insurance liabilities.
CONSOLIDATED BORROWINGS aggregated $175.0 billion at December 31, 1998, compared
with $144.7 billion at the end of 1997. 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.
[CHART HERE]
GE WORKING CAPITAL TURNOVER
- -----------------------------------------------------------------------------
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
5.75 5.56 6.30 7.42 9.22
- -----------------------------------------------------------------------------
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,
1998 and 1997. Management believes the likelihood that GE will be required to
contribute capital under either the commitments or the guarantees is remote.
GE total borrowings were $4.1 billion at year-end 1998 ($3.4 billion
short-term, $0.7 billion long-term), a decrease of $0.3 billion from year-end
1997. GE total debt at the end of 1998 equaled 9.5% of total capital, down from
11.1% at the end of 1997.
GECS total borrowings were $172.2 billion at December 31, 1998, of which
$113.2 billion is due in 1999 and $59.0 billion is due in subsequent years.
Comparable amounts at the end of 1997 were $141.3 billion total, $95.3 billion
due within one year and $46.0 billion due thereafter. A large portion of GECS
borrowings ($87.0 billion and $71.2 billion at the end of 1998 and 1997,
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 45 days and 5.35% at the end
of 1998, compared with 44 days and 5.83% at the end of 1997. The GE Capital
ratio of debt to equity was 7.86 to 1 at the end of 1998 and 7.45 to 1 at the
end of 1997.
INTEREST RATE AND CURRENCY RISK MANAGEMENT is important in the normal
operations of both GE and GECS. The following discussion presents an overview of
such management. A related discussion of recent developments in the global
economy is provided on page 41.
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 U.S. 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 for presenting this information, none of the alternatives is
<PAGE>
F-20
ANNUAL REPORT PAGE 44
- ---------------------
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 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 1999 net earnings of GECS based on year-end
1998 positions by approximately $111 million; the pro forma effect for GE
was approximately $17 million. Based on conditions at year-end 1997, the
effect on 1998 net earnings of such an increase in interest rates was
estimated to be approximately $112 million for GECS.
o As shown in the chart above right, the geographic distribution of GE and
GECS operations is diverse. One means of assessing exposure to changes in
currency exchange rates is to model effects on reported earnings using a
sensitivity analysis. Year-end 1998 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 1999 net earnings
of GE based on year-end 1998 positions by approximately $11 million; the
pro forma effect for GECS was insignificant. Based on conditions at
year-end 1997, the effect on 1998 net earnings of such a decrease in
exchange rates was estimated to be approximately $10 million for GE.
INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $77.3 billion, $10.0
billion higher than in 1997. The increase was primarily attributable to
acquisitions and the increase in separate accounts. For additional information
on these liabilities, see note 20.
[CHART HERE]
CONSOLIDATED TOTAL ASSETS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
UNITED STATES $142.527 $158.710 $189.427 $206.465 $227.112
INTERNATIONAL 43.344 69.325 82.975 97.547 128.823
- -----------------------------------------------------------------------------
YEAR 2000 will test the capability of business processes to function correctly.
GE and GECS have undertaken a global effort to identify and mitigate Year 2000
issues in their information systems, products, facilities and suppliers. Each
business has a Year 2000 leader who oversees a multifunctional remediation
project team responsible for applying a Six Sigma quality approach in four
phases: (1) DEFINE/MEASURE - identify and inventory possible sources of Year
2000 issues; (2) ANALYZE - determine the nature and extent of Year 2000 issues
and develop project plans to address those issues; (3) IMPROVE - execute project
plans and perform a majority of the testing; and (4) CONTROL - complete testing,
continue monitoring readiness and complete necessary contingency plans. The
progress of this program is monitored at each business, and Company-wide reviews
with senior management are conducted quarterly. The first three phases of the
program have been completed for a substantial majority of mission-critical
activities. Management plans to have nearly all significant information systems,
products and facilities through the control phase of the program by mid-1999.
The scope of the global Year 2000 effort encompasses approximately 170,000
applications and computer programs; 8,000 types of installed-base products and
services; up to 35,000 pieces of equipment in facilities; and 30,000 direct
suppliers. Business operations are also affected by the Year 2000 readiness of
customers and infrastructure suppliers in areas such as utilities,
communications, transportation and other services. In this environment, there
will likely be instances of failure that could cause disruptions in business
processes for GE and GECS businesses, affect their customers' ability to repay
amounts owed or result in an increased level of insurance claims activity. The
likelihood and effects of failures in the customer base, infrastructure systems
and in the supply chain cannot be estimated. However, with respect to operations
<PAGE>
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ANNUAL REPORT PAGE 45
- ---------------------
under its direct control, management does not expect, in view of its Year 2000
program efforts and the diversity of its businesses, suppliers and customers,
that occurrences of Year 2000 failures will have a material adverse effect on
the financial position, results of operations or liquidity of GE or GECS.
Including amounts attributable to recent acquisitions, total Year 2000
remediation expenditures are expected to be approximately $575 million, of which
60% was spent by the end of 1998. Substantially all of the remainder is expected
to be spent in 1999. Most of these costs are not likely to be incremental costs,
but rather will represent the redeployment of existing resources. The activities
involved in the Year 2000 effort necessarily involve estimates and projections
of activities and resources that will be required in the future. These estimates
and projections could change as work progresses.
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 CASH AND EQUIVALENTS aggregated $1.2 billion at the end of 1998, about the
same as at year-end 1997. During 1998, GE generated a record $10.0 billion in
cash from operating activities, an increase of $0.7 billion over 1997. The
increase reflected improvements in earnings and working capital, including cash
from monetization of receivables. The 1998 cash generation provided most of the
resources needed to repurchase $3.6 billion of GE common stock under the share
repurchase program, to pay $3.9 billion in dividends to share owners, to invest
$2.0 billion in new plant and equipment and to make $1.5 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 $28 billion of
cash. The principal application of this cash was distributions of approximately
$21 billion to share owners, both through payment of dividends ($10.4 billion)
and through the share repurchase program ($10.4 billion) described below. Other
applications included investment in new plant and equipment ($6.6 billion) and
acquisitions ($4.0 billion).
The GE Board of Directors has authorized repurchase of $17 billion of common
stock under the share repurchase program. This buyback will continue through the
year 2000 at an annual rate of about $2 billion. Funds used for the share
repurchase are expected to be generated largely from operating cash flow.
[CHART HERE]
GE CUMULATIVE CASH FLOWS SINCE 1993
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES $6.071 $12.136 $21.203 $30.520 $40.552
SHARES REPURCHASED 1.073 4.175 7.441 10.933 14.579
DIVIDENDS PAID 2.462 5.232 8.282 11.693 15.606
- -----------------------------------------------------------------------------
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 1999, principally
for productivity and growth. The expected level of expenditures was moderated by
the Six Sigma quality program's success in freeing capacity.
GECS CASH AND EQUIVALENTS aggregated $3.3 billion at the end of 1998, down from
$4.9 billion at year-end 1997. 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 $40.9 billion. New borrowings of $85.2 billion having
maturities longer than 90 days were added during those years, while $78.4
billion of such longer-term borrowings were retired. GECS also generated $26.9
billion from continuing operating activities.
The principal use of cash by GECS has been investing in assets to grow its
businesses. Of the $69.6 billion that GECS invested over the past three years,
$10.5 billion was used for additions to financing receivables; $18.5 billion was
used to invest in new equipment, principally for lease to others; and $25.4
billion was used for acquisitions of new businesses, the largest of which were
Metlife Capital and Lake in 1998.
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.
<PAGE>
F-22
ANNUAL REPORT PAGE 46
- ---------------------
MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA summarizes on the following 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 such enterprises; and lower
portion -- GECS data that reflect key information pertinent to financial
services businesses.
GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,930 million in 1998, up
slightly from 1997 and 1996. In 1998, expenditures from GE's own funds were
$1,537 million, an increase of 4% over 1997, reflecting continuing research and
development work related to new product, service and process technologies.
Product technology efforts in 1998 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. 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. 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 $393 million in 1998, down $18
million from 1997.
GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1998 was $28.5 billion,
compared with $26.4 billion at the end of 1997. Of the total, $23.9 billion
related to products, about 56% of which was scheduled for delivery in 1999.
Services orders are included in this reported backlog for only the succeeding 12
months; such backlog at the end of 1998 was $4.6 billion. Orders constituting
this backlog may be canceled or deferred by customers, subject in certain cases
to cancellation penalties. See Segment Operations beginning on page 35 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 1998, GE expended about $81 million for capital projects related to the
environment. The comparable amount in 1997 was $80 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 $127 million in 1998, compared
with $84 million in 1997. It is presently expected that such remediation actions
will require average annual expenditures in the range of $90 million to $170
million over the next two years.
[CHART HERE]
YEAR-END MARKET CAPITALIZATION
- -----------------------------------------------------------------------------
(IN BILLIONS) 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------
$87.004 $119.989 $162.604 $239.539 $333.762
- -----------------------------------------------------------------------------
[CHART HERE]
GE SHARE PRICE ACTIVITY
- ------------------------------------------------------------------------------
(IN DOLLARS) 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------
HIGH $27 7/16 $36 9/16 $53 1/16 $76 9/16 $103 15/16
LOW 22 1/2 24 1/2 34 3/4 47 15/16 69
CLOSE 25 1/2 36 49 7/16 73 3/8 102
- ------------------------------------------------------------------------------
<PAGE>
F-23
ANNUAL REPORT PAGE 47
- ---------------------
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
------------------------------------------------------------------------
(Dollar amounts in millions; per-share amounts in dollars) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Revenues $ 100,469 $ 90,840 $ 79,179 $ 70,028 $ 60,109
Earnings from continuing operations 9,296 8,203 7,280 6,573 5,915
Loss from discontinued operations -- -- -- -- (1,189)
Net earnings 9,296 8,203 7,280 6,573 4,726
Dividends declared 4,081 3,535 3,138 2,838 2,546
Earned on average share owners' equity 25.7% 25.0% 24.0% 23.5% 18.1%
Per share
Earnings from continuing operations-- basic $ 2.84 $ 2.50 $ 2.20 $ 1.95 $ 1.73
Loss from discontinued operations -- -- -- -- (0.35)
Net earnings-- basic 2.84 2.50 2.20 1.95 1.38
Net earnings-- diluted 2.80 2.46 2.16 1.93 1.37
Dividends declared 1.25 1.08 0.95 0.845 0.745
Stock price range 103 5/16-69 76 9/16- 53 1/16- 36 9/16- 27 7/16-
47 15/16 34 3/4 24 15/16 22 1/2
Year-end closing stock price 102 73 3/8 49 7/16 36 25 1/2
Total assets of continuing operations 355,935 304,012 272,402 228,035 185,871
Long-term borrowings 59,663 46,603 49,246 51,027 36,979
Shares outstanding-- average (in thousands) 3,268,998 3,274,692 3,307,394 3,367,624 3,417,476
Share owner accounts-- average 534,000 509,000 486,000 460,000 458,000
Employees at year end
United States 163,000 165,000 155,000 150,000 156,000
Other countries 130,000 111,000 84,000 72,000 60,000
Discontinued operations (primarily U.S.) -- -- -- -- 5,000
------------------------------------------------------------------------
Total employees 293,000 276,000 239,000 222,000 221,000
====================================================================================================================================
GE DATA
Short-term borrowings $ 3,466 $ 3,629 $ 2,339 $ 1,666 $ 906
Long-term borrowings 681 729 1,710 2,277 2,699
Minority interest 816 569 477 434 382
Share owners' equity 38,880 34,438 31,125 29,609 26,387
------------------------------------------------------------------------
Total capital invested $ 43,843 $ 39,365 $ 35,651 $ 33,986 $ 30,374
========================================================================
Return on average total capital invested 23.9% 23.6% 22.2% 21.3% 15.9%
Borrowings as a percentage of total capital invested 9.5% 11.1% 11.4% 11.6% 11.9%
Working capital (a) $ 5,038 $ 5,990 $ 6,598 $ 7,405 $ 6,552
Additions to property, plant and equipment 2,047 2,191 2,389 1,831 1,743
====================================================================================================================================
GECS DATA
Revenues $ 48,694 $ 39,931 $ 32,713 $ 26,492 $ 19,875
Earnings from continuing operations 3,796 3,256 2,817 2,415 2,085
Loss from discontinued operations -- -- -- -- (1,189)
Net earnings 3,796 3,256 2,817 2,415 896
Share owner's equity 19,727 17,239 14,276 12,774 9,380
Minority interest 3,459 3,113 2,530 2,522 1,465
Borrowings from others 172,200 141,263 125,621 111,598 91,399
Ratio of debt to equity at GE Capital 7.86:1 7.45:1 7.84:1 7.59:1 8.43:1
Total assets of continuing operations $ 303,297 $ 255,408 $ 227,419 $ 185,729 $ 144,967
Insurance premiums written 11,865 9,396 8,185 6,158 3,962
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Discontinued operations reflect the results of Kidder, Peabody, the discontinued
GECS securities broker-dealer, in 1994. Transactions between GE and GECS have
been eliminated from the consolidated information. (a) Working capital is
defined as the sum of receivables from the sales of goods and services plus
inventories less trade accounts payable and progress collections.
</FN>
</TABLE>
<PAGE>
F-24
ANNUAL REPORT PAGE 48
- ---------------------
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. This represents 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 1998
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 49.
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 residual 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. 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 probable losses. 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
probable losses, including specific allowances for known troubled accounts.
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 such 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.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value of the
asset 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.
<PAGE>
F-25
ANNUAL REPORT PAGE 49
- ---------------------
CASH AND EQUIVALENTS. Debt 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 share
owners' 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.
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, including internal-use software,
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, derivatives 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.
As a matter of policy, any derivative that is either not designated as a
hedge, or is so designated but is ineffective, 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. For short-duration
insurance contracts, acquisition costs consist primarily of commissions,
<PAGE>
F-26
ANNUAL REPORT PAGE 50
- ---------------------
brokerage expenses and premium taxes. For long-duration insurance contracts,
these costs consist primarily of first-year commissions in excess of recurring
renewal commissions, certain variable sales expenses and certain support costs
such as underwriting and policy issue expenses.
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 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 and 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.
2 GE OTHER INCOME
------------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Residual licensing and
royalty income
RCA Licensing $ 250 $ 287 $ 265
Other 51 54 60
Associated companies (9) 50 50
Marketable securities and
bank deposits 114 78 72
Customer financing 19 26 29
Other investments
Dividends 8 62 79
Interest 8 1 18
Other items 243 1,749 56
------------------------------------
$ 684 $ 2,307 $ 629
================================================================================
Effective January 1, 1999, GE transferred certain licenses and intellectual
property pursuant to an agreement to sell the former RCA Consumer Electronics
business. Licensing income from these assets is shown under the caption "RCA
Licensing" in the table above.
Included in the "Other items" caption for 1997 is a gain of $1,538 million
related to a tax-free exchange between GE and Lockheed Martin Corporation
(Lockheed Martin). 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) 1998 1997 1996
- --------------------------------------------------------------------------------
Time sales, loan and
other income $14,682 $12,211 $11,310
Operating lease rentals 5,402 4,819 4,341
Financing leases 4,267 3,499 3,485
Investment income 5,617 5,512 3,506
Premium and commission
income of insurance
businesses 11,352 9,268 8,145
------------------------------------
$41,320 $35,309 $30,787
================================================================================
For insurance businesses, the effects of reinsurance on premiums written and
premium and commission income were as follows:
---------------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
PREMIUMS WRITTEN
Direct $ 6,237 $ 5,206 $ 3,926
Assumed 7,470 5,501 5,455
Ceded (1,842) (1,311) (1,196)
---------------------------------------
$ 11,865 $ 9,396 $ 8,185
=======================================
PREMIUM AND COMMISSION
INCOME
Direct $ 6,063 $ 5,138 $ 3,850
Assumed 7,151 5,386 5,353
Ceded (1,862) (1,256) (1,058)
---------------------------------------
$ 11,352 $ 9,268 $ 8,145
================================================================================
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $1,594 million, $903 million and
$937 million for the years ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
F-27
ANNUAL REPORT PAGE 51
- ---------------------
4 SUPPLEMENTAL COST DETAILS
Total expenditures for research and development were $1,930 million, $1,891
million and $1,886 million in 1998, 1997 and 1996, respectively. The
Company-funded portion aggregated $1,537 million in 1998, $1,480 million in 1997
and $1,421 million in 1996.
Rental expense under operating leases is shown below.
----------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
GE $568 $536 $512
GECS 889 734 547
- --------------------------------------------------------------------------------
At December 31, 1998, minimum rental commitments under noncancelable
operating leases aggregated $2,479 million and $5,168 million for GE and GECS,
respectively. Amounts payable over the next five years follow.
------------------------------------------------
(In millions) 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
GE $453 $375 $296 $223 $187
GECS 720 636 582 519 468
- --------------------------------------------------------------------------------
GE's selling, general and administrative expense totaled $7,177 million in
1998, $7,476 million in 1997 and $6,274 million in 1996. Insignificant amounts
of interest were capitalized by GE and GECS in 1998, 1997 and 1996.
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 GECS employees in the United
States. 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
1998, the GE Pension Plan covered approximately 466,000 participants, including
127,000 employees, 149,000 former employees with vested rights to future
benefits, and 190,000 retirees and beneficiaries receiving benefits.
The GE Supplementary Pension Plan is a pay-as-you-go plan providing
supplementary retirement benefits primarily to higher-level, longer-service U.S.
employees.
The effect on operations of principal pension plans is as follows:
- --------------------------------------------------------------------------------
EFFECT ON OPERATIONS
--------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Expected return on plan assets $ 3,024 $ 2,721 $ 2,587
Service cost for benefits earned (a) (625) (596) (550)
Interest cost on benefit obligation (1,749) (1,686) (1,593)
Prior service cost (153) (145) (99)
SFAS No. 87 transition gain 154 154 154
Net actuarial gain recognized 365 295 210
Special early retirement cost -- (412) --
--------------------------------
Total pension plan income $ 1,016 $ 331 $ 709
================================================================================
(a) Net of participant contributions.
- --------------------------------------------------------------------------------
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 GE contribution would
require payment of annual excise taxes.
Changes in the projected benefit obligation for principal pension plans
follow.
- --------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION
-------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $ 25,874 $ 23,251
Service cost for benefits earned (a) 625 596
Interest cost on benefit obligation 1,749 1,686
Participant contributions 112 120
Plan amendments -- 136
Actuarial loss 1,050 1,388
Benefits paid (1,838) (1,715)
Special early retirement cost -- 412
-------------------------
Balance at December 31 $ 27,572 $ 25,874
================================================================================
(a) Net of participant contributions.
- --------------------------------------------------------------------------------
Changes in the fair value of assets for principal pension plans follow.
- --------------------------------------------------------------------------------
FAIR VALUE OF ASSETS
---------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $ 38,742 $ 33,686
Actual return on plan assets 6,363 6,587
Employer contributions 68 64
Participant contributions 112 120
Benefits paid (1,838) (1,715)
---------------------------
Balance at December 31 $ 43,447 $ 38,742
================================================================================
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented about 7% and 6% of trust
assets at year-end 1998 and 1997, respectively.
<PAGE>
F-28
ANNUAL REPORT PAGE 52
- ---------------------
GE recorded assets and liabilities for principal pension plans as follows:
- --------------------------------------------------------------------------------
PREPAID PENSION ASSET
---------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Fair value of plan assets $ 43,447 $ 38,742
Add (deduct) unrecognized balances
SFAS No. 87 transition gain (308) (462)
Net actuarial gain (9,462) (7,538)
Prior service cost 850 1,003
Projected benefit obligation (27,572) (25,874)
Pension liability 797 703
---------------------------
Prepaid pension asset $ 7,752 $ 6,574
================================================================================
ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for
principal pension plans follow.
- --------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
-------------------------------
December 31 1998 1997 1996
- --------------------------------------------------------------------------------
Discount rate 6.75% 7.0% 7.5%
Compensation increases 5.0 4.5 4.5
Return on assets for the year 9.5 9.5 9.5
================================================================================
Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over the average future service
period of employees.
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 (see note 5) with 10
or more years of service. Retirees share in the cost of health care benefits.
Benefit provisions are subject to collective bargaining. At the end of 1998,
these plans covered approximately 250,000 retirees and dependents.
The effect on operations of principal retiree benefit plans is shown in the
following table.
- --------------------------------------------------------------------------------
EFFECT ON OPERATIONS
------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
RETIREE HEALTH PLANS
Service cost for benefits earned $ 79 $ 90 $ 77
Interest cost on benefit obligation 205 183 166
Prior service cost 14 (3) (20)
Net actuarial loss recognized 28 16 20
Special early retirement cost -- 152 --
------------------------------
Retiree health plan cost 326 438 243
------------------------------
RETIREE LIFE PLANS
Expected return on plan assets (149) (137) (132)
Service cost for benefits earned 17 17 16
Interest cost on benefit obligation 114 116 106
Prior service cost (6) (8) (11)
Net actuarial loss recognized 11 16 23
Special early retirement cost -- 13 --
------------------------------
Retiree life plan cost (income) (13) 17 2
------------------------------
Total cost $ 313 $ 455 $ 245
================================================================================
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.
Changes in the accumulated postretirement benefit obligation for retiree
benefit plans follow.
- --------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION Health plans Life plans
-------------------- --------------------
December 31 (In millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $ 3,098 $ 2,415 $ 1,677 $ 1,539
Service cost for
benefits earned 79 90 17 17
Interest cost on
benefit obligation 205 183 114 116
Participant
contributions 24 21 -- --
Plan amendments -- 325 -- 44
Actuarial loss 177 245 91 56
Benefits paid (363) (333) (112) (108)
Special early
retirement cost -- 152 -- 13
-------------------- --------------------
Balance at
December 31 $ 3,220 $ 3,098 $ 1,787 $ 1,677
================================================================================
Changes in the fair value of assets for retiree benefit plans follow.
- --------------------------------------------------------------------------------
FAIR VALUE OF ASSETS Health plans Life plans
-------------------- --------------------
December 31 (In millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Balance at January 1 $ -- $ -- $ 1,917 $ 1,682
Actual return on plan
assets -- -- 316 343
Employer
contributions 339 312 -- --
Participant
contributions 24 21 -- --
Benefits paid (363) (333) (112) (108)
-------------------- --------------------
Balanace at
December 31 $ -- $ -- $ 2,121 $ 1,917
================================================================================
<PAGE>
F-29
ANNUAL REPORT PAGE 53
- ---------------------
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented about 5% and 4% of trust
assets at year-end 1998 and 1997, respectively.
GE recorded assets and liabilities for retiree benefit plans as follows:
- --------------------------------------------------------------------------------
RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans
-------------------- --------------------
December 31 (In millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Accumulated
postretirement
benefit obligation $ 3,220 $ 3,098 $ 1,787 $ 1,677
Add (deduct)
unrecognized
balances
Net actuarial
gain/(loss) (572) (423) 214 127
Prior service cost (157) (171) 49 55
Fair value of
plan assets -- -- (2,121) (1,917)
-------------------- --------------------
Retiree benefit liability/
(asset) $ 2,491 $ 2,504 $ (71) $ (58)
================================================================================
ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for
principal retiree benefit plans are shown below.
- --------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
-------------------------------
December 31 1998 1997 1996
- --------------------------------------------------------------------------------
Discount rate 6.75% 7.0% 7.5%
Compensation increases 5.0 4.5 4.5
Health care cost trend (a) 7.8 7.8 8.0
Return on assets for the year 9.5 9.5 9.5
================================================================================
(a) For 1998, gradually declining to 5.0% after 2003.
- --------------------------------------------------------------------------------
Increasing or decreasing the health care cost trend rates by one percentage
point would not have had a material effect on the December 31, 1998, 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 the average future service
period of employees.
7 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
----------------------------------
(In millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Balance at January 1 $ 2,802 $ 2,693 $ 2,519
Provisions charged to operations 1,609 1,421 1,033
Net transfers primarily related to
companies acquired or sold 388 127 139
Amounts written off-- net (1,511) (1,439) (998)
----------------------------------
Balance at December 31 $ 3,288 $ 2,802 $ 2,693
================================================================================
8 PROVISION FOR INCOME TAXES
----------------------------------
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------
GE
Estimated amounts payable $ 2,227 $ 2,332 $ 2,235
Deferred tax expense (benefit)
from temporary differences 590 (522) 60
----------------------------------
2,817 1,810 2,295
----------------------------------
GECS
Estimated amounts payable 815 368 164
Deferred tax expense from
temporary differences 549 798 1,067
----------------------------------
1,364 1,166 1,231
----------------------------------
CONSOLIDATED
Estimated amounts payable 3,042 2,700 2,399
Deferred tax expense from
temporary differences 1,139 276 1,127
----------------------------------
$ 4,181 $ 2,976 $ 3,526
================================================================================
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.
Estimated consolidated amounts payable includes amounts applicable to U.S.
federal income taxes of $1,459 million, $1,176 million and $971 million in 1998,
1997 and 1996, respectively, and amounts applicable to non-U.S. jurisdictions of
$1,335 million, $1,298 million and $1,204 million in 1998, 1997 and 1996,
respectively. Deferred tax expense related to U.S. federal income taxes was $971
million, $354 million and $1,081 million in 1998, 1997 and 1996, 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. It
is not practicable to determine the U.S. federal income tax liability, if any,
that would be payable if such earnings were not reinvested indefinitely.
Consolidated U.S. income before taxes was $9.7 billion in 1998, $8.2 billion
in 1997 and $8.0 billion in 1996. The corresponding amounts for non-U.S.-based
operations were $3.8 billion in 1998, $3.0 billion in 1997 and $2.8 billion in
1996.
A reconciliation of the U.S. federal statutory tax rate to the actual tax
rate is provided on the following page.
<PAGE>
F-30
ANNUAL REPORT PAGE 54
- ---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF U.S. FEDERAL
STATUTORY TAX RATE TO ACTUAL RATE Consolidated GE GECS
------------------------- -------------------------- -------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- (11.0) (11.4) (10.3) -- -- --
Lockheed Martin exchange (note 2) -- (4.8) -- -- (5.4) -- -- -- --
Amortization of goodwill 1.1 1.1 1.1 0.7 0.8 0.8 1.0 1.1 1.2
Tax-exempt income (1.8) (1.9) (2.0) -- -- -- (4.7) (4.9) (5.4)
Foreign Sales Corporation
tax benefits (1.2) (1.0) (0.7) (1.0) (0.9) (0.6) (0.6) (0.5) (0.3)
Dividends received, not fully taxable (0.4) (0.5) (0.6) -- (0.2) (0.2) (1.0) (0.9) (1.1)
All other -- net (1.7) (1.3) (0.2) (0.4) 0.2 (0.7) (3.3) (3.4) 1.0
------------------------- -------------------------- -------------------------
(4.0) (8.4) (2.4) (11.7) (16.9) (11.0) (8.6) (8.6) (4.6)
------------------------- -------------------------- -------------------------
Actual income tax rate 31.0% 26.6% 32.6% 23.3% 18.1% 24.0% 26.4% 26.4% 30.4%
====================================================================================================================================
</TABLE>
9 Earnings Per Share Information
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
(In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $9,296 $9,296 $8,203 $8,203 $7,280 $7,280
Dividend equivalents -- net of tax 13 -- 10 -- 9 --
------------------- ------------------- -------------------
Net earnings available for per-share calculation $9,309 $9,296 $8,213 $8,203 $7,289 $7,280
------------------- ------------------- -------------------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock outstanding 3,269 3,269 3,275 3,275 3,307 3,307
Employee compensation-related shares,
including stock options 61 -- 70 -- 64 --
------------------- ------------------- -------------------
Total average equivalent shares 3,330 3,269 3,345 3,275 3,371 3,307
------------------- ------------------- -------------------
Net earnings per share $ 2.80 $ 2.84 $ 2.46 $ 2.50 $ 2.16 $ 2.20
====================================================================================================================================
</TABLE>
<PAGE>
F-31
ANNUAL REPORT PAGE 55
- ---------------------
10 INVESTMENT SECURITIES
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- --------------------------------------------------------------------------------
DECEMBER 31, 1998
GE
Equity securities $ 233 $ 26 $ -- $ 259
----------------------------------------------
GECS
Debt securities
U.S. corporate 27,888 1,293 (325) 28,856
State and municipal 12,483 727 (8) 13,202
Mortgage-backed 11,641 413 (109) 11,945
Corporate-- non-U.S 8,692 409 (90) 9,011
Government
-- non-U.S 5,415 258 (9) 5,664
U.S. government and
federal agency 2,706 207 (7) 2,906
Equity securities 5,651 1,415 (192) 6,874
----------------------------------------------
74,476 4,722 (740) 78,458
----------------------------------------------
CONSOLIDATED TOTALS $ 74,709 $ 4,748 $ (740) $ 78,717
================================================================================
DECEMBER 31, 1997
GE
Equity securities $ 257 $ 13 $ (5) $ 265
----------------------------------------------
GECS
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
----------------------------------------------
CONSOLIDATED TOTALS $ 66,915 $ 3,917 $ (211) $ 70,621
================================================================================
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
At December 31, 1998, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
- --------------------------------------------------------------------------------
CONTRACTUAL MATURITIES OF DEBT SECURITIES
(EXCLUDING MORTGAGE-BACKED SECURITIES)
----------------------------
Amortized Estimated
(In millions) cost fair value
- --------------------------------------------------------------------------------
Due in
1999 $ 5,370 $ 5,574
2000-2003 14,145 14,497
2004-2008 13,068 13,538
2009 and later 24,601 26,030
================================================================================
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations. Proceeds
from sales of investment securities by GE and GECS in 1998 were $16,707 million
($14,728 million in 1997 and $11,868 million in 1996). Gross realized gains were
$1,126 million in 1998 ($1,018 million in 1997 and $638 million in 1996). Gross
realized losses were $308 million in 1998 ($173 million in 1997 and $190 million
in 1996).
11 GE CURRENT RECEIVABLES
-------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Aircraft Engines $ 1,722 $ 2,118
Appliances 299 300
Industrial Products and Systems 1,274 1,645
NBC 261 362
Plastics 1,070 1,037
Power Systems 2,620 2,376
Technical Products and Services 904 786
All Other 141 130
Corporate 495 538
-------------------------
8,786 9,292
Less allowance for losses (303) (238)
-------------------------
$ 8,483 $ 9,054
================================================================================
Receivables balances at December 31, 1998 and 1997, before allowance for
losses, included $5,447 million and $6,125 million, respectively, from sales of
goods and services to customers, and $350 million and $285 million,
respectively, from transactions with associated companies.
Current receivables of $305 million at year-end 1998 and $303 million at
year-end 1997 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 1998 and 1997, compared with about 5% in 1996.
12 INVENTORIES
-------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
GE
Raw materials and work in process $ 3,154 $ 3,070
Finished goods 2,967 2,895
Unbilled shipments 195 242
-------------------------
6,316 6,207
Less revaluation to LIFO (1,011) (1,098)
-------------------------
5,305 5,109
-------------------------
GECS
Finished goods 744 786
-------------------------
$ 6,049 $ 5,895
================================================================================
LIFO revaluations decreased $87 million in 1998, compared with decreases of
$119 million in 1997 and $128 million in 1996. Included in these changes were
decreases of $29 million, $59 million and $58 million in 1998, 1997 and 1996,
respectively, that resulted from lower LIFO inventory levels. There were net
cost decreases in each of the last three years. As of December 31, 1998, GE is
obligated to acquire certain raw materials at market prices through the year
2008 under various take-or-pay or similar arrangements. Annual minimum
commitments under these arrangements are insignificant.
<PAGE>
F-32
ANNUAL REPORT PAGE 56
- ---------------------
13 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING
LEASES)
---------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
TIME SALES AND LOANS
Consumer services $ 44,680 $ 42,270
Mid-market financing 20,240 11,401
Specialized financing 16,811 13,974
Equipment management 1,066 469
Specialty insurance 103 202
---------------------------
82,900 68,316
Deferred income (5,617) (3,484)
---------------------------
Time sales and loans-- net 77,283 64,832
---------------------------
INVESTMENT IN FINANCING LEASES
Direct financing leases 43,730 38,616
Leveraged leases 3,841 3,153
---------------------------
Investment in financing leases 47,571 41,769
---------------------------
124,854 106,601
Less allowance for losses (3,288) (2,802)
---------------------------
$ 121,566 $ 103,799
================================================================================
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 1998 and 1997,
specialized financing and consumer services loans included $12,980 million and
$10,503 million, respectively, for commercial real estate loans. Note 17
contains information on airline loans and leases.
At December 31, 1998, contractual maturities for time sales and loans were
$31,014 million in 1999; $14,865 million in 2000; $9,448 million in 2001; $6,675
million in 2002; $5,465 million in 2003; and $15,433 million thereafter --
aggregating $82,900 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, commercial real estate, 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 net 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. The 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, 1998, contractual maturities for net rentals receivable under
financing leases were $14,093 million in 1999; $12,087 million in 2000; $8,947
million in 2001; $4,362 million in 2002; $2,759 million in 2003; and $9,104
million thereafter -- aggregating $51,352 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT IN FINANCING LEASES
Total financing leases Direct financing leases Leveraged leases
---------------------- ----------------------- ---------------------
December 31 (In millions) 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments receivable $ 66,528 $ 58,543 $ 47,451 $ 42,901 $ 19,077 $ 15,642
Less principal and interest on third-party nonrecourse debt (15,176) (12,097) -- -- (15,176) (12,097)
---------------------- ----------------------- ---------------------
Net rentals receivable 51,352 46,446 47,451 42,901 3,901 3,545
Estimated unguaranteed residual value of leased assets 6,826 5,591 5,011 4,244 1,815 1,347
Less deferred income (10,607) (10,268) (8,732) (8,529) (1,875) (1,739)
---------------------- ----------------------- ---------------------
INVESTMENT IN FINANCING LEASES (as shown above) 47,571 41,769 43,730 38,616 3,841 3,153
Less amounts to arrive at net investment
Allowance for losses (619) (656) (519) (575) (100) (81)
Deferred taxes (8,593) (7,909) (5,147) (4,671) (3,446) (3,238)
---------------------- ----------------------- ---------------------
NET INVESTMENT IN FINANCING LEASES $ 38,359 $ 33,204 $ 38,064 $ 33,370 $ 295 $ (166)
====================================================================================================================================
</TABLE>
<PAGE>
F-33
ANNUAL REPORT PAGE 57
- ---------------------
GECS has a noncontrolling interest in Montgomery Ward Holding Corp. (MWHC)
which, together with certain of its affiliates, filed a bankruptcy petition for
reorganization in 1997. Loans to MWHC, which are considered impaired (as defined
below), were $578 million and $617 million at year-end 1998 and 1997,
respectively. These amounts are excluded from the nonearning and reduced-earning
receivable and impaired loan discussions below. GECS also provides revolving
credit card financing directly to customers of MWHC and affiliates; such
receivables totaled $3.4 billion at December 31, 1998, including $1.6 billion
that had been sold with recourse. The obligations of customers with respect to
these receivables are not affected by the bankruptcy filing.
Nonearning consumer receivables were $1,250 million and $1,049 million at
December 31, 1998 and 1997, respectively, a substantial amount of which were
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 $354 million
and $353 million at year-end 1998 and 1997, 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 commercial
loans held by GECS. An analysis of impaired loans follows.
----------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Loans requiring allowance for losses $346 $339
Loans expected to be fully recoverable 158 167
----------------
$504 $506
----------------
Allowance for losses $109 $170
Average investment during year 512 647
Interest income earned while impaired (a) 39 32
================================================================================
(a) Principally on the cash basis.
- --------------------------------------------------------------------------------
14 OTHER GECS RECEIVABLES
At year-end 1998 and 1997, this account included reinsurance recoverables of
$6,124 million and $5,027 million and insurance-related receivables of $7,109
million and $4,932 million, 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) 1998 1997
- --------------------------------------------------------------------------------
ORIGINAL COST
GE
Land and improvements $ 459 $ 459
Buildings, structures and related
equipment 6,579 6,375
Machinery and equipment 19,491 18,376
Leasehold costs and manufacturing
plant under construction 1,757 1,621
Other 24 24
----------------------
28,310 26,855
----------------------
GECS
Buildings and equipment 4,828 3,987
Equipment leased to others
Vehicles 9,825 9,144
Aircraft 9,321 7,686
Railroad rolling stock 2,804 2,367
Marine shipping containers 2,565 2,774
Other 3,447 2,844
----------------------
32,790 28,802
----------------------
$61,100 $55,657
======================
ACCUMULATED DEPRECIATION
AND AMORTIZATION
GE $16,616 $15,737
GECS
Buildings and equipment 1,733 1,478
Equipment leased to others 7,021 6,126
----------------------
$25,370 $23,341
================================================================================
Amortization of GECS equipment leased to others was $2,185 million, $2,102
million and $1,848 million in 1998, 1997 and 1996, respectively. Noncancelable
future rentals due from customers for equipment on operating leases at year-end
1998 totaled $12,808 million and are due as follows: $3,377 million in 1999;
$2,540 million in 2000; $1,841 million in 2001; $1,318 million in 2002; $897
million in 2003; and $2,835 million thereafter.
<PAGE>
F-34
ANNUAL REPORT PAGE 58
- ---------------------
16 INTANGIBLE ASSETS
--------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
GE
Goodwill $ 9,203 $ 8,046
Other intangibles 793 709
--------------------
9,996 8,755
--------------------
GECS
Goodwill 11,469 8,090
Present value of future profits (PVFP) 1,618 1,824
Other intangibles 552 452
--------------------
13,639 10,366
--------------------
$23,635 $19,121
================================================================================
GE intangible assets are shown net of accumulated amortization of $2,923
million in 1998 and $2,976 million in 1997. GECS intangible assets are net of
accumulated amortization of $3,396 million in 1998 and $2,615 million in 1997.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 15% to 8% of the year-end 1998 unamortized balance for
each of the next five years.
17 ALL OTHER ASSETS
-------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
GE
Investments
Associated companies (a) $ 2,336 $ 1,692
Other 474 735
-------------------------
2,810 2,427
Prepaid pension asset 7,752 6,574
Long-term receivables, including notes 2,379 2,389
Prepaid broadcasting rights 929 595
Other 4,161 2,744
-------------------------
18,031 14,729
-------------------------
GECS
Investments
Assets acquired for resale 6,167 4,403
Associated companies (a) 7,670 4,695
Real estate ventures 3,131 2,326
Other 3,473 2,452
-------------------------
20,441 13,876
Separate accounts 6,563 4,926
Servicing assets 1,625 1,713
Deferred insurance acquisition costs 3,326 2,521
Other 3,584 2,631
-------------------------
35,539 25,667
-------------------------
ELIMINATIONS (662) (576)
-------------------------
$ 52,908 $ 39,820
================================================================================
(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 $1,473 million at year-end 1998 and $1,590 million at year-end
1997; and it had entered into commitments totaling $1,519 million and $1,794
million at year-end 1998 and 1997, 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, 1998. GECS acts as a lender and
lessor to the commercial airline industry. At December 31, 1998 and 1997, the
balance of such GECS loans, leases and equipment leased to others was $10,170
million and $8,980 million, respectively. In addition, at December 31, 1998,
GECS had issued financial guarantees and funding commitments of $74 million
($123 million at year-end 1997) and had placed multiyear orders for various
Boeing and Airbus aircraft with list prices of approximately $9.4 billion ($6.2
billion at year-end 1997).
At year-end 1998, the National Broadcasting Company had $9,376 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 2009.
In connection with numerous projects, primarily power generation bids and
contracts, GE had issued various bid and performance bonds and guarantees
totaling $3,740 million at year-end 1998 and $2,895 million at year-end 1997.
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 1998 and 1997, this account included taxes accrued of $3,415 million
and $2,866 million and compensation and benefit accruals of $1,487 million and
$1,321 million, respectively. Also included are amounts for product warranties,
restructuring, estimated costs on shipments billed to customers and a variety of
sundry items.
An analysis of changes in the restructuring liability follows.
----------------------------------------
Termination Exit
(In millions) benefits costs Total
- --------------------------------------------------------------------------------
1997 provision $ 778 $ 465 $ 1,243
Charges (672) (395) (1,067)
Reversed to operations -- (28) (28)
----------------------------------------
Balance at December 31, 1998 $ 106 $ 42 $ 148
================================================================================
Substantially all of the 1997 provision is expected to be utilized by
year-end 1999.
<PAGE>
F-35
ANNUAL REPORT PAGE 59
- ---------------------
19 BORROWINGS
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
----------------------------------------------
1998 1997
----------------------- ---------------------
Average Average
December 31 (In millions) Amount rate (a) Amount rate (a)
- --------------------------------------------------------- ---------------------
GE
Commercial paper (U.S.) $ 2,339 5.29% $ 1,835 5.88%
Payable to banks,
principally non-U.S 465 11.15 348 8.38
Current portion of
long-term debt 50 5.08 1,099 5.85
Other 612 347
----------------------------------------------
3,466 3,629
----------------------------------------------
GECS
Commercial paper
U.S 83,044 5.38 67,355 5.93
Non-U.S 3,953 4.80 3,879 4.18
Current portion of
long-term debt 14,645 5.66 15,101 6.30
Other 11,520 8,939
----------------------------------------------
113,162 95,274
----------------------------------------------
ELIMINATIONS (1,250) (828)
----------------------------------------------
$115,378 $98,075
================================================================================
- --------------------------------------------------------------------------------
LONG-TERM BORROWINGS
----------------------------------------------
1998
Average --------------------
December 31 (In millions) rate (a) Maturities 1998 1997
- --------------------------------------------------------------------------------
GE
Industrial development/
pollution control bonds 3.78% 2003-2027 $ 327 $ 270
Payable to banks,
principally non-U.S 9.56 2000-2006 230 195
Other (b) 124 264
---------------------
681 729
---------------------
GECS
Senior notes 6.07 2000-2055 58,042 44,993
Subordinated notes (c) 7.88 2006-2035 996 996
---------------------
59,038 45,989
---------------------
ELIMINATIONS (56) (115)
---------------------
$59,663 $ 46,603
================================================================================
(a) Based on year-end balances and local currency interest rates, including the
effects of interest rate and currency swaps, if any, directly associated
with the original debt issuance.
(b) 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) 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------
GE $ 50 $ 137 $ 132 $ 33 $ 48
GECS 14,645 13,889 10,925 7,059 4,794
- --------------------------------------------------------------------------------
Confirmed credit lines of $4.0 billion had been extended to GE by 23 banks
at year-end 1998. Substantially all of GE's credit lines are available to GECS
and its affiliates in addition to their own credit lines.
At year-end 1998, GECS and its affiliates held committed lines of credit
aggregating $26.7 billion, including $11.8 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. Amounts drawn by GECS under these lines at December 31,
1998, were not significant. A total of $1.5 billion of GE Capital credit lines
is available for use by GE. 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) 1998 1997
- --------------------------------------------------------------------------------
Short-term $ 72,143 $ 56,961
-----------------------
Long-term (including current portion)
Fixed rate (a) $ 74,226 $ 59,329
Floating rate 25,831 24,973
-----------------------
Total long-term $100,057 $ 84,302
================================================================================
(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, 1998, swap maturities ranged from 1999 to 2048, and average
interest rates for fixed-rate borrowings (including "synthetic" fixed-rate
borrowings) were 6.03% (6.32% at year-end 1997).
<PAGE>
F-36
ANNUAL REPORT PAGE 60
- ---------------------
20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
-----------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
Investment contracts and universal
life benefits $29,266 $28,266
Life insurance benefits and other (a) 16,104 14,356
Unpaid claims and claims adjustment
expenses (b) 19,611 14,654
Unearned premiums 5,715 5,068
Separate accounts (see note 17) 6,563 4,926
-----------------------
$77,259 $67,270
================================================================================
(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 1998
and 1997.
(b) Principally property and casualty reserves; includes amounts for both
reported and incurred-but-not-reported claims, reduced by anticipated
salvage and subrogation recoveries. Estimates of liabilities are reviewed
and updated continually, with changes in estimated losses reflected in
operations.
- --------------------------------------------------------------------------------
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 insurance liability for unpaid claims and claims adjustment expenses
related to policies that may cover environmental, asbestos and Year 2000-related
exposures is based on known facts and an assessment of applicable law and
coverage litigation. Liabilities are recognized for both known and unasserted
claims (including the cost of related litigation) when sufficient information
has been developed to indicate that a claim has been incurred and a range of
potential losses can be reasonably estimated. Developed case law and adequate
claim history do not exist for certain claims, particularly with respect to Year
2000-related exposures, principally due to significant uncertainties as to both
the level of ultimate losses that will occur and what portion, if any, will be
deemed to be insured amounts.
A summary of activity affecting unpaid claims and claims adjustment expenses
follows.
-------------------------------------
(In millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Balance at January 1 -- gross $ 14,654 $ 13,184 $ 12,662
Less reinsurance recoverables (2,246) (1,822) (1,853)
-------------------------------------
Balance at January -- net 12,408 11,362 10,809
Claims and expenses incurred
Current year 6,330 4,494 4,087
Prior years (162) 146 104
Claims and expenses paid
Current year (2,400) (1,780) (1,357)
Prior years (3,692) (2,816) (2,373)
Claim reserves related to
acquired companies 3,476 1,360 309
Other 168 (358) (217)
-------------------------------------
Balance at December 31 -- net 16,128 12,408 11,362
Add reinsurance recoverables 3,483 2,246 1,822
-------------------------------------
Balance at December 31 -- gross $ 19,611 $ 14,654 $ 13,184
================================================================================
Prior-year claims and expenses incurred in the preceding 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) 1998 1997
- --------------------------------------------------------------------------------
Guarantees, principally on municipal
bonds and structured finance issues $ 171,020 $ 144,647
Mortgage insurance risk in force 43,941 46,245
Credit life insurance risk in force 31,018 26,593
Less reinsurance (37,205) (33,528)
--------------------------
$ 208,774 $ 183,957
================================================================================
21 GE ALL OTHER LIABILITIES
This account includes noncurrent compensation and benefit accruals at year-end
1998 and 1997 of $5,594 million and $5,484 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.
<PAGE>
F-37
ANNUAL REPORT PAGE 61
- ---------------------
22 DEFERRED INCOME TAXES
Aggregate deferred tax amounts are summarized below.
------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
GE $ 5,309 $ 4,891
GECS 5,305 4,320
------------------------
10,614 9,211
------------------------
LIABILITIES
GE 5,059 4,576
GECS 14,895 13,286
------------------------
19,954 17,862
------------------------
NET DEFERRED TAX LIABILITY $ 9,340 $ 8,651
================================================================================
Principal components of the net deferred tax balances for GE and GECS are as
follows:
-------------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
GE
Provisions for expenses (a) $(3,809) $(3,367)
Retiree insurance plans (847) (856)
Prepaid pension asset 2,713 2,301
Depreciation 935 955
Other-- net 758 652
-------------------------
(250) (315)
-------------------------
GECS
Financing leases 8,593 7,909
Operating leases 2,419 2,156
Net unrealized gains
on securities 1,369 1,264
Allowance for losses (1,386) (1,372)
Insurance reserves (1,022) (1,000)
AMT credit carryforwards (903) (354)
Other -- net 520 363
-------------------------
9,590 8,966
-------------------------
NET DEFERRED TAX LIABILITY $ 9,340 $ 8,651
================================================================================
(a) 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. Value of the preferred shares
is summarized below.
-----------------------
December 31 (In millions) 1998 1997
- --------------------------------------------------------------------------------
GE Capital $2,300 $2,230
GE Capital affiliate 860 660
================================================================================
Dividend rates on the preferred stock ranged from 3.9% to 5.2% during 1998
and from 3.8% to 5.2% during 1997 and 1996.
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 1998, net assets of regulated GECS affiliates amounted to $25.1
billion, of which $21.9 billion was restricted.
At December 31, 1998 and 1997, the aggregate statutory capital and surplus of
the insurance businesses totaled $14.4 billion and $12.4 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
25 SHARE OWNERS' EQUITY
-----------------------------------
(In millions) 1998 1997 1996
- -------------------------------------------------------------------------------=
COMMON STOCK ISSUED $ 594 $ 594 $ 594
===================================
ACCUMULATED NONOWNER
CHANGES OTHER THAN EARNINGS
Balance at January 1 $ 1,340 $ 615 $ 1,061
Unrealized gains (losses) on
investment securities -- net
of deferred taxes of $430,
$860 and ($204) 795 1,467 (329)
Currency translation
adjustments -- net of deferred
taxes of ($13), ($58) and ($9) 60 (742) (117)
Reclassification adjustments--
net of deferred taxes of ($291) (531) -- --
-----------------------------------
Balance at December 31 $ 1,664 $ 1,340 $ 615
===================================
OTHER CAPITAL
Balance at January 1 $ 4,434 $ 2,554 $ 1,602
Gains on treasury stock
dispositions (a) 2,374 1,880 952
-----------------------------------
Balance at December 31 $ 6,808 $ 4,434 $ 2,554
===================================
RETAINED EARNINGS
Balance at January 1 $ 43,338 $ 38,670 $ 34,528
Net earnings 9,296 8,203 7,280
Dividends (a) (4,081) (3,535) (3,138)
-----------------------------------
Balance at December 31 $ 48,553 $ 43,338 $ 38,670
===================================
COMMON STOCK HELD IN TREASURY
Balance at January 1 $ 15,268 $ 11,308 $ 8,176
Purchases (a) 6,475 6,392 4,842
Dispositions (a) (3,004) (2,432) (1,710)
-----------------------------------
Balance at December 31 $ 18,739 $ 15,268 $ 11,308
================================================================================
(a) Total dividends and other transactions with share owners reduced equity by
$5,178 million, $5,615 million and $5,318 million in 1998, 1997 and 1996,
respectively.
- --------------------------------------------------------------------------------
The GE Board of Directors has authorized repurchase of $17 billion of
common stock under the share repurchase program. This buyback will continue
through the year 2000 at an annual rate of about $2 billion. Funds used for the
share repurchase are expected to be generated largely from operating cash flow.
<PAGE>
F-38
ANNUAL REPORT PAGE 62
- ---------------------
Through year-end 1998, a total of 287 million shares having an aggregate cost of
$13.6 billion had been repurchased under this program and placed into treasury.
Common shares issued and outstanding are summarized in the following table.
- --------------------------------------------------------------------------------
SHARES OF GE COMMON STOCK
------------------------------------------
December 31 (In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Issued 3,714,068 3,714,026 3,714,026
In treasury (442,772) (449,434) (424,942)
------------------------------------------
Outstanding 3,271,296 3,264,592 3,289,084
================================================================================
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 share owners' equity. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates for
the period.
26 OTHER STOCK-RELATED INFORMATION
- --------------------------------------------------------------------------------
Average per share
------------------------------------
Shares
subject Exercise Market
(Shares in thousands) to option price price
- --------------------------------------------------------------------------------
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
Options granted 7,707 79.86 79.86
Options exercised (23,955) 20.76 84.45
Options terminated (2,727) 44.46 --
------------------------------------
Balance at December 31, 1998 119,928 34.76 102.00
================================================================================
(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 1998, there were 1.4 million SARs outstanding at an average
exercise price of $22.14. There were 9.2 million restricted stock shares and
restricted stock units outstanding at year-end 1998.
There were 121.0 million and 92.8 million additional shares available for
grants of options, SARs, restricted stock and restricted stock units at December
31, 1998 and 1997, 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 18,
2008. 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, 1998.
- --------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING
(Shares in thousands)
Outstanding Exercisable
----------------------------- --------------------
Average Average
Exercise Average exercise exercise
price range Shares life (a) price Shares price
- --------------------------------------------------------------------------------
$12 1/8 - 21 9/16 20,690 2.7 $ 17.80 20,690 $ 17.80
$21 5/8 - 31 15/16 61,600 5.5 25.72 47,372 25.16
$36 3/16 - 51 1/2 17,565 7.6 42.65 4,436 41.19
$51 3/4 - 73 12,475 8.8 68.88 75 60.15
$77 1/2 - 96 7/8 7,598 9.7 79.88 22 78.30
----------------------------------------------------
Total 119,928 5.9 34.76 72,595 24.09
================================================================================
At year-end 1997, options with an average exercise price of $21.11 were
exercisable on 72 million shares; at year-end 1996, options with an average
exercise price of $19.58 were exercisable on 81 million shares.
(a) Average contractual life remaining in years.
- --------------------------------------------------------------------------------
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 Statement of Financial Accounting Standards (SFAS)
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows:
- --------------------------------------------------------------------------------
OPTION VALUE INFORMATION (a)
-----------------------------------
(In dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Fair value per option (b) $18.98 $17.81 $9.34
Valuation assumptions
Expected option term (years) 6.2 6.3 6.2
Expected volatility 21.7% 20.0% 20.1%
Expected dividend yield 1.8% 1.5% 2.3%
Risk-free interest rate 4.9% 6.1% 6.6%
================================================================================
(a) Weighted averages of option grants during each period.
(b) Estimated using Black-Scholes option pricing model.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRO FORMA EFFECTS (a)
December 31 (In millions;
per-share amounts in dollars) -----------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Net earnings $9,196 $8,129 $7,235
Earnings per share -- diluted 2.77 2.43 2.15
-- basic 2.81 2.48 2.19
================================================================================
(a) Valuations only of grants made after January 1, 1995; thus, the pro forma
effect increased over the periods presented.
- --------------------------------------------------------------------------------
<PAGE>
F-39
ANNUAL REPORT PAGE 63
- ---------------------
27 SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and
dispositions of principal 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
primarily 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.
Noncash transactions include the 1998 acquisition of Marquette Medical
Systems for 9.4 million shares of GE common stock valued at $829 million and the
1997 exchange transaction described in note 2. Other noncash transactions did
not have a significant effect on the investing or financing activities of GE or
GECS.
Certain supplemental information related to GE and GECS cash flows is shown
below.
<TABLE>
<CAPTION>
---------------------------------
For the years ended December 31 (In millions) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GE
NET PURCHASE OF GE SHARES FOR TREASURY
Open market purchases under share repurchase program $ (3,646) $ (3,492) $ (3,266)
Other purchases (2,829) (2,900) (1,576)
Dispositions (mainly to employee and dividend reinvestment plans) 3,656 3,577 2,519
---------------------------------
$ (2,819) $ (2,815) $ (2,323)
=================================
GECS
FINANCING RECEIVABLES
Increase in loans to customers $(76,142) $(55,689) $(49,890)
Principal collections from customers -- loans 65,573 50,679 49,923
Investment in equipment for financing leases (20,299) (16,420) (14,427)
Principal collections from customers -- financing leases 15,467 13,796 11,158
Net change in credit card receivables (4,705) (4,186) (3,068)
Sales of financing receivables 13,805 9,922 4,026
---------------------------------
$ (6,301) $ (1,898) $ (2,278)
=================================
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance and annuity businesses $(23,897) $(19,274) $(15,925)
Dispositions and maturities of securities by insurance and annuity businesses 20,639 17,280 14,018
Proceeds from principal business dispositions -- 241 --
Other (7,820) (3,893) (4,183)
---------------------------------
$(11,078) $ (5,646) $ (6,090)
=================================
NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $ 5,881 $ 3,502 $ 5,061
Long-term (longer than one year) 33,453 15,566 17,245
Proceeds -- nonrecourse, leveraged lease debt 2,106 1,757 595
---------------------------------
$ 41,440 $ 20,825 $ 22,901
=================================
REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $(25,901) $(21,320) $(23,355)
Long-term (longer than one year) (4,739) (1,150) (1,025)
Principal payments -- nonrecourse, leveraged lease debt (387) (287) (276)
---------------------------------
$(31,027) $(22,757) $(24,656)
=================================
ALL OTHER FINANCING ACTIVITIES
Proceeds from sales of investment contracts $ 5,149 $ 4,717 $ 2,561
Preferred stock issued by GECS affiliates 270 605 155
Redemption of investment contracts (5,533) (4,537) (2,688)
---------------------------------
$ (114) $ 785 $ 28
====================================================================================================================
</TABLE>
<PAGE>
F-40
ANNUAL REPORT PAGE 64
- ---------------------
28 OPERATING SEGMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
-------------------------------- ------------------------ ------------------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $ 10,294 $ 7,799 $ 6,302 $ 292 $ 101 $ 86 $ 10,002 $ 7,698 $ 6,216
Appliances 5,619 5,801 5,586 12 12 5 5,607 5,789 5,581
Industrial Products and Systems 11,222 10,984 10,401 479 491 453 10,743 10,493 9,948
NBC 5,269 5,153 5,232 -- -- -- 5,269 5,153 5,232
Plastics 6,633 6,695 6,509 20 24 22 6,613 6,671 6,487
Power Systems 8,466 7,915 7,643 166 80 67 8,300 7,835 7,576
Technical Products and Services 5,323 4,861 4,700 14 18 23 5,309 4,843 4,677
All Other 264 308 291 -- -- -- 264 308 291
Eliminations (1,367) (1,176) (1,032) (983) (726) (656) (384) (450) (376)
-------------------------------- ------------------------ ------------------------------
Total GE segment revenues 51,723 48,340 45,632 -- -- -- 51,723 48,340 45,632
Corporate items <F1> 507 2,919 1,116 -- -- -- 507 2,919 1,116
GECS net earnings 3,796 3,256 2,817 -- -- -- 3,796 3,256 2,817
-------------------------------- ------------------------ ------------------------------
Total GE 56,026 54,515 49,565 -- -- -- 56,026 54,515 49,565
GECS 48,694 39,931 32,713 -- -- -- 48,694 39,931 32,713
Eliminations (4,251) (3,606) (3,099) -- -- -- (4,251) (3,606) (3,099)
-------------------------------- ------------------------ ------------------------------
CONSOLIDATED REVENUES $100,469 $90,840 $79,179 $ -- $ -- $ -- $100,469 $90,840 $79,179
====================================================================================================================================
<FN>
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.
<F1> Includes revenues of $944 million and $789 million in 1997 and 1996,
respectively, from an appliance distribution affiliate that was
deconsolidated in 1998. Also includes $1,538 million in 1997 from exchanging
preferred stock in Lockheed Martin Corporation for the stock of a newly
formed subsidiary.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS PROPERTY, PLANT AND DEPRECIATION AND
EQUIPMENT ADDITIONS AMORTIZATION (INCLUDING
(INCLUDING EQUIPMENT GOODWILL AND OTHER
LEASED TO OTHERS) INTANGIBLES)
For the years ended For the years ended
At December 31 December 31 December 31
---------------------------------- ------------------------ -----------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $ 8,866 $ 8,895 $ 5,423 $ 480 $ 729 $ 551 $ 398 $ 292 $ 282
Appliances 2,436 2,354 2,399 150 83 168 137 131 123
Industrial Products and Systems 6,466 6,672 6,574 428 487 450 440 408 362
NBC 3,264 3,050 3,007 105 116 176 127 142 121
Plastics 9,813 8,890 9,130 722 618 748 591 494 552
Power Systems 7,253 6,182 6,322 246 215 185 215 199 184
Technical Products and Services 3,858 2,438 2,245 254 189 154 143 137 123
All Other 189 224 239 -- -- -- 52 46 40
---------------------------------- ------------------------ -----------------------
Total GE segments 42,145 38,705 35,339 2,385 2,437 2,432 2,103 1,849 1,787
Investment in GECS 19,727 17,239 14,276 -- -- -- -- -- --
Corporate items and eliminations (a) 12,798 11,482 10,310 158 129 114 189 180 176
---------------------------------- ------------------------ -----------------------
Total GE 74,670 67,426 59,925 2,543 2,566 2,546 2,292 2,029 1,963
GECS 303,297 255,408 227,419 8,110 7,320 5,762 3,568 3,240 2,805
Eliminations (22,032) (18,822) (14,942) -- -- -- -- -- --
---------------------------------- ------------------------ -----------------------
CONSOLIDATED TOTALS $ 355,935 $ 304,012 $ 272,402 $10,653 $9,886 $8,308 $5,860 $5,269 $4,768
====================================================================================================================================
<FN>
Additions to property, plant and equipment include amounts relating to principal
businesses purchased.
(a) Depreciation and amortization includes $64 million of unallocated RCA
goodwill amortization in 1998, 1997 and 1996 that relates to NBC.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
At year=end 1998, GE adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. Prior-period amounts have been restated in
accordance with the requirements of the new standard.
BASIS FOR PRESENTATION. The Company's operating businesses are organized based
on the nature of products and services provided. Certain GE businesses do not
meet the definition of a reportable operating segment and have been aggregated.
The Industrial Products and Systems segment consists of Industrial Systems,
Lighting, Transportation Systems and GE Supply. The Technical Products and
Services segment consists of Medical Systems and Information Services.
Segment accounting policies are the same as policies described in note 1.
<PAGE>
F-41
ANNUAL REPORT PAGE 65
- ---------------------
Details of segment profit by operating segment can be found on page 36 of this
report. A description of operating 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
includes aircraft engine derivatives, reported both in this segment and in Power
Systems, 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, room air conditioners and residential water system
products. 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.
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.
NBC. Principal businesses are the furnishing of U.S. network television services
to more than 200 affiliated stations, production of television programs,
operation of 13 VHF and UHF television broadcasting stations, operation of six
cable/satellite networks around the world, and investment and programming
activities in the Internet, multimedia and cable television.
PLASTICS. 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 SYSTEMS. Power plant products and services, including design,
installation, operation and maintenance services. Markets and competition are
global. Gas turbines are sold separately and as part of packaged power plants
for electric utilities, independent power producers and for industrial
cogeneration and mechanical drive applications. Steam turbine-generators are
sold to electric utilities and, for cogeneration, to industrial and other power
customers. Also includes nuclear reactors and fuel and support services for GE's
new and installed boiling water reactors and aircraft engine derivatives, also
reported in the Aircraft Engines segment, used as industrial power sources.
TECHNICAL PRODUCTS AND SERVICES. Medical imaging systems such as magnetic
resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging and
ultrasound, as well as diagnostic cardiology and patient monitoring devices;
related services, including equipment monitoring and repair, computerized data
management and customer productivity services. Products and services are sold
worldwide to hospitals and medical facilities. Also includes a full range of
computer-based information and data interchange services for both internal and
external use to commercial and industrial customers.
GECS. The operating activities of the GECS segment follow.
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.
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, financing and operating leases and other
services for middle-market customers, including manufacturers, distributors and
end users, for a variety of equipment that includes vehicles, corporate
aircraft, data processing equipment, medical and diagnostic equipment, and
equipment used in construction, manufacturing, office applications, electronics
and telecommunications activities.
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 public and private entities in diverse industries.
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.
Very few of the products financed by GECS are manufactured by GE.
<PAGE>
F-42
ANNUAL REPORT PAGE 66
- ---------------------
29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED)
The table below presents data by geographic region. Operating profit data by
geographic segment have been restated on a basis consistent with operating
segment information presented on page 36.
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
- --------------------------------------------------------------- ---------------------------------- -------------------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
---------------------------------- ---------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 71,799 $ 66,330 $ 58,110 $ 2,608 $ 2,471 $ 2,292 $ 69,191 $ 63,859 $ 55,818
Europe <F1> 21,665 18,166 15,964 837 787 714 20,828 17,379 15,250
Pacific Basin 5,166 4,742 4,343 951 880 796 4,215 3,862 3,547
Other <F2> 6,925 6,420 5,140 690 680 576 6,235 5,740 4,564
Intercompany eliminations (5,086) (4,818) (4,378) (5,086) (4,818) (4,378) -- -- --
---------------------------------- ---------------------------------- -------------------------------
Total $ 100,469 $ 90,840 $ 79,179 $ -- $ -- $ -- $ 100,469 $ 90,840 $ 79,179
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT <F3> ASSETS LONG-LIVED ASSETS <F4>
For the years ended
December 31 At December 31 At December 31
----------------------------- ---------------------------------- -------------------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 11,558 $ 10,249 $ 9,745 $ 227,311 $ 206,655 $ 189,593 $ 18,048 $ 17,074 $ 15,016
Europe 2,393 2,271 1,724 84,518 66,740 55,196 6,334 5,180 4,483
Pacific Basin 431 355 269 18,427 8,881 8,125 1,326 971 881
Other <F2> 810 713 576 25,878 21,926 19,655 10,057 9,119 8,442
Intercompany eliminations (9) (23) 7 (199) (190) (167) (35) (28) (26)
----------------------------- ---------------------------------- -------------------------------
Total $ 15,183 $ 13,565 $12,321 $ 355,935 $ 304,012 $ 272,402 $ 35,730 $ 32,316 $ 28,796
====================================================================================================================================
<FN>
<F1> Includes $944 million and $789 million in 1997 and 1996, respectively, from
an appliance distribution affiliate that was deconsolidated in 1998.
<F2> Includes the Americas other than the United States and operations that
cannot meaningfully be associated with specific geographic areas (for
example, shipping containers used on ocean-going vessels).
<F3> Excludes GECS income taxes of $1,364 million, $1,166 million and $1,231
million in 1998, 1997 and 1996, respectively, which are included in the
measure of segment profit reported on page 36.
<F4> Property, plant and equipment (including equipment leased to others).
- --------------------------------------------------------------------------------
</FN>
</TABLE>
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, 1998 or 1997. 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.
A description of how values are estimated 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.
<PAGE>
F-43
ANNUAL REPORT PAGE 67
- ---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
---------------------------------------- ---------------------------------------
1998 1997
---------------------------------------- ---------------------------------------
Assets (liabilities) Assets (liabilities)
------------------------------- -----------------------------
Estimated Estimated
Carrying fair value Carrying fair value
Notional amount ------------------ Notional amount ------------------
December 31 (In millions) amount (net) High Low amount (net) High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Investment related
Investments and notes receivable $ <F1> $ 1,764 $ 1,810 $ 1,793 $ <F1> $ 1,909 $ 1,915 $ 1,908
Cancelable interest rate swap 1,221 17 1 1 1,421 25 19 19
Borrowings and related instruments
Borrowings<F2><F3> <F1> (4,147) (4,155) (4,155) <F1> (4,358) (4,377) (4,377)
Interest rate swaps 951 -- (60) (60) 531 -- (12) (12)
Recourse obligations for receivables sold 441 (32) (32) (32) 427 (23) (23) (23)
Financial guarantees 2,172 -- -- -- 2,141 -- -- --
Other firm commitments
Currency forwards and options 7,914 72 114 114 6,656 82 270 270
Financing commitments 1,519 -- -- -- 1,794 -- -- --
GECS
Assets
Time sales and loans <F1> 74,616 75,474 74,293 <F1> 62,712 63,105 61,171
Integrated interest rate swaps 14,135 16 (102) (102) 12,323 19 (125) (125)
Purchased options 11,195 146 158 158 1,992 64 39 39
Mortgage-related positions
Mortgage purchase commitments 1,983 -- 15 15 2,082 -- 11 11
Mortgage sale commitments 3,276 -- (9) (9) 2,540 -- (9) (9)
Mortgages held for sale <F1> 4,405 4,457 4,457 <F1> 2,378 2,379 2,379
Options, including "floors" 21,433 91 181 181 30,347 51 141 141
Interest rate swaps and futures 6,662 -- 49 49 3,681 -- 23 23
Other cash financial instruments <F1> 3,205 3,433 3,231 <F1> 2,242 2,592 2,349
Liabilities
Borrowings and related instruments
Borrowings<F2> <F3> <F1> (172,200) (174,492) (174,492) <F1> (141,263) (141,828)(141,828)
Interest rate swaps 46,325 -- (1,449) (1,449) 42,531 -- (250) (250)
Currency swaps 29,645 -- 252 252 23,382 -- (1,249) (1,249)
Currency forwards 23,409 -- (389) (389) 15,550 -- 371 371
Investment contract benefits <F1> (23,893) (23,799) (23,799) <F1> (23,045) (22,885) (22,885)
Insurance -- financial guarantees and credit life 208,774 (3,135) (3,339) (3,446) 183,957 (2,897) (2,992) (3,127)
Credit and liquidity support -- securitizations 21,703 (29) (29) (29) 13,634 (46) (46) (46)
Performance guarantees -- principally
letters of credit 2,684 -- -- -- 2,699 (34) -- (67)
Other 2,888 (1,921) (1,190) (1,190) 3,147 (1,134) (1,282) (1,303)
Other firm commitments
Currency forwards 5,072 -- (52) (52) 1,744 -- 11 11
Currency swaps 915 72 72 72 1,073 192 192 192
Ordinary course of business
lending commitments 9,839 -- (12) (12) 7,891 -- (62) (62)
Unused revolving credit lines
Commercial 6,401 -- -- -- 4,850 -- -- --
Consumer -- principally credit cards 132,475 -- -- -- 134,123 -- -- --
====================================================================================================================================
<FN>
<F1> Not applicable.
<F2> Includes effects of interest rate and currency swaps, which also are listed
separately.
<F3> See note 19.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
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
in local currency with debt denominated in those same currencies. In certain
circumstances, net investment exposures are managed using currency forwards and
currency swaps.
<PAGE>
F-44
ANNUAL REPORT PAGE 68
- ---------------------
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 mortgage
servicing and annuities.
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, 1998 and 1997, this gross market risk amounted to $2.3 billion and
$2.0 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $3.6 billion and $2.9 billion at December
31, 1998 and 1997, 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)
<TABLE>
<CAPTION>
First quarter Second quarter Third quarter Fourth quarter
(Dollar amounts in millions; ------------------ ------------------ ------------------ ------------------
per-share amounts in dollars) 1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings $ 1,891 $ 1,677 $ 2,450 $ 2,162 $ 2,284 $ 2,014 $ 2,671 $ 2,350
Earnings per share -- diluted 0.57 0.50 0.74 0.65 0.69 0.60 0.80 0.70
-- basic 0.58 0.51 0.75 0.66 0.70 0.62 0.82 0.72
SELECTED DATA
GE
Sales of goods and services 11,408 10,522 13,217 12,620 12,075 11,698 14,846 14,112
Gross profit from sales 3,366 2,970 4,216 3,886 3,630 3,368 4,598 2,618
GECS
Total revenues 11,151 9,544 11,801 9,317 12,016 10,182 13,726 10,888
Operating profit 1,252 1,081 1,219 1,138 1,584 1,229 1,105 974
Net earnings 881 754 933 798 1,082 938 900 766
====================================================================================================================================
</TABLE>
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. As a result, with the exception of 1998 diluted earnings per
share, their sum does not equal the total year earnings-per-share amounts for
1998 and 1997.
EXHIBIT 4
March 25, 1999
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, 1998 - 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
EXHIBIT 10(V)
GENERAL ELECTRIC COMPANY
1998 EXECUTIVE OFFICER DEFERRED SALARY PLAN
I. ELIGIBILITY
To maximize the ability of General Electric Company ("Company") to obtain a
federal tax deduction for compensation to be paid to its Executive Officers in
1998, each Executive Officer of the Company who is expected to be paid more than
$1 million in base salary compensation in 1998 shall be eligible to participate
in this Plan.
II. DEFERRAL OF SALARY
1. Each Executive Officer eligible to participate in this Plan
("Participant") shall be given an opportunity to irrevocably elect,
prior to any deferral hereunder:
(a) the portion (minimum of 10%, maximum of 100%) of the
Participant's 1998 base salary to be deferred, and
(b) the form of payout alternative as set forth in Section V.
2. Commencing with base salary earned for January 1998, the Participant's
total base salary elected to be deferred under this Plan will be
deferred in ratable installments through the month of December 1998,
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 MAKE-UP CREDIT
As of December 31, 1998, 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 to make up for the matching Company payment that would otherwise have
been available under the Company's Savings and Security Program. The amount of
such credit shall equal 3.5% of the total 1998 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, 1998, 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.
2., (b) the special one-time matching make-up 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 practicable) 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 practicable) 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,
1998 because of retirement, death or disability, or Participants who
terminate their employment on or after December 31, 2002 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 Management Development and Compensation Committee
of the Board of Directors ("MDCC"), if the Participant terminates
employment prior to December 31, 1998 for any reason, or prior to
December 31, 2002 for any reason other than retirement, death, or
disability, 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 file 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 the MDCC, which shall have full power
and authority on behalf of the Company to administer and interpret the Plan in
its sole discretion. All MDCC 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
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, 1998.
EXHIBIT 10(W)
NON-EMPLOYEE DIRECTOR FEE PLAN
(Formerly the Deferred Compensation Plan For Directors)
(As Amended through November 2, 1998)
I. NON-EMPLOYEE DIRECTOR FEES
A. ESTABLISHMENT AND PAYMENT OF FEES
1. The annual retainer and meeting fees payable to Non-Employee
Directors of the Company (hereafter "Directors") shall be
established from time-to-time by the Board of Directors.
2. The annual retainer fee shall be payable in quarterly
installments, with each installment payable on the last business
day of the calendar quarter to which it applies, or on such
earlier date as is necessary to enable the Company to efficiently
administer the payment of such fees. Quarterly payments shall be
pro rated if Board service commences or terminates during a
calendar quarter. Meeting fees shall be payable upon attendance
at meetings.
B. PAYMENT IN STOCK.
One-half of any portion of the annual retainer fee payable on or after
October 1, 1998, that is not deferred by a Director pursuant to the
provisions of Section II of this Plan, shall be payable in GE common
stock.
II. DEFERRAL OF NON-EMPLOYEE DIRECTOR FEES
A. INTRODUCTION
Directors, on an individual election basis, may defer all or part of
the fees received as a Director of the Company until such time as
service on the Board terminates.
B. PURPOSE OF DEFERRAL ELECTION
To provide Directors with flexibility in the planning of their
personal financial resources.
C. MANNER OF DEFERRAL OF FEES
1. At, or prior to, each election to the Board, and prior to the
right to receive any Board fees 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.
2. An election to defer fees will be irrevocable for the Director's
elected term to the Board of Directors.
3. The deferred fees will be credited to the Director's deferred
fees account as of the date it would otherwise have been payable
(the "Deferral Date").
4. Deferral of fees shall have no effect on any fee-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 fees, the Director must also irrevocably
elect the manner in which such deferred fees shall be accounted for,
as described below, and all fees deferred pursuant to such election
shall be accounted for in such manner until fully paid out.
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 fees
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
fees 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 FEES
Payment of a Director's deferred fees 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 practicable)
following termination of Board service.
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 fees
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 Payout Elections. At the time of each election
to defer Board fees, a Director may elect to have: (a) the
deferred fees 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). Form of Payment Elections. A Director, former
Director, or deceased Director's beneficiary or legal
representative may elect at anytime to have any or all
payouts, or remaining payouts, of the Director's deferred
fee account paid out in cash or in shares of GE common
stock.
(iv). Revised Payout 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 F(2)(a).
b. Determination of Amount of Cash Installment Payments.
(i). The amount of the first cash 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 except that the denominator
shall be reduced by the number of installments which have
been previously paid.
(ii). The amount of cash payable for deferred fees accounted
for as Units based on GE common stock value will be paid, as
described above, based on the number of Units in the
Director's account on the payment date multiplied 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.
c. Determination of Amount of Installment Payments In Shares of
Common Stock.
(i). The amount of the first installment payment payable in
shares of GE common stock shall be a fraction of the value
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 except that the denominator shall be reduced
by the number of installments which have been previously
paid.
(ii). If a payout to be made in shares of GE common stock is
based on deferred fees accounted for as Cash, the number of
shares payable shall be determined by dividing the amount of
cash that would otherwise be payable 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 payment date.
(iii). Except for the final installment payment, only whole
shares shall be payable, and the value of any fractional
share payable shall be retained in the Director's deferred
fee account until the final installment payment, at which
time the value of any fractional share payable shall be paid
in cash, based on the fractional share multiplied 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 fees shall be transferable or
assignable by a participant except by will or laws of descent and
distribution.
H. AMENDMENT OF THE PLAN
This Plan may be amended, suspended or terminated at any time by the
Board of Directors of General Electric Company. 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
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
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" -- termination of Board service at age 65 or older
with at least five years of Board service.
ORIGINAL - 6/15/79
AMENDED 3/5/81, 6/26/87, 9/18/87, 5/25/90, 12/19/97, 11/2/98
<TABLE>
EXHIBIT 12
GENERAL ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
(DOLLARS IN MILLIONS) Years ended December 31
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
GE EXCEPT GECS
Earnings <F1> $ 7,828 $ 8,696 $ 9,677 $ 10,132 $ 12,230
Less: Equity in undistributed earnings of General Electric
Capital Services, Inc. <F2> (1,181) (1,324) (1,836) (1,597) (2,124)
Plus: Interest and other financial
charges included in expense 410 649 595 797 883
One-third of rental expense <F3> 171 174 171 179 189
-------- -------- -------- -------- --------
Adjusted "earnings" $ 7,228 $ 8,195 $ 8,607 $ 9,511 $ 11,178
======== ======== ======== ======== ========
Fixed Charges:
Interest and other financial charges $ 410 $ 649 $ 595 $ 797 $ 883
Interest capitalized 21 13 19 31 38
One-third of rental expense <F3> 171 174 171 179 189
-------- -------- -------- -------- --------
Total fixed charges $ 602 $ 836 $ 785 $ 1,007 $ 1,110
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 12.01 9.80 10.96 9.44 10.07
======== ======== ======== ======== ========
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Earnings <F1> $ 8,831 $ 9,941 $ 11,075 $ 11,419 $ 13,742
Plus: Interest and other financial charges
included in expense 4,994 7,336 7,939 8,445 9,821
One-third of rental expense <F3> 327 349 353 423 486
-------- -------- -------- -------- --------
Adjusted "earnings" $ 14,152 $ 17,626 $ 19,367 $ 20,287 $ 24,049
======== ======== ======== ======== ========
Fixed Charges:
Interest and other financial charges $ 4,994 $ 7,336 $ 7,939 $ 8,445 $ 9,821
Interest capitalized 30 34 60 83 126
One-third of rental expense <F3> 327 349 353 423 486
-------- -------- -------- -------- --------
Total fixed charges $ 5,351 $ 7,719 $ 8,352 $ 8,951 $ 10,433
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.64 2.28 2.32 2.27 2.31
======== ======== ======== ======== ========
<FN>
<F1> Earnings before income taxes and minority interest.
<F2> Earnings after income taxes, net of dividends.
<F3> Considered to be representative of interest factor in rental expense.
</FN>
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
General Electric's principal affiliates as of December 31, 1998, 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.
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
voting securities State or
directly or indirectly country of
owned by incorporation or
registrant <F1> organization
-------------- ------------
<S> <C> <C>
Caribe General Electric Products, Inc. 100 Delaware
GE Aircraft Engines Maintenance Services, Ltd. Wales 100 United Kingdom
GE Appliances Parts LLC 100 Delaware
GE Energy Parts, Inc. 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 92 Italy
RCA Thomson Licensing Corporation 96 Delaware
<FN>
Notes
<F1> With respect to certain companies, shares in names of nominees and
qualifying shares in names of directors are included in above
percentages.
</FN>
</TABLE>
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, 33-39596, 33-39596-01, 33-47085, 33-50639, 33-61029,
33-61029-01, 333-46551 and 333-59671 on Form S-3; Nos. 333-01947 and 333-74417
on Form S-4; and Nos. 2-84145, 33-35922, 333-01953, 333-23767, 333-42695 and
333-74415 on Form S-8 of General Electric Company of our report dated February
12, 1999, relating to the consolidated financial position of General Electric
Company and consolidated affiliates as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, changes in share owners' equity and
cash flows for each of the years in the three-year period ended December 31,
1998, which report appears in the December 31, 1998, annual report on Form 10-K
of General Electric Company.
KPMG LLP
Stamford, Connecticut
March 25, 1999
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., Keith S. Sherin, 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, 1998, 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 12TH day of March, 1999.
John F. Welch, Jr. Keith S. Sherin
Chairman of the Board Senior Vice President -
(Principal Executive Finance (Principal
Officer and Director) Financial Officer)
Philip D. Ameen
Vice President and Comptroller
(Principal Accounting Officer)
(Page 1 of 2)
<PAGE>
Dennis D. Dammerman Eugene F. Murphy
Director Director
Paolo Fresco Sam Nunn
Director Director
Claudio X. Gonzalez John D. Opie
Director Director
Kenneth G. Langone Roger S. Penske
Director Director
Andrew C. Sigler
Director
Douglas A. Warner III
Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the period ended December 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,317
<SECURITIES> 78,717
<RECEIVABLES> 5,447
<ALLOWANCES> 303
<INVENTORY> 6,049
<CURRENT-ASSETS> 0<F1>
<PP&E> 61,100
<DEPRECIATION> 25,370
<TOTAL-ASSETS> 355,935
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 59,663
0
0
<COMMON> 594
<OTHER-SE> 38,286
<TOTAL-LIABILITY-AND-EQUITY> 355,935
<SALES> 43,749
<TOTAL-REVENUES> 58,687<F2>
<CGS> 31,772
<TOTAL-COSTS> 42,280<F3>
<OTHER-EXPENSES> 23,477
<LOSS-PROVISION> 70
<INTEREST-EXPENSE> 9,753
<INCOME-PRETAX> 13,477
<INCOME-TAX> 4,181
<INCOME-CONTINUING> 9,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,296
<EPS-PRIMARY> 2.84<F4>
<EPS-DILUTED> 2.80<F5>
<FN>
<F1>Not applicable to consolidated GE.
<F2>Sales of goods ($43,749) and services ($14,938).
<F3>Cost of goods ($31,772) and services ($10,508) sold.
<F4> Represents basic earnings per share in accordance with SFAS No. 128,
Earnings Per Share.
<F5> Represents diluted earnings per share in accordance with SFAS No. 128,
Earnings Per Share.
</FN>
</TABLE>
